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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE PERIOD ENDED AUGUST 2, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from to .
Commission file number 0-21236
APPLIED SIGNAL TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 77-0015491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 WEST CALIFORNIA AVENUE, SUNNYVALE, CA 94086
(408) 749-1888
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by a check 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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, no par value 7,871,147 Shares outstanding as of September 6, 1996.
This Quarterly Report on Form 10-Q consists of 24 pages. The Exhibit Index
is on Page 18.
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INDEX
APPLIED SIGNAL TECHNOLOGY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - August 2, 1996 and October 31, 1995
Statements of Operations - Three months ended August 2, 1996 and
July 28, 1995; nine months ended August 2, 1996 and July 28,
1995.
Statements of Cash Flows - Nine months ended August 2, 1996 and
July 28, 1995
Notes to Financial Statements - August 2, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
APPLIED SIGNAL TECHNOLOGY, INC.
BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
ASSETS AUGUST 2, 1996 OCTOBER 31, 1995
(UNAUDITED) (NOTE)
-------------- ----------------
<S> <C> <C>
Current assets:
Cash $ -- $ 369
Accounts receivable:
Billed 11,142 12,768
Unbilled 14,870 16,796
-------- --------
Total accounts receivable 26,012 29,564
Inventory 7,357 3,474
Prepaid and other current assets 2,172 2,097
-------- --------
Total current assets 35,541 35,504
Property and equipment, at cost:
Machinery and equipment 22,308 19,504
Furniture and fixtures 3,282 2,903
Leasehold improvements 3,316 1,589
Construction in process 416 751
-------- --------
29,322 24,747
Accumulated depreciation and amortization (16,224) (13,492)
-------- --------
Net property and equipment 13,098 11,255
Long-term investments 2,082 2,095
Other assets 121 176
-------- --------
Total assets $ 50,842 $ 49,030
======== ========
</TABLE>
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APPLIED SIGNAL TECHNOLOGY, INC.
BALANCE SHEETS (continued)
(In thousands except share data)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY AUGUST 2, 1996 OCTOBER 31, 1995
(UNAUDITED) (NOTE)
-------------- ----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,214 $ 3,921
Accrued payroll and related benefits 4,269 3,691
Other accrued liabilities 1,491 1,547
Income taxes payable 2,021 2,077
Bank line of credit 600 --
-------- --------
Total current liabilities 10,595 11,236
Deferred income taxes 847 847
Commitments
Shareholders' equity:
Preferred stock, no par value:
2,000,000 shares authorized;
none issued and outstanding -- --
Common stock, no par value:
20,000,000 shares authorized;
issued and outstanding -- 7,860,457 at
August 2, 1996 and 7,532,643 at
October 31, 1995 19,997 18,895
Retained earnings 19,421 18,057
Net unrealized loss on securities (18) (5)
-------- --------
Total shareholders' equity 39,400 36,947
-------- --------
Total liabilities and shareholders' equity $ 50,842 $ 49,030
======== ========
</TABLE>
Note: The balance sheet at October 31, 1995 has been derived from the audited
financial statement at that date but does not include all of the information and
features required by generally accepted accounting principles for complete
financial statements.
See notes to financial statements.
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APPLIED SIGNAL TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
AUGUST 2, JULY 28, AUGUST 2, JULY 28,
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues from contracts $19,504 $14,330 $52,272 $41,181
Operating expenses:
Contract costs 12,624 11,274 35,619 28,697
Research and development 2,281 2,399 6,348 5,872
General and administrative 2,877 2,651 8,245 6,649
------- ------- ------- -------
Total operating expenses 17,782 16,324 50,212 41,218
------- ------- ------- -------
Operating income (loss) 1,722 (1,994) 2,060 (37)
Interest income/(expense), net 23 (9) 38 184
------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes 1,745 (2,003) 2,098 147
Provision (benefit) for income taxes 610 (801) 734 59
------- ------- ------- -------
Net income (loss) 1,135 $(1,202) $ 1,364 $ 88
======= ======= ======= =======
Net income (loss) per common share $ 0.14 $ (0.16) $ 0.17 $ 0.01
Number of shares used in calculating
net income (loss) per common share 8,062 7,452 7,901 7,616
</TABLE>
See notes to financial statements.
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APPLIED SIGNAL TECHNOLOGY, INC.
STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------
AUGUST 2, 1996 JULY 28, 1995
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,364 $ 88
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,732 2,311
Accounts receivable 3,552 3,809
Inventory, prepaids and other current assets (3,958) (7,074)
Other assets 55 (9)
Accounts payable and accrued expenses (1,241) (2,121)
------- -------
Net cash provided by (used in) operating activities 2,504 (2,996)
INVESTING ACTIVITIES:
Maturity of investments -- 2,000
Additions to property and equipment (4,575) (4,012)
------- -------
Net cash provided by (used in) investing activities (4,575) (2,012)
FINANCING ACTIVITIES:
Amounts borrowed under bank line of credit 600 3,640
Issuance of common stock 1,102 1,163
Repurchase of common stock -- (987)
------- -------
Net cash provided by financing activities 1,702 3,816
------- -------
Net decrease in cash and cash equivalents (369) (1,192)
Cash, beginning of period 369 1,192
------- -------
Cash, end of period $ 0 $ 0
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 59 $ 106
</TABLE>
See notes to financial statements.
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APPLIED SIGNAL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
August 2, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ending August 2, 1996 are
not necessarily indicative of the results that may be expected for the year
ending October 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended October 31, 1995.
INVESTMENTS
The Company's investment securities, which consist primarily of U.S.
Treasury securities, are classified as available-for-sale and are carried at
fair market value. Unrealized gains and losses, net of tax, are reported in
shareholders' equity as part of retained earnings. Realized gains and losses on
available-for-sale securities are included in interest income (expense), net.
The cost of securities sold is based on the specific identification method.
Interest on securities classified as available-for-sale are included in interest
income (expense), net. At August 2, 1996, the contractual maturities of the debt
securities were staggered over the next two years, all maturing by June 30,
1998.
REVENUES FROM CONTRACTS
The Company accounts for fixed price contracts using the percentage-of-
completion method of accounting. Under this method, all contract costs are
charged to operations as incurred; and a portion of the contract revenues, based
on estimated profits and the degree of completion of the contract as measured by
a comparison of the actual and estimated costs, is recognized as revenues each
quarter. The Company accounts for cost reimbursement contracts by charging
contract costs to operations as incurred and recognizing contract revenues and
profits by applying an estimated fee rate to actual costs. Management reviews
contract performance, costs incurred and estimated completion costs regularly
and adjusts revenues and profits on contracts in the month in which changes
become determinable.
PER SHARE DATA
Net income (loss) per share is computed using the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares from
stock options (using the treasury stock method).
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NOTE 2 - INVENTORY
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 2, 1996 OCTOBER 31, 1995
-------------- ----------------
<S> <C> <C>
Raw Materials $ 615 $ 548
Work in Process 5,465 2,148
Finished Goods 286 387
------ ------
6,366 3,083
Precontract Costs 991 391
------ ------
$7,357 $3,474
====== ======
</TABLE>
The Company records contract revenues and costs for interim reporting purposes
based on annual targeted indirect rates. At year end, the revenues and costs are
adjusted for actual indirect rates. During the interim reporting periods
variances may accumulate between the actual indirect rates and the annual
targeted rates. All timing-related indirect spending variances are inventoried
as part of work in process during these interim reporting periods. These rates
are reviewed regularly and any permanent variances are reflected in the income
statement as they become known. At August 2, 1996, the inventoried variance was
approximately $2,042,702 ($4,150,079 at July 28, 1995) and was included in work
in process. At October 31, 1995 and 1994 the variance was zero, since all
revenues and costs were recorded at the actual indirect rates for each fiscal
year end.
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ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following information should be read in conjunction with the attached
financial statements and notes thereto.
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the factors set forth in "Business Considerations and Certain Factors that May
Affect Future Results of Operations and/or Stock Price."
BUSINESS ENVIRONMENT/BACKGROUND:
Applied Signal Technology designs, develops, manufactures and markets advanced
digital signal processing equipment to collect and process a wide range of
telecommunication signals for both signal reconnaissance and commercial
applications. This equipment is purchased by the U.S. Government as well as
allied foreign governments and is used for foreign signal reconnaissance. The
commercial telecommunication processing equipment is used in digital video
transmission, cellular radio communication systems, and as equipment for a
variety of both cable and wireless communication technologies.
In recent years, accurate and comprehensive information regarding foreign
affairs and developments has become increasingly important to the United States
government. The reduction of United States military tactical forces overseas,
coupled with political instability in certain regions such as the Middle East,
Eastern Europe, Africa and South America, has heightened the United States
government's need to be able to monitor overseas activities. In order to obtain
information about activities within foreign countries, the United States
government gathers and analyzes telecommunication signals emanating from those
countries.
The Company devotes significant resources toward understanding the United States
government's signal reconnaissance goals, capabilities and perceived future
needs. The Company obtains information about these signal reconnaissance needs
through frequent marketing contact between its employees and technical and
contracting officials of the United States government. The Company believes that
it has much more marketing contact with customers and potential customers than
is customary among its competitors. In addition, the Company invests in research
and development (R&D) which it anticipates will enable it to develop signal
reconnaissance equipment that meets these needs. The Company believes that it
invests a greater percentage of its revenues in R&D than is typical among its
competitors.
Traditionally, the United States government has addressed its signal
reconnaissance needs with custom signal processing solutions which tend to be
both expensive and have long delivery times. These factors, combined with
budgetary constraints, have caused many agencies to search for more flexible and
cost-effective signal reconnaissance solutions that can be deployed promptly.
The Company's signal reconnaissance products can be used, with or without
further modification, to satisfy requirements of a variety of customers. The
Company believes that custom equipment generally cannot be as readily deployed
in as wide a variety of circumstances as the Company's products. The Company
designs its products to use advanced circuitry including Company-designed
application-specific integrated circuits (ASICs). This enables the Company to
offer products that are smaller, consume less power and cost customers less when
multiple units are built.
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The rapidly advancing communications marketplace has created numerous new
opportunities for the Company to expand its marketplace.
Through a combination of customer and internally funded development, the Company
is judiciously seeking opportunities to expand its market reach. This is being
accomplished by capitalizing on the Company's accumulated knowledge of advanced
digital signal processing and telecommunications technologies in an effort to
either license the technology to the commercial sector or perform low-to-medium
volume manufacturing on select subsystems.
The following table sets forth selected commercial telecommunications projects
for which the Company is currently in development and identifies the primary
customers:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION CUSTOMER(S)
<S> <C> <C>
QAMalyzer(TM) Digital test equipment for cable service providers TCI, Pacific Telesis,
Southwestern Bell
DIF Processor Earth base-station TDMA uplink/downlink processor Lockheed Martin (ACeS)
Cell Phone Modem chip design for the Ericsson Ericsson, Inc.
Modem Chip "Freeset 1900(TM)" PCS cellular phone
QAM Error Error detection chip for set-top converters VLSI Technologies, Inc.
Detection Chip
</TABLE>
BUSINESS CONSIDERATIONS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS AND/OR STOCK PRICE:
Defense and intelligence agencies have accounted for almost all of the Company's
revenues. Future reductions in United States government spending on signal
reconnaissance equipment or future changes in the kind of signal reconnaissance
products or services required by United States government agencies could limit
demand for the Company's products which would have a material adverse effect on
the Company's operating results and financial condition.
The signal reconnaissance equipment market is highly competitive and the Company
expects that competition will increase in the future. Some of the Company's
current and potential competitors have significantly greater technical,
manufacturing, financial and marketing resources than the Company. Substantial
competition could have a material adverse effect on the Company's results of
operations and financial condition.
The Company believes its employees are its most valuable resource and,
accordingly, focuses much of its attention on attracting and retaining staff
members.
Over the last year, the Company has experienced an increase in its attrition
rate as well as a difficulty in attracting new talent into the Company due to
increased competition for qualified personnel. Management believes these effects
are attributable to the expanding U.S. economy and, in particular, the local
California economy where the Company must compete for new talent, and the growth
in the telecommunications sector. The Company has implemented a more aggressive
recruiting program and an employee referral
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program aimed at countering this new environment. The Company's ability to
execute its business plan is contingent upon attracting and retaining qualified
employees. While the Company believes progress has been made during the most
recent quarters, there can be no assurances that the Company will be successful
at attracting and retaining sufficient personnel. Failure to do so will have a
material adverse effect on the Company's future operating results.
Almost all of the Company's contracts contain termination clauses which permit
contract termination upon the Company's default or for the convenience of the
other contracting party. In either case, termination could adversely affect the
Company's operating results. Although the Company has not experienced any
material cancellations to date, there can be no assurances that such
cancellations will not occur in the future.
A significant portion of the Company's revenues are derived from fixed-price
contracts. Under fixed-price contracts, unexpected increases in the cost to
develop or manufacture a product, whether due to inaccurate estimates in the
bidding process, unanticipated increases in materials costs, inefficiencies or
other factors, are borne by the Company. The Company has experienced cost
overruns in the past that have caused the Company to realize losses on
contracts. There can be no assurance that the Company will not experience cost
overruns in the future or that such overruns will not have a material adverse
effect on the Company's operating results.
The Company has experienced some constraint in earnings resulting from lower
average profitability on its production jobs. This is due, in part, to the
unfavorable adjustments in estimated costs-to-complete on production jobs
recorded during this fiscal year and due, in part, to absorbing unrecoverable
indirect costs at a rate higher than was provided for in the contract prices of
these contracts. The Company has taken several steps aimed at improving its
contract margins. This includes revising prices of its products and services,
review of operational processes for efficiency, and examining its cost
structures. Although the Company believes some improvements can be seen in the
operating results for the third quarter of this fiscal year, there can be no
assurances that these steps will result in improved margins on future results of
operations.
The Company has experienced significant fluctuations in operating results from
quarter to quarter and expects that it will continue to experience such
fluctuations in the future. These fluctuations are caused by factors inherent in
government contracting and the Company's business such as the timing of cost and
expense recognition for contracts and the United States government contracting
and budget cycles. Fluctuations in quarterly results may cause the price of the
Company's common stock to fluctuate substantially.
The market for the Company's products is characterized by rapidly changing
technology. The Company believes that it has been successful to date in
identifying United States government signal reconnaissance needs early,
investing in research and development to meet these needs and delivering
products before the Company's competitors. The Company believes that its future
success will depend upon continuing to develop and introduce, in a timely
manner, products capable of collecting or processing new types of
telecommunications signals. There can be no assurance that the Company will be
able to develop and market new products successfully in the future or respond
effectively to technological changes or that new
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products introduced by others will not render the Company's products or
technologies noncompetitive or obsolete.
The Company has had numerous discussions with companies in the commercial cable
TV/video compression and telecommunications marketplaces. The Company invested
14% of its fiscal 1995 research and development expenditures and plans to invest
approximately 20% of its fiscal 1996 research and development expenditures
exploiting opportunities in these areas. The Company's primary business strategy
in this area is to capitalize on its experience as a technology company and to
explore areas where current or newly developed technology can be licensed or
products can be manufactured and sold into the commercial marketplace. To date,
revenues from the commercial marketplace have been less than 5% of the Company's
revenues and have consisted primarily of product development fees. There can be
no assurance that the Company's commercial marketplace strategy will be
successful or that the Company will maintain or increase revenues from the
commercial marketplace.
There can be no assurance that an active trading market will be sustained for
the Company's common stock. Further, the market price of the common stock could
be subject to significant fluctuations in response to quarter-to-quarter
variations in operating results, United States government spending patterns and
other factors. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many technology companies and that have been unrelated or
disproportionate to the operating performance of such companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the future market price of the Company's common stock.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to volatility, particularly on a quarterly basis.
QUARTER AND NINE MONTHS ENDED AUGUST 2, 1996 COMPARED TO QUARTER AND NINE MONTHS
ENDED JULY 28, 1995:
RESULTS OF OPERATIONS:
REVENUES AND BACKLOG: Revenues for the third quarter of fiscal 1996 were
$19,504,000, representing a 36% increase over third quarter fiscal 1995 revenues
of $14,330,000. Revenues for the nine months ended August 2, 1996 were
$52,272,000, up 27% from $41,181,000 for the first nine months of fiscal 1995.
The increase in the third quarter and year-to-date revenues reflects an increase
in contract activity predominantly in the Company's three engineering divisions,
while revenues for the manufacturing division were materially unchanged
year-over-year. This increase in revenue is primarily due to the Company's
recent success in retaining and attracting new staff members to meet the
increased contractual obligations.
New order levels for the third quarter of fiscal 1996 were $13,609,000, down 9%
from the $14,927,000 reported for the same period of fiscal 1995. New orders for
the first nine months of fiscal 1996 were $91,781,000, up 195% from the
$31,121,000 reported during the same period of fiscal 1995.
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The Company's backlog, which consists of anticipated revenues from the
uncompleted portions of existing contracts (excluding unexercised options) was
$69,214,000 at August 2, 1996 versus $20,194,000 at July 28, 1995. This
represents a 242.7% increase over the prior year's backlog. The increase in
backlog is primarily due to the record order levels received during the first
nine months of fiscal 1996 compared to the same period of fiscal 1995.
CONTRACT COSTS: Contract costs consist of direct costs on contracts, including
materials and labor, and manufacturing overhead costs. Contract costs as a
percentage of revenue were 64.7% for the third quarter of fiscal 1996 versus
78.7% for the same period of fiscal 1995. Contract costs for the nine months
ending August 2, 1996 were 68.1% of revenue, versus 69.7% for the first nine
months of fiscal 1995. Contract costs expressed as a percentage of revenue for
the quarter and first nine months of fiscal 1996 were down primarily due to the
previously announced third quarter fiscal 1995 charge to contract costs in
connection with the government's ongoing investigation regarding certain
contracts partially offset by the higher targeted overhead rate being applied to
contracts during fiscal 1996. (See Part II, Item 1 - "Legal Proceedings.")
RESEARCH AND DEVELOPMENT (R&D): Company-directed investment in research and
development consists of expenditures recoverable from customers through the
Company's billing rates and expenditures funded by the Company from earnings. It
is the Company's accounting practice to record R&D expenses based on annual
targeted indirect rates. (See "Notes to Financial Statements; Note 2 -
Inventory.") Research and development expenses as a percentage of revenues were
11.7% and 16.7% for the third quarter of fiscal years 1996 and 1995,
respectively. R&D expenses for the first nine months of fiscal years 1996 and
1995 were 12.1% and 14.3% of revenues, respectively. The quarter and
year-to-date spending on research and development as a percentage of revenues in
fiscal 1996 is down when compared to the same periods of fiscal 1995, primarily
due to the Company devoting staff to meet contractual commitments versus working
on research and development programs. This effect was exaggerated by the
difficulty the Company experienced in retaining staff as well as attracting new
staff during the first six months of fiscal 1996. (See "Business Considerations
and Certain Matters That May Affect Future Results of Operations and/or Stock
Price.")
The Company-funded investment in R&D for the most recent nine months was 4.0% of
revenues versus 6.1% for the same period during fiscal 1995. The Company intends
to continue to make substantial investments in research and development in an
effort to meet the needs of customers before its competitors; however, there can
be no assurances that the Company will be able to develop and market new
products successfully in the future.
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GENERAL AND ADMINISTRATIVE: General and administrative expenses include
administrative salaries, costs related to the Company's marketing and proposal
activities and other administrative costs. It is the Company's accounting
practice to record general and administrative expenses based on annual targeted
indirect rates. (See "Notes to Financial Statements; Note 2 - Inventory.")
General and administrative expenses were $2,877,000 or 14.8% of revenues for the
third quarter of fiscal 1996 compared to $2,651,000 or 18.5% for the third
quarter of fiscal 1995. General and administrative expenses were $8,245,000, or
15.8%, and $6,649,000, or 16.1% of revenues for the nine months ended August 2,
1996 and July 28, 1995, respectively. Consistent with government contracting
methodology, the Company considers both general and administrative expenses and
research and development expenses part of its general and administrative
indirect expense pool. Combined, R&D and general and administrative expenses
were 27.9% of revenues for the first nine months of fiscal 1996 versus 30.4% for
the same period of fiscal 1995. General and administrative expenses as a
percentage of revenues were down for the quarter and year-to-date periods in
fiscal 1996 in part due to the higher profits recorded during the third quarter
and nine months of fiscal 1996 compared to the same periods of fiscal 1995, and
in part due to the lower targeted general and administrative rate being applied
to contracts during the current fiscal year.
INTEREST INCOME/(EXPENSE): Interest income was $23,000 for the quarter ended
August 2, 1996, up from the $9,000 interest expense recorded for the same period
of fiscal 1995. Interest income for the first nine months of fiscal 1996 was
$38,000, compared to interest income of $184,000 for the same period of fiscal
1995. The increase in interest income received during the third quarter of
fiscal 1996 as compared to the same period in fiscal 1995 is primarily due to
the reduction of amounts outstanding under the Company's bank lines of credit
during the third quarter of fiscal 1996 as compared to the same period of fiscal
1995. The decrease in interest income received during the first nine months of
fiscal 1996 is due to the increased rate of investment in working capital,
resulting in lower average cash balances during the first nine months of fiscal
1996 as compared to the same period of fiscal 1995.
PROVISION FOR INCOME TAXES: The provision for income taxes as a percentage of
net income before income taxes was 35.0% for the third quarter and nine months
of fiscal 1996, compared to 40.0% for the same periods of fiscal 1995. The
decrease in the quarter and year-to-date tax rate is primarily the result of the
Company adopting the estimated annual tax rate earlier in fiscal 1996 as
compared to fiscal 1995. During fiscal 1995, the Company did not adjust its
effective tax rate until the fourth quarter.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES:
The Company's primary source of liquidity has been the cash flow generated from
operations, short-term bank borrowings, equipment leases and equity and debt
financings.
The Company has a bank credit agreement to augment cash flow needs and to
provide term financing for capital investments. The Company maintains a
$6,000,000 unsecured, revolving line of credit for short-term cash requirement
and a $1,000,000 line of credit for use in purchasing capital investments. The
unsecured, revolving line of credit bears interest at the bank's reference rate
(8.25% as of August 2, 1996). The line of credit for use in purchasing capital
investments bears interest at the bank's reference rate plus one-half percent.
Outstanding amounts on the unsecured, revolving line of credit were $600,000 at
August 2, 1996
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and October 31, 1995. Outstanding amounts on the line of credit for use in
purchasing capital investments were zero at August 2, 1996 and at October 31,
1995. Both lines expire March 1, 1997.
NET CASH PROVIDED BY /(USED IN) OPERATING ACTIVITIES: Net cash provided by
operating activities has varied significantly from quarter to quarter. These
quarter-to-quarter variances are primarily the result of changes in net income,
changes in the rate of investment in accounts receivable and the change in
inventories held by the Company. During the first nine months of fiscal 1996,
$2,504,000 was provided by operating activities versus $2,996,000 used in
operating activities during the comparable period of fiscal 1995. The
improvement in the year-to-year change in cash from operating activities is
primarily due to the improved profitability recorded on contracts and the
reduction in the rate of investment in inventories, prepaids, and other assets
and accounts payable experienced during the first nine months of fiscal 1996.
During the first nine months of fiscal 1996, cash used in the investment in
inventories, prepaids, and other assets was $3,958,000, compared to $7,074,000
used in the investment in inventories during the comparable period of fiscal
1995. This reduction in the rate of investment in inventory is due in part to
the reduction of timing-related targeted indirect rate variances (See "Notes to
Financial Statements; Note 2 - Inventory") and, in part, to a management
initiative to more aggressively manage the Company's investment in inventory.
During the first nine month of fiscal 1996, cash used in accounts payable was
$1,241,000. This is down from the $2,121,000 used in accounts payable during the
comparable period of fiscal 1995.
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES: Net cash used in investing
activities was $4,575,000 for the first nine months of fiscal 1996 versus
$2,012,000 used in investing activities during the same period of fiscal 1995.
Additions to property, plant and equipment were $4,575,000 in the first nine
months of fiscal 1996 compared to $4,012,000 in the first nine months of fiscal
1995. The increase in capital investment in the first nine months of fiscal 1996
is driven by the Company's increased volume of development-type contracts which
tend to require more test, measurement, and computational equipment and, to a
lesser extent, by the increased number of new staff hired by the Company. During
the first nine months of fiscal 1995, the $2,000,000 of cash provided by the
maturity of investments was used primarily to finance the growth in fixed
assets, inventory and the repurchase of common stock during the period.
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES: Cash provided by financing
activities during the first nine months of fiscal 1996 was $1,702,000 versus
$3,816,000 provided by financing activities during the first nine months of
fiscal 1995. The reduction in cash provided by financing activities during the
first nine months of fiscal 1996 is primarily attributable to the decrease in
borrowings under the bank line of credit partially offset by the absence of cash
used to repurchase the Company's common stock. During the first nine months of
fiscal 1995, the cash provided by the increased bank line of credit was
necessary to finance the growth in fixed assets, inventory and to repurchase
shares of the Company's common stock.
The Company believes that the funds generated from operations, existing working
capital and amounts available under existing lines of credit will be sufficient
to meet its cash needs through fiscal 1997.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1994, the Company was served with a subpoena by the Department
of Defense Office of Inspector General (OIG) in connection with approximately
six contracts, several of which had been audited by the Defense Contract Audit
Agency (DCAA) the previous year. As is routine in such matters involving
government contracts, the OIG referred the matter to another government agency
which also had contracts with the Company. Shortly thereafter, this second
agency issued a request for information related to nine additional contracts. To
date, the Company has not received any allegations of wrongdoing from the OIG
or the other agency. At the request of the Board of Directors, the Company
initiated its own review of the contracts in conjunction with its legal counsel.
Further review of the contracts in question and related contracts
through April 1995 indicates the Company was not compliant with Public Law
87-653, Truth in Negotiations Act, which requires disclosure of all actual costs
available on the date of cost certification on certain contracts performed
during the 1989 and 1990 timeframe. These findings have resulted in a voluntary
disclosure to the government which is expected to result in a downward price
adjustment on certain contracts. In June 1995, the Company announced it was
taking a charge against the fiscal 1995 third quarter operating results in
anticipation of a settlement with the government on the subject contracts. The
charge resulted in a reduction of the fiscal 1995 third quarter's operating
income of $1.2 million.
In April 1996, the Company was served with a second subpoena by the OIG
in connection with all contracts entered into between 1990 and the present
related to three products: the Model 102P Voice Channel Demodulator, the Model
120 Multichannel Processor, and the Model 150 FAX Scanner. The Company is
presently in discussions with the OIG to determine the scope of the subpoena and
intends to fully comply with the request.
While management believes the fiscal 1995 third quarter charge is
adequate to cover all related risks, the government has not concluded its
investigation or agreed to a settlement with the Company. There can be no
assurances the Company will not be required to take additional charges in
connection with this matter in future periods. However, management believes that
any such charges would not have a material effect on the operating results and
financial condition of the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibits -- See Index to Exhibits on page 18
Reports on Form 8-K
Not applicable.
16
<PAGE> 17
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 thereinto duly authorized.
Applied Signal Technology, Inc.
/BRIAN M. OFFI/ SEPTEMBER 12, 1996
-------------------------------------------- --------------------
Brian M. Offi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE> 18
APPLIED SIGNAL TECHNOLOGY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<S> <C>
3.1(1) Second Amended and Restated Articles of Incorporation
3.2(1) Amended and Restated Bylaws
4.1(1) Specimen Common Stock Certificate
4.2(1) Rights Agreement dated January 25, 1991
10.1(1) Form of Indemnification Agreement for directors and officers
10.2(1) 1984 Stock Purchase Plan and form of agreement thereunder
10.3(1) 1991 Stock Option Plan and forms of agreements thereunder
10.4(1) 1993 Employee Stock Purchase Plan
10.5(1) Profit Sharing Policy
10.6(1) Summary Plan Description of 401(k) Retirement Plan
10.7(1) Warrant to Purchase Common Stock dated June 27, 1990 issued to
Owenoake Partners, L.P. ("Owenoake"), Letter Agreement with Owenoake
dated September 20, 1990, and Amendment Number One to Warrants to
Purchase Common Stock with Owenoake and certain warrant holders dated
February 8, 1993
10.8(1) Warrants to Purchase Common Stock dated September 25, 1990 issued to
certain warrant holders
10.9(2) Line of Credit Agreement dated June 10, 1993 with Sanwa Bank
California and related Equipment Purchase Line of Credit Agreement
dated June 10, 1993
10.10(1) Lease Agreement dated August 21, 1985 with Lincoln Mathilda
Associates, Ltd. and Patrician Associates, Inc., and amendments
thereto
10.11(3) Lease agreements dated November 23, 1994 with Lincoln Property Company
Management Services, Inc. for Buildings H and I
10.12(4) Amendment to Commercial Credit Agreement dated March 7, 1995 with
Sanwa Bank California and related Equipment Purchase Line Agreement
dated March 10, 1995
10.13 Amendments to Commercial Credit Agreements dated March 1, 1996 with
Sanwa Bank California
10.14 Certified Corporate Resolution to borrow dated March 6, 1996 with
Sanwa Bank California
11.1 Statement regarding computation of net income per share
13.1(4) Annual Report to Shareholders for fiscal year ended October 31, 1995
23.1(4) Consent of Independent Auditors
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to corresponding Exhibit filed as an Exhibit to
Registrant's Registration Statement on Form S-1 filed January 29, 1993
(File No. 33-55168).
18
<PAGE> 19
(2) Incorporated by reference to corresponding Exhibit filed with the
Registrant's Form 10-K for fiscal year 1993 dated January 22, 1994.
(3) Incorporated by reference to corresponding Exhibit filed with the
Registrant's Form 10-K for fiscal year 1994 dated January 27, 1995.
(4) Incorporated by reference to corresponding Exhibit filed with the
Registrant's Form 10-K for fiscal year 1995 dated January 26, 1996.
19
<PAGE> 1
APPLIED SIGNAL TECHNOLOGY, INC.
EXHIBIT 10.13
AMENDMENTS TO COMMERCIAL CREDIT AGREEMENTS
-- REVOLVING LINE OF CREDIT
-- TERM DEBT FACILITY
<PAGE> 2
[SANWA BANK CALIFORNIA LOGO]
AMENDMENT OF COMMERCIAL CREDIT AGREEMENT
This Amendment of Commercial Credit Agreement ("Amendment") is made and entered
into this 1st day of March 1996 by and between SANWA BANK CALIFORNIA (the
"Bank") and APPLIED SIGNAL TECHNOLOGY, INC. (the "Borrower") with respect to
the following:
This Amendment shall be deemed to be a part of and subject to that certain
commercial credit agreement between the parties herein and dated as of June 10,
1993, as it may have been or be amended from time to time, and any and all
addenda, riders, exhibits and schedules therein (collectively, the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of
the terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or
modify the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the
Bank agree as follows:
1. Extension of Repayment of Principal. The first sentence contained in
Section 2.02 C. of the Agreement is modified to read as follows: "Unless
sooner due in accordance with the terms of this Agreement, on March 1, 1997 the
Borrower hereby promises and agrees to pay to the Bank in full the aggregate
unpaid principal balance of all Advances then outstanding, together with all
accrued and unpaid interest thereon".
2. Extension of the Expiration of the Line of Credit Facility. The Expiration
Date of the Line of Credit Facility contained in the Agreement, which is
currently March 1, 1996, shall be modified and extended to be March 1, 1997.
3. Extension of the Expiration of the Letter of Credit Facility. The
Expiration of the Letter of Credit Facility contained in the Agreement, which
is currently March 1, 1996 shall be modified and extended to be March 1, 1997
and no Letter of Credit shall expire on a date which is more than 90 days
after such date.
4. Deletion of Section 2.04. Section 2.04 of the Agreement is hereby deleted
in its entirety and shall be of no further force and effect.
5. Modification of Section 5.14A. Section 5.14A of the Agreement (which was
modified by a prior Amendment dated March 1, 1994) is modified to read as
follows: "Net Worth. A minimum Effective Tangible Net Worth of not less than
$33,000,000.00".
6. Incorporation Into Agreement. On and after the effective date of this
Amendment, each reference in the Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Agreement shall
mean and be referenced to the Agreement as amended by this Amendment.
7. No Waiver. The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Bank under the
Agreement.
8. Confirmation of Other Terms and Conditions. Except as specifically provided
in this Amendment, all other terms, conditions and covenants of the Agreement
which are unaffected by this Amendment shall remain unchanged and shall
continue in full force and effect and the Borrower hereby covenants and agrees
to perform and observe all terms, covenants and agreements provided for in the
Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as
of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA APPLIED SIGNAL TECHNOLOGY, INC.
BY: /s/ James Rosewater BY: /s/ Gary L. Yancey
--------------------------- ----------------------------
James Rosewater, Authorized Gary L. Yancey, Chief Executive
Officer Officer and President
BY: /s/ Brian M. Offi
----------------------------
Brian M. Offi, Chief Financial Officer
(i)
<PAGE> 3
[SANWA BANK CALIFORNIA LOGO]
AMENDMENT OF COMMERCIAL CREDIT AGREEMENT
This Amendment of Commercial Credit Agreement ("Amendment") is made and entered
into this 1st day of March 1996 by and between SANWA BANK CALIFORNIA (the
"Bank") and APPLIED SIGNAL TECHNOLOGY, INC. (the "Borrower") with respect to
the following:
This Amendment shall be deemed to be a part of and subject to that certain
commercial credit agreement between the parties hereto and dated as of June 10,
1993, as it may have been or be amended from time to time, and any and all
addenda, riders, exhibits and schedules thereto (collectively, the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of
the terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or
modify the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the
Bank agree as follows:
1. Extension of Repayment of Principal. The first sentence contained in
Section 2.02.C. of the Agreement is modified to read as follows: "Unless
sooner due in accordance with the terms of this Agreement, on March 1, 1997 the
Borrower hereby promises and agrees to pay to the Bank in full the aggregate
unpaid balance of all Advances then outstanding, together with all accrued and
unpaid interest thereon".
2. Revised Conversion to Term Loan. The first sentence contained in Section
2.02.I of the Agreement is modified to read as follows: "It is hereby agreed
that the Borrower may, by giving written notice to the Bank at least two (2)
days prior to March 1, 1997, convert the principal balance outstanding under
the Equipment Purchase Facility as of two days after notification to be payable
on a term loan basis".
3. Extension of Expiration of the Equipment Purchase Facility. The
Expiration Date of the Equipment Purchase Facility contained in the Agreement,
which is currently March 1, 1996 shall be modified and extended to be March 1,
1997.
4. Revised Net Worth. Section 6.16.A. of the Agreement is modified to read as
follows: "Net Worth. A minimum Effective Tangible Net Worth of not less than
$33,000,000.00".
5. Incorporation Into Agreement. On and after the effective date of this
Amendment, each reference in the Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Agreement shall
mean and be referenced to the Agreement as amended by this Amendment.
6. No Waiver. The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Bank under, the
Agreement.
7. Confirmation of Other Terms and Conditions. Except as specifically provided
in this Amendment, all other terms, conditions and covenants of the Agreement
which are unaffected by this Amendment shall remain unchanged and shall
continue in full force and effect and the Borrower hereby covenants and agrees
to perform and observe all terms, covenants and agreements provided for in the
Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as
of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA APPLIED SIGNAL TECHNOLOGY, INC.
BY: /s/ James Rosewater BY: /s/ Gary L. Yancey
--------------------------- ----------------------------
James Rosewater, Authorized Gary L. Yancey, Chief Executive
Officer Officer and President
BY: /s/ Brian M. Offi
----------------------------
Brian M. Offi, Chief Financial
Officer
(i)
<PAGE> 1
APPLIED SIGNAL TECHNOLOGY, INC.
EXHIBIT 10.14
CERTIFIED CORPORATE RESOLUTION TO BORROW
<PAGE> 2
[Sanwa Bank California letterhead]
CERTIFIED CORPORATE RESOLUTION TO BORROW
WHEREAS, APPLIED SIGNAL TECHNOLOGY, INC. (the "Corporation") has made
application to SANWA BANK CALIFORNIA (the "Bank") for credit accommodations
which may consist of but shall in no way be limited to the following: the
renewal, continuation or extension of an existing obligation; the extension of a
new loan, line of credit or commitment; the issuance of letters of credit or
banker's acceptances; or the purchase or sale through the Bank of foreign
currencies.
RESOLVED, that any one (1) of the following named officers, employees, or
agents of the Corporation, whose signatures are shown below:
<TABLE>
<CAPTION>
NAME POSITION SIGNATURE
---- -------- ---------
<S> <C> <C>
GARY L. YANCEY Chief Executive Officer and President /s/ Gary L. Yancey
--------------------------------
BRIAN OFFI Chief Financial Officer /s/ Brian M. Offi
--------------------------------
</TABLE>
is authorized, in the name of and on behalf of the Corporation to take the
following actions:
1. Borrow money from the Bank in such amounts and upon such terms and
conditions as are agreed upon by the officers of the Corporation and the
Bank; and execute and deliver or endorse such evidences of indebtedness
or renewals thereof or agreements therefor as may be required by the
Bank, all in such form and content as the officers of the Corporation
executing such documents shall approve (which approval shall be
evidenced by the execution and delivery of such documents); provided,
however, that the maximum amount of such indebtedness shall not exceed
the principal sum of $8,500,000.00 exclusive of any interest, fees,
attorneys' fees and other costs and expenses related to the
indebtedness.
2. Grant security interests and liens in any real, personal or other
property belonging to or under the control of the Corporation as
security for any indebtedness of the Corporation to the Bank; and
execute and deliver to the Bank any and all security agreements,
pledges, mortgages, deeds of trust and other security instruments and
any other documents to effectuate the grant of such security interests
and liens, which security instruments and other documents shall be in
such form and content as the officers of the Corporation executing such
security instruments and other documents shall approve and which
approval shall be evidenced by the execution and delivery of such
security instruments and other documents.
3. Waive on behalf of the Corporation, and in any agreement, instrument
or document executed by the Corporation include a waiver of, any and
all rights of the Corporation to require the Bank to adhere to certain
processes, including without limitation, the right to a jury trial in an
action or suit against the Bank.
4. Execute such evidences of indebtedness, agreements, security
instruments and other documents and to take such other actions as are
herein authorized.
5. Include in any agreement, instrument or document executed by the
Corporation in connection with the actions herein authorized a provision
requiring that any dispute arising under such agreement, instrument or
document shall be resolved by mediation, arbitration, or other similar
dispute resolution method.
6. Sell to or discount or re-discount with the Bank any and all
negotiable instruments, contracts or instruments or evidences of
indebtedness at any time held by the Corporation; and endorse, transfer
and deliver the same, together with guaranties of payment or repurchase
thereof, to the Bank (for which the Bank is hereby authorized and
directed to pay the proceeds of such sale, discount or re-discount as
directed by such endorsement without inquiring into the circumstances of
its issue or endorsement or the disposition of such proceeds).
7. Apply for letters of credit or seek the issuance of banker's
acceptances under which the Corporation shall be liable to the Bank for
repayment.
8. Purchase and sell foreign currencies, on behalf of the Corporation,
whether for immediate or future delivery, in such amounts and upon such
terms and conditions as the officers of the corporation may deem
appropriate, and give any instructions for transfers or deposits of
monies by check, drafts, cable, letter or otherwise for any purpose
incidental to the foregoing, and authorize or direct charges to the
depository account or accounts of the Corporation for the cost of any
foreign currencies so purchased through the Bank.
9. Designate in writing to the Bank in accordance with the terms of any
agreement or other document executed by the above-named individuals one
or more individuals who shall have the authority as provided herein, to
(a) request advances under lines of credit extended by the Bank to the
Corporation; (b) apply for letters of credit or seek the issuance of
banker's acceptances under which the Corporation shall be liable to the
Bank for repayment; (c) make deposits and receive and execute receipts
for deposits on accounts of the Corporation maintained with the Bank;
(d) make withdrawals and receive and execute receipts for withdrawals on
account of the Corporation maintained with the Bank; and (e) purchase
and sell foreign currencies.
10. Transact any other business with the Bank incidental to the powers
hereinabove stated.
RESOLVED FURTHER, that all such evidences of indebtedness, agreements, security
instruments and other documents executed in the name of and on behalf of the
Corporation and all such actions taken on behalf of the Corporation in
connection with the matters described herein are hereby ratified and approved.
RESOLVED FURTHER, that the Bank is authorized to act upon these resolutions
until written notice of their revocation is delivered to the Bank.
RESOLVED FURTHER, that any resolution set forth herein is in addition to and
does not supersede any resolutions previously given by the Corporation to the
Bank.
RESOLVED FURTHER, that the Secretary of the Corporation be, and hereby is,
authorized and directed to prepare, execute and deliver to the Bank a certified
copy of the foregoing resolutions.
I DO HEREBY CERTIFY that I am the Secretary of APPLIED SIGNAL TECHNOLOGY, INC.,
a California corporation, and I do hereby further certify that the foregoing is
a true copy of the resolutions of the Board of Directors of the Corporation
adopted and approved in accordance with all applicable provisions of law and
(1)
<PAGE> 3
the Articles and By-Laws of the Corporation either by unanimous written consent
or at a meeting which was duly called and held, at which meeting a majority of
the Board of Directors of the Corporation was present and voted in favor of the
resolutions.
I HEREBY FURTHER CERTIFY that such resolutions are presently in full force and
effect and have not been amended or revoked. I do further certify that the
above persons have been duly elected and qualified as and, this day are,
officers of the Corporation, holding their respective offices appearing by
their names, and that the signatures appearing opposite their names are the
genuine signatures of such persons.
IN WITNESS WHEREOF, this certificate has been executed on March 6, 1996.
-------------
CERTIFIED TO AND ATTESTED BY:
x /s/ Mary Rogge
-----------------------------------------
Secretary or Assistant Secretary
x
-----------------------------------------
*Note: in case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this certificate should
also be signed by a second Officer or Director of the Corporation.
(2)
<PAGE> 1
APPLIED SIGNAL TECHNOLOGY, INC.
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
AUGUST 2, JULY 28, AUGUST 2, JULY 28,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of shares:
Weighted average outstanding
common 7,815 7,452 7,715 7,430
Dilutive common stock equivalents of:
Stock options (treasury stock
method)(1) 247 -- 186 186
------ ------- ------ ------
8,062 7,452 7,901 7,616
====== ======= ====== ======
Net income (loss) $1,135 $(1,202) $1,365 $ 88
Net income (loss) per common share $ .14 $ (0.16) $ .17 $ .01
</TABLE>
(1) Effect of assumed exercise of all dilutive stock options and assumed
repurchase of shares from proceeds. Common equivalent shares from stock
options are excluded from the computation for the three months ended July
28, 1996 as their effect is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS INCLUDED IN
THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED AUGUST 2, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> AUG-02-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 26,012
<ALLOWANCES> 0
<INVENTORY> 7,357
<CURRENT-ASSETS> 35,541
<PP&E> 29,322
<DEPRECIATION> 16,224
<TOTAL-ASSETS> 50,842
<CURRENT-LIABILITIES> 10,595
<BONDS> 0
0
0
<COMMON> 19,997
<OTHER-SE> 18
<TOTAL-LIABILITY-AND-EQUITY> 50,842
<SALES> 52,272
<TOTAL-REVENUES> 52,272
<CGS> 35,619
<TOTAL-COSTS> 50,212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 2,098
<INCOME-TAX> 734
<INCOME-CONTINUING> 1,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,364
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
