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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 April 3, 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 APRIL 3, 1998, THERE WERE 5,104,138 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 APRIL 3, 1998
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets - April 3, 1998 and September
30, 1997
Condensed Consolidated Statements of Income - Three months ended
April 3, 1998 and March 28, 1997
Condensed Consolidated Statements of Income - Six months ended
April 3, 1998 and March 28, 1997
Condensed Consolidated Statements of Cash Flows - Six months ended
April 3, 1998 and March 28, 1997
Notes to Condensed Consolidated Financial Statements - April 3,
1998
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
<PAGE> 3
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 3 September 30
1998 1997
--------- ---------
ASSETS (Unaudited) *
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 10,046 $ 5,407
Accounts receivable, net 37,666 35,977
Inventories 30,154 27,198
Income tax receivable -- 1,130
Deferred income taxes 877 784
--------- ---------
78,743 70,496
PROPERTY AND EQUIPMENT, at cost 30,582 29,231
Less accumulated depreciation (14,751) (13,004)
--------- ---------
15,831 16,227
GOODWILL, less accumulated amortization of $1,620 and $1,134 12,308 12,794
OTHER ASSETS 1,183 976
--------- ---------
TOTAL ASSETS $ 108,065 $ 100,493
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,803 $ 7,413
Accrued liabilities 12,160 13,278
Customers' advances 8,452 3,139
Current portion of long-term debt 847 1,082
--------- ---------
28,262 24,912
LONG-TERM DEBT - less current portion 191 988
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 35,070 35,107
Retained earnings 44,833 40,033
Treasury stock, at cost, 131,613 shares and 148,813 shares (1,650) (1,828)
Translation adjustment (332) (346)
--------- ---------
78,445 73,490
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 108,065 $ 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
April 3 March 28
1998 1997
-------- --------
<S> <C> <C>
SALES $ 31,500 $ 20,436
COSTS AND EXPENSES:
Cost of sales 21,946 14,502
Research and development 1,598 683
Marketing 1,768 1,185
General and administrative 2,727 1,755
-------- --------
28,039 18,125
-------- --------
OPERATING INCOME 3,461 2,311
OTHER INCOME (EXPENSE):
Income from investments 130 198
Interest expense (16) (29)
-------- --------
INCOME BEFORE INCOME TAXES 3,575 2,480
Provision for income taxes 1,128 786
-------- --------
NET INCOME $ 2,447 $ 1,694
======== ========
BASIC EARNINGS PER SHARE $ .48 $ .38
======== ========
DILUTED EARNINGS PER SHARE $ .46 $ .36
======== ========
</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
April 3 March 28
1998 1997
-------- --------
<S> <C> <C>
SALES $ 62,279 $ 40,116
COSTS AND EXPENSES:
Cost of sales 43,606 28,791
Research and development 3,038 1,448
Marketing 3,437 2,273
General and administrative 5,315 3,295
-------- --------
55,396 35,807
-------- --------
OPERATING INCOME 6,883 4,309
OTHER INCOME (EXPENSE):
Income from investments 207 406
Interest expense (47) (49)
-------- --------
INCOME BEFORE INCOME TAXES 7,043 4,666
Provision for income taxes 2,243 1,447
-------- --------
NET INCOME $ 4,800 $ 3,219
======== ========
BASIC EARNINGS PER SHARE $ .94 $ .72
======== ========
DILUTED EARNINGS PER SHARE $ .90 $ .69
======== ========
</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
April 3 March 28
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 6,881 $ 2,734
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,351) (2,476)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for business purchased in fiscal 1995 (302) (709)
Proceeds from long-term debt -- 1,285
Repayment of debt (730) (243)
Proceeds from exercise of stock options 141 401
-------- --------
(891) 734
INCREASE IN CASH AND EQUIVALENTS 4,639 992
CASH AND EQUIVALENTS:
At beginning of period 5,407 17,396
-------- --------
AT END OF PERIOD $ 10,046 $ 18,388
======== ========
</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, 1997.
NOTE B - INVENTORIES (IN THOUSANDS)
The components of inventory consist of the following:
<TABLE>
<CAPTION>
April 3 September 30
1998 1997
--------- ------------
<S> <C> <C>
Raw Materials $ 8,221 $ 8,844
Work-In-Process 16,492 13,626
Finished Goods 5,441 4,728
--------- ---------
$ 30,154 $ 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 during the period. The weighted
average number of shares outstanding during the second quarter and first six
months of fiscal 1998 were 5,100,000 and 5,095,000, respectively, and during the
second quarter and first six months of fiscal 1997 were 4,468,000 and 4,466,000,
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 as
follows:
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<TABLE>
<CAPTION>
(in thousands, except per share amounts) Second Quarter of
FY 1998 FY 1997
---------- ----------
<S> <C> <C>
Net Income $ 2,447 $ 1,694
Weighted average number of shares outstanding 5,100 4,468
Effect of options assumed exercised 235 197
---------- ----------
Total 5,335 4,665
Diluted earnings per share $ .46 $ .36
========== ==========
</TABLE>
<TABLE>
<CAPTION>
First Six Months of
FY 1998 FY 1997
---------- ----------
<S> <C> <C>
Net Income $ 4,800 $ 3,219
Weighted average number of shares outstanding 5,095 4,466
Effect of options assumed exercised 236 197
---------- ----------
Total 5,331 4,663
Diluted earnings per share $ .90 $ .69
========== ==========
</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) Six Months Ended
March 28, 1997
--------------
<S> <C>
Sales $ 56,294
Net Income 2,858
Basic earnings per share .57
Diluted earnings per share .55
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales during the second quarter and first six months of fiscal 1998 increased by
$11.1 million and $22.2 million, respectively, over the comparable periods
largely as a result of the acquisition of TIW.
Cost of sales expressed as a percent of sales improved from 71 percent in the
second quarter of fiscal 1997 to 69.7 percent in the comparable quarter of 1998
and from 71.8 percent in the first half of fiscal 1997 to 70 percent in the
comparable period of fiscal 1998 mainly due to a more favorable product sales
mix.
Research and development expenditures increased to $1.6 million for a 134
percent increase over the prior year's second quarter and to $3 million for a
110 percent increase over the first six months of fiscal 1997, principally due
to the absence of TIW's operating results in the fiscal 1997 periods.
The total of general and administrative and marketing expenses incurred during
fiscal 1998's second quarter of $4.5 million, increased $1.6 million or 53
percent from the comparable period and were $8.8 million during the first half
of fiscal 1998 which was $3.2 million or 57 percent more than the same period
one year ago largely due to the acquisition of TIW.
Income from investments declined by $68,000 or 34 percent and $199,000 or 49
percent in the second quarter and first six months of fiscal 1998, respectively,
compared to the same periods last year as the average cash balances available
for investment purposes in fiscal 1998 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 six months of 1998 were $77.1 million which
pushed the backlog of unfilled orders to a record high of $86.5 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.
7
<PAGE> 10
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, 1997, the balance of cash and equivalents increased by $4.6
million mainly as a result of record net income.
In the first six months of fiscal 1998 financing activities consumed $.9 million
whereas $.7 million of cash was provided from financing during the comparable
period. The net change of $1.6 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 six months 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.
8
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on
January 22, 1998 in Kilgore, Texas. Of the 5,091,938
total shares entitled to vote, 4,417,198 shares or
86.7 percent were represented in person or by proxy
at the meeting.
The following matters were submitted to the
shareholders in the meeting and approved by more than
the requisite majority as shown below:
(1) Election of seven directors to serve until
the next annual shareholders meeting:
<TABLE>
<CAPTION>
Votes Votes
For Withheld
--------- ---------
<S> <C> <C>
J. Rex Vardeman 4,412,744 4,454
A. Don Branum 4,412,744 4,454
James D. Carter 4,412,744 4,454
Bill R. Womble 4,412,744 4,454
Donald E. Heitzman, Sr. 4,402,444 14,754
Rein Luik 4,412,744 4,454
John G. Farmer 4,392,248 24,950
</TABLE>
(2) Approval of the Non-Employee Directors Stock Option
Plan:
<TABLE>
<S> <C>
Shares Voted For: 3,643,138
Shares Voted Against: 743,518
Shares Abstaining: 30,542
</TABLE>
(3) Ratification of the appointment of Arthur
Andersen LLP as independent public
accountants of the Company for the fiscal
year ending September 30, 1998.
<TABLE>
<S> <C>
Shares Voted For: 4,404,947
Shares Voted Against: 2,100
Shares Abstaining: 10,151
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
9
<PAGE> 12
(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 April 3, 1998.
10
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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 6, 1998 /s/ James D. Carter
-------------------- -------------------------------
James D. Carter
Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
11
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EXHIBIT INDEX
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 STATEMENT FOR THE THREE MONTHS ENDED APRIL 3, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> APR-03-1998
<CASH> 10,046
<SECURITIES> 0
<RECEIVABLES> 38,916
<ALLOWANCES> 1,250
<INVENTORY> 30,154
<CURRENT-ASSETS> 78,743
<PP&E> 30,582
<DEPRECIATION> 14,751
<TOTAL-ASSETS> 108,065
<CURRENT-LIABILITIES> 28,262
<BONDS> 0
0
0
<COMMON> 524
<OTHER-SE> 77,921
<TOTAL-LIABILITY-AND-EQUITY> 108,065
<SALES> 62,279
<TOTAL-REVENUES> 62,279
<CGS> 43,606
<TOTAL-COSTS> 55,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 7,043
<INCOME-TAX> 2,243
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,800
<EPS-PRIMARY> .94
<EPS-DILUTED> .90
</TABLE>
