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 January 31, 2000
-----------------------------------------------------
( ) 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
incorporation /organization) Number)
105 Baylis Road, Melville, New York 11747
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(631) 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 - 7,201,866 shares outstanding as of
March 13, 2000.
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
INDEX
Page
No.
---
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets - 2
January 31, 2000 (unaudited) and
July 31, 1999
Consolidated Statements of Operations - 3
Three Months and Six Months Ended January 31, 2000
and 1999 (unaudited)
Consolidated Statements of Cash Flows - 4
Six Months Ended January 31, 2000 and 1999
(unaudited)
Notes to Consolidated Financial Statements 5 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II OTHER INFORMATION 14
Signature Page 15
<PAGE>
PART I
FINANCIAL INFORMATION
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,2000 July 31, 1999
--------------- -------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 3,902,000 $ 5,896,000
Accounts receivable, less allowance for doubtful
accounts of $149,000 at January 31, 2000 and $145,000
at July 31, 1999 8,535,000 5,152,000
Inventories, net 8,984,000 7,879,000
Prepaid expenses and other current assets 794,000 138,000
Deferred tax asset-current 1,081,000 1,658,000
Net assets of discontinued operations 183,000 --
------------ ------------
Total current assets 23,479,000 20,723,000
Property, plant and equipment, net 4,336,000 4,310,000
Intangible assets, net of amortization 1,576,000 1,623,000
Other assets 238,000 274,000
Deferred tax asset-non current 2,917,000 2,917,000
------------ ------------
Total assets $ 32,546,000 $ 29,847,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current installments of long-term debt (including
payable to
related party of $331,000 at January 31, 2000 and $316,000
at July 31, 1999) $ 540,000 $ 605,000
Accounts payable 4,450,000 3,763,000
Accrued expenses and other current liabilities 6,476,000 6,026,000
Net liabilities of discontinued operations -- 137,000
------------ ------------
Total current liabilities 11,466,000 10,531,000
Long-term debt, less current installments
(including payable to related party of $332,000
at January 31, 2000 and $501,000 at July 31,1999) 702,000 959,000
Other long-term liabilities 421,000 --
------------ ------------
Total liabilities 12,589,000 11,490,000
------------ ------------
Stockholders' equity:
Preferred stock, par value $.10 per share; shares
authorized and unissued 2,000,000 --
Common stock, par value $.10 per share; authorized 30,000,000 shares
at January 31, 2000 and 15,000,000 shares at July 31, 1999;
issued 4,591,193 shares at January 31, 2000 and 4,471,368
shares at July 31,1999 459,000 447,000
Additional paid-in capital 24,104,000 23,801,000
Accumulated deficit (3,549,000) (4,746,000)
------------ ------------
21,014,000 19,502,000
Less:
Treasury stock (82,500 shares at January 31, 2000 and
July 31,1999) (184,000) (184,000)
Deferred compensation expense (873,000) (961,000)
------------ ------------
19,957,000 18,357,000
Total liabilities and stockholders' equity
Commitments and contingencies $ 32,546,000 $ 29,847,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
January 31, January 31,
(unaudited) (unaudited)
----------- -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 13,717,000 $ 9,057,000 $ 25,464,000 $ 17,792,000
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of sales 9,576,000 6,375,000 17,982,000 12,383,000
Selling, general and administrative 2,516,000 1,478,000 4,462,000 3,118,000
Research and development 581,000 502,000 1,111,000 980,000
------------ ------------ ------------ ------------
Total operating costs and expenses 12,673,000 8,355,000 23,555,000 16,481,000
------------ ------------ ------------ ------------
Operating income from continuing
operations 1,044,000 702,000 1,909,000 1,311,000
Other (expense) income:
Interest expense (34,000) (55,000) (71,000) (107,000)
Interest income 21,000 15,000 53,000 34,000
Other income -- -- -- 2,000
------------ ------------ ------------ ------------
Income from continuing operations
before provision (benefit) for
income taxes 1,031,000 662,000 1,891,000 1,240,000
Provision (benefit) for income taxes 369,000 (1,298,000) 694,000 (1,205,000)
------------ ------------ ------------ ------------
Income from continuing operations 662,000 1,960,000 1,197,000 2,445,000
Loss from operations of discontinued
segment (net of applicable income tax) -- (186,000) -- (277,000)
------------ ------------ ------------ ------------
Net income $ 662,000 $ 1,774,000 $ 1,197,000 $ 2,168,000
============ ============ ============ ============
Basic income (loss) per share:
Income from continuing operations $ 0.15 $ 0.48 $ 0.27 $ 0.61
Loss from operations of discontinued
segment -- (0.05) -- (0.07)
------------ ------------ ------------ ------------
Basic income per share $ 0.15 $ 0.43 $ 0.27 $ 0.54
============ ============ ============ ============
Diluted income (loss) per share:
Income from continuing operations $ 0.13 $ 0.44 $ 0.23 $ 0.56
Loss from operations of discontinued
segment -- (0.04) -- (0.06)
------------ ------------ ------------ ------------
Diluted income per share $ 0.13 $ 0.40 $ 0.23 $ 0.50
============ ============ ============ ============
Weighted average number of common
shares outstanding - basic computation 4,478,000 4,082,000 4,438,000 4,004,000
Potential dilutive common shares 736,000 395,000 682,000 368,000
------------ ------------ ------------ ------------
Weighted average number of common and
common equivalent shares outstanding
assuming dilution - diluted computation 5,214,000 4,477,000 5,120,000 4,372,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
January 31,
-----------
(unaudited)
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income: $ 1,197,000 $ 2,168,000
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Loss from discontinued operations -- 277,000
Depreciation and amortization 817,000 687,000
Deferred income taxes 577,000 (1,277,000)
Provision for bad debt 4,000 111,000
Changes in assets and liabilities:
Accounts receivable (3,387,000) (1,678,000)
Inventories (1,105,000) (227,000)
Prepaid expenses and other current assets (656,000) 46,000
Other assets 2,000 (37,000)
Accounts payable 687,000 1,094,000
Accrued expenses and other current liabilities 450,000 523,000
Other liabilities 421,000 --
----------- -----------
Net cash (used in) provided by continuing
operations (993,000) 1,687,000
Net cash used in discontinued operations (320,000) (271,000)
----------- -----------
Net cash (used in) provided by operating activities (1,313,000) 1,416,000
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (674,000) (481,000)
Payment for business acquisition less net cash received -- (173,000)
----------- -----------
Net cash used in investing activities (674,000) (654,000)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit facility 1,000,000 --
Repayment of borrowings under line of credit facility (1,000,000) --
Principal payments on long-term debt (322,000) (418,000)
Proceeds from exercise of stock options 315,000 12,000
----------- -----------
Net cash used in financing activities (7,000) (406,000)
----------- -----------
Net (decrease) increase in cash and cash equivalents (1,994,000) 356,000
Cash and cash equivalents at beginning of period 5,896,000 2,724,000
----------- -----------
Cash and cash equivalents at end of period $ 3,902,000 $ 3,080,000
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest $ 71,000 $ 107,000
Income taxes $ 187,000 $ 143,000
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General
The accompanying consolidated financial statements for the six months and
three months ended January 31, 2000 and 1999 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 such
periods are not necessarily indicative of the results of operations to be
expected for the full year.
These financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the fiscal year ended July
31, 1999 and the notes thereto contained in the Company's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on October 29, 1999.
(2) Reclassifications
Certain balances in the prior fiscal quarter have been reclassified to
conform to the current fiscal quarter and fiscal year end presentation.
(3) Comprehensive Income
The Company's operations did not give rise to items includible in
comprehensive income, which were not already included in net income.
Accordingly, the Company's comprehensive income is the same as its net income
for all periods presented.
(4) Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
January 31, 2000 July 31, 1999
---------------- -------------
<S> <C> <C>
Accounts receivable from commercial customers $7,652,000 $3,924,000
Unbilled receivables (including retainages) on
contracts-in-progress 529,000 1,154,000
Amounts receivable from the United States government
and its agencies 503,000 219,000
---------- ----------
8,684,000 5,297,000
Less allowance for doubtful accounts 149,000 145,000
---------- ----------
Accounts receivable, net $8,535,000 $5,152,000
========== ==========
</TABLE>
(5) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31, 2000 July 31, 1999
---------------- -------------
<S> <C> <C>
Raw materials and components $3,844,000 $3,553,000
Work-in-process 6,858,000 5,798,000
---------- ----------
10,702,000 9,351,000
Less:
Progress payments 728,000 302,000
Inventory reserves 990,000 1,170,000
---------- ----------
Inventories-net $8,984,000 $7,879,000
========== ==========
</TABLE>
5
<PAGE>
(6) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
January 31, 2000 July 31, 1999
---------------- -------------
<S> <C> <C>
Customer advances and deposits $2,282,000 $2,798,000
Accrued wages and benefits 1,603,000 1,603,000
Accrued commissions 1,644,000 915,000
Other 947,000 710,000
---------- ----------
$6,476,000 $6,026,000
========== ==========
</TABLE>
(7) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, 2000 July 31, 1999
---------------- -------------
<S> <C> <C>
Obligations under capital leases $1,242,000 $1,564,000
Less current installments 540,000 605,000
---------- ----------
$ 702,000 $ 959,000
========== ==========
</TABLE>
(8) Other Long-Term Liabilities
Other long-term liabilities are for deferred revenue related to an
extended warranty.
(9) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(10) Earnings Per Share
The Company calculates earnings per share ("EPS") in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". Basic EPS is computed based on the weighted average number of shares
outstanding. Diluted EPS reflects the maximum dilution from potential common
stock issuable pursuant to the exercise of stock options and warrants, if
dilutive, outstanding during each period. All share and per share amounts have
been restated to reflect a three-for-two stock split effective July 30, 1999.
(11) Subsequent Event
In February and March 2000, the Company sold an aggregate of approximately
2.6 million shares of its common stock in a public offering resulting in net
proceeds to the Company of approximately $42.6 million.
(12) Segment and Principal Customer Information
The Company adopted SFAS No. 131,"Disclosures about Segments of an
Enterprise and Related Information." Reportable operating segments are
determined based on the Company's management approach. The management approach,
as defined by SFAS No. 131, is based on the way that the chief operating
decision-maker organizes the segments within an enterprise for making operating
decisions and assessing performance. While the Company's results of operations
are primarily reviewed on a consolidated basis, the chief operating
decision-maker also manages the enterprise in four segments:
(I)Telecommunications Transmission, (II) RF Microwave Amplifiers, (III) Mobile
Data Communications Services and (IV) Wireless Local Loop, which has been
discontinued. Telecommunications Transmission products include modems, frequency
6
<PAGE>
converters, satellite VSAT transceivers and antennas and over-the-horizon
microwave communications products and systems. RF Microwave Amplifier products
include high-power amplifier products that use the microwave and radio frequency
spectrums. Mobile Data Communications Services include two-way messaging links
between mobile platforms or remote sites and user headquarters using satellite,
terrestrial microwave or Internet links. Corporate assets consist principally of
cash, deferred tax assets and intercompany receivables. Corporate losses result
from such corporate expenses as legal, accounting and executive. Sales between
segments were negligible. Eliminations consist of intercompany balances.
Three months ended
January 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Eliminations Total
------------ ---------- -------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 10,440 $ 2,635 $ 642 $ -- $ 13,717
Operating income (loss) 1,917 (121) (137) (615) 1,044
Interest income -- -- -- 21 21
Interest expense 8 25 1 -- 34
Depreciation and
amortization 135 185 34 45 399
Expenditures for
long-lived assets 350 40 75 -- 465
Total assets 12,609 7,237 4,052 12,405 (3,757) 32,546
</TABLE>
Three months ended
January 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Eliminations Total
------------ ---------- -------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 5,073 $ 3,919 $ 65 $ -- $ 9,057
Operating income
(loss) 405 710 (66) (347) 702
Interest income 5 1 -- 9 15
Interest expense 10 42 3 -- 55
Depreciation and
amortization 121 190 15 8 334
Expenditures for
long-lived assets 120 96 -- 13 229
Total assets 9,516 8,972 2,718 8,637 (4,334) 25,509
</TABLE>
7
<PAGE>
Six months ended
January 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Eliminations Total
------------ ---------- -------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 19,893 $ 4,784 $ 787 $ -- $25,464
Operating income
(loss) 3,387 (181) (218) (1,079) 1,909
Interest income -- -- -- 53 53
Interest expense 16 53 2 -- 71
Depreciation and
amortization 289 370 69 89 817
Expenditures for
long-lived assets 443 94 132 5 674
Total assets 12,609 7,237 4,052 12,405 (3,757) 32,546
</TABLE>
Six months ended
January 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Eliminations Total
------------ ---------- -------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 9,716 $ 7,984 $ 92 $ -- $17,792
Operating income
(loss) 885 1,304 (122) (756) 1,311
Interest income 5 1 -- 28 34
Interest expense 20 84 3 -- 107
Depreciation and
amortization 250 407 15 15 687
Expenditures for
long-lived assets 247 221 -- 13 481
Total assets 9,516 8,972 2,718 8,637 (4,334) 25,509
</TABLE>
(13) Acquisitions
On January 21, 2000, the Company entered into an agreement to acquire
certain assets (including accounts receivable, inventory and fixed assets) and
assume certain liabilities of Hill Engineering Inc. ("Hill") in exchange for
50,000 shares of the Company's common stock. Such shares will be issued and
placed in escrow in late March 2000 and will be released to the sellers as
follows: (i) 30,000 shares on January 21, 2001 assuming the resolution of
certain pending claims; (ii) 10,000 shares on January 31, 2001 assuming Hill
meets certain profit goals; and (iii) 10,000 shares on January 31, 2002 also
assuming Hill meets certain profit goals. To the extent that Hill does not meet
cumulative profit goals by January 31, 2005, the 20,000 escrow shares will be
returned to the Company. The acquisition will be accounted for as a purchase.
The Company will record the value of the 30,000 shares of common stock as the
initial purchase price of Hill upon the completion of a valuation of the shares
by an independent investment banker, which is currently estimated to be
completed in late March 2000. Such valuation is expected to result in a purchase
price of less than $500,000. The remaining 20,000 shares will be recorded at
fair value on the date when the profit goals are met. The accompanying
consolidated financial statements do not reflect this acquisition as the fair
value of the assets and liabilities acquired and the operations of Hill were not
material to the financial position of the Company as of January 31, 2000 or the
quarter then ended. Pro forma results of operations were not provided as their
effect on the consolidated operations were also not material.
8
<PAGE>
(14) 2000 Stock Incentive Plan
At the annual Stockholders' meeting held on December 14, 1999, the
stockholders approved the Company's 2000 Stock Incentive Plan. This plan
provides the issuance of up to 500,000 shares of the Company's common stock
based on certain criteria as defined in the plan.
9
<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 believed to be 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, 1999, 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 JANUARY 31,
2000 AND JANUARY 31, 1999
Net Sales Consolidated net sales were $13.7 million and $9.1 million for the
three months ended January 31, 2000 and 1999, respectively, representing an
increase of $4.6 million or 51.5%. This increase was primarily due to increased
sales by our telecommunications transmission segment of over-the-horizon
microwave equipment principally to one customer, a major U.S. prime contractor,
partly offset by lower sales at our RF microwave amplifier segment, primarily
due to delays in receipt of expected follow-on orders. International sales
increased by approximately $3.8 million or 70.5%, representing 67.6% and 60.0%
of total net sales for the three months ended January 31, 2000 and 1999,
respectively. Domestic sales increased by $1.4 million or 63.1%, representing
25.5% and 23.7% of total net sales for the three months ended January 31, 2000
and 1999, respectively. U.S. government sales decreased by $526,000 or 35.7%,
representing 6.9% and 16.3% of total net sales for the three months ended
January 31, 2000 and 1999, respectively.
Gross Profit Gross profit was $4.1 million and $2.7 million for the three
months ended January 31, 2000 and 1999, respectively, representing an increase
of $1.5 million or 54.4%. This increase was due primarily to the increase in
sales volume. Gross margin, as a percentage of net sales, was 30.2% and 29.6% in
the three months ended January 31, 2000 and 1999, respectively. The higher gross
margin in the 2000 period was due primarily to the differences in the product
mix as compared to the prior year period.
Selling, General and Administrative Selling, general and administrative expenses
were $2.5 million and $1.5 million for the three months ended January 31, 2000
and 1999, respectively, representing an increase of $1.0 million or 70.2%. This
increase was due primarily to the additional expenses including additional
personnel and sales commissions required to support the increased sales volume
and also increases in amortization of deferred compensation and other
administrative expenses. As a percentage of sales, these expenses were 18.3% and
16.3% in the three months ended January 31, 2000 and 1999, respectively. In
addition, the increased expenditures reflected those required by our mobile data
communications services segment.
Research and Development Research and development expenses were $581,000 and
$502,000 for the three months ended January 31, 2000 and 1999, respectively,
representing an increase of $79,000 or 15.7%. This increase is due to continuing
development of new products and technologies and general product enhancement. As
a percentage of sales research and development expenses were 4.2% and 5.5% for
the three months ended January 31, 2000 and 1999, respectively. Whenever
possible, we seek customer funding for research and development to adapt our
products to specialized customer requirements. During the three months ended
January 31, 2000 and 1999, customers reimbursed us $208,000 and $131,000,
respectively, which amounts are not reflected in the reported research and
development expenses.
Operating Income As a result of the foregoing factors, we had operating income
from continuing operations of $1.0 million in the three months ended January 31,
2000 as compared to $702,000 in the prior year period, representing an increase
of $342,000 or 48.7%.
10
<PAGE>
Interest Expense Interest expense was $34,000 and $55,000 for the three months
ended January 31, 2000 and 1999, respectively, representing a decrease of
$21,000 or 38.2%. Interest expense for both periods was substantially due to
interest associated with our capital lease obligations.
Interest Income Interest income was $21,000 and $15,000 for the three months
ended January 31, 2000 and 1999, respectively, representing an increase of
$6,000. This increase was due primarily to the increase in the amount of cash
available to invest during this period. Interest income was primarily derived
from the cash on hand in excess of working capital requirements that is invested
in highly liquid, short-term money-market funds and commercial paper.
Provision for Income Taxes The provision for income taxes was $369,000 for the
three months ended January 31, 2000 as compared to a benefit of $1.3 million in
the prior year period. The income tax provision for the three month period of
2000 reflects an approximate 37% tax rate. The Company has net operating loss
carryforwards available to offset present and future Federal income tax.
Primarily due to the Company's continued profitability, we recorded a deferred
tax asset of $1.4 million in the three months ended January 31, 1999. This
resulted in a tax benefit, partially offset by the provision for the current
period income tax expense, of $1.3 million. By the end of fiscal 1999, the
Company recorded a deferred tax asset for the balance of these carryforwards.
Periods subsequent to fiscal 1999 will reflect full Federal and local income tax
expense.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31,
2000 AND JANUARY 31, 1999
Net Sales Consolidated net sales were $25.5 million and $17.8 million for the
six months ended January 31, 2000 and 1999, respectively, representing an
increase of $7.7 million or 43.1%. This increase was primarily due to increased
sales by our telecommunications transmission segment of over-the-horizon
microwave equipment principally to one customer, a major U.S. prime contractor,
partly offset by lower sales at our RF microwave amplifier segment, primarily
due to delays in receipt of expected follow-on orders. International sales
increased by approximately $9.8 million or 103.8%, representing 75.9% and 53.3%
of total net sales for the six months ended January 31, 2000 and 1999,
respectively. Domestic sales decreased by $103,000 or 2.1%, representing 18.7%
and 27.4% of total net sales for the six months ended January 31, 2000 and 1999,
respectively. U.S. government sales decreased by $2.1 million or 60.0%,
representing 5.4% and 19.3% of total net sales for the six months ended January
31, 2000 and 1999, respectively.
Gross Profit Gross profit was $7.5 million and $5.4 million for the six months
ended January 31, 2000 and 1999, respectively, representing an increase of $2.1
million or 38.3%. This increase was due primarily to the increase in sales
volume. Gross margin, as a percentage of net sales, was 29.4% and 30.4% in the
six months ended January 31, 2000 and 1999, respectively. The lower gross margin
in the 2000 period was due primarily to the differences in the product mix as
compared to the prior year period.
Selling, General and Administrative Selling, general and administrative expenses
were $4.5 million and $3.1 million for the six months ended January 31, 2000 and
1999, respectively, representing an increase of $1.4 million or 43.1%. This
increase was due primarily to the additional expenses required including
additional personnel and sales commissions, to support the increased sales
volume and also increases in amortization of deferred compensation and other
administrative expenses. As a percentage of sales, these expenses were 17.5% in
the six months ended January 31, 2000 and 1999. In addition, the increased
expenditures reflected those required by our mobile data communications segment.
Research and Development Research and development expenses were $1.1 million
and $1.0 million for the six months ended January 31, 2000 and 1999,
respectively, representing an increase of $131,000 or 13.4%. This increase is
due to continuing development of new products and technologies and general
product enhancement. As a percentage of sales research and development expenses
were 4.4% and 5.5% for the six months ended January 31, 2000 and 1999,
respectively. Whenever possible, we seek customer funding for research and
development to adapt our products to specialized customer requirements. During
the six months ended January 31, 2000 and 1999, customers reimbursed us $454,000
and $174,000, respectively, which amounts are not reflected in the reported
research and development expenses.
11
<PAGE>
Operating Income As a result of the foregoing factors, we had operating income
from continuing operations of $1.9 million in the six months ended January 31,
2000 as compared to $1.3 million in the prior year period, representing an
increase of $598,000 or 45.6%.
Interest Expense Interest expense was $71,000 and $107,000 for the six months
ended January 31, 2000 and 1999, respectively, representing a decrease of
$36,000 or 33.6%. Interest expense for both periods was substantially due to
interest associated with our capital lease obligations.
Interest Income Interest income was $53,000 and $34,000 for the six months
ended January 31, 2000 and 1999, respectively, representing an increase of
$19,000 or 55.9%. This increase was due primarily to the increase in the amount
of cash available to invest during this period. Interest income was primarily
derived from the cash on hand in excess of working capital requirements that is
invested in highly liquid, short-term money-market funds and commercial paper.
Provision for Income Taxes The provision for income taxes was $694,000 for the
six months ended January 31, 2000 as compared to a benefit of $1.2 million in
the prior year period. The income tax provision for the six-month period of 2000
reflects an approximate 37% tax rate. The Company has net operating loss
carryforwards available to offset present and future Federal income tax.
Primarily due to the Company's continued profitability, we recorded a deferred
tax asset of $1.4 million in the three months ended January 31, 1999. This
resulted in a tax benefit, partially offset by the provision for the current
period income tax expense, of $1.2 million. By the end of fiscal 1999, the
Company recorded a deferred tax asset for the balance of these carryforwards.
Periods subsequent to fiscal 1999 will reflect full Federal and local income tax
expense.
LIQUITY AND CAPITAL RESOURCES
Our cash and cash equivalents position decreased by $2.0 million from $5.9
million at July 31, 1999 to $3.9 million at January 31, 2000. Operating
activities from continuing operations used $993,000, operating activities from
discontinued operations used $320,000, investing activities used $674,000 and
financing activities used $7,000.
Accounts receivable increased by $3.4 million from July 31, 1999 to
January 31, 2000, due primarily to the timing of shipments, and the subsequent
collections of the related receivables in the following fiscal period. The
allowance for doubtful accounts of $149,000 at January 31, 2000 increased by
$4,000 from July 31, 1999. We review our allowance for doubtful accounts
periodically and believe it adequately reflects the collectibility of our
receivables based on past experience and our credit standards. Generally,
foreign customers are required to secure payment by an irrevocable letter of
credit before an order is accepted.
Net intangible assets at July 31, 1999 and January 31, 2000 of $1.6
million consist of goodwill as a result of our acquisition of a mobile data
communications services business and entry into that segment.
Accounts payable increased by $687,000 from July 31, 1999 to January 31,
2000 primarily due to an increase of inventory purchases. Accrued expenses and
other current liabilities increased by $450,000 from July 31, 1999 to January
31, 2000 primarily due to increases in accrued commissions partly offset by
decreases in customer advances and deposits. Whenever possible, we require
advance payments, deposits or "milestone" payments on long-term contracts in
order to provide working capital while the contract is in process. Purchases of
property, plant and equipment , primarily related to expansion of facilities,
were $674,000 for the six-month period ended January 31, 2000.
All our long-term debt consists of capital lease obligations. Principal
payments on long-term debt of $322,000 were made during the six months ended
January 31, 2000, resulting in long-term debt, including the current portion, of
$1.2 million. Other long-term liabilities are for deferred revenue related to an
extended warranty.
We have a $12.0 million secured credit facility from Republic National
Bank of New York. The line of credit, which is to be used for working capital
requirements, is for a term of one year and bears interest on borrowing of
90-day LIBOR plus 1.50% (7.625% at January 31, 2000). The credit facility
expires December 31, 2000. We have renewed and received increases in this line
of credit annually since 1996. There were no borrowings outstanding at either
January 31, 2000 or July 31, 1999. During the second quarter of fiscal 2000 we
drew advances of $1.0 million, which were totally repaid in full by January 31,
2000.
12
<PAGE>
In February and March 2000, the Company received net proceeds of
approximately $42.6 million from the public offering of an aggregate of
2,645,000 shares of its common stock.
We believe that our working capital position, including the net proceeds
to us from the public offering, together with available credit facilities, will
be sufficient to meet our cash requirements for at least the next year.
Year 2000 Compliance
To date, the Company has not encountered any significant effects of the
Y2K problems either internally or with third parties. This does not guarantee
that problems will not occur in the future or have not yet been detected.
13
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) See footnote (11) of Notes to Consolidated Financial Statements
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Stockholders' Meeting, held on December 14, 1999,
Dr. John B. Payne and Mr. Gerard R. Nocita were reelected as Directors for
a three year term. The votes were as follows: Dr. Payne - votes for
3,622,682; votes withheld 230,335. Mr. Nocita - votes for 3,622,682; votes
withheld 230,335. Mr. Richard L. Goldberg and Dr. George Bugliarello
continued on as Directors for a term expiring in one year and Mr. Fred
Kornberg and Mr. Sol S. Weiner for a term expiring in two years.
The stockholders ratified the selection of KPMG LLP as auditors by a vote
of 3,833,723 shares for and 9,295 shares against with 9,999 shares
abstaining.
The stockholders approved a proposal to amend the Certificate of
Incorporation increasing the number of authorized shares of common stock
from 15 million to 30 million by a vote of 3,748,124 shares for and 95,526
shares against with 9,367 shares abstaining.
The stockholders approved the Company's 2000 Stock Incentive Plan by a
vote of 1,446,083 for and 316,399 shares against with 196,282 shares
abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is being filed as part of this Report:
Exhibition No. Description
-------------- -----------
Exhibit 27 Financial Data Schedule
14
<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: March 16, 2000 By: /s/ Fred Kornberg
--------------------------------
Fred Kornberg
Chairman of the Board
Chief Executive Officer
and President
Date: March 16, 2000 By: /s/ J. Preston Windus, Jr.
---------------------------------
J. Preston Windus, Jr.
Senior Vice President
Chief Financial Officer
15
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL
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