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 April 30, 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
incorporation /organization) Identification 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)
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(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 - 7,262,876 shares outstanding as of June
6, 2000.
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
INDEX
Page
No.
----
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets - 2
April 30, 2000 (unaudited) and
July 31, 1999
Consolidated Statements of Operations - 3
Three Months and Nine Months Ended April 30, 2000
and 1999 (unaudited)
Consolidated Statements of Cash Flows - 4
Nine Months Ended April 30, 2000 and 1999
(unaudited)
Notes to Consolidated Financial Statements 5 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II OTHER INFORMATION 13
Signature Page 14
<PAGE>
PART I
FINANCIAL INFORMATION
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30 ,2000 July 31, 1999
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 10,483,000 $ 5,896,000
Marketable investment securities 35,857,000 --
Accounts receivable, less allowance for doubtful
accounts of $145,000 at April 30, 2000 and July 31, 1999 7,729,000 5,152,000
Inventories, net 11,493,000 7,879,000
Prepaid expenses and other current assets 642,000 138,000
Deferred tax asset-current 731,000 1,658,000
Net assets of discontinued operations 192,000 --
------------ ------------
Total current assets 67,127,000 20,723,000
Property, plant and equipment, net 4,708,000 4,310,000
Intangible assets, net of amortization 2,159,000 1,623,000
Other assets 237,000 274,000
Deferred tax asset-non current 2,917,000 2,917,000
------------ ------------
Total assets $ 77,148,000 $ 29,847,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current installments of long-term debt (including payable to
related party of $339,000 at April 30, 2000 and $316,000
at July 31, 1999) $ 588,000 $ 605,000
Accounts payable 5,343,000 3,763,000
Accrued expenses and other current liabilities 6,357,000 6,026,000
Net liabilities of discontinued operations -- 137,000
------------ ------------
Total current liabilities 12,288,000 10,531,000
Long-term debt, less current installments
(including payable to related party of $244,000
at April 30, 2000 and $501,000 at July 31,1999) 824,000 959,000
Other long-term liabilities 394,000 --
------------ ------------
Total liabilities 13,506,000 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 April 30, 2000 and 15,000,000 shares at July 31, 1999; issued
7,345,376 shares at April 30, 2000 and 4,471,368 shares at July 31,1999 735,000 447,000
Additional paid-in capital 66,743,000 23,801,000
Accumulated other comprehensive income (231,000) --
Accumulated deficit (2,578,000) (4,746,000)
------------ ------------
64,669,000 19,502,000
Less:
Treasury stock (82,500 shares at April 30, 2000 and July 31,1999) (184,000) (184,000)
Deferred compensation expense (843,000) (961,000)
------------ ------------
63,642,000 18,357,000
Commitments and contingencies
Total liabilities and stockholders' equity $ 77,148,000 $ 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 Nine months ended
April 30, April 30,
(unaudited) (unaudited)
----------- -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 15,485,000 $ 10,473,000 $ 40,950,000 $ 28,265,000
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of sales 11,098,000 7,298,000 29,080,000 19,681,000
Selling, general and administrative 2,919,000 1,810,000 7,381,000 4,930,000
Research and development 500,000 528,000 1,611,000 1,507,000
------------ ------------ ------------ ------------
Total operating costs and expenses 14,517,000 9,636,000 38,072,000 26,118,000
------------ ------------ ------------ ------------
Operating income from continuing operations 968,000 837,000 2,878,000 2,147,000
Other (expense) income:
Interest expense (28,000) (49,000) (99,000) (156,000)
Interest income 583,000 9,000 635,000 44,000
Other income -- 10,000 -- 12,000
------------ ------------ ------------ ------------
Income from continuing operations
before provision (benefit) for income taxes 1,523,000 807,000 3,414,000 2,047,000
Provision (benefit) for income taxes 552,000 149,000 1,246,000 (1,056,000)
------------ ------------ ------------ ------------
Income from continuing operations 971,000 658,000 2,168,000 3,103,000
Loss from operations of discontinued segment
(net of applicable income tax) -- (160,000) -- (437,000)
------------ ------------ ------------ ------------
Net income $ 971,000 $ 498,000 $ 2,168,000 $ 2,666,000
============ ============ ============ ============
Basic income (loss) per share:
Income from continuing operations $ 0.15 $ 0.16 $ 0.42 $ 0.76
Loss from operations of segment -- (0.04) -- (0.11)
------------ ------------ ------------ ------------
Basic income per share $ 0.15 $ 0.12 $ 0.42 $ 0.65
============ ============ ============ ============
Diluted income (loss) per share:
Income from continuing operations $ 0.13 $ 0.14 $ 0.38 $ 0.69
Loss from operations of discontinued
segment -- (0.03) -- (0.10)
------------ ------------ ------------ ------------
Diluted income per share $ 0.13 $ 0.11 $ 0.38 $ 0.60
============ ============ ============ ============
Weighted average number of common
shares outstanding - basic computation 6,513,000 4,232,000 5,120,000 4,080,000
Potential dilutive common shares 689,000 390,000 652,000 387,000
------------ ------------ ------------ ------------
Weighted average number of common and
common equivalent shares outstanding
assuming dilution - diluted computation 7,202,000 4,622,000 5,772,000 4,467,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
---------
(unaudited)
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income: $ 2,168,000 $ 2,666,000
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Loss from discontinued operations -- 437,000
Depreciation and amortization 1,231,000 1,178,000
Deferred income taxes 1,060,000 (1,195,000)
Provision for bad debt 4,000 86,000
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (2,394,000) (2,672,000)
Inventories (3,334,000) (1,820,000)
Prepaid expenses and other current assets (504,000) (41,000)
Other assets (8,000) 56,000
Accounts payable 1,325,000 1,208,000
Accrued expenses and other current liabilities (100,000) 1,412,000
Other liabilities 394,000 --
------------ ------------
Net cash (used in) provided by continuing operations (158,000) 1,315,000
Net cash used in discontinued operations (329,000) (543,000)
------------ ------------
Net cash (used in) provided by operating activities (487,000) 772,000
------------ ------------
Cash flows from investing activities:
Investment in marketable securities (36,221,000) --
Purchases of property, plant and equipment (935,000) (435,000)
Payment for business acquisition, net of cash acquired (11,000) (173,000)
------------ ------------
Net cash used in investing activities (37,167,000) (608,000)
------------ ------------
Cash flows from financing activities:
Borrowings under line of credit facility 1,000,000 850,000
Repayment of borrowings under line of credit facility (1,000,000) --
Principal payments on long-term debt (618,000) (849,000)
Proceeds from exercise of stock options 409,000 30,000
Proceeds from common stock offering, net 42,450,000 --
------------ ------------
Net cash provided by financing activities 42,241,000 31,000
------------ ------------
Net increase in cash and cash equivalents 4,587,000 195,000
Cash and cash equivalents at beginning of period 5,896,000 2,746,000
------------ ------------
Cash and cash equivalents at end of period $ 10,483,000 $ 2,941,000
============ ============
Supplemental cash flow disclosure: Cash paid during the period for:
Interest $ 99,000 $ 156,000
Income taxes 299,000 150,000
Non cash investing and financing activities:
Fair value adjustment to securities available-for-sale $ (231,000) $ --
Acquisition of property and equipment through capital leases 281,000 281,000
Capital stock issued in connection with business acquisition 371,000 528,000
Note payable issued in connection with business acquisition -- 250,000
</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 nine months and
three months ended April 30, 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) Reclassification
Certain balances in the prior fiscal quarter have been reclassified to
conform to the current fiscal quarter and fiscal year end presentation.
(3) Marketable Investment Securities
Marketable investment securities at April 30, 2000 consists of a mutual
fund investment classified as available-for-sale and recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on these
available-for-sale securities are excluded from earnings and are reported as a
component of accumulated other comprehensive income until realized. Realized
gains and losses from the sale of available-for-sale securities are determined
on a specific identification basis.
(4) Comprehensive Income
Effective August 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". This
Statement requires that all items recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Other
comprehensive income may include foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains and losses on
marketable securities classified as available-for-sale. The Company's item of
other comprehensive income (loss) includes unrealized loss on marketable equity
securities. The Company's total comprehensive income for the three and nine
month periods ended April 30, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended April 30 ended April 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 971,000 $ 498,000 $ 2,168,000 $ 2,666,000
Other comprehensive income (loss), net of tax:
Change in equity due to unrealized loss on
available for sale securities (231,000) 0 (231,000) 0
----------- ----------- ----------- -----------
Comprehensive income $ 740,000 $ 498,000 $ 1,937,000 $ 2,666,000
=========== =========== =========== ===========
</TABLE>
(5) Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
April 30, 2000 July 31, 1999
<S> <C> <C>
Accounts receivable from commercial customers $6,602,000 $3,924,000
Unbilled receivables (including retainages) on contracts-in-progress 671,000 1,154,000
Amounts receivable from the United States government
and its agencies 601,000 219,000
---------- ----------
7,874,000 5,297,000
Less allowance for doubtful accounts 145,000 145,000
---------- ----------
Accounts receivable, net $7,729,000 $5,152,000
========== ==========
</TABLE>
5
<PAGE>
(6) Inventories
Inventories consist of the following:
April 30, 2000 July 31, 1999
Raw materials and components $ 4,808,000 $ 3,553,000
Work-in-process 8,438,000 5,798,000
----------- -----------
13,246,000 9,351,000
Less:
Progress payments 479,000 302,000
Inventory reserves 1,274,000 1,170,000
----------- -----------
Inventories-net $11,493,000 $ 7,879,000
=========== ===========
(7) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
April 30, 2000 July 31, 1999
Customer advances and deposits $ 1,006,000 $ 2,798,000
Accrued wages and benefits 1,929,000 1,603,000
Accrued commissions 2,041,000 915,000
Other 1,381,000 710,000
----------- -----------
$ 6,357,000 $ 6,026,000
=========== ===========
(8) Long-Term Debt
Long-term debt consists of the following:
April 30, 2000 July 31, 1999
Obligations under capital leases $ 1,412,000 $ 1,564,000
Less current installments 588,000 605,000
----------- -----------
$ 824,000 $ 959,000
=========== ===========
(9) Other Long-Term Liabilities
Other long-term liabilities consist of deferred revenue related to an
extended warranty agreement.
(10) 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.
(11) 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.
6
<PAGE>
(12) Common Stock Offering
In February and March 2000, the Company sold an aggregate of 2,645,000
shares of its common stock in a public offering resulting in net proceeds to the
Company of approximately $42.4 million.
(13) 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
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
April 30, 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 $ 12,043 $ 2,995 $ 447 $ -- $ 15,485
Operating income (loss) 1,943 55 (438) (592) 968
Interest income -- -- -- 583 583
Interest expense 8 22 (2) -- 28
Depreciation and
amortization 153 190 41 30 414
Expenditures for
long-lived assets 229 256 57 -- 542
Total assets 12,119 9,649 4,888 54,636 (4,144) 77,148
</TABLE>
Three months ended
April 30, 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 $ 7,061 $ 3,381 $ 31 $ -- $10,473
Operating income (loss) 833 717 (215) (498) 837
Interest income -- -- -- 9 9
Interest expense 9 35 5 -- 49
Depreciation and
amortization 124 157 47 163 491
Expenditures for
long-lived assets 160 68 7 -- 235
Total assets 11,106 9,647 2,779 8,452 (4,107) 27,877
</TABLE>
7
<PAGE>
Nine months ended
-----------------
April 30, 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 $ 31,937 $ 7,779 $ 1,234 $ -- $40,950
Operating income (loss) 5,331 (126) (656) (1,671) 2,878
Interest income -- -- -- 635 635
Interest expense 24 75 -- -- 99
Depreciation and
amortization 442 560 110 119 1,231
Expenditures for
long-lived assets 672 350 189 5 1,216
Total assets 12,119 9,649 4,888 54,636 (4,144) 77,148
</TABLE>
Nine months ended
-----------------
April 30, 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 $ 16,777 $ 11,365 $ 123 $ -- $28,265
Operating income (loss) 1,718 2,021 (337) (1,255) 2,147
Interest income 5 -- -- 39 44
Interest expense 29 119 8 -- 156
Depreciation and
amortization 374 564 62 178 1,178
Expenditures for
long-lived assets 407 289 7 13 716
Total assets 11,106 9,647 2,779 8,452 (4,107) 27,877
</TABLE>
(14) Acquisition
In January 2000, the Company acquired certain assets (including accounts
receivable, inventory and fixed assets) and assumed certain liabilities of a
company located in Topsfield, MA., Hill Engineering Inc. ("Hill") in exchange
for 50,000 shares of the Company's common stock. Such shares were issued and
placed in escrow 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 has been accounted for as a purchase. The purchase price amounted to
approximately $371,000 which principally represents the fair value of the
initial 30,000 shares of common stock to be issued to Hill. The remaining 20,000
shares will be recorded at fair value on the date when the profit goals are met.
This business will operate as a division of the Company's wholly owned
subsidiary, Comtech PST Corp., which is included in the RF Microwave Amplifiers
segment. The accompanying consolidated financial statements reflect this
acquisition at the fair value of the assets acquired ($652,000) and liabilities
assumed ($871,000) and the operations of Hill from the date of acquisition
through April 30, 2000. The excess of the purchase price over the net assets
acquired approximated $606,000. This amount is included in intangible assets in
the accompanying consolidated balance sheet and is being amortized over a 15
year period. The operations of Hill are not material to the operations of the
Company. Pro forma results of operations were not provided as their effect on
the consolidated operations were not material.
8
<PAGE>
(15) Subsequent Event
In May 2000 the Company entered into an agreement to acquire the business
of EFData, the satellite communications division of Adaptive Broadband
Corporation for $61.5 million cash.
Closing of the transaction is expected by June 30, 2000 subject to normal
conditions, including review by antitrust regulatory authorities, the Company's
board of directors' approval and completion of satisfactory financing by the
Company.
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 APRIL 30,
2000 AND APRIL 30, 1999
Net Sales Consolidated net sales were $15.5 million and $10.5 million for the
three months ended April 30, 2000 and 1999, respectively, representing an
increase of $5.0 million or 47.9%. 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 $5.1 million or 73.3%, representing 78.0% and 66.5%
of total net sales for the three months ended April 30, 2000 and 1999,
respectively. Domestic sales decreased by $277,000 or 13.7%, representing 11.2%
and 19.2% of total net sales for the three months ended April 30, 2000 and 1999,
respectively. U.S. government sales increased by $184,000 or 12.4%, representing
10.8% and 14.2% of total net sales for the three months ended April 30, 2000 and
1999, respectively.
Gross Profit Gross profit was $4.4 million and $3.2 million for the three months
ended April 30, 2000 and 1999, respectively, representing an increase of $1.2
million or 38.2%. This increase was due primarily to the increase in sales
volume. Gross margin, as a percentage of net sales, was 28.3% and 30.3% in the
three months ended April 30, 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 $2.9 million and $1.8 million for the three months ended April 30, 2000 and
1999, respectively, representing an increase of $1.1 million or 61.3%. 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. In addition, the increased expenditures reflected those
required by our mobile data communications services segment. As a percentage of
sales, these expenses were 18.9% and 17.3% in the three months ended April 30,
2000 and 1999, respectively.
Research and Development Research and development expenses were $500,000 and
$528,000 for the three months ended April 30, 2000 and 1999, respectively,
representing a decrease of $28,000 or 5.3%. This decrease was primarily due to
the increased customer funded research and development projects that the Company
was engaged in as opposed to
9
<PAGE>
internally funded projects. As a percentage of sales, research and development
expenses were 3.2% and 5.0% for the three months ended April 30, 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 April 30, 2000 and 1999, customers reimbursed us $760,000
and $27,000, 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 $968,000 in the three months ended April 30, 2000
as compared to $837,000 in the prior year period, representing an increase of
$131,000 or 15.7%.
Interest Expense Interest expense was $28,000 and $49,000 for the three months
ended April 30, 2000 and 1999, respectively, representing a decrease of $21,000
or 42.9%. Interest expense for both periods was substantially due to interest
associated with our capital lease obligations.
Interest Income Interest income was $583,000 and $9,000 for the three months
ended April 30, 2000 and 1999, respectively, representing an increase of
$574,000. This increase was due to the increase in the amount of cash available
to invest during this period primarily as a result of the proceeds received from
a follow-on stock offering completed this quarter. Interest income was primarily
derived from the cash on hand in excess of working capital requirements that is
invested in short-term money-market funds, commercial paper and investment
funds.
Provision for Income Taxes The provision for income taxes was $552,000 and
$149,000 for the three months ended April 30, 2000 and 1999 respectively. The
income tax provision for the three-month period of 2000 reflects an approximate
36% tax rate while the provision for the three-month period of 1999 reflects an
effective tax rate of approximately 18%. For the three months ended April 30,
1999, the Company recognized deferred tax benefits based upon estimates of
future taxable income. Deferred tax assets associated with tax carryforwards
were recorded by July 31, 1999 and periods subsequent to fiscal 1999 reflect
full Federal and local income tax expense.
Comparison of THE RESULTS OF OPERATIONS FOR THE NINE Months ended APRIL 30, 2000
and APRIL 30, 1999
Net Sales Consolidated net sales were $41.0 million and $28.3 million for the
nine months ended April 30, 2000 and 1999, respectively, representing an
increase of $12.7 million or 44.9%. 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 $14.9 million or 90.9%, representing 76.7% and 58.2%
of total net sales for the nine months ended April 30, 2000 and 1999,
respectively. Domestic sales decreased by $380,000 or 5.5%, representing 15.9%
and 24.4% of total net sales for the nine months ended April 30, 2000 and 1999,
respectively. U.S. government sales decreased by $1.9 million or 38.2%,
representing 7.4% and 17.4% of total net sales for the nine months ended April
30, 2000 and 1999, respectively.
Gross Profit Gross profit was $11.9 million and $8.6 million for the nine months
ended April 30, 2000 and 1999, respectively, representing an increase of $3.3
million or 38.3%. This increase was due primarily to the increase in sales
volume. Gross margin, as a percentage of net sales, was 29.0% and 30.4% in the
nine months ended April 30, 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 $7.4 million and $4.9 million for the nine months ended April 30, 2000 and
1999, respectively, representing an increase of $2.5 million or 49.7%. 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. In addition, the increased expenditures reflected those
required by our mobile data communications segment. As a percentage of sales,
selling, general and administrative expenses were 18.0% and 17.4% in the nine
months ended April 30, 2000 and 1999, respectively.
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Research and Development Research and development expenses were $1.6 million and
$1.5 million for the nine months ended April 30, 2000 and 1999, respectively,
representing an increase of $104,000 or 6.9%. 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 3.9% and 5.3% for
the nine months ended April 30, 2000 and 1999, respectively. Whenever possible,
we seek customer funding for research and development to adapt our products to
specialized customer requirements. During the nine months ended April 30, 2000
and 1999, customers reimbursed us $1,214,000 and $201,000, 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 $2.9 million in the nine months ended April 30,
2000 as compared to $2.1 million in the prior year period, representing an
increase of $731,000 or 34.0%.
Interest Expense Interest expense was $99,000 and $156,000 for the nine months
April 30, 2000 and 1999, respectively, representing a decrease of $57,000 or
36.5%. Interest expense for both periods was substantially due to interest
associated with our capital lease obligations.
Interest Income Interest income was $635,000 and $44,000 for the nine months
ended April 30, 2000 and 1999, respectively, representing an increase of
$591,000 or 13.4%. 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 short-term money-market funds, commercial paper and investment
funds.
Provision for Income Taxes The provision for income taxes was $1.2 million for
the nine months ended April 30, 2000 as compared to a benefit of $1.1 million in
the prior year period. The income tax provision for the nine-month period of
2000 reflects an approximate 36.5% tax rate. The Company has net operating loss
carryforwards available to offset present and future Federal income tax. In the
second quarter of fiscal 1999, the Company recorded a deferred tax asset of $1.4
million to recognize a portion of its deferred tax assets which include such
carryforwards. This resulted in a tax benefit in the nine months ended April 30,
1999, partially offset by the provision for the current period income tax
expense, of $1.1 million.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended April 30, 2000, our cash and cash equivalent
position increased by $4.6 million, from $5.9 million at July 31, 1999 to $10.5
million at April 30, 2000. During February and March 2000, the Company completed
a public offering of 2.6 million shares of its common stock resulting in net
proceeds of approximately $42.4 million. At April 30, 2000, we had cash on hand
of $2.5 million, cash equivalents in short-term investments of $8.0 million and
$35.9 million in marketable investment securities.
For the nine months ended April 30, 2000, cash used in operating
activities from continuing operations, net of assets and liabilities acquired
from Hill Engineering was $158,000, discontinued operations used $329,000. Cash
used in investing activities was $37.2 million (principally the purchase of
marketable investment securities) and cash provided by financing activities was
$42.2 million.
Accounts receivable increased by $2.4 million from July 31, 1999 to April
30, 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 $145,000 at April 30, 2000 remained the same
as 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.
Inventory increased by $3.3 million from July 31, 1999 to April 30, 2000
primarily due to the higher levels of inventory required by our mobile data
communications services segment. We generally operate on a job-order cost basis,
that is, costs are incurred as work-in-progress inventory for specific contracts
or jobs. Accordingly, inventory levels will vary as a function of our order
backlog. Some of our product lines require a more rapid delivery response to
customers' requirements and require us to provide for a level of "off-the-shelf"
equipment inventory availability. The only other general inventory that we
maintain is for basic components which are common to many of our products.
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Accounts payable increased by $1.3 million from July 31, 1999 to April 30,
2000 primarily due to an increase of inventory purchases. Purchases of property,
plant and equipment, primarily related to expansion of facilities, were
$1,216,000 of which approximately $281,000 was financed by a capital lease.
All our long-term debt consists of capital lease obligations. Long-term
debt (including current installments) decreased by $152,000. This was the net
result of the addition of $281,000 of the aforementioned capital equipment
purchase lease, offset by the payments made of $618,000. Other long-term
liabilities of $394,000 are for deferred revenue related to an extended warranty
agreement.
We have a $12.0 million secured credit facility from HSBC Bank USA. The
line of credit, which is to be used for working capital requirements, is for a
term of one year and bears interest on borrowings at the 90-day LIBOR plus 1.50%
(8.0% at April 30, 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 April 30, 2000 or July 31, 1999.
We believe that our working capital position, together with available
credit facilities, will be sufficient to meet our operating cash requirements
for at least the next year.
In May 2000, the Company entered into an agreement to acquire a satellite
communications business for $61.5 million cash. Closing of the transaction is
expected by June 30, 2000 subject to normal conditions, including review by
antitrust regulatory authorities, the Company's board of directors' approval and
securing satisfactory financing.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates primarily from its investment of available cash
balances in money market funds. Under its current policies, the Company
does not use interest rate derivative instruments to manage exposure to
interest rate changes.
The Company's exposure to equity price risk relates to its investment in a
mutual fund which primarily invests in equity securities. At April 30,
2000, this investment was considered available-for-sale with any
unrealized gains or losses deferred as a component of accumulated other
comprehensive income. The Company is subject to equity price risk
associated with this investment which could ultimately affect the
Company's available cash flow from that investment as well as realized
gains and losses upon the ultimate sale of its investment in the mutual
fund.
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PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) See footnote (11) of Notes to Consolidated Financial Statements
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
(b) Reports on form 8-K
none
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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: June 14, 2000 By: /s/ Fred Kornberg
---------------------------------------
Fred Kornberg
Chairman of the Board
Chief Executive Officer
and President
Date: June 14, 2000 By: /s/ J. Preston Windus, Jr.
---------------------------------------
J. Preston Windus, Jr.
Senior Vice President
Chief Financial Officer
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