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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 January 2, 1998
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 JANUARY 2, 1998, THERE WERE 5,100,138 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 JANUARY 2, 1998
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - January 2, 1998 and
September 30, 1997
Condensed Consolidated Statements of Income - Three months ended
January 2, 1998 and December 27, 1996
Condensed Consolidated Statements of Cash Flows - Three months
ended January 2, 1998 and December 27, 1996
Notes to Condensed Consolidated Financial Statements - January 2,
1998
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
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VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
January 2 September 30
1998 1997
------------- -------------
ASSETS (Unaudited) *
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 7,065 $ 5,407
Accounts receivable, net 40,354 35,977
Inventories 27,427 27,198
Income tax receivable -- 1,130
Deferred income taxes 884 784
--------- ---------
75,730 70,496
PROPERTY AND EQUIPMENT, at cost 29,903 29,231
Less accumulated depreciation (13,860) (13,004)
--------- ---------
16,043 16,227
GOODWILL, less accumulated amortization of $1,365 and $1,134 12,563 12,794
OTHER ASSETS 938 976
--------- ---------
TOTAL ASSETS $ 105,274 $ 100,493
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,604 $ 7,413
Accrued liabilities 15,282 13,278
Customers' advances 6,116 3,139
Current portion of long-term debt 974 1,082
--------- ---------
27,976 24,912
LONG-TERM DEBT - less current portion 209 988
DEFERRED INCOME TAXES 1,167 1,103
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, 20,000,000 shares authorized,
5,235,751 shares issued 524 524
Capital in excess of par value 35,072 35,107
Retained earnings 42,386 40,033
Treasury stock, at cost, 135,613 shares and 148,813 shares . (1,705) (1,828)
Translation adjustment (355) (346)
--------- ---------
75,922 73,490
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 105,274 $ 100,493
========= =========
</TABLE>
* The balance sheet at September 30, 1997 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
January 2 December 27
1998 1996
------------ -------------
<S> <C> <C>
SALES $ 30,779 $ 19,680
COSTS AND EXPENSES:
Cost of sales 21,660 14,289
Research and development 1,440 765
Marketing 1,669 1,088
General and administrative 2,588 1,540
-------- --------
27,357 17,682
-------- --------
OPERATING INCOME 3,422 1,998
OTHER INCOME (EXPENSE):
Income from investments 77 208
Interest expense (31) (20)
-------- --------
INCOME BEFORE INCOME TAXES 3,468 2,186
Provision for income taxes 1,115 661
-------- --------
NET INCOME $ 2,353 $ 1,525
======== ========
BASIC EARNINGS PER SHARE $ .46 $ .34
======== ========
DILUTED EARNINGS PER SHARE $ .44 $ .33
======== ========
</TABLE>
2
<PAGE> 5
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 2 December 27
1998 1996
--------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 3,129 $ 2,046
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (672) (1,074)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for business purchased in fiscal 1995 (302) (437)
Proceeds from long-term debt -- 1,285
Repayment of debt (585) --
Proceeds from exercise of stock options 88 30
-------- --------
(799) 878
INCREASE IN CASH AND EQUIVALENTS 1,658 1,850
CASH AND EQUIVALENTS:
At beginning of period 5,407 17,396
-------- --------
AT END OF PERIOD $ 7,065 $ 19,246
======== ========
</TABLE>
3
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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, 1997.
NOTE B - INVENTORIES (IN THOUSANDS)
The components of inventory consist of the following:
<TABLE>
<CAPTION>
January 2 September 30
1998 1997
--------- ------------
<S> <C> <C>
Raw Materials $ 8,148 $ 8,844
Work-In-Process 14,941 13,626
Finished Goods 4,338 4,728
--------- --------
$ 27,427 $ 27,198
======== ========
</TABLE>
NOTE C - EARNINGS PER SHARE
Effective October 1, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share". Basic earnings per share were computed by dividing net income by the
weighted average number of shares outstanding of 5,090,000 and 4,440,000 for the
first quarter of fiscal 1998 and 1997, respectively. Diluted earnings per share
were computed by dividing net income by the sum of the weighted average number
of shares and the number of equivalent shares assumed outstanding under the
Company's stock-based compensation plans. Diluted earnings per share were
computed as follows:
4
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<TABLE>
<CAPTION>
(in thousands, except per share amounts) First Quarter of
FY 1998 FY 1997
------- -------
<S> <C> <C>
Net Income $2,353 $1,525
Weighted average number of shares outstanding 5,090 4,440
Effect of options assumed exercised 224 190
------ ------
Total 5,314 4,630
Diluted earnings per share $ .44 $ .33
====== ======
</TABLE>
Adoption of this new accounting standard affected previously reported earnings
per share (EPS) data as follows:
<TABLE>
<CAPTION>
First Quarter
Per Share Amounts of FY 1997
----------------- -------------
<S> <C>
Primary EPS $ .33
Effect of SFAS No. 128 .01
---------
Basic EPS as restated $ .34
========
Fully diluted EPS as previously reported $ .33
Effect of SFAS No. 128 ---
----------
Diluted EPS as restated $ .33
========
</TABLE>
NOTE D - ACQUISITION
Effective June 11, 1997, the Company acquired all of the outstanding common
stock of TIW Systems, Inc. headquartered in Santa Clara, California by purchase.
The following unaudited pro forma information presents the consolidated results
of operations as if the acquisition had occurred on October 1, 1996.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) First Quarter
of FY 1997
--------------
<S> <C>
Sales $ 27,326
Net Income 977
Basic earnings per share .19
Diluted earnings per share .19
</TABLE>
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Fiscal 1998 first quarter sales increased by $11.1 million or 56 percent when
compared to the same period last year. Approximately 75 percent of the increase
was caused by the acquisition of TIW and the balance was due to increased demand
for standard antenna products.
Cost of sales as a percent of sales improved from 72.6 percent in the first
quarter of fiscal 1997 to 70.4 percent in the comparable quarter of 1998 mainly
due to a more favorable product sales mix.
Research and development expenditures increased to $1.4 million, an 88 percent
increase over the prior year's first quarter, principally due to the absence of
TIW's operating results in the fiscal 1997 quarter.
The total of general & administrative and marketing expenses during fiscal
1998's first quarter of $4.3 million, increased $1.6 million or 62 percent from
the comparable period largely because of the acquisition of TIW.
Income from investments in the first quarter of fiscal 1998 decreased by 63
percent from the comparable quarter to $77,000 as the average cash balances
available for investment purposes were significantly lower than fiscal 1997's
cash balances.
The effective tax rate for fiscal 1998 is lower than the prescribed statutory
rates mainly due to tax incentives available from export shipments.
New orders secured during the first quarter of 1998 were $36.9 million and the
Company began the second quarter with a record high unfilled order backlog of
$77.8 million.
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,
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.
6
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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, 1997, the balance of cash and equivalents increased by $1.7
million primarily as a result of strong earnings.
In the first quarter of fiscal 1998 financing activities consumed $.8 million
whereas $.9 million of cash was provided from financing during the comparable
period. The net change of $1.7 million between the two reporting periods was
caused by the following major contributing factors: (1) the Company repaid the
$.5 million bank note which was scheduled to mature in November 2000; and (2) no
additional long-term debt was incurred in the first quarter of fiscal 1998.
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.
7
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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 no reports on Form 8-K and none
were required to be filed during the three months
ended January 2, 1998.
8
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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: January 29, 1998 /s/ J. D. Carter
---------------- -----------------------------------------
J. D. Carter
Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
9
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INDEX TO EXHIBITS
<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 STATEMENT FOR THE THREE MONTHS ENDED JANUARY 2, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JAN-02-1998
<CASH> 7,065
<SECURITIES> 0
<RECEIVABLES> 41,614
<ALLOWANCES> 1,260
<INVENTORY> 27,427
<CURRENT-ASSETS> 75,730
<PP&E> 29,903
<DEPRECIATION> 13,860
<TOTAL-ASSETS> 105,274
<CURRENT-LIABILITIES> 27,976
<BONDS> 0
0
0
<COMMON> 524
<OTHER-SE> 75,398
<TOTAL-LIABILITY-AND-EQUITY> 105,274
<SALES> 30,779
<TOTAL-REVENUES> 30,779
<CGS> 21,660
<TOTAL-COSTS> 27,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 3,468
<INCOME-TAX> 1,115
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,353
<EPS-PRIMARY> .46
<EPS-DILUTED> .44
</TABLE>
