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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 October 31, 2004
   
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
Commission File Number: 0-7928
 
 
(Exact name of registrant as specified in its charter)
 
Delaware   11-2139466
 
(State or other jurisdiction of incorporation /organization)   (I.R.S. Employer Identification Number)
     
105 Baylis Road, Melville, New York   11747
 
(Address of principal executive offices)   (Zip Code)
     
(631) 777-8900
(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.
|X| Yes   |_|  No

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
|X| Yes   |_|  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of December 1, 2004, the number of outstanding shares of Common Stock, par value $.10 per share, of the registrant was 14,320,813 shares.



COMTECH TELECOMMUNICATIONS CORP.
INDEX
 
    Page
   
PART I.  FINANCIAL INFORMATION    
     
      Item 1.  Financial Statements    
     
                    Consolidated Balance Sheets – October 31, 2004 (Unaudited)    
                            and July 31, 2004   2
     
                    Consolidated Statements of Operations – Three Months Ended October 31, 2004    
                            and 2003 (Unaudited)   3
     
                    Consolidated Statements of Cash Flows – Three Months Ended October 31, 2004    
                            and 2003 (Unaudited)   4
     
                    Notes to Consolidated Financial Statements   5 - 10
     
      Item 2.  Management’s Discussion and Analysis of Financial Condition and    
                            Results of Operations   10 - 16
     
      Item 3.  Quantitative and Qualitative Disclosures about Market Risk   16
     
      Item 4.  Controls and Procedures   16
     
PART II.  OTHER INFORMATION    
     
      Item 6.  Exhibits   16
     
Signature Page   17
     
Certifications   18 - 21

1



PART I
FINANCIAL INFORMATION
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
Item 1. October 31,
2004 		July 31,
2004
 
 
 
Assets   (Unaudited)        
Current assets:        
     Cash and cash equivalents $ 182,080,000     163,292,000  
     Restricted cash   2,103,000     4,054,000  
     Accounts receivable, net   30,940,000     43,002,000  
     Inventories, net   43,360,000     39,758,000  
     Prepaid expenses and other current assets   3,687,000     1,817,000  
     Deferred tax asset – current   6,501,000     6,501,000  
 
 
 
                                                  Total current assets   268,671,000     258,424,000  
             
Property, plant and equipment, net   15,164,000     14,652,000  
Goodwill   18,721,000     18,721,000  
Intangibles with definite lives, net   10,137,000     10,706,000  
Deferred financing costs, net   3,404,000     3,541,000  
Other assets, net   404,000     346,000  
 
 
 
             
                                                  Total assets $ 316,501,000     306,390,000  
 
 
 
             
Liabilities and Stockholders’ Equity        
Current liabilities:
     Accounts payable $ 12,283,000     9,566,000  
     Accrued expenses   19,394,000     20,515,000  
     Customer advances and deposits   5,870,000     7,290,000  
     Deferred service revenue   13,751,000     13,716,000  
     Current installments of capital lease obligations   194,000     234,000  
     Interest payable   525,000     1,073,000  
     Income taxes payable   7,936,000     4,812,000  
 
 
 
                                                  Total current liabilities   59,953,000     57,206,000  
             
Convertible senior notes   105,000,000     105,000,000  
Capital lease obligations, less current installments   124,000     158,000  
Deferred tax liability – non-current   1,628,000     1,628,000  
 
 
 
                                                  Total liabilities   166,705,000     163,992,000  
Stockholders’ equity:            
     Preferred stock, par value $.10 per share; shares authorized and
        unissued 2,000,000   —     —  
     Common stock, par value $.10 per share; authorized 30,000,000 shares;        
        issued 14,403,938 shares at October 31, 2004 and 14,371,335 shares        
        at July 31, 2004   1,440,000     1,437,000  
     Additional paid-in capital   110,754,000     110,435,000  
     Retained earnings   37,787,000     30,711,000  
 
 
 
    149,981,000     142,583,000  
   Less:        
        Treasury stock (140,625 shares)   (185,000 )   (185,000 )
 
 
 
                                                  Total stockholders’ equity   149,796,000     142,398,000  
 
 
 
                                                  Total liabilities and stockholders’ equity $ 316,501,000     306,390,000  
 
 
 
Commitments and contingencies
 
See accompanying notes to consolidated financial statements.

2



COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended
October 31,
2004 2003
 
 
 
             
Net sales $ 56,122,000     56,296,000  
Cost of sales   29,001,000     35,316,000  
 
 
 
   Gross profit   27,121,000     20,980,000  
 
 
 
Expenses:
   Selling, general and administrative   11,224,000     8,574,000  
   Research and development   4,896,000     3,541,000  
   Amortization of intangibles   569,000     500,000  
 
 
 
    16,689,000     12,615,000  
 
 
 
             
Operating income   10,432,000     8,365,000  
             
Other expense (income):            
   Interest expense   669,000     24,000  
   Interest income   (643,000 )   (105,000 )
 
 
 
Income before provision for income taxes   10,406,000     8,446,000  
Provision for income taxes   3,330,000     2,703,000  
 
 
 
Net income $ 7,076,000     5,743,000  
 
 
 
Net income per share:            
   Basic $ 0.50     0.41  
 
 
 
   Diluted $ 0.46     0.37  
 
 
 
             
Weighted average number of common shares outstanding – Basic   14,242,000     13,953,000  
Potential dilutive common shares   1,176,000     1,407,000  
 
 
 
Weighted average number of common and common equivalent shares            
   outstanding assuming dilution – Diluted   15,418,000     15,360,000  
 
 
 
 

See accompanying notes to consolidated financial statements.

3



COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three months ended
October 31,
2004
2003
Cash flows from operating activities:        
    Net income $ 7,076,000     5,743,000  
    Adjustments to reconcile net income to net cash provided by        
       operating activities:
          Depreciation and amortization   1,814,000     1,562,000  
          Amortization of deferred financing costs   137,000     —  
          Provision for doubtful accounts   29,000     13,000  
          Provision for excess and obsolete inventories   421,000     589,000  
          Changes in assets and liabilities:        
             Restricted cash securing letter of credit obligations   1,951,000     8,000  
             Accounts receivable   12,033,000     (7,653,000 )
             Inventories   (4,016,000 )   (58,000 )
             Prepaid expenses and other current assets   (1,839,000 )   (456,000 )
             Other assets   (58,000 )   12,000  
             Accounts payable   2,717,000     1,769,000  
             Accrued expenses   (1,121,000 )   (770,000 )
             Customer advances and deposits   (1,420,000 )   25,000  
             Deferred service revenue   35,000     119,000  
             Interest payable   (548,000 )   —  
             Income taxes payable   3,124,000     669,000  
 
 
 
          Net cash provided by operating activities   20,335,000     1,572,000  
 
 
 
 
Cash flows from investing activities:
    Purchases of property, plant and equipment   (1,795,000 )   (1,231,000 )
 
 
 
          Net cash used in investing activities   (1,795,000 )   (1,231,000 )
 
 
 
 
Cash flows from financing activities:        
    Principal payments on capital lease obligations   (74,000 )   (266,000 )
    Proceeds from exercises of stock options, warrants and employee stock
          purchase plan shares   322,000     912,000  
 
 
 
                 Net cash provided by financing activities   248,000     646,000  
 
 
 
             
    Net increase in cash and cash equivalents   18,788,000     987,000  
    Cash and cash equivalents at beginning of period   163,292,000     48,617,000  
 
 
 
    Cash and cash equivalents at end of period $ 182,080,000     49,604,000  
 
 
 
 
Supplemental cash flow disclosure:
 
Cash paid during the period for:         
    Interest $ 1,073,000     24,000  
    Income taxes $ 206,000     2,034,000  
 

See accompanying notes to consolidated financial statements.

4



COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(1)  General
   
  The accompanying consolidated financial statements at and for the three months ended October 31, 2004 and 2003 are unaudited. In the opinion of management, the information furnished reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the unaudited interim periods. The results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full year.
   
  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended July 31, 2004 and the notes thereto contained in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission, and all of the Company’s other filings with the Securities and Exchange Commission.
 
(2)  Reclassifications
   
  Certain reclassifications have been made to previously reported statements to conform to the Company’s current financial statement format.
 

(3)  

 Accounts Receivable
 
Accounts receivable consist of the following: October 31, 2004 July 31, 2004
   
 
 
               
  Accounts receivable from commercial customers $ 14,933,000     27,845,000  
  Unbilled receivables (including retainages) on contracts-in-progress   4,968,000     6,684,000  
  Amounts receivable from the U.S. government and its agencies   11,749,000     9,205,000  
   
 
 
      31,650,000     43,734,000  
  Less allowance for doubtful accounts   710,000     732,000  
   
 
 
               
      Accounts receivable, net $ 30,940,000     43,002,000  
   
 
 
   
  There was $22,000 of retainage included in unbilled receivables at October 31, 2004. In the opinion of management, substantially all of the unbilled balances will be billed and collected within one year.
   
  As of July 31, 2004, a North African country represented 34.4% of total net accounts receivable.