<PAGE> 1
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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 June 27, 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 JUNE 27, 1997, THERE WERE 5,062,538 SHARES OUTSTANDING OF THE
REGISTRANT'S COMMON STOCK $.10 PAR VALUE.
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<PAGE> 2
VERTEX COMMUNICATIONS CORPORATION
TABLE OF CONTENTS TO FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 27, 1997
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - June 27, 1997 and September
30, 1996
Condensed Consolidated Statements of Income - Three months ended June
27, 1997 and June 28, 1996
Condensed Consolidated Statements of Income - Nine months ended June
27, 1997 and June 28, 1996
Condensed Consolidated Statements of Cash Flows - Nine months ended
June 27, 1997 and June 28, 1996
Notes to Condensed Consolidated Financial Statements - June 27, 1997
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 27 September 30
1997 1996
----------- ------------
ASSETS (Unaudited) *
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 1,847 $ 17,396
Accounts receivable, net 41,199 21,136
Inventories 24,160 15,626
-------- --------
67,206 54,158
PROPERTY AND EQUIPMENT, at cost 28,626 22,947
Less accumulated depreciation (12,304) (10,520)
-------- --------
16,322 12,427
GOODWILL, less accumulated amortization of $902 and $632 12,493 4,785
OTHER ASSETS 1,494 604
-------- --------
TOTAL ASSETS $ 97,515 $ 71,974
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,544 $ 4,615
Accrued compensation 2,196 3,024
Other accrued liabilities 8,273 4,017
Customers' advances 2,898 1,737
Income taxes payable 574 1,281
Current portion of long-term debt 2,093 --
-------- --------
23,578 14,674
ACQUISITION INDEBTEDNESS 303 875
LONG-TERM DEBT - less current portion 1,183 --
DEFERRED INCOME TAXES 1,004 951
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, 20,000,000 shares authorized,
5,235,751 and 4,661,402 shares issued 524 466
Capital in excess of par value 35,148 24,806
Retained earnings 37,938 32,858
Treasury stock, at cost, 173,213 shares and 222,346 shares (2,119) (2,733)
Translation adjustment (44) 77
-------- --------
71,447 55,474
-------- --------
TOTAL LIABILITIES AND EQUITY $ 97,515 $ 71,974
======== ========
</TABLE>
* The balance sheet at September 30, 1996 has been taken from audited
financial statements at that date and condensed.
1
<PAGE> 4
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 27 June 28
1997 1996
-------- --------
<S> <C> <C>
SALES $ 23,266 $ 19,109
COSTS AND EXPENSES:
Cost of sales 16,640 13,997
Research and development 964 705
Marketing 1,181 1,007
General and administrative 1,929 1,364
-------- --------
20,714 17,073
-------- --------
OPERATING INCOME 2,552 2,036
OTHER INCOME (EXPENSE):
Income from investments 208 160
Interest expense (36) (26)
-------- --------
INCOME BEFORE INCOME TAXES 2,724 2,170
Provision for income taxes 863 586
-------- --------
NET INCOME $ 1,861 $ 1,584
======== ========
EARNINGS PER SHARE $ .38 $ .34
======== ========
AVERAGE SHARES AND EQUIVALENT SHARES OUTSTANDING 4,902 4,650
======== ========
</TABLE>
2
<PAGE> 5
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
June 27 June 28
1997 1996
-------- --------
<S> <C> <C>
SALES $ 63,382 $ 57,306
COSTS AND EXPENSES:
Cost of sales 45,431 41,898
Research and development 2,412 2,374
Marketing 3,454 2,982
General and administrative 5,224 4,221
-------- --------
56,521 51,475
-------- --------
OPERATING INCOME 6,861 5,831
OTHER INCOME (EXPENSE):
Income from investments 614 494
Interest expense (85) (78)
-------- --------
INCOME BEFORE INCOME TAXES 7,390 6,247
Provision for income taxes 2,310 1,810
-------- --------
NET INCOME $ 5,080 $ 4,437
======== ========
EARNINGS PER SHARE $ 1.07 $ .96
======== ========
AVERAGE SHARES AND EQUIVALENT SHARES OUTSTANDING 4,741 4,642
======== ========
</TABLE>
3
<PAGE> 6
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 27 June 28
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 536 $ 875
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,425) (2,110)
Acquisition of TIW Systems Inc., net of cash acquired (7,621) --
-------- --------
(11,046) (2,110)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock -- (436)
Payment for business purchased in fiscal 1995 (709) (438)
Proceeds from long-term debt 2,128 --
Repayment of debt (6,945) --
Proceeds from exercise of stock options 487 131
-------- --------
(5,039) (743)
DECREASE IN CASH AND EQUIVALENTS (15,549) (1,978)
CASH AND EQUIVALENTS:
At beginning of period 17,396 14,870
-------- --------
AT END OF PERIOD $ 1,847 $ 12,892
======== ========
</TABLE>
4
<PAGE> 7
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 - ACCOUNTS RECEIVABLE (IN THOUSANDS)
Accounts receivable consist of the following elements:
<TABLE>
<CAPTION>
June 27 September 30
1997 1996
------- ------------
<S> <C> <C>
Accounts Receivable $26,647 $18,266
Unbilled Costs and Related Profits 14,552 2,870
------- -------
$41,199 $21,136
======= =======
</TABLE>
NOTE C - INVENTORIES (IN THOUSANDS)
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 27 September 30
1997 1996
------- ------------
<S> <C> <C>
Raw Materials $ 8,852 $ 5,854
Work-In-Process 11,953 7,979
Finished Goods 3,355 1,793
------- -------
$24,160 $15,626
======= =======
</TABLE>
NOTE D - LONG-TERM DEBT
In December 1996, the Company initiated a credit line through its German
subsidiary and borrowed 2 million German marks (approximately $1.2 million)
from a bank. The debt is to be repaid in 24 monthly installments with accrued
interest charged at 4.7 percent per annum. Repayment began in January 1997.
Management subsequently increased the credit facility to 2.5 million German
marks.
5
<PAGE> 8
In June 1997, the Company established an unsecured bank line of credit for $15
million which includes a $5 million sub-limit for issuance of stand-by letters
of credit. Terms of the credit line, which matures in June 1999, require the
Company to maintain certain financial ratios. Principal advances bear interest
at LIBOR plus 1.5 percent and unused credit line fees are .25 percent. As of
June 27, 1997, principal advances were $1 million and issued stand-by letters
of credit totaled $266,000. The Company intends to repay the principal advanced
within the next twelve months and therefore has classified the advance as a
current liability.
In connection with the acquisition of TIW Systems, Inc. (see note F), the
Company assumed a bank note payable in the amount of $510,000 that is secured
by certain real property. The note is payable in monthly installments of
$7,300, plus interest at 9.5 percent, with the balance due November 2000.
NOTE E - 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. Had the Company adopted the
provisions of SFAS No. 128 beginning with the first quarter of fiscal 1997,
basic EPS for the nine months ended June 27, 1997 would have been $1.13 per
share and diluted EPS would have been $1.07.
NOTE F - ACQUISITION
Effective June 11, 1997, the Company acquired all of the outstanding common
stock of TIW Systems, Inc. ("TIW"), a California corporation, for cash of $7.9
million, 574,349 shares of the Company's common stock and approximately $.5
million of direct acquisition costs. TIW designs and manufactures products
principally used in the satellite communications industry. The acquisition was
accounted for under the purchase method of accounting. The excess of the
purchase price over the fair value of assets acquired of approximately $8
million will be amortized over 15 years using the straight-line method. The
purchase price was allocated on the basis of the estimated fair value of the
assets acquired and liabilities assumed as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Assets Acquired
Fair value of tangible assets acquired $ 26,173
Goodwill 7,978
Purchase Consideration
Cash paid to selling shareholders (7,893)
Fair value of Vertex's stock exchanged (10,528)
--------
Liabilities assumed $ 15,730
========
</TABLE>
TIW's results of operations are included in the Company's consolidated
financial statements from the effective date of the acquisition.
6
<PAGE> 9
The following unaudited pro forma information presents the consolidated results
of operations as if the effective date of the acquisition occurred on the
beginning of each of the periods presented after giving effect to certain
adjustments which include amortization of goodwill, reduction of investment
income, issuance of common stock, and the related tax effects. The pro forma
information does not purport to be indicative of the results that would have
been obtained if the acquisition had been effected as of the date indicated
above or that may be obtained in the future.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Nine Months Ended
June 27 June 28
1997 1996
------- -------
<S> <C> <C>
Sales $86,512 $92,699
Net income 2,943 3,599
Earnings per share .56 .69
</TABLE>
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company completed the acquisition of TIW Systems, Inc. ("TIW"),
headquartered in Santa Clara, California, effective June 11, 1997. TIW is
engaged in the design, manufacture, and support of telecommunications equipment
and systems used in satellite and deep space communications, including
receiving telemetry from, tracking, commanding and monitoring of satellites. As
a result of the acquisition, management expects fiscal 1997 consolidated sales
to increase by approximately $8 to $10 million.
Sales increased by 22 percent and 11 percent in the third quarter and the
nine-month period ended June 27, 1997 as compared to the same periods one year
earlier, respectively. The third quarter sales increase was caused by the
inclusion of TIW's operations as of the effective date of the acquisition and
increased product demand, while higher sales for the nine-month period were
largely due to increased product demand.
Spending on research and development in the third quarter of fiscal 1997 was up
37 percent over the comparable period, and during the nine-month period of
fiscal 1997, spending increased only 2 percent over the same period in fiscal
1996. The increased spending experienced in the third quarter reflects efforts
associated with development work on certain new products in the small antenna
category and the inclusion of TIW's operating results.
General & administrative and marketing expenses increased 31 percent and 20
percent over the comparable quarter and nine-month period, respectively,
because of increased staffing levels and the addition of TIW's operating
results.
The effective tax rate for fiscal 1997 is lower than the prescribed statutory
rates mainly due to tax incentives available from export shipments and the
favorable impact of interest income from certain investments exempt from
federal taxation.
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.
8
<PAGE> 11
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.
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
Since September 30, 1996, the balance of cash and equivalents declined by $15.5
million primarily due to the TIW acquisition. Cash of $7.6 million was used in
June for the purchase acquisition and subsequent to the purchase date, the
Company repaid approximately $6.6 million of debt previously incurred by TIW.
Cash of $3.4 million was used during the first nine months of fiscal 1997 to
purchase property and equipment. Part of this expenditure was for a building
containing 37,000 square feet of manufacturing and office space situated on 3
acres of land located near the Company's Kilgore, Texas facility. Including
renovation, total cost of the facility amounted to $800,000. The facility
accommodates the manufacturing of certain antenna components that were
previously purchased and allows for expanded production capacity of the
Company's DMK (Deployable Mobile Ku-Band) antenna product line.
During the nine months ended June 27, 1997, the Company established two
separate bank credit lines: (1) in December 1996, the Company borrowed 2
million German marks (approximately $1.2 million) from a German bank and, in
June 1997, revised the credit line to allow for working capital principal
advances of up to 2.5 million German marks; and, (2) in June 1997, the Company
established a $15 million credit facility through a domestic bank which allows
for up to $10 million of working capital financing and $5 million for issuance
of stand-by letters of credit. As of the end of the third quarter, $1 million
was advanced under this credit line.
Management believes that forecasted cash flows combined with the Company's
favorable financial condition and available credit lines will be sufficient to
fund operations over the foreseeable future. The Company is not aware of any
demands which are likely to affect liquidity in an adverse manner.
9
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Form 8-K:
The Company filed a current report on Form 8-K, dated May 9,
1997, regarding the then pending acquisition of TIW Systems,
Inc. covering Items 2 and 7 therein. This report was
subsequently amended on Form 8-K/A, dated June 26, 1997,
amending Item 2 and confirming the consummation of the
acquisition of TIW Systems on June 11, 1997.
10
<PAGE> 13
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: July 31, 1997 /s/ J. D. Carter
------------------ ----------------------------------
J. D. Carter
Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
11
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR NINE MONTHS ENDED JUNE 27, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-27-1997
<CASH> 1,847
<SECURITIES> 0
<RECEIVABLES> 41,610
<ALLOWANCES> 411
<INVENTORY> 24,160
<CURRENT-ASSETS> 67,206
<PP&E> 28,626
<DEPRECIATION> 12,304
<TOTAL-ASSETS> 97,515
<CURRENT-LIABILITIES> 23,578
<BONDS> 0
0
0
<COMMON> 524
<OTHER-SE> 70,923
<TOTAL-LIABILITY-AND-EQUITY> 97,515
<SALES> 63,382
<TOTAL-REVENUES> 63,382
<CGS> 45,431
<TOTAL-COSTS> 56,521
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 7,390
<INCOME-TAX> 2,310
<INCOME-CONTINUING> 5,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,080
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
