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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] 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 0-15277
_____________________
VERTEX COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
TEXAS 75-1982974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 N. LONGVIEW STREET, KILGORE, TEXAS 75662
(Address of principal executive offices) (Zip Code)
903-984-0555
(Registrant's telephone number, including area code)
__________________________
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 30 days.
YES X NO
--- ---
______________________
As of June 30, 1995, there were 4,422,856 shares outstanding of the
Registrant's Common Stock $.10 par value.
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VERTEX COMMUNICATIONS CORPORATION
Table of Contents to Form 10-Q
For the three months ended June 30, 1995
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Condensed Consolidated Balance Sheets - June 30, 1995
and September 30, 1994.................................... 1
Condensed Consolidated Statements of Income
Three months ended June 30, 1995 and
July 1, 1994.............................................. 2
Condensed Consolidated Statements of Income
Nine months ended June 30, 1995 and
July 1, 1994.............................................. 3
Condensed Consolidated Statements of Cash Flows
Nine months ended June 30, 1995 and
July 1, 1994 ............................................. 4
Notes to Condensed Consolidated Financial Statements........5 & 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition....................... 7
Part II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and reports on Form 8-K..................... 8
Signature..................................................... 9
</TABLE>
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PART I-FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Vertex Communications Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 September 30
(In thousands, except share amounts) 1995 1994
----------- ------------
(Unaudited) *
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $12,806 $20,527
Accounts receivable, net 16,779 16,371
Inventories (Note B) 14,950 8,940
Prepaid income taxes 110 668
------- -------
44,645 46,506
Property and equipment, at cost 20,373 18,063
Less accumulated depreciation (8,397) (6,967)
------- -------
11,976 11,096
Goodwill, less amortization of $180 5,160 ---
Other assets 882 855
------- -------
TOTAL ASSETS $62,663 $58,457
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 3,409 $ 2,396
Accrued compensation 1,421 2,381
Other accrued liabilities 3,727 3,875
Customers' advances 3,217 1,186
Deferred income taxes 756 633
------- -------
12,530 10,471
Deferred income taxes 801 801
Other liabilities 1,312 ---
Commitments and contingencies --- ---
Shareholders' equity:
Common stock, $.10 par value, 20,000,000
shares authorized, 4,661,402 shares issued 466 466
Capital in excess of par value 24,738 25,212
Retained earnings 25,301 21,563
Treasury stock, 238,546 shares in June
and 37,746 shares in September (2,670) (109)
Translation adjustment 185 53
------- -------
48,020 47,185
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $62,663 $58,457
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</TABLE>
* The balance sheet at September 30, 1994, has been taken from audited
financial statements at that date and condensed.
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Vertex Communications Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
(In thousands, except share amounts) June 30 July 1
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $ 15,934 $ 12,404
Costs and Expenses:
Cost of sales 11,586 8,967
Research and development 595 710
Marketing 1,045 750
General and administrative 1,086 720
---------- ----------
14,312 11,147
---------- ----------
Operating income 1,622 1,257
Other income (expense):
Income from investments 138 147
Interest expense (36) ---
---------- ----------
Income before income taxes and
effect of accounting change 1,724 1,404
Provision for income taxes 479 423
---------- ----------
Income before accounting change 1,245 981
Cumulative effect of change in accounting --- ---
---------- ----------
Net income $ 1,245 $ 981
========== ==========
Earnings per share:
Earnings before effect of
accounting change $ .28 $ .21
Cumulative effect of change in
accounting --- ---
---------- ----------
$ .28 $ .21
========== ==========
Average shares and equivalent
shares outstanding 4,512,000 4,705,000
========== ==========
</TABLE>
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Vertex Communications Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
(In thousands, except share amounts) June 30 July 1
1995 1994
---------- ----------
<S> <C> <C>
Net Sales $ 46,899 $ 40,449
Costs and Expenses:
Cost of sales 34,343 29,696
Research and development 1,681 2,089
Marketing 2,824 2,100
General and administrative 3,209 2,392
---------- ----------
42,057 36,277
---------- ----------
Operating income 4,842 4,172
Other income (expense):
Income from investments 457 453
Interest expense (61) ---
---------- ----------
Income before income taxes and
effect of accounting change 5,238 4,625
Provision for income taxes 1,500 1,388
---------- ----------
Income before accounting change 3,738 3,237
Cumulative effect of change in accounting --- 65
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Net income $ 3,738 $ 3,302
========== ==========
Earnings per share:
Earnings before effect of
accounting change $ .82 $ .69
Cumulative effect of change in
accounting --- .01
---------- ----------
$ .82 $ .70
========== ==========
Average shares and equivalent
shares outstanding 4,572,000 4,697,000
========== ==========
</TABLE>
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Vertex Communications Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
(In thousands) June 30 July 1
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,738 $ 3,302
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,826 1,294
Cumulative effect of change in accounting
for income taxes --- (65)
Change in accounts receivable,
inventories, prepaid taxes, and
other assets (3,277) (7,509)
Change in current liabilities 212 854
------- -------
2,499 (2,124)
Cash flows from investing activities:
Purchase of property and equipment (1,706) (3,135)
Purchase of Maxtech, Inc. (5,597) ---
------- -------
(7,303) (3,135)
Cash flows from financing activities:
Proceeds from exercise of stock options 151 186
Purchase of treasury stock (3,186) ---
------- -------
(3,035) 186
Effect of exchange rate changes on cash 118 ---
------- -------
Net increase (decrease) in cash (7,721) (5,073)
Cash and cash equivalents at beginning
of period 20,527 23,537
------- -------
Cash and cash equivalents at end of period $12,806 $18,464
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</TABLE>
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Vertex Communications Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note A - Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all the adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1994.
Note B - Inventories (In thousands)
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30 September 30
1995 1994
----------- ------------
<S> <C> <C>
Raw materials $ 4,558 $ 3,364
Work-in-process 9,685 5,070
Finished goods 707 506
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$14,950 $ 8,940
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</TABLE>
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Vertex Communications Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATION FINANCIAL STATEMENTS (Unaudited)
Note C - Acquisition
On January 25, 1995 (effective January 1, 1995) the Company acquired all of the
outstanding common stock of Maxtech, Inc. (Maxtech) for cash paid at closing of
$4,049,000, four-year unsecured promissory notes in the aggregate principal sum
of $1,750,000, certain contingent consideration based on future net pre-tax
income of Maxtech, and direct acquisition costs incurred of approximately
$150,000. An additional sum of $1,650,000 was paid at closing to pay-off
certain promissory notes of Maxtech. The Maxtech acquisition was accounted for
under the purchase method and, accordingly, the assets acquired and liabilities
assumed were recorded at their fair values on the acquisition date. The excess
of the purchase price over the assets acquired of approximately $5,340,000 is
being amortized over fifteen years using the straight line method.
In connection with the purchase of Maxtech, contingent consideration will be
due in an amount equal to 50 percent of the net pre-tax income above
$1,750,000 that Maxtech earns for the cumulative period of three years and
nine months ending September 30, 1998, not to exceed $2,250,000. The contingent
consideration, if any, will be recorded when determinable as additional
goodwill and amortized over the remaining life of the intangible asset as
discussed above.
Maxtech's results of operations have been included in the Company's
consolidated financial statements from the effective date of the acquisition.
Below are the unaudited pro forma results of operations as if Maxtech had
been acquired on October 1, 1993.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
June 30, 1995 July 1, 1994
----------------- -----------------
<S> <C> <C>
Net Sales $48,265,000 $45,018,000
Net Income $ 3,548,000 $ 3,351,000
Earnings Per Share $ .78 $ .71
</TABLE>
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The Company acquired Maxtech, Inc. (Maxtech) of State College, Pennsylvania, at
the beginning of the second quarter of fiscal 1995 for a purchase price of
approximately $6 million, (excludes any contingent consideration). Maxtech is
engaged in the design, manufacture, and distribution of precision radio
frequency and microwave telecommunications components and subsystems, with
particular emphasis on earth station satellite and point-to-point radio
applications. (Refer to Note C for additional information).
Net sales increased by 28.5 percent and 15.9 percent in the third quarter and
nine months ended June 30, 1995, respectively, when compared to the same
periods one year earlier. The increased sales volume is attributable to the
acquisition of Maxtech and increased foreign product shipments.
Research and development spending decreased by 16.2 percent and 19.5 percent in
the third quarter and nine-month period of fiscal 1995 over the comparable
periods of fiscal 1994, respectively. This was primarily due to absence of
certain product development projects which were successfully completed last
year. Marketing expenses combined with general and administrative expenses
increased 45.0 percent and 34.3 percent in three-month period and nine-month
period ended June 30, 1995 over the comparable periods, respectively, due to
stepped-up bid proposal activity and the inclusion of Maxtech at the beginning
of January 1995.
Financial Condition as of June 30, 1995
Cash provided by operations of $2.5 million was more than offset by the
acquisition of Maxtech and purchase of Vertex's common stock pursuant to the
Company's stock repurchase plan. Inventories increased by $6 million (67.2
percent) since September 30, 1994 as a result of the Maxtech acquisition and
delayed product shipments at the customers' direction. The Company also
invested $1.7 millon in property and equipment additions. As a result of the
foregoing significant factors, cash and cash equivalents decreased by $7.7
million during the nine-month period ended June 30, 1995.
Management believes that expected cash flows from operations and current
cash balances will be sufficient to fund the Company's operations and planned
capital investments for the foreseeable future. Management does not have in
place a credit line facility because of the Company's strong financial
condition and forecasted growth. Management is not aware of any demands which
are likely to impact liquidity in an adverse manner.
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PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits.
Exhibit 27 - Article 5 financial data schedule.
(B) Form 8-K.
The Company filed no report on Form 8-k, and
none were required to be filed during the
three months ended June 30, 1995.
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S I G N A T U R E
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.
VERTEX COMMUNICATIONS CORPORATION
---------------------------------
(Registrant)
Date: July 25, 1995 S/ J. D. Carter
---------------------------------
J. D. Carter
V. P. - Finance and Treasurer
(Duly Authorized Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit 27 - Article 5 financial data schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 12,806
<SECURITIES> 0
<RECEIVABLES> 17,042
<ALLOWANCES> 263
<INVENTORY> 14,950
<CURRENT-ASSETS> 44,645
<PP&E> 20,373
<DEPRECIATION> 8,397
<TOTAL-ASSETS> 62,663
<CURRENT-LIABILITIES> 12,530
<BONDS> 0
<COMMON> 466
0
0
<OTHER-SE> 47,554
<TOTAL-LIABILITY-AND-EQUITY> 62,663
<SALES> 46,899
<TOTAL-REVENUES> 46,899
<CGS> 34,343
<TOTAL-COSTS> 34,343
<OTHER-EXPENSES> 7,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 5,238
<INCOME-TAX> 1,500
<INCOME-CONTINUING> 3,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,738
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
