UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
| 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 31, 2005 | ||
| |_| | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| Commission File Number: 0-7928 | ||
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| (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. Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). APPLICABLE ONLY TO CORPORATE ISSUERS: As of March 4, 2005, the number of outstanding shares of Common Stock, par value $.10 per share, of the registrant was 14,436,919 shares. |
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COMTECH TELECOMMUNICATIONS CORP. |
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| PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements | |
| Consolidated Balance Sheets – January 31, 2005 (Unaudited) | |
| and July 31, 2004 | 2 |
| Consolidated Statements of Operations – Three and Six Months Ended | |
| January 31, 2005 and 2004 (Unaudited) | 3 |
| Consolidated Statements of Cash Flows – Six Months Ended January 31, 2005 | |
| and 2004 (Unaudited) | 4 |
| Notes to Consolidated Financial Statements | 5 - 12 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and | |
| Results of Operations | 12 - 20 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 20 |
| Item 4. Controls and Procedures | 20 |
| PART II. OTHER INFORMATION | |
| Item 4. Submission of Matters to a Vote of Security Holders | 21 |
| Item 6. Exhibits | 21 |
| Signature Page | 22 |
| Certifications | 23 - 26 |
1 |
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PART I |
| Item 1. | January 31, 2005 |
July 31, 2004 |
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|---|---|---|---|---|---|---|
| Assets | (Unaudited) | |||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 201,743,000 | 163,292,000 | |||
| Restricted cash | 1,044,000 | 4,054,000 | ||||
| Accounts receivable, net | 41,412,000 | 43,002,000 | ||||
| Inventories, net | 38,555,000 | 39,758,000 | ||||
| Prepaid expenses and other current assets | 5,107,000 | 1,817,000 | ||||
| Deferred tax asset – current | 6,501,000 | 6,501,000 | ||||
| Total current assets | 294,362,000 | 258,424,000 | ||||
| Property, plant and equipment, net | 15,450,000 | 14,652,000 | ||||
| Goodwill | 18,721,000 | 18,721,000 | ||||
| Intangibles with definite lives, net | 9,569,000 | 10,706,000 | ||||
| Deferred financing costs, net | 3,267,000 | 3,541,000 | ||||
| Other assets, net | 413,000 | 346,000 | ||||
| Total assets | $ | 341,782,000 | 306,390,000 | |||
| Liabilities and Stockholders’ Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 16,808,000 | 9,566,000 | |||
| Accrued expenses | 24,264,000 | 20,515,000 | ||||
| Customer advances and deposits | 11,045,000 | 7,290,000 | ||||
| Deferred service revenue | 10,248,000 | 13,716,000 | ||||
| Current installments of capital lease obligations | 162,000 | 234,000 | ||||
| Interest payable | 1,050,000 | 1,073,000 | ||||
| Income taxes payable | 9,885,000 | 4,812,000 | ||||
| Total current liabilities | 73,462,000 | 57,206,000 | ||||
| Convertible senior notes | 105,000,000 | 105,000,000 | ||||
| Capital lease obligations, less current installments | 90,000 | 158,000 | ||||
| Deferred tax liability – non-current | 1,628,000 | 1,628,000 | ||||
| Total liabilities | 180,180,000 | 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 14,562,794 shares at January 31, 2005 and 14,371,335 shares | ||||||
| at July 31, 2004 | 1,456,000 | 1,437,000 | ||||
| Additional paid-in capital | 112,362,000 | 110,435,000 | ||||
| Retained earnings | 47,969,000 | 30,711,000 | ||||
| 161,787,000 | 142,583,000 | |||||
| Less: | ||||||
| Treasury stock (140,625 shares) | (185,000 | ) | (185,000 | ) | ||
| Total stockholders’ equity | 161,602,000 | 142,398,000 | ||||
| Total liabilities and stockholders’ equity | $ | 341,782,000 | 306,390,000 | |||
| Commitments and contingencies | ||||||
| See accompanying notes to consolidated financial statements. |
2 |
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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES |
| Three months ended January 31, |
Six months ended January 31, |
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| 2005 | 2004 | 2005 | 2004 | |||||||||
| Net sales | $ | 78,087,000 | 56,794,000 | 134,209,000 | 113,090,000 | |||||||
| Cost of sales | 45,797,000 | 36,181,000 | 74,798,000 | 71,497,000 | ||||||||
| Gross profit | 32,290,000 | 20,613,000 | 59,411,000 | 41,593,000 | ||||||||
| Expenses: | ||||||||||||
| Selling, general and administrative | 12,033,000 | 8,804,000 | 23,257,000 | 17,378,000 | ||||||||
| Research and development | 4,954,000 | 3,664,000 | 9,850,000 | 7,205,000 | ||||||||
| Amortization of intangibles | 568,000 | 499,000 | 1,137,000 | 999,000 | ||||||||
| 17,555,000 | 12,967,000 | 34,244,000 | 25,582,000 | |||||||||
| Operating income | 14,735,000 | 7,646,000 | 25,167,000 | 16,011,000 | ||||||||
| Other expense (income): | ||||||||||||
| Interest expense | 667,000 | 51,000 | 1,336,000 | 75,000 | ||||||||
| Interest income | (905,000 | ) | (114,000 | ) | (1,548,000 | ) | (219,000 | ) | ||||
| Income before provision for income taxes | 14,973,000 | 7,709,000 | 25,379,000 | 16,155,000 | ||||||||
| Provision for income taxes | 4,791,000 | 2,466,000 | 8,121,000 | 5,169,000 | ||||||||
| Net income | $ | 10,182,000 | 5,243,000 | 17,258,000 | 10,986,000 | |||||||
| Net income per share (See Note 7): | ||||||||||||
| Basic | $ | 0.71 | 0.37 | 1.21 | 0.78 | |||||||
| Diluted | $ | 0.59 | 0.34 | 1.02 | 0.71 | |||||||
| Weighted average number of common shares | ||||||||||||
| outstanding – basic | 14,324,000 | 14,080,000 | 14,294,000 | 14,017,000 | ||||||||
| Weighted average number of common and | ||||||||||||
| common equivalent shares outstanding | ||||||||||||
| assuming dilution – diluted | 18,014,000 | 15,671,000 | 17,838,000 | 15,517,000 | ||||||||
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See accompanying notes to consolidated financial statements. |
3 |
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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES |
| Six months ended January 31, |
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| 2005 | 2004 | |||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 17,258,000 | 10,986,000 | |||
| Adjustments to reconcile net income to net cash provided by (used in) | ||||||
| operating activities: | ||||||
| Depreciation and amortization | 3,666,000 | 3,116,000 | ||||
| Amortization of deferred financing costs | 274,000 | 8,000 | ||||
| Provision for doubtful accounts | 21,000 | 142,000 | ||||
| Provision for excess and obsolete inventories | 792,000 | 836,000 | ||||
| Income tax benefit from stock option exercises | 526,000 | 1,001,000 | ||||
| Loss on disposal of property, plant and equipment | — | 81,000 | ||||
| Changes in assets and liabilities: | ||||||
| Restricted cash securing letter of credit obligations | 3,010,000 | 92,000 | ||||
| Accounts receivable | 1,569,000 | (21,172,000 | ) | |||
| Inventories | 426,000 | 1,441,000 | ||||
| Prepaid expenses and other current assets | (3,259,000 | ) | (1,116,000 | ) | ||
| Other assets | (67,000 | ) | (2,000 | ) | ||
| Accounts payable | 7,242,000 | 2,445,000 | ||||
| Accrued expenses | 3,749,000 | 2,035,000 | ||||
| Customer advances and deposits | 3,755,000 | 403,000 | ||||
| Deferred service revenue | (3,468,000 | ) | 1,590,000 | |||
| Interest payable | (23,000 | ) | 29,000 | |||
| Income taxes payable | 5,073,000 | (2,166,000 | ) | |||
| Net cash provided by (used in) operating activities | 40,544,000 | (251,000 | ) | |||
| Cash flows from investing activities: | ||||||
| Purchases of property, plant and equipment | (3,373,000 | ) | (2,420,000 | ) | ||
| Net cash used in investing activities | (3,373,000 | ) | (2,420,000 | ) | ||
| Cash flows from financing activities: | ||||||
| Principal payments on capital lease obligations | (140,000 | ) | (518,000 | ) | ||
| Proceeds from issuance of convertible senior notes, net of | ||||||
| related costs of $3,821,000 | — | 101,179,000 | ||||
| Proceeds from exercises of stock options, warrants and employee stock | ||||||
| purchase plan shares | 1,420,000 | 1,617,000 | ||||
| Net cash provided by financing activities | 1,280,000 | 102,278,000 | ||||
| Net increase in cash and cash equivalents | 38,451,000 | 99,607,000 | ||||
| Cash and cash equivalents at beginning of period | 163,292,000 | 48,617,000 | ||||
| Cash and cash equivalents at end of period | $ | 201,743,000 | 148,224,000 | |||
| Supplemental cash flow disclosure: | ||||||
| Cash paid during the period for: | ||||||
| Interest | $ | 1,073,000 | 39,000 | |||
| Income taxes | $ | 2,522,000 | 6,334,000 | |||
| See accompanying notes to consolidated financial statements. |
4 |
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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES |
| (1) | General |
| The accompanying consolidated financial statements at and for the three and six months ended January 31, 2005 and 2004 are unaudited. In the opinion of management, the information furnished reflects all adjustments necessary for a fair presentation of the results for the unaudited interim periods. During the three and six months ended January 31, 2005, the Company recorded positive adjustments relating to its estimated gross profit and progress toward completion on three long-term contracts accounted for using the percentage-of-completion method. 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: | January 31,
2005 |
July 31, 2004 | |||||
| Accounts receivable from commercial customers | $ | 17,996,000 | 27,845,000 | ||||
| Unbilled receivables (including retainages) on | |||||||
| contracts-in-progress | 8,998,000 | 6,684,000 | |||||
| Amounts receivable from the U.S. government | |||||||
| and its agencies | 15,120,000 | 9,205,000 | |||||
| 42,114,000 | 43,734,000 | ||||||
| Less allowance for doubtful accounts | 702,000 | 732,000 | |||||
| Accounts receivable, net | $ | 41,412,000 | 43,002,000 | ||||
| There was $2,114,000 of retainage included in unbilled receivables at January 31, 2005. 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. | |
| (4) | Inventories |
| Inventories consist of the following: | January 31, 2005 |
July 31, 2004 | |||||
| Raw materials and components | $ | 24,201,000 | 22,502,000 | ||||
| Work-in-process and finished goods | 20,292,000 | 22,878,000 | |||||