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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer
incorporation or organization) Identification No.)
1221 Crossman Avenue 94089
Sunnyvale, California (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code:
(408) 745-0818
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock
Common Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant: (l) 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
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[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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
amendments to this Form 10-K.
As of May 31, 1997, the aggregate market value of voting stock held by
non-affiliates of the registrant, based on the closing sale price of such stock
on the Nasdaq National Market, was $170,523,827. Shares of Common Stock held by
each officer, director and ten percent stockholder of the registrant, except for
Kopp Investment Advisors, Inc., have been excluded in that such persons may be
deemed to be affiliates. 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 on May 31,
1997 was 12,845,286.
Documents Incorporated by Reference
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended March 31, 1997 (the "Annual Report to Stockholders"), are incorporated by
reference in Parts II and IV of this Form 10-K. Portions of the definitive proxy
statement for the Annual Meeting of Stockholders to be held on June 25, 1997
(the "Proxy Statement"), are incorporated by reference in Part III of this Form
10-K.
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PART I
ITEM 1. BUSINESS
Stanford Telecommunications, Inc. ("Stanford Telecom" or the "Company")
designs, manufactures, and markets advanced digital telecommunications products
and systems to establish or enhance communications via satellites, terrestrial
wireless and cable. The Company also provides communication systems networking
solutions and GPS navigation products. Stanford Telecom's expertise encompasses
all the technologies required for these systems including radio frequency (RF),
spread spectrum, waveform, coding, modem, ASIC, software and system design. The
Company maintains a low cost commercial manufacturing capability and offers cost
effective engineering services.
The Company's principal base business areas and products include:
Advanced Communications for Government Agencies
Transportable Milstar Terminal
Tri-band Terminals
Communication Satellite Performance Monitoring
Air Traffic Control Systems Modernization
Commercial Telecommunications Chip and Board Level Products
Satellite Based Air Traffic Control System
Commercial Electronic Contract Manufacturing
The Company was incorporated in California in 1973 and reincorporated
in Delaware in 1988. The Company's fiscal year is composed of four 13-week
quarters, each of which ends on the Thursday closest to the corresponding
calendar quarter end. Fiscal year 1997 ended on March 27, 1997.
BASE BUSINESS DISCUSSION
Advanced Communications for Government Agencies
DSCS Operational Control System ("DOCS"). The Company developed,
installed and now assists in the operation of an extensive network of computers
and software which performs control and monitoring functions for the Defense
Satellite Communication System ("DSCS"). Control of the DSCS is complex due to
the different types of multiple access techniques used and the need to react
quickly to communications requirements and to hostile jamming actions. The task
of optimizing and controlling the many thousand of parameters in the DSCS
network is a sophisticated computational problem requiring both advanced
computers and extensive information processing. The DOCS is comprised of a
network management and control subsystems that are used as tools for managing
DSCS ground station and space communication payload assets. The DSCS must be
operated and maintained at peak efficiency and maximum availability as it is
often the only means of communication with deployed forces. In September 1992,
the Company was awarded a DOCS Support Services contract with four one-year
renewable options for an aggregate of $38 million for operations, hardware, and
software support. The Company completed the effort under this contract in
January 1997. The DOCS3 contract was awarded to Stanford Telecom in December
1996 by the U.S. Army Space Command. With the award of this contract, Stanford
Telecom will continue to provide on-site operations and maintenance support,
software support, integrated logistics support, training, and depot support
services at twelve worldwide sites. The contract consists of a one-year base and
four one-year options, with a total base value after exercise of all options of
approximately $43.9. Stanford Telecom has been the incumbent contractor for
these services since 1981. In addition to these basic support tasks, the
contract includes provisions which would allow the Government to increase the
existing scope of the contract by adding effort
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associated with system enhancements and system modifications, which may be
required to extend the system's life expectancy. Under a separate contract, the
Company is replacing existing Digital VAX equipment with newer minicomputers and
operating systems. The upgraded hardware and software is currently being
integrated at sixteen facilities worldwide in support of the DSCS Operational
Control System.
Replacement BATSON (RBATSON). During fiscal year 1997, the Company was
awarded the RBATSON contract with a total value including options of $13.0
million. The RBATSON provides protection for critical satellite commanding and
data transmission. The RBATSON system consists of a Key Generator/Data
Processing Assembly chassis, a Frequency Generator/Radio Frequency Transmission
chassis, and Maintenance Test Equipment and provides the capability for the
Satellite Configuration Control Element (SCCE) of the DOCS to interface with the
DSCS satellites. Deliveries will commence in fiscal 1999.
Replacement Satellite Configuration Control Element. The Company was
awarded a contract in fiscal year 1996 from the U.S. Army to provide the
configuration control element in support of network management for the U.S.
Government's DSCS. The total value including options is approximately $21.7
million. Under this contract, the Company will provide the software and hardware
necessary to fully configure, test, and deliver this element of the satellite
system. The base contract is expected to be completed during fiscal 1998.
Production options are expected to extend the contract's period of performance
through the year 2000 although there is no assurance that the Government will
exercise their options to procure additional production hardware.
Single Channel Transponder Injection Subsystem (SCTIS). The Company has
employed its spread spectrum technology in the design, production and
installation of high performance anti-jam uplink transmission systems for the
U.S. Air Force which protect emergency messages being sent through the DSCS
against jamming and interception. Since the program commenced in 1978, the
Company has delivered twelve SCTIS systems plus spare parts to the U.S. Air
Force. During fiscal 1996, the Company was awarded a contract to upgrade the
system to replace obsolete units and enhance performance. Development of this
upgrade is currently on-going. The Company is currently under contract to
deliver an Enhanced Link Simulator in support of SCTIS. Delivery of these units
is expected to be completed in fiscal 1998. The Company is currently under
contract to deliver twelve new systems in support of SCTIS along with spare
parts. Delivery of these units is expected to be completed in fiscal 1998.
Tracking and Data Relay Satellite Systems (TDRSS). The National
Aeronautics and Space Administration (NASA) Tracking and Data Relay Satellites
enable NASA to maintain global continuous communications with the space shuttle
and NASA satellites even when they are not in direct line-of-sight to tracking
stations in the continental United States. The Company has been supporting NASA
on the TDRSS Program since 1977. During fiscal year 1996, the Company was
awarded a follow-on contract consisting of a one year base plus two one year
options with a total value including options of $21 million. The Company has
several important roles in this billion dollar satellite system, including study
and system engineering support, a major long-term subcontract to support TDRSS
network control, prime contracts to develop and assess space/ground segment
architectures for upgrading the TDRSS system, and assisting NASA in the
deployment of a new TDRSS ground terminal in Guam. The Company has developed a
portable S-band, spread spectrum transmitter and companion receiver designed for
operation with TDRSS. The Company believes the market may be significant for
these products although revenues from these products have not been material to
date and there is no assurance that these products will gain market acceptance.
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Transportable Milstar Terminal and Other Milstar Activities
Milstar Satellite Communications. The Company has been involved since
1981 in development of the U.S. Government's Milstar satellite communications
program, designed to support stationary and mobile users in the joint military
services in the 1990's and beyond. In addition to performing system engineering
tasks, the Company has developed special test equipment in support of the
Milstar program, including a subcontract for the Milstar EHF Test System to test
the Milstar satellites in orbit. Presently, the Company is under contract to
upgrade its Milstar Test Terminals to support the Medium Data Rate communication
capabilities being added to the Milstar Block II satellites. During fiscal 1997
the Company invested in its development activities towards a proprietary
low-cost transportable Milstar terminal. The Company will continue to
demonstrate this new terminal to the Milstar communications satellite user
community. The Company has recently been selected by Lockheed-Martin Missiles &
Space (Sunnyvale, CA), prime contractor for the Milstar satellites, to provide
three of these transportable Milstar terminals for use on special on-orbit
satellite test operations. The Company believes that there may be a market for
this product although there is no assurance that the Company will realize sales
of its terminals or that the terminals will ever gain market acceptance.
Joint In-Theater Injection Terminal (JITI). During fiscal year 1996,
the Company received a subcontract to build a transportable Ku-band SATCOM RF
prototype system for use in the military's Global Broadcast Service. The
subcontract included design, integration, and production of the first JITI
terminal for use by the U.S. Army Space Command. The JITI provides a flexible
means of broadcasting video, audio, and data to Integrated Receiver Decoders
located within a theater of operations. The system throughput is approximately
24 Mbps, which provides the means to broadcast Unmanned Aerial Vehicle video,
Cable News Network, and programming from the Armed Forces Radio and Television
Network. The prototype unit was delivered, and was used to provide
large-bandwidth information sources in support of Operation Hope in Bosnia. The
Company believes that this program will lead to other related Ku-band terminal
programs, however, there is no assurances that the Company will realize any
other sales.
Tri-band Terminals
Defense Information Infrastructure Contingency Satellite Communications
Terminal (DSAT). During fiscal 1995, the Company received a contract from the
Defense Information Systems Agency (DISA) for tri-band transportable satellite
terminals. The DSAT terminals are valued in excess of $1 million each. The
Company commenced delivery of the first units in January 1995. These satellite
terminals are self-contained trailer-mounted with tri-band capability and can be
configured for military, domestic and international satellites operating in C, X
or Ku bands. The Company delivered seven DSAT systems through fiscal 1996 and
delivered the final two in fiscal 1997. The existing contract allows DISA to
exercise options for additional systems although their is no assurance that they
will do so. The Company plans to pursue additional transportable tri-band
satellite terminal opportunities for various agencies of the U.S. Government.
Communication Satellite Performance Monitoring
Communications Signal Monitoring. In April 1993, the Company was
awarded a $13 million multi-year contract to provide a signal monitoring system
for the world's largest communications satellite network, owned and operated by
Intelsat, an international consortium of over 100 nations. The contract required
the development, assembly, installation and test of multiple systems to be
deployed world-wide. During fiscal 1994 and 1995 the Company recognized losses
totaling $3.5 million against the completion of this contract. During fiscal
1996 the Company successfully delivered all systems required by the contract and
completed all necessary installations and tests. During early fiscal 1997, the
Company received final system acceptance from Intelsat. The Company currently
has a maintenance contract with Intelsat to
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support the monitoring systems. In addition, the Company offers its Transponder
Access Control System (TACS) to serve the needs of customers with smaller
communication satellite networks. Customers including the U.S. Government,
Martin Marietta, Hughes, Network Systems, British Telecom, GTE Spacenet and
Eutelsat have used TACS to monitor transponder performance including frequency
power, bandwidth, interference, and unauthorized use to ensure that the
satellite is functioning efficiently.
Air Traffic Control System Modernization
Since 1984, the Company has been supporting an FAA program to upgrade
and modernize the nation's air traffic control and air transport navigation
system. The Company's activities include air traffic control (ATC) automation
and communications system engineering and support to FAA special projects
activities such as the relocation of the Chicago O'Hare ATC Tower Complex. The
Company is also supporting the FAA in its acquisition of the new terminal area
ATC automation system. The above activities are being conducted under two
separate contracts: one to GSA/FEDSIM for communication system engineering and
one to DOT for transportation system engineering and R&D support.
Commercial Telecommunications Chip and Board Level Products
Commercial Telecommunications Chip and Board Level Products. The
Company designs, manufactures and markets a wide range of Application Specific
Integrated Circuits (ASIC) and board level assemblies for a variety of
commercial telecommunication applications. These products provide the digital
signal processing required to transmit and receive information. The Company
offers products for PSK (Phase Shift Key) modulation and demodulation, digital
down conversion, the reception and transmission of spread spectrum information,
forward error correction, adaptive equalization and direct digital frequency
synthesis. Key market areas addressed by the Company include:
- Cable/Internet Communications. Stanford Telecom has developed the
modulation/ demodulation technology required for the "upstream" (from the
subscriber set-top box to the cable "headend") transmission of data over
hybrid fiber/coax (HFC) networks. Products offered include the STEL-1109,
a single-chip complete BPSK/QPSK (Bi-Phase Shift Key/Quadra-Phase Shift
Key) modulator ASIC, specifically designed for the transmission of data
from the subscriber to the headend and the STEL-9257, a Burst Demodulator
board level assembly that provides demodulation of burst QPSK signals in
the upstream environment. The Company believes that a number of Internet
access product manufactures have incorporated Stanford Telecom's products
into systems which are currently in field trials at locations throughout
the United States. Although revenues from these products have not been
material to date, the Company believes that future revenues may be
significant if production orders are forthcoming.
- Very Small Aperture Terminal (VSAT) Receiver Assemblies. The Company
offers board level receiver assemblies for use in VSAT satellite systems.
These digital demodulator assembly products are used for rural telephony,
background music services and business data transmissions. The STEL-9236
product family and the recently introduced STEL-9258 Variable Bit Rate
product can provide signal timing recovery, demodulation, down
conversion, carrier tracking and forward error correction functions.
Since product introduction, the Company has received orders for
approximately 17,000 VSAT receiver assemblies.
- Catalog Products. The Company offers a wide range of ASIC and board level
products providing various digital communications functions such as ASICs
for spread spectrum wireless data links, a family of ASICs for forward
error correction in communication links,
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and a series of numerically controlled oscillators and direct digital
synthesizers for precise signal generation and control.
Satellite Based Air Traffic Control System
The Company was awarded a contract to support the FAA's implementation
of a Global Positioning System (GPS) Wide Area Augmentation System (WAAS). The
contract consists of a one-year base and two six-month options with a value
after exercise of all options of $23 million. The Company has been supporting
the WAAS Program since 1990. The FAA's WAAS Program is a central element of the
FAA's plans to move toward a satellite based ATC System. The WAAS, through
supplementing the GPS system, will enable this system to become a sole means
navigation source for en route and terminal area aviation navigation purposes.
This will greatly enhance aircraft navigation capability and allow the FAA to
provide a more cost effective navigation infrastructure for civil aviation in
the National Airspace System. The Company has performed a central role in the
development of the WAAS concept through support to concept definition,
prototyping and field testing. This contract will leverage the Company's
substantial in-house expertise in satellite navigation to the provision of
technical support services addressing communications, navigation, hardware,
software and test issues that surround development of the WAAS. The Company
believes that an international need exist for WAAS capabilities and it plans to
pursue such opportunities as they arise.
GPS Instrumentation. The Company provides standard off-the-shelf GPS
navigation instrumentation products and GPS simulators, which allow
laboratories, system integrators and manufactures of receivers to perform an
automated test of GPS equipment by simulating a wide range of vehicle motions
including aircraft flight, the motion of a ship or the route of a vehicle along
a road. Automated testing using GPS simulators avoids time consuming dynamic
testing on testbeds such as aircraft and ships. The Company believes that the
market for this type of specialized product is currently limited and future
revenues in this area are unlikely to be significant.
Commercial Electronic Contract Manufacturing
During fiscal 1993, the Company began to pursue opportunities in
commercial contract manufacturing. In addition to producing its own products,
the Company offers its contract manufacturing services to commercial customers.
Revenues for the Company's contract manufacturing business amounted to
approximately 20% of total revenues for fiscal 1996 and 1997, an increase from
approximately 10% of revenues for fiscal 1995. The Company's Sunnyvale,
California manufacturing facilities received ISO-9001 certification during
fiscal 1996. During fiscal 1997, approximately 16% of the Company's
manufacturing activities were associated with the Company's own products.
COMMERCIAL STRATEGIC PRODUCT DEVELOPMENT
Stanford Telecom has initiated a number of strategic product
developments and business arrangements, including those addressed below, to
address a growing worldwide market for digital telecommunication products and
services. Revenues from these initiates have not been significant to date and
there is no assurance that the Company will be successful in the development,
marketing, distribution and sales of these products; however the Company
believes that the market for these product and services is substantial.
Satellite Personal Communications. In recent years a number of
worldwide satellite-based cellular systems have been proposed, including
TRW/Teleglobe's Odyssey, Inmarsat's ICO, Motorola's Iridium and Loral/Qualcomm's
Globalstar. The Company has been carrying out research and development on the
medium altitude Odyssey system being proposed by
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TRW/Teleglobe. The Company hopes to play a key role in the ground station
terminals that interface with the public switch telephone network. The Company
expects Odyssey to use a Stanford Telecom proprietary version of the OCDMA
(Orthogonal Code Division Multiple Access) waveform in transmission of voice
communications. There has been no decision on whether Odyssey will proceed;
however a decision is expected this calendar year. The Company is also a member
of a team designing a high data rate satellite system for businesses and high
end consumers. The Company hopes to expand its role on this program, however, a
final decision has not been reached regarding the continuation of the program.
Wireless Broadband Communications (LMDS/MMDS). Wireless broadband
communications, also called Local Multipoint Distribution System (LMDS),
Multichannel/Multipoint Distribution System (MMDS) or "wireless cable", is a new
technique for two-way transmission of high speed digital data using terrestrial
microwave links to homes and offices. The MMDS Systems operate at the 2.5 GHz
frequency spectrum. Stanford Telecom and Hewlett Packard have signed a
memorandum of understanding to develop a complete LMDS system. These systems
operate in the 28-29 GHz microwave frequency spectrum. The Company has begun to
conduct MMDS/LMDS technology demonstrations and continued to develop the
capabilities of its system throughout fiscal 1997. There is growing
international interest in this technology, however, it is unlikely that a
sizable domestic market will develop for the LMDS system until after the FCC
completes the auction for utilization of the frequency spectrum and the system
has been adequately field demonstrated to potential customers. The Company
believes that the potential for significant bookings may be realized in late
fiscal 1998.
Cable/Internet Communications. One of the major new cable markets that
can be addressed by the CATV service provider is that of high-speed two-way
Internet and worldwide Web access. The full potential of the Internet can be
realized when high-resolution images can be quickly transmitted to the user. The
use of cable for this application offers the potential to increase the rate of
transmission by a factor of approximately 1,000 over typical telephone modem
access. In order to realize these increased transmission speeds, the cable
system needs to be augmented with both upstream and high speed downstream links.
Stanford Telecom has developed and currently offers for sale products which
address both upstream and downstream links. The Company plans to develop and
offer next generation products to provide improved performance at lower cost.
The Company believes it is in a good position to receive initial production
orders during fiscal 1998.
OTHER BUSINESS
Manufacturing
Stanford Telecom's products are generally manufactured from standard
components, its proprietary ASICs and other components or subsystems produced to
the Company's specifications. Most of the Company's current products contain
microprocessors for which proprietary software is designed and tested by the
Company's engineers. The Company does not have a semiconductor foundry or
fabrication facility. For the production of ASICs, the Company contracts with
companies that have foundry capability including Zilog, American Microsystems
Inc., Lucent Technologies, and LSI.
In many cases only a single source is available for specific
components, and thus there is a risk of delay in delivering finished systems
within contractual schedules. The Company attempts to minimize this risk by
securing second sources, finding alternate technologies to perform the same
function and maintaining adequate inventories of single source components. To
date the Company has experienced no material adverse impact due to component
unavailability, product returns or contract renegotiations. Many of the
Company's products are covered by a 90-day to one-year warranty under which the
Company will repair or replace defective parts. To date, warranty expense has
not been significant.
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Marketing and Customers.
The Company markets its products and services to agencies of the U.S.
Government, prime contractors to these agencies and an increasing number of
commercial customers. The Company's marketing is conducted by its management and
technical staff, and in the case of its commercial business, domestic and
international sales representatives are also utilized. The Company's marketing
efforts for its government business consist of responding to requests for
proposals and solicitations for bids from U.S. Government agencies or prime
contractors to these agencies and direct marketing of its off-the-shelf,
standardized products. The Company markets its ASICs and commercial products
primarily through its direct sales personnel consisting of 9 full-time
employees, 22 independent sales representative locations covering the U.S. and
Canada and 26 other independent sales representative offices covering other
international territories. The Company also places advertisements for commercial
products, particularly its ASIC products, in a number of trade magazines and
participates in trade shows and industry symposiums.
During fiscal 1997, 1996 and 1995 approximately 59%, 54% and 69%,
respectively, of the Company's revenues were attributable to contracts with
numerous agencies of the U.S. Government. No single contract accounted for more
than 10% of revenues during fiscal 1997, 1996 or 1995. Some of the Company's
U.S. Government sales are made under letter contracts in which the final
contract price is agreed upon after work has begun. To date, the Company has had
a small amount of revenue from international customers. Such sales are often
subject to U.S. State Department approval and export license requirements.
Competition.
Competition is intense among providers of digital telecommunications
equipment, products and services. In the Company's government business,
competitors include major defense contractors, telecommunications equipment and
electronics firms, and systems integrators, most of which have significantly
greater financial, marketing and operating resources than the Company, as well
as broader product lines and technological capabilities. As a result of reduced
defense spending by the U.S. and other governments, competition has become more
intense in the Company's government business. Although no single competitor
competes with the Company in all of its product lines, a number of competitors
such as Harris Corporation, Loral-Space, Lockheed-Martin, TRW, BDM, CSC, Texas
Instruments, Hitachi, and Rockwell International compete with the Company in
various market segments. Certain of the Company's customers have technological
capabilities in the Company's product areas and could choose to develop and
manufacture certain products themselves rather than purchase from suppliers such
as the Company. As the Company continues to transition to more commercial
business, it expects to face new and increasing competition with respect to its
commercially oriented products and services. The Company believes that, in its
highly specialized technical environment, price, performance, reputation,
reliability, on-time delivery and customer support are the primary competitive
factors among companies having similar technical capabilities.
Backlog and Bookings.
Funded backlog includes: (i) projects and orders covered by signed
contracts for which the government has specifically allocated funding; and (ii)
purchase orders from commercial customers. The Company's backlog is largely
attributable to agencies of the U.S. Government. In the case of certain
long-term contract awards, the U.S. Government typically makes the funds
available over the life of the contract as opposed to the time of the contract
award. In such cases the Company reports as funded bookings only the amount of
the funds specifically allocated and the resultant backlog as funded backlog.
The Company does not include unexercised options in backlog. The Company's
funded bookings for fiscal 1997 and 1996 were $168.5 million and $155.0 million,
respectively, and the Company's backlog at the end of fiscal 1997 and 1996 was
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$83.9 million and $82.4 million, respectively. At March 31, 1997 backlog from
the Company's government and commercial businesses were approximately $51.9
million and $31.9 million, respectively. There is no assurance that funded
backlog will be completed and booked as revenue. The Company's contracts
typically contain contingency provisions permitting termination by the customer
at any time. Cancellation of pending contracts or termination or reductions of
contracts in progress may have a material adverse effect on the Company's
results of operations.
Research and Development.
The telecommunications industry is characterized by rapid technological
change, requiring a continuous effort to enhance existing products and develop
new products. The Company believes that its continued success depends in large
part on its ability to develop new and enhanced digital telecommunications
products. The Company conducts extensive research, development and engineering
activities with the objective of developing products and systems that provide
for cost-effective, high-quality satellite communications and digital wireless
telecommunications. Since its inception, the Company has developed a number of
innovative and proprietary digital telecommunications technologies through a
combination of customer and internally funded research and development. A
significant portion of these expenditures include bid and proposal expenditures
which are largely the initial advanced technology development efforts directed
toward a specific product or technical task for which the Company must show
technical viability. Company-funded expenditures for research and development
including bid and proposal activities for fiscal 1997, 1996, and 1995 were
approximately $11.9 million, $8.4 million and $7.7 million, respectively, which
represented 7.1%, 5.8%, and 6.8% of total revenues, respectively.
The Company's revenues have historically been derived primarily from
performing contract research and development and engaging in limited production
contracts with agencies of the U.S. Government and their prime contractors. As a
result, a substantial portion of the digital telecommunications 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 "Costs
of Revenues" in the Company's financial statements. The Company is continually
seeking to develop new products for commercial applications to leverage its
leading digital telecommunications technologies that have been funded through
many military and government research and development contracts since the early
1970's.
Employees.
As of March 31, 1997, the Company employed 951 full-time and 16
part-time employees and 20 professional consultants. Of the full-time employees,
472 are in technical operations, 181 in manufacturing operations, 122 in
management, 90 professional non technical, and 86 in support positions. The
majority of the Company's employees are highly skilled technical personnel.
Several are nationally known leaders in the field of digital telecommunications.
Over 560 employees hold advanced degrees, including approximately 35 with
doctoral degrees. None of the employees are represented by a labor union and the
Company has never had a work stoppage. The Company believes its employee
relations to be excellent. Due to the nature of the Company's business, a large
number of its technical employees must obtain security clearances from the U.S.
Government, which limits the available pool of eligible candidates for such
positions to those who can satisfy prerequisites for such clearances.
Patents and Proprietary Rights.
The success of the Company's business depends in part upon its ability
to protect trade secrets, obtain or license patents and operate without
infringing on the rights of others. Although the Company has obtained patents
covering certain of its technologies, it believes that the
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ownership of patents has not generally been a significant factor in its
government business and that its success depends primarily on innovative skills,
technical competence, and the marketing and managerial abilities of its
personnel. The Company relies on a combination of trade secrets, copyrights,
patents, nondisclosure agreements and technical measures to protect its
proprietary rights in its products and technology. Such protection may not
preclude competitors from developing products with features similar to the
Company's products. The Company believes that patents will play an increasingly
important role in its commercial business and during the past two years the
Company has received or filed for approximately 60 patents with the U.S. Patent
and Trademark Office. The Company expects it will continue to aggressively
pursue additional patents to protect its intellectual property. The Company
requires its employees to execute proprietary rights and nondisclosure
agreements and to maintain the confidentiality of the Company's proprietary
information.
Government Regulation.
The Company's operations are subject to compliance with regulatory
requirements of federal, state and local authorities, including regulations
concerning employment obligations and affirmative action, workplace safety and
protection of the environment. In addition, many of the Company's products and
proposed products are or will be subject to various regulations including
regulations promulgated by the Federal Communications Commission, the FAA and
the DoD. While compliance with applicable regulations has not adversely affected
the Company's operations in the past, there can be no assurance that the Company
will continue to be in compliance in the future or that these regulations will
not change.
In addition, the Company must comply with detailed government
procurement and contracting regulations and with U.S. Government security
regulations, including those necessary to maintain required facility clearances.
Certain of these regulations carry substantial penalty provisions for
nonperformance or misrepresentation in the course of negotiations. Failure of
the Company to comply with its government procurement, contracting or security
obligations could result in penalties or suspension of the Company from
government contracting, which would have a material adverse effect on the
Company's results of operations.
The Company is required to maintain a U.S. Government facility
clearance at most of its locations. This clearance could be suspended or revoked
if the Company is found not to be in compliance with applicable security
regulations. Any such revocation or suspension would delay the Company's
delivery of its products to customers. Although the Company has adopted policies
designed to assure its compliance with applicable regulations and there have
been no suspensions or revocations of any of its facilities, there can be no
assurance that the approved status of the Company's facilities will continue
without interruption.
Forward Looking and 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,
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
-9-
<PAGE>
that certain events or circumstances could cause actual results to differ
materially from those projected or predicted. In addition, forward-looking
statements are based on management's knowledge and judgment as of the date such
statements are made, and the Company does not intend to update any
forward-looking statements to reflect events occurring or circumstances existing
thereafter.
In particular, the Company believes that the following factors could
impact forward-looking statements made herein or in other 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 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.
-10-
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters and principal engineering and manufacturing
facilities are currently located in four adjacent buildings in Sunnyvale,
California where it leases approximately 172,000 square feet. The Company's
Sunnyvale facility leases will expire in the year 2000. The leases contain
options for renewal under terms and conditions to be negotiated at the time of
expiration. The Company also leases approximately 84,000, 46,400, 30,900,
15,300, 11,300, and 8,000 square feet of office space in Reston, Virginia,
Colorado Springs, Colorado, Annapolis Junction, Maryland, Lowell, Massachusetts,
Seabrook, Maryland, and Tinton Falls, New Jersey, respectively, which space is
used primarily for the performance of study, system engineering and hardware
contracts. The Reston facility leases expire in 1998 through 2001. The Colorado
Springs, Annapolis Junction, Lowell, Seabrook and Tinton Falls leases expire in
2002, 2003, 2001, 1997 and 2002, respectively. The Company believes its current
facilities are suitable and adequate for the Company's operations over the next
fiscal year.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of current litigation will
not have a material adverse effect on its financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
CORPORATE OFFICERS OF THE COMPANY
Set forth below are the names and ages of the executive officers of the
Company, their principal occupations at present and for the past five years,
certain directorships held by each, and the term of office with the Company.
Dr. James J. Spilker, Jr. (age 63), a founder of the Company, has been Chairman
of the Board since 1983. He served as President and Chief Executive Officer of
the Company from August 1981 to June 1995. Since June 1995, Dr. Spilker also has
been serving as Principal Scientist for the Company.
Dr. Val P. Peline (age 66) was elected as a Director of the Company in October
1985. Dr. Peline joined the Company as its President and Chief Executive Officer
effective June 5, 1995. Dr. Peline served as President of the Electronic Systems
Group, a division of Lockheed Corp., from 1987 until he retired from such
position in March 1995. Dr. Peline had been President of the Lockheed Space
Division from 1984 to March 1987.
Mr. Leonard Schuchman (age 60) was elected as a Director of the Company in April
1985. Mr. Schuchman joined the Company in January 1976 and became Vice President
in February 1977. He is responsible for directing the Company's Communications
and Navigation Systems Operation.
Mr. Ernest L. Dickens, Jr. (age 50) joined the Company in October 1981. From
April 1990 to October 1995 he directed the Company's Government Systems Services
operation. Mr. Dickens was elected Vice President in November 1995 and currently
directs the Company's Satcom Ground Systems operation.
-11-
<PAGE>
Mr. Bronic C. Knarr (age 51) joined the Company in November 1988. From November
1988 to April 1992 Mr. Knarr held various management positions at the Company in
support of key programs. From April 1992 to September 1995 Mr. Knarr directed
the Company's Satellite Communications operations. In September 1995 Mr. Knarr
was appointed director of the Company's Manufacturing and Quality Assurance
operation and was elected Vice President in November 1995.
Dr. John E. Ohlson (age 57) joined the Company in March 1981 as Director of
Telecommunications Programs Operations and became Vice President in January
1982. In February 1991 he was named Director of Military Ground Terminals. Dr.
Ohlson directed the Satellite Communications Group from June 1992 to November
1994. Dr. Ohlson was named as the Company's Chief Technical Officer in November
1994 and currently directs the Company's Satellite Personal Communications
Operation.
Mr. Gary S. Wolf (age 46) joined the Company in May 1978 and was elected Vice
President, Chief Financial Officer, Secretary and Treasurer in December 1984. In
January 1997 he was promoted to Executive Vice President.
Mr. Jerome F. Klajbor (age 41) joined the Company in February 1989. Mr. Klajbor
served as a Contracts Manager for the Company from 1989 to 1991. From 1991 to
1996, Mr. Klajbor served as Director and subsequently Vice President of
Administration and Finance for the Company's Communication Navigation Systems.
He was elected Vice President and Chief Financial Officer in January 1997.
PART II
ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Incorporated by reference from page 28 of the Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from page 28 of the Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated by reference from pages 15 through 18 of the Annual Report to
Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of Stanford Telecommunications, Inc. as of March
31, 1997 and March 31, 1996 and for each of the three years in the period ended
March 31, 1997 and the report of independent public accountants thereon are
incorporated by reference from pages 19 through 27 of the Annual Report to
Stockholders. See Part IV, Item 14(a).
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
-12-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of
Directors-Information with Respect to Nominees and Directors" beginning on page
2 of the Company's Proxy Statement is incorporated herein by reference and made
a part hereof in response to the information required by this item. In addition,
certain information pertaining to executive officers of the Company is set forth
on pages 11-12 hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation"
beginning on page 5 of the Company's Proxy Statement is incorporated herein by
reference and made a part hereof in response to the information required by this
item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Stock Ownership" beginning
on page 12 of the Company's Proxy Statement is incorporated herein by reference
and made a part hereof in response to the information required by this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following report, financial statements and other information are
incorporated by reference from the Annual Report to stockholders and form a part
of this report:
Reference Page
--------------
1997
Annual
Report Form 10-K
------- ---------
1. Financial Statements.
Report of Independent Public
Accountants 19
Statements of income for each
of the three years in the period
ended March 31, 1997 19
Balance sheets at March 31, 1997 and
March 31, 1996 20
Statements of shareholders' equity for
each of the three years in the period
ended March 31, 1997 21
-13-
<PAGE>
Reference Page
--------------
1997
Annual
Report Form 10-K
-------- ---------
Statements of cash flow for each of
the three years in the period ended
March 31, 1997 22
Notes to financial statements 23
2. Financial Statement Schedules
Report of Independent Public Accountants on Schedules 18
Schedule II - Valuation and Qualifying Accounts 19
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
With the exception of such information in the Annual Report to
Stockholders incorporated herein by reference, the Annual Report to Stockholders
is not deemed "filed" as part of this report.
3. Exhibits.
Exhibit Number Description
- ------------- ------------
3.1(2) Certificate of Incorporation, as amended.
3.2(2) Bylaws, as amended.
4.1(6) Rights Agreement dated as of May 9, 1995 between the Company and The
First National Bank of Boston.
4.2 Agreement re. Rights of Holders of Long-Term Debt.
10.1(5) Consolidated, Amended and Restated Deed of Lease for the premises
located at 1761 Business Center Drive, Reston, Virginia dated
October 1, 1993 between the Company and the Variable Annuity Life
Insurance Company.
10.2(1)* 1982 Stock Option Plan, as amended, and form of Agreements.
10.3(3)* 1992 Employee Stock Purchase Plan.
10.4(4) Lease dated November 19, 1992 for 480 Java Drive, Sunnyvale,
California, 440 Moffett Park Drive, Sunnyvale, California, and 1221
Crossman Avenue, Sunnyvale, California.
10.5(5) Office Lease Agreement for 141 National Business Parkway, Annapolis
Junction, Maryland dated March 1, 1993 between the Company and
Constellation Real Estate, Inc.
10.6*(8) 1991 Stock Option Plan and form of Agreements.
10.7*(8) Management Incentive Plan.
10.8(8) Credit Agreement dated December 5, 1996 between the Company and
Bank of America National Trust and Savings Association (the "Credit
Agreement").
-14-
<PAGE>
10.9 First Amendment to the "Credit Agreement" dated December 5, 1996.
13.1(7) Annual Report to Stockholders for the fiscal year ended March 31,
1997.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
24.1 Power of Attorney (included on the signature pages hereof).
27.1 Financial Data Schedule
- ---------------------------
*Compensatory Plan
(1) Incorporated by reference from the Company's Annual Report on Form l0-K
for the fiscal year ended March 31, 1987.
(2) Incorporated by reference from the Company's Annual Report on Form l0-K
for the fiscal year ended March 31, 1989.
(3) Incorporated by reference from the Company's Annual Report on Form l0-K
for the fiscal year ended March 31, 1992.
(4) Incorporated by reference from the Company's Annual Report on Form l0-K
for the fiscal year ended March 31, 1993.
(5) Incorporated by reference from the Company's Registration Statement on
Form S-1, No. 33-72720.
(6) Incorporated by reference from the Company's Registration Statement on
Form 8-A, dated May 24, 1995.
(7) Only those portions of the Annual Report to Stockholders that are
specifically incorporated by reference in this form 10-K are included in
this exhibit.
(8) Incorporated by reference from the Company's Annual Report on Form 10K for
the fiscal year ended March 31, 1996.
Reports of Form 8-K
No current Reports on Form 8-K were filed by the Company with the Securities and
Exchange Commission during the last quarter of the period covered by this Form
10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
STANFORD TELECOMMUNICATIONS, INC.
Dated: June 23, 1997 /s/ James J. Spilker, Jr.
---------------------------------------
James J. Spilker, Jr.
Chairman of the Board
-15-
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James J. Spilker, Jr. and Jerome F.
Klajbor and both of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Form 10-K and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- -----
/s/ James J. Spilker, Jr. Chairman of the Board June 17, 1997
- ---------------------------
James J. Spilker, Jr.
/s/ Val P. Peline President (Principal Executive June 17, 1997
- --------------------------- Officer) and Director
Val P. Peline
/s/ Jerome F. Klajbor Vice President and Secretary, June 19, 1997
- --------------------------- (Principal Financial
Jerome F. Klajbor and Accounting Officer)
/s/ Michael Berberian Director June 18, 1997
- ---------------------------
Michael Berberian
/s/ John W. Brownie Director June 18, 1997
- -----------------------
John W. Brownie
/s/ P. Marshall Fitzgerald Director June 19, 1997
- --------------------------
P. Marshall Fitzgerald
-16-
<PAGE>
/s/ Milton W. Holcombe Director June 18, 1997
- -----------------------
Milton W. Holcombe
/s/ Leonard Schuchman Vice President and Director June 18, 1997
- -----------------------
Leonard Schuchman
/s/ C. J. Waylan Director June 19, 1997
- -----------------------
C. J. Waylan
-17-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To Stanford Telecommunications, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Stanford Telecommunications, Inc.'s annual
report to stockholders incorporated by reference in this Form l0-K, and have
issued our report thereon dated April 22, 1997. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed at Item 14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
April 22, 1997
-18-
<PAGE>
SCHEDULE II
STANFORD TELECOMMUNICATIONS, INC.
Valuation and Qualifying Accounts
Three years ended March 31, 1997
(In Thousands)
Allowance for doubtful accounts
Bal. at Beg. Charged to Bad Debts Bal. at End
Year of Period Expense Written Off of Period
---- --------- ---------- ----------- -----------
1995 $243 $541 $(134) $ 650
1996 $650 $468 $(198) $ 920
1997 $920 $135 $ (32) $1,023
-19-
EXHIBIT NUMBER 4.2
AGREEMENT RE. RIGHTS OF HOLDERS OF LONG-TERM DEBT
The Company hereby agrees to furnish to the Securities and Exchange Commission,
upon request, a copy of the instruments which define the rights of holders of
long-term debt of the Company. None of such instruments not included as exhibits
herein represents long-term debt in excess of 10% of the total assets of the
Company.
EXHIBIT NUMBER 10.9
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(MULTICURRENCY)
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(MULTICURRENCY) (the "Amendment"), dated as of December 5, 1996 is entered into
by and between STANFORD TELECOMMUNICATIONS, INC. (the "Borrower") and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank").
RECITALS
A. The Borrower and the Bank are parties to an Amended and Restated
Credit Agreement (Multicurrency) dated as of December 5, 1996 (the "Credit
Agreement") pursuant to which the Bank has extended certain credit facilities to
the Borrower.
B. The Borrower has requested that the Bank agree to certain amendments
of the Credit Agreement.
C. The Bank is willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendments to Credit Agreement.
(a) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Availability Period" by amending and restating such defined term
as follows:
"'Availability Period': the period commencing on the date of this
Agreement and ending on the date that is the earlier to occur of (a) December
18, 1997, and (b) the date on which the Bank's commitment to extend credit
hereunder terminates."
(b) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Final Maturity Date" by amending and restating such defined term
as follows:
"'Final Maturity Date': (a) in respect of any Advances, December 18,
1997; (b) in respect of any commercial letters of credit, June 18,
1998; (c) in respect of any standby letters of credit, December 18,
1998; (d) in respect of any Bank Guaranties, December 18, 1998; and
(e) in respect of any acceptances, June 18, 1998."
(c) Section 7.13 of the Credit Agreement shall be amended and
restated in its entirety so as to read as follows:
"7.13 Tangible Net Worth. The Borrower shall not permit its Tangible
Net Worth on a consolidated basis at any time to be less than $70,000,000 plus
75% of the Borrower's consolidated net income (but not less any net losses for
any period) earned in each fiscal quarter
<PAGE>
commencing after September 30, 1996 plus the value of all Net Issuance Proceeds
(whether in cash, other property or in kind) of equity securities issued by the
Borrower from and after September 30, 1996. For purposes of this Section and
Section 7.14, "Tangible Net Worth" means, as of any date of determination, (i)
total assets (exclusive of goodwill, patents, trademarks, trade names,
organization expense, treasury shares, unamortized debt discount and premium,
deferred charges and other like intangibles) less (ii) all reserves applicable
thereto and all liabilities (including accrued and deferred income taxes and
subordinated liabilities). For purposes of this Section, "Net Issuance Proceeds"
means, in respect of any issuance of common or preferred equity, proceeds
(whether in cash, other property, or in kind) received in connection therewith,
net of out-of-pocket costs and expenses paid or incurred in connection therewith
in favor of any person not an affiliate of the Borrower and not to exceed 5% of
the gross proceeds thereof."
(d) Schedule 2 to Exhibit A of the Credit Agreement shall be
amended and restated in its entirety so as to read as set forth in Schedule 2
attached hereto.
3. Representations and Warranties. The Borrower hereby represents and
warrants to the Bank as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any person (including any governmental authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Borrower,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Borrower contained in
the Credit Agreement are true and correct.
(d) The Borrower is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Bank or any
other person.
4. Effective Date. The amendments set forth in Sections 2(a) and 2(b)
hereof will become effective as of December 19, 1996, and the amendments set
forth in Sections 2(c) and 2(d) hereof will become effective as of the date
first above written, provided that each of the following conditions precedent
has been satisfied:
(a) The Bank has received from the Borrower a duly executed original
of this Amendment.
(b) The Bank has received from the Borrower a copy of a
resolution passed by the board of directors of such corporation, certified by
the Secretary or an Assistant Secretary of such corporation as being in full
force and effect on the date hereof, authorizing the execution, delivery and
performance of this Amendment.
5. Reservation of Rights. The Borrower acknowledges and agrees that the
execution and delivery by the Bank of this Amendment shall not be deemed to
create a course of dealing or otherwise obligate the Bank to forbear or execute
similar amendments under the same or similar circumstances in the future.
<PAGE>
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Bank of a
facsimile transmitted document purportedly bearing the signature of the Borrower
shall bind the Borrower with the same force and effect as the delivery of a hard
copy original. Any failure by the Bank to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document which hard copy
page was not received by the Bank.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior drafts
and communications with respect thereto. This Amendment may not be amended or
modified except in writing executed by both of the parties hereto.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) Borrower covenants to pay to or reimburse the Bank, upon demand,
for all costs and expenses (including allocated costs of in-house counsel)
incurred in connection with the development, preparation, negotiation, execution
and delivery of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
STANFORD TELECOMMUNICATIONS, INC.
By: /s/ Gary Wolf
------------------------------------
Name:
Title: Vice President & CEO
By: /s/ Chris Smallman
------------------------------------
Name:
Title: Corporate Controller
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Debra G. Staiger
------------------------------------
Name:
Title: Vice President
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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 year 1989 to approximately 41% of total
revenues in fiscal year 1997. During fiscal year 1997, commercial revenues which
amounted to approximately $68 million included: (i) contract manufacturing
revenues from the Company's electronics assembly business ($34 million); (ii)
sales of ASICs, circuit boards and subsystems to the telecommunications industry
($17 million); and (iii) other commercial systems and product business ($17
million). Over the last two fiscal years, the Company has focused on investing
its own funds in certain strategic commercial initiatives, rather than paid
development. During fiscal year 1997 approximately 75%, or $9 million of the
Company's IR&D was invested in these strategic commercial initiatives. The
Company anticipates that these commercial products will produce revenues during
the next fiscal year. The Company includes in commercial revenues sales of
standardized or off-the-shelf products such as the GPS simulators and other
communications related products 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 year 1995 was adversely
affected due to losses on a number of fixed-price development contracts. The
Company has instituted additional management controls to more closely monitor
its bidding process and costs
<PAGE>
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.
Results of Operations
The following tables set forth, for the periods indicated, certain items from
the Company's Statements of Income expressed as a percentage of the Company's
total revenues:
Year Ended March 31
-------------------
1995 1996 1997
---- ----- ----
Revenues 100.0% 100.0% 100.0%
Cost of revenues 83.6 80.0 76.3
---- ---- ----
Gross profit 16.4 20.0 23.7
---- ---- ----
Research and development 6.8 5.8 7.1
Marketing and administrative 8.2 8.4 10.1
--- --- ----
Total expenses 15.0 14.2 17.2
Operating income 1.4 5.8 6.5
Interest income, net 0.6 0.6 0.8
Arbitration settlement charge (1.8) - -
----- ----- -----
Income before provision for income taxes 0.2 6.4 7.3
Provision for income taxes (0.1) (2.1) (2.5)
----- ----- -----
Net income 0.1% 4.3% 4.8%
---- ---- ----
<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.
For further information on the foregoing, reference is made to the Company's
Securities and Exchange Commission reports including its recent reports on Forms
10-Q and 10-K.
Comparison of Fiscal Years 1995, 1996 and 1997
Revenues. Revenues were $114.4 million, $145.1 million and $167.0 million in
fiscal year 1995, 1996, and 1997, respectively, representing year-to-year
increases of 27% in fiscal year 1996 and 15% in fiscal year 1997. The increase
in revenues from fiscal year 1995 to fiscal year 1996 was attributable to
increases in the Company's commercial operations, including its commercial
telecommunication products and services and its commercial manufacturing
services as well as increases in its government business sector. Revenues
generated by its government business sector increased from approximately $79
million in fiscal year 1995 and 1996 to $98.5 million in fiscal year 1997.
Revenues generated from commercial products and services were $35.4 million,
$66.2 million, and $68.5 million in fiscal year 1995, 1996 and 1997,
respectively. The increase in commercial revenues in fiscal year 1996 is
significantly attributable to two commercial development programs. Contract
manufacturing services significantly accounted for the increase in commercial
revenues in fiscal year 1997.
<PAGE>
Although the Company experienced an increase in its government business revenues
during fiscal year 1997, the Company expects that budgetary pressures will
continue to affect Department of Defense, FAA and NASA budgets. The Company
anticipates that its revenues from these government customers may remain flat
and could decline in future periods. All contracts with the government are
cancelable at any time for the convenience of the government. The Company is not
aware of the cancellation or proposed cancellation of any of its current
contracts. The Company plans to continue to selectively pursue government
business where it has a competitive advantage, can be the sole provider or can
be a prime contractor rather than a subcontractor.
The Company's commercial business represented approximately 31% in fiscal year
1995, 46% in fiscal year 1996, and 41% in fiscal year 1997. Although there was
an overall increase in commercial revenues during fiscal 1997, the percentage of
revenue decreased as a result of the revenue growth in the Company's government
sector business. The Company is currently pursuing commercial opportunities in
satellite, wireless and cable communication products. The Company expects that
the percentage of its overall business represented by commercial sales will
increase if it successfully develops, markets and sells those products currently
under development.
Cost of Revenues. Cost of revenues were $95.7 million, $116.0 million and $127.4
million in fiscal year 1995, 1996 and 1997, respectively, representing 83.6%,
80.0% and 76.3% of revenues in fiscal year 1995, 1996 and 1997, respectively.
For fiscal year 1995, the Company announced a reserve of $2.8 million against
the completion of a development contract with Intelsat and incurred losses on
several other development contracts totaling $1.4 million. The decrease in cost
of revenues as a percentage of revenues in fiscal year 1996 relative to fiscal
year 1995 is attributable primarily to the avoidance of material cost overruns
on its contracts and increased margins on its commercial catalog products.
During fiscal year 1996 the Company recognized revenues on the Intelsat contract
and a U.S. Army satellite terminal contract totaling $16.2 million in which the
cost of revenues approximated the revenues recognized. The decrease in cost of
revenues as a percentage of revenues in fiscal year 1997 relative to 1996 can be
attributable to a profitable completion of the final phases of certain
commercial development programs and increased margins on both commercial and
Government contracts. In fiscal year 1995, 1996 and 1997, the Company
experienced losses totaling $4.2million, $.2 million and $.9 million,
respectively on a number of fixed-price development contracts.
Gross Profit. Gross profit was $18.7 million, $29.1 million, and $39.6 million
in fiscal year 1995, 1996 and 1997, respectively. Gross profit increased during
fiscal year 1996 and 1997 as a percentage of revenues relative to fiscal year
1995 and 1996, respectively, as the Company experienced operational efficiencies
as a result of its expanding business base, and increased margins on its
Government sales, commercial catalog products and certain commercial programs.
<PAGE>
Research and Development. The Company's research and development expenses
include bid and proposal expenses associated with government contracts and
certain large commercial programs. Bid and proposal expenditures are largely the
initial advanced technology development efforts directed toward a specific
product or technical task for which the Company must show technical viability.
Bid and proposal expenses have decreased since fiscal year 1995 as 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 $7.7 million, $8.4 million and $11.9 million in fiscal
year 1995, 1996 and 1997, respectively. Excluding bid and proposal expenses, the
Company's research and development expenses applied to the development of its
products were $4.4 million, $5.7 million and $9.5 million in fiscal year 1995,
1996 and 1997 respectively. The Company expects research and development
expenses in fiscal year 1998 to be approximately the same percentage of revenues
experienced in fiscal year 1997.
Marketing and Administrative. Marketing and administrative expenses were $9.4
million, $12.2 million and $16.8 million in fiscal year 1995, 1996, and 1997,
respectively, representing year-to-year increases of 30% in fiscal year 1996,
and 37% in fiscal year 1997. These increases were primarily a result of hiring
additional technical marketing personnel and increased marketing expenses in
pursuit of commercial opportunities. In addition, the Company has expanded its
patent activities and has experienced increased legal costs associated with the
prosecution of its patent activities.
Operating Income. Operating income was $1.6 million, $8.4 million and $10.9
million for fiscal year 1995, 1996 and 1997, respectively, an increase of 425%
in fiscal year 1996, and an increase of 29% in fiscal year 1997. The increase in
fiscal year 1996 and 1997 was primarily attributable to operational efficiencies
experienced as the Company expanded its business base, the avoidance of material
cost overruns on its contracts and increased margins on its commercial catalog
products. The Company has entered into and may continue to enter into certain
fixed-price development contracts which it believes are essential to maintain
and strengthen its competitive market position.
Interest Income, Net. Interest income, net was $.7 million, $.8 million, and
$1.3 million in fiscal year 1995, 1996 and 1997, respectively. During fiscal
year 1997 the Company increased the amount of cash available for investment by
generating positive cash from its operations which it invested in interest
bearing short-term investments.
Arbitration Settlement Expenses. During the third quarter of fiscal year 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 $.5 million were recognized.
<PAGE>
Provision for Income Taxes. Provision for income taxes was $.1 million, $3.1
million and $4.2 million in fiscal year 1995, 1996 and 1997, respectively. This
represents an effective tax rate of 35.0% for fiscal year 1995, 33.5% tax rate
for fiscal year 1996, and 34.5% for fiscal year 1997. The decrease in the
effective tax rate during fiscal year 1996 compared to fiscal year 1995 results
primarily from increased Research and Development (R&D) tax credits and other
state income tax credits. The increase in the effective tax rate in fiscal year
1997 was primarily attributable to a non-recurring reduction of a valuation
allowance in fiscal year 1996. The Company anticipates that its effective tax
rate in future fiscal years will fall within the range of rates experienced over
the past three years assuming continued extension of the federal R&D tax credit.
Bookings and Backlog. Funded bookings were $127.8 million, $155.0 million and
$168.5 million in fiscal year 1995, 1996 and 1997, respectively, representing
year-to-year increases of 21% in fiscal year 1996 and 9% in fiscal year 1997.
Government contract bookings were $87.3 million, $79.7 million and $103.5
million during fiscal year 1995, 1996 and 1997, respectively. Commercial
contract bookings were $40.5 million, $75.3 million and $65.0 million during
fiscal year 1995, 1996 and 1997, respectively. The increase in bookings has
resulted in the Company's backlog increasing from $72.5 million at the end of
fiscal year 1995 to $82.4 million at the end of fiscal year 1996, an increase of
14% and a further increase to $83.9 million at the end of fiscal year 1997.
Summary. 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; disruptions in delivery of components or
subsystems; regulatory developments; and general economic conditions. Revenues
have generally increased on a quarterly basis since fiscal year 1995 as a result
of increasing commercial activities during the past three years and increased
government related activities experienced during fiscal year 1997. The Company's
results of operation are adversely affected by losses on fixed-price development
contracts. Direct and indirect costs were adversely affected throughout fiscal
year 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 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.
Quarterly Results
The following table presents the Company's financial results by quarter for
fiscal year 1995, 1996 and 1997. These quarterly financial results are
unaudited. In the opinion of management, however, they have been
<PAGE>
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.
<TABLE>
Statement of Operations Data
Quarter Ended (in thousands, except per share data)
<CAPTION>
Fiscal year 1995 Fiscal year 1996
June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $24,645 $28,319 $26,499 $34,921 $35,952 $35,597 $36,384 $37,168
Costs of revenues 19,244 22,633 24,689 29,113 29,876 28,215 28,922 29,001
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 5,401 5,686 1,810 5,808 6,076 7,382 7,462 8,167
------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Research and 2,032 2,302 1,345 2,044 1,793 2,050 2,046 2,541
development
Marketing and 2,000 2,423 2,166 2,773 2,659 3,239 3,104 3,211
administrative ------- ------- ------- ------- ------- ------- ------- -------
Total expenses 4,032 4,725 3,511 4,817 4,452 5,289 5,150 5,752
Operating income (loss) 1,369 961 (1,701) 991 1,624 2,093 2,312 2,415
Interest income, net 180 156 191 130 178 152 164 345
Arbitration settlement - - (2,075) - - - - -
expenses ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before 1,549 1,117 (3,585) 1,121 1,802 2,245 2,476 2,760
(provision) credit for
income taxes
(Provision) credit for (557) (403) 1,282 (393) (676) (842) (863) (729)
income taxes ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 992 $ 714 $(2,303) $ 728 $ 1,126 $ 1,403 $ 1,613 $ 2,031
========= ========= ======== ========= ======== ======== ======== ========
Earnings (loss) per share $ 0.08 $ 0.05 $ (0.18) $ 0.06 $ 0.09 $ 0.11 $ 0.13 $ 0.16
========= ========= ========== ========= ========= ========= ========= =========
Weighted average common 12,442 12,488 12,512 12,504 12,544 12,692 12,722 12,818
shares and equivalents
</TABLE>
Quarter Ended (in thousands, except per
share data)
Fiscal year 1997
June 30 Sept. 30 Dec. 31 Mar. 31
Revenues $40,843 $41,058 $42,028 $43,073
Costs of revenues 31,993 30,889 32,305 32,245
-------- -------- -------- --------
Gross profit 8,850 10,169 9,723 10,828
-------- -------- -------- --------
Expenses:
Research and 2,229 3,444 2,903 3,292
development
Marketing and 4,022 4,105 4,170 4,511
administrative -------- -------- -------- --------
Total expenses 6,251 7,549 7,073 7,803
Operating income (loss) 2,599 2,620 2,650 3,025
Interest income, net 284 298 342 412
Arbitration settlement - - - -
expenses -------- -------- -------- --------
Income (loss) before 2,883 2,918 2,992 3,437
(provision) credit for
income taxes
(Provision) credit for (995) (1,007) (1,032) (1,185)
income taxes -------- -------- -------- --------
Net income (loss) $ 1,888 $ 1,911 $ 1,960 $ 2,252
======== ======== ======== ========
Earnings (loss) per share $ 0.14 $ 0.15 $ 0.15 $ 0.17
========= ========= ========= =========
Weighted average common 13,048 13,098 13,042 13,040
shares and equivalents
<PAGE>
Liquidity and Capital Resources
Working capital increased from $48.0 million to $56.5 million at March 31, 1995
and March 31, 1996, respectively, and increased to $66.4 million at March 31,
1997. The increases in working capital at March 31, 1996 and March 31, 1997 were
primarily attributable to cash generated from net income from operations.
Net cash provided by operating activities for the years ended March 31, 1995,
1996 and 1997 was $1.2 million, $8.7 million and $18.6 million, respectively.
The increase in cash provided by operating activities from fiscal year 1995 to
fiscal year 1996 was largely attributable to an increase in net income and a
decrease in billed and unbilled receivables. The increase from 1996 to fiscal
year 1997 can be largely attributed to an increase in net income and the
reduction of inventories.
The Company utilized its cash for the purchase of property and equipment
totaling $6.2 million, $4.5 million and $5.5 million in fiscal year 1995, 1996
and 1997, respectively. Capital expenditures in recent years are attributable to
increased investments in the Company's commercial activities and leasehold
improvements in the Company's facilities in order to support its growth.
During fiscal years 1995, 1996 and 1997, $.5 million, $1.1 million and $1.6
million, respectively, of net cash was provided by financing activities. During
fiscal year 1995, the Company received proceeds of $.6 million from transactions
under stock plans and made payments of $.1 million on capital lease obligations.
During fiscal year 1996, the Company received proceeds of $1.3 million from
transactions under the stock plans and made payments of $.2 million on capital
lease obligations. During fiscal year 1997, the Company received proceeds of
$1.7 million from transactions under stock plans and made payments of $.1
million on capital lease obligations.
The Company has a bank credit commitment of $15.0 million which it has utilized
to augment cash flow needs and to secure term loans or standby letters of
credit. Available borrowings under this line at March 31, 1997, were $15.0
million. Under this credit line the Company must maintain certain financial
covenants. The Company was in compliance with all covenants throughout fiscal
year 1997. At March 31, 1997, the Company's long-term obligations (including
current maturities) and capital lease obligations totaled approximately $.1
million. At March 31, 1997, cash and cash equivalents of $8.2 million were held
in money market accounts and short-term investments of $25.1 million were held
in U.S. Government Treasury instruments.
<PAGE>
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 fiscal year.
In February 1997, the Financial Accounting Standard Board issued SFAS No. 128,
"Earnings per Share," which will be adopted by the Company in fiscal year 1998.
The Company does not believe that this pronouncement will have a significant
effect on previously stated earnings per share.
Report of Independent Public Accountants
To Stanford Telecommunications, Inc.:
We have audited the accompanying balance sheets of Stanford Telecommunications,
Inc. (a Delaware Corporation) as of March 31, 1997 and 1996, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stanford Telecommunications,
Inc. as of March 31, 1997 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
April 22, 1997
<PAGE>
<TABLE>
Statements of Income
(in thousands, except for per share amounts)
<CAPTION>
Year Ended March 31
-------------------
1997 1996 1995
-------- --------- ------
<S> <C> <C> <C>
Revenues $167,002 $145,100 $114,384
Costs of revenues 127,432 116,014 95,679
------- ------- ------
Gross profit 39,570 29,086 18,705
------ ------ -------
Research and development 11,868 8,429 7,723
Marketing and administrative 16,808 12,213 9,362
------ ------ -----
Total expenses 28,676 20,642 17,085
------ ------ ------
Operating income 10,894 8,444 1,620
Interest income, net 1,336 839 657
Arbitration settlement charge -- -- (2,075)
-------- ------- ----------
Income before provision for income taxes 12,230 9,283 202
Provision for income taxes 4,219 3,110 71
------- ------- ---------
Net income $ 8,011 $ 6,173 $ 131
======== ======== =========
Earnings per share $ .61 $ .49 $ .01
======== ======== =========
Weighted average number
of common and common equivalent
shares outstanding 13,070 12,702 12,484
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
Balance Sheets
(in thousands)
<CAPTION>
March 31
-------------------------
1997 1996
--------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,235 $ 4,409
Short-term investments 25,074 14,127
Accounts receivable 25,856 22,018
Unbilled receivables 19,754 11,993
Inventories, net of related progress billings 6,011 18,702
Prepaid expenses and other 4,201 4,903
-------- --------
Total current assets 89,131 76,152
-------- --------
Property and equipment at cost:
Electronic test equipment 42,797 39,541
Furniture and fixtures 3,613 2,967
Leasehold improvements 3,722 3,657
-------- --------
50,132 46,165
Less: Accumulated depreciation and amortization (36,019) (31,665)
-------- ---------
Net property and equipment 14,113 14,500
-------- ---------
Other assets 274 296
-------- ---------
$103,518 $ 90,948
======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 88 $ 80
Accounts payable 5,902 6,097
Advance payments from customers 1,581 515
Accrued liabilities 10,601 10,044
Accrued income taxes 4,549 2,921
-------- ---------
Total current liabilities 22,721 19,657
-------- ---------
Long-term obligations, less current maturities 30 85
-------- ---------
Other long-term liabilities 910 986
-------- ---------
Deferred income taxes 151 631
-------- ---------
Commitments and contingencies (Notes 3 and 8)
Shareholders' equity:
Common stock - par value $.01; 25,000 shares
authorized; 12,833 and 12,656
shares issued and outstanding
in 1997 and 1996, respectively 128 127
Paid-in capital 40,410 38,305
Retained earnings 39,168 31,157
--------- ----------
Total shareholders' equity 79,706 69,589
--------- ----------
$103,518 $ 90,948
</TABLE>
<PAGE>
<TABLE>
Statements of Shareholders' Equity
(in thousands)
<CAPTION>
Total
Common Stock Share-
------------------- Paid-In Retained holders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994 12,362 $ 124 $ 36,390 $ 24,853 $ 61,367
Sale of common stock under
Employee Stock Purchase Plan 72 1 429 -- 430
Sale of common stock under
Employee Stock Option Plan,
net of shares exchanged 28 -- 86 -- 86
Issuance of common stock as awards to employees 6 -- 42 -- 42
Tax benefits from employee stock transactions -- -- 41 -- 41
Net income -- -- -- 131 131
-------- ---- --------- ---------- ---------
Balance, March 31, 1995 12,468 $ 125 $ 36,988 $ 24,984 $ 62,097
Sale of common stock under
Employee Stock Purchase Plan 70 1 539 -- 540
Sale of common stock under
Employee Stock Option Plan 110 1 479 -- 480
Issuance of common stock as awards to employees 8 -- 74 -- 74
Tax benefits from employee stock transactions -- -- 225 -- 225
Net income -- -- -- 6,173 6,173
-------- ------- --------- -------- --------
Balance, March 31, 1996 12,656 $ 127 $ 38,305 $ 31,157 $ 69,589
Sale of common stock under
Employee Stock Purchase Plan 67 -- 959 -- 959
Sale of common stock under
Employee Stock Option Plan 105 1 729 -- 730
Issuance of common stock as awards to employees 5 -- 102 -- 102
Tax benefits from employee stock transactions -- -- 315 -- 315
Net income -- -- -- 8,011 8,011
-------- -------- ---------- -------- --------
Balance, March 31, 1997 12,833 $ 128 $ 40,410 $ 39,168 $ 79,706
====== ====== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
Statements of Cash Flows
(in thousands)
<CAPTION>
Year Ended March 31
------------------------------------
1997 1996 1995
---------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,011 $ 6,173 $ 131
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,558 5,009 4,330
Issuances of stock to employees under award plans 102 74 42
Change in provision for losses on receivables,
contracts and inventories 1,388 857 3,073
Loss on disposition of property and equipment 305 143 210
(Increase) decrease in assets:
Receivables billed and unbilled (11,803) 5,634 (8,355)
Inventories 11,446 (3,492) (6,888)
Prepaid expenses and other assets 724 (1,238) (2,018)
Increase (decrease) in liabilities:
Accounts payable, advance payments and accrued expenses 1,489 (5,851) 9,484
Other long-term liabilities (76) 59 301
Accrued and deferred income taxes 1,463 1,304 874
-------- -------- --------
Net cash provided by operating activities 18,607 8,672 1,184
-------- -------- --------
Cash used in investing activities:
(Purchases) maturities of short-term investments (10,947) (4,220) 1,559
Purchases of property and equipment (5,501) (4,482) (6,210)
Proceeds from sale of property and equipment 25 438 67
-------- -------- --------
Net cash used in investing activities (16,423) (8,264) (4,584)
-------- -------- --------
Cash flows from financing activities:
Payments on capital lease obligations (47) (154) (87)
Proceeds from transactions under stock plans 1,689 1,245 557
-------- -------- --------
Net cash provided by financing activities 1,642 1,091 470
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,826 1,499 (2,930)
Cash and cash equivalents at beginning of year 4,409 2,910 5,840
Cash and cash equivalents at end of year $ 8,235 $ 4,409 $ 2,910
======== ======== ========
Supplemental Cash Flow Information:
Cash paid for interest and income taxes 1997 1996 1995
-------- -------- --------
Interest $ 7 $ 12 $ 51
Income taxes $ 1,736 $ 3,987 $ 769
</TABLE>
<PAGE>
Notes to Financial Statements
March 31, 1997
1. The Company and Summary of Significant Accounting Policies
The Company. Stanford Telecommunications, Inc. (the Company), incorporated in
Delaware, designs, manufactures and markets advanced digital telecommunication
products and systems to establish or enhance communications via satellites,
terrestrial wireless and cable. The Company also produces communication systems
networking solutions and GPS navigation products. The Company's government
revenues are generated from U.S. government contracts where the Company may be
either the prime contractor or a subcontractor. The Company's commercial
revenues include contract manufacturing revenues, sales of integrated circuits,
circuit boards and subsystems, and development programs. In addition to the U.S.
government, the principle markets for the Company's products include
telecommunications and electronics markets primarily located in the U.S.
Fiscal Year. The Company's fiscal year is comprised of four 13-week quarters,
each of which ends on the Thursday closest to the corresponding calendar quarter
end. For convenience, the Company has presented its fiscal year as ending on
March 31.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
The Company prepares and evaluates on-going cost to complete estimates in order
to monitor its project costs. These estimates form the basis for calculating
revenues and gross margins for each project under the percentage-of-completion
method of accounting. Due to uncertainties inherent in the estimation process,
estimated total costs are subject to revision on an on-going basis as additional
information becomes available. The estimates are subject to change and actual
results could be materially different from these estimates.
Cash Equivalents. The Company considers all highly liquid securities with
original maturities of 90 days or less to be cash equivalents.
Short-Term Investments. Short-term investments are accounted for in accordance
with Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." At March 31, 1997, the
Company's short-term investments consisted of U.S. Treasury securities totalling
$25,074,000 at cost with unrealized gains of $246,000. At March 31, 1996 the
Company's short-
<PAGE>
term investments consisted of U.S. Treasury securities totalling $14,127,000 at
cost with unrealized gains of $109,000. The securities mature at various dates
within one year.
Receivables. The Company provides a reserve for doubtful accounts where
circumstances indicate that one is necessary. As of March 31, 1997and 1996, the
Company's reserve for doubtful accounts was $1,023,000 and $920,000,
respectively.
Unbilled Receivables. Unbilled receivables represent differences between
billings and revenues recognized. At March 31, 1997, approximately 85% of the
unbilled receivables represent revenues recognized on fixed price contracts
under the percentage-of-completion method of accounting which exceed the amounts
that are billable according to contract terms and are expected to be
significantly collected within one year. In general, the Company is authorized
to bill between 75% to 100% of the costs expended on a contract. The remaining
portion of unbilled receivables at March 31, 1997 represents differences between
actual indirect rates and government approved billing rates which are not
billable until approval of final indirect rates by the respective governmental
agencies. The Company has received final indirect rate approval for charges
through fiscal 1993.
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. Work-in-process
mainly represents costs incurred on short-term contracts.
The components of inventory are as follows (in thousands):
March 31
1997 1996
-------- ---------
Raw materials and supplies $ -- $ 158
Work-in-process 3,721 18,615
Finished goods 2,318 1,850
Allocated general and administrative costs 118 808
Less: Progress billings (146) (2,729)
-------- --------
$ 6,011 $ 18,702
======== ========
The Company purchases certain inventories that have long purchase lead times and
may be single sourced. Although there are a limited number of manufacturers of
these particular inventory items, management believes that other suppliers could
provide similar inventory on comparable terms. A change in suppliers, however,
could cause a delay in manufacturing and a possible loss of sales, which may
affect operating results adversely.
<PAGE>
Depreciation and Amortization. Depreciation and amortization are provided over
the estimated useful lives of the assets (3 to 7 years or the term of the lease
if shorter), using the straight-line method.
Income Taxes . Income taxes are provided for in accordance with SFAS No. 109 ,
"Accounting for Income Taxes," which provides for a liability approach under
which deferred income taxes are based on enacted tax laws and rates applicable
to the periods in which the taxes become payable.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
March 31
1997 1996
------- -------
Compensation and employee benefits $ 8,003 $ 7,221
Accrued contract cost 2,054 2,125
Other 544 698
------- -------
$10,601 $10,044
======= =======
Revenue Recognition. The Company principally uses the percentage-of-completion
method of accounting for contract revenues. The percentage-of-completion method
is based on total costs incurred to date compared with estimated total costs
upon completion of contracts. Certain contracts provide for milestone billings
which are recorded as revenues when the defined milestones are met. The Company
recognizes revenues for standard, off-the-shelf products and certain commercial
products upon shipment to the customer. The Company charges all losses on
contracts to cost of sales in the period when the loss is known. The principal
government agencies to which the Company sells are the Department of Defense
(DoD), NASA and the FAA. The DoD accounted for 33%, 31%, and 44% of total
revenues in 1997, 1996, and 1995, respectively.
Concentration of Credit Risk. Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash
equivalents, short-term investments, and trade receivables. Concentrations of
credit risk with respect to trade receivables are limited due to a balanced mix
of receivables due from the U.S. government and other customers which are
dispersed across different industries and geographic regions.
<PAGE>
Classification. Consistent with industry practice, assets and liabilities
relating to government long-term contracts are classified as current although a
portion of these amounts is not expected to be realized within one year.
2. Line of Credit
On December 5, 1996, the Company amended its bank line agreement extending the
expiration date until December 1997. The Company has $15,000,000 in credit under
this line, all of which is available at March 31, 1997. Under this line of
credit the Company must maintain certain financial covenants. As of March 31,
1997, the Company was in compliance with all such covenants.
3. Commitments
The Company leases its buildings and other equipment under noncancelable
operating lease agreements that expire at various dates through 2004. The
Company also leases certain office equipment under capital leases which expire
during 2000. The terms of several of the Company's leases provide for deferral
of cash rental payments over various periods. Rental expense under these
agreements is recognized on a straight-line basis. As of March 31, 1997 the
Company has accrued approximately $835,000 in related expense which is included
in other long-term liabilities in the accompanying balance sheet. Approximate
future minimum lease payments under these leases are as follows (in thousands):
Year Ending March 31 Operating Leases Capital Leases
- -------------------- ---------------- --------------
1998 $ 3,683 $ 85
1999 3,619 34
2000 3,090 15
2001 2,112 --
2002 825 --
Thereafter 768 --
-------- --------
Total minimum lease payments $ 14,097 134
-------- --------
Less:interest (16)
--------
118
--------
Less:current portion (88)
--------
$ 30
========
<PAGE>
Rental expenses charged to operations totaled approximately $4,279,000,
$4,272,000, and $3,432,000 for the years ended March 31, 1997, 1996, and 1995,
respectively. During 1997, 1996, and 1995 the Company acquired equipment under
capital leases in the amounts of $30,000, $8,000, and $81,000, respectively.
4. Earnings per Share
In accordance with Accounting Principles Board (APB) No. 15 earnings per share
is computed using the weighted average number of shares of common stock and
common stock equivalents outstanding during the reporting periods. Common stock
equivalents consist of the dilutive effect of outstanding options to purchase
common stock. Fully dilutive earnings per share is substantially the same as
reported earnings per share. In February 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 128, "Earnings per Share," which will be
adopted by the Company in fiscal year 1998. SFAS No. 128 requires companies to
compute earnings per share under two different methods, basic and diluted, and
to disclose the methodology used for the calculation. The Company does not
believe that this pronouncement will have a significant effect on previously
stated earnings per share.
5. Retirement Plan
The Company maintains a defined contribution plan covering substantially all
employees. Amounts contributed are based on a percentage of eligible employees
annual compensation. Percentages contributed equaled 4% in 1997 and 1996 and 3%
in 1995. The Company's contributions totaled approximately $1,566,000 in 1997,
$1,425,000 in 1996, and $1,037,000 in 1995. The Plan also permits eligible
employees to make voluntary before-tax salary deferral contributions.
<TABLE>
6. Income Taxes
The provision for income taxes charged to operations was comprised of the
following (in thousands):
<CAPTION>
Year Ended March 31
-------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Provision for (benefit from) income taxes
Current
Federal $ 3,602 $ 4,422 $ 1,870
State 555 233 503
Deferred, net
Federal 96 (1,470) (1,817)
State (34) (75) (485)
------- -------- -------
Net tax provision $ 4,219 $ 3,110 $ 71
======= ======= ========
</TABLE>
<PAGE>
The provision for income taxes for the three years ended March 31, 1997 differs
from the U.S. statutory rate principally as follows:
Year Ended March 31
-------------------
1997 1996 1995
---- ---- ----
Statutory Federal income tax rate 35.0% 34.0% 34.0%
State income taxes, net of Federal benefit 2.8 1.7 5.3
Research and development credits (3.6) (1.0) (5.0)
Other .3 1.0 0.7
Change in valuation allowance -- (2.2) --
---- ---- ----
Effective income tax rate 34.5% 33.5% 35.0%
==== ==== ====
The major components of deferred tax assets and liabilities consisted of the
following (in thousands):
Year Ended March 31
-------------------
1997 1996
------- --------
Deferred tax asset:
Reserves and accruals not currently deductible for tax $ 4,644 $ 4,232
purposes
Tax credits 256 395
------- -------
Total deferred tax asset 4,900 4,627
Deferred tax liability:
Accelerated depreciation (151) (631)
Percentage of completion contract accounting (931) (116)
------- -------
Total deferred tax liability (1,082) (747)
------- -------
Net deferred tax asset $ 3,818 $ 3,880
======= =======
The $3,818,000 net deferred tax asset as of March 31, 1997 was allocated on the
accompanying balance sheet with $151,000 included in long-term liabilities, and
the remaining $3,969,000 included in prepaid expenses and other.
7. Common Stock
On January 29, 1997, the Company's Board of Directors declared a two-for-one
split of the Company's common stock effected in the form of a 100% stock
dividend distributed on February 28, 1997 to shareholders of record as of
February 10, 1997. Approximately 6.4 million shares of common stock were issued
in connection with the split. The stated par value of each share was not changed
from $.01. A total of $64,000 was reclassified from the Company's paid-in
capital account to the Company's common stock account. All share and per share
amounts included in these financial statements have been restated to
retroactively reflect the stock split.
<PAGE>
On June 26, 1996, the Company's stockholders approved an amendment to Article 4
of the Company's Certificate of Incorporation, increasing the number of
authorized shares of common stock with a par value $.01 per share ("common stock
"), from 15,000,000 to 25,000,000. On February 6, 1997, the Company registered
the additional authorized shares.
On May 9, 1995, the Board of Directors adopted a Stockholder's 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 (pre split). 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.
In August 1990, the Board of Directors authorized the purchase of up to
$2,500,000 of the Company's common stock on the open market. Common stock of
$1,501,000 has been repurchased as of March 31, 1997.
The 1982 Stock Option Plan expired on January 26, 1991 precluding the issuance
of option grants under that plan. On March 31, 1997 no options remained to be
issued or exercised.
The Company's 1991 Stock Option Plan provides for the issuance of either
incentive or non-qualified options to employees and certain non-employee
directors. Incentive options can be granted at an exercise price not less than
fair market value of the stock on the date of grant. Non-qualified options can
be granted at an exercise price not less than 85% of the fair market value of
the stock on the date of the grant. Options granted under the 1991 Plan
generally vest 25% one year after the date of grant and rateably thereafter over
three years and options generally expire ten years from the date of grant. The
1991 Plan will expire in the year 2001.
<PAGE>
<TABLE>
Information with respect to these plans is as follows:
<CAPTION>
1982 Stock Option Plan 1991 Stock Option Plan
-------------------------- ----------------------------
Average Available Average
Outstanding Option Prices for Grant Outstanding Option Prices
----------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994 79,000 $ 5.44 645,004 306,872 $ 5.73
------ --------- ------- ------- ---------
Granted -- -- (256,334) 256,334 $ 7.74
Exercised (31,500) $ 5.40 -- (9,332) $ 4.58
Terminated -- -- 4,800 (4,800) $ 7.24
------ ------ -------- --------- ---------
Balance at March 31, 1995 47,500 $ 5.47 393,470 549,084 $ 6.66
Additional Authorized -- -- 1,000,000 -- --
Granted -- -- (365,442) 365,442 $ 7.85
Exercised (7,500) $ 2.72 -- (101,358) $ 4.53
Terminated -- -- 115,802 (115,802) $ 7.30
------ ------ -------- ---------- ---------
Balance at March 31, 1996 40,000 $ 5.98 1,143,830 697,366 $ 7.49
Granted -- -- (375,300) 375,300 $ 16.54
Exercised (40,000) $ 5.98 -- (64,534) $ 7.65
Terminated -- -- 45,711 (45,711) $ 10.39
------- ------- --------- --------- --------
Balance at March 31, 1997 -- -- 814,241 962,421 $ 10.92
======= ======= ======= ======= ========
</TABLE>
<TABLE>
Under the 1991 Stock Option Plan the options outstanding on March 31, 1997 were
as follows:
<CAPTION>
Options Outstanding Options Exercisable
Weighted Average
Range of Number remaining Weighted Average Number Weighted Average
Exercise Outstanding at Contractual Life in Exercise Exercisable at Exercise
Prices 3/31/97 Years Price 3/31/97 Price
--------- ---------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.50 - $ 5.63 53,062 6.04 $ 4.50 35,892 $ 4.42
$ 6.38 - $ 10.00 548,859 5.29 $ 7.82 353,769 $ 7.65
$ 13.63 - $ 20.00 275,500 9.23 $ 14.96 -- --
$ 21.00 - $ 31.50 85,000 9.12 $ 21.95 -- --
------ ---------
Total 962,421 389,661
======= =======
</TABLE>
Pro Forma Information. The Company applies APB No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for the stock
compensaton plans (the Plans) described above. Accordingly, no compensation cost
has been recognized for the Plans. If compensation cost for the Plans had been
determined consistent with SFAS No. 123 "Accounting for Stock-Based
Compensation", the
<PAGE>
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands except per share data)
:
Year Ended March 31
-------------------
1997 1996
------- ------
Net income
As reported 8,011 6,173
Pro forma 6,755 5,615
Earnings per share - primary
As reported .61 .49
Pro forma .52 .44
Because the method of accounting prescribed by SFAS No. 123 has not been applied
to options granted prior to April 1, 1995, and because the Black-Scholes option
valuation model was developed for traded options and requires the input of
subjective assumptions, the resulting pro forma compensation cost may not be
representative of that to be expected in future years
The fair value of each option grant is estimated based on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for 1997 and 1996: risk-free interest rates of approximately 6.0% for 1997 and
6.1% for 1996, dividend yields of 0%, volatility factor of the expected market
price of the Company's common stock of 76%, and a weighted average expected life
of an option of approximately 3 years. The weighted average fair values of
options granted in fiscal year 1997 and 1996 respectively were $7.34 and $3.37.
Under the 1992 Employee Stock Purchase Plan, the Company makes offerings of
common stock to its employees at such time and of such duration as its Board
determines. A total of 400,000 shares of common stock has been reserved for
issuance. In fiscal years 1997 and 1996, the Company has sold 66,512 shares and
70,788 shares at a weighted average fair value of $5.27 and $2.41 respectively.
As of March 31, 1997, 165,832 shares remained available for purchase.
8. Litigation and Contingencies
The Company is contingently liable with respect to lawsuits and other matters
which arise in the normal course of business. The Company must comply with
detailed government procurement and contracting regulations. The Company has
prepared and presented documentation and support to a customer addressing its
post-award audit recommendations. Management believes that the outcome of such
contingencies will not have a material adverse effect on the Company's financial
position or results of operations.
<PAGE>
<TABLE>
Selected Financial Data
(in thousands, except for per share data)
<CAPTION>
Year Ended March 31
Summary of Operations for the Fiscal Year 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues $167,002 $145,100 $114,384 $ 98,055 $ 92,821
Operating income 10,894 8,444 1,620 4,498 2,319
Income before change in accounting method 8,011 6,173 131 2,836 1,159
Cumulative effect of change in accounting method -- -- -- 700 --
Net income 8,011 6,173 131 3,536 1,159
Earnings per share before change in accounting method .61 .49 .01 .27 .12
Cumulative effect of change in accounting method -- -- -- .07 --
Weighted average shares 13,070 12,702 12,484 10,394 9,730
Net income as a percent of revenues 4.8% 4.3% .1% 3.6% 1.3%
Financial Position at End of Fiscal Year
Current assets $ 89,131 $ 76,152 $ 71,994 $ 60,125 $ 45,007
Current liabilities 22,721 19,657 24,035 11,466 18,792
Working capital 66,410 56,495 47,959 48,659 26,215
Current ratio 3.9 3.9 3.0 5.2 2.4
Property and equipment, net 14,113 14,500 15,608 14,005 12,226
Total assets $103,518 $ 90,948 $ 88,005 $ 74,503 $ 57,492
Long-term debt 30 85 161 235 358
Shareholders' equity 79,706 69,589 62,097 61,367 37,571
Common stock outstanding 12,833 12,656 12,468 12,362 9,728
Book value per share $ 6.21 $ 5.50 $ 4.98 $ 4.96 $ 3.86
</TABLE>
<TABLE>
Selected Common Stock Data
<CAPTION>
<S> <C> <C>
Stanford Telecommunications, Inc. Common Stock was offered to the Fiscal 1997 High Low
public on October 6, 1983, and since that date has been traded on First Quarter 32 7/8 13 3/8
the Nasdaq stock market under the symbol STII. During January 1994, Second Quarter 30 18 5/8
the Company completed a secondary offering of its common stock. The Third Quarter 26 3/4 11 1/4
price per share reflected in the table has been adjusted for a Fourth Quarter 21 1/16 14 1/2
two-for-one split of the Company's common stock distributed to
shareholders on February 28, 1997 and represents the closing prices Fiscal 1996
in the Nasdaq National Market System. The quotations represent First Quarter 8 3/4 6 1/2
inter-dealer quotations, without retail markups, markdowns or Second Quarter 12 7/8 7
commissions, and may not necessarily represent actual transactions. Third Quarter 11 11/16 8
Fourth Quarter 15 5/8 8 1/8
</TABLE>
The Company has not paid cash dividends on its Common Stock since its
incorporation and anticipates that for the foreseeable future it will continue
to retain its earnings for use in its business. A covenant under the current
Line of Credit would require prior approval of any cash dividend by the Bank.
On March 31, 1997, there were approximately 1,470 holders of record of the
Company's Common Stock.
Nasdaq Trading Volume
Fiscal 1997 - 13,475,504 shares / Fiscal 1996 - 6,327,091 shares
Nasdaq Market Makers
Montgomery Securities Inc . o Mayer & Schweitzer Inc. o Troster Singer Corp. o
John G. Kinnard & Co., Inc. o Oppenheimer & Co o Sherwood Securities Corp.
EXHIBIT NUMBER 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Forms S-8 (file nos.
33-45090, 33-68534, and 33-63771).
/s/ Arthur Andersen LLP
San Jose, California
June 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> MAR-31-1997
<CASH> 8,235
<SECURITIES> 25,074
<RECEIVABLES> 45,610
<ALLOWANCES> 0
<INVENTORY> 6,011
<CURRENT-ASSETS> 89,131
<PP&E> 50,132
<DEPRECIATION> 36,019
<TOTAL-ASSETS> 103,518
<CURRENT-LIABILITIES> 22,721
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 79,578
<TOTAL-LIABILITY-AND-EQUITY> 103,518
<SALES> 167,002
<TOTAL-REVENUES> 167,002
<CGS> 127,432
<TOTAL-COSTS> 156,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,230
<INCOME-TAX> 4,219
<INCOME-CONTINUING> 8,011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,011
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
