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, 1997
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.
12,874,249 as of July 15, 1997
<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. 1997 Annual Report.
The results of operations for the first three months of fiscal year 1998 ended
June 30, 1997 are not necessarily indicative of results to be expected for the
entire year ending March 31, 1998.
<PAGE>
<TABLE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except per share amount)
<CAPTION>
ASSETS June 30, March 31,
1997 1997
--------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,827 $ 8,235
Short-term investments 27,787 25,074
Accounts receivable 23,209 25,856
Unbilled receivables 20,424 19,754
Inventories, net of related progress billings 7,196 6,011
Prepaid expenses 4,752 4,201
--------- ---------
Total current assets 89,195 89,131
--------- ---------
Property and equipment at cost:
Electronic test equipment 43,642 42,797
Furniture and fixtures 3,674 3,613
Leasehold improvements 3,816 3,722
--------- ---------
51,132 50,132
Less: Accumulated depreciation and amortization (36,929) (36,019)
--------- ---------
Net property and equipment 14,203 14,113
--------- ---------
Other assets 291 274
--------- ---------
$ 103,689 $ 103,518
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 78 $ 88
Accounts payable 6,524 5,902
Advance payments from customers 1,716 1,581
Accrued liabilities 8,860 10,601
Accrued and current deferred income taxes 3,975 4,549
--------- ---------
Total current liabilities 21,153 22,721
--------- ---------
Long-term obligations, less current maturities 18 30
--------- ---------
Other long-term liabilities 890 910
--------- ---------
Deferred income taxes 108 151
--------- ---------
Shareholders' equity:
Common shares - par value $.01; 25,000 shares authorized
Outstanding - 12,874 shares at June 30, 1997 129 128
- 12,833 shares at March 31, 1997
Paid-in capital 40,841 40,410
Retained earnings 40,550 39,168
--------- ---------
Total shareholders' equity 81,520 79,706
--------- ---------
$ 103,689 $ 103,518
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amount)
Three Months
Ended June 30,
----------------------
1997 1996
-------- -------
Revenues $ 35,331 $ 40,843
Cost of revenues 26,430 31,993
-------- --------
Gross profit 8,901 8,850
Expenses
Research and development 3,031 2,229
Marketing and administrative 4,251 4,022
-------- --------
Total expenses 7,282 6,251
Operating income 1,619 2,599
Interest income, net 459 284
-------- --------
Income before income taxes 2,078 2,883
Provision for income taxes (696) (995)
-------- --------
Net income $ 1,382 $ 1,888
======== ========
Weighted average common shares and equivalents 13,073 13,048
Net income per share $ 0.11 $ 0.14
======== ========
See accompanying notes
<PAGE>
<TABLE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<CAPTION>
Three Months Ended
June 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,382 $ 1,888
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,365 1,244
Issuances of stock to employees under bonus and award plans 5 27
Provision for losses on receivables and contracts 140 472
(Increase) decrease in assets:
Receivables billed and unbilled 1,972 (3,790)
Inventories (1,320) 2,506
Prepaid expenses and other assets (568) (261)
Increase (decrease) in liabilities:
Accounts payable, advance payments, and accrued expenses (984) 2,843
Other long-term liabilities (20) (19)
Accrued and deferred income taxes (617) (13)
-------- --------
Net cash provided by operating activities 1,355 4,897
-------- --------
Cash flows from investing activities:
Purchase of short-term investments (2,713) (968)
Purchase of property and equipment (1,455) (1,269)
-------- --------
Net cash used in investing activities (4,168) (2,237)
-------- --------
Cash flows from financing activities:
Payments on capital lease obligations (22) (25)
Proceeds from transactions under stock plans 427 712
-------- --------
Net cash provided by financing activities 405 687
-------- --------
Net (decrease) increase in cash and cash equivalents (2,408) 3,347
Cash and cash equivalents at beginning of period 8,235 4,409
-------- --------
Cash and cash equivalents at end of period $ 5,827 $ 7,756
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
Notes to Condensed Interim Financial Statements
(Unaudited)
June 30, 1997
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.
In February 1997, the Statement of Financial Accounting Standards No.
128 "Earnings per Share" (SFAS 128) was issued and is effective for
fiscal years ending after December 15, 1997. SFAS 128 requires
companies to compute earnings per share under two different methods,
basic and diluted, and to disclose the methodology used for the
calculation. Pro forma earnings per share amounts calculated under SFAS
128 are as follows:
Three months ended
------------------------------
June 30, 1997 June 30, 1996
------------- -------------
Net income per share
Basic $0.11 $0.15
Diluted $0.11 $0.14
Shares used in per share calculation (in thousands)
Basic 12,842 12,699
Diluted 13,073 13,048
2. Comprehensive Income
In July 1997, the Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" (SFAS 130) was issued and is effective
for fiscal years ending after December 15, 1997. The Company does not
expect that the adoption of SFAS 130 will have a material effect on the
financial statements.
3. 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):
June 30, 1997 March 31, 1997
------------- --------------
Work-in-progress $ 5,087 $ 3,721
Finished goods 2,322 2,318
Allocated general and administrative costs 87 118
Less: progress billings (300) (146)
------- -------
$ 7,196 $ 6,011
======= =======
<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, or
a unit shipped basis for production contracts.
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 year 1989 to approximately 41% of total
revenues in fiscal year 1997. During fiscal year 1997, commercial revenues which
amounted to approximately $68.5 million included: (i) contract manufacturing
revenues from the Company's electronics assembly business ($34.0 million);
(ii)sales of ASICs, circuit boards and subsystems to the telecommunications
industry ($17.0 million); and (iii) other commercial systems and product
business ($17.5 million). During the first quarter of fiscal 1998, commercial
revenues amounted to approximately $13.7 million or approximately 39% of total
revenues reported. The Company includes in commercial revenues sales of standard
or off-the-shelf products such as GPS simulators and digital interfaces for
secure voice transmissions 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 has instituted 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 (a) contain or
are based on projections of revenue, income, earnings per share and other
financial items or (b) relate to management's future plans, expectations, 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.
For further information on the foregoing, reference is made to the Company's
Securities and Exchange Commission report on Form 10-K.
Quarterly Results
<TABLE>
The following table presents the Company's financial results by quarter for
fiscal 1997 and the first quarter of fiscal 1998. 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.
<CAPTION>
Quarter Ended
Statement of Operations Data
(in thousands, except per share data)
Fiscal 1997 Fiscal 1998
------------------------------------------- -----------
June 30 Sept.30 Dec.31 Mar.31 June 30
------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Revenues $ 40,843 $ 41,058 $ 42,028 $ 43,073 $ 35,331
Cost of revenues 31,993 30,889 32,305 32,245 26,430
-------- -------- -------- -------- --------
Gross profit 8,850 10,169 9,723 10,828 8,901
-------- -------- -------- -------- --------
Expenses:
Research and development 2,229 3,444 2,903 3,292 3,031
Marketing and administrative 4,022 4,105 4,170 4,511 4,251
-------- -------- -------- -------- --------
Total expenses 6,251 7,549 7,073 7,803 7,282
Operating income 2,599 2,620 2,650 3,025 1,619
Interest income, net 284 298 342 412 459
-------- -------- -------- -------- --------
Income before provision for 2,883 2,918 2,992 3,437 2,078
income taxes
Provision for income taxes (995) (1,007) (1,032) (1,185) (696)
-------- -------- -------- -------- --------
Net income $ 1,888 $ 1,911 $ 1,960 $ 2,252 $ 1,382
======== ======== ======== ======== ========
Net income per shar $ 0.14 $ 0.1 $ 0.15 $ 0.17 $ 0.11
======== ======== ======== ======== ========
Weighted average common
shares and equivalents 13,048 13,098 13,042 13,040 13,073
</TABLE>
<PAGE>
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; reduced levels of operation during the holidays which occur primarily
in the Company's third fiscal quarter; disruptions in delivery of components or
subsystems; regulatory developments; and general economic conditions. Research
and development expenses include both research and development costs as well as
bid and proposal expenses. Bid and proposal expenses 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, 1997 and 1996
Revenues. Revenues were $35.3 million and $40.8 million for the first quarter of
fiscal years 1998 and 1997, respectively, representing a decrease of
approximately 13%. Government revenues remained unchanged at approximately $21.6
million. Commercial revenues during the first quarter of fiscal 1998 totaled
$13.7 million, a decrease of 29% from commercial revenues of $19.2 million
recorded during the first quarter of fiscal 1997. The decrease can be mainly
attributable to a decline in the Company's commercial manufacturing service
revenue. During the first quarter of fiscal 1998, revenues from commercial
contract manufacturing services totaled $4.2 million, down by $7.1 million from
$11.3 million recorded for the first quarter of fiscal 1997. Revenues from the
sale of commercial telecommunication chip and board level products totaled $3.8
million for the first quarter of fiscal 1998 compared to $4.0 million for the
first quarter of the previous fiscal year. Other commercial revenues increased
from $3.9 million in the first quarter of fiscal year 1997 to $5.7 million in
the first quarter of 1998.
Cost of Revenues. Cost of revenues were $26.4 million and $32.0 million for the
first quarter of fiscal 1998 and 1997, respectively, representing a 17.5%
decrease. This decrease is attributable to a lower revenue base experienced
during the first quarter of fiscal 1998 compared to the first quarter of the
previous fiscal year. The increase in gross profit percentage from 22% in the
first quarter of fiscal year 1997 to 25% in the first quarter of fiscal year
1998 can be attributable to a decrease in lower margin commercial electronic
contract manufacturing revenues and completion of higher margin fixed price
contracts.
Research and Development. During recent quarters, the Company has focused its
available research and development funds on the development of commercial
products. Research and development expenses, including bid and proposal expenses
were $3.0 million and $2.2 million during the first quarter of fiscal 1998 and
1997, respectively. Excluding bid and proposal expenses, the Company's research
and development expenses applied to the development of its products were $2.4
million and $1.8 million during the first quarter of fiscal 1998 and 1997,
respectively. Bid and proposal expenses are largely the initial advanced
technology development efforts directed toward a specific product or technical
task for which the Company must show technical viability. The Company expects
research and development expenses to increase in the future as it pursues
additional commercial activities.
Marketing and Administrative. Marketing and Administrative expenses were $4.3
million and $4.0 million for the first quarter of fiscal 1998 and 1997,
respectively. This increase is primarily a result of personnel additions to its
technical marketing staff and increased marketing expenses in pursuit of
commercial opportunities.
<PAGE>
Operating Income. Operating income was $1.6 million and $2.6 million for the
first quarter of fiscal 1998 and 1997, respectively. The decrease in operating
income during the first quarter of fiscal 1998 compared to first quarter of
fiscal 1997 was primarily attributable to an increase in research and
development expenses and marketing and administrative expenses.
Interest Income. Interest income for the first quarter of fiscal 1998 was $459
thousand versus $284 thousand for the first quarter of the previous fiscal year.
The increase in interest income is primarily a result of the Company increasing
its net cash provided by operating activities and investing that cash in
short-term investments.
Provision for Income Taxes. Provision for income taxes was $696 thousand and
$995 thousand for the first quarter of fiscal years 1998 and 1997, respectively.
This represents a provisional tax rate of 33.5% and 34.5% for the first quarter
of fiscal 1998 and 1997, respectively. The Company expects its provisional tax
rate to remain a 33.5% throughout fiscal 1998.
Bookings and Backlog
Funded bookings were $45.3 million and $41.2 million for the first quarter of
fiscal 1998 and 1997, respectively, representing an increase of 10%. The
increase in bookings has resulted in the Company's backlog increasing from $82.9
million at the end of the first quarter of fiscal 1997 to a record high $93.9
million at the end of the first quarter of fiscal 1998.
Liquidity and Capital Resources
Working capital increased from $59.0 million to $68.0 million at June 30, 1996
and 1997, respectively, and increased by $1.6 million from the end of fiscal
1997.
Net cash provided by operating activities for the quarter ended June 30, 1997
was $1.4 million. During the first quarter of fiscal 1998, the Company realized
net income of $1.4 million, increased its inventories by $1.3 million, decreased
its billed and unbilled receivables by $2.0 million and decreased its accounts
payable, advance payments and accrued expenses by $1.0 million. Net cash
provided by operating activities for the quarter ended June 30, 1996 was $4.9
million. During the first quarter of fiscal 1997, the Company realized net
income of $1.9 million, decreased its inventories by $2.5 million, increased its
billed and unbilled receivables by $3.8 million and increased its accounts
payable, advance payments and accrued expenses by $2.8 million.
The Company utilized its cash for the purchase of property and equipment
totaling $1.4 million and $1.3 million during the first quarter of fiscal 1998
and 1997, respectively. The Company has a bank credit commitment of $15.0
million which it can utilize to augment cash flow needs and to secure standby
letters of credit. Available borrowings under this line at June 30, 1997 were
$15.0 million. Under this line of credit the Company must maintain certain
financial covenants. The Company was in compliance with all covenants throughout
the first quarter of fiscal 1998. The credit agreement expires on December 5,
1997. At June 30, 1997, the Company's long-term obligations (including current
maturities) and other long-term liabilities totaled approximately $1.0 million.
At June 30, 1997, cash and cash equivalents of $5.8 million were held in money
market accounts, short term investments of $27.8 million were held in U.S.
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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 25, 1997 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. Val P. Peline
Leonard Schuchman
Dr. James J. Spilker, Jr.
Dr. C. J. Waylan
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
No current Reports on Form 8-K were filed with the Securities and Exchange
Commission during the period covered by this Form 10-Q.
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)
/s/ Jerome F. Klajbor
- --------------------------------------------
Jerome F. Klajbor
Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
July 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Appendix A to item 601(c) of Regulation S-X
Commercial and Industrial Companies
Article 5 of Regulation S-X
Three month period Ending June 30, 1997
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,827
<SECURITIES> 27,787
<RECEIVABLES> 43,633
<ALLOWANCES> 0
<INVENTORY> 7,196
<CURRENT-ASSETS> 89,195
<PP&E> 51,132
<DEPRECIATION> 36,929
<TOTAL-ASSETS> 103,689
<CURRENT-LIABILITIES> 21,153
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 81,391
<TOTAL-LIABILITY-AND-EQUITY> 103,689
<SALES> 35,331
<TOTAL-REVENUES> 35,331
<CGS> 26,430
<TOTAL-COSTS> 33,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,078
<INCOME-TAX> 696
<INCOME-CONTINUING> 1,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,382
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
