<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (903) 984-0555
--------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
(Title of Class)
--------------------------
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: Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of December 2, 1996, 4,442,056 shares of the Registrant's Common Stock, $.10
par value, were outstanding. The aggregate market value of the Registrant's
Common Stock held by non-affiliates based on the closing sales price on
December 2, 1996, as reported by The Nasdaq Stock Market (National Market
System), was approximately $50,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended September 30, 1996, are incorporated by reference into Items 5, 6, 7, and
8 under Part II and Item 14 of Part IV hereof.
Portions of the Registrant's definitive Proxy Statement to be filed in
connection with the solicitation of proxies for its 1997 Annual Meeting of
Shareholders are incorporated by reference into Items 10, 11, 12, and 13 under
Part III hereof.
<PAGE> 2
VERTEX COMMUNICATIONS CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 1996
============================================================
PART I
ITEM 1. BUSINESS.
GENERAL
Vertex Communications Corporation (the "Registrant," the "Company,"
or "Vertex") designs, develops, and manufactures an extensive line of precision
earth station antennas for satellite communications. The Company's antennas
range in size from 1.2 to 34 meters in diameter and operate in all relevant
commercial and military frequency bands, including C-band, X-band and Ku-band.
The Company also manufactures antenna control systems that control the movement
and tracking capabilities of antennas, related electronic components used to
amplify radio frequency ("RF") signals, as well as precision microwave
waveguide components for application as component parts of communications
systems. To complement its antenna products, the Company also provides custom
engineering, turnkey field installation, spare and replacement parts, site
testing, and after-sale and maintenance services.
The Company's strategy is to provide a wide variety of
technologically advanced satellite communications earth station antenna
products to satisfy an expanding range of customer and industry requirements.
To accomplish its objectives, the Company engages in ongoing efforts to
introduce, in a timely manner, products that are designed to meet applicable
domestic and international specifications. The Company believes that it offers
a more diverse line of products than any of its principal competitors. Due to
the exacting design and engineering requirements necessary to produce satellite
communications antennas, quality control and precision engineering are central
to the manufacturing process. The Company believes it has developed a
reputation as a leader in quality control procedures which has enhanced its
position in the marketplace.
The Company markets its products to systems integrators and to end
users who combine the Company's products with other communication equipment to
form complete communications systems. In the United States, Vertex markets its
products through a direct sales force; while in international markets, the
Company utilizes a direct sales force, supplemented by independent foreign
sales representatives. Vertex's customers include the television broadcast
industry, international telecommunications companies, communications common
carriers, private communications networks, and government agencies, including
certain agencies of the U. S. Government and various foreign governments.
The Company was organized pursuant to Texas law in 1984. The
Company's wholly-owned subsidiaries include: Gamma-f Corp., a Nevada
corporation headquartered in Torrance, California; Vertex Antennentechnik GmbH,
a corporation organized pursuant to the laws of the Federal Republic of
Germany, with its headquarters in Duisburg, Germany; Vertex International,
Ltd., formed under the laws of England, with its headquarters near
London;Vertex Foreign Sales Corporation, organized pursuant to the laws of The
Virgin Islands, with its office in St. Thomas, The Virgin Islands; and Maxtech,
Inc., a Pennsylvania corporation which is located in State College,
Pennsylvania. As used herein, the terms the "Registrant," the "Company," and
"Vertex" refer to Vertex Communications Corporation and its wholly-owned
subsidiaries, unless otherwise indicated. The Company's principal executive
offices are located at 2600 North Longview Street, Kilgore, Texas 75662, and
its telephone number is (903) 984-0555.
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EARTH STATION ANTENNA INDUSTRY
An increase in demand for transmission and reception capacity to
support high-speed voice, video, and data communications has resulted in
significant demand for additional satellite and earth station equipment.
Communications satellites, once placed in orbit above the earth, relay
microwave radio signals from one or more earth stations to one or more other
earth stations at various geographical locations. The primary function of an
earth station is to transmit or receive a microwave radio signal via satellite
in order to efficiently facilitate the telecommunications process.
Telecommunication is the process of communication through electronic means such
as radio, telegraph, television, and computer. Each earth station is
interconnected to a local communications network which distributes and/or
collects the desired information to or from the users of such information. A
typical earth station consists of several components, including an antenna and
associated electronic components, some of which amplify RF signals and others
that control the movement and tracking capabilities of the antenna.
A principal advantage of satellite communications systems over
terrestrial communications systems is that once a satellite has been launched,
the incremental cost of adding new transmission and reception points is limited
to the cost of the earth station. With a terrestrial communications system,
each transmission route must receive a right- of-way clearance and incur
additional costs attendant to laying connecting cable or erecting microwave
towers and repeater stations. As a result, a satellite communications system
frequently offers advantages as a cost-effective medium for long-distance
communications, as compared to the cost of a terrestrial communications system
which is usually higher.
Communications satellites use the C-band, X-band and Ku-band for
transmission in the radio frequency spectrum. The Company designs and
manufactures satellite communications earth station antennas that operate in
each of these frequency bands. C-band antennas are capable of receiving and
transmitting information in the radio frequency band of four to six gigahertz.
The C-band frequency spectrum is also used for terrestrial microwave
transmissions. Due to the increasing use of the C-band frequency, the Ku-band
frequency (12 to 14 gigahertz) has been reserved exclusively for satellite
transmission by the Federal Communications Commission ("FCC") and an
international agreement. Since wavelengths in the Ku-band are relatively short,
they can be gathered and concentrated by a smaller antenna dish than is
required with longer wavelength C-band transmissions. Therefore, Ku-band
transmission enables earth station vendors and voice, video, and data
communications service providers to bring satellite communications directly to
customers' facilities. The X-band frequency spectrum (seven to eight gigahertz)
is reserved for utilization in worldwide military satellite communications.
THE VERTEX STRATEGY
The Company's strategy is to provide a wide variety of advanced
earth station antennas and associated products to satisfy evolving customer
requirements. The Company believes its experience in refining current products
and developing new products will enable it to expand distribution and gain
market share.
The Company believes this strategy has been, and will continue to
be, successful because of the following key elements:
TECHNICAL EXPERTISE. Vertex believes its technical expertise,
together with its ability to comply with exacting engineering and design
specifications, has contributed to its ability to increase sales. The ability
of its engineering and design staff to respond rapidly to detailed customer
requirements has enhanced the Company's competitive position.
BROAD PRODUCT LINE. The Company's product strategy is to establish
and maintain a prominent market share by emphasizing the development and
distribution of a wide array of quality products. The Company believes its
telecommunications products comprise one of the industry's broadest product
lines. This
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extensive product line positions the Company to respond to a variety of
customer requirements and to gain market share by expanding penetration into
new and existing markets.
SKILLED SALES FORCE. The Company's distribution strategy focuses on
the needs of systems integrators and large end users that require a sales force
possessing advanced technical knowledge and expertise. The Company believes its
sales force is qualified to differentiate and promote the benefits of its
products from those offered by competitors, to respond promptly to solve
customers' communications problems, and to address customers' future
communications requirements as their needs evolve and organizational functions
change.
INTERNATIONAL OPERATIONS. Emerging demand has created the need for
substantial investment in telecommunications infrastructures in many
international markets. The Company believes that a significant opportunity
exists in the market for satellite earth station antennas and associated
products outside of the United States. The Company adapts its product
development, marketing and distribution strategies to comply with the unique
requirements of specific international markets. The Company expects its
international sales volume will continue to grow.
ACQUISITIONS AND GROWTH. The Company expects that planned sales
growth will be largely dependent on its ability to expand its existing plant
facilities and increase personnel or to implement selected, strategic
acquisitions which will complement existing business and enhance market share
in the industry.
PRODUCT DEVELOPMENT. The Company works closely with its customers
to identify market needs and define product specifications early in the
development process. This approach results in a thorough understanding of end
user requirements prior to commencement of the design process and often
positions the Company to develop and deliver new products or refinements of
existing products in response to its customers' needs more rapidly than many of
its competitors. The Company believes that the flexibility of its product
designs and the capabilities of its engineering staff, combined with its
adherence to superior quality control standards, have enabled it to be
consistently among the first-to-market with competitive new products or
innovative refinements of existing products.
VERTEX PRODUCTS
EARTH STATION ANTENNAS AND ASSOCIATED PRODUCTS. The Company
manufactures an extensive line of earth station antennas capable of operating
in the commercial and military frequency bands from one to 30 gigahertz, which
range in size from 1.2 to 34 meters in diameter, as well as the related
electronic components used to control the movement and tracking capabilities of
antennas. These products require exacting engineering skills and detailed
standards or specifications as established by each customer, involving not only
antenna design, but the complete integration of other components acquired from
the Company or other sources.
Through its subsidiary, Gamma-f Corp., the Company designs and
manufactures precision microwave waveguide components such as filters,
diplexers, and radio frequency feed subsystems. These products are sold
directly to end users and suppliers who integrate such products with other
components in telecommunications systems. The Company also utilizes these
products as component parts of certain of its antenna products.
Through its subsidiary, Vertex Antennentechnik GmbH, the Company
designs and supplies products which complement its existing broad line of
antenna products, such as precision antenna reflectors, multi-axis pedestals
(antenna support structures), controller drive systems, radio telescopes, and
optical telescopes.
In January 1995, the Company acquired Maxtech, Inc. ("Maxtech") of
State College, Pennsylvania. Maxtech designs and manufactures a variety of low
noise amplifiers (LNAs), solid state power amplifiers
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(SSPAs), and other related high performance products used in telecommunications
systems.This subsidiary's products have proven to be very complementary with
Vertex's product line and are often integral component parts of a typical earth
station communications system. This acquisition has been an important
contributor to the Company's recent sales growth.
The Company's products are utilized by its customers principally
for telecommunications applications with certain products used in radio
astronomy.
CUSTOM ENGINEERING. The Company relies upon its engineering
experience and expertise to provide its customers with custom-engineered
products that are not otherwise readily available in the marketplace.
Management believes this capability is a significant attribute that
distinguishes the Company from its competitors.
CUSTOMER SERVICES. In addition to the manufacture and supply of a
broad line of telecommunication antennas and related products, the Company also
offers a wide range of related services, including consulting; design and
configuration; turnkey field installation; site testing and performance
analysis; and after-sale maintenance services.
MARKETING, SALES, AND CUSTOMERS
GENERAL. The Company's marketing strategy is to offer a complete
line of high-technology antenna products, rather than to market complete
communications systems. The Company believes that this approach enables Vertex
to satisfy the needs of systems integrators (companies which sell complete
communications systems, but do not manufacture antennas or the particular
antenna needed). This approach also enables the Company to sell antenna
products directly to end users (ultimate customers) who combine the antennas
and associated products with other systems components to form complete
communications systems. The Company markets and supports its products through a
distribution system comprised of a direct sales force, supplemented in
international markets by independent sales representatives. Vertex augments
these sales methods by advertising certain products in trade magazines and by
displaying certain products at trade shows. The marketing and sales activities
of the Company focus on domestic and international markets for commercial,
governmental, and military applications. Vertex's marketing plan contemplates
sales growth through increasing market share and continued development of new
markets for its products.
SALES. The Company maintains a direct sales force in the United
States and Germany, and staffed sales offices in England and Singapore. In
addition to providing product and pricing information, Vertex's sales personnel
provide customers and potential customers value-added solutions and detailed
explanations of the benefits and advantages of the Company's products and
services as compared to those of its competitors. The Company's sales force
includes sales managers, engineers, sales representatives, and technical
support personnel. The Company's worldwide marketing and sales efforts are
directed and coordinated from its headquarters in Kilgore, Texas.
The Company believes that the rapidly evolving international market
will continue to be an important source of sales. The Company's international
sales are comprised of products manufactured in the United States and Germany,
and services performed on-site by its engineers and technical support
personnel. To enhance its foreign sales, the Company also engages the services
of foreign independent sales representatives to supplement its direct sales
force. These foreign sales representatives also offer products of other
manufacturers which are complementary to, but not competitive with, the
Company's products.
Sales to foreign customers involving products or services
originating in the United States are typically contracted for in U. S. dollars.
Foreign sales of products or services originating in Germany are usually
conducted in the German mark. International sales are subject to certain
government controls and other risks, including export licensing, currency
exchange rate fluctuations, political instability, trade restrictions, and
changes in tariffs and freight rates. Should any of these factors prove onerous
or change in a material
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unfavorable manner, the Company's delivery or completion of a sales contract
could be adversely affected. To date, the Company has not experienced any
material difficulties related to these factors.
Sales in Western Europe were 19%, 16%, and 18% of total sales in
fiscal 1996, 1995, and 1994, respectively. Sales in the Middle East were 10%
of total sales in fiscal 1996. Sales in Asian countries were 18%, 28%, and 22%
of total sales in fiscal 1996, 1995, and 1994, respectively. Export sales were
59%, 64%, and 63% of total sales in fiscal 1996, 1995, and 1994, respectively.
CUSTOMERS. Typical users of the Company's products include the
broadcast industry, international telecommunications companies, communications
common carriers, universities, private communications networks, and government
agencies. The Company's customers include a number of major companies and
government agencies throughout the world, including certain agencies of the U.
S. Government and various foreign governments.
The Company sells its products throughout the world to many
customers. In fiscal 1996, sales to GTE Corporation accounted for 12% of total
sales. In fiscal 1995 and 1994, Satellite Transmission Systems, Inc. accounted
for 16% and 19%, respectively, of total sales. No other customer accounted for
as much as 10% of the Company's total sales in fiscal 1996, 1995, or 1994.
The Company has been successful in recent years in diversifying its
customer base by increasing its penetration of existing and emerging markets
and developing new markets for its products. Sales growth during this period
has been fueled, in part, by the Company's ability to secure new customers and
to maintain relationships with existing customers. Due to large contracts
which may occur from time to time, one or more different customers may
represent a material part of the Company's total sales or unfilled backlog of
orders in any given year or at any point in time. The Company believes that
its relationships with its customers are excellent and that it will continue to
be a major supplier of satellite communications earth station products to its
major customers. If required, the Company believes that it could maintain
sales of its products at current levels to other customers if current
relationships with major customers were interrupted. Although several of these
relationships have existed for a number of years, there can be no assurance
that such relationships will continue. The loss of any of such major customers
could have a material adverse effect on the Company and its business.
Vertex does not seek to maintain a specific level of sales to the
various agencies of the U. S. Government, but rather targets certain types of
projects where the Company's existing products and/or expertise will enable it
to submit competitive bid proposals. Most of the Company's business with the
U. S. Government is on a fixed-price basis. Contracts with the U. S.
Government customarily include provisions which provide for cancellation at the
convenience of the Government. In addition, upon cancellation by the
Government, the Company could be entitled to reimbursement of costs incurred,
plus a pro rata share of profit. The Company has never received a cancellation
of a material Government contract and has no reason to anticipate any such
cancellation. Products sold, characteristics, and business risks associated
with U. S. Government business do not differ materially from those associated
with sales of the Company's products to its commercial customers.
CUSTOMER SUPPORT AND SERVICE. The Company services, repairs, and
provides technical support for its products. Through its sales network and
design and support services, the Company is constantly made aware of customers'
needs and their use of its products and services. Accordingly, a superior level
of continuing customer service and support is integral to the Company's
objective of developing and maintaining long-term relationships with its
customers. The majority of the Company's service and support activities are
provided by its field engineering team, systems engineers, and sales and
administrative support personnel, both on-site at the customer's location and
by telephone.
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FOREIGN OPERATIONS
The Company's foreign operations are conducted through its
wholly-owned German subsidiary, Vertex Antennentechnik GmbH, located in
Duisburg, Germany. Financial information relating to these foreign operations
for the past three years is shown below:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales to Unaffiliated Customers . . . . . . . . . . . . $3,918 $3,724 $5,922
Transfers between Geographic Areas . . . . . . . . . . . 1,360 889 1,059
Operating Income (Loss) . . . . . . . . . . . . . . . . (306) (263) 1,186
Identifiable Assets . . . . . . . . . . . . . . . . . . . 3,703 2,366 4,002
</TABLE>
The Company translates the financial statements of its German
subsidiary from its functional currency, the German mark, into U. S. dollars in
accordance with applicable financial accounting standards. Assets and
liabilities are translated at the exchange rate in effect at each fiscal year
end. Sales and expenses are translated at the weighted average exchange rate in
effect for the period reported. Any resulting gains or losses are recorded in
shareholders' equity and excluded from net income.
MANUFACTURING AND ENGINEERING
The Company's products are manufactured from standard components
and parts that are either built by the Company or by other manufacturers
pursuant to the Company's specifications. Vertex considers these components and
related materials to be commercially available in sufficient volume in the
industry and expects to experience no difficulty in obtaining any materials or
components needed in its manufacturing activities. However, should any of these
materials or components become unavailable for a significant period, the result
could have an adverse effect on the Company's business.
The Company's products require substantial engineering, design, and
technical support. In addition, although many of the Company's products are
standardized, custom engineering is frequently required to accomplish the
antenna modifications necessary for a particular application or installation.
The Company's engineering staff is also important to its research and
development activities. The Company has been successful in attracting and
retaining well-qualified engineering personnel and does not anticipate a
shortage of qualified personnel in the future.
The Company believes that its current manufacturing facilities
provide adequate manufacturing space for the foreseeable future. See Item 2 -
"Properties."
PRODUCT DEVELOPMENT
The Company's product research and development efforts are directed
primarily toward development, design, engineering, and implementation
activities rather than pure research. These activities are generally undertaken
in response to specific customer requests or anticipated requirements of the U.
S. Government for programs that have been identified by the Company. Funding
for these activities is derived from internally generated sources and, from
time to time, customers. For the years 1996, 1995, and 1994, the Company
expended $3,217,000, $2,165,000, and $2,637,000, respectively, on research and
development. Costs associated with product development work funded by customers
are included in the Company's cost of sales and the related revenues are
included in sales. The Company strives to continually upgrade its existing
products and develop new products to meet changing customer requirements and to
keep pace with evolving technology in the industry.
COMPETITION
The Company experiences substantial competition from a number of
established companies which provide a broad range of products to the satellite
communications earth station antenna market, including Andrew Corporation,
Comsat RSI SatCom Technologies, and Scientific-Atlanta, Inc. Certain of these
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companies have substantially greater financial and personnel resources than
those available to the Company. The Company's products may not be proprietary
or patentable, and may be subject to duplication and exploitation by its
competitors. Although many of these competitors offer antenna products which
are among the types or sizes produced by the Company, the Company believes that
no single competitor offers the diversity of antenna products produced by the
Company.
The Company believes that the most important competitive factors
are technical performance, capabilities, product performance, dependable
delivery, and price. Maintenance and service capabilities and manufacturing
experience in the industry are also important factors to a customer.
Accordingly, the Company strives to price its products competitively while
stressing its custom engineering and servicing capabilities based upon the
years of experience and technical expertise of its personnel in designing and
manufacturing antenna products and the Company's precision metal manufacturing
methods. The Company believes that its expertise in custom engineering and its
ability to meet customers' relatively short-lead time requirements provide it
with a distinct competitive advantage.
Due to competition in the industry where the Company competes,
periodic advances in technology can be expected. Therefore, the Company's
ability to maintain and improve in its existing markets and to enter new
markets is partially dependent upon its ability to evaluate advances in
technology and incorporate such advances where appropriate into its products in
a timely and effective manner.
INTELLECTUAL PROPERTY
The Company holds patents for certain products and processes. The
Company does not, however, consider patents important to its business, but
instead relies principally upon innovative management, technical expertise, and
marketing skills to develop, enhance, and market its products. The Company
believes it is less dependent on the protection of proprietary product
information than on its ability to timely and effectively develop, enhance, and
market its products to maintain the competitiveness of its products with those
of others. The Company protects its proprietary product information through the
selective use of nondisclosure agreements with customers, suppliers, and
industry partners and by limiting access to sensitive information.
The Company has no reason to believe that its products and
proprietary rights infringe on the proprietary rights of any third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future.
BACKLOG AND SEASONALITY
At October 31, 1996 and 1995, the Company's backlog of unfilled
orders believed to be firm was approximately $41 million and $44 million,
respectively. The backlog of unfilled orders at October 31, 1996, included
approximately $1.5 million of contracts with the U. S. Government. As is
customary, these contracts include provisions which allow for cancellation at
the convenience of the Government or prime contractor. Upon exercise of these
provisions, the Company would be entitled to reimbursement of costs incurred
and a pro rata share of profit. The Company has never received a cancellation
of a material government contract and believes no such event is threatened. The
Company expects that a substantial portion of the October 31, 1996 backlog will
be completed and delivered in fiscal year 1997.
The levels of sales and net income of the Company fluctuate
moderately on a quarterly basis. The variability in recent years has been
demonstrated by typically higher sales and net income in the fiscal quarters
ending in June and September of each fiscal year. The primary reason for this
pattern is the need for customers to complete installations during warm weather
months. The fiscal quarter ending in September can also be affected by the
timing of sales to U. S. Government agencies.
Other factors which have caused quarterly fluctuations in sales and
net income include variability of shipments under large contracts and
variations in product mix and in profitability of individual orders. The
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Company believes these aberrations may continue to have similar impact on
future results of operations, but their timing and placement within particular
quarterly periods on an ongoing basis cannot be predicted. Consequently, the
Company believes it is more meaningful to focus on annual rather than interim
results. In addition, due to the timing differences from year-to-year in the
receipt of large nonrecurring sales contracts, year-to-year comparisons of
backlog can be misleading and are not necessarily indicative of future
revenues.
ENVIRONMENTAL COMPLIANCE
Due to the nature of the Company's products, it has not been
materially affected to date by environmental laws. The Company does not
anticipate its business will be materially affected by any current or expected
environmental laws.
GOVERNMENT REGULATION
Although the Company is not directly regulated by any governmental
agency, most of its United States customers, and the telecommunications
industry in general, are subject to regulation by the Federal Communications
Commission (the "FCC"). In recent years, FCC decisions permitting greater
competition among common carriers have had a favorable impact on the Company.
In addition, the FCC controls the allocation of transmission frequencies and
the performance characteristics of earth station antennas. As a result of these
controls, the Company's antenna design specifications must conform on an
ongoing basis to meet FCC or other regulatory requirements. These regulations
are not expected to adversely affect the operations of the Company.
Outside the United States, where some of the customers of the
Company have been government- owned and operated entities, changes in
government economic policy and communications regulation have affected in the
past, and may be expected to affect in the future, the volume of foreign
business. However, the effect of regulation in countries other than the United
States in which the Company does business has generally not been detrimental to
the international activities of the Company taken as a whole and is not
expected to be detrimental to such activities in the foreseeable future.
EMPLOYEES
As of October 31, 1996, the Company employed approximately 625
full-time employees.
None of the Company's employees is represented by a labor
organization and the Company is not a party to any collective bargaining
agreement. The Company has never had an employee strike or a work stoppage and
considers its relations with its employees to be good. The Company has not
experienced any difficulty in attracting and retaining qualified employees.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides for
forward-looking statements. Certain information in Items 1, 2, 3, 7, and 8 of
this Annual Report on Form 10-K includes information that is forward-looking,
such as the Company's anticipated sales levels, its anticipated liquidity and
capital requirements and the results of legal proceedings. The matters referred
to in forward-looking statements could be affected by the risks and
uncertainties involved in the Company's business. These risks and uncertainties
include, but are not limited to, the effect of economic and market conditions,
unpredictable reductions in funding for government defense expenditures, and
the risks associated with international sales, including restrictions, export
license requirements, tariff regulations, and other United States and foreign
risks described above in this Item under "Marketing, Sales and Customers,"
"Manufacturing and Engineering," "Competition," "Intellectual Property,"
"Backlog and Seasonality," and Government Regulation" and below in Item 3 in
"Legal Proceedings" and in Item 7 in "Management's Discussion and Analysis of
Financial Condition and Results of
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Operations." Subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements in this paragraph and
elsewhere in this Annual Report on Form 10-K.
ITEM 2. PROPERTIES.
The Company owns and maintains executive and administrative
offices, manufacturing facilities, and a product testing site at its
headquarters at 2600 N. Longview Street, Kilgore, Texas. The following is a
listing of the properties owned or leased by Vertex and its subsidiaries as of
October 31, 1996.
<TABLE>
<CAPTION>
Approximate Area Owned
Location Principal Use in Square Feet or Leased
-------- ------------- ---------------------- ---------
<S> <C> <C> <C>
Kilgore, Texas Executive, administrative, 231,000 on Owned in fee
engineering, manufacturing, 55 acres of land
and testing
Longview, Texas Administrative, engineering, and 30,000 Leased to October
manufacturing 1997
Torrance, Administrative, engineering, and 37,000* Leased to
California manufacturing June 1997
State College, Administrative, engineering, and 18,000 Leased to March
Pennsylvania manufacturing 1998
Duisburg, Germany Administrative and engineering 4,000 Leased to
February 1997
Surrey, England Administrative 1,000 Leased to January
1997
Singapore Administrative Less than 1,000 Leased to
December 1996
</TABLE>
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* Approximately 15,000 square feet of the total floor space is
subleased to a third party.
The Company believes its facilities are adequate and will be
suitable to meet its requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which would
have a material, adverse effect on the Company or its business and does not
believe that any such legal proceedings are threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders of the
Company, through solicitation of proxies or otherwise.
-9-
<PAGE> 11
PART II
The information required by Items 5 through 8, inclusive, of this
report is contained in the Registrant's Annual Report to Shareholders for its
fiscal year ended September 30, 1996 (the "1996 Annual Report"), selected
portions of which are incorporated herein by reference, as described below.
With the exception of the material incorporated by reference herein, the 1996
Annual Report is not deemed filed as a part of this Annual Report on Form 10-K.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information appearing under the caption "Market for Common
Stock" on page 24 of the 1996 Annual Report is hereby incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing in the "Selected Financial Data" table on
page 1 of the 1996 Annual Report is hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information appearing under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 14 and 15 of the 1996 Annual Report is hereby incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of Vertex Communications
Corporation and Subsidiaries and Notes thereto, appearing on pages 16 through
23, inclusive, together with the Report of Arthur Andersen LLP, Independent
Public Accountants, thereon, appearing on page 24 of the 1996 Annual Report,
are hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-10-
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The information regarding directors of the Registrant in response
to Item 7 of Schedule 14A promulgated pursuant to the Securities Exchange Act
of 1934 (the "Exchange Act"), which will appear in the Registrant's definitive
Proxy Statement in connection with the solicitation of proxies for its 1997
Annual Meeting of Shareholders, is hereby incorporated herein by reference.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of all
executive officers of the Registrant, their respective positions and offices
with the Registrant, and the period during which each has served as an
executive officer.
<TABLE>
<CAPTION>
SERVED AS
EXECUTIVE
NAME AGE POSITION(S)(1) OFFICER SINCE
---- --- ----------- -------------
<S> <C> <C> <C>
J. Rex Vardeman . . . . . . . . . 57 Chairman of the Board, October, 1984
President, Chief Executive Officer
and Director
A. Don Branum . . . . . . . . . . 59 Senior Vice President, Assistant October, 1984
Secretary and Director of the
Company; and
Vice President/General Manager,
Vertex Antenna Division
James D. Carter . . . . . . . . . 49 Vice President-Finance, October, 1984
Treasurer and Director
Bill R. Womble(2) . . . . . . . . 58 Secretary and Director October, 1984
William L. Anton . . . . . . . . 58 Vice President of the Company; and December, 1984
Vice President - Marketing,
Vertex Antenna Division
H. Dean Bunnell . . . . . . . . . 49 Vice President of the Company; and January, 1995
President and Chief Executive
Officer, Maxtech, Inc.
Manfred Stupnik . . . . . . . . 54 Vice President of the Company; and January, 1995
President, Gamma-f Corp.
</TABLE>
- ---------------------------------
(1) All executive officers of the Registrant are elected annually by the Board
of Directors and serve at the discretion of the Board. There are no family
relationships between any director or executive officer of the Registrant
and any other such person.
(2) Mr. Womble is not an employee of the Registrant.
-11-
<PAGE> 13
The following information, as furnished by each of the persons
named, relates to the business experience of each executive officer of the
Registrant named above.
J. Rex Vardeman is a co-founder of the Company and has served as
Chairman of the Board, President, Chief Executive Officer and a director since
its inception in October 1984. Prior to founding the Company, Mr. Vardeman
served as Vice President of Harris Antenna Operations ("Harris Antenna
Operations"), a unit of the Satellite Communications Division of Harris
Corporation ("Harris"), until the acquisition in 1984 of the Harris Antenna
Operations by the Company. In 1973, Mr. Vardeman co-founded Radio Mechanical
Structures, Inc. ("RMS"), the predecessor to the Harris Antenna Operations, and
served as its Vice President and General Manager and a director until the
acquisition of RMS by Harris in 1977. For more than ten years prior thereto, he
was employed by E-Systems, Inc., a major electronics company, in various
engineering and management positions.
A. Don Branum, a co-founder of the Company, has served as Senior
Vice President, Assistant Secretary, and a director since its inception in
October 1984 and as Vice President/General Manager of the Company's Vertex
Antenna Division since April 1994. Prior to joining the Company, Mr. Branum
served as Vice President of the Harris Antenna Operations, with responsibility
for product marketing. Mr. Branum served as President of Dallas
Telecommunications, Inc., a communications marketing and consulting firm which
he founded from 1981 through 1984. From 1978 through 1981, Mr. Branum served as
Vice President and General Manager of the Satellite Communications Division of
Harris, of which the Harris Antenna Operations were a part. Mr. Branum was a
co-founder of RMS in 1973 and served as its President and a director until its
acquisition by Harris in 1977.
James D. Carter has served the Company as Vice President - Finance
and Treasurer and a director since its inception in October 1984. Prior to
joining the Company, Mr. Carter was employed by Harris as Controller of the
Harris Antenna Operations since 1978. For more than six years prior thereto,
Mr. Carter was employed by Harris in various accounting positions.
Bill R. Womble has served as Secretary and a director of the
Company since October 1984. He has been continuously engaged in the private
practice of law since 1963 and is a shareholder of the firm of Thompson &
Knight, P.C. (attorneys), Dallas, Texas. Mr. Womble is not an employee of the
Company.
William L. Anton has served as Vice President of the Company since
October 1984 and as Vice President - Marketing of Vertex Antenna Division since
September 1995. Prior to appointment to his current positions, Mr. Anton
previously served in the position of Vice President - International Marketing
since 1987 and as Vice President - Operations from December 1984 through
October 1987. From April 1984 through December 1984 and from August 1977 until
April 1984, Mr. Anton served as Director of Operations and Program Director,
respectively, of the Harris Antenna Operations.
H. Dean Bunnell has served as Vice President of the Company since
January 1995, immediately following the acquisition of Maxtech, Inc.
("Maxtech") as a wholly-owned subsidiary of the Company. Mr. Bunnell is a
co-founder of Maxtech and has served as its President and Chief Executive
Officer since its inception in 1989, and has continued to serve in such
positions since the Company's acquisition of Maxtech.
Manfred Stupnik has served as Vice President of the Company since
January 1995 and as President of Gamma-f Corp., a wholly-owned subsidiary of
the Company, since 1991. Prior thereto, Mr. Stupnik held positions as Vice
President of Operations and Vice President-Commercial Products during his 25
years of continuous tenure with Gamma-f Corp.
-12-
<PAGE> 14
EMPLOYMENT AGREEMENTS
J. Rex Vardeman, A. Don Branum and James D. Carter, in their
capacities as (i) Chairman of the Board, President and Chief Executive Officer,
(ii) Senior Vice President, and (iii) Vice President - Finance and Treasurer of
the Company, respectively, have each executed employment agreements with the
Company. These employment agreements are each for three-year terms which
automatically renew on a daily basis.
Among other provisions, these agreements provide that, in
consideration for remaining in the employ of the Company, each officer is
entitled, subject to certain conditions, to receive benefits in the event of
termination of employment under certain circumstances, including, among other
reasons, a change of control of the Company. If such an officer is terminated
for a reason other than (a) his death, disability or retirement, (b) for cause,
or (c) his voluntary termination other than for good reason, such officer would
be entitled to receive from the Company, except as otherwise indicated below, a
lump-sum severance payment equal to the sum of the following payments: (i) the
officer's full base salary through the effective date of his termination at the
rate then in effect, (ii) any authorized but unreimbursed business expenses and
any vacation benefits which have accrued but are unpaid or unused as of the
effective date of termination, (iii) any accrued but unpaid annual bonus
compensation to the effective date of termination, but without accelerating the
bonus payment date, (iv) an amount equal to three times the average aggregate
direct annual compensation (salary and bonus) of the officer for the five
fiscal years of the Company ended immediately prior to the effective date of
his termination, and (v) in the event such officer is subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), resulting from any "excess parachute payment" received by such officer
as described in Section 280G(b) of the Code, an amount sufficient to ensure
that after payment of such excise tax, plus interest or penalties thereon, if
any, as the result of such "excess parachute payment," such officer will retain
free and clear of all claims, taxes, and impositions an amount equal to such
excise tax, interest and penalties, if any, imposed upon the excess payment
received. In the event that any such officer receives a parachute payment as a
result of termination of employment, such officer would be deemed to receive an
"excess parachute payment" if it equals or exceeds 300% of the officer's "base
amount," generally the average annual compensation received by such officer
over the five most recent tax years. The "excess parachute payment" is computed
as that portion of the "parachute payment" which exceeds the "base amount."
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Registrant's
directors and officers, and persons who own more than 10% of a registered class
of the Registrant's equity securities, to file initial reports of ownership
and reports of changes in ownership of the Registrant's securities with the
Securities and Exchange Commission (the "Commission") on Forms 3, 4, or 5, as
applicable. Such persons are required by regulations promulgated by the
Commission pursuant to the Exchange Act to furnish the Registrant with copies
of all such Section 16(a) report forms they file with the Commission.
Based solely on its review of the copies of such report forms
received by it with respect to fiscal year 1996, or written representations
from certain reporting persons, the Registrant believes that all filing
requirements applicable to its directors, officers, and persons who own more
than 10% of a registered class of the Registrant's equity securities have been
timely complied with in accordance with Section 16(a) of the Exchange Act.
-13-
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION.
The information regarding executive compensation in response to
Item 8 of Schedule 14A which will appear in the Registrant's definitive Proxy
Statement in connection with the solicitation of proxies for its 1997 Annual
Meeting of Shareholders is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information regarding security ownership of certain
beneficial owners and management in response to Item 6 of Schedule 14A which
will appear in the Registrant's definitive Proxy Statement in connection with
the solicitation of proxies for its 1997 Annual Meeting of Shareholders is
hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information regarding certain relationships and related
transactions in response to Item 7 of Schedule 14A which will appear in the
Registrant's definitive Proxy Statement in connection with the solicitation of
proxies for its 1997 Annual Meeting of Shareholders is hereby incorporated
herein by reference.
-14-
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE IN 1996
(a)1. CONSOLIDATED FINANCIAL STATEMENTS. ANNUAL REPORT
-------------
Report of Independent Public Accountants . . . . . . . . . 24
Consolidated Statements of Income
For the years ended September 30,
1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . 16
Consolidated Balance Sheets
As of September 30, 1996 and 1995 . . . . . . . . . . . 17
Consolidated Statements of Cash Flows
For the years ended September 30,
1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Shareholders' Equity
For the years ended September 30,
1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . 19
Notes to Consolidated Financial Statements . . . . . . . . 20
2. FINANCIAL STATEMENT SCHEDULES. PAGE NO.
--------
Report of Independent Public Accountants on Schedule . . . S-1
SCHEDULE
--------
II - Valuation and Qualifying Accounts . . . . . . . . S-2
All other schedules are omitted because they are either not required
or not applicable or the required information is shown in the Consolidated
Financial Statements or Notes thereto.
(b) REPORTS ON FORM 8-K.
The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report, and none was required.
-15-
<PAGE> 17
(c) EXHIBITS.
The following Exhibits are filed herewith pursuant to Item 601 of
Regulation S-K or are incorporated herein by reference to previous filings
noted, as applicable:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.1 . . Restated Articles of Incorporation of the Registrant
filed as Exhibit 3-A to the Registrant's Statement on
Form S-18 (File No. 33-1094-FW).
3.2 . . Bylaws of the Registrant filed as Exhibit 3-B to the
Registrant's Registration Statement on Form S-18
(File No. 33-1094-FW).
3.3 . . Articles of Amendment to the Restated Articles of
Incorporation of the Registrant filed as Exhibit 3-C to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1988 (File No. 0-15277).
3.4 . . Articles of Amendment to the Restated Articles of
Incorporation, as amended, of the Registrant.
3.5 . . First Amendment to the Bylaws of the Registrant filed
as Exhibit 3-D to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1988
(File No. 0-15277).
3.6 . . Second Amendment to the Bylaws of the Registrant adopted
October 29, 1991 filed as Exhibit 3-E to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1991 (File No. 0-15277).
10.1 . . Savings/Profit Sharing Plan of the Registrant, as
amended and restated, effective as of June 1, 1991 filed
as Exhibit 10-A to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991
(File No. 0-15277).
10.2 . . Stock Option Plan for Key Employees of the Registrant
filed as Exhibit A to the Registrant's definitive Proxy
Statement in connection with the solicitation of proxies
for its 1987 Annual Meeting of Shareholders (File No.
0-15277).
10.3 . . First Amendment to the Stock Option Plan for Key
Employees filed as Exhibit 10-E to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1988 (File No. 0-15277).
10.4 . . Second Amendment to the Stock Option Plan for Key
Employees - Filed as Exhibit A to the Registrant's
definitive Proxy Statement in connection with the
solicitation of proxies for its 1992 Annual Meeting of
Shareholders (File No. 0-15277).
10.5 . . 1995 Stock Compensation Plan of the Registrant filed as
Exhibit A to the Registrant's definitive Proxy Statement
in connection with the solicitation of proxies for its
1995 Annual Meeting of Shareholders (File No. 0-15277).
10.6 . . Management Incentive Compensation Plan of the Registrant
filed as Exhibit 10-F to the Registrant's Registration
Statement on Form S-18 (File No. 33-1094-FW).
10.7 . . Qualified Employee Stock Purchase Plan of the Registrant
filed as Exhibit 10-G to the Registrant's Registration
Statement on Form S-18 (File No. 33-1094-FW).
-16-
<PAGE> 18
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.8 . . Outside Directors Stock Option Plan of the Registrant
filed as Exhibit B to the Registrant's definitive Proxy
Statement in connection with the solicitation of proxies
for its 1987 Annual Meeting of Shareholders (File No.
0-15277).
10.9 . . Executive Employment Agreement, dated November 10, 1994,
by and between the Registrant and J. Rex Vardeman,
Chairman of the Board, President and Chief Executive
Officer of the Registrant.
10.10 . . Executive Employment Agreement, dated November 10, 1994,
by and between the Registrant and A.Don Branum, Senior
Vice President of the Registrant.
10.11 . . Executive Employment Agreement, dated November 10, 1994,
by and between the Registrant and James D. Carter, Vice
President - Finance and Treasurer of the Registrant.
10.12 . . Management Incentive Compensation Plan of the Registrant,
as amended and restated effective October 1, 1995.
10.13 . . Management Incentive Compensation Plan for Divisions of
the Registrant, as amended and restated effective
October 1, 1995.
10.14 . . Management Incentive Compensation Plan of Gamma-f Corp.,
a wholly-owned subsidiary of the Registrant, as amended
and restated effective October 1, 1995.
10.15 . . Management Incentive Compensation Plan of Maxtech, Inc.,
a wholly-owned subsidiary of the Registrant, as amended
and restated effective October 1, 1995.
10.16* . . Employee Profit Sharing Bonus Plan of the Registrant, as
amended and restated effective October 1, 1996.
10.17* . . Employee Profit Sharing Bonus Plan of Gamma-f Corp., a
wholly-owned subsidiary of the Registrant, as amended and
restated effective as of October 1, 1996.
10.18 . . Indemnification Agreement, dated October 26, 1994, by and
between the Registrant and J. Rex Vardeman; and schedule
of other officers and directors of the Registrant, each
of whom has entered into a similar agreement with the
Registrant.
11* . . Computation of Net Income Per Share.
13* . . Annual Report to Shareholders of the Registrant for the
year ended September 30, 1996, to the extent specified in
Parts II, III and IV hereof.
22* . . Subsidiaries of the Registrant.
24* . . Consent of Independent Public Accountants.
27* . . Financial Data Schedule.
*Filed herewith.
- ---------------------------
-17-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 20, 1996 Vertex Communications Corporation
(Registrant)
By: /s/ J. REX VARDEMAN
J. Rex Vardeman
--------------------------------
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. REX VARDEMAN Chairman of the Board, December 20, 1996
- ----------------------------- President, Chief
J. Rex Vardeman Executive Officer (Principal
Executive Officer) and
Director
/s/ A. DON BRANUM Director December 20, 1996
- -----------------------------
A. Don Branum
/s/ JAMES D. CARTER Vice President - Finance December 20, 1996
- ----------------------------- (Principal Financial and
James D. Carter Accounting Officer), Treasurer
and Director
/s/ BILL R. WOMBLE Director December 20, 1996
- -----------------------------
Bill R. Womble
/s/ DONALD E. HEITZMAN, SR. Director December 20, 1996
- -----------------------------
Donald E. Heitzman, Sr.
</TABLE>
-18-
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SCHEDULE
To the Shareholders of Vertex Communications Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Vertex
Communications Corporation's 1996 annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated October
25, 1996. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Dallas, Texas
October 25, 1996
S-1
<PAGE> 21
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(In thousands)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGES TO CHARGES TO BALANCE
BEGINNING COST AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
Year Ended 9/30/96 $241 $ 35 $ -- $ (8)(1) $268
Year Ended 9/30/95 263 (22) -- -- 241
Year Ended 9/30/94 263 60 -- 60(1) 263
ALLOWANCE FOR
INVENTORY OBSOLESCENCE
Year Ended 9/30/96 $417 $536 $ -- $182(2) $771
Year Ended 9/30/95 451 (34) -- -- 417
Year Ended 9/30/94 330 121 -- -- 451
ALLOWANCE FOR
WARRANTY CLAIMS
Year Ended 9/30/96 $591 $343 $ -- $404(3) $530
Year Ended 9/30/95 460 303 -- 172(3) 591
Year Ended 9/30/94 433 310 -- 283(3) 460
</TABLE>
- ----------------------------
(1) Doubtful accounts written off, less recoveries.
(2) Disposal of obsolete inventory.
(3) Warranty claims processed.
S-2
<PAGE> 22
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Number DESCRIPTION
- ------ -----------------------------------------------------------------
<S> <C>
10.16 Employee Profit Sharing Bonus Plan of the Registrant, as amended
and restated effective October 1, 1996.
10.17 Employee Profit Sharing Bonus Plan of Gamma-f Corp., a
wholly-owned subsidiary of the Registrant, as amended and
restated effective as of October 1, 1996.
11 Computation of Net Income Per Share.
13 Annual Report to Shareholders of the Registrant for the year
ended September 30, 1996, to the extent specified in
Parts II, III and IV hereof.
22 Subsidiaries of the Registrant.
24 Consent of Independent Public Accountants.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.16
EMPLOYEE PROFIT SHARING BONUS PLAN OF VERTEX COMMUNICATIONS CORPORATION
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996)
<PAGE> 2
Exhibit 10.16
EMPLOYEE PROFIT SHARING BONUS PLAN
OF
VERTEX COMMUNICATIONS CORPORATION
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996)
1. PURPOSE OF PLAN. The Employee Profit Sharing Bonus Plan is
intended to promote the growth and development of the Company by providing
bonus compensation as a reward to those employees who contribute by their
ability, industry, and longevity to the growth, development, and profitability
of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall
have the ascribed meanings unless otherwise clearly apparent from the context:
"Annual Operating Plan" (AOP) - shall mean the projected plan of
operations of the Company or each of its Divisions, as applicable, as approved
by the Board of Directors for a designated Fiscal Year.
"Applicable Management Incentive Plan" - shall mean the
Management Incentive Plan established for the organization in which the
Participant works during the fiscal year.
"Board of Directors" - shall mean the Board of Directors of
Vertex Communications Corporation.
"Bonus" - shall mean a cash distribution to be made to a
Participant for a Fiscal Year as determined in accordance with the provisions
of the Plan.
"Bonus Fund" - shall mean the targeted amount established each
Fiscal Year for the Company and each of its Divisions by the Board of Directors
to fund the payment of the Bonuses for such Fiscal Year hereunder.
"Bonus Share" - shall mean the share of the Bonus Fund allotted
to each Participant in accordance with the provisions of the Plan.
"Company" - shall mean Vertex Communications Corporation.
<PAGE> 3
"Compensation Committee" - shall mean the Compensation Committee
of the Board of Directors.
"Division" - shall mean any Division of the Company, including
Vertex Antenna Division, Vertex Control Systems Division, and Vertex Integrated
Satellite Antenna Technology Division, and any other Division of the Company to
which this Plan shall hereafter become applicable by action of the Board of
Directors..
"Employee" - shall mean a person who is in the regular full-time
employment of the Company or a Division as determined by the personnel policies
and practices of the Company or such Division for the entire Fiscal Year
applicable to the Plan, except, however, any such person who is an officer or
director of the Company or a participant pursuant to the Management Incentive
Compensation Plan of the Company or a Division thereof for such Fiscal Year.
"Fiscal Year" - shall mean the taxable year of the Company or its
Divisions, as applicable, ending September 30.
"Participant" - shall mean any employee who is eligible to
receive a Bonus during the Fiscal Year.
"Plan" - shall mean the Employee Profit Sharing Bonus Plan of the
Company and its Divisions as amended and restated effective as of October 1,
1996.
"Pretax Income" - shall mean for each Fiscal Year the net incomes
of the Company or such Division, as applicable, before federal and state taxes
determined in accordance with generally accepted accounting principles
consistently applied and as approved by the independent public accountants who
have examined the financial accounts and records of the Company and each of its
Divisions for such Fiscal Year; provided, however, that such Pretax Income
determination shall be adjusted to include the effect of the amount of any
Bonus paid or to be paid to a Participant pursuant to the Plan.
<PAGE> 4
"Projected Pretax Income" - shall mean for each Fiscal Year the
level of Pretax Income projected and approved by the Board of Directors to be
achieved by the Company and each of its Divisions, respectively, for such
Fiscal Year pursuant to the Annual Operating Plan as related to the Company or
its appropriate Divisions, as applicable, for such Fiscal Year.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Compensation Committee appointed by the Board of Directors. The
Compensation Committee shall consist of not less than two (2) members of the
Board of Directors. The Board of Directors may from time to time appoint
members of the Compensation Committee in substitution for or in addition to
members previously appointed and may fill vacancies, however caused, in the
Compensation Committee. The Compensation Committee shall select one of its
members as its Chairman and shall hold its meetings at such times and places as
it shall deem advisable.
A majority of the members of the Compensation Committee shall
constitute a quorum. All action of the Compensation Committee shall be taken
by a majority of its members. Any action may be taken by written instrument
signed by a majority of the members, and any action so taken shall be deemed
fully as effective as if it had been taken by a vote of the majority of the
members at the meeting duly called and held. The Compensation Committee may
appoint a Secretary, shall keep minutes of its meetings, and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
The Compensation Committee shall have the sole authority and
power, subject to the express provisions and limitations of the Plan, to
construe the Plan and to adopt, prescribe, amend, and rescind rules and
regulations relating to the Plan, and to make all determinations necessary or
advisable for administering the Plan. No member of the Board of Directors or
the Compensation Committee shall be liable for any action or determination made
in good faith with respect to the Plan.
<PAGE> 5
All determinations, decisions, and directions made or given by
the Board of Directors or the Compensation Committee under the Plan shall be
final and conclusive. The decision of the Board of Directors or the
Compensation Committee on any question concerning or involving the
interpretation or administration of the Plan shall be final and conclusive, and
no provision of the Plan shall be deemed to give any Employee, his/her legal
representative or assigns, any right to participate in the Plan, except to such
extent, if any, as the Compensation Committee may have determined or approved
pursuant to the provisions of the Plan.
4. PARTICIPATION IN THE PLAN. All Employees in the regular employ
of the Company or a Division as of the beginning of each Fiscal Year (October
1) are eligible to participate in the Plan.
5. DETERMINATION OF THE BONUS FUND. Prior to the commencement of
each Fiscal Year, the Board of Directors shall determine the Projected Pretax
Income of the Company and each Division, respectively, for such Fiscal Year and
the amount of the Bonus Share of each Participant in and to the Bonus Fund for
such Fiscal Year, subject to the terms of the Plan. Within thirty (30) days
thereafter, the Compensation Committee shall determine the Bonus Share of the
Bonus Fund to be allocated to each Participant for such Fiscal Year pursuant to
the following procedures:
Step One:
The aggregate number of years of employment service of each
Participant with the Company or the Division, as applicable,
shall be multiplied by the hourly rate of compensation of each
such Participant on October 1 of such Fiscal Year.
Step Two:
The mathematical products thus determined in Step One above for
all Participants employed by the Company or Division, as
applicable, shall be aggregate in a total sum.
<PAGE> 6
Step Three:
The quotient (expressed as a percentage) obtained by dividing
the amount determined in Step One above as to each Participant
by the aggregate amount determined in Step Two above shall
constitute the Bonus Share of each respective Participant in
and to the Bonus Fund for such Fiscal Year.
Step Four:
The amount of the Bonus Share of each Participant (expressed in
dollars) in and to the Bonus Fund for each Fiscal Year shall be
determined by multiplying the bonus Fund for such Fiscal Year
applicable to the Company or Division, as appropriate, by the
quotient obtained in Step Three above as to such Participant.
The Compensation Committee shall notify each Participant in the
Plan of his/her Bonus Share for such Fiscal Year as soon as practical after the
projected amount thereof has been determined in accordance with the provisions
of the Plan.
6. AWARD OF BONUS COMPENSATION. Within sixty (60) days after
completion of the Company's Fiscal Year, the Compensation Committee shall
determine the amount of the Bonus to be paid to each Participant for such
Fiscal Year. The final pre-tax or net income, as applicable, utilized to
calculate the bonus share for each participant shall be determined using the
same method used for the Applicable Management Incentive Plan.
7. FORFEITURE OF INCENTIVE COMPENSATION. A Participant shall be
entitled to and shall receive the full amount of his/her Bonus for a Fiscal
Year, provided such Participant remains in the full-time employ of the Company
or the Division, as applicable, for such entire Fiscal Year. A Participant
whose employment is terminated for any reason shall forfeit his/her
participation in the Plan and shall not be entitled to any Bonus for such
Fiscal Year. Notwithstanding the preceding, in the event of the death,
retirement, permanent disability, or any extended absence of a Participant, the
Compensation Committee shall have the power and authority to determine whether
an award should
<PAGE> 7
be paid to such Participant for such Fiscal Year. The determination of the
Compensation Committee in the exercise of such power and authority in its sole
discretion shall be final and binding upon each Participant and anyone claiming
by or through such Participant.
8. AMENDMENT OR TERMINATION. The Board of Directors may, from time
to time, amend, modify, change, suspend, or terminate, in whole or in part, any
or all of the provisions of the Plan, except that:
(a) No amendment, modification, change, suspension, or
termination may affect any right of any Participant to receive
a Bonus made to him/her prior to the effective date of such
amendment, modification, change, suspension, or termination;
and,
(b) No amendment, modification, or change may withdraw the
obligation and right of interpretation and administration of
the Plan from the Compensation Committee.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Plan shall be deemed to
give any Employee or his/her legal representative or assigns, or any other
person or entity claiming under or though him/her, any contract or other right
to participate in the benefits of the Plan other than as expressly set forth
herein. Nothing in the Plan shall be construed as constituting a commitment,
guarantee, agreement, or understanding of any kind or nature that the Company
or any Division will continue to employ any individual (whether or not an
Employee or a Participant); nor shall the Plan affect in any way the right of
the Company or its Divisions to terminate the employment of any individual
(whether or not an Employee or a Participant) at any time.
10. INDEMNIFICATION OF COMPENSATION COMMITTEE. In addition to such
other rights of indemnification as they may have as members of the Board of
Directors or as members of the Compensation Committee, the members of the
Compensation Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit, or proceedings, or
in connection with any appeal
<PAGE> 8
thereof, to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit, or proceedings, except
in relation to matters as to which it shall be adjudged in such action, suit,
or proceedings that such Compensation Committee member is liable for
negligence or misconduct in the performance of his/her duties, provided that
within thirty (30) days after institution of any such action, suit, or
proceedings a Compensation Committee member shall in writing offer the Company
the opportunity, at its own expense, to pursue and defend the same.
11. EFFECTIVE DATE AND TERM. This Plan (as hereby amended and
restated) supersedes all prior employee profit sharing bonus plans of the
Company or a respective Division, and shall be effective commencing as of
October 1, 1996, and shall remain in effect until terminated by the Board of
Directors.
Executed this 27th day of September, 1996.
VERTEX COMMUNICATIONS CORPORATION
By: /s/ J. REX VARDEMAN
J. REX VARDEMAN, President
ATTEST:
By: /s/ BILL R. WOMBLE
BILL R. WOMBLE, Secretary
<PAGE> 1
EXHIBIT 10.17
EMPLOYEE PROFIT SHARING BONUS PLAN OF GAMMA-F CORP.
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996)
<PAGE> 2
Exhibit 10.17
EMPLOYEE PROFIT SHARING BONUS PLAN
OF
GAMMA-F CORP.
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996)
1. PURPOSE OF PLAN. The Employee Profit Sharing Bonus Plan is
intended to promote the growth and development of the Company by providing
bonus compensation as a reward to those employees who contribute by their
ability, industry, and longevity to the growth, development, and profitability
of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall
have the ascribed meanings unless otherwise clearly apparent from the context:
"Annual Operating Plan" (AOP) - shall mean the projected plans of
operations of the Company as approved by the Board of Directors for a
designated Fiscal Year.
"Board of Directors" - shall mean the Board of Directors of
Vertex Communications Corporation, the corporate parent of the Company, unless
otherwise clearly indicated.
"Bonus" - shall mean a cash distribution to be made to a
Participant for a Fiscal Year as determined in accordance with the provisions
of the Plan.
"Bonus Fund" - shall mean the targeted amount established each
Fiscal Year by the Board of Directors to fund the payment of the Bonuses for
such Fiscal Year hereunder.
"Bonus Share" - shall mean the share of the Bonus Fund allotted
to each Participant in accordance with the provisions of the Plan.
"Company" - shall mean Gamma-f Corp., a Subsidiary of Vertex
Communications Corporation.
"Compensation Committee" - shall mean the Compensation Committee
of the Board of Directors.
<PAGE> 3
"Employee" - shall mean any person in the regular full-time
employment of the Company as determined by the personnel policies and practices
of the Company for the entire Fiscal Year applicable to the Plan, except,
however, any such person who is an officer or director of the Company or a
participant pursuant to the Management Incentive Compensation Plan of the
Company for such Fiscal Year.
"Fiscal Year" - shall mean the taxable year of the Company ending
September 30.
"Participant" - shall mean any Employee who is eligible to
receive a Bonus during the Fiscal Year.
"Plan" - shall mean the Employee Profit Sharing Bonus Plan of the
Company, as amended and restated effective as of October 1, 1996.
"Pretax Income" - shall mean for each Fiscal Year the net income
of the Company before federal and state taxes determined in accordance with
generally accepted accounting principles consistently applied and as approved
by the independent public accountants who have examined the financial accounts
and records of the Company for such Fiscal Year; provided, however, that such
Pretax Income determination shall be adjusted to include the effect of the
amount of any Bonus paid or to be paid to a Participant pursuant to the Plan.
"Projected Pretax Income" - shall mean for each Fiscal Year the
level of Pretax Income projected and approved by the Board of Directors to be
achieved by the Company for such Fiscal Year pursuant to the Annual Operating
Plan for such Fiscal Year.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Compensation Committee appointed by the Board of Directors. The
Compensation Committee shall consist of not less than two (2) members of the
Board of Directors. The Board of Directors may from time to time appoint
members of the Compensation Committee in substitution for or in addition to
members previously appointed and may fill vacancies, however caused, in the
Compensation Committee. The
<PAGE> 4
Compensation Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it shall deem advisable.
A majority of the members of the Compensation Committee shall
constitute a quorum. All action of the Compensation Committee shall be taken
by a majority of its members. Any action may be taken by written instrument
signed by a majority of the members, and any action so taken shall be deemed
fully as effective as if it had been taken by a vote of the majority of the
members at the meeting duly called and held. The Compensation Committee may
appoint a Secretary, shall keep minutes of its meetings, and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
The Compensation Committee shall have the sole authority and
power, subject to the express provisions and limitations of the Plan, to
construe the Plan and to adopt, prescribe, amend, and rescind rules and
regulations relating to the Plan, and to make all determinations necessary or
advisable for administering the Plan. No member of the Board of Directors or
the Compensation Committee shall be liable for any action or determination made
in good faith with respect to the Plan.
All determinations, decisions, and directions made or given by
the Board of Directors or the Compensation Committee under the Plan shall be
final and conclusive. The decision of the Board of Directors or the
Compensation Committee on any question concerning or involving the
interpretation or administration of the Plan shall be final and conclusive, and
no provision of the Plan shall be deemed to give any Employee, his/her legal
representative or assigns, any right to participate in the Plan, except to such
extent, if any, as the Compensation Committee may have determined or approved
pursuant to the provisions of the Plan.
4. PARTICIPATION IN THE PLAN. All Employees in the regular employ
of the Company as of the beginning of each Fiscal Year (October 1) are eligible
to participate in the Plan.
<PAGE> 5
5. DETERMINATION OF THE BONUS FUND. Prior to the commencement of
each Fiscal Year, the Board of Directors shall determine the Projected Pretax
Income of the Company for such Fiscal Year and the amount of the Bonus Share of
each Participant in and to the Bonus Fund for such Fiscal Year, subject to the
terms of the plan. Within thirty (30) days thereafter, the Compensation
Committee shall determine the Bonus Share of the Bonus Fund to be allocated to
each Participant for such Fiscal Year pursuant to the following procedures:
Step One:
The aggregate number of years of employment service of each
Participant with the Company shall be multiplied by the hourly
rate of compensation of each such Participant on October 1 of
such year.
Step Two:
The mathematical products thus determined in Step One above for
all Participants shall be aggregate in a total sum.
Step Three:
The quotient (expressed as a percentage) obtained by dividing
the amount determined in Step One above as to each Participant
by the aggregate amount determined in Step Two above shall
constitute the Bonus Share of each respective Participant in
and to the Bonus Fund for such Fiscal Year.
Step Four:
The amount of the Bonus Share of each Participant (expressed in
dollars) in and to the Bonus Fund for each Fiscal Year shall be
determined by multiplying the Bonus Fund for such Fiscal Year
by the quotient obtained in Step Three above as to such
Participant.
<PAGE> 6
The Compensation Committee shall notify each Participant in the
Plan of his/her Bonus Share for each Fiscal Year as soon as practical after the
projected amount thereof has been determined in accordance with the provisions
of the Plan.
6. AWARD OF BONUS COMPENSATION. Within sixty (60) days after
completion of the Company's Fiscal Year, the Compensation Committee shall
determine the amount of the Bonus to be paid to each Participant for such
Fiscal Year. The final pre-tax or net income, as applicable, utilized to
calculate the bonus share for each participant shall be determined using the
same method as for the Gamma-f Corp. Management Incentive Compensation Plan.
7. FORFEITURE OF INCENTIVE COMPENSATION. A Participant shall be
entitled to and shall receive the full amount of his/her Bonus for a Fiscal
Year, provided such Participant remains in the full-time employ of the Company
for such entire Fiscal Year. A Participant whose employment is terminated for
any reason shall forfeit his/her participation in the Plan and shall not be
entitled to any Bonus for such Fiscal Year. Notwithstanding the preceding, in
the event of the death, retirement, permanent disability, or any extended
absence of a Participant, the Compensation Committee shall have the power and
the authority to determine whether a Bonus should be paid to such Participant
for such Fiscal Year. The determination of the Compensation Committee in the
exercise of such power and authority in its sole discretion shall be final and
binding upon each Participant and anyone claiming by or through such
Participant.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company
may, from time to time, amend, modify, change, suspend, or terminate, in whole
or in part, any or all of the provisions of the Plan, except that:
<PAGE> 7
(a) No amendment, modification, change, suspension, or
termination may affect any right of any Participant to receive
a Bonus made to him/her prior to the effective date of such
amendment, modification, change, suspension, or termination;
and,
(b) No amendment, modification, or change may withdraw the
obligation and right of interpretation and administration of
the Plan from the Compensation Committee.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Plan shall be deemed to
give any Employee or his/her legal representative or assigns, or any other
person or entity claiming under or though him/her, any contract or other right
to participate in the benefits of the Plan other than as expressly set forth
herein. Nothing in the Plan shall be construed as constituting a commitment,
guarantee, agreement, or understanding of any kind or nature that the Company
will continue to employ any individual (whether or not an Employee or a
Participant); nor shall the Plan affect in any way the right of the Company to
terminate the employment of any individual (whether or not an Employee or a
Participant) at any time.
10. INDEMNIFICATION OF COMPENSATION COMMITTEE. In addition to such
other rights of indemnification as they may have as members of the Board of
Directors or as members of the Compensation Committee, the members of the
Compensation Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit, or proceedings, or
in connection with any appeal thereof, to which they or any of them may be
party by reason of any action taken or failure to act under or in connection
with the Plan, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit, or proceedings, except in relation to matters as to which it shall be
adjudged in such action, suit, or proceedings that such Compensation
<PAGE> 8
Committee member is liable for negligence or misconduct in the performance of
his/her duties, provided that within thirty (30) days after institution of any
such action, suit, or proceedings a Compensation Committee member shall in
writing offer the Company the opportunity, at its own expense, to pursue and
defend the same.
11. EFFECTIVE DATE AND TERM. This Plan (as hereby amended and
restated) supersedes all prior employee profit sharing bonus plans of the
Company, and shall be effective commencing as of October 1, 1996, and shall
remain in effect until terminated by the Board of Directors of the Company.
Executed this 27th day of September, 1996.
GAMMA-f CORP.
By:/s/ J. Rex Vardeman
J. REX VARDEMAN, Chairman of the Board
ATTEST:
By:/s/ Joe A. Ylitalo
JOE A. YLITALO, Secretary
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
<PAGE> 2
EXHIBIT 11
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended September 30,
---------------------------------
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
PRIMARY
- -------
Weighted average number of shares outstanding
during the period 4,434 4,454 4,610
Assume exercise of warrants and options at
beginning of the period or issue date 526 459 274
Shares assumed to be repurchased under
treasury stock method (356) (332) (155)
------ ------ -------
TOTAL 4,604 4,581 4,729
====== ====== =======
Net Income $6,100 $5,195 $ 4,625
====== ====== =======
PRIMARY NET INCOME PER SHARE $ 1.32 $ 1.13 $ .98
====== ====== =======
FULLY DILUTED
- -------------
Weighted average number of shares outstanding
during the period 4,434 4,454 4,610
Assume exercise of warrants and options at
beginning of the period or issue date 526 459 274
Shares assumed to be repurchased under
treasury stock method (348) (283) (155)
------ ------ -------
TOTAL 4,612 4,630 4,729
====== ====== =======
Net Income $6,100 $5,195 $ 4,625
====== ====== =======
FULLY DILUTED NET INCOME PER SHARE $ 1.32 $ 1.12 $ .98
====== ====== =======
</TABLE>
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
<PAGE> 2
Exhibit 13
Annual Report to Shareholders
(pages incorporated by reference)
SELECTED FINANCIAL DATA
Vertex Communications Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Sales $77,525 $65,024 $56,549 $53,869 $48,768
Costs and expenses 69,491 58,547 50,880 48,564 44,585
Income before income taxes 8,551 7,015 6,294 5,601 4,282
Net income 6,100 5,195 4,625 4,001 2,902
Earnings per share 1.32 1.12 .98 .94 .84
Working capital $39,484 $33,396 $36,035 $32,937 $13,503
Long-term debt 875 1,312 -- -- --
Total assets 71,974 63,854 58,457 52,381 30,755
Total liabilities 16,500 14,168 11,272 10,060 9,650
Total shareholders' equity 55,474 49,686 47,185 42,321 21,105
Orders booked $74,770 $79,132 $55,226 $58,476 $44,306
Backlog of unfilled orders 41,381 44,136 30,028 31,351 26,744
</TABLE>
No cash dividends have been declared or paid
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Over the past several years, a majority of the Company's product sales and
services has been generated outside the United States. Specifically, Vertex's
foreign sales have been significant in the Middle Eastern countries, Asia, and
Western Europe. Management believes this trend is a result of the continuing
efforts of local industries and governments who are enhancing or adding to
their telecommunications capabilities.
The Company has implemented certain strategic decisions for purposes of
maintaining and increasing its global market share. In 1993, Vertex acquired
the Antenna Group of Krupp Industrietechnik of Germany and opened a foreign
sales office in England. In 1995, the Company acquired Maxtech, whose products
are complementary to Vertex's existing earth station antenna products. In 1996,
the Company opened a foreign sales office in Singapore to better serve the vast
and emerging Asian market. From a product standpoint, certain products have
been designed to meet or exceed specifications peculiar to those found in
several foreign countries. In addition, efforts are presently underway to
develop new products such as Intelsat type-tested antennas that will be sold
overseas.
Management believes future sales of products and services will follow a similar
pattern that has been experienced where foreign revenues provide the Company
with a large portion of its business. However, since the Company's products are
generally high-value products, sales in any particular geographic region may
fluctuate significantly when comparing the results of one accounting period to
another as major projects are completed in any given year and may not be
replaced by a similar sized project in a comparable year.
Fiscal 1996 Compared to Fiscal 1995
1996 was the eighth consecutive year of record sales and record net income.
Consolidated sales of $77.5 million in 1996 increased by 19.2 percent over
1995's sales of $65.0 million. A large portion of this increase in sales can be
traced to revenues derived from GTE Telecom's 34-meter antenna project which
was begun in late 1995 and inclusion of Maxtech's revenues for the full year of
1996.
Cost of sales as a percent of sales improved to 73.4 percent in 1996 compared
to 74.3 percent one year earlier. This cost reduction was mainly due to
production efficiency improvements realized at the Company's manufacturing
facilities at Kilgore, Texas.
Research and development costs increased by 48.6 percent to $3.2 million over
the 1995 level due primarily to the development work on the Company's 9.3-meter
antenna and new product design efforts in the small aperture antenna product
line. Marketing expenses of $4.2 million increased by $.7 million, primarily as
a result of the start-up of two new operating divisions. General and
administrative expenses increased by $.6 million or 13.1 percent over the 1995
spending level, reflecting the presence of the two new divisions.
The effective tax rate of 28.7 percent was lower than the prescribed statutory
tax rates mainly due to the benefit received from export revenues and the
effect of nontaxable investment income.
Net income in 1996 was $6.1 million or $1.32 per share compared to $5.2 million
or $1.12 per share for the prior year. The Company's backlog of unfilled
orders was $41.4 million at September 30, 1996, compared to $44.1 million at
the 1995 year end.
<PAGE> 4
Fiscal 1995 Compared to Fiscal 1994
The Company completed the acquisition of Maxtech, Inc. (Maxtech) of State
College, Pennsylvania in January 1995 for a cash purchase price of
approximately $5.5 million (see Note 4 for additional information regarding
purchase price). 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 antennas
and point-to-point radio applications. Maxtech's operating results are included
in the Company's Consolidated Financial Statements as of January 1, 1995.
Consolidated sales were $65.0 million in 1995 compared to $56.5 million in 1994
for an increase of $8.5 million or 15 percent. The increase in sales was
principally due to the Maxtech acquisition and increased international sales.
Within international sales, Western Europe sales were 16 percent and 18 percent
of total sales in 1995 and 1994, respectively. The Company believes sales in
these two geographic regions were a significant portion of total sales because
of the factors discussed above.
Cost of sales as a percent of sales was 74.3 percent in 1995 compared to 74.6
percent in 1994. Although the Company adhered to a strict cost control program,
competitive pricing pressures precluded meaningful improvement in this
financial measurement.
Research and development spending of $2.2 million in 1995 decreased by 17.9
percent from $2.6 million in 1994 as certain successful product development
projects were completed in 1994 and absent from 1995 spending. Marketing
expenditures increased 26.8 percent from $2.8 million in 1994 to $3.6 million
in 1995, primarily as a result of the Maxtech acquisition. General and
administrative expenses were $4.5 million in 1995 compared to $3.3 million in
1994. This increase of $1.3 million or 39.5 percent was due to the inclusion of
Maxtech's operating results since January 1995 and reassignment of certain
personnel.
The effective tax rate of 25.9 percent was lower than the prescribed statutory
rates in 1995 mainly due to tax incentives available from export shipments and
certain investment income that was nontaxable.
Net income of $5.2 million increased by 12.3 percent or $.6 million over 1994
because of the aforementioned factors.
The Company ended fiscal 1995 with a record order backlog of $44.1 million
compared to $30.0 million one year earlier.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
General
The Company's future operating results and financial condition may be affected
by various trends and factors including general economic conditions, rapid or
unexpected technological changes, product demand and industry capacity, product
development, competition, market acceptance of new products, manufacturing
efficiencies, availability of certain raw materials, domestic and foreign
government regulations and spending, fluctuation in foreign exchange rates, and
rising costs for components or unavailability of components.
In addition, the Company's future operating results and its size and financial
condition may be affected by the size and timing of individual orders booked
which may also cause fluctuations in quarterly operating results.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to some fluctuation, particularly on a quarterly basis. Past
business trends should not be used to anticipate future trends and historical
performance should not be considered as a reliable indicator of future
performance.
<PAGE> 5
Additionally, any shortfall in revenue or earnings from the levels anticipated
by securities analysts could have an immediate and significant effect on the
trading price of the Company's common stock in any given period.
Inflation
Generally, inflationary trends do not materially impact the Company's
operations. However, because the Company's sales contracts are usually
negotiated on a fixed-priced basis prior to actual purchase of certain raw
materials and purchased parts, rapid unforeseen price increases in any of these
items could adversely affect profit margins for short periods. The Company has
not experienced a material adverse effect over the past five years from
inflation because of the relatively low rates of inflation experienced in the
United States and Germany over this period of time, and none is currently
anticipated for the foreseeable future.
Currency Exchange Rates
The Company maintains two foreign sales offices and operates a foreign
subsidiary which are subject to the effects of fluctuations in foreign currency
exchange rates. The sales offices are located in England and Singapore. Should
the British pound currency or the Singapore dollar currency as related to the
U.S. dollar turn materially unfavorable, the Company's marketing expenses could
increase accordingly.
The Company's operations located in Duisburg, Germany involve a complete
operating entity. Daily operations (sales, costs and expenses, and income
taxes) are conducted in its functional currency, the German mark. If this
currency as related to the U.S. dollar should change in a material adverse
manner, consolidated results of operations could be materially impacted. In
addition, to the extent taxable income is generated by the German operations,
the consolidated effective tax rate can be unfavorably impacted. The German
statutory tax rate is approximately 50 percent compared to the present U.S.
statutory tax rate of 34 percent on taxable income up to $10 million.
The Company has not suffered any material losses or adverse effects due to
currency rate changes in the British pound, the Singapore dollar, or the German
mark relative to the U.S. dollar.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities over the past three years totaled
$10.9 million. The primary favorable contributors were strong net income, the
positive effect of depreciation and amortization, and higher payables and
accrued liabilities. These factors were partially offset by significant
increases in accounts receivable and inventories which were necessary to
support higher sales volume.
Net cash used in investing activities was comprised of $8.2 million of capital
asset additions during the past three fiscal years and $5.5 million for the
Maxtech acquisition. A major portion of the capital assets expenditures were
related to the Company's Kilgore, Texas manufacturing facility in order to
expand production capacity.
Cash was used in financing activities to repurchase 252,500 shares of the
Company's common stock in fiscal 1995 for $3.2 million, or an average price of
$12.62 per share. In fiscal 1996, $.4 million was used to repurchase 26,600
shares of the Company's common stock at an average price of $16.39 per share
and $.4 million was paid on the debt associated with the Maxtech acquisition.
Cash was provided during the last three fiscal years of $.7 million from
exercise of stock options pursuant to the Company's stock option plans.
Cash and cash equivalents increased by $2.5 million during fiscal 1996 to end
the year with a balance of $17.4 million. The Company intends to continue
investing in product research and development and to
<PAGE> 6
expand manufacturing facilities consistent with business conditions. As of
September 30, 1996, the Company has no material commitments for capital
expenditures.
Management believes the Company's financial condition is excellent and is not
aware of any demands which are likely to affect liquidity in an adverse manner
in the foreseeable future. The Company does not maintain a credit line facility
because of its projected cash flows and present favorable financial condition.
<PAGE> 7
Vertex Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
SALES $ 77,525 $ 65,024 $ 56,549
COSTS AND EXPENSES:
Cost of sales 56,911 48,287 42,185
Research and development 3,217 2,165 2,637
Marketing 4,236 3,560 2,808
General and administrative 5,127 4,535 3,250
- ------------------------------------------------------------------------------------------------------------
69,491 58,547 50,880
- ------------------------------------------------------------------------------------------------------------
Operating income 8,034 6,477 5,669
OTHER INCOME (EXPENSE):
Income from investments 632 633 625
Interest expense (115) (95) --
- ------------------------------------------------------------------------------------------------------------
Income before income taxes and
effect of accounting change 8,551 7,015 6,294
PROVISION FOR INCOME TAXES 2,451 1,820 1,734
Income before effect of accounting change 6,100 5,195 4,560
Cumulative effect of accounting change -- -- 65
- ------------------------------------------------------------------------------------------------------------
NET INCOME $6,100 $5,195 $4,625
- ------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Earnings before effect of accounting change $1.32 $1.12 $.97
Cumulative effect of accounting change -- -- .01
- ------------------------------------------------------------------------------------------------------------
$1.32 $1.12 $.98
============================================================================================================
AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING 4,612 4,630 4,729
============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 8
Vertex Communications Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of September 30, 1996 1995
- ------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,396 $ 14,870
Accounts receivable, less allowance for doubtful
accounts of $268 and $241 21,136 16,295
Inventories 15,626 14,324
- ------------------------------------------------------------------------------------------------------------
54,158 45,489
- ------------------------------------------------------------------------------------------------------------
Property and equipment:
Land 418 418
Buildings and improvements 7,235 6,925
Equipment 14,966 12,538
Construction in progress 328 917
Less: accumulated depreciation (10,520) (8,400)
- -------------------------------------------------------------------------------------------------------------
12,427 12,398
- ------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $632 and $268 4,785 5,149
Other assets, less accumulated amortization of
$912 and $694 604 818
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 71,974 $ 63,854
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,615 $ 2,679
Accrued liabilities:
Accrued compensation 3,024 1,876
Other 4,017 5,062
Customers' advances 1,737 2,015
Income taxes payable 1,230 --
Deferred income taxes 51 461
- ------------------------------------------------------------------------------------------------------------
14,674 12,093
- ------------------------------------------------------------------------------------------------------------
Acquisition indebtedness 875 1,312
Deferred income taxes 951 763
Commitments and contingencies (Note 12)
Shareholders' equity:
Common stock, $.10 par value, 20,000,000 shares
authorized, 4,661,402 issued 466 466
Capital in excess of par value 24,806 24,963
Retained earnings 32,858 26,758
Treasury stock, at cost, 222,346 shares and
230,146 shares (2,733 ) (2,700)
Translation adjustment 77 199
- ------------------------------------------------------------------------------------------------------------
55,474 49,686
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 71,974 $ 63,854
============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 9
Vertex Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,100 $ 5,195 $ 4,625
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,728 2,391 1,650
Cumulative effect of change in accounting
for income taxes -- -- (65)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (4,841) 746 (5,529)
Inventories (1,302) (3,404) (1,274)
Prepaid income taxes -- 668 (668)
Other assets (30) (224) 332
Accounts payable and accrued liabilities 2,039 (882) 2,054
Customers' advances (278) 829 (1,216)
Income taxes payable and deferred 1,008 (210) 639
Other liabilities -- -- (200)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,424 5,109 348
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,149) (2,488) (3,571)
Acquisition of Maxtech, Inc. -- (5,524) --
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,149) (8,012) (3,571)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (436) (3,186) --
Proceeds from exercise of stock options 246 220 186
Payment on acquisition indebtedness (437) -- --
Other (95) 126 --
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (722) (2,840) 186
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (27) 86 27
Net increase (decrease) in cash and cash
equivalents 2,526 (5,657) (3,010)
Cash and cash equivalents at beginning
of year 14,870 20,527 23,537
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $17,396 $14,870 $20,527
============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 35 $ -- $ --
Income taxes 1,443 1,174 1,855
============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 10
Vertex Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained Treasury Translation
Stock Par Value Earnings Stock Adjustment Total
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
Balance at September 30,
1993 $ 466 $25,181 $16,938 $(264) $ -- $42,321
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options
(53,000 shares) -- 31 -- 155 -- 186
Translation adjustment -- -- -- -- 53 53
Net income -- -- 4,625 -- -- 4,625
- ----------------------------------------------------------------------------------------------------------------------
1994 $ 466 $25,212 $21,563 $(109) $ 53 $47,185
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options
(60,100 shares) -- (375) -- 595 -- 220
Purchase of treasury stock
(252,500 shares) -- -- -- (3,186) -- (3,186)
Tax benefit related to stock
options exercised by
employees -- 126 -- -- -- 126
Translation adjustment -- -- -- -- 146 146
Net income -- -- 5,195 -- -- 5,195
- ----------------------------------------------------------------------------------------------------------------------
1995 $ 466 $24,963 $26,758 $(2,700) $ 199 $49,686
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options
(34,200 shares) -- (157) -- 403 -- 246
Purchase of treasury stock
(26,600 shares) -- -- -- (436) -- (436)
Translation adjustment -- -- -- -- (122) (122)
Net income -- -- 6,100 -- -- 6,100
- ----------------------------------------------------------------------------------------------------------------------
1996 $ 466 $24,806 $32,858 $(2,733) $ 77 $55,474
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 11
Vertex Communications Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
The Company is engaged in the engineering, design, manufacture, and field
installation of satellite communications earth station products, with antenna
sizes ranging from 1.2 meters to 34 meters in diameters, and which operate in
the domestic, international, and military radio frequencies.
1. SUMMARY OF ACCOUNTING PRACTICES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries after elimination of
all significant intercompany transactions.
Management Estimates. The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make assumptions and estimates that affect certain reported amounts of
assets, liabilities, revenues, and expenses at the date of the consolidated
financial statements. Actual results could differ from those estimates. These
estimates mainly involve the reported amounts of accounts receivable and
inventory reserves, income tax provisions, expected costs to complete sales
contracts accounted for under the percentage of completion method, warranty
provisions, and useful lives of property and equipment.
RECOGNITION OF REVENUES, COSTS AND EXPENSES. Revenues from sales other than
long-term construction contracts are recognized when the earnings process has
been completed. The earnings process is considered complete upon shipment or
upon completion and storage of the equipment, if shipment is delayed at the
customer's request. Service revenues are recorded when the services are
rendered.
Sales contracts which extend beyond one year are accounted for using the
percentage of completion method. Under this method, revenues are recognized
based upon costs incurred compared to total costs expected. Continual
revisions of estimated total contract costs are made during the life of the
contracts based on the best information available and may result in current
period adjustments to contract revenues previously reported. Revenues include
contract costs and related profits. Amounts billed in excess of contract costs
and related profits are included in current liabilities and were $764,000 and
$1,791,000 at September 30, 1996 and 1995, respectively. Unbilled costs and
related profits included in accounts receivable at September 30, 1996 and 1995
were $2,870,000 and $468,000, respectively.
Sales recognized on long-term construction contracts and the related cost of
sales were as follows:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Sales $ 14,099 $ 11,484 $ 15,670
Cost of Sales 13,138 10,126 13,233
</TABLE>
RESEARCH AND DEVELOPMENT. Company-funded research and development expenditures
are expensed as incurred, including costs relating to patents or rights which
may result from such expenditures. Costs generated by research and development
work funded by customers are expensed as cost of sales in the period when the
related revenues are recorded. Revenues are recorded in the
<PAGE> 12
period in which the customer-funded work is completed. The Company has no
obligation to repay any funds provided by customers regardless of the outcome
of research and development work.
CASH EQUIVALENTS. The Company considers cash equivalents to be liquid
investments with original maturities of three months or less.
INVENTORIES. Inventories are valued at the lower of cost or market and include
the cost of raw materials, labor, plant overhead, and purchased parts. Cost is
determined using the first-in, first-out method. The components of inventory
consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
-----------------------
<S> <C> <C>
Raw materials $ 5,854 $ 4,476
Work-in-process 7,979 8,661
Finished goods 1,793 1,187
-----------------------
$ 15,626 $14,324
=======================
</TABLE>
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated over their estimated useful lives using the straight-line method.
The estimated useful lives of buildings are 25 years and equipment are 5 to 7
years. Expenditures for maintenance and repairs are charged to expense when
incurred; betterments and major renewals are capitalized.
GOODWILL. Goodwill represents the excess of purchase price over the fair market
value of net assets acquired. Goodwill is being amortized on a straight-line
basis over 15 years. The Company periodically reviews the carrying value of
this intangible asset and will make any necessary adjustment if the related
facts and circumstances suggest that its carrying value is impaired or is not
recoverable.
Non-Cash Transaction. As part of the acquisition of Maxtech, Inc.
in fiscal 1995, the Company assumed certain liabilities as follows:
<TABLE>
<CAPTION>
(In thousands)
Maxtech, Inc.
---------------
<S> <C>
Fair value of assets acquired $ 8,683
Cash paid (5,524)
-------
Liabilities assumed $ 3,159
=======
</TABLE>
EARNINGS PER SHARE. Earnings per share have been computed based upon the
weighted average number of shares of common stock outstanding and the dilutive
common stock equivalents assumed outstanding.
CONCENTRATION OF CREDIT RISK. The Company sells its products to its customers
under various payment terms such as: cash in advance, irrevocable letter of
credit, and open account. These customers can generally be classified as
governmental agencies, communications concerns, or other commercial entities.
Management believes no significant credit risk exists as of September 30, 1996.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified in order
to conform with the current year presentation.
<PAGE> 13
NEW ACCOUNTING STANDARDS. In October 1995, effective for the Company's fiscal
1997 consolidated financial statements, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation," which defines a fair value based
method of accounting for stock-based compensation. This new standard allows an
entity to continue to measure compensation cost for its stock compensation
plan(s) using the intrinsic value based method of accounting prescribed by
Accounting Principles Board No. 25 (APB 25), "Accounting for Stock Issued to
Employees." The Company intends to account for its stock option plans according
to APB 25 and to provide pro forma disclosure of the fair value based method
prescribed under SFAS 123.
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of," was issued by the Financial Accounting Standards
Board and adopted by the Company in October 1995. This statement requires the
Company to review its long-lived assets and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. The effect of adopting
this statement was not material to the Company as of September 30, 1996.
2. ACCRUED LIABILITIES - OTHER
Accrued Liabilities - Other were comprised of the following:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
------------------------
<S> <C> <C>
Current portion of acquisition
indebtedness $ 438 $ 438
Warranty 530 591
Amounts billed in excess of costs 764 1,791
Employee benefit costs 533 585
Taxes other than income 590 456
Other 1,162 1,201
------- -------
$ 4,017 $ 5,062
======= =======
</TABLE>
3. FOREIGN OPERATIONS
Financial information relating to the Company's foreign operations is shown
below:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers $3,918 $3,724 $5,922
Transfers between geographic areas 1,360 889 1,059
Operating income (loss) (306) (263) 1,186
Identifiable assets 3,703 2,366 4,002
</TABLE>
The Company translates the financial statements of its German subsidiary from
its functional currency, the German mark, into U.S. dollars in accordance with
the Financial Accounting Standards Board SFAS No. 52. Assets and liabilities
are translated at the exchange rate in effect at each fiscal year end, and
sales and expenses are translated at the weighted average exchange rate in
effect for the period reported upon. Any resulting gains or losses are
recorded in shareholders' equity and excluded from net income.
<PAGE> 14
4. ACQUISITION
On January 25, 1995 (effective January 1, 1995), the Company acquired all of
the outstanding common stock of Maxtech, Inc. for cash paid at closing of
$4,049,000, four-year unsecured promissory notes in the aggregate principal sum
of $1,750,000, payable to former shareholders, all except one, who were
employed by the Company as of September 30, 1996, 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 to an unrelated third
party. 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 purchase price over the assets
acquired was approximately $5,417,000.
In connection with the purchase of Maxtech, contingent consideration is due for
the amount equal to 50 percent of the net pre-tax income above $3,500,000 that
Maxtech earns for the cumulative period of three years and nine months ending
September 30, 1998, not to exceed $2,250,000.
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>
(In thousands)
1995 1994
----------------------
<S> <C> <C>
Sales $66,390 $62,831
Net Income 5,004 4,733
Earnings Per Share 1.08 1.00
</TABLE>
5. SHAREHOLDERS' EQUITY
STOCK OPTION PLAN FOR KEY EMPLOYEES. The Company had a Stock Option Plan for
Key Employees, which provided for the granting of options to purchase the
Company's common stock to certain officers and key employees. Five hundred
fifty thousand (550,000) shares of common stock were reserved for issuance
under this plan. The options are initially exercisable in equal pro rata
increments over a five-year period beginning one year after the grant date and
extend for terms of seven years. This plan expired in fiscal 1996 and options
can no longer be issued.
The following is a summary of the transactions under this plan for the years
ended September 30, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Number of options
Option Price ---------------------------------------------
Per Share 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding
Oct. 1 $ 2.00-$15.00 209,500 271,600 308,600
Granted $10.00-$15.00 -- -- 20,000
Cancelled $ 8.13-$15.00 (3,200) (2,000) (4,000)
Exercised $ 2.00-$10.00 (32,000) (60,100) (53,000)
-------------------------------------------------------------------
Balance outstanding
Sept. 30 $ 3.00-$14.50 174,300 209,500 271,600
Exercisable
Sept. 30 $ 4.00-$14.50 112,100 101,400 111,600
-------------------------------------------------------------------
Available for grant
Sept. 30 -- 25,000 23,000
============================================================================================
</TABLE>
<PAGE> 15
OUTSIDE DIRECTORS STOCK OPTION PLAN. The Company has an Outside Directors Stock
Option Plan whereby an outside director (any director not otherwise employed by
the Company) may be granted options to purchase the Company's common stock.
The maximum number of shares which may be covered by options granted to any
single director each year is 7,500, and the option price must equal at least
100 percent of fair market value at the date of grant.
Seventy-five thousand (75,000) shares of common stock have been reserved for
this plan. Once granted, the options expire in ten years.
Following is a table which summarizes the transactions under this plan for the
years ended September 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Option Price Number of options
Per Share 1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding
Oct. 1 $10.00 19,000 9,000 9,000
Granted $12.00 -- 10,000 --
Exercised $10.00 1,000 -- --
----------------------------------------
Balance outstanding
Sept. 30 $10.00-$12.00 18,000 19,000 9,000
Exercisable
Sept. 30 $10.00-$12.00 18,000 19,000 9,000
----------------------------------------
Available for Grant
Sept. 30 40,000 40,000 50,000
=============================================================================================
</TABLE>
1995 STOCK COMPENSATION PLAN. In 1995, the Company adopted "The 1995 Stock
Compensation Plan" for key employees and advisors. This plan allows the Company
to grant options to purchase the Company's stock and stock appreciation rights
to officers, key employees, and advisors at an option price equal to market
value on the date of grant (110 percent in the case of an option holder who
owns more than 10 percent of the combined voting power of the Company's common
stock). The options are initially exercisable in equal pro rata portions over a
five-year period beginning one year after the grant date and extend for terms
of ten years. The plan allows for a total of five hundred thousand (500,000)
options to be granted.
Following is a summary of the activity under the plan since its inception:
<TABLE>
<CAPTION>
Number of options
Option Price ---------------------------
Per Share 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding
Oct. 1 $12.00-$12.25 309,000 --
Granted $12.00-$15.25 50,000 309,000
Cancelled $12.00-$15.25 (19,400) --
Exercised $12.00 (1,400) --
---------------------------
Balance outstanding
Sept. 30 $12.00-$15.25 338,200 309,000
Exercisable
Sept. 30 $12.00-$12.25 60,320 --
-----------------------------
Available for Grant
Sept. 30 160,400 191,000
=========================================================================================
</TABLE>
<PAGE> 16
6. ACQUISITION INDEBTEDNESS
As part of the purchase price of Maxtech, Inc., the Company incurred four-year
unsecured promissory notes in aggregate principal sum of $1,750,000. The notes
are payable annually in four equal principal payments, including accrued
interest at 7.92 percent per annum with the initial payment due and paid
October 1, 1995.
7. INCOME TAXES
The Company adopted Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes" effective October 1, 1993. This Standard required
the Company to change accounting for income taxes from the deferral method to
the liability method for financial reporting. The adoption of SFAS No. 109
resulted in a one-time cumulative benefit in fiscal 1994 of $65,000 or $.01 per
share with a corresponding reduction in deferred income taxes.
The differences between the prescribed statutory income tax rates and the
Company's effective income tax rates were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes -- 2.1 .5
Effect of nontaxable
investment income (1.6) (2.6) (2.8)
Benefit from nontaxable
FSC income (3.5) (4.6) (4.0)
Tax benefit from increased
R&D activity (.3) (1.9) (3.4)
Foreign tax adjustment (.4) (.6) 2.7
Other, net .5 (.5) .6
--------------------------------------------------------
28.7% 25.9% 27.6%
========================================================
</TABLE>
Income (loss) before income taxes from foreign operations was ($406,000),
($400,000), and $1,200,000 in fiscal 1996, 1995, and 1994, respectively. Income
before income taxes from domestic operations was $8,957,000, $7,415,000, and
$5,094,000 in fiscal 1996, 1995, and 1994, respectively. Income before income
taxes from domestic operations was $8,957,000, $7,415,000, and $5,094,000 in
fiscal 1996, 1995, and 1994, respectively.
The provision for income taxes consists of the following significant
components:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $2,632 $1,661 $ 877
Foreign 36 224 153
State 5 145 20
------------------------------------------------------------
Total Current 2,673 2,030 1,050
Deferred:
Federal 17 214 296
Foreign (239) (424) 388
------------------------------------------------------------
Total Deferred (222) (210) 684
------------------------------------------------------------
Total provision for
income taxes $2,451 $1,820 $1,734
============================================================
</TABLE>
<PAGE> 17
Deferred income taxes are a result of certain income and expenses being
recognized in different periods for financial reporting and tax reporting
purposes. Below is a table which shows the components of deferred income
taxes:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
<S> <C> <C>
Deferred tax assets:
Accrued liabilities and reserves $ 1,073 $ 647
Other 309 29
---------------------------------
Deferred tax liabilities:
Property and equipment (827) (782)
Revenue recognition differences (1,433) (888)
Other (124) (230)
-----------------------------------
Net deferred tax liability $ (1,002) $(1,224)
==================================
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan which covers substantially all domestic
employees. This plan allows for employees and the Company to make
contributions. The Company's contributions to the plan for fiscal years 1996,
1995, and 1994 were $184,000, $228,000, and $223,000, respectively.
The Company has certain cash incentive compensation plans which are based upon
results of annual operations compared to planned results. The Management
Incentive Compensation Plans' participants are key employees and officers, but
not outside directors. Compensation under these plans was $1,295,000, $275,000,
and $787,000 for fiscal 1996, 1995, and 1994, respectively. The Employee Profit
Sharing Bonus Plans' participants include substantially all employees except
participants in a management incentive compensation plan. Compensation under
these plans was $280,000, $168,000, and $232,000, for fiscal 1996, 1995, and
1994, respectively.
9. RELATED PARTY TRANSACTIONS
A shareholder and member of the Board of Directors is a shareholder in a firm
retained by the Company for legal counsel. The Company paid fees to his firm
during the years ended September 30, 1996, 1995, and 1994 of $121,000,
$315,000, and $186,000, respectively.
<PAGE> 18
10. SALES AND INDUSTRY SEGMENT INFORMATION
Sales to one customer were 16 percent, and 19 percent, of total sales in fiscal
1995 and 1994, respectively. In fiscal 1996, sales to another customer
accounted for 12 percent of total sales.
Export sales were 59 percent, 64 percent, and 63 percent, in fiscal 1996, 1995,
and 1994, respectively, of total sales.
Sales in Western Europe were 19 percent, 16 percent, and 18 percent, of total
sales in fiscal 1996, 1995, and 1994, respectively. Sales in the Middle East
were 10 percent of total sales in fiscal 1996. Sales in Asian countries were 18
percent, 28 percent, and 22 percent of total sales in fiscal 1996, 1995, and
1994, respectively.
The Company operates primarily in a single industry segment, as a manufacturer
and supplier of microwave antennas and related equipment.
11. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1996 Fiscal Quarters
First Second Third Fourth
-------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $18,964 $19,233 $19,109 $20,219
Gross Profit 4,981 5,315 5,112 5,206
Net Income 1,393 1,460 1,584 1,663
Earnings Per Share .30 .32 .34 .36
</TABLE>
<TABLE>
<CAPTION>
1995 Fiscal Quarters
First Second Third Fourth
--------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $14,707 $16,258 $15,934 $18,125
Gross Profit 3,679 4,529 4,348 4,181
Net Income 1,225 1,268 1,245 1,457
Earnings Per Share .26 .28 .28 .30
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company rents certain equipment and facilities under operating leases.
Rent expense under these leases for fiscal 1996, 1995, and 1994 was $641,000,
$380,000, and $268,000, respectively.
<PAGE> 19
Below are the future rent payments due under these lease obligations and the
amounts of rental income due to be received under subleases as of September 30,
1996.
<TABLE>
<CAPTION>
Fiscal Year Rent Expense Payments Due
- ------------ -------------------------
<S> <C> <C>
1997 347,000
1998 64,000
1999 13,000
2000 6,000
----------
$ 430,000
Less: Sublease Income 85,000
----------
$ 345,000
==========
</TABLE>
The Company indemnifies its directors and officers, but does not maintain
directors' and officers' liability insurance. No claims against directors or
officers have been asserted.
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Vertex Communications Corporation:
We have audited the accompanying consolidated balance sheets of Vertex
Communications Corporation (a Texas Corporation) and subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of income,
cash flows, and shareholders' equity for each of the three years in the period
ended September 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vertex Communications
Corporation and subsidiaries as of September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1996, in conformity with generally accepted
accounting principles.
As explained in Note 7 to the Financial Statements, effective October 1, 1993,
the Company changed its method of accounting for income taxes.
Arthur Andersen LLP
Dallas, Texas
October 25, 1996
MARKET FOR COMMON STOCK
The Company's common stock is traded on The Nasdaq Stock Market (National
Market System) under the symbol VTEX. At December 2, 1996, there were
approximately 1,500 holders of record of Vertex's common stock. The table below
sets forth, for the periods indicated, the high and low sales prices of the
Company's common stock, as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
Quarter Ended High Low Quarter Ended High Low
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 1996 $19 1/4 $16 3/4 September 30, 1995 $19 1/4 $13 1/4
June 29, 1996 19 15 1/4 June 30, 1995 14 1/2 13
March 29, 1996 18 1/2 15 1/2 March 31, 1995 14 1/8 12
December 29, 1995 17 3/4 14 3/4 December 30, 1994 14 1/4 10 5/8
</TABLE>
The Company has never declared nor paid a cash dividend on its common stock and
does not expect that dividends will be declared or paid in the foreseeable
future. The Company currently intends to retain all of its available funds for
the operation and expansion of its business.
<PAGE> 1
EXHIBIT 22
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
<PAGE> 2
EXHIBIT 22
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
AS OF SEPTEMBER 30, 1996
Vertex Communications Foreign Sales Corporation
100% - Owned Subsidiary
Incorporated in the United States Virgin Islands
Gamma-f Corp.
100% - Owned Subsidiary
Incorporated in the State of Nevada
Vertex Antennentechnik GmbH
100% - Owned Subsidiary
Incorporated in the Federal Republic of Germany
Vertex International, Ltd.
100% - Owned Subsidiary
Incorporated in England
Maxtech, Inc.
100% - Owned Subsidiary
Incorporated in the State of Pennsylvania
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 2
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report by reference into this Form 10-K and into the Company's
previously filed Registration Statement File No. 33-27012 on Form S-8.
Arthur Andersen LLP
Dallas, Texas
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1996. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 17,396
<SECURITIES> 0
<RECEIVABLES> 21,404
<ALLOWANCES> 268
<INVENTORY> 15,626
<CURRENT-ASSETS> 54,158
<PP&E> 22,947
<DEPRECIATION> 10,520
<TOTAL-ASSETS> 71,974
<CURRENT-LIABILITIES> 14,674
<BONDS> 0
466
0
<COMMON> 0
<OTHER-SE> 55,008
<TOTAL-LIABILITY-AND-EQUITY> 71,974
<SALES> 77,525
<TOTAL-REVENUES> 77,525
<CGS> 56,911
<TOTAL-COSTS> 56,911
<OTHER-EXPENSES> 12,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> 8,551
<INCOME-TAX> 2,451
<INCOME-CONTINUING> 6,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,100
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
