SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
[_] 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 0-12254
SCIENTIFIC TECHNOLOGIES INCORPORATED
Incorporated in Oregon IRS Employer Identification Number:77-0170363
Address of principal executive offices: Telephone: (510) 608-3400
6550 Dumbarton Circle, Fremont, CA 94555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of Class which registered
- ----------------------------- ----------------------------
Common Stock, $.001 Par Value NASDAQ National Market System
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months, and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The issuer's revenue for the most recent fiscal year was $43,465,000.
The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the closing sales price of Common Stock on February 26,
1999 as reported by the NASDAQ Market System , was approximately $8,272,000.
Such amount excludes shares held by registrant's current directors and officers
and by each person who owns 5% or more of the outstanding Common Stock in that
such persons may be deemed to be "affiliates" as that term is defined pursuant
to the Rules and Regulations of the Securities Exchange Act of 1934. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of
February 26, 1999 was 9,671,432 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy statement to be filed with the
Securities and ExchangeCommission in connection with the Company's 1998 Annual
Annual Meeting of Shareholders ("the Proxy Statement") are incorporated by
reference in Part III of this Form 10K.
<PAGE>
Item 1. BUSINESS
Scientific Technologies Incorporated (the "Company" or "STI",
designs, manufactures and distributes electrical and electronic
industrial controls. The Company's products include safety light guards,
profiling scanners, factory automation sensors, controls, components,
microcomputers, fiber optics, power monitoring, safety mats, and other
electronic equipment supplied to industrial automation, commercial and
defense customers.
Eighty-six percent (86%) of the Company's capital stock is
currently held by Scientific Technology Inc., a California corporation
(the "Parent").
Products
1. Safety Automation Products, Optical Sensors, Optical Vehicle
Profiling Scanners.
STI designs, manufactures and markets a variety of
safety light guards, photoelectric sensors, fiberoptic
sensors, optical data links, and optical profiling
scanners. STI employs patented technology under eleven
registered trade names and also markets and distributes
several products manufactured by others.
a. Safety Light Guards. The Company's leading product
group, which accounted for a significant majority of the
Company's sales in 1998, 1997 and 1996, is a family of
safety light guards, also called presence sensing devices
or safety light curtains, used to safeguard personnel in
manufacturing environments against injury caused by robots
and moving machinery. STI offers several product
variations, providing customers with a complete line of
optical guarding solutions.
Safety light curtains are devices that emit a
"curtain" of harmless infrared light beams in front of the
hazard area. When any of the beams are blocked, the light
curtain sends a stop signal to the guarded machine. Light
curtains are extremely versatile and can guard areas that
are more than 100 feet wide. By the use of mirrors the
light beams can be diverted around corners to enclose a
machine. These light are available with different light
beam spacings, which makes them suitable for many
applications, including totally enclosing perimeter guards
for industrial robots, and as point of access guard for
certain types of presses.
The Company manufactures and markets a miniaturized
light guard called the MiniSafe, designed for inclusion in
systems offered by original equipment manufacturers
("OEM's") and other small guarding needs where limited
space precludes using larger light curtains. The MiniSafe
4300 is available in four-inch increments ranging from
four inches to 64 inches in coverage height. The operating
distance, the distance between the transmitter and
receiver, is up to 30 feet.
_____________
Scientific Technology, Scientific Technologies, Datricon,
STI, The STI logo, OptoSwitch, OptoData, OptoSafe and
Fiberlens, are registered trademarks of Scientific
Technology Incorporated. Aegis, MiniSafe, FlexSafe,
MicroSafe, BeamSafe, FastScan, SpectraData, PartScan and
ValuScan are trademarks of Scientific Technologies
Incorporated, This Annual Report on Form 10-K also refers
to trademarks and service marks of other companies and
entities.
The MiniSafe MS4400 Series offers a longer-range product,
up to 50 feet, in a larger, more robust package. The
MS4400 and MS4500 series include Individual Beam
Indicators, an STI-patented feature, which provides the
customer with a visual indicator of the status of each
individual beam in the sensing array. The Individual Beam
Indicators assist in both the installation and operation
of the MiniSafe.
The FlexSafe is a segmented safety light curtain
that offers greater flexibility and machine guarding for
unusually shaped applications. Instead of a single head
comprising the transmitter and a single head comprising
the receiver, the FlexSafe is offered with two or more
segments comprising each transmitter and receiver. The
respective transmitter and receiver segments are connected
with flexible cables to facilitate fitting to the
machinery.
The Company also offers the MicroSafe safety light
curtain, which is more compact than the MiniSafe but has
comparable features. Designed for use in locations in
which space is limited, the small size of the MicroSafe
allows it to be integrated with the support framing used
on many automated industrial machines.
The PA4400 and PA4500 Perimeter Access Systems are
safety light curtains specifically designed for perimeter
protection around the boundaries of large automated
machining centers and robotic work cells.
Introduced in 1997, the DuoSafe controller allows
the customer to configure two independent safety light
curtains to achieve common or discrete outputs. DuoSafe
works with seven different versions of STI light curtains,
and provides further application flexibility for customers
when selecting their safeguarding solution.
Selected models of the safety light curtain products
are certified by independent laboratories to comply with
safety and electrical standards; including those standards
required in the European Union. Products which pass the
stringent European safety certifications carry the CE test
mark.
b. Mechanical Safety Interlocks and Safety Relays. The
Company has had a relationship with EJA Engineering, Ltd.
(EJA), a manufacturer of Guardmaster mechanical safety
interlocks based in the United Kingdom. Guardmaster safety
interlock switches are utilized on hinged, sliding, or
lift-off guards and barriers that are often installed with
STI safety light curtains. When the guard is opened, the
power supply to the machine is disconnected. Safety relays
are electromechanical devices which often serve as a
safety interface between the mechanical safety interlocks
and the machine's control system. The function and design
of Guardmaster interlocks are complementary to the STI
range of safety products. Since 1993, STI has been the
exclusive distributor of Guardmaster products in the
United States and Canada, and an affiliate of EJA has been
the distributor for the STI product line in the United
Kingdom.
In the first quarter 1999, EJA Engineering, Ltd. was
acquired by Rockwell International. The current agreement
between EJA and STI will terminate in September 1999. The
companies are currently negotiating a new agreement,
pursuant to which EJA/Rockwell will have the non-exclusive
right to distribute the Guardmaster product worldwide and
STI will have right to distribute the products on a
private label basis under the STI brand. STI currently
expects to sign the new agreement in the second quarter of
1999. However, there can be no assurance that the parties
will enter into the new agreement on these terms or any
other terms that are favorable to STI.
c. Safety Mats and Controllers. STI safety mats are
designed for use in industrial environments where safety
enhancements or zone detection is required. The mats are
sensitive to foot or vehicular traffic. Safety mats are
used with a mat controller, which is the interface between
the safety mat and the control system of the guarded
machine.
During 1998, STI commenced limited deliveries of a
new safety mat, the STI Universal Safety Mat ("UM
Series"). The UM Series is the first vinyl mat
manufactured by STI and will be used to replace a previous
safety mat, the OM Series, which was a product
manufactured by other suppliers.
In the first quarter of 999, the UM Series mat and a
new safety mat controller were tested and certified by an
independent test agency to a new international safety mat
standard. Theses products carry the European CE test mark.
The UM Series and the associated controller will be
introduced to STI's sales channel during 1999.
d. Optical Profiling Scanners. In today's industrial
environment, non-contact, on-the-move sensing is vital to
control automated processes and improve industrial
productivity. STI has developed a line of optical
profiling scanner products, called ValuScan. These
scanners provide non-contact sensing for a wide variety of
customer applications.
The ValuScan is a family of high speed,
microprocessor-based profiling scanners designed to
provide an economical way to measure the physical size of
various objects. The modular design of the ValuScan
enables the user to select among various output and
programming functions, including infrared beam spacings,
size of the scanned area and single or multiple axes.
Software is included for a variety of scanning
applications. STI can customize the software for a
customer's specific needs.
ValuScan can, among other applications, verify part
presence, measure products in both the X and Y axes, scan
for package sorting applications, detect flaws caused by
holes or tears in moving webs of material and control
slack loops in rolled material.
The Company also manufactures and sells the STI
Vehicle Scanner series of high speed, profiling scanners
utilized in automated highway toll collection systems.
These scanners are used for vehicle detection, separation
and vehicle classification, providing imaging information
to a host computer, which determines the appropriate toll
to be charged in an automatic fare collection application.
STI Vehicle Scanners have been selected or installed
on a number of bridges and toll roads both in the United
States and internationally. Locations include the
Triborough and Verrazano Narrows bridges in New York, a
number of bridges in the San Francisco Bay Area, including
the Golden Gate Bridge and the Oakland-San Francisco Bay
Bridge, and toll roads in Colorado, Florida, Maine, New
Jersey and Kansas domestically, as well as locations in
France, Belgium, Singapore and Brazil.
e. Photoelectric Sensors. STI also manufactures and/or
markets a variety of photoelectric and fiberoptic sensors
used for detecting the presence or absence of objects in a
wide range of factory automation applications.
Fiberoptic sensors utilize flexible glass or
plastic fiberoptic cable to traverse the light beam from
the solid state light source to the receiving electronics.
This cable is very small, and, can provide resistance
against high temperatures, corrosive chemicals or repeated
flexing. Fiberoptic sensors are often used in confined
spaces and in environments in which standard photoelectric
sensors typically would not survive.
Typical uses and applications for
photoelectric and fiberoptic sensors include canning and
bottling lines, conveyor warehousing, palletizing,
printing, food processing, plastic molding, wood and
forest products manufacturing, automotive manufacturing,
material handling and a variety of other applications in
an array of industries.
STI product users include companies in the
automotive, machine tool, metal forming, robotics,
electronics, material handling, packaging, food
processing, pulp and paper, forest products, personal care
products, printing, chemical, defense and textile
industries.
To cover this diversified industrial market, these
products are marketed primarily to end-users and original
equipment manufacturers through more than 275 US
distributors and sales representatives and 33 foreign
distributors. Customers include end-users and original
equipment manufacturers.
2. Control Components, Power Monitoring and Defense Electronics.
The Company manufactures and markets a variety of
sensors and relays for commercial and defense customers.
Such products include custom magnetic components, current
sensors, RPM sensors, voltage sensors, current monitors,
time delay relays, flashers, phase sequence relays and
indicators, DC to DC converters, and isolation
transformers.
STI is qualified as a supplier of a variety of
military-specified sensors and controls. Many of these
products are selected for use on military and general
aviation aircraft and ground support systems. Products are
sold to original equipment manufacturers, government
agencies and end users.
STI markets and sells these products primarily
through its direct sales force.
3. Industrial Control Microcomputers, Peripherals and Software.
The Company also designs and produces modular,
board-level, computer products under the Datricon label.
This product line consists of a series of single
printed circuit board microcomputers and related
peripheral boards for industrial applications and use by
original equipment manufacturers, and printed circuit pre-
packaged systems. Most of the Datricon microcomputers are
constructed on a single circuit board and are designed
using a set of electrical and mechanical connections known
as "STD-Bus". STD-Bus is one of several electronic bus
structures used for microcomputers and peripherals in the
industrial automation control marketplace.
Datricon products can be used in a range of customer
applications, including remote-controlled robots, process
control equipment, measuring instrumentation, plastics
manufacturing, lighting controls, semiconductor processing
equipment, photographic processing and automatic test
equipment. STI markets its Datricon products directly to
end-users and original equipment manufacturers.
4. Level and Flow Sensors
In addition to its three primary product groups, STI
markets a wide variety of level and flow sensing products
imported from several manufacturers. The principal
provider of these products is Nohken, the largest level
control manufacturer in Japan. STI is the exclusive US
distributor of the Nohken products. These products provide
point level detection of solids, liquids and
solids/liquids, as well as contiguous measurement of
continuous flow of solids and liquids, in a wide variety
of environments.
Sources and availability of components
The Company maintains an inventory of components and parts for
its manufacturing activities. There are many sources for most of the
components needed; however STI purchases some products, components
and sub-assemblies from sole sources, which may be the only
available supplier or may enable the Company to obtain pricing or
supply efficiencies. In the event of supply interruptions from these
vendors, the Company believes it could obtain most sole source
components from alternate suppliers, but this would require the
Company to transfer tooling or designs or redesign its products to
facilitate use of alternate source components. STI could incur
delays by switching to an alternate source, which could have an
adverse effect on the its business, financial condition and results
of operations.
The Company also derives revenue from the distribution
of products from third party manufacturers, including pursuant to
its relationship with EJA (See "Business - Products - Safety
Automation Products. Optical Sensors, Optical Vehicle Profiling
Scanners - Mechanical Safety Interlocks and Safety Relays"). In the
event such arrangements are terminated or third party products
otherwise become unavailable, the Company's results of operations
could be adversely affected.
Research and development
In order to meet the changing needs of its customers, the
Company engages in research and development both to introduce new
products and to improve existing products. In addition, the Company
modifies products as necessary to meet original equipment
manufacturers' requirements. At December 31, 1998, there were
approximately 21 employees engaged in research and development
activities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Factors - Rapid
Technological Change and New Product Development."
In 1998, 1997, and 1996, the Company spent $3,314,000,
$3,135,000 and $2,482,000, respectively, on engineering, research
and development. In addition to new products such as DuoSafe and
enhancements to existing products, the Company's research and
development efforts are directed towards qualifying the Company's
light curtains, scanners and sensors for sale in foreign countries
and qualifying products the Company imports for sales in the U.S.
The Company anticipates that its level of research and development
expenditures may be higher in 1999.
Patents and trademarks
The Company holds seven US patents and nine US registered
trademarks. In addition, the Company has been licensed by its Parent
to use three patents for its products and six US registered
trademarks, including the use of the Parent's logo "STI". Products
are marketed under the following US registered trademarks:
"DUOSAFE," "OPTOFENCE," "MINISAFE," "OPTOSAFE," "FIBERLENS,"
"BEAMSAFE," "SPECTRADATA," "FLEXSAFE" and "MICROSAFE". The Company
has filed for additional patent protection on certain of its
technologies.
There can be no assurance that these patents or trademarks or
other steps taken by the Company to protect its intellectual
property will prove sufficient to prevent misappropriation of the
Company's technology. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Business Factors -
Protection and Enforcement of Intellectual Property Rights."
Because of the rapid rate of technology change in the electronics
industry, the Company believes its success in the future depends on
the quality of its products and services and the technical skills of
its personnel to adapt to technological developments, rather than
solely on its patents.
Backlog
Because many customers place large orders for delivery
throughout the year and because of the possibility of customer
changes and cancellation of orders, the Company's backlog as of any
particular date may not be representative of the Company's sales for
any succeeding fiscal period. At March 19, 1999, the Company's
backlog was $5,135,000 compared to $1,654,000 at March 9, 1998. Of
this total, $5,000 is scheduled at customer's request, to be filled
during periods after 1999. This total includes a $3.5 million
contract for vehicle scanner systems in New Jersey and Delaware.
Competition
The industry in which the Company operates is competitive and
subject to rapid technological change. Many of the Company's
competitors are significantly larger and possess greater financial
and other resources.
Competitors of STI include, among others, Honeywell, Rockwell
Automation, Eaton Corporation, Banner Engineering, Sick Optic-
Electronic, Inc., Cutler Hammer, Danaher Controls, Data Instruments,
Link Controls and Omron. Competitors of the control components
power monitoring and defense product lines include several of the
above-mentioned firms and also SCI Systems, Inc., Technitrol,
Logitek, Hi-G and Xentek. Certain of the Company's suppliers
(including Rockwell/EJA) also compete with the Company. The Datricon
line's competitors include Mizar, Pro-Log, and Ziatech. In addition,
the Company faces indirect competition from present and potential
end users who from time to time evaluate the "make or buy" decision
of whether to manufacture their own components or purchase them from
outside sources.
Competition is based primarily upon product quality,
performance and price. The Company believes that it generally
competes favorably with respect to these factors. To maintain its
competitive position, the Company will continue to devote
substantial resources to the development of new products and
improvements to current products. See "Business - Research and
Development."
Foreign operations
The Company has no foreign manufacturing operations. STI
Scientific Technologies GmbH, a wholly owned German subsidiary, was
established in 1995 as the Company's European sales office. The
Company's products are also sold in foreign countries by
distributors and independent sales representatives. Foreign sales
represented less than 10% of sales in each of 1998, 1997 and 1996.
Customers
NCC Electronics, an independent distributor, represented 14%
of sales in 1998, 18% of sales in 1997 and 19% of sales in 1996. No
other customer represented more than 10% of sales in such periods.
Aggregate sales to both government agencies and government
contractors represented less than 5% of sales in 1998, 1997 and
1996.
Costs and effects of compliance with environmental laws
Compliance with environmental protection laws or similar
ordinances is not expected to have any material affect on the
business of the Company.
Employees
At December 31, 1998, the Company employed approximately 245
full time employees. Included in this total were the common
manufacturing, support and administrative staff that the Company
shares with the Parent and other subsidiaries of the Parent at the
Dumbarton Circle facility, in Fremont, California.
None of the employees are represented by unions, and there has
never been a disruption of operations due to a labor dispute.
Many of the Company's employees are skilled in technical and
engineering disciplines and the future success of the Company will
depend, in part, upon its ability to attract and retain such
employees. The Company believes that its relations with its
employees are good.
Item 2. PROPERTIES
The Company owns no real estate. The Company's manufacturing
operations, corporate headquarters, administrative, engineering and
sales offices are located in a 95,000 square foot facility located
at 6550 Dumbarton Circle, Fremont, California. The facility is owned
by an affiliate of the Parent and the Company leases approximately
85,000 square feet, 89% of the total, for its use. The Company
believes its current facilities will be adequate for the foreseeable
future. See Note 7 of Notes to Consolidated Financial Statements for
information regarding lease commitments.
The Company maintains insurance policies for property,
casualty, fire, business interruption, workers compensation, general
liability and product liability. There can be no assurance that in
the future, the Company will continue to be able to obtain such
insurance on commercially and economically feasible terms. In the
event the Company were to suffer a claim not covered by insurance or
if insurance coverage is insufficient, such claim could have an
adverse effect on the Company's operations or financial condition.
Item 3. LEGAL PROCEEDINGS.
From time to time the Company can become involved in disputes
which could lead to litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol STIZ. The stock tables in most
daily newspapers list the Common Stock of the Company under
"SciTech".
Price of Common Stock
- ----------------------
1998 High Low 1997 High Low
- --------------- --------- --------- --------------- --------- ---------
1st Quarter $ 16 $ 9-3/4 1st Quarter $ 8-7/8 $ 7-1/8
2nd Quarter 12-1/2 8-1/4 2nd Quarter 9-3/4 7-1/4
3rd Quarter 10-5/8 6-1/4 3rd Quarter 13-7/8 8-3/4
4th Quarter 7-1/2 4-3/4 4th Quarter 13-3/4 9-7/16
The closing sales price of the Common Stock on February 26, 1999 was
$6.25 per share.
Holders
There were 782 stockholders of record on February 26, 1999.
Dividends
In 1998, regular quarterly dividends of $.045 per share were
paid on April 1, July 1, September 9, and December 2. In 1997,
regular quarterly dividends of $.0425 per share were paid on April
1, July 1, September 9, and December 2. On March 3, 1999, the
Company declared a regular quarterly dividend of $.0475 per share,
payable on April 1, 1999 to shareholders of record on March 19,
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SCIENTIFIC TECHNOLOGIES INCORPORATED
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income statement data
- ---------------------------
Net sales $43,465 $44,859 $38,294 $36,006 $26,115
Income from operations 6,340 9,266 7,798 10,247 6,063
Net income 4,422 6,070 5,168 6,336 3,698
Basic income per common
share $0.46 $0.63 $0.54 $0.00 $0.38
Diluted income per common
share $0.46 $0.62 $0.53 $0.00 $0.38
December 31,
------------------------------------------------
1997 1997 1996 1995 1994
-------- -------- -------- -------- --------
Balance sheet data
- -------------------
Total assets $29,821 $26,119 $21,713 $18,097 $12,284
Long-term obligations -- -- -- 14 58
Stockholders equity 25,458 22,518 17,871 14,336 9,249
Dividends declared per
share $0.18 $0.17 $0.16 $0.13 $0.10
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Such statements include statements regarding
anticipated future sales, margin and expense levels, future tax
rates, future cash flow and working capital requirements and Year
2000 requirements. Actual results could differ materially from
those projected in the forward looking statements as a result of
the risk factors set forth under "Business Factors" and elsewhere
in this report. The following discussion should be read in
conjunction with the Company's consolidated financial statements
and notes thereto. All references to years are to fiscal years
unless otherwise noted.
Results of Operations
Sales
Sales in 1998 declined 3% to $43.5 million from $44.9 million in
1997. Sales in 1997 grew 17% to $44.9 million from $38.3 million in
1996. During the latter half of 1998, the General Motors labor
dispute and the Asia economic situation had an adverse impact on the
Company's customers doing business in those sectors, which in turn
negatively impacted the Company's sales in 1998. The most
significant factor driving the growth in 1997 was an overall
increase in units shipped, and strong customer acceptance of new
products such as DuoSafe. Sales in 1998 and 1997 were positively
affected by an improvement in the Company's overall sales discount
rate. The Company believes that competitive conditions could have an
impact on its distributor discount and future sales growth rates.
The table below summarizes operating performance as a percent of
sales for the most recent three years.
1998 1997 1996
---------- ---------- ----------
Sales 100% 100% 100%
---------- ---------- ----------
Gross margin 51% 52% 51%
---------- ---------- ----------
Operating expenses
Selling, general and administrative 29% 24% 24%
Research and development 8% 7% 6%
---------- ---------- ----------
Total operating expenses 37% 31% 30%
---------- ---------- ----------
Income from operations 14% 21% 21%
Interest income, net 2% 1% 1%
---------- ---------- ----------
Income before income taxes 16% 22% 22%
Provision for income taxes 6% 8% 8%
---------- ---------- ----------
Net income 10% 14% 14%
========== ========== ==========
Gross profit
1998 = $22.0 million
1997 = $23.3 million
1996 = $19.6 million
Decrease in 1998 = (6%)
Increase in 1997 = 19%
STI's gross margin was 51% of sales in 1998, 52% in 1997 and 51% in
1996. The decline in gross profit and gross margin in 1998 compared
to 1997 was attributable to a product mix change consisting of
increased sales of lower margin products as a percentage of total
sales. Gross margin in 1998 was also impacted by higher sales of
products manufactured by other companies and distributed by STI,
which generally have lower gross margins. The increase in gross
profit in 1997 compared to 1996 was due primarily to continued
improvements in manufacturing techniques and processes and economies
of scale associated with higher volume, resulting in decreased cost
per unit.
Selling, general and administrative expenses
1998 = $12.4 million
1997 = $10.9 million
1996 = $9.4 million
Increase in 1998 = 14%
Increase in 1997 = 16%
During 1998 selling, general and administrative expenses increased
to 29% of sales compared to 24% in 1997 and 1996. Total expenditures
increased 14%, compared to 1997, which increased 16% over 1996. For
1997 and 1996, selling, general and administrative expenses as a
percent of sales remained constant at 24%. During 1998, the Company
continued to expand its sales force and began distributing a product
data book completed in 1997. During 1997, the Company continued to
expand its advertising and promotional activities, completed an
extensive revision to its product data book and expanded its sales
staff. Economies of scale allowed it to keep the growth rate of
selling, general and administrative expenses below the sales growth
rate during 1997. The Company anticipates that selling, general and
administrative expenses will increase in the future but may
fluctuate as a percent of sales.
Research and development expenses
1998 = $3.3 million
1997 = $3.1 million
1996 = $2.5 million
Increase in 1998 = 6%
Increase in 1997 = 26%
Product creation, development and enhancement have always been and
continue to be an important factor in STI's long-term success.
Investments in this area enable the Company to serve the factory
automation market with increasingly sophisticated sensors and
manufacturing control products. In 1998 and 1997, STI introduced a
number of product advancements that have helped the Company to
maintain its position in a highly competitive marketplace. The
Company anticipates that the level of research and development
expenses will increase in the future, although such expenses may
fluctuate as a percentage of sales. To date, all product development
costs have been expensed as incurred.
Income Tax
The Company's effective income tax rate was 38% in 1998, 1997 and
1996. The Company expects that its effective tax rate for 1999 will
be reasonably consistent with 1998 as the Company will continue to
earn research and development tax credits through June 1998, in
addition to the mix of foreign and domestic income. See Notes 1 and
5 of Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
STI's working capital needs have been met through funds generated
from operating activities. During 1998, operating funds were
provided by net income adjusted for depreciation, increases in
accounts payable and accrued expenses, the issuance of common stock
and the reduction in accounts receivable. These operating funds were
used to finance increased other assets, to purchase short-term
investments and fixed assets and to pay dividends. Working capital
amounted to $22.9 million at December 31, 1998. The bank line of
credit with Bank of the West, consisting of a one year revolving
line and term loan commitment was increased to $6.1 million in 1998
and extended to May 31, 1999. Secured by qualified receivables,
fixed assets and inventories, borrowing under this credit line bears
interest at the bank's prime rate. At December 31, 1998, none of the
revolving line of credit had been utilized. The Company has the
option to convert up to $1,000,000 of the credit line into a five-
year term note. See Note 4 of Notes to Consolidated Financial
Statements.
The Company made certain capital expenditures during 1998, primarily
for production, quality assurance, research and development
equipment, information systems and software. Consistent with its
customary operations and plans for growth, the Company plans to make
certain capital expenditures during 1999, primarily for production,
quality assurance and research and development equipment. While the
Company had no formal commitments at December 31, 1998, it is
anticipated that capital expenditures in 1999 will be approximately
$1,500,000.
STI believes that its cash flow from operations and available bank
borrowings will be sufficient to meet anticipated working capital
requirements through at least 1999. While the Company continues to
evaluate its financing alternatives from time to time, it has no
current plans to raise additional outside capital.
Relationship with Parent
The Parent manages cash for the Company. Cash collected by the
Parent on the Company's behalf is reflected as a decrease to the
Payable to Parent account or as an increase to the Receivable from
Parent account. Cash transfers, management service and interest
charges from the Parent to the Company, charges for income taxes and
the Parent's share of dividends are reflected as increases to the
payable account or as decreases to the receivable account. The
Parent files consolidated returns, including the accounts of the
Company, for federal and state income taxes. See Note 2 of Notes to
Consolidated Financial Statements.
Year 2000
The Company's products are not affected by dates. The Company has
established a committee to address Year 2000 issues associated with
the Company's (1) business application systems, (2) embedded
systems, including equipment that operates the Company's
telecommunications and facilities, (3) vendor and supplier
relationships and (4) contingency planning. The Company has
completed upgrading its information systems to Year 2000 compliant
versions, and therefore does not anticipate any internal Year 2000
issues from its own information systems. The Company did not incur
and does not expect to incur material costs associated with Year
2000 compliance. The Company is still in the process of
investigating the Year 2000-compliance status of its major
distributors, suppliers, customers, vendors and financial service
organizations. Preliminary assessments from certain major suppliers
indicate that they are Year 2000 compliant and do not anticipate any
major impact. Management has not yet completed an assessment of the
impact that the remaining third parties that may not be Year 2000
compliant may have on the operations of the Company. The Company
expects to have its assessment completed and contingency plans in
place by the end of the third quarter of 1999.
Business Factors
Because of the variety of factors and uncertainties affecting the
Company's operating results, past financial performance and historic
trends may not be a reliable indicator of future performance. These
factors, as well as other factors affecting the Company's operating
performance, may result in significant volatility in the Company's
common stock price. Among the factors which could affect the
Company's future business, financial condition or operating results
are the following:
Variability of operating results
The Company has experienced fluctuations in annual and quarterly
operating results and anticipates that these fluctuations will
continue. These fluctuations are caused by a number of factors,
including the level and timing of customer orders, fluctuations in
complementary third party products with which STI products are sold,
the mix of products sold and the timing of operating expenditures.
Although STI conducts only a small amount of business with Asian
companies, a number of our original equipment manufacturer (OEM)
customers, primarily in the semiconductor equipment market, were
adversely affected by the Asian situation.
Seasonality
The industrial manufacturing equipment industry can be subject to
seasonality. This is also true with respect to European markets
where business activity declines due to vacations taken in the
summer months.
Competition
The market for industrial sensors is highly competitive. Many
competitors have substantially greater name recognition and
technical, marketing and financial resources than the Company.
Competitive pressures could reduce market acceptance of the
Company's products and result in price reductions and increases in
expenses.
Rapid technological change and new product development
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, changes in
customer needs and frequent new product introductions. The Company's
future success will depend on its ability to enhance its current
products, develop new products and respond to emerging industry
standards, all on a timely and cost-effective basis. The
introduction of new products also requires the Company to manage the
transition from older products in order to minimize disruption of
customer orders, avoid excessive levels of older product inventories
and ensure that adequate supplies of new products can be delivered
to meet customer demands.
Dependence on indirect distribution channel
A majority of the Company's sales are sold through third party
distributors, system integrators and original equipment
manufacturers. These resellers are not required to offer the
Company's products exclusively. There can be no assurance that a
reseller will continue to offer the Company's products. In addition
many of the Company's resellers are privately owned firms and some
may not be well capitalized.
International sales
The Company's international sales may be disrupted by currency
fluctuations or other events beyond the Company's control, including
political or regulatory changes.
Protection and Enforcement of Intellectual Property Rights
The Company relies on a combination of patent, trademark and trade
secret laws and contractual restrictions to establish and protect
certain proprietary rights in its products and services. There can
be no assurance that the Company's patents, trademarks, or
contractual arrangements or other steps taken by the Company to
protect its intellectual property will prove sufficient to prevent
misappropriation of the Company's technology or defer independent
third party development of similar technologies. Moreover, there can
be no assurance that the technology licenses granted to the Company
from its Parent will continue to be available. The loss of any of
the Company's proprietary technology could require the Company to
obtain technology of lower quality or performance standards or at
greater cost, which could materially adversely affect the Company's
business, results of operations and financial condition.
Furthermore, the laws of certain foreign countries may not protect
the Company's products, services or intellectual property rights to
the same extent as do the laws of the United States.
To date, the Company has not been notified that any of its products
infringe the proprietary rights of third parties, but there can be
no assurance that third parties will not claim infringement by the
Company with respect to current or future products. Any such claim,
whether meritorious or not, could be time-consuming, result in
costly litigation or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to the Company or at all. As a
result, any such claim could have a material adverse affect upon the
Company's business, results and financial condition. See " Business
- - Patents and Trademarks".
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) The following documents are filed as a part of this Report:
(1) Financial Statements
Consolidated Balance Sheet - December 31, 1998 and 1997
Consolidated Statement of Operations - Years ended December 31, 1998,
1997 and 1996
Consolidated Statement of Cash Flows - Years ended December 31, 1998,
1997 and 1996
Consolidated Statement of Changes in Stockholders' Equity - Years
ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
required or applicable, or the information required to be set forth
therein is included in the Financial Statements or notes thereto.
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,577 $4,559
Short-term investments 10,798 4,973
Accounts receivable, net 6,612 7,474
Inventories 5,812 5,113
Deferred income taxes 1,132 1,020
Other assets 345 294
--------- ---------
Total current assets 27,276 23,433
Property and equipment, net 2,545 2,686
--------- ---------
Total assets $29,821 $26,119
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $2,391 $1,934
Accrued expenses 1,972 1,667
--------- ---------
Total current liabilities 4,363 3,601
--------- ---------
Commitments and contingencies (Notes 4 and 7)
Stockholders' Equity
Voting Preferred stock; shares authorized -
10,000; shares issued and outstanding -
none; $.10 par value -- --
Non-voting Preferred stock; shares authorized -
10,000; shares issued and outstanding -
none; $.10 par value -- --
Common stock; shares authorized - 100,000;
shares issued and outstanding - 9,671 and
9,635, respectively; $.001 par value 10 10
Capital in excess of par value 5,787 5,532
Retained earnings 19,661 16,976
--------- ---------
Total stockholders' equity 25,458 22,518
--------- ---------
Total liabilities and stockholders' equity $29,821 $26,119
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales $43,465 $44,859 $38,294
Cost of goods sold 21,444 21,510 18,661
---------- ---------- ----------
Gross profit 22,021 23,349 19,633
Operating expenses
Selling, general and administrative 12,367 10,948 9,353
Research and development 3,314 3,135 2,482
---------- ---------- ----------
Total operating expenses 15,681 14,083 11,835
---------- ---------- ----------
Income from operations 6,340 9,266 7,798
Interest income, net 794 524 537
---------- ---------- ----------
Income before income taxes 7,134 9,790 8,335
Provision for income taxes 2,712 3,720 3,167
---------- ---------- ----------
Net income $4,422 $6,070 $5,168
========== ========== ==========
Basic net income per common share $0.46 $0.63 $0.54
========== ========== ==========
Shares used to compure basic
net income per common share 9,650 9,615 9,606
========== ========== ==========
Diluted net income per common share $0.46 $0.62 $0.53
========== ========== ==========
Shares used to compure diluted
net income per common share 9,721 9,777 9,733
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $4,422 $6,070 $5,168
Adjustments to reconcile net income to
cash provided by (used in)
operating activities:
Depreciation and amortization 921 833 649
Changes in assets and liabilities:
Accounts receivable, net 862 (782) (1,439)
Inventories (699) (1,047) (579)
Trade accounts payable (163) (451) 167
Accrued expenses 457 210 (22)
Other 305 (196) (523)
---------- ---------- ----------
Cash flows provided by operating
activities 6,105 4,637 3,421
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and
equipment (780) (1,042) (1,228)
Sale (purchase) of short-term
investments, net (5,825) 16 (1,602)
---------- ---------- ----------
Cash flows used in investing activities (6,605) (1,026) (2,830)
---------- ---------- ----------
Cash flows from financing activities:
Payments on debt -- -- (64)
Issuance (repurchase) of common stock 255 213 (96)
Dividends (1,737) (1,636) (1,537)
---------- ---------- ----------
Cash flows used in financing activities (1,482) (1,423) (1,697)
---------- ---------- ----------
Change in cash and cash equivalents (1,982) 2,188 (1,106)
Cash and cash equivalents at beginning
of year 4,559 2,371 3,477
---------- ---------- ----------
Cash and cash equivalents at end of year $2,577 $4,559 $2,371
========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid to Parent for
income taxes $2,712 $3,720 $3,167
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
(In thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------------
Capital
in excess
Par of par Retained
Shares Value Value Earnings Total
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balances December 31, 1995 9,607 $10 $5,415 $8,911 $14,336
Repurchase of common stock (5) -- (96) -- (96)
Net income for the year -- -- -- 5,168 5,168
Dividends paid -- -- -- (1,537) (1,537)
--------- -------- --------- -------- ---------
Balances December 31, 1996 9,602 10 5,319 12,542 17,871
Issuance of common stock 33 -- 213 -- 213
Net income for the year -- -- -- 6,070 6,070
Dividends paid -- -- -- (1,636) (1,636)
--------- -------- --------- -------- ---------
Balances December 31, 1997 9,635 $10 $5,532 $16,976 $22,518
Issuance of common stock 36 -- 255 -- 255
Net income for the year -- -- -- 4,422 4,422
Dividends paid -- -- -- (1,737) (1,737)
--------- -------- --------- -------- ---------
Balances December 31, 1998 9,671 $10 $5,787 $19,661 $25,458
========= ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Scientific Technologies Incorporated
Notes to Consolidated Financial Statements
NOTE 1-OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Description of Operations
Scientific Technologies Incorporated (the "Company") develops,
manufactures and markets safety light curtains, industrial sensors,
optical profilers, microcomputers and power monitoring devices for
factory automation applications. A majority of the Company's outstanding
common stock is held by Scientific Technology Incorporated (the
"Parent").
The Company operates in one business segment - the development,
manufacture and marketing of electronic and infrared safety light
curtains, sensors and scanning products. Sales to foreign customers
represented less than 10% of total sales in 1998, 1997 and 1996. One
customer, a distributor, accounted for 14% of total sales in 1998, 18%
of sales in 1997 and 19% of total sales in 1996.
The Company operates principally in the United States. The Company's
operations in Germany are insignificant to the Company as a whole.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could
differ from those estimates.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions.
Revenues
Revenues from product sales are recognized when products are shipped.
The Company warranties its products for 12 months from date of
installation and provides for warranty upon shipment.
Cash and Cash Equivalents and Short-Term Investments
The Company invests primarily in money market accounts and short-term
investments held at financial institutions and considers all highly
liquid investments with an original maturity of less than 90 days to be
cash equivalents.
Short-term investments consist of highly liquid investments which
generally mature in less than one year and are classified as "available
for sale". Interest income is accrued as earned. The investments are
carried at cost plus accrued interest, which approximates market value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property and Equipment
Property and equipment, including furniture and fixtures, are recorded
at cost. Depreciation is provided using the straight-line method over
the estimated useful lives, which range from three to ten years.
Leasehold improvements are amortized over the shorter of the term of the
lease or the estimated life of the improvement.
Income Taxes
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets
and liabilities.
The Company is included in the consolidated tax return of the Parent,
but provides for income taxes on a separate return basis pursuant to a
tax sharing arrangement, which limits the Company's tax liability to the
amount payable to the Parent. Income taxes payable are recorded as a
reduction to the receivable from Parent account or as an increase to the
payable to Parent account.
Foreign Currency
The Company's German subsidiary transacts its business in German Marks.
Translation and transaction gains and losses to date have been
immaterial.
Stock Based Compensation Plans
The Company accounts for its employee stock option plans and employee
stock purchase plan in accordance with provisions of the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), but has made the disclosures required under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") in these notes to financial
statements.
Comprehensive Income
For both 1998, 1997 and 1996, there is no difference between net income
and comprehensive income.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, cash equivalents,
short-term investments, trade accounts receivable, accounts payable and
accrued expenses, the carrying amounts approximate fair value due to the
short maturities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash,
cash equivalents, short-term investments and trade accounts receivable.
The Company places its cash and cash equivalents in a variety of money
market accounts. The Company further limits its exposure to these
investments by placing such investments with various high quality
financial institutions. The Company routinely performs evaluations of
these financial institutions. The Company's short-term investments are
primarily composed of highly rated mutual funds and Treasury bonds. The
Company offers credit terms on the sale of its products to its
customers. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral
from its customers. The Company maintains an allowance for uncollectable
accounts receivable based upon the expected collectability of all
accounts receivable.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Parent provides certain management, marketing and sales services to
the Company. The costs are allocated to the Company based on the
percentage of the Company's sales to total sales of the Parent and its
subsidiaries. The amounts allocated to the Company for 1998, 1997 and
1996 were $908, 000, $824,000 and $949,000, respectively.
The Company leases approximately 85,000 square feet in a 95,000 square
foot facility owned by an affiliate of the Parent. The lease term is for
ten years. Overhead costs are allocated primarily on the basis of square
footage utilized.
Additionally, the Parent manages the Company's cash. The Company
utilizes a payable to Parent account to record activity including cash
received, cash disbursed and amounts owed to the Parent for allocated
charges and dividends. The net effect of transactions with the Parent
resulted in a zero balance at December 31, 1998, 1997 and 1996. The
Company charges interest on the receivable from the Parent and pays
interest on payables to Parent at the Company's average interest rate on
bank borrowings. Interest expense amounted to $20,000 in 1998, $34,000
in 1997 and $42,000 in 1996
NOTE 3 - PRODUCT LINE ACQUISITION
In January 1997, the Company reached an agreement with the Parent to
acquire the distribution rights to certain level and flow control
products manufactured by outside sources. As compensation for this
agreement, the Company pays a royalty on sales of the product to the
Parent for a number of years. The acquisition had an immaterial impact
on revenues, gross margin and net income for the years ended December
31, 1998 and 1997.
NOTE 4-BALANCE SHEET DATA
December 31,
----------------------
1998 1997
---------- ----------
ACCOUNTS RECEIVABLE:
Trade accounts receivable $7,001 $7,612
Less: Allowance for doubtful accounts
and sales returns (389) (138)
---------- ----------
Accounts receivable, net $6,612 $7,474
========== ==========
INVENTORIES:
Finished goods $2,421 $1,496
Work in process 482 624
Subassemblies 541 613
Raw materials 2,368 2,380
---------- ----------
$5,812 $5,113
========== ==========
PROPERTY AND EQUIPMENT:
Equipment $5,106 $4,445
Furniture and fixtures 1030 907
Leasehold improvements 53 21
---------- ----------
6,189 5,373
Less: accumulated depreciation (3,644) (2,687)
---------- ----------
$2,545 $2,686
========== ==========
ACCRUED EXPENSES:
Accrued compensation and benefits $937 $944
Accrued commissions 230 247
Warranty reserve 298 262
Other 507 214
---------- ----------
$1,972 $1,667
========== ==========
Debt:
The Company has a $6,100,000 line of credit with a bank, of which
no amount was outstanding at December 31, 1998 and December 31,
1997. The line, which is subject to certain financial statement
covenants, bears interest at the bank's prime rate (7.75% at
December 31, 1998), is secured by accounts receivable, inventories
and fixed assets, and expires on May 31, 1999.
NOTE 5 - INCOME TAXES
The provision for income taxes was as follows:
Year Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
Current tax expense:
Federal $2,224 $3,142 $2,691
State, net of federal benefit 600 758 876
---------- ---------- ----------
Sub total 2,824 3,900 3,567
Deferred tax benefit (112) (180) (400)
---------- ---------- ----------
Total $2,712 $3,720 $3,167
========== ========== ==========
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. At December 31, 1998 and 1997, the Company's deferred tax
assets of $1,132,000 and $1,020,000, respectively, were comprised primarily
of the following items: $507,000 and $417,000, respectively, of inventory
reserves and $625,000 and $603,000, respectively, of other accruals and
reserves not currently deductible.
The provision for income taxes differs from the amount of tax determined by
applying the applicable U.S. statutory income tax rate to pretax income as a
result of the following differences:
Year Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Percentage of pretax income:
Statutory U.S. tax rate 34% 34% 34%
State income taxes, net of
federal benefit 6% 6% 6%
Research and development
and other credits -2% -2% -2%
---------- ---------- ----------
Effective tax rate 38% 38% 38%
========== ========== ==========
NOTE 6 - INCOME PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted
income per common share computations is provided below.
In Thousands Per
---------------------- Share
Income Shares Amunt
---------- ---------- ----------
1998
Earnings per share of common stock $4,422 9,650 $0.46
Effect of dilutive securities
Stock options -- 71 --
---------- ---------- ----------
Earnings per share of common stock-
assuming dilution $4,422 9,721 $0.46
========== ========== ==========
1997
Earnings per share of common stock $6,070 9,615 $0.63
Effect of dilutive securities
Stock options -- 162 $0.01
---------- ---------- ----------
Earnings per share of common stock-
assuming dilution $6,070 9,777 $0.62
========== ========== ==========
1996
Earnings per share of common stock $5,168 9,606 $0.54
Effect of dilutive securities
Stock options -- 127 $0.01
---------- ---------- ----------
Earnings per share of common stock-
assuming dilution $5,168 9,733 $0.53
========== ========== ==========
NOTE 7 - DIVIDENDS
On March 3, 1999, the Company declared a regular quarterly dividend of
$.0475 per share on all of its common shares, payable on April 1, 1999
to shareholders of record on March 21, 1999. During 1998, the Company
paid quarterly dividends of $.045 per share. During 1997, the Company
paid quarterly dividends of $.0425 per share. During 1996, the Company
paid regular quarterly dividends of $.04 per share.
NOTE 8 - COMMITMENTS
The Company leases certain office and manufacturing space and other
equipment under noncancellable operating leases. At December 31, 1998,
future minimum payments under these leases due in the years 1999 through
2005 were approximately $690,000 per year.
Rent expense under operating lease agreements was approximately $685,000
in 1998 and $630,000 in both 1997 and 1996, respectively.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Scientific Technologies Incorporated
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of
changes in stockholders' equity present fairly, in all material
respects, the financial position of Scientific Technologies
Incorporated (a subsidiary of Scientific Technology Incorporated)
and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
March 3, 1999
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report in
that the registrant will file a definitive Proxy Statement for its 1999
Annual Meeting of Stockholders pursuant to Regulation 14A (the "Proxy
Statement") no later than 120 days after the end of the fiscal year covered
by this Report, and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item concerning the Company's
directors and the Company's executive officers is incorporated by
reference to the sections entitled "Nominees" and "Management",
respectively, appearing in the Company's Proxy Statement for its
1999 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference
to the sections entitled "Executive Compensation" and "Report of
the Compensation Committee" appearing in the Proxy Statement for
its 1999 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference
to the sections entitled "Security Ownership of Certain Beneficial
Owners and Management" appearing in the Proxy Statement for its
1999 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference
to the sections entitled "Certain Relationships and Related
Transactions" appearing in the Proxy Statement for its 1999 Annual
Meeting of Stockholders.
<PAGE>
PART IV
ITEM 14. EXHIBITS LIST AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS
Reference is made to the index appearing in Item 8(a) of this report.
2. FINANCIAL STATEMENT SCHEDULES
Reference is made to the index appearing in Item 8(a) of this report.
3. EXHIBITS AND EXHIBIT INDEX:
Exhibit 3.1 - Articles of Incorporation, as amended, are incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1988, Exhibit 3.1.
Exhibit 3.3 - By-Laws are incorporated by reference to the Registrant's
Form 10-K for the year ended December 31, 1985, Exhibit 3.
Exhibit 4.1 - 1987 Employee Stock Purchase Plan is incorporated by
reference to the Registrant's Registration Statement on Form
S-8 dated May 13, 1988.
Exhibit 4.2 - 1987 Stock Option Plan is incorporated by reference to the
Registrant's Registration Statement on Form S-8 dated May
13, 1988.
Exhibit 10.1 - Lease agreement dated February 21, 1995 for 6550 Dumbarton
Circle, Fremont, California 94555, is incorporated by
reference to the Registrant's Form 10-KSB for the year ended
December 31, 1994, Exhibit 10.4.
Exhibit 10.2 - Bank agreement dated November 29, 1994 with Bank of The West
is incorporated by reference to the Registrant's Form 10-KSB
for the year ended December 31, 1994, Exhibit 10.3.
Exhibit 10.3 - Amendment dated May 31, 1998 to Bank Agreement dated
November 29, 1994 with Bank of The West.
Exhibit 10.4 - Lease agreement dated November 21, 1995 for 1,835 square
feet of space in Menlo Park California is incorporated by
reference to the Registrant's Form 10-KSB for the year ended
December 31, 1995, Exhibit 10.4.
Exhibit 21.1 - Subsidiaries of the Registrant.
Exhibit 23.1 - Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
Exhibit 24.1 - Power of Attorney
Exhibit 27.1 - Financial Data Schedule.
All other exhibits for which provision is made in Regulation S-K of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(b) No Reports on Form 8-K were filed during the last quarter of 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SCIENTIFIC TECHNOLOGIES INCORPORATED
Dated: March 24, 1999 By /s/ Anthony R. Lazzara
-------------- ---------------------------------
Anthony R. Lazzara
Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Anthony R. Lazzara and Joseph J. Lazzara, jointly
and severally, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form 10-
K and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Anthony R. Lazzara Chairman of the Board and March 24, 1999
- ------------------------ Director ---------------
Anthony R. Lazzara
/s/ Joseph J. Lazzara President, Chief Executive Officer, March 24, 1999
- ------------------------ Treasurer, Director (Principal ---------------
Joseph J. Lazzara Executive and Financial Officer)
/s/ James A. Lazzara Vice President, Secretary and March 24, 1999
- ------------------------ Director ---------------
James A. Lazzara
/s/ James A. Ashford Vice President and Director March 24, 1999
- ------------------------ ---------------
James A. Ashford
/s/ Carl H. Frei Director March 24, 1999
- ------------------------ ---------------
Carl H. Frei
/s/ Bernard J. Ploshay Director March 24, 1999
- ------------------------ ---------------
Bernard J. Ploshay
/s/ Richard O. Faria Vice President, Finance and March 24, 1999
- ------------------------ Administration (Principal Accounting ---------------
Richard O. Faria Officer)
</TABLE>
<PAGE>
SCIENTIFIC TECHNOLOGIES INCORPORATED
EXHIBITS
TO
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1998
EXHIBITS - TABLE OF CONTENTS
Exhibit 10.3 - Amendment dated May 31, 1998 to Bank Agreement
dated November 29, 1994
Exhibit 21.1 - Subsidiaries of the Registrant
Exhibit 23.1 - Consent of Independent Accountants
Exhibit 24.1 - Power of Attorney (included above)
Exhibit 27.1 - Financial Data Schedule
Exhibit 10.3
FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Fourth
Amendment") is dated as of June 9, 1998 and is entered into between
SCIENTIFIC TECHNOLOGIES INCORPORATED WHICH WILL DO BUSINESS IN CALIFORNIA
AS OREGON SCIENTIFIC TECHNOLOGIES, an Oregon corporation (the "Borrower"),
AND BANK OF THE WEST, a California banking corporation (the "Bank").
RECITALS:
A. Borrower and Bank have entered into that certain Loan and
Security Agreement dated November 29, 1994, that certain First Amendment
to Loan and Security Agreement dated as of May 31, 1995, that certain
Second Amendment to Loan and Security Agreement dated as of May 31, 1996,
and that certain third Amendment to Loan and Security Agreement dated as
of May 31, 1997 (collectively, the "Loan Agreement") and that certain
Equipment Purchase Line Note dated December 6, 1994 (the "Equipment
Purchase Line Note");
B. Borrower and Bank intend to further amend the Loan Agreement
and/or the Equipment Purchase Line Note as provided by this Fourth
Amendment.
AMENDMENT:
NOW, THEREFORE, Borrower and Bank hereby agree as follows:
1. This Fourth Amendment shall modify and, to the extent
inconsistent with, amend the Loan Agreement and/or the Equipment Purchase
Line Note. Any capitalized term not specifically defined herein shall
have the meaning assigned to it in the Loan Agreement.
2. Section 2.1 of the Loan Agreement is hereby deleted in its
entirety and is replaced with the following:
2.1 Revolving Loans. Upon the request of Borrower,
made at any time and from time to time during the term hereof,
and so long as no Event of Default has occurred, Bank shall
lend to Borrower an amount equal to the sum of Five Million
Dollars ($5,000,000.00); provided, however, that in no event
shall Bank be obligated to make advances to Borrower under
this Section 2.1 whenever the Daily Balance exceeds (at any
time) the sum of Five Million Dollars ($5,000,000.00).
All loans made pursuant to this Section 2.1 shall
be added to and deemed part of the Credit when made. If, at
any time and for any reason, the Daily Balance exceeds the
amount of the loans and advances for which Borrower is
eligible based upon the above limitations, or if the advances
made pursuant to any rider to this Agreement exceed the
percentage or dollar limitations contained in such rider (an
"Over Advance"), then Borrower shall immediately pay to Bank,
in cash, the amount of such Over Advance.
3. The last sentence of Section 3.1(a) of the Loan Agreement is
hereby deleted in its entirety and is replaced with the following:
For the purpose of this Agreement, "Draw Period" shall mean
the period between the date of this Loan and Security
Agreement and the earlier of: (i) June 30, 1999 or (ii) the
date on which the aggregate of all advances made pursuant to
this Section 3.1 equals One Million and 00/100 Dollars
($1,000,000.00).
4. Section 3.1(b) of the Loan Agreement is hereby deleted in its
entirety and is replaced with the following:
(b) Each advance under this Equipment Purchase Line
shall be in amount not exceeding one hundred percent (100%) of
the cost, excluding installation charges, sales tax, freight,
and software charges (as determined by Bank), of items of new
and/or used equipment approved by Bank. The aggregate of all
advances made by Bank under this Equipment Purchase Line shall
not exceed One Million Dollars ($1,000,000.00).
5. Section 3.3 of the Loan Agreement is hereby deleted in its
entirety and is replaced with the following:
3.3 Repayment.
(a) Commencing on the last day of the month
after the date of this Agreement, and continuing until the
Principal Repayment Commencement Date, Borrower shall make
monthly payments of all accrued interest at the Rate on
advances under Equipment Purchase Line and all Bank Expenses
incurred in connection with Equipment Purchase Line.
(b) Commencing on the last day of the month
after the end of the Draw Period (the "Principal Repayment
Commencement Date") and continuing on the last day of each
month thereafter until the Equipment Line Maturity Date (as
hereinafter defined), Borrower shall make (i) equal and
consecutive monthly principal payments with each payment being
in an amount sufficient to repay the aggregate principal
amount of advances under the Equipment Purchase Line
outstanding as of the Principal Repayment Commencement Date
over sixty (60) months on a straight-line basis, (ii) monthly
interest payments at the Rate on the outstanding amount of
advances under the Equipment Purchase Line, and (iii) all Bank
Expenses incurred by Bank in connection with Equipment
Purchase Line. For the purpose of this Agreement, the
"Equipment Line Maturity Date" shall be sixty (60) months
after the Principal Repayment Commencement Date.
(c) Bank may, at its option, elect to treat any
due but unpaid interest and Bank Expenses as advances under
the Credit, and all such advances shall bear interest on the
Daily Balance thereof, at a per annum rate applicable to the
Credit under the terms of this Agreement. The receipt of any
check or other item of payment by Bank shall not be considered
a payment until such check or other item of payment is honored
when presented for payment, in which event, said check or
other item of payment shall be deemed to have been paid to
Bank in accordance with Bank's rules and regulations relating
to credits to deposit accounts or, in Bank's discretion, two
(2) calendar days after the date Bank actually receives
possession of such check or other item of payment.
Notwithstanding anything to the contrary contained in
Article 3 of this Agreement, all advances under the Equipment
Purchase Line shall bear interest, from and after any Event of
Default and without constituting a waiver of any such Event of
Default, on the Daily Balance owing, at a per annum rate five
(5) percentage points above the Rate.
6. The second sentence of the first paragraph of Section 4.1 of
the Loan Agreement is hereby deleted in its entirety and is replaced with
the following:
Borrower's right to obtain advances under Section 2.1 and to
enter into foreign exchange contracts under the FX Facility
provided by Section 14.1 shall remain in full force and effect
until June 30, 1999, and shall continue on a month-to-month
basis thereafter until terminated by either party on thirty
(30) days prior written notice to the other.
7. The Equipment Purchase Line Note is hereby amended and
restated so that it reads in accordance with the attached Exhibit "A."
Concurrently with the first advance by Bank to Borrower under the
Equipment Purchase Line, Borrower shall execute and deliver an Equipment
Purchase Line Note in substantially the same form and content as the
attached Exhibit "A", which Equipment Purchase Line Note shall be dated
the same date as the first such advance under the Equipment Purchase Line.
8. Bank shall have the right, but not the obligation, to charge
any amounts owing by Borrower to Bank under the Loan Agreement, the
Equipment Purchase Line Note, or this Fourth Amendment against any
accounts maintained by Borrower with Bank and Borrower consents thereto.
9. Concurrently with the execution of this Fourth Amendment,
Borrower shall pay to Bank a fee in an amount equal to Seven Thousand Five
Hundred Dollars ($7,500.00), which fee shall represent an unconditional
and non-refundable payment to Bank in consideration of Bank's agreement to
enter into this Fourth Amendment.
10. Bank's duties to extend and renew the Obligations and to make
advances in accordance with this Fourth Amendment shall be subject to (i)
there being no outstanding and uncured defaults under the Loan Agreement,
the Equipment Purchase Line Note or any other obligation owing by Borrower
to Bank and (ii) the satisfaction of each of the conditions precedent set
forth in Article 6 of the Loan Agreement, each of which is incorporated
herein by this reference.
11. Except as amended by this Fourth Amendment, all of the terms
and conditions of the Loan Agreement (and each and every document or
instrument executed and delivered in connection therewith) is and shall
remain in full force and effect.
12. Except as amended by this Fourth Amendment, Borrower hereby
ratifies, reaffirms, and remakes as of the date hereof each and every
representation and warranty contained in the Loan Agreement, the Equipment
Purchase Line Note, or in any document executed and delivered in
connection therewith.
IN WITNESS WHEREOF, Borrower has executed and delivered this Fourth
Amendment to Bank on the date first above written at Walnut Creek,
California.
"BORROWER"
SCIENTIFIC TECHNOLOGIES INCORPORATED WHICH
WILL DO BUSINESS IN CALIFORNIA AS OREGON
SCIENTIFIC TECHNOLOGIES, an Oregon
corporation
By: /s/Joseph J. Lazzara
Its: President and Chief Executive oFFICER
IN WITNESS WHEREOF, Bank hereby accepts this Fourth Amendment to
be effective as of the date first above written in Walnut Creek,
California.
"BANK"
BANK OF THE WEST,
a California banking corporation
By: /s/Robert W. Hansen
Its: Vice President
EXHIBIT "A"
EQUIPMENT PURCHASE LINE NOTE
$1,000,000.00
Walnut Creek, California
In consideration of all loans and advances ("Advances") from time to
time made by BANK OF THE WEST (the "Bank") to or for the benefit of the
undersigned (the "Borrower") pursuant to that certain Loan and Security
Agreement between Borrower and Bank dated November 29, 1994, as amended,
extended or renewed (collectively the "Loan Agreement"), during the Draw
Period (as defined in the Loan Agreement), Borrower promises to pay Bank,
or order, at 2000 Franklin Street, Suite 420, East Bay Business Banking
Group (Group 054), Oakland, California 94612, on the dates and in the
manner hereinafter set forth, all outstanding Advances, plus any interest
thereon then unpaid, at a rate (the "Rate") of interest equal to the
Bank's Prime Rate (as hereinafter defined), which Rate shall vary
concurrently with any change in the Prime Rate. For the purpose of this
Note, the "Prime Rate" shall mean the variable rate of interest, per
annum, most recently announced by Bank at its headquarters office in San
Francisco, California, as its "prime rate." The undersigned understands
that Bank's "prime rate" is one of its base rates with respect to loans
making reference thereto and may not be the lowest of Bank's base rates.
Interest shall be computed on the outstanding principal balance on the
basis of three hundred sixty (360) days per year and actual days elapsed.
Commencing on the last day of the calendar month after the date of
this Note, and continuing on the last day of each month thereafter until
the Principal Repayment Commencement Date (as hereinafter defined),
Borrower shall make (i) monthly interest payments on the outstanding
amount of the Advances at the Rate and (ii) payments of all Bank Expenses
(as defined in the Loan Agreement) incurred by Bank in connection with or
attributable to this Note. If not so paid, such unpaid interest and/or
Bank Expenses shall become part of the principal, at the option of Bank.
Commencing on the last day of the month after the end of the Draw
Period (the "Principal Repayment Commencement Date") and continuing on
the last day of each month thereafter until the Equipment Line Maturity
Date (as hereinafter defined), Borrower shall make (i) equal and
consecutive monthly principal payments with each payment being in an
amount sufficient to repay the aggregate principal amount of advances
under the Equipment Purchase Line outstanding as of the Principal
Repayment Commencement Date over sixty (60) months on a straight-line
basis, (ii) monthly interest payments at the Rate on the outstanding
amount of advances under the Equipment Purchase Line, and (iii) all Bank
Expenses incurred by Bank in connection with Equipment Purchase Line. For
the purpose of this Agreement, the "Equipment Line Maturity Date" shall
be sixty (60) months after the Principal Repayment Commencement Date.
The aggregate unpaid balance of all Advances made hereon at any time
shall not exceed One Million Dollars ($1,000,000.00). In the event that
the amount of all Advances hereunder shall exceed One Million Dollars
($1,000,000.00), Borrower shall immediately, and without demand, make
payment to Bank in an amount sufficient to reduce the balance hereof to an
amount that is less than said limitation. All Advances shall be
conclusively presumed to have been made to, for the benefit of, and at the
request of Borrower when deposited or credited to the account of Borrower
with Bank or made in accordance with the terms of the Loan Agreement or
the oral or written instructions of Borrower, or any one signing below for
or on behalf of the undersigned.
Bank may, at its option, elect to treat any due but unpaid interest
and Bank Expenses as advances under the Credit, and all such advances
shall bear interest on the Daily Balance thereof, at a per annum rate
applicable to the Credit under the terms of this Agreement. The receipt
of any check or other item of payment by Bank shall not be considered a
payment until such check or other item of payment is honored when
presented for payment, in which event, said check or other item of payment
shall be deemed to have been paid to Bank in accordance with Bank's rules
and regulations relating to credits to deposit accounts or, in Bank's
discretion, two (2) calendar days after the date Bank actually receives
possession of such check or other item of payment.
Upon the occurrence of an Event of Default under the Loan Agreement
which has not been cured as therein provided or waived by Bank in writing,
the whole sum of principal, interest and Bank Expenses relating to such
Advances shall become due immediately at the option of Bank.
Upon the occurrence of an Event of Default under the Loan Agreement
(which has not been cured as therein provided or waived by Bank in
writing) and at the option of Bank, interest may be charged on the
Advances outstanding on the date of such Event of Default at the rate of
five (5) percentage points greater than the Rate (the "Default Rate"). The
Default Rate shall commence on the day following any Event of Default and
shall continue until such Event of Default has been cured to the
satisfaction of Bank.
If this Note is not paid when due, Borrower promises to pay all
costs and expenses of collection and all attorneys' fees and costs
incurred by Bank on account of such collection, whether or not suit is
filed, which said costs, expenses and fees shall become part of principal.
The indebtedness evidenced hereby shall be payable in lawful money of the
United States of America.
This Note is subject to the terms and conditions of the Loan
Agreement. The obligations arising under this Note constitute Obligations
under and pursuant to the terms of the Loan Agreement and are secured
under and pursuant to the terms thereof.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed by its officers thereunto duly authorized and directed by a
Resolution of its Board of Directors.
SCIENTIFIC TECHNOLOGIES INCORPORATED WHICH
WILL DO BUSINESS IN CALIFORNIA AS OREGON
SCIENTIFIC TECHNOLOGIES, an Oregon
corporation
By: /s/Joseph J. Lazzara
Its: President and Chief Executive Officer
<PAGE>
EXHIBIT 21.1
SCIENTIFIC TECHNOLOGIES INCORPORATED
Annual Report on Form 10-K
Year ended December 31, 1998
Subsidiaries of the Registrant.
Applied Electro Technology, International, a California corporation
Zaisan Inc., a Texas corporation
STI Scientific Technologies GmbH, a German corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Forms S-8 (No. 33-30195 and 33-
21892) of Scientific Technologies Inc. of our report dated
March 3, 1999 appearing on page 26 in this Annual Report on
Form 10-K.
PricewaterhouseCoopers, LLP
San Jose, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Consolidated Balance Sheet and Consolidated Statement of
Income included in the Company's Form 10-K for the period ended
December 31, 1998 and is qualified in its entirety by reference to
such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<PERIOD-TYPE> 12-MOS
<CASH> 2,689
<SECURITIES> 10,798
<RECEIVABLES> 7,001
<ALLOWANCES> 389
<INVENTORY> 5,812
<CURRENT-ASSETS> 27,276
<PP&E> 6,053
<DEPRECIATION> 3,508
<TOTAL-ASSETS> 29,821
<CURRENT-LIABILITIES> 3,601
<BONDS> 0
<COMMON> 10
0
0
<OTHER-SE> 25,448
<TOTAL-LIABILITY-AND-EQUITY> 29,821
<SALES> 43,465
<TOTAL-REVENUES> 43,465
<CGS> 21,444
<TOTAL-COSTS> 37,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,134
<INCOME-TAX> 2,712
<INCOME-CONTINUING> 4,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,422
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
