<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 DECEMBER 31, 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.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2207636
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1221 CROSSMAN AVENUE, SUNNYVALE, CA 94089
(Address of principal executives offices)
(Zip Code)
408/745-0818
(Registrant's telephone number, including area code)
(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.
6,309,585 as of February 8, 1996
<PAGE>
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 nine months of fiscal year 1996 ended
December 31, 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>
ASSETS December 31, March 31,
1995 1995
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,592 $ 2,910
Short-term investments 6,867 9,907
Accounts receivable 24,698 22,930
Unbilled receivables 12,019 16,891
Inventories, net of related progress
billings 21,507 15,798
Prepaid expenses 6,691 3,558
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Total current assets 76,374 71,994
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Property and equipment at cost:
Electronic test equipment 39,765 38,108
Furniture and fixtures 2,931 2,889
Leasehold improvements 3,587 3,052
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46,283 44,049
Less: Accumulated depreciation and
amortization (30,988) (28,441)
------- -------
Net property and equipment 15,295 15,608
------- -------
Other assets 441 403
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$92,110 $88,005
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------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 118 $ 158
Accounts payable 8,413 11,268
Advance payments from customers 1,728 963
Accrued liabilities 10,217 10,183
Accrued and current deferred income taxes 2,856 1,463
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Total current liabilities 23,332 24,035
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Long-term obligations, less current maturities 98 161
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Other long-term liabilities 961 927
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Deferred income taxes 657 785
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Shareholders' equity:
Common shares - par value $.01;
15,000 shares authorized
Outstanding - 6,310 shares at
December 31, 1995 63 62
- 6,234 shares at
March 31, 1995
Paid-in capital 37,873 37,051
Retained earnings 29,126 24,984
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Total shareholders' equity 67,062 62,097
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$92,110 $88,005
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------- -------
</TABLE>
See accompanying notes.
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $36,384 $26,499 $107,933 $79,463
Cost of revenues 28,922 24,689 87,013 66,565
------- ------- -------- --------
Gross profit 7,462 1,810 20,920 12,898
Expenses
Research and development 2,046 1,345 5,889 5,680
Marketing and administrative 3,104 2,166 9,002 6,589
------- ------- -------- --------
Total expenses 5,150 3,511 14,891 12,269
Operating income (loss) 2,312 (1,701) 6,029 629
Interest income, net 164 191 494 527
Arbitration settlement charge - (2,075) - (2,075)
------- ------- -------- --------
Income (loss) before income taxes 2,476 (3,585) 6,523 (919)
(Provision) credit for income taxes (863) 1,281 (2,381) 322
------- ------- -------- --------
Net income (loss) $ 1,613 $(2,304) $ 4,142 $ (597)
------- ------- -------- --------
------- ------- -------- --------
Average shares and equivalents 6,361 6,256 6,328 6,240
Net income (loss) per share $ 0.25 $ (0.37) $ 0.65 $ (0.10)
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
See accompanying notes
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
---------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $4,142 $ (597)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,779 3,253
Issuances of stock to employees under bonus
and award plans 65 37
Provision for losses on receivables and contracts 654 3,288
(Gain) loss on retirements of property and equipment (7) 75
(Increase) decrease in assets:
Receivables billed and unbilled 2,707 (1,096)
Inventories (6,434) (2,761)
Prepaid expenses and other assets (3,171) (1,890)
Increase (decrease) in liabilities:
Accounts payable, advance payments, and
accrued expenses (1,588) 1,380
Other long-term liabilities 34 198
Accrued and deferred income taxes 1,265 446
------ -------
Net cash provided by operating activities 1,446 2,333
------ -------
Cash flows used in investing activities:
Purchase of short-term investments (5,848) (5,907)
Proceeds from maturities of short-term investments 8,888 4,897
Purchase of property and equipment (3,669) (4,066)
Proceeds from sale of property and equipment 210 -
------ -------
Net cash used in investing activities (419) (5,076)
------ -------
Cash flows from financing activities:
Payments on capital lease obligations (103) (61)
Proceeds from transactions under stock plans 758 269
------ -------
Net cash provided by financing activities 655 208
------ -------
Net increase (decrease) in cash and cash equivalents 1,682 (2,535)
Cash and cash equivalents at beginning of period 2,910 5,840
------ -------
Cash and cash equivalents at end of period $4,592 $3,305
------ -------
------ -------
</TABLE>
See accompanying notes.
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
1. Net income (loss) per share
Net income (loss) 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. Common
stock equivalents have been excluded from the loss per share calculation as
its effects are antidilutive.
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):
Dec. 31, 1995 March 31, 1995
------------- --------------
Raw materials and supplies $ 159 $ 176
Work-in-progress 19,408 13,092
Finished goods 2,042 1,820
Allocated general and
administrative costs 531 872
Less: progress billings (633) (162)
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$21,507 $15,798
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------- -------
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 to 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.
5. Credit Agreement
On December 20, 1995 the Company amended and restated its bank credit line
agreement to expire in December 1996. The bank credit commitment of $15.0
million requires the Company to maintain certain financial covenants. At
December 31, 1995, the Company was in compliance with all such financial
covenants.
6. Reclassifications
Certain amounts in the prior year financial statements have been reclassified
to conform with the fiscal year 1996 presentation.
<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 nine months of
fiscal 1996, commercial revenues amounted to approximately 46% 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>
CAUTIONARY STATEMENTS
In the interest of providing the Company's shareholders and potential
investors with certain Company information, including management's assessment
of the Company's future potential, certain statements set forth herein
contain or are based on projections of revenue, income, earnings per share
and other financial items or relate to management's future plans and
objectives or to the Company's future economic performance. Such statements
are 'forward-looking statements' within the meaning of Section 27A(i) of the
Securities Act of 1933, as amended, and in Section 21E(i) of the Securities
Exchange Act of 1934, as amended.
Although any forward-looking statements contained herein or otherwise
expressed by or on behalf of the Company are to the knowledge and in the
judgment of the officers and directors of the Company, expected to prove true
and to come to pass, management is not able to predict the future with
absolute certainty. Accordingly, shareholders and potential investors are
hereby cautioned that certain events or circumstances could cause actual
results to differ materially from those projected or predicted herein. In
addition, the forward-looking statements herein are based on management's
knowledge and judgment as of the date hereof, and the Company does not intend
to update any forward-looking statements to reflect events occurring or
circumstances existing hereafter.
In particular, the Company believes that the following factors could impact
forward-looking statements made herein or in future written or oral releases
and by hindsight, prove such statements to be overly optimistic and
unachievable:
1. Future revenues on government contracts, including contracts in
progress, are subject to reduction or cancellation without prior notice at
the convenience of the U.S. Government. Budgetary constraints and changes in
spending priorities in government agencies such as the Department of Defense,
NASA, and the FAA have resulted in sudden program changes, reductions or
cancellations in the past and such conditions may be expected to continue.
2. The Company has in the past accepted fixed price development
commitments for both government and commercial contracts. Although the
Company attempts to bid fixed price development contracts at an amount above
the expected costs of development and production, the Company has from time
to time experienced significant cost overruns which cannot be recovered from
the customer. The Company may in the future experience material cost
overruns which could adversely affect operating results over the life of the
program.
3. The Company's basic strategy is to employ its technology in wireless
telecommunications and digital signal processing in the commercial
environment, generally as components or subsystems in the product or service
offerings for large telecommunications companies. The transition from a
government contracts focus to commercial development will expose the Company
to certain business risks not previously encountered. Of greatest
significance will be the success of the Company's customers in marketing the
products or services for which the Company provides key technology
components, or subsystems. A successful product development effort will not
produce meaningful long-term revenues or profits for the Company unless its
customer obtains market acceptance of its end product or service. Factors
such as system price, competitive pressures, consumer demand and the like
will impact the customer's and the Company's level of commercial success. In
addition, even if a product or service proves to be a commercial success, the
Company will experience the continued risk that the customer will develop or
obtain lower cost alternatives to the Company's products or technical
solutions.
4. The Company's Commercial Manufacturing Division has grown significantly
since being established in 1993. The Division provides manufacturing
services to producers of electronics and medical products on either an
inventory consignment or turnkey basis. The
<PAGE>
contract manufacturing business is subject to wide swings in demand, is price
sensitive and extremely competitive. In addition, to the extent inventory is
purchased in anticipation of future contracts, the failure to obtain such
contracts can lead to a reduction in the value of such inventory. The
Company's Commercial Manufacturing Division does not generally operate with
long-term contracts and is often required to bid each new job even for major
customers.
5. Many of the components incorporated in the Company's commercial
products, including all semiconductor components, are purchased from third
party vendors. Certain key components are sole sourced. From time to time,
the Company may experience significant delays in component availability which
could adversely impact its ability to make timely deliveries to its
customers. Such events could cause expected revenues to be delayed and the
possible loss of future orders.
QUARTERLY RESULTS
The following table presents the Company's financial results by quarter for
fiscal 1995 and the first three quarters 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 SEPT. 30 DEC. 31
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $24,645 $28,319 $26,499 $34,921 $35,952 $35,597 $36,384
Cost of revenues 19,244 22,633 24,689 29,113 29,876 28,215 28,922
------- -------- ------- ------- ------- -------- -------
Gross profit 5,401 5,686 1,810 5,808 6,076 7,382 7,462
------- -------- ------- ------- ------- -------- -------
Expenses:
Research and development 2,032 2,302 1,345 2,044 1,793 2,050 2,046
Marketing and administrative 2,000 2,423 2,166 2,773 2,659 3,239 3,104
------- -------- ------- ------- ------- -------- -------
Total expenses 4,032 4,725 3,511 4,817 4,452 5,289 5,150
Operating income (loss) 1,369 961 (1,701) 991 1,624 2,093 2,312
Interest income, net 180 156 191 130 178 152 164
Arbitration settlement expenses -- -- (2,075) -- -- -- --
------- -------- ------- ------- ------- -------- -------
Income (loss) before (provision)
credit for income taxes 1,549 1,117 (3,585) 1,121 1,802 2,245 2,476
(Provision) credit for income taxes (557) (403) 1,282 (393) (676) (842) (863)
------- -------- ------- ------- ------- -------- -------
Net income (loss) $992 $714 $(2,303) $728 $1,126 $1,403 $1,613
------- -------- ------- ------- ------- -------- -------
------- -------- ------- ------- ------- -------- -------
Net income (loss) per share $0.16 $0.11 $(0.37) $0.12 $0.18 $0.22 $0.25
------- -------- ------- ------- ------- -------- -------
------- -------- ------- ------- ------- -------- -------
Weighted average common shares
and equivalents 6,221 6,244 6,256 6,252 6,272 6,346 6,361
</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;
<PAGE>
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 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 THIRD QUARTER ENDED DECEMBER 31, 1995 AND 1994
REVENUES. Revenues for the third quarter of fiscal 1996 increased 37% to
$36.4 million from the third quarter of the previous fiscal year. This
increase was largely attributable to growth in commercial contracts.
Commercial revenues during the third quarter of fiscal 1996 increased to
approximately $17.3 million from approximately $7.4 million achieved during
the third quarter of fiscal 1995. During the third quarter of fiscal 1996,
the Company received approximately $7.4 million in revenues from its
commercial contract manufacturing services compared with $3.2 million
recognized during the third quarter of fiscal 1995. Third quarter fiscal
1996 revenues recognized for the INTELSAT contract were $2.8 million. There
were no revenues recognized on the INTELSAT contract during the third quarter
of fiscal 1995. Revenues recognized during the third quarter of fiscal 1996
and 1995 on government contracts remained unchanged at $19.1 million.
COST OF REVENUES. Cost of revenues were $28.9 million and $24.7 million for
the third quarter of fiscal 1996 and 1995, respectively, representing a 17%
increase. The increase during the third quarter of fiscal 1996 was the
result of the recognition of cost on an increased revenue base. During the
third quarter of fiscal 1995, the Company recognized a $2.8 million reserve
in its cost of revenues associated with projected cost increases on the
INTELSAT contract. No such reserve was required for the third quarter of
fiscal 1996.
RESEARCH AND DEVELOPMENT. Research and development (R&D) cost which also
include bid and proposal (B&P) expenses associated with the pursuit of
government contracts and certain large commercial contracts were $2.0 million
and $1.3 million in the third quarter of fiscal year 1996 and 1995,
respectively. During the third quarter of fiscal 1996, the Company increased
its R&D expenses to support new product development. The Company anticipates
that R&D expenses during the second half of fiscal 1996 will exceed R&D
expenses incurred during the first half of fiscal 1996 to support new
commercial product developments.
MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses were
$3.1 million and $2.2 million for the third quarter of fiscal 1996 and 1995,
respectively. This increase is primarily a result of increasing the
Company's technical and marketing staff and increased marketing expenses in
pursuit of commercial opportunities.
OPERATING INCOME/LOSS. Operating income was $2.3 million for the third
quarter of fiscal 1996 compared with an operating loss of $1.7 million for
the third quarter of fiscal 1995. During the third quarter of fiscal 1995,
the Company recognized a $2.8 million reserve associated with projected cost
increases on the INTELSAT contract. No such reserve was required for the
third quarter of fiscal 1996. The Company's gross profit achieved during the
third quarter of fiscal 1996 exceed those gross profit amounts reported for
each of the first two quarters of fiscal 1996.
<PAGE>
INTEREST INCOME. Interest income for the third quarter of fiscal 1996 was
$164 thousand compared to $191 thousand for the third quarter of the previous
fiscal year. Interest income generated during both periods was from
short-term investments.
ARBITRATION SETTLEMENT EXPENSES. During the third quarter of fiscal 1995,
the Company received an unfavorable decision in an arbitration hearing
involving an alleged default under a 1990 joint product development
agreement. A charge of $1.6 million associated with the award to the
prevailing party and other direct arbitration costs of approximately $.5
million were recognized during the third quarter of fiscal year 1995.
PROVISION/CREDIT FOR INCOME TAXES. Provision for income taxes during the
third quarter of fiscal 1996 was $863 thousand compared to a credit of $1.3
million for the third quarter of the previous fiscal year. During the third
quarter of fiscal 1996 the provisional tax rate of 34.9% was applied to
income before tax provision. During the third quarter of fiscal 1995 the
provisional tax rate of 35.7% was applied to loss before tax credit.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
REVENUES. Revenues were $107.9 million and $79.5 million for the nine months
ended December 31, 1995 and 1994, respectively, representing an increase of
36%. This increase was attributable to growth in both commercial and
government contracts. During the nine months ended December 31, 1995,
revenues generated by commercial activities represented approximately 46% of
total revenues compared to approximately 32% in the same period of the prior
fiscal year. The growth in the Company's commercial business has been
supported in part by increased demand for the Company's contract
manufacturing services. For the first nine months of fiscal 1996, revenues
from the Company's government business increased by 8% compared to government
revenues for the nine months ended December 31, 1994.
COST OF REVENUES. Cost of revenues were $87.0 million and $66.6 million for
the nine months ended December 31, 1995 and 1994, respectively, representing
a 31% increase. The increase during the first nine months of fiscal 1996 was
the result of the recognition of cost on an increased revenue base. During
the third quarter of fiscal 1995, the Company recognized a $2.8 million
reserve in its cost of revenues associated with projected cost increases on
the INTELSAT contract. The Company's current cost-to-complete on INTELSAT
and a U.S. Army satellite terminal contract will require the Company to
continue to recognize cost of revenues equal or near the level of revenues
reported for these contracts. The Company expects to complete these
contracts by the end of the first quarter of fiscal 1997.
RESEARCH AND DEVELOPMENT. Research and development (R&D) cost which also
include bid and proposal (B&P) expenses associated with the pursuit of
government contracts and certain large commercial contracts were $5.9 million
and $5.7 million for the first nine months of fiscal year 1996 and 1995,
respectively. Bid and proposal expenses represented approximately 39% and
41% of total R&D cost for the first nine months of fiscal 1996 and 1995,
respectively.
MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses were
$9.0 million and $6.6 million for the first nine months of fiscal 1996 and
1995, respectively. 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 $6.0 million and $629 thousand for
the nine months ended December 31, 1995 and 1994, respectively. Gross
margins during the first nine months of fiscal 1995 were adversely affected
by the recognition of a $2.8 million reserve associated with projected cost
increases on the INTELSAT contract. Although gross margins have improved
<PAGE>
during the first nine months of fiscal 1996 relative to gross margins
reported during the first nine months of fiscal 1995, gross margins during
fiscal 1996 have been affected by low or no margin revenues recognized on the
INTELSAT and a U.S. Army satellite terminal contract.
INTEREST INCOME. Interest income for the first nine months of fiscal 1996
was $494 thousand compared to $527 thousand for the first nine months of the
previous fiscal year. Interest income generated during both periods was from
short-term investments.
ARBITRATION SETTLEMENT EXPENSES. During the third quarter of fiscal 1995,
the Company received an unfavorable decision in an arbitration hearing
involving an alleged default under a 1990 joint product development
agreement. A charge of $1.6 million associated with the award to the
prevailing party and other direct arbitration costs of approximately $.5
million were recognized during the third quarter of fiscal year 1995.
PROVISION/CREDIT FOR INCOME TAXES. Provision for income taxes was $2.4
million for the first three quarters of fiscal 1996 and the credit for income
taxes was $322 thousand for the first three quarters of fiscal 1995. This
represents a provisional tax rate of 36.5% and 35.0% for the first nine
months of fiscal 1996 and 1995, respectively.
Bookings and Backlog
Funded bookings were $33.5 million and $25.8 million for the third quarter of
fiscal 1996 and 1995, respectively, and $113.3 million and $93.9 million for
the nine months ended December 31, 1995 and 1994, respectively. The increase
in bookings was derived from new orders received within the Company's
commercial operations. The increase in bookings has resulted in the
Company's backlog increasing from $73.5 million at the end of the third
quarter of fiscal 1995 to $77.9 million at the end of the third quarter of
fiscal 1996.
Liquidity and Capital Resources
Working capital increased from $47.6 million to $53.0 million at December 31,
1994 and 1995, respectively and increased by $5.1 million from the end of
fiscal 1995.
Net cash provided by operating activities for the first nine months of fiscal
1996 and 1995 was $1.4 million and $2.3 million, respectively. During the
first nine months of fiscal 1996, the Company realized net income of $4.1
million, decreased its receivables, billed and unbilled, by $2.7 million,
increased its inventories by $6.4 million and decreased its accounts payable,
advance payments and accrued expenses by $1.6 million. During the first nine
months of fiscal 1995, the Company realized a net loss of $597 thousand,
increased its receivables by $1.1 million, increased its inventories by $2.8
million and increased its accounts payable, advance payments and accrued
expenses by $1.4 million.
The Company utilized its cash for the purchase of property and equipment
totaling $3.7 million and $4.1 million during the first nine months of fiscal
1996 and 1995, respectively.
During the third quarter of fiscal 1996, the Company negotiated and received an
amended and restated credit agreement. The Company may utilize the bank credit
commitment of $15.0 million to augment cash flow needs and secure standby
letters of credit. Available borrowings under this line at December 31, 1995
were $15.0 million. Under this line of credit the Company must maintain certain
financial covenants including provisions addressing debt coverage and
profitability. As of December 31, 1995 Company was in compliance with all
financial
<PAGE>
covenants. At December 31, 1995, the Company's long-term obligations
(including current maturities) and other long-term liabilities totaled
approximately $1.1 million. At December 31, 1995, cash and cash equivalents
of $4.6 million were held in money market accounts and short-term investments
of $6.9 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 next several fiscal quarters.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company's EDGAR Financial Data Schedule for the year-to-date period
ending December 31, 1995 is attached to this Form 10-Q as an exhibit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended December 31, 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)
February 12, 1996
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