SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. - 20549
_________________________
FORM 10-Q
(Mark One)
* QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended April 4, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 0-12588
_________________________
SALIENT 3 COMMUNICATIONS, INC.
(Formerly GILBERT ASSOCIATES INC.)
(Exact name of registrant as specified in its charter)
Delaware 23-2280922
(State of Incorporation) (IRS Employer
Identification No.)
P.O. Box 1498, Reading, Pennsylvania 19603
(Mailing address of principal executive offices)(Zip Code)
(610) 856-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Class A Class B
Number of shares of each class of
common stock outstanding as of
April 4, 1997 (excluding 2,597,881
Class A treasury shares): 5,877,917 509,502
<PAGE>
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item I.
Consolidated Condensed Balance Sheets at
April 4, 1997 and January 3, 1997 (unaudited)
Consolidated Condensed Statements of Operations for the
three month periods ended April 4, 1997
and March 29, 1996 (unaudited)
Consolidated Condensed Statements of Cash Flows
for the three month periods ended April 4, 1997
and March 29, 1996 (unaudited)
Notes to Consolidated Condensed Financial Statements
Item II.
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
Part I. Financial Information
Salient 3 Communications, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
April 4, 1997 and January 3, 1997
(Unaudited)
(000's)
April 4, January 3,
1997 1997
ASSETS
Current assets:
Cash and cash equivalents $ 716 $ 1,482
Accounts receivable, net of allowance
for doubtful accounts of $1,495 and
$1,565, respectively 18,554 20,723
Inventories 17,210 16,244
Deferred income taxes 4,180 4,180
Other current assets 2,854 2,257
Net assets held for sale 47,293 48,679
------ ------
Total current assets 90,807 93,565
------ ------
Property, plant and equipment 36,010 34,691
Less accumulated depreciation and
amortization 18,338 17,707
------ ------
17,672 16,984
------ ------
Deferred income taxes 7,855 8,105
Other assets 500 500
Intangible assets 37,356 36,593
------- -------
Total Assets $ 154,190 $ 155,747
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,224 $ -
Accounts payable 6,903 7,657
Salaries and wages 1,478 1,256
Income taxes, currently payable 2,440 3,096
Estimated liability for contract losses 1,540 1,539
Other accrued liabilities 7,831 10,654
------ ------
Total current liabilities 22,416 24,202
------ ------
Long-term debt 27,218 26,549
Other long-term liabilities 4,954 4,967
Self-insured retention 2,409 2,409
Stockholders' equity:
Common stock 8,985 8,985
Capital in excess of par value 38,064 38,091
Warrants outstanding 1,180 1,180
Retained earnings 89,454 89,838
Deferred Compensation-restricted stock (824) (287)
Treasury stock (39,666) (40,187)
-------- --------
97,193 97,620
-------- --------
Total Liabilities and
Stockholders' Equity $ 154,190 $ 155,747
======= =======
The accompanying notes are an integral part of the consolidated condensed
financial statements.
<PAGE>
Salient 3 Communications, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)
(000's except for share information)
Three Months Ended
April 4, 1997 March 29, 1996
Telecommunications sales $ 24,817 $ 20,168
Cost of goods sold 15,422 12,989
------ ------
Gross profit 9,395 7,179
Selling, general and administrative 7,476 4,999
Research & development 2,047 1,808
Intangible amortization 351 187
------- ------
Operating profit (loss) (479) 185
Interest income 18 102
Interest expense 494 62
------- ------
Pre-tax income (loss) from continuing operations (955) 225
------- ------
Provision (benefit) for taxes on income (loss) (341) 85
------- ------
Net income (loss) from continuing operations (614) 140
------- ------
Income from discontinued operations:
Technical Services Segment (less
applicable taxes of $303 and $359,
respectively) 546 586
Real Estate Segment (less applicable
taxes of $179 and $196, respectively) 323 320
------- ------
Net income from discontinued operations 869 906
------- ------
Total net income $ 255 $ 1,046
======= ======
Per share of common stock:
Net income (loss) from continuing operations $ (0.10) $ 0.02
Net income from discontinued operations:
Technical Services Segment $ 0.09 $ 0.10
Real Estate Segment $ 0.05 $ 0.05
------- -------
Total earnings per share $ 0.04 $ 0.17
======= =======
Cash dividends per share $ 0.10 $ 0.20
Average number of shares of common stock 6,316,451 6,285,782
The accompanying notes are an integral part of the consolidated condensed
financial statements.
<PAGE>
Salient 3 Communications, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited) Three Months Ended
(000's) April 4, March 29,
1997 1996
Cash flows from operating activities:
Net income $ 255 $ 1,046
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Items not affecting cash 2,102 1,662
Changes in current assets and current liabilities (1,457) (609)
Other, net - (315)
------- ------
Net cash provided by operating activities 900 1,784
------- ------
Cash flows from investing activities:
Payments for acquisitions (2,204) (954)
Payments for property, plant and equipment (1,667) (1,696)
Proceeds from sale of property, plant
and equipment - 469
------- -------
Net cash used for investing activities (3,871) (2,181)
------- -------
Cash flows from financing activities:
Proceeds from issuance of debt 1,000 -
Borrowings under note payable 2,224 -
Issuance of treasury stock in connection
with stock option, award and purchase
plans 3 -
Payments to acquire treasury stock (65) (54)
Cash dividends paid (639) (1,257)
Other, net (318) (394)
------- -------
Net cash provided by (used for) financing activities 2,205 (1,705)
------- -------
Net decrease in cash and cash equivalents (766) (2,102)
Cash and cash equivalents at beginning of period 1,482 11,119
------- -------
Cash and cash equivalents at end of period $ 716 $ 9,017
======= =======
Supplemental cash flow disclosures:
Interest paid $ 904 $ 47
====== ======
Income taxes paid, net of refunds received $ 892 $ 380
====== ======
The accompanying notes are an integral part of the consolidated condensed
financial statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(000's except for share and per share information)
1. In the first quarter of 1997, the Company elected discontinued
operations treatment for both its Technical Services and Real
Estate Segments.
On June 5, 1996, the Board of Directors announced that the
Company had begun to explore strategic options for its
remaining units within the technical services segment.
Separate investment banking firms have been retained to develop
strategies for both SRA and RCI. The company is continuing to
explore options for monetizing and disposing of its real estate
holdings. Discontinued operations treatment reflects the
progress made in the first quarter towards divestiture of these
segments.
The results for technical services and the real estate segment
have been classified as discontinued operations for all periods
presented in the Consolidated Condensed Statements of
Operations and Balance Sheets. The assets and liabilities of
the discontinued operations have been classified in the
Consolidated Condensed Balance Sheets as "Net assets held for
sale." Discontinued operations have not been segregated in
the Statement of Consolidated Cash Flows and, therefore,
amounts for certain captions will not agree with the respective
Consolidated Condensed Statements of Operations.
The following is a summary of revenue by discontinued segment:
Three Months Ended
April 4, 1997 March 29, 1996
Revenues:
Technical Services $17,711 $21,581
Real Estate 2,150 2,139
------ ------
$19,861 $23,720
====== ======
2. On April 30, the Company announced that it changed its name
from Gilbert Associates, Inc. to Salient 3 Communications, Inc.
The name change resulted from the Company's plan to solely
focus on telecommunications.
3. The financial statements furnished herein reflect all
adjustments which are, in the opinion of management, necessary
for a fair presentation of financial position and results of
operations for the interim periods. Such adjustments are of a
normal recurring nature. The consolidated condensed financial
statements have been reclassified to conform with current year
presentation.
4. Net income per share of common stock was determined using the
average number of Class A and Class B shares outstanding. The
effect on net income per share resulting from dilution upon
exercise of outstanding stock options, warrants and restricted
stock is not material, and therefore is not shown.
No preferred stock was outstanding as of April 4, 1997.
5. During the first quarter of 1997 and the second quarter of
1996, several key employees were issued an aggregate of 39,000
and 34,500 shares, respectively, of restricted stock in the
Company. The value of this stock is recorded as deferred
compensation in the stockholders' equity section of the
consolidated condensed balance sheets, and will be expensed
over the vesting period. The vesting period will not exceed 10
years and may be accelerated depending upon the achievement of
certain objectives.
6. The components of inventories as of the balance sheet dates are
as follows:
April 4, 1997 Jan. 3, 1997
Raw material $11,264 $10,755
Work in process 2,280 1,768
Finished goods 3,666 3,721
------ ------
$17,210 $16,244
====== ======
7. Other accrued liabilities includes an accrual relating to
workers' compensation of $2,027 and $2,082 at April 4, 1997 and
January 3, 1997, respectively.
8. On September 30, 1996, the Company acquired the assets of SAFCO
Corporation's Electronic Systems Division (ESD), which was
subsequently renamed SAFCO Technologies (SAFCO). As part of
the asset purchase agreement, the Company paid former
shareholders $1,204 during the first quarter of 1997.
9. On April 21, 1997, the Company acquired all of the outstanding
capital stock of TEC Cellular, Inc. (TEC) for $14,000 in cash
subject to certain adjustments plus seven year warrants
exercisable to purchase 100,000 shares of the Company stock at
$18 per share. Also, depending upon the achievement of certain
earnings objectives in 1997, the former shareholders of TEC may
be entitled to an additional $1,000 payment. Any payment will
increase goodwill. Upon consummation of the sale, TEC Cellular
will become a division of SAFCO Technologies, Inc.
In conjunction with the TEC acquisition, the Company expects to
record a $6,150 after-tax charge for purchased in-process
research and development in the second quarter of 1997.
On April 30, 1997, the Company acquired all of the outstanding
stock of DAC Ltd. (DAC) for 3 million pounds (approximately
$5,000). DAC will become a subsidiary of the GAI-Tronics
Corporation.
10. During the first quarter of 1997, the Financial Accounting
Standards Board (FASB) issued Statement 128, which specifies
the computation, presentation, and disclosure requirements for
earnings per share (EPS) for public companies. This statement
is effective for financial statements for both interim and
annual periods ending after December 15, 1997 and adoption of
this statement for the Company will occur in the fourth quarter
of 1997. This statement would not materially affect the
Company's EPS calculation in the first quarter.
11. During the first quarter of 1997, the Company paid $1,000 to
the former principals of Instruments Associates, Inc. as part
of the 1993 purchase agreement.
12. The Company has elected to allocate interest not specifically
associated with any segment based upon a ratio of net assets.
Interest expense allocated to discontinued operations was not material
in the first quarter of 1997.
<PAGE>
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
First Quarter - 1997 vs. 1996
In June 1996, the Board of Directors announced that the Company
had begun to explore strategic options for its remaining units
within the technical services and real estate segments. During
the first quarter of 1997, the Company adopted discontinued
operations treatment for its technical services and real estate
segments. Discontinued operations treatment reflects the progress
made in the first quarter towards divestiture of these segments.
On April 30, the Company announced that it changed its name from
Gilbert Associates, Inc. to Salient 3 Communications, Inc. The
name change resulted from the Company's plan to solely focus on
telecommunications.
The Company reported a loss from continuing operations for the
first quarter of 1997 of $614 or $0.10 per share, compared to
income from continuing operations of $140 or $0.02 per share in
the same period of 1996. The net loss from continuing operations
reflects the highly seasonal business of SAFCO. SAFCO has
historically generated losses in its first quarter and has earned
approximately 65% of its annual operating profit in the fourth
quarter. SAFCO was acquired on September 30, 1996. Given SAFCO's
seasonal business and the Company's increased interest expense and
goodwill amortization associated with the acquisition, the
Company's results suffered.
The Company anticipates improvement in results of operations,
especially in the second half of the year, as a result of SAFCO's
seasonality.
Revenue from continuing operations increased 23% over the same
period in 1996 due to revenue growth in the wireline and
industrial units. Also, the inclusion of SAFCO contributed to
higher sales.
Revenue from the wireline and industrial units was $9,504 and
$11,284, respectively, compared to $7,923 and $10,121 reported in
the same period last year. The higher sales reflect increased
demand for the products in the markets they serve and the
introduction of new products. The wireless unit generated $4,029
of revenue in the first quarter of 1997 compared to $2,124
reported in the same period as 1996. The current period includes
approximately $2,000 of revenue from SAFCO.
The gross profit percentage increased from 36% in the first
quarter of 1996 to 38% in the current quarter due primarily to the
inclusion of SAFCO and improved margins. Higher margins are
attributed to better product mix and increased wireline and
industrial revenue levels. The 1996 gross profit percentage has
changed from prior reports due to a reclassification of costs.
Selling, General and Administration, Research and Development and
Intangible Amortization
Selling, general and administrative, research and development and
intangible amortization increased 50%, 13% and 88%, respectively,
compared to the same period in 1996, due primarily to the SAFCO
acquisition.
Interest Expense
Interest expense increased in the first quarter of 1997 as
compared to the first quarter of 1996 due to the debt incurred to
finance the SAFCO acquisition and operations.
Provision (Benefit) for taxes on income (loss)
The provision (benefit) for taxes on income (loss) decreased from
an effective rate of 38% in the first quarter of 1996 to 36% in
the first quarter of 1997. The decrease relates primarily to
lower state taxes.
Income from discontinued operations
Net income from discontinued operations for the technical services
and real estate segments was consistent with prior year results.
The Company expects its discontinued segments to remain profitable
until the dispositions are completed. The exact timing of the
dispositions is uncertain but should occur within the following
twelve months. The Company expects that the sale of these
segments could generate after-tax proceeds of approximately
$50,000 - $60,000.
Liquidity and Capital Resources
Working capital and cash and cash equivalents declined $972 and
$766, respectively, in the first quarter of 1997.
Amounts generated from operations, anticipated proceeds from the
technical services and real estate segment divestitures, combined
with available cash and cash equivalents, and short-term lines of
credit should provide adequate working capital to satisfy the
contingent payments to former XEL and SAFCO shareholders, and fund
the TEC and DAC acquisitions (Note 9).
Lines of credit with CoreStates Bank, N.A., are available to fund
both working capital needs and acquisitions. After the
consideration of the outstanding borrowings and certain loan
covenants, the Company has approximately $24,000 and $26,000
available under the acquisition line of credit and working capital
line, respectively, as of April 4, 1997.
The Company estimates that its total capital expenditures in 1997,
excluding acquisitions, will be approximately $6,500. No
restrictions on cash transfers between the Company and its
subsidiaries exist.
In the first quarter of 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
No. 128, "Disclosure of Information about Capital Structure,"
which requires companies to calculate earnings per share on a
basic and diluted basis.
The statement becomes effective for the fourth quarter of 1997.
The adoption would not materially affect the Company's earnings
per share calculation in the first quarter.
The Form 10-Q contains certain statements of a forward-looking
nature relating to future events or the future financial
performance of the Company. Such statements are only predictions
and involve risks and uncertainties, and actual events or
performance may differ materially as expressed in any such
forward looking statements. Potential risks and
uncertainties include, without limitation: the effect of general
economic conditions, the impact of competitive products, services
and pricing, and demand and market acceptance risks of current and
new products and services; with respect to the Technical Services
segment, its dependence on the U.S. government as a customer; and
with respect to the Telecommunication segment, the uncertain
effect of the Telecommunications Act of 1996, technology change,
and risks of product development and commercialization
difficulties, and the Company's ability to complete its
divestiture program in the time frames and at the prices indicated
and the Company's ability to make acquisitions at prices which
will be accretive to earnings. Further information on factors
that could affect the Company's future financial performance can
be found in the Company's other filings with the Securities and
Exchange Commission. Words used in this report such as
"positioned", "yields", "should generate", "appears", "viewed",
"could potentially", "would position", "expected", and "should
allow" indicate the presence of forward looking statements.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) The registrant filed Form 8-K on March 27, 1997 which
announced Robert E. LaBlanc, President of Robert E.
LaBlanc Associates, had joined the Company's Board of
Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Salient 3 Communications, Inc.
/s/Paul H. Snyder
Paul H. Snyder
Senior Vice President and
Chief Financial Officer
Date: May 14, 1997
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<RECEIVABLES> 20,049,000
<ALLOWANCES> 1,495,000
<INVENTORY> 17,210,000
<CURRENT-ASSETS> 90,807,000
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<COMMON> 8,985,000
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<SALES> 24,817,000
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