<PAGE>
FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-26589, eff. 4/12/89)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended October 31, 1997
----------------------------------------------------
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------------------ -----------
Commission File Number: 0-7928
--------------------------------------------
COMTECH TELECOMMUNICATIONS CORP.
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2139466
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
105 Baylis Road, Melville, New York 11747
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 777-8900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(X) Yes ( ) No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDING DURING
THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
( ) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.10 Per Share - 2,650,404 shares outstanding as of
12/11/97.
- --------------------------------------------------------------------------------
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
--------------------------------
INDEX
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Page
No.
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PART I FINANCIAL INFORMATION
Consolidated Balance Sheets - 3
October 31, 1997 (unaudited) and
July 31, 1997
Consolidated Statements of Operations - 4
Three Months Ended October 31, 1997
and 1996 (unaudited)
Consolidated Statements of Cash Flows - 5
Three Months Ended October 31, 1997 and 1996
(unaudited)
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II OTHER INFORMATION 10
Exhibit 11.0 Computation of Earnings Per
Common Share 11
Signature Page 12
2
<PAGE>
PART I
------
FINANCIAL INFORMATION
---------------------
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
October 31, 1997 July 31, 1997
----------------- --------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 946,000 $ 1,274,000
Restricted cash 57,000 90,000
Accounts receivable, less allowance for doubtful
accounts of $95,000 at October 31, 1997
and $102,000 at July 31, 1997 5,741,000 5,551,000
Inventories, net 7,780,000 6,556,000
Prepaid expenses and other current assets 214,000 231,000
------------ ------------
Total current assets 14,738,000 13,702,000
------------ ------------
Property, plant and equipment, net 4,061,000 3,898,000
Other assets 351,000 360,000
------------ ------------
Total assets $ 19,150,000 $ 17,960,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current installments of long-term debt (including
payable to related party of $384,000 at October 31,
1997 and $386,000 at July 31, 1997) $ 747,000 $ 606,000
Notes Payable 395,000 -
Accounts payable 3,345,000 2,865,000
Accrued expenses and other current liabilities 2,346,000 2,301,000
------------ ------------
Total current liabilities 6,833,000 5,772,000
------------ ------------
Long-term debt, less current installments
(including payable to related party of $1,035,000
at October 31, 1997 and $1,126,000 at July 31,
1997) 1,318,000 1,310,000
------------ ------------
Total liabilities 8,151,000 7,082,000
------------ ------------
Stockholders' equity:
Preferred stock, par value $.10 per share; shares
authorized and unissued 2,000,000 - -
Common stock, par value $.10 per share; authorized
10,000,000 shares; issued and outstanding 2,650,404
shares at October 31, 1997 and July 31, 1997 265,000 265,000
Additional paid-in capital 22,127,000 22,127,000
Accumulated deficit (11,011,000) (11,115,000)
------------ ------------
Less:
Treasury stock (55,000 shares at October 31, 1997 and
July 31, 1997) (184,000) (184,000)
Deferred compensation expense (198,000) (215,000)
------------ ------------
10,999,000 10,878,000
------------ ------------
Total liabilities and stockholders' equity $ 19,150,000 $ 17,960,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Three Months Ended
October 31,
(Unaudited)
----------------------
1997 1996
---------- ----------
Net sales $5,934,000 $5,188,000
---------- ----------
Operating costs and expenses:
Cost of sales 4,040,000 3,807,000
Selling, general and administrative 1,428,000 1,071,000
Research and development 268,000 229,000
---------- ----------
Total operating costs and expenses 5,736,000 5,107,000
---------- ----------
Operating income 198,000 81,000
Other (expenses) income:
Interest expense (78,000) (76,000)
Interest income 6,000 9,000
Other income 3,000 72,000
---------- ----------
Income before provision for income taxes 129,000 86,000
Provision for income taxes 25,000 5,000
---------- ----------
Net income $ 104,000 $ 81,000
========== ==========
Earnings per share $.04 $.03
========== ==========
Weighted average number of common
and common equivalent shares
outstanding 2,672,907 2,622,384
========== ==========
See accompanying notes to consolidated financial statements
4
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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------
(unaudited)
<S> <C> <C>
1997 1996
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 104,000 $ 81,000
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Gain on sale of property - (72,000)
Depreciation and amortization 286,000 259,000
Amortization of deferred compensation 17,000 (62,000)
Changes in assets and liabilities:
Accounts receivable (190,000) (858,000)
Inventories (1,224,000) (454,000)
Prepaid expenses and other current assets 17,000 62,000
Other assets (5,000) (2,000)
Accounts payable 480,000 393,000
Accrued expenses and other current liabilities 44,000 (38,000)
----------- ----------
Net cash used in operating activities (471,000) (691,000)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (35,000) (85,000)
-----------
Net cash used in investing activities (35,000) (85,000)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 395,000 -
Principal payments on long-term debt (250,000) (162,000)
Exercise of stock options - 65,000
----------- ----------
Net cash provided by financing activities 145,000 (97,000)
Net decrease in cash and cash equivalents (361,000) (873,000)
Cash and cash equivalents at beginning of period 1,364,000 2,060,000
----------- ----------
Cash and cash equivalents at end of period $ 1,003,000 $1,187,000
=========== ==========
Supplemental cash flow disclosure:
- ----------------------------------
Cash paid during the period for:
Interest $ 78,000 $ 76,000
Income taxes 25,000 5,000
</TABLE>
Non cash items:
- --------------
In the first quarter of fiscal 1998, the Company entered into new capital lease
agreements in the amount of $400,000. In the first quarter of fiscal 1997, the
Company sold a storage facility for approximately $127,000. The cash for this
sale was received in a subsequent period.
See accompanying notes to consolidated financial statements.
5
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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) General
The accompanying consolidated financial statements for the three months
ended October 31, 1997 and 1996 are unaudited. In the opinion of management, the
information furnished reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
unaudited interim periods. The results of operations for the three months ended
October 31, 1997 are not necessarily indicative of the results of operations to
be expected for the full year.
(2) Accounts Receivable
-------------------
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
October 31, 1997 July 31, 1997
---------------- -------------
<S> <C> <C>
Accounts receivable from commercial customers $5,103,000 $4,416,000
Unbilled receivables (including retainages) on
contracts-in-progress 233,000 384,000
Amounts receivable from the United States government
and its agencies 500,000 853,000
---------- ----------
5,836,000 5,653,000
Less allowance for doubtful accounts 95,000 102,000
---------- ----------
Accounts receivable, net $5,741,000 $5,551,000
========== ==========
</TABLE>
(3) Inventories
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, 1997 July 31, 1997
---------------- -------------
<S> <C> <C>
Raw materials and components $3,332,000 $2,276,000
Work-in-process 6,297,000 6,025,000
---------- ----------
9,629,000 8,301,000
Less:
Progress payments 777,000 789,000
Inventory reserves 1,072,000 956,000
---------- ----------
Inventories - net $7,780,000 $6,556,000
========== ==========
</TABLE>
(4) Accrued Expenses and Other Current Liabilities
----------------------------------------------
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
October 31, 1997 July 31, 1997
---------------- -------------
<S> <C> <C>
Customer advances and deposits $ 727,000 $ 406,000
Accrued wages and benefits 828,000 937,000
Accrued commissions 367,000 413,000
Other 424,000 545,000
---------- ----------
$2,346,000 $2,301,000
========== ==========
</TABLE>
6
<PAGE>
(5) Long-Term Debt
--------------
Long-term debt consists of the following:
October 31, 1997 July 31, 1997
---------------- -------------
Obligations under capital leases $2,065,000 $1,916,000
Less current installments 747,000 606,000
---------- ----------
$1,318,000 $1,310,000
========== ==========
(6) Earnings Per Share
------------------
Earnings per share are based on the weighted average number of common and
common equivalent shares (if dilutive) outstanding during each year.
7
<PAGE>
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
---------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Forward-Looking Statements
--------------------------
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation, information appearing under Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Factors set forth in the Company's Annual Report on Form 10-K, filed
October 29, 1997, or in the Company's other Securities and Exchange Commission
filings, could affect the Company's actual results and could cause the Company's
actual results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company in this Quarterly Report on
Form 10-Q.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31,
- ------------------------------------------------------------------------------
1997 AND OCTOBER 31, 1996
- -------------------------
Net Sales. Net sales were $5,934,000 and $5,188,000 for the three months ended
October 31, 1997 and 1996, respectively, representing an increase of 14.4%.
This increase was due primarily to a higher level of sales of products at
Comtech PST Corp., partially offset by results at Comtech Systems, Inc.
Gross Margin. Gross profit was $1,894,000 or 31.9% of net sales for the three
months ended October 31, 1997 compared to $1,381,000 or 26.6% of net sales for
the same period in fiscal 1997. Higher gross profits in the fiscal 1998 period
were due primarily to the higher sales volume, and higher gross profit margins,
as a percentage of sales, at Comtech PST Corp. and Comtech Communications Corp.
Selling, General and Administrative. Selling, general and administrative
expenses were $1,428,000 or 24.1% of net sales for the three months ended
October 31, 1997 compared to $1,071,000 or 20.6% of net sales for the same
period in fiscal 1997. The increased expense was partially due to a higher
level of expenses required to support the increased sales volume. The fiscal
1997 period reflected a reduction to administrative expenses that resulted from
the forfeiture of certain benefits by a former employee.
Research and Development. Research and development expenses were $268,000 and
$229,000 for the three months ended October 31, 1997 and 1996, respectively,
representing a $39,000, or 17.0% increase. This increase was due primarily to
expenses for general product improvements, and expanded product development at
Comtech Communications Corp.
Results from Operations. As a result of the foregoing factors, the Company had
operating earnings of $198,000 for the three months ended October 31, 1997
compared to operating earnings of $81,000 for the comparable prior year period.
Interest Expense. Interest expense was $78,000 and $76,000 for the three months
ended October 31, 1997 and 1996, respectively. Interest expense for both
periods was attributable largely to interest associated with the Company's
capital lease obligations.
Interest Income. Interest income was $6,000 and $9,000 for the three months
ended October 31, 1997 and 1996, respectively. This decrease was due primarily
to the decrease in the amount of cash available to invest in the fiscal 1998
period.
8
<PAGE>
Other Income. Other income was $3,000 and $72,000 for the three months ended
October 31, 1997 and 1996, respectively. In the fiscal 1998 period, this
amount was the proceeds from the sale of fully depreciated equipment. In the
fiscal 1997 period this was the result of a gain from the sale of a storage
facility.
Provision for Income Taxes. The provision for income taxes was $25,000 and
$5,000 for the three months ended October 31, 1997 and 1996, respectively, which
principally relates to state income taxes. The Company files on a consolidated
basis for federal income tax purposes and is not expected to incur federal taxes
for these periods due to the previous losses incurred. The Company believes
its tax benefits are subject to a 100% valuation allowance due to earnings
fluctuations inherent in the Company's operations and the potential limitations
on utilization of loss and credit carryforwards pursuant to Sections 382 and 383
of the Internal Revenue Code of 1986.
LIQUITY AND CAPITAL RESOURCES
- -----------------------------
For the three month period ended October 31, 1997, the Company's cash and cash
equivalent position decreased by $361,000 from $1,364,000 at July 31, 1997 to
$1,003,000 at October 31, 1997. Operating activities used $471,000 of cash,
investing activities used $35,000 of cash and financing activities provided
$145,000 of cash.
The increase in accounts receivable of $190,000 was primarily due to the timing
of the shipments. The allowance for doubtful accounts decreased by $7,000 due
to the write off of a receivable deemed to be uncollectible. The Company
reviews its allowance for doubtful accounts periodically and believes that it is
sufficient based on past experience and the Company's credit standards.
Generally, foreign customers are required to secure their obligations by letter
of credit.
Inventory increased by $1,224,000, primarily due to the timing of material
purchases. The Company generally operates on a job-order cost basis, that is,
costs are incurred as work-in-process inventory for specific contracts or "jobs"
and, accordingly, inventory levels will vary as a function of the Company's
order backlog. The Company does have some product lines which require a more
competitive delivery response to customers' requirements and require the Company
to provide for a level of "off-the-shelf" equipment. The only other general
inventory that the Company maintains is for basic components which are common
for most of its products. Inventory reserves are reviewed on an ongoing basis
and adjustments are made as needed.
Accounts payable increased by $480,000 primarily due to the increase in
inventory purchases for the period. The Company purchased property plant and
equipment of $435,000 of which approximately $400,000 was financed by capital
leases. Long term debt increased by $150,000. This was the net result of the
addition of $400,000 from the aforementioned capital equipment purchases, offset
by the payments of $250,000 made on existing capital leases.
Notes payable was $395,000 at October 31, 1997 which was the net amount of
borrowings outstanding on the Company's line of credit under the Working Capital
Guarantee Program of the Export-Import Bank of the United States. This program,
which is administered by Republic National Bank of New York, provides the lender
a 90% guarantee of qualifying loans of up to $1,000,000, made to the Company for
export related contracts. This is a component of the total secured credit
facility of $5,000,000 from Republic National Bank of New York. The line bears
interest on borrowings of 1/2% over the Bank's Reference Rate. The credit
facility, which is for a one year period, is expiring on December 31, 1997. The
Company is negotiating with the bank and expects to renew the facility for
another year.
The Company believes that its current cash position, funds generated from
operations and funds available from the credit facility, collectively, would be
adequate to meet the Company's foreseeable cash requirements.
9
<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 11.0
The following exhibit is annexed hereto:
Computation of Earnings per Common Share - Page 11
10
<PAGE>
Exhibit 11.0
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
-----------------------------------------------
(Unaudited)
Three Months Ended
October 31
----------
1997 1996
---------- ----------
Net earnings $ 104,000 $ 81,000
- ------------ ========== ==========
Computation of weighted average
number of common and common equivalent
shares outstanding during the period:
Weighted average number of
common shares 2,650,404 2,637,384
Weighted average shares assumed to be
issued upon exercise of common
stock option 77,503 ---
Less Treasury Stock (55,000) (15,000)
---------- ----------
Weighted average number of common
and common equivalent shares
outstanding during the period 2,672,907 2,622,384
========== ==========
Earnings per share: $.04 $ .03
- ------------------- ========== ==========
11
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMTECH TELECOMMUNICATIONS CORP.
--------------------------------
(Registrant)
Date: December 12, 1997 By:
_________________________
Fred Kornberg
Chairman of the Board
Chief Executive Officer
and President
Date: December 12, 1997 By:
_________________________
J. Preston Windus, Jr.
Vice President, Chief Financial
Officer and Secretary
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
Consolidated Financial Statements Form 10Q - 10/31/97 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 1,003
<SECURITIES> 0
<RECEIVABLES> 5,836
<ALLOWANCES> 95
<INVENTORY> 7,780
<CURRENT-ASSETS> 14,738
<PP&E> 15,354
<DEPRECIATION> 11,293
<TOTAL-ASSETS> 19,150
<CURRENT-LIABILITIES> 6,833
<BONDS> 0
0
0
<COMMON> 265
<OTHER-SE> 10,734
<TOTAL-LIABILITY-AND-EQUITY> 19,150
<SALES> 5,934
<TOTAL-REVENUES> 5,934
<CGS> 4,040
<TOTAL-COSTS> 5,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> 129
<INCOME-TAX> 25
<INCOME-CONTINUING> 104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
