<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ] 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 0-12734
STANFORD TELECOMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-2207636
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1221 Crossman Avenue, Sunnyvale, CA 94089
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(Address of principal executives offices)
(Zip Code)
408/745-0818
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
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.
Yes_X_ No___
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of outstanding shares of each of the issuer's classes
of common stock, as of the latest practical date.
6,250,082 as of July 19, 1995
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The condensed financial statements included herein have been prepared by the
company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the company believes the disclosures which are made are
adequate to make the information presented not misleading. Further, the
condensed financial statements have been prepared in all material respects in
conformity with the standards of accounting measurement set forth in Accounting
Principles Board Opinion No. 28 and reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as of and for
the periods indicated.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the Stanford
Telecommunications, Inc. 1995 Annual Report.
The results of operations for the first three months of fiscal year 1996 ended
June 30, 1995 are not necessarily indicative of results to be expected for the
entire year ending March 31, 1996.
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
ASSETS 1995 1995
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Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,224 $ 2,910
Short-term investments 8,898 9,907
Accounts receivable 24,503 22,930
Unbilled receivables 13,101 16,891
Inventories 19,267 15,798
Prepaid expenses 4,135 3,558
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Total current assets 71,128 71,994
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Property and equipment at cost:
Test equipment and machinery 39,355 38,108
Furniture and fixtures 2,924 2,889
Leasehold improvements 3,071 3,052
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45,350 44,049
Less: Accumulated depreciation and amortization (29,405) (28,441)
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Net property and equipment 15,945 15,608
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Other assets 488 403
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$87,561 $88,005
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 147 $ 158
Accounts payable 8,579 11,268
Advance payments from customers 2,003 963
Accrued liabilities 10,614 10,183
Accrued and current deferred income taxes 977 1,463
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Total current liabilities 22,320 24,035
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Long-term obligations, less current maturities 134 161
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Other long-term liabilities 898 927
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Deferred income taxes 785 785
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Shareholders' equity:
Common shares - par value $.01; 15,000 shares authorized
Outstanding - 6,250 shares at June 30, 1995 63 62
- 6,234 shares at March 31, 1995
Paid in capital 37,251 37,051
Retained earnings 26,110 24,984
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Total shareholders' equity 63,424 62,097
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$87,561 $88,005
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</TABLE>
See accompanying notes.
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STANFORD TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
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1995 1994
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<S> <C> <C>
Revenues $35,952 $24,645
Cost of revenues 29,876 19,244
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Gross Profit 6,076 5,401
Expenses:
Research and development 1,793 2,032
Marketing and administrative 2,659 2,000
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Total expenses 4,452 4,032
Operating income 1,624 1,369
Interest income, net 178 180
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Income before income taxes 1,802 1,549
Provision for income taxes (676) (557)
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Net income $ 1,126 $ 992
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Weighted average common shares and equivalents 6,272 6,221
Net income per share $ 0.18 $ 0.16
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</TABLE>
See accompanying notes
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,126 $ 992
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,190 1,085
Issuances of stock to employees under bonus and award plans 47 14
Provision for losses on receivables and contracts 65 157
Loss on retirements of property and equipment 15 --
(Increase) decrease in assets:
Receivables billed and unbilled 2,129 (2,167)
Inventories (3,446) (605)
Prepaid expenses and other assets (662) (146)
Increase (decrease) in liabilities:
Accounts payable, advance payments, and accrued expenses (1,218) (1,101)
Other long-term liabilities (29) --
Accrued and deferred income taxes (486) 493
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Net cash used in operating activities (1,269) (1,278)
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Cash flows used in investing activities:
Proceeds from maturities of short-term investments 1,009 960
Purchase of property and equipment (1,632) (1,171)
Proceeds from sale of property and equipment 90 --
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Net cash used in investing activities (533) (211)
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Cash flows from financing activities:
Payments on capital lease obligations (38) (40)
Proceeds from transactions under stock plans 154 114
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Net cash provided by financing activities 116 74
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Net decrease in cash and cash equivalents (1,686) (1,415)
Cash and cash equivalents at beginning of period 2,910 5,840
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Cash and cash equivalents at end of period $ 1,224 $ 4,425
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</TABLE>
See accompanying notes.
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995
1. Net income per share
Net income per share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods. Common stock equivalents consist of the dilutive effect of
outstanding options to purchase common stock. Fully diluted net income per
share is substantially the same as reported net income per share.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Cost includes materials, labor and related indirect expenses.
General and administrative costs are only included in inventory for
government contracts, as such costs are reimbursed by the government.
The components of inventory are (in thousands):
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
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<S> <C> <C>
Raw materials and supplies $ 229 $ 175
Work-in-progress 16,680 13,027
Finished goods 1,703 1,820
Allocated general and administrative costs 769 938
Less: progress billings (114) (162)
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$19,267 $15,798
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</TABLE>
3. Stock Purchase Rights
On May 9, 1995 the Board of Directors adopted a Stockholders Rights Plan
and declared a dividend of one Common Share Purchase Right (the "Right")
for each share of the Company's common stock outstanding on May 25, 1995.
Each Right entitles the holder thereof to purchase one share of the
Company's common stock for $60. The Rights will be exercisable if a person
or group acquires 15% or more of the Company's common stock. Upon such
acquisition, each Right (other than those held by the acquiring person or
group) will be exercisable for the number of shares of the Company's common
stock having a market value at that time of twice the exercise price of the
Right. If the Company subsequently enters into certain business
combinations, each Right (other than those held by the acquiring person or
group) will be exercisable for that number of shares of common stock of the
other party to the business combination having a market value of two times
the exercise price of the Right. The Rights are subject to redemption at
the option of the Board of Directors at a price of $.01 per Right. The
Rights expire on May 9, 2005.
4. Capital Stock
On June 28, 1995, the Company's stockholders approved an amendment of
Article 4 of the Company's Certificate of Incorporation to increase the
number of authorized shares of common stock par value $0.01 per share
("common stock"), from 10,000,000 to 15,000,000 and to eliminate provisions
authorizing the Board of Directors to issue the common stock in series, and
to eliminate the Company's series B common stock.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since the Company's inception in 1973, revenues have been generated primarily
from sales to agencies of the U.S. Government, including the DoD, the U.S. Air
Force, Army and Navy, NASA and the FAA, or their prime contractors. Such
revenues are generated from many contracts including programs requiring
multi-year hardware and software development and limited production of products
and systems. The Company's contracts often require the design, production,
operation and maintenance of sophisticated equipment and systems and provision
of system integration services in the digital telecommunications and satellite
communications fields. A substantial portion of the digital telecommunications
and satellite communications research and development performed by the Company
since its inception has been funded by its customers and recorded as revenues by
the Company. Accordingly, the cost of performing this customer-funded research
and development is included in "Cost of Revenues" in the Company's financial
statements. The Company's government contracts are generally cost-reimbursement
plus profit or fixed-price contracts. The Company generally recognizes revenues
from its long-term government contracts on a percentage-of-completion basis.
Commencing in the late 1980's, the Company began to pursue commercial
opportunities utilizing its digital telecommunications technology developed and
enhanced by the Company since its inception. Commercial revenues have risen
from less than 6% of total revenues in fiscal 1989 to approximately 31% of total
revenues in fiscal 1995. During fiscal 1995, commercial revenues which amounted
to approximately $35.6 million included: (i) contract manufacturing revenues
from the Company's electronics assembly business ($12.1 million); (ii) sales of
ASICs, circuit boards and subsystems to the telecommunications industry ($9.1
million); (iii) sales of off-the-shelf products for secure voice transmissions
and GPS instrumentation ($7.5 million); (iv) development programs for INTELSAT
and for a vehicle tracking and information services system ($4.0 million); and
(v) other commercial systems and product business ($2.9 million). During the
first quarter of fiscal 1996, commercial revenues amounted to approximately
$15.3 million or 43% of total revenues reported. The Company includes in
commercial revenues sales of standardized or off-the-shelf products such as the
digital interfaces for secure voice transmissions or GPS simulators to any
customers, including government customers.
The Company's operating results have from time to time been adversely affected
by non-recoverable cost overruns on certain fixed-price contracts, primarily
fixed-price development contracts which have included significant software and
hardware development. The Company's net income in fiscal 1993, 1994 and 1995
was adversely affected due to losses on a number of fixed-price development
contracts. The Company has been instituting additional management controls to
more closely monitor its bidding process and costs incurred on fixed-price
development contracts, however, no assurance can be given that the Company will
not incur losses on future fixed-price contracts or additional losses on
existing contracts. The Company believes that development contracts are an
important element in maintaining its technological leadership position in
digital telecommunications. The Company plans to selectively bid on programs
where it would be the sole provider or its technology leadership provides a
competitive advantage. In addition, in order to position itself in the
commercial marketplace, the Company may selectively enter into contracts with
customers to deliver products where the Company will be funding a portion of the
development costs. As a result, the company may incur losses on certain
fixed-price contracts. Such losses will be charged against results of
operations in the period when they first become known, typically near the
initiation of the contract and may have a material adverse effect on the
Company's results of operations.
<PAGE>
QUARTERLY RESULTS
The following table presents the Company's financial results by quarter for
fiscal 1995 and the first quarter of fiscal 1996. These quarterly financial
results are unaudited. In the opinion of management, however, they have been
prepared on the same basis as the audited financial information and include all
adjustments necessary for a fair presentation of the information set forth
therein. The operating results for any quarter are not necessarily indicative
of the results that may be expected for any future period.
QUARTER ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
-----------------------------------------------------
FISCAL 1995 FISCAL 1996
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JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
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<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues $24,645 $28,319 $26,499 $34,921 $35,952
Cost of revenues 19,244 22,633 24,689 29,113 29,876
------- ------- ------- ------- -------
Gross Profit 5,401 5,686 1,810 5,808 6,076
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Expenses:
Research and development 2,032 2,302 1,345 2,044 1,793
Marketing and administrative 2,000 2,423 2,166 2,773 2,659
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Total Expenses 4,032 4,725 3,511 4,817 4,452
Operating income (loss) 1,369 961 (1,701) 991 1,624
Interest income, net 180 156 191 130 178
Arbitration settlement expenses -- -- (2,075) -- --
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Income (loss) before (provision) credit
for income taxes 1,549 1,117 (3,585) 1,121 1,802
(Provision) credit for income taxes (557) (403) 1,282 (393) (676)
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Net Income $ 992 $ 714 $(2,303) $ 728 $ 1,126
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Net income per share $ 0.16 $ 0.11 $ (0.37) $ 0.12 $ 0.18
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------- ------- ------- ------- -------
Weighted average common
shares and equivalents 6,221 6,244 6,256 6,252 6,272
</TABLE>
The Company's revenues and results of operations are subject to fluctuation from
period to period. Factors that could cause the Company's revenues and operating
results to vary from period to period include: underestimating costs on
fixed-price contracts particularly for software and hardware development;
timing, bidding activity and delivery of significant contracts and orders;
termination of contracts; mix of products and systems sold, and services
provided; historically reduced levels of operation during the holidays which
occur in the Company's third fiscal quarter; disruptions in delivery of
components or subsystems; regulatory developments; and general economic
conditions. Revenues have generally improved during the periods shown as a
result of increasing revenues from commercial activities. Revenues are
generally lower during the third fiscal quarter ending December 31 because the
Company reduces operations during the holiday period, and it expects to continue
to reduce activities in future holiday periods. The Company's result of
operations are adversely affected by losses on fixed-price development
contracts. Cost of revenues were adversely affected during fiscal 1995 by cost
overruns on certain fixed-price development contracts. Research and development
expenses include both
<PAGE>
research and development costs as well as bid and proposal expenses. Bid and
proposal expenses, which often make up a substantial portion of this expense
category, vary significantly from period to period based on the number of
proposals being prepared at any time. These requests for proposals are not
received evenly during the year or in any predictable pattern.
COMPARISON OF THE FIRST QUARTER ENDED JUNE 30, 1995 AND 1994
REVENUES. Revenues for the first quarter of fiscal 1996 increased by 46% to
$36.0 million from the first quarter of the previous fiscal year. The increase
was attributable to growth in both commercial and government contracts.
Commercial revenues during the first quarter of fiscal 1996 increased to
approximately $15.3 million from approximately $9.1 million achieved during the
first quarter of fiscal 1995. During the first quarter of fiscal 1996, the
Company received approximately $6.0 million in revenues from its commercial
contract manufacturing services and approximately $3.0 million as a result of
achieving contractual milestones on the INTELSAT contract. Revenues recognized
on government contracts increased approximately $5.1 million from the comparable
quarter of the previous fiscal year.
COST OF REVENUES. Cost of Revenues were $29.9 million and $19.2 million for the
first quarter of fiscal 1996 and 1995, respectively, representing a 55%
increase. The increase during the first quarter of fiscal 1996 was the result
of the recognition of costs and revenues on low or no margin contracts such as
INTELSAT and a U.S. Army satellite terminal contract. The Company's
cost-to-completes on these contracts will require the Company to recognize cost
of revenues equal or near the level of revenues reported for these contracts.
Higher margin product sales comprised a larger proportion of total revenues and
cost of revenues during the first quarter of fiscal 1995 compared to the first
quarter of fiscal 1996. In addition, the Company experienced fewer low or no
margin contracts during the first quarter of fiscal 1995 as compared to the
first quarter of the current fiscal year.
RESEARCH AND DEVELOPMENT. Research and Development costs which also include bid
and proposal (B&P) expenses associated with the pursuit of government contracts
and certain large commercial contracts were $1.8 million and $2.0 million in
fiscal year 1996 and 1995, respectively. The decrease was the result of lower
R&D expenditures incurred during the first quarter of fiscal 1996.
MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses were $2.7
million and $2.0 million for the first quarter of fiscal 1996 and 1995,
respectively, representing an increase of 33%. This increase is primarily a
result of increasing the Company's technical marketing staff and increased
marketing expenses in pursuit of commercial opportunities.
OPERATING INCOME. Operating income was $1.6 million and $1.4 million for the
first quarter of fiscal 1996 and 1995, respectively. The increase in operating
income during the first quarter of fiscal 1996 was primarily attributable to a
growth in revenues.
INTEREST INCOME. Interest income for the first quarter of fiscal 1996 was $178
thousand versus $180 thousand for the first quarter of the previous fiscal year.
Interest income generated during both periods was from short-term investments
resulting from capital raised through the Company's secondary public offering of
its common stock in January 1994.
PROVISION FOR INCOME TAXES. Provision for income taxes was $676 thousand and
$557 thousand for the first quarter of fiscal 1996 and 1995, respectively. This
represents a provisional tax rate of 37.5% and 36.0% for the first quarter of
fiscal 1996 and 1995, respectively.
<PAGE>
BOOKINGS AND BACKLOG
Funded bookings were $38.6 million and $28.1 million for the first quarter of
fiscal 1996 and 1995, respectively, representing an increase of 37%. The
increase in bookings were derived from both the Company's commercial operations
as well as its government business sectors. The increase in bookings has
resulted in the Company's backlog increasing from $62.6 million at the end of
the first quarter of fiscal 1995 to $75.1 million at the end of the first
quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from $49.6 million to $48.8 million at June 30, 1994
and 1995, respectively and remained essentially unchanged from the end of fiscal
1995.
Net cash used in operating activities for the quarters ended June 30, 1995 and
1994, was $1.3 million for each period. During the first quarter of fiscal
1996, the Company increased its inventories by $3.4 million and decreased its
billed and unbilled receivables by $2.1 million. During the first quarter of
fiscal 1995, the Company increased its inventories by $.6 million and increased
its billed and unbilled receivables by $2.2 million.
The Company utilized its cash for the purchase of property and equipment
totaling $1.6 million and $1.2 million during the first quarter of fiscal 1996
and 1995, respectively. The Company has a bank credit commitment of $15.0
million which it has utilized to augment cash flow needs and to secure standby
letter of credit or term loans not to exceed the lesser of $5.0 million, or the
amount of fixed assets purchased during the preceding twelve months. Available
borrowings under this line at June 30, 1995 were $15.0 million. Under this line
of credit the Company must maintain certain financial covenants, including a
minimum debt coverage for two consecutive fiscal quarters. As a result of not
maintaining the minimum debt coverage during the third quarter of fiscal 1995,
the Company is prohibited from utilizing the long term loan provision of its
credit agreement for a minimum of six months unless a waiver is requested by the
Company and granted by the bank. As of June 30, 1995, a waiver has not been
requested. The credit arrangement expires on September 30, 1995. At June 30,
1995, the Company's long-term obligations (including current maturities) and
other long-term liabilities totaled approximately $1.0 million. At June 30,
1995, cash and cash equivalents of $1.2 million were held in money market
accounts and short-term investments of $8.9 million were held in U.S. Government
Treasury instruments.
The Company believes that its current cash position, funds generated from
operations and funds available from its existing bank credit agreement, will be
adequate to meet the Company's requirements for working capital, capital
expenditures and debt service for the foreseeable future.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 28, 1995 the Company held its annual meeting of shareholders. The
following directors were elected to serve for the ensuing year:
Michael Berberian
John W. Brownie
Dr. P. Marshall Fitzgerald
Milton W. Holcombe
Dr. Val P. Peline
Leonard Schuchman
Dr. James J. Spilker, Jr.
Dr. C. J. Waylan
The proposal to amend the Company's Certificate of Incorporation and the
proposal to amend and restate the Company's 1991 Stock Option Plan were approved
by the shareholders.
In addition, Arthur Andersen LLP was ratified as the Company's independent
auditors for the current fiscal year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended June 30, 1995 the Company was not required to file a
Form 8-K with the Securities and Exchange Commission.
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.
Stanford Telecommunications, Inc.
(Registrant)
____________________________________________
Gary Wolf
Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
July 25, 1995
