ITEM 7.
37
38
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49
53
56
ITEM 7A.
58
ITEM 8.
ITEM 9.
ITEM 9A.
59
ITEM 9B.
PART III
ITEM 10.
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ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
61
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Note: As used in this Annual Report on Form 10-K, the terms “Comtech,” “we,” “us,” “our” and “our Company” mean Comtech Telecommunications Corp. and Comtech’s subsidiaries.
ITEM 1. BUSINESS
We design, develop, produce and market innovative products, systems and services for advanced communications solutions. We believe many of our solutions play a vital role in providing or enhancing communication capabilities when terrestrial communications infrastructure is unavailable, inefficient or too expensive. We conduct our business through three complementary segments: telecommunications transmission, RF microwave amplifiers and mobile data communications. We sell our products to a diverse customer base in the global commercial and government communications markets. We believe we are a leader in the market segments that we serve.
For the past several years, we have significantly benefited from increased reliance on our products by the U.S. government as well as the August 1, 2008 acquisition of Radyne Corporation (“Radyne”). During fiscal 2011, and despite operating our businesses under extremely adverse macroeconomic and political environments, we reported consolidated net sales of $612.4 million and consolidated operating income of $107.8 million.
As more fully described throughout this Annual Report on Form 10-K (“Form 10-K”), we are currently repositioning our mobile data communications segment, which represented 47.1% of our consolidated net sales and 60.2% of our consolidated operating income in fiscal 2011. Historically, the vast majority of our mobile data communications segment’s sales have been derived from the U.S. Army’s Movement Tracking System (“MTS”) and Blue Force Tracking-1 (“BFT-1”) programs. In fiscal 2010, a third party vendor was selected by the U.S. Army to develop a next generation BFT platform. Subsequently, in fiscal 2011, the MTS program was consolidated into the BFT program. As a result of these developments, we expect that future sales related to these programs will primarily consist of sustainment services which, in turn, will result in our consolidated net sales and operating income in fiscal 2012 being materially lower than the levels we achieved in fiscal 2011. In response, we are taking targeted actions to adjust the cost structure and our business strategy for our mobile data communications segment.
Looking beyond our mobile data communications segment’s repositioning, we are focusing our efforts on the long-term organic growth opportunities that we believe exist in each of our three business segments. We expect to supplement organic growth opportunities by making one or more acquisitions. At the same time, we expect to return a significant portion of our cash to our shareholders in the form of common stock repurchases and cash dividend payments. During fiscal 2011, we completed the repurchase of $100.0 million of our common stock and authorized a new $150.0 million stock repurchase program. On September 27, 2011, our Board of Directors authorized an increase to our current stock repurchase program from $150.0 million to $250.0 million and raised our annual targeted dividend from $1.00 per common share to $1.10 per common share. As of July 31, 2011, we had cash and cash equivalents of $558.8 million.
Our Internet website is www.comtechtel.com and we make available on our website, our annual reports, quarterly reports, current reports and any related amendments. Unless specifically noted, the reference to our website address does not constitute incorporation by reference of the information contained therein into this Form 10-K. In addition, any materials filed with the SEC may be read and copied by the public at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are incorporated in the state of Delaware and were founded in 1967.
We participate in the global commercial and government communications markets which are characterized by rapid technological advances and constant changes. For the past few years, our customers and the end markets that we serve have been significantly impacted by adverse global economic conditions. Although the impact, severity and duration of these conditions are impossible to predict with precision, we believe the current economic environment has resulted and may continue to result in: (i) changes to our commercial and government customers’ historical spending priorities, (ii) reduced military budgets and (iii) extreme pressures on government budgets throughout the world. In addition to operating in a difficult global economic environment, some of our end customers are located in emerging countries that are currently undergoing sweeping political changes. In the past few months, European monetary issues and concerns have intensified and it is possible that a worldwide credit crisis could occur. We believe that the aggregation of these conditions has resulted in the current suppression of end-market demand for many of the products that we sell and services that we provide.
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Although it is uncertain how long the current adverse conditions will last, we believe that both we and our end-markets will ultimately experience long-term growth due to many factors, including the following:
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Continued Reliance on Communications Systems. Businesses, governments and consumers around the world have become increasingly reliant upon communications systems to communicate with their customers, suppliers, and employees. In particular, there has been a significant increase in global demand for products and services that are utilized for wireless and cellular-based communications, broadcasting (including high definition television (“HDTV”) for cable and over-the-air broadcast), Internet Protocol (“IP”)-based communications (including voice, broadband video and data), long distance telephony and highly secure defense applications. Because of the continued reliance on communications systems and increased utilization of satellite transponders, communications network providers have been forced to increase their investments in new and updated satellite-based transmission systems in order to maintain the quality and availability of their services.