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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1997
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 and zip code)
(903) 984-0555
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AS OF MARCH 28, 1997, THERE WERE 4,476,689 SHARES OUTSTANDING OF THE
REGISTRANT'S COMMON STOCK $.10 PAR VALUE.
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VERTEX COMMUNICATIONS CORPORATION
TABLE OF CONTENTS TO FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 28, 1997
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - March 28, 1997 and
September 30, 1996
Condensed Consolidated Statements of Income - Three months ended
March 28, 1997 and March 29, 1996
Condensed Consolidated Statements of Income - Six months ended
March 28, 1997 and March 29, 1996
Condensed Consolidated Statements of Cash Flows - Six months ended
March 28, 1997 and March 29, 1996
Notes to Condensed Consolidated Financial Statements -
March 28, 1997
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 28 September 30
1997 1996
------------- -------------
ASSETS (Unaudited) *
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 18,388 $ 17,396
Accounts receivable, net 20,352 21,136
Inventories 16,326 15,626
------------- -------------
55,066 54,158
PROPERTY AND EQUIPMENT, at cost 25,423 22,947
Less accumulated depreciation (11,686) (10,520)
------------- -------------
13,737 12,427
GOODWILL, less accumulated amortization of $813 and $632 4,604 4,785
OTHER ASSETS 431 604
------------- -------------
TOTAL ASSETS $ 73,838 $ 71,974
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,028 $ 4,615
Accrued compensation 2,034 3,024
Other accrued liabilities 3,783 4,017
Customers' advances 2,767 1,737
Income taxes payable 940 1,281
Current portion of long-term debt 592 --
------------- -------------
13,144 14,674
ACQUISITION INDEBTEDNESS 303 875
LONG-TERM DEBT - less current portion 450 --
DEFERRED INCOME TAXES 951 951
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, 20,000,000 shares
authorized, 4,661,402 shares issued 466 466
Capital in excess of par value 24,743 24,806
Retained earnings 36,077 32,858
Treasury stock, at cost, 184,713 shares and 222,346 shares (2,269) (2,733)
Translation adjustment (27) 77
------------- -------------
58,990 55,474
------------- -------------
TOTAL LIABILITIES AND EQUITY $ 73,838 $ 71,974
============= =============
</TABLE>
* The balance sheet at September 30, 1996 has been taken from audited
financial statements at that date and condensed.
1
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VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 28 March 29
1997 1996
---------- ----------
<S> <C> <C>
SALES $ 20,436 $ 19,233
COSTS AND EXPENSES:
Cost of sales 14,502 13,918
Research and development 683 1,005
Marketing 1,185 971
General and administrative 1,755 1,429
---------- ----------
18,125 17,323
---------- ----------
OPERATING INCOME 2,311 1,910
OTHER INCOME (EXPENSE):
Income from investments 198 200
Interest expense (29) (26)
---------- ----------
INCOME BEFORE INCOME TAXES 2,480 2,084
Provision for income taxes 786 624
---------- ----------
NET INCOME $ 1,694 $ 1,460
========== ==========
EARNINGS PER SHARE $ .36 $ .32
========== ==========
AVERAGE SHARES AND EQUIVALENT SHARES OUTSTANDING 4,665 4,600
========== ==========
</TABLE>
2
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VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
March 28 March 29
1997 1996
---------- ----------
<S> <C> <C>
SALES $ 40,116 $ 38,197
COSTS AND EXPENSES:
Cost of sales 28,791 27,901
Research and development 1,448 1,669
Marketing 2,273 1,975
General and administrative 3,295 2,857
---------- ----------
35,807 34,402
---------- ----------
OPERATING INCOME 4,309 3,795
OTHER INCOME (EXPENSE):
Income from investments 406 334
Interest expense (49) (52)
---------- ----------
INCOME BEFORE INCOME TAXES 4,666 4,077
Provision for income taxes 1,447 1,224
---------- ----------
NET INCOME $ 3,219 $ 2,853
========== ==========
EARNINGS PER SHARE $ .69 $ .62
========== ==========
AVERAGE SHARES AND EQUIVALENT SHARES OUTSTANDING 4,663 4,605
========== ==========
</TABLE>
3
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VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 28 March 29
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 2,734 $ (1,634)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,476) (1,771)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock -- (150)
Payment for business purchased in fiscal 1995 (709) (438)
Proceeds from long-term debt 1,285 --
Repayment of debt (243) --
Proceeds from exercise of stock options 401 123
---------- ----------
734 (465)
---------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 992 (3,870)
CASH AND EQUIVALENTS:
At beginning of period 17,396 14,870
---------- ----------
AT END OF PERIOD $ 18,388 $ 11,000
========== ==========
</TABLE>
4
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VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all the adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1996.
NOTE B - INVENTORIES (IN THOUSANDS)
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 28 September 30
1997 1996
--------- ---------
<S> <C> <C>
Raw Materials $ 5,183 $ 5,854
Work-In-Process 9,386 7,979
Finished Goods 1,757 1,793
--------- ---------
$ 16,326 $ 15,626
========= =========
</TABLE>
NOTE C - LONG-TERM DEBT
In December 1996, the Company borrowed $1,285,000 (2 million German marks) from
a bank through its German subsidiary. The debt is to be repaid in monthly
installments with accrued interest charged at 4.7 percent per annum. Repayment
began in January 1997.
NOTE D - NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" which is effective
for the Company's fiscal 1998 financial statements. This new standard
simplifies the method for computing earnings per share ("EPS") whereas the
Company will report basic EPS without the effect of any outstanding potentially
dilutive stock options and diluted EPS with the effect of those outstanding
stock options that are potentially dilutive.
5
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NOTE E - PENDING ACQUISITION
The Company has reached a definitive agreement, dated May 8, 1997, to acquire
all of the outstanding common stock of TIW Systems, Inc. ("TIW"), a California
corporation, for aggregate consideration of approximately $19.4 million. Such
aggregate consideration will consist of cash of approximately $7.8 million,
574,359 shares of Vertex's common stock, and approximately $.4 million of
direct acquisition costs. The transaction is subject to, among other
conditions, approval by the shareholders of TIW. Assuming TIW shareholder
approval is obtained and other conditions of the transaction are satisfied, the
Company expects the acquisition to be consummated in June 1997. The acquisition
will be accounted for under the purchase method of accounting.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales increased by 6 percent and 5 percent in the second quarter and the
six-month period ended March 28, 1997 as compared to the same periods one year
earlier, respectively.
Gross profit margins expressed as a percent of sales, improved by 1.4
percentage points and 1.3 percentage points for the quarter and the first six
months of fiscal 1997 over the fiscal 1996 periods, respectively, mainly due to
a more favorable sales mix. The improved profit margins were principally a
result of increased sales of higher margin solid state amplifiers, while sales
of lower margin low noise amplifiers declined over the comparable periods.
Research and development expenditures of $683,000 and $1,448,000 in the second
quarter and the six-month period of fiscal 1997, were 32 percent and 13 percent
below the comparable quarter and six-month period, respectively, largely
because of the absence of design efforts in the 9-meter antenna product line
which was successfully completed last year.
General and administrative and marketing spending increased 23 percent and 15
percent over from the comparable quarter and six-month period of fiscal 1996,
respectively, because of increased staffing levels.
The effective tax rate for fiscal 1997 is lower than the prescribed statutory
rates mainly due tax incentives available from export shipments and the
favorable impact of interest income from certain investments that is exempt
from federal taxes.
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, technology
changes, product demand, product development, volume and mix of products sold,
size and timing of individual orders booked, competition, market acceptance of
products, availability of certain raw materials, rising costs for or
unavailability of selected components, domestic and foreign government
regulations and spending, or fluctuation in certain foreign currency exchange
rates as related to the U.S. dollar.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to 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.
Additionally, any shortfall in revenue or earnings from levels anticipated by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock.
7
<PAGE> 10
FORWARD-LOOKING STATEMENTS
With the exception of historical information, certain matters discussed in this
quarterly report are forward-looking statements that involve risks and
uncertainties, including but not limited to, economic conditions, trends in the
telecommunications industry, product acceptance and demand, competitive
products and pricing, new product development, availability of competitive
components and other risks indicated in this filing and prior filings of the
Company with the Securities and Exchange Commission.
FINANCIAL CONDITION
Cash and equivalents increased $992,000 during the six months ended March 28,
1997. Cash provided by operations was $2.7 million mainly due to net income of
$3.2 million. Cash of $2.5 million was used to purchase additional property and
equipment.
During the first half of fiscal 1997, the Company purchased a building
containing 37,000 square feet of manufacturing and office space situated on 3
acres of land located near its Kilgore, Texas facility. Including renovation
which has been completed, total cost of the facility amounted to $800,000. The
facility will accommodate manufacturing of certain antenna components that were
previously being purchased and will allow for expanded production capacity of
the Company's DMK (Deployable Mobile Ku-band) antenna product line.
Net cash of $734,000 was provided since September 30, 1996 by financing
activities, the most significant of which were proceeds received from bank debt
(discussed below) and payments made relative to the 1995 Maxtech acquisition.
The Company borrowed $1.3 million (2 million German marks) from a bank in
December 1996. The debt is scheduled for payment over a 24 month period and the
initial payment began in January 1997.
The Company has reached a definitive agreement to acquire by purchase all of
the outstanding stock of TIW Systems, Inc. ("TIW"), of Santa Clara, California,
for consideration consisting of cash of $7.8 million and 574,359 shares of
Vertex's common stock and certain acquisition costs. TIW is a designer and
manufacturer of satellite communications systems, earth station antennas and
related subsystem components used primarily in commercial applications.
The Company estimates that the transaction will be completed before the end of
the fiscal 1997 third quarter. TIW is a privately held company founded in 1976
who recorded 1996 sales of approximately $41 million. Management believes that
the combined strength and abilities of the Company after the acquisition could
materially increase its market share throughout the world.
Management believes that forecasted cash flows combined with the Company's
strong financial conditions will be sufficient to fund the acquisition
discussed above and operations over the foreseeable future. The Company is
currently evaluating the possibility of implementing a domestic bank credit
facility.
8
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on January 23,
1997. Of the 4,442,056 total shares entitled to vote, 4,109,921 shares
or 92.5 percent were represented in person or by proxy at the meeting.
The following matters were submitted to the meeting and approved by
more than the requisite majority of shares outstanding and entitled to
vote as shown below:
(1) Election of the following Directors:
<TABLE>
<CAPTION>
Votes Votes
For Withheld
--------- --------
<S> <C> <C>
J. Rex Vardeman 4,094,787 15,134
A. Don Branum 4,094,787 15,134
James D. Carter 4,091,287 18,634
Bill R. Womble 4,094,787 15,134
Donald E. Heitzman, Sr 4,090,683 19,238
</TABLE>
(2) Ratification of the appointment of Arthur Andersen LLP as
independent public accountants of the Company for the
fiscal year ending September 30, 1997.
<TABLE>
<S> <C>
Shares Voted For: 4,100,837
Shares Voted Against: 5,584
Shares Abstaining: 3,500
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Form 8-K:
The Company filed no reports on Form 8-K and none were
required to be filed during the three months ended March
28, 1997.
9
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERTEX COMMUNICATIONS CORPORATION
---------------------------------
(Registrant)
Date: May 12, 1997 /s/ J. D. Carter
----------------- ---------------------------------
J. D. Carter
Vice President - Finance
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
10
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-28-1997
<CASH> 18,388
<SECURITIES> 0
<RECEIVABLES> 20,622
<ALLOWANCES> 270
<INVENTORY> 16,326
<CURRENT-ASSETS> 55,066
<PP&E> 25,423
<DEPRECIATION> 11,686
<TOTAL-ASSETS> 73,838
<CURRENT-LIABILITIES> 13,144
<BONDS> 0
0
0
<COMMON> 466
<OTHER-SE> 58,524
<TOTAL-LIABILITY-AND-EQUITY> 73,838
<SALES> 40,116
<TOTAL-REVENUES> 40,116
<CGS> 28,791
<TOTAL-COSTS> 35,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 4,666
<INCOME-TAX> 1,447
<INCOME-CONTINUING> 3,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,219
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
