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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 30, 2005
   
o 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  o No

 
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
 

x Yes o No

APPLICABLE ONLY TO CORPORATE ISSUERS:

 
As of June 3, 2005, the number of outstanding shares of Common Stock, par value $.10 per share, of the registrant was 21,723,642 shares.


COMTECH TELECOMMUNICATIONS CORP.
INDEX

 
      Page  
       
 
PART I.  FINANCIAL INFORMATION    
         
  Item 1. Financial Statements      
           
      Consolidated Balance Sheets – April 30, 2005 (Unaudited)      
             and July 31, 2004   2  
           
      Consolidated Statements of Operations – Three and Nine Months Ended      
             April 30, 2005 and 2004 (Unaudited)   3  
           
      Consolidated Statements of Cash Flows – Nine Months Ended April 30, 2005      
             and 2004 (Unaudited)   4  
           
      Notes to Consolidated Financial Statements   5 - 17  
         
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of      
           Operations   18 - 25  
           
  Item 3. Quantitative and Qualitative Disclosures about Market Risk   26  
           
  Item 4. Controls and Procedures   26  
           
PART II.  OTHER INFORMATION      
         
  Item 6. Exhibits   26  
       
Signature Page   27  
       
Certifications   28 - 31  

1


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

 
Item 1. April 30,
2005		   July 31,
2004
                                 Assets   (Unaudited)      
Current assets:          
    Cash and cash equivalents   $ 205,250,000     163,292,000  
    Restricted cash     1,044,000     4,054,000  
    Accounts receivable, net     38,229,000     43,002,000  
    Inventories, net     45,455,000     39,758,000  
    Prepaid expenses and other current assets     3,896,000     1,817,000  
    Deferred tax assets – current     6,501,000     6,501,000  
                                 Total current assets     300,375,000     258,424,000  
     
Property, plant and equipment, net     17,337,000     14,652,000  
Goodwill     22,322,000     18,721,000  
Intangibles with definite lives, net     9,716,000     10,706,000  
Deferred financing costs, net     3,131,000     3,541,000  
Other assets, net     365,000     346,000  
                                 Total assets   $ 353,246,000     306,390,000  
   
                    Liabilities and Stockholders’ Equity              
Current liabilities:              
    Accounts payable   $ 23,307,000     9,566,000  
    Accrued expenses     27,660,000     20,515,000  
    Customer advances and deposits     6,751,000     7,290,000  
    Deferred service revenue     9,222,000     13,716,000  
    Current installments of other obligations     234,000     234,000  
    Interest payable     525,000     1,073,000  
    Income taxes payable     4,699,000     4,812,000  
                                 Total current liabilities     72,398,000     57,206,000  
     
Convertible senior notes     105,000,000     105,000,000  
Other obligations, less current installments     457,000     158,000  
Deferred tax liabilities – non-current     4,908,000     1,628,000  
                                 Total liabilities     182,763,000     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 21,907,379 shares at April 30, 2005 and 21,557,002 shares
        at July 31, 2004		     2,191,000     2,156,000  
    Additional paid-in capital     112,136,000     109,716,000  
    Retained earnings     56,341,000     30,711,000  
      170,668,000     142,583,000  
   
    Less:              
        Treasury stock (210,937 shares)     (185,000 )   (185,000 )
                                 Total stockholders’ equity     170,483,000     142,398,000  
                                 Total liabilities and stockholders’ equity   $ 353,246,000     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
April 30,

Nine months ended
April 30,
2005 2004 2005 2004
                           
Net sales   $ 75,388,000     51,244,000     209,597,000     164,334,000  
Cost of sales     45,910,000     30,635,000     120,708,000     102,132,000  
   
 
 
 
 
    Gross profit     29,478,000     20,609,000     88,889,000     62,202,000  
   
 
 
 
 
                           
Expenses:                          
    Selling, general and administrative     12,855,000     8,775,000     36,112,000     26,153,000  
    Research and development     5,325,000     3,993,000     15,175,000     11,198,000  
    Amortization of intangibles     597,000     499,000     1,734,000     1,498,000  
   
 
 
 
 
      18,777,000     13,267,000     53,021,000     38,849,000  
   
 
 
 
 
                           
Operating income     10,701,000     7,342,000     35,868,000     23,353,000  
                           
Other expense (income):                          
    Interest expense     669,000     675,000     2,005,000     750,000  
    Interest income     (1,191,000 )   (324,000 )   (2,739,000 )   (543,000 )
   
 
 
 
 
                           
Income before provision for income taxes     11,223,000     6,991,000     36,602,000     23,146,000  
Provision for income taxes     2,851,000     2,238,000     10,972,000     7,407,000  
   
 
 
 
 
                           
Net income   $ 8,372,000     4,753,000     25,630,000     15,739,000  
   
 
 
 
 
                           
Net income per share (See Note 8):                          
    Basic   $ 0.39     0.22     1.19     0.75  
   
 
 
 
 
    Diluted   $ 0.32     0.20     1.00     0.67  
   
 
 
 
 
                           
Weighted average number of common shares
   outstanding – basic		     21,666,000     21,326,000     21,505,000     21,125,000  
   
 
 
 
 
                           
Weighted average number of common and
    common equivalent shares outstanding
        assuming dilution – diluted		     27,327,000     26,439,000     26,936,000     24,329,000  
   
 
 
 
 
 

See accompanying notes to consolidated financial statements.


3


COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Nine months ended April 30,
2005 2004
Cash flows from operating activities:          
    Net income   $ 25,630,000     15,739,000  
    Adjustments to reconcile net income to net cash provided by              
          operating activities:              
        Depreciation and amortization     5,609,000     4,738,000  
        Amortization of deferred financing costs     410,000     144,000  
        Provision for doubtful accounts     78,000     123,000  
        Provision for excess and obsolete inventories     1,258,000     956,000  
        Income tax benefit from stock option exercises     526,000     1,001,000  
        Deferred income tax expense     3,280,000     —  
        Loss on disposal of property, plant and equipment     19,000     90,000  
        Changes in assets and liabilities, net of effects of acquisition:              
             Restricted cash securing letter of credit obligations     3,010,000     92,000  
             Accounts receivable     4,695,000     (21,992,000 )
             Inventories     (6,780,000 )   (3,534,000 )
             Prepaid expenses and other assets     (1,900,000 )   (393,000 )
             Accounts payable     13,741,000     (373,000 )
             Accrued expenses     5,665,000     4,034,000  
             Customer advances and deposits     (539,000 )   3,364,000  
             Deferred service revenue     (4,494,000 )   2,279,000  
             Interest payable     (548,000 )   554,000  
             Income taxes payable     (113,000 )   (531,000 )
   
 
 
    Net cash provided by operating activities     49,547,000     6,291,000  
   
 
 
               
Cash flows from investing activities:              
    Payments for business acquisition     (2,735,000 )   —  
    Purchases of property, plant and equipment     (6,498,000 )   (4,295,000 )
    Purchase of proprietary technology     (75,000 )   —  
   
 
 
    Net cash used in investing activities     (9,308,000 )   (4,295,000 )
   
 
 
               
Cash flows from financing activities:              
    Proceeds from issuance of convertible senior notes, net of
             related costs of $3,821,000		     —