UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
Form 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended April 30, 2003
|_| 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: 0-7928
COMTECH TELECOMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-2139466
(State or other jurisdiction (I.R.S. Employer
of incorporation /organization) 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).
|_| Yes |X| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 30, 2003, the number of outstanding shares of Common Stock, par value
$.10 per share, of the Registrant was 7,589,845 shares.
COMTECH TELECOMMUNICATIONS CORP.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - April 30, 2003 (Unaudited)
and July 31, 2002 2
Consolidated Statements of Operations - Three Months and
Nine Months Ended April 30, 2003 and 2002
(Unaudited) 3
Consolidated Statements of Cash Flows - Nine Months Ended
April 30, 2003 and 2002 (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 and Reports on Form 8-K 16
Signature Page 17
Certifications 18 - 19
1
PART I
FINANCIAL INFORMATION
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, July 31,
Item 1. 2003 2002
------------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 31,297,000 15,510,000
Restricted cash 4,247,000 --
Accounts receivable, less allowance for doubtful accounts of $860,000 at
April 30, 2003 and $795,000 at July 31, 2002 31,675,000 27,435,000
Inventories, net 32,236,000 33,996,000
Prepaid expenses and other current assets 1,879,000 1,407,000
Deferred tax asset - current 2,492,000 2,492,000
------------- ------------
Total current assets 103,826,000 80,840,000
Property, plant and equipment, net 12,121,000 11,889,000
Goodwill and other intangibles with indefinite lives 17,726,000 17,726,000
Other intangibles with definite lives, net 11,852,000 12,902,000
Other assets, net 549,000 661,000
Deferred tax asset - non-current 2,568,000 2,568,000
------------- ------------
Total assets $ 148,642,000 126,586,000
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 1,983,000 --
Current installments of capital lease obligations 1,011,000 1,062,000
Accounts payable 11,726,000 9,529,000
Accrued expenses and other current liabilities 11,754,000 9,686,000
Customer advances and deposits 6,783,000 2,173,000
Deferred service revenue 8,675,000 4,343,000
Income taxes payable 5,431,000 2,470,000
------------- ------------
Total current liabilities 47,363,000 29,263,000
Long-term debt, less current installments 26,700,000 28,683,000
Capital lease obligations, less current installments 543,000 1,294,000
Other long-term liabilities 12,000 58,000
------------- ------------
Total liabilities 74,618,000 59,298,000
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
7,674,345 shares at April 30, 2003 and 7,602,921 shares at July 31, 2002 767,000 760,000
Additional paid-in capital 68,328,000 67,883,000
Retained earnings (accumulated deficit) 5,297,000 (825,000)
------------- ------------
74,392,000 67,818,000
Less:
Treasury stock (93,750 shares) (185,000) (185,000)
Deferred compensation (183,000) (345,000)
------------- ------------
Total stockholders' equity 74,024,000 67,288,000
------------- ------------
Total liabilities and stockholders' equity $ 148,642,000 126,586,000
============= ============
Commitments and contingencies
See accompanying notes to consolidated financial statements.
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
April 30, April 30,
------------------------------ ------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $ 48,753,000 29,262,000 122,352,000 90,832,000
Cost of sales 32,262,000 19,364,000 80,641,000 61,010,000
------------ ----------- ------------ -----------
Gross profit 16,491,000 9,898,000 41,711,000 29,822,000
------------ ----------- ------------ -----------
Expenses:
Selling, general and administrative 7,270,000 5,531,000 19,970,000 16,408,000
Research and development 3,014,000 2,797,000 9,326,000 8,157,000
Amortization of intangibles 488,000 370,000 1,540,000 1,101,000
------------ ----------- ------------ -----------
10,772,000 8,698,000 30,836,000 25,666,000
------------ ----------- ------------ -----------
Operating income 5,719,000 1,200,000 10,875,000 4,156,000
Other expense (income):
Interest expense 682,000 692,000 2,059,000 2,348,000
Interest income (66,000) (90,000) (187,000) (370,000)
------------ ----------- ------------ -----------
Income before provision for income taxes 5,103,000 598,000 9,003,000 2,178,000
Provision for income taxes 1,633,000 189,000 2,881,000 719,000
------------ ----------- ------------ -----------
Net income $ 3,470,000 409,000 6,122,000 1,459,000
============ =========== ============ ===========
Net income per share:
Basic $ 0.46 0.06 0.81 0.20
============ =========== ============ ===========
Diluted $ 0.43 0.05 0.77 0.18
============ =========== ============ ===========
Weighted average number of common
shares outstanding - basic 7,567,000 7,474,000 7,538,000 7,450,000
Potential dilutive common shares 474,000 380,000 375,000 459,000
------------ ----------- ------------ -----------
Weighted average number of common and
common equivalent shares outstanding
assuming dilution - diluted 8,041,000 7,854,000 7,913,000 7,909,000
============ =========== ============ ===========
See accompanying notes to consolidated financial statements.
3
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
April 30,
------------------------------
2003 2002
------------ -----------
Cash flows from operating activities:
Net income $ 6,122,000 1,459,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,617,000 3,925,000
Provision for (reduction of) bad debt allowance 170,000 (173,000)
Provision for inventory reserves 1,749,000 778,000
Changes in operating assets and liabilities, net of effect of acquisitions:
Restricted cash (4,247,000) --
Accounts receivable (4,410,000) 278,000
Inventories (209,000) 2,079,000
Prepaid expenses and other current assets (637,000) 96,000
Other assets (78,000) 135,000
Accounts payable 2,197,000 (1,773,000)
Accrued expenses and other current liabilities 2,027,000 (1,843,000)
Customer advances and deposits 4,610,000 478,000
Deferred service revenue 4,332,000 1,714,000
Income taxes payable 2,961,000 481,000
Other long-term liabilities (46,000) (80,000)
------------ -----------
Net cash provided by operating activities 19,158,000 7,554,000
------------ -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,057,000) (2,365,000)
Purchase of technology license (75,000) (91,000)
Payment for business acquisitions (440,000) (69,000)
Cash received in connection with business acquisitions 551,000 --
------------ -----------
Net cash used in investing activities (3,021,000) (2,525,000)
------------ -----------
Cash flows from financing activities:
Prepayment of principal under loan agreement -- (19,217,000)
Principal payments on capital lease obligation (802,000) (838,000)
Proceeds from issuance of stock 452,000 360,000
------------ -----------
Net cash used in financing activities (350,000) (19,695,000)
------------ -----------
Net increase (decrease) in cash and cash equivalents 15,787,000 (14,666,000)
Cash and cash equivalents at beginning of period 15,510,000 36,205,000
------------ -----------
Cash and cash equivalents at end of period $ 31,297,000 21,539,000
============ ===========
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 for the three months
and nine months ended April 30, 2003 and 2002 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, 2002 and the notes thereto contained in the
Company's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, and 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) Acquisition
On July 31, 2002, the Company acquired certain assets and assumed certain
liabilities of Advanced Hardware Architectures, Inc. ("AHA") for
$6,985,000, including transaction costs of $185,000. The purchase price
was subject to adjustment based on AHA's net tangible assets as of July
31, 2002. In January 2003, the purchase price adjustment was finalized and
the Company received $551,000, net of related costs. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the
Company recorded the assets purchased and the liabilities assumed based
upon the estimated fair values at the date of acquisition. The excess of
the purchase price over the fair values of the net assets acquired was
approximately $6,312,000 of which $2,192,000 was allocated to in-process
research and development and was expensed as of the acquisition date,
$4,032,000 was allocated to existing and core technology and trade name
and is being amortized over nine years and $88,000 was allocated to order
backlog and amortized over six months. The Company's operating results for
the three and nine months ended April 30, 2003 include AHA.
(4) Accounts Receivable
Accounts receivable consist of the following:
April 30, 2003 July 31, 2002
-------------- -------------
Accounts receivable from commercial customers $12,321,000 15,424,000
Unbilled receivables (including retainages) on contracts-in-progress 10,719,000 9,304,000
Amounts receivable from the United States government and its agencies 9,495,000 3,502,000
----------- ----------
32,535,000 28,230,000
Less allowance for doubtful accounts 860,000 795,000
----------- ----------
Accounts receivable, net $31,675,000 27,435,000
=========== ==========
The amount of retainages included in unbilled receivables was $51,000 and
$778,000 at April 30, 2003 and July 31, 2002, respectively. In the opinion
of management, substantially all of the unbilled balances will be billed
and collected within one year.
5
(5) Inventories
Inventories consist of the following:
April 30, 2003 July 31, 2002
-------------- -------------
Raw materials and components $16,039,000 15,920,000
Work-in-process and finished goods 21,008,000 21,365,000
----------- ----------
37,047,000 37,285,000
Less:
Reserve for anticipated losses on contracts and inventory reserves 4,811,000 3,289,000
----------- ----------
Inventories, net $32,236,000 33,996,000
=========== ==========
Inventories directly related to long-term contracts were $11,688,000 and
$8,461,000 at April 30, 2003 and July 31, 2002, respectively.
(6) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
April 30, 2003 July 31, 2002
-------------- -------------
Accrued wages and benefits $ 4,330,000 2,918,000
Accrued commissions 1,473,000 1,125,000
Accrued warranty 2,920,000 2,975,000
Other 3,031,000 2,668,000
----------- ---------
$11,754,000 9,686,000
=========== =========
Changes in the Company's product warranty liability during the nine months
ended April 30, 2003 and 2002 were as follows:
Nine months ended April 30,
----------------------------
2003 2002
----------- ----------
Balance at beginning of period $ 2,975,000 4,336,000
Provision for warranty obligations 746,000 511,000
Charges incurred (801,000) (1,449,000)
----------- ----------
Balance at end of period $ 2,920,000 3,398,000
=========== ==========
(7) Earnings Per Share
The Company calculates earnings per share ("EPS") in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share". Basic EPS is computed based on the weighted average number of
shares outstanding. Diluted EPS reflects the maximum dilution from
potential common stock issuable pursuant to the exercise of stock options
and warrants, if dilutive, outstanding during each period.
Stock options to purchase approximately 348,000 and 577,000 shares for the
three months ended April 30, 2003 and 2002, respectively, and 634,000 and
351,000 shares for the nine months ended April 30, 2003 and 2002,
respectively, were not included in the EPS calculation because their
effect would have been anti-dilutive.
6
(8) Stock-Based Compensation Plans
The Company accounts for its stock option plans under the intrinsic value
method of APB Opinion No. 25, and as a result no compensation cost has
been recognized. Had compensation cost for these plans been determined
consistent with SFAS No. 123, the Company's net income and income per
share would have been reduced to the following pro forma amounts:
Nine months ended Three months ended
April 30, April 30,
-------------------------- -------------------------
2003 2002 2003 2002
---------- ---------- --------- ----------
Net income, as reported $6,122,000 1,459,000 3,470,000 409,000
Less: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (468,000) (390,000) (158,000) (130,000)
---------- --------- --------- ---------
Pro forma net income $5,654,000 1,069,000 3,312,000 279,000
========== ========= ========= =========
Net income per share:
As reported Basic $ 0.81 0.20 0.46 0.06
Diluted $ 0.77 0.18 0.43 0.05
Pro forma Basic $ 0.75 0.14 0.44 0.04
Diluted $ 0.71 0.14 0.41 0.04
The per share weighted average fair value of stock options granted during
the nine months ended April 30, 2003 and 2002 was $4.20 and $7.06,
respectively, on the date of grant. These fair values were determined
using the Black Scholes option-pricing model with the following weighted
average assumptions: 2003 - expected dividend yield of 0%, risk free
interest rate of 3.32%, expected volatility of 56.52% and an expected
option life of 5 years; 2002 - expected dividend yield of 0%, risk free
interest rate of 4.29%, expected volatility of 54.10%, and an expected
option life of 5 years.
The per share weighted average fair value of stock options granted during
the three months ended April 30, 2003 and 2002 was $6.21 and $6.25,
respectively, on the date of grant. These fair values were determined
using the Black Scholes option-pricing model with the following weighted
average assumptions: 2003 - expected dividend yield of 0%, risk free
interest rate of 2.54%, expected volatility of 62.15%, and an expected
life of 5 years; 2002 - expected dividend yield of 0%, risk free interest
rate of 4.68%, expected volatility of 54.10%, and an expected life of 5
years.
(9) Segment and Principal Customer Information
Reportable operating segments are determined based on the Company's
management approach. The management approach is based on the way that the
chief operating decision-maker organizes the segments within an enterprise
for making operating decisions and assessing performance. While the
Company's results of operations are primarily reviewed on a consolidated
basis, the chief operating decision-maker also manages the enterprise in
three segments: (i) Telecommunications Transmission, (ii) RF Microwave
Amplifiers and (iii) Mobile Data Communications Services.
Telecommunications Transmission products include modems, frequency
converters, satellite VSAT transceivers and antenna and over-the-horizon
microwave communications products and systems. RF Microwave Amplifiers
products include high-power amplifier products that use the microwave and
radio frequency spectrums. Mobile Data Communications Services include
two-way messaging links between mobile platforms or remote sites and user
headquarters using satellite, terrestrial microwave or Internet links.
Unallocated assets consist principally of cash, deferred tax assets and
intercompany receivables. Unallocated losses result from such corporate
expenses as legal, accounting and executive. Corporate management defines
and reviews segment profitability based on the same allocation methodology
as presented in the segment data tables. Inter-segment sales for the three
and nine months ended April 30, 2003, by the telecommunications
transmission segment to the RF microwave amplifiers segment were $0.9
million and $2.9 million, respectively. Inter-segment sales for the three
and nine months ended April 30, 2003 by the telecommunications
transmission segment to the mobile data communications services segment
were $6.8 million and $7.7 million, respectively. Inter-segment sales for
the three and nine months ended April 30, 2002, by the telecommunications
transmission segment to the RF microwave amplifiers segment were $1.2
million and $2.6 million, respectively. Inter-segment sales are excluded
from the sales amounts in the tables below. Sales to one customer for the
three and nine months ended April 30, 2003 represented $10.8 million or
22.1% of total net sales and $19.0 million or 15.5% of total net sales,
respectively. These sales were from our telecommunications transmission
and mobile data communications services segments. All of the Company's
long-lived assets are located in the United States.
7
Three months ended
April 30, 2003
(in thousands)
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Total
------------ ---------- -------- ----------- -----
Net sales $26,762 5,729 16,262 -- 48,753
Operating income (loss) 4,286 429 2,149 (1,145) 5,719
Interest income 1 -- -- 65 66
Interest expense 461 221 -- -- 682
Depreciation and
amortization 1,097 318 67 27 1,509
Expenditures for long-lived
assets, including intangibles 1,386 29 175 7 1,597
Total assets 59,035 21,640 30,611 37,356 148,642
Three months ended
April 30, 2002
(in thousands)
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Total
------------ ---------- -------- ----------- -----
Net sales $18,065 5,415 5,782 -- 29,262
Operating income (loss) 1,551 185 258 (794) 1,200
Interest income 23 -- 3 64 90
Interest expense 467 225 -- -- 692
Depreciation and
amortization 934 280 47 18 1,279
Expenditures for long-lived
assets, including intangibles 384 400 72 7 863
Total assets 55,907 25,597 20,647 25,826 127,977
Nine months ended
April 30, 2003
(in thousands)
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Total
------------ ---------- -------- ----------- -----
Net sales $70,863 18,560 32,929 -- 122,352
Operating income (loss) 8,847 1,721 3,348 (3,041) 10,875
Interest income 8 1 -- 178 187
Interest expense 1,393 666 2,059
Depreciation and
amortization 3,362 858 226 171 4,617
Expenditures for long-lived
assets, including intangibles 2,700 252 573 22 3,547
Total assets 59,035 21,640 30,611 37,356 148,642
8
Nine months ended
April 30, 2002
(in thousands)
Mobile Data
Telecommunications RF Microwave Communications
Transmission Amplifiers Services Unallocated Total
------------ ---------- -------- ----------- -----
Net sales $58,219 17,557 15,056 -- 90,832
Operating income (loss) 5,336 922 372 (2,474) 4,156
Interest income 91 2 5 272 370
Interest expense 1,668 680 -- -- 2,348
Depreciation and
amortization 2,784 941 146 54 3,925
Expenditures for long-lived
assets, including intangibles 1,443 822 446 13 2,724
Total assets 55,907 25,597 20,647 25,826 127,977
(10) Accounting for Business Combinations, Goodwill and Other Intangible Assets
Intangibles with definite lives as of April 30, 2003 are as follows:
Gross Carrying Accumulated Net
Amount Amortization Book Value
-------------- ------------ ----------
Existing technologies $12,265,000 3,829,000 8,436,000
Core technologies 1,315,000 110,000 1,205,000
Technology licenses 2,229,000 179,000 2,050,000
Trade name 175,000 14,000 161,000
Order backlog 88,000 88,000 --
----------- --------- ----------
Total $16,072,000 4,220,000 11,852,000
=========== ========= ==========
The aggregate amortization expense for the nine months ended April 30,
2003 and 2002 was $1,540,000 and $1,101,000, respectively. The estimated
amortization expense for the twelve months ending April 30, 2004, 2005,
2006, 2007 and 2008 is $2,012,000, $2,012,000, $2,012,000, $2,012,000 and
$846,000, respectively.
Intangibles with indefinite lives by reporting unit as of April 30, 2003
are as follows:
Telecommunications transmission $ 7,870,000
RF microwave amplifiers 8,422,000
Mobile data communications services 1,434,000
-----------
$17,726,000
===========
The Company performed its annual required impairment test for goodwill and
other intangibles with indefinite lives as of August 1, 2002. Based on
this evaluation, the Company determined that no impairment existed as of
August 1, 2002.
(11) Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. The Company adopted SFAS No. 144 on August 1, 2002. The adoption
did not have a material impact on the Company's consolidated financial
statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The Company adopted SFAS No. 145 on August 1, 2002. The
adoption did not have a material impact on the Company's consolidated
financial statements.
9
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is effective for exit
or disposal activities that are initiated after December 31, 2002. The
adoption did not have a material impact on the Company's consolidated
financial statements.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
certain guarantees to be recorded at fair value regardless of the
probability of the loss. The adoption did not have a material impact on
the Company's consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") finalized EITF
Issue 00-21, "Revenue Arrangements with Multiple Deliverables," which
provides guidance on the timing and method of revenue recognition for
sales arrangements that include the delivery of more than one product or
service. EITF Issue 00-21 is effective prospectively for arrangements
entered into in fiscal periods beginning after June 15, 2003. The Company
is currently analyzing the impact, if any, of its adoption on its
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148
provides alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation as
originally provided by SFAS No. 123 "Accounting for Stock-Based
Compensation." Additionally, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 in both annual and interim financial
statements. The Company has adopted the disclosure portion of this
statement for the fiscal quarter ended April 30, 2003. The adoption did
not have any impact on the Company's consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities," which amends SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," to
address decisions reached by the Derivatives Implementation Group,
developments in other Board projects that address financial instruments,
and implementation issues related to the definition of a derivative. The
Company does not expect the adoption of SFAS No. 149 will have a material
impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This statement establishes standards for how an issuer classifies
and measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances) because that
financial instrument embodies an obligation of the issuer. This statement
is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. The Company does not expect
that the adoption of this standard will have a material effect on its
consolidated financial statements.
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We design, develop, produce and market innovative products and systems for
advanced telecommunications solutions. We conduct our business through three
complementary segments: telecommunications transmission, RF microwave amplifiers
and mobile data communications services.
Our telecommunications transmission products are used in point-to-point and
point-to-multipoint applications, such as satellite communications and
over-the-horizon microwave systems, by commercial and defense customers. Our
high power, broadband RF microwave amplifier products are used in defense,
medical systems, communications, and instrumentation testing applications. Our
mobile data communications services segment is a full-service supplier of
satellite-based tracking and messaging services, primarily for defense
applications.
10
Our sales are made to domestic and international customers, both commercial and
governmental. International sales (including sales to prime contractors for end
use by international customers) are expected to remain a substantial portion of
our total sales for the foreseeable future due to the worldwide demand for
wireless and satellite telecommunication products and services.
At times, a substantial portion of our sales may be derived from a limited
number of relatively large customer contracts, the timing of which cannot be
predicted. Quarterly sales and operating results may be significantly affected
by one or more of such contracts. Accordingly, we can experience significant
fluctuations in sales and operating results from quarter to quarter.
Sales consist of stand-alone products and systems. For the past several years,
we have endeavored to achieve greater product sales as a percentage of total
sales, because product sales generally have higher gross profit margins than
systems sales. In the future, as our installed base of mobile data
communications terminals is established, an increasing amount of our sales may
be attributable to the recurring service revenue component of our mobile data
communications services segment.
We generally recognize income on contracts only when the products are shipped.
However, when the performance of a contract will extend beyond a 12-month
period, income is recognized on the percentage-of-completion method. Profits
expected to be realized on contracts are based on total estimated sales value as
related to estimated costs at completion. These estimates are reviewed and
revised periodically throughout the lives of the contracts, and adjustments to
profits resulting from such revisions are made cumulative to the date of the
change. Estimated losses on long-term contracts-in-progress are recorded in the
period in which such losses become known.
Since our contract with the U.S. Army for the Movement Tracking System is for an
eight-year period, revenue recognition is based on the percentage-of-completion
method. The gross margin is based on the estimated sales and expenses for the
entire eight-year contract. The amount of revenue recognized has been limited to
the amount of funded orders received from the U.S. Army. The portion of such
orders representing service time revenue is being deferred until the service
time is used by the customer. Significant changes in the estimates used to
derive the gross profit margin can materially impact our operating results and
financial condition in future periods (see Critical Accounting Policies below
for more information).
Our gross profit is affected by a variety of factors, including the mix of
products, systems and services sold, production efficiency, price competition
and general economic conditions.
Selling, general and administrative expenses consist primarily of salaries and
benefits for marketing, sales and administrative employees, advertising and
trade show costs, professional fees and amortization of deferred compensation.
Our research and development expenses relate to both existing product
enhancement and new product development. A portion of our research and
development efforts is related to specific contracts and is recoverable under
those contracts because they are funded by the customers. Such customer-funded
expenditures are not included in research and development expenses for financial
reporting purposes, but are reflected in cost of sales.
On July 31, 2002, we acquired certain assets for cash and assumed certain
liabilities of Advanced Hardware Architectures, Inc. ("AHA"). The acquisition
was accounted for under the purchase method of accounting. Accordingly, we
allocated the purchase price to the assets purchased and the liabilities assumed
based upon the estimated fair values at the date of acquisition. The excess of
the purchase price over the fair values of the net assets acquired was
approximately $6.3 million, of which $2.2 million was allocated to in-process
research and development and expensed as of the acquisition date. The results of
operations in our telecommunications transmission segment include the AHA
related business commencing on August 1, 2002.
CRITICAL ACCOUNTING POLICIES
The Company considers certain accounting policies to be critical due to the
estimation process involved in each.
Revenue Recognition on Long-Term Contracts
As discussed above, when the performance of a contract will extend beyond a
12-month period, revenue and related costs are recognized on the
percentage-of-completion method of accounting. Profits expected to be realized
on such contracts are based on total estimated sales for the contract compared
to total estimated costs at completion of the contract. These estimates are
reviewed and revised periodically throughout the lives of the contracts, and
adjustments to profits resulting
11
from such revisions are made cumulative to the date of the change. Estimated
losses on long-term contracts are recorded in the period in which the losses
become known.
Some of the Company's largest contracts, including its contract with the U.S.
Army for the Movement Tracking System, are accounted for using the
percentage-of-completion method. The Company has engaged on a continuing basis
in the production and delivery of goods and services under contractual
arrangements for many years. Historically, the Company has demonstrated an
ability to accurately estimate revenues and expenses relating to its long-term
contracts. However, there exist inherent risks and uncertainties in estimating
revenues and expenses, particularly on larger or longer-term contracts. If the
Company does not accurately estimate the total sales and related costs on such
contracts, the estimated gross margins may be significantly impacted or losses
may need to be recognized in future periods. Any such resulting changes in
margins or contract losses could be material to the Company's results of
operations and financial position.
The cumulative orders to date under the Movement Tracking System contract have
been below the Army's initial requirements. The Company is currently in active
discussions with the Army to address the funding shortfalls experienced to date
on this program. The ultimate resolution of these discussions could result in,
among other things, material changes to the estimates used in applying the
percentage-of-completion method of accounting.
Impairment of Intangible Assets
As of April 30, 2003, the Company's intangible assets, including goodwill,
aggregated $29.6 million. In assessing the recoverability of the Company's
goodwill and other intangibles, the Company must make various assumptions
regarding estimated future cash flows and other factors in determining the fair
values of the respective assets. If these estimates or their related assumptions
change in the future, the Company may be required to record impairment charges
for these assets in future periods. Any such resulting impairment charges could
be material to the Company's results of operations.
Provisions for Excess and Obsolete Inventory
We regularly review inventory quantities on hand and record a provision for
excess and obsolete inventory based on historical and future usage trends.
Several factors may influence the sale and use of our inventories, including our
decisions to exit a product line, technological change and new product
development. These factors could result in a change in the amount of excess and
obsolete inventory on hand. Additionally, our estimates of future product demand
may prove to be inaccurate, in which case we may have understated or overstated
the provision required for excess and obsolete inventory. In the future, if we
determine that our inventory was overvalued, we would be required to recognize
such costs in the Company's financial statements at the time of such
determination. Any such charges could be material to the Company's results of
operations and financial position.
Allowance for Doubtful Accounts
We perform ongoing credit evaluations of our customers and adjust credit limits
based upon customer payment history and current creditworthiness, as determined
by our review of our customers' current credit information. Generally, we will
require cash in advance or payment secured by irrevocable letters of credit
before an order is accepted from an international customer that we do not do
business with regularly. In addition, we have obtained credit insurance for
certain international customers that we have determined could be a credit risk.
We continuously monitor collections and payments from our customers and maintain
an allowance for doubtful accounts based upon our historical experience and any
specific customer collection issues that we have identified. While such credit
losses have historically been within our expectations and the allowances
established, we cannot guarantee that we will continue to experience the same
credit loss rates that we have in the past. Measurement of such losses requires
consideration of historical loss experience, including the need to adjust for
current conditions, and judgments about the probable effects of relevant
observable data, including present economic conditions such as delinquency rates
and financial health of specific customers. Changes to the estimated allowance
for doubtful accounts could be material to the Company's results of operations
and financial position.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30,
2003 AND APRIL 30, 2002
Net Sales. Consolidated net sales were $48.8 million and $29.3 million for the
three months ended April 30, 2003 and 2002, respectively, representing an
increase of $19.5 million or 66.6%. Sales from our mobile data communications
services segment increased 181.3% to $16.3 million for the three months ended
April 30, 2003 from $5.8 million for the three months ended April 30, 2002. The
increase was the result of higher sales of our Movement Tracking System to the
U.S. Army, as well as sales to a major U.S. prime contractor that is providing a
battle command application to the U.S. Army. Net sales from our
telecommunications transmission segment increased 48.1% to $26.8 million for the
three months ended April 30, 2003 from
12
$18.1 million for the three months ended April 30, 2002. The increase was
primarily due to higher sales of our satellite earth station and
over-the-horizon microwave products during the 2003 period and sales from AHA
which we acquired in July 2002. Sales from our RF microwave amplifier segment
were relatively consistent, increasing $0.3 million to $5.7 million for the
three months ended April 30, 2003 from $5.4 million for the three months ended
April 30, 2002.
For the three months ended April 30, 2003, and 2002, respectively, our mobile
data communications services segment represented 33.3% and 19.8% of total net
sales, our telecommunications transmission segment represented 54.9% and 61.8%
of total net sales and our RF microwave amplifier segment represented 11.8% and
18.4% of total net sales. International sales represented 34.4% and 34.6%,
domestic sales represented 15.5% and 21.7% and U.S. government sales represented
50.1% and 43.7% of total net sales for the three month periods in fiscal 2003
and 2002, respectively.
Gross Profit. Gross profit was $16.5 million and $9.9 million for the three
months ended April 30, 2003 and 2002, respectively, representing an increase of
$6.6 million. The increase was primarily due to the higher sales level in the
fiscal 2003 period as compared to the fiscal 2002 period. Gross margin, as a
percentage of net sales, was 33.8% for both fiscal periods. Included in cost of
sales for the three months ended April 30, 2003 is a provision for excess and
obsolete inventory of $0.9 million. As discussed above under "Critical
Accounting Policies - Provisions for Excess and Obsolete Inventory", we
regularly review our inventory and record a provision, approximately $0.5
million for each of the three month periods ended April 30, 2003 and 2002, for
excess and obsolete inventory based on historical usage and future usage
assumptions. The provision for the three months ended April 30, 2003 also
includes $0.4 million relating to certain product line discontinuances in our
telecommunications transmission segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $7.3 million and $5.5 million for the three months
ended April 30, 2003 and 2002, respectively, representing an increase of $1.7
million. The increase was due to the addition of AHA, as well as higher selling
expenses relating to the higher sales level in the fiscal 2003 period. As a
percentage of sales, selling, general and administrative expenses were 14.9% and
18.9% for the three months ended April 30, 2003 and 2002, respectively.
Research and Development Expenses. Research and development expenses were $3.0
million and $2.8 million, respectively, for the three months ended April 30,
2003 and 2002. Approximately $2.8 million and $2.6 million of such amounts
relate to our telecommunications transmission segment for the three months ended
April 30, 2003 and 2002, respectively. As an investment for the future, we are
continually enhancing our existing products and developing new products and
technologies. Whenever possible, we seek customer funding for research and
development to adapt our products to specialized customer requirements. During
the three months ended April 30, 2003 and 2002, customers reimbursed us $1.5
million and $0.6 million, respectively, which amounts are not reflected in the
reported research and development expenses.
Amortization of Intangibles. Amortization of intangibles was $0.5 million and
$0.4 million for the three months ended April 30, 2003 and 2002, respectively.
The increase was the result of the amortization related to the additional
intangibles with definite lives we acquired in connection with the acquisition
of AHA.
Operating Income. Operating income for the three months ended April 30, 2003 and
2002 was $5.7 million and $1.2 million, respectively. The increase was the
result of the higher sales and gross profit discussed above, partially offset by
higher operating expenses.
Interest Expense. Interest expense was $0.7 million for both of the three month
periods ended April 30, 2003 and 2002. Our interest expense relates to our
long-term debt and capital lease obligations, all of which are at fixed rates.
Interest Income. Interest income was $66,000 and $90,000 for the three months
ended April 30, 2003 and 2002, respectively. The decrease was primarily the
result of lower interest rates during the three months ended April 30, 2003 as
compared to the same period in fiscal 2002.
Provision for Income Taxes. The provision for income taxes for the three months
ended April 30, 2003 reflects an estimated effective tax rate of 32%. The
estimated effective tax rate used for the three months ended April 30, 2002 was
approximately 31.5%.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED APRIL 30, 2003
AND APRIL 30, 2002
Net Sales. Consolidated net sales were $122.4 million and $90.8 million for the
nine months ended April 30, 2003 and 2002, respectively, representing an
increase of $31.6 million or 34.7%. Sales from our mobile data communications
services segment increased 118.7% to $32.9 million for the nine months ended
April
13
30, 2003 from $15.0 million for the nine months ended April 30, 2002. The
increase was the result of higher sales of our Movement Tracking System to the
U.S. Army, as well as sales to a major U.S. prime contractor that is providing a
battle command application to the U.S. Army. Net sales from our
telecommunications transmission segment increased 21.7% to $70.9 million for the
nine months ended April 30, 2003 from $58.2 million for the nine months ended
April 30, 2002. The increase was primarily due to higher sales of our satellite
earth station and over-the-horizon microwave products during the 2003 period and
sales from AHA which we acquired in July 2002. Sales from our RF microwave
amplifier segment increased 5.7% to $18.6 million for the nine months ended
April 30, 2003 from $17.6 million for the nine months ended April 30, 2002.
For the nine months ended April 30, 2003, and 2002, respectively, our mobile
data communications services segment represented 26.9% and 16.5% of total net
sales, our telecommunications transmission segment represented 57.9% and 64.1%
of total net sales and our RF microwave amplifier segment represented 15.2% and
19.4% of total net sales. International sales represented 38.3% and 41.6%,
domestic sales represented 16.8% and 26.2% and U.S. government sales represented
44.9% and 32.2% of total net sales for the nine month periods in fiscal 2003 and
2002, respectively.
Gross Profit. Gross profit was $41.7 million and $29.8 million for the nine
months ended April 30, 2003 and 2002, respectively, representing an increase of
$11.9 million. The increase was primarily due to the higher sales level in the
fiscal 2003 period as compared to the fiscal 2002 period. Gross margin, as a
percentage of net sales, was 34.1% and 32.8% for the nine months ended April 30,
2003 and 2002, respectively. Although the fiscal 2003 period contained a higher
proportion of mobile data communications services segment sales, which generally
are at lower gross margins than our other businesses, the overall increase in
sales resulted in greater operating efficiencies and overhead absorption.
Included in cost of sales for the nine months ended April 30, 2003 is a
provision for excess and obsolete inventory of $1.7 million. As discussed above
under "Critical Accounting Policies - Provisions for Excess and Obsolete
Inventory", we regularly review our inventory and record a provision,
approximately $1.3 million and $0.8 million for the nine months ended April 30,
2003 and 2002, respectively, for excess and obsolete inventory based on
historical usage and future usage assumptions. The provision for the nine months
ended April 30, 2003 also includes $0.4 million relating to certain product line
discontinuances in our telecommunications transmission segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $20.0 million and $16.4 million for the nine months
ended April 30, 2003 and 2002, respectively, representing an increase of $3.6
million. The increase was due to the addition of AHA, as well as higher selling
expenses relating to the higher sales level in the fiscal 2003 period. As a
percentage of sales, selling, general and administrative expenses were 16.3% and
18.1% for the nine months ended April 30, 2003 and 2002, respectively.
Research and Development Expenses. Research and development expenses were $9.3
million and $8.2 million, respectively, for the nine months ended April 30, 2003
and 2002. Approximately $8.4 million and $7.6 million of such amounts relate to
our telecommunications transmission segment for the nine months ended April 30,
2003 and 2002, respectively. As an investment for the future, we are continually
enhancing our existing products and developing new products and technologies.
Whenever possible, we seek customer funding for research and development to
adapt our products to specialized customer requirements. During the nine months
ended April 30, 2003 and 2002, customers reimbursed us $2.7 million and $1.5
million, respectively, which amounts are not reflected in the reported research
and development expenses.
Amortization of Intangibles. Amortization of intangibles was $1.5 million and
$1.1 million for the nine months ended April 30, 2003 and 2002, respectively.
The increase was the result of the amortization related to the additional
intangibles with definite lives we acquired in connection with the acquisition
of AHA.
Operating Income. Operating income for the nine months ended April 30, 2003 and
2002 was $10.9 million and $4.2 million, respectively. The increase was the
result of the higher sales and gross profit discussed above, partially offset by
higher operating expenses.
Interest Expense. Interest expense was $2.1 million and $2.3 million for the
nine months ended April 30, 2003 and 2002, respectively. The decrease is the
result of a partial debt prepayment during the first quarter of fiscal 2002. Our
interest expense relates to our long-term debt and capital lease obligations,
all of which are at fixed rates.
Interest Income. Interest income was $0.2 million and $0.4 million for the nine
months ended April 30, 2003 and 2002, respectively. The decrease was primarily
the result of lower interest rates during the nine months ended April 30, 2003
as compared to the same period in fiscal 2002.
Provision for Income Taxes. The provision for income taxes for the nine months
ended April 30, 2003 reflects an estimated effective tax rate of 32%. The
estimated effective tax rate used for the nine months ended April 30, 2002 was
approximately 33%.
14
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents increased to $31.3 million at April 30, 2003 from
$15.5 million at July 31, 2002.
Net cash provided by operating activities was $19.2 million for the nine months
ended April 30, 2003. Such amount reflects (i) net income of $6.1 million plus
the impact of depreciation and amortization aggregating $4.6 million; and (ii)
changes in working capital balances, which include an increase of $4.6 million
in customer advances primarily relating to a new $42.3 million contract received
during the nine months ended April 30, 2003 and an increase of $4.3 million in
deferred service revenue relating to our Movement Tracking System contract with
the U.S. Army.
Net cash used in investing activities for the nine months ended April 30, 2003
was $3.0 million. In March 2003, we acquired certain bandwith control technology
for $0.4 million in cash and established Comtech Vipersat Networks, Inc. Cash of
$3.1 million was used for capital expenditures and $75,000 was used for the
purchase of a technology license. These uses of cash were partly offset by cash
of $0.6 million we received in connection with final adjustments to the purchase
price of AHA.
Net cash used in financing activities was $350,000. Principal payments on
capital lease obligations amounted to $802,000. This use of cash was offset by
proceeds primarily from the exercise of stock options aggregating $452,000.
In the normal course of business, we routinely enter into binding and
non-binding purchase obligations primarily covering anticipated purchases of
inventory and equipment, and from time to time, technology licenses. We do not
expect that these commitments as of April 30, 2003 will materially adversely
affect our liquidity.
At April 30, 2003 we had contractual cash obligations to repay debt (including
capital lease obligations) and to make payments under operating leases. Payments
due under these long-term obligations are as follows:
Obligations due by fiscal year (in thousands)
Remainder 2004 2006
of and and After
Total 2003 2005 2007 2007
------- ----- ------ ----- -----
Long-term debt $28,683 -- 28,683 -- --
Capital lease obligations 1,554 260 1,114 180 --
Operating lease commitments 11,859 869 6,116 2,465 2,409
------- ----- ------ ----- -----
Total contractual cash obligations $42,096 1,129 35,913 2,645 2,409
======= ===== ====== ===== =====
We have entered into standby letter of credit agreements with financial
institutions relating to the guarantee of future performance on certain
contracts. At April 30, 2003, the balance of these agreements was $4.2 million.
Cash we have pledged against such agreements has been classified as restricted
cash in the consolidated balance sheet.
We believe that our cash and cash equivalents will be sufficient to meet our
operating cash requirements for at least the next year. In the event that we
identify and propose a significant acquisition that requires additional cash, we
would seek to borrow additional funds or raise additional equity capital.
FORWARD-LOOKING STATEMENTS
Certain information in this Quarterly Report on Form 10-Q contains
forward-looking statements, including but not limited to, information relating
to the future performance and financial condition of the Company, the plans and
objectives of the Company's management and the Company's assumptions regarding
such performance and plans that are forward-looking in nature and involve
certain significant risks and uncertainties. Actual results could differ
materially from such forward-looking information. The Company's Form 10-K filed
with the Securities and Exchange Commission identifies many of such risks and
uncertainties, which include the following:
15
o the impact of a continued domestic and foreign economic slow-down on the
demand for our products and services, particularly in the
telecommunications industry;
o risks associated with our mobile data communications business being in an
early stage;
o our potential inability to keep pace with rapid technological changes;
o our backlog being subject to customer cancellation or modification;
o our sales to the U.S. government being subject to funding, deployment and
other risks;
o our fixed price contracts being subject to risks;
o our dependence on component availability, subcontractor availability and
performance by key suppliers;
o the highly competitive nature of our markets;
o our dependence on international sales;
o the adverse effect on demand for our products and services that would be
caused by a decrease in the value of foreign currencies relative to the
U.S. dollar;
o the potential entry of new competitors in all of our segments;
o uncertainty whether the satellite communications industry or
infrastructure will continue to develop and the market will grow;
o uncertainty whether the Internet will continue to grow in international
markets;
o the potential impact of increased competition on prices, profit margins
and market share for the Company's products and services;
o the availability of satellite capacity on a leased basis needed to provide
the necessary global coverage for our mobile data communications services;
o whether we can successfully implement our satellite mobile data
communications services and achieve recurring revenues for such services;
and
o whether we can successfully combine and assimilate the operations of
acquired businesses and product lines.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's earnings and cash flows are subject to fluctuations due to changes
in interest rates primarily from its investment of available cash balances in
money market funds and short-term U.S. treasury securities. Under its current
policies, the Company does not use interest rate derivative instruments to
manage exposure to interest rate changes. If the interest rate the Company
receives on its investment of available cash balances were to change by 10%, the
effect would be immaterial.
Item 4. Controls and Procedures
Our principal executive and financial officers have concluded, based on their
evaluation as of a date within 90 days before the filing of this Form 10-Q, that
our disclosure controls and procedures (as defined in SEC Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934) are effective to ensure
that information we are required to disclose in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms. The evaluation included
controls and procedures designed to ensure that information we are required to
disclose in such reports is accumulated and communicated to management,
including our principal executive and financial officers, as appropriate to
allow timely decisions regarding required disclosure.
Subsequent to our evaluation, there were no significant changes in internal
controls or other factors that could significantly affect these internal
controls.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Amended and Restated Employment Agreement dated June 2, 2003 between
Registrant and Fred Kornberg.
10(b) Amended and Restated Employment Agreement dated June 2, 2003 between
Registrant and Robert G. Rouse.
99.1 Certification of Chief Executive Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
16
SIGNATURES
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.
COMTECH TELECOMMUNICATIONS CORP.
(Registrant)
Date: June 5, 2003 By: /s/ Fred Kornberg
-------------------------------------
Fred Kornberg
Chairman of the Board
Chief Executive Officer and President
(Principal Executive Officer)
Date: June 5, 2003 By: /s/ Robert G. Rouse
-------------------------------------
Robert G. Rouse
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
CERTIFICATION
I, Fred Kornberg, Chief Executive Officer of Comtech Telecommunications Corp.
(the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comtech
Telecommunications Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in SEC Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report was being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: June 5, 2003 By: /s/ Fred Kornberg
---------------------------------------
Fred Kornberg
Chairman of the Board
Chief Executive Officer and President
(Principal Executive Officer)
18
CERTIFICATION
I, Robert G. Rouse, Chief Financial Officer of Comtech Telecommunications Corp.
(the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comtech
Telecommunications Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in SEC Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report was being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: June 5, 2003 By: /s/ Robert G. Rouse
---------------------------------------------
Robert G. Rouse
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
19