FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 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 000-21770
SIGNAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2758268
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
955 Benecia Avenue, Sunnyvale, CA 94086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 730-6318
----------------------------
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
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at August 7, 1996
$.01 Par Value 7,133,693 shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
1996 1995
---- ----
Assets
Cash $ 1,439 $ 1,584
Accounts receivable, net 16,411 15,983
Inventory 27,314 25,598
Deferred taxes 2,187 2,202
Other assets 759 1,054
-------- --------
Total current assets 48,110 46,421
-------- --------
Property, plant and equipment 33,190 34,088
Less: accumulated depreciation (18,734) (17,647)
-------- --------
Net property, plant and equipment 14,456 16,441
Other assets 3,920 3,255
-------- --------
Total assets $ 66,486 $ 66,117
======== ========
Liabilities
Current maturities of long-term debt $ 375 $ 375
Accounts payable 7,465 6,159
Accrued expenses 6,142 5,292
Customer advances 2,252 3,856
-------- --------
Total current liabilities 16,234 15,682
======== ========
Deferred income taxes 1,091 1,208
Long-term debt 16,836 17,283
Stockholder's Equity
Common stock 71 69
Additional paid-in capital 11,769 11,432
Unearned compensation (27) (54)
Retained earnings 20,512 20,497
-------- --------
Total stockholders' equity 32,325 31,944
-------- --------
Total liabilities and stockholders' equity $ 66,486 $ 66,117
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 2
<PAGE>
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except per share amounts)
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $27,371 $21,935 $49,419 $43,460
Cost of sales 22,220 17,687 39,793 34,936
------- ------- ------- -------
Gross profit 5,151 4,248 9,626 8,524
Selling, general and administrative expense 4,404 3,990 8,552 8,299
Research and development expense 99 229 301 705
------- ------- ------- -------
Operating income (loss) 648 29 773 (480)
Interest expense 353 295 694 536
------- ------- ------- -------
Income (loss) before income taxes 295 (266) 79 (1,016)
Provision (benefit) for income taxes 125 (106) 64 (398)
------- ------- ------- -------
Net income (loss) per share 170 (160) 15 (618)
======= ======= ======= =======
Income (loss) per share 0.02 (0.02) 0.00 (0.09)
======= ======= ======= =======
Shares used in calculating income (loss) per share 7,711 6,855 7,670 6,850
------- ------- ------- -------
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
Page 3
<PAGE>
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Six Months Ended
----------------------------------
June 30, June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 15 $ (618)
Adjustments to reconcile net loss to net cash
provided by operations:
Depreciation and amortization 2,093 1,717
Loss on disposal of property, plant and equipment 22 5
Unearned compensation 27 27
Deferred taxes (102) (205)
Changes in operating assets and liabilities:
Accounts receivable (428) (408)
Inventory (1,716) (4,408)
Other current assets 295 672
Accounts payable 1,306 2,086
Accrued expenses 850 99
Income taxes payable -- (40)
Customer advances (1,604) (961)
-------- --------
Net cash provided (used) by operating activities 758 (2,034)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (971) (773)
Proceeds from disposal of property, plant and equipment 186 7
Other assets (10) (277)
-------- --------
Net cash used by investing activities (795) (1,043)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 339 60
Borrowings under bank revolving credit facility 10,929 12,055
Repayments of borrowings under bank revolving
credit facility (11,229) (9,845)
Payments of long-term debt (147) (148)
-------- --------
Net cash provided (used) by financing activities (108) 2,122
-------- --------
Net decrease in cash (145) (955)
Cash, beginning of period 1,584 1,669
-------- --------
Cash, end of period $ 1,439 $ 714
======== ========
Supplementary disclosure of noncash investing activities:
Building disposed of in exchange for note receivable $ 858
--------
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
Page 4
<PAGE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
1. The consolidated financial statements of the Company as of June 30, 1996,
and for the three and six months ended June 30, 1996 and 1995 are
unaudited. All adjustments (consisting only of normal recurring
adjustments) have been made, which in the opinion of management are
necessary for a fair presentation. Results of operations for the six
months ended June 30, 1996, are not necessarily indicative of the results
that may be achieved for the full fiscal year or for any future period.
These financial statements should be read in conjunction with the audited
financial statements for the fiscal year ended December 31, 1995,
included in the Company's annual report on Form 10-K. The year end
condensed balance sheet data was derived from the audited financial
statements and does not include all the disclosures required by generally
accepted accounting principles.
The Company's fiscal quarters consist of a thirteen week period ending on
the Saturday closest to June 30. For ease of presentation, interim
periods are designated to have ended on June 30.
2. Income (loss) per share:
Income (loss) per share has been computed based on the weighted average
number of shares of common stock and common stock equivalents outstanding
during each period. Common stock equivalents are included in the per
share calculations where the effect of their inclusion would be dilutive.
Dilutive common stock equivalents consist of the incremental common
shares issuable upon conversion of the stock options and warrants using
the treasury stock method.
3. Details of certain balance sheet accounts are as follows:
June 30, December 31,
1996 1995
---- ----
Inventory
Raw materials $ 9,595 $11,135
Work in progress 22,879 18,030
Finished goods 292 341
------- -------
Less: unliquidated progress payments 32,766 29,506
5,452 3,908
------- -------
$27,314 $25,598
======= =======
Property, plant and equipment
Land $ 592 $ 722
Building and improvements 7,274 8,340
Machinery and equipment 23,498 22,534
Furniture and fixtures 1,826 2,492
------- -------
$33,190 $34,088
======= =======
Page 5
<PAGE>
4. Contingencies
The Company is involved from time to time in litigation incidental to its
business.
The Company has been notified that its former facility in the Town of Weymouth,
Massachusetts (the "Town") has been classified as a tier 1A disposal site by the
Massachusetts Department of Environmental Protection ("DEP"), as a result of
past releases of petroleum-based solvents. Environmental assessment reports
prepared by independent consultants indicate that contaminants present in the
Town well field across the street from the Weymouth facility are similar to
those reportedly released at the facility and still present in the groundwater
at the facility; however, these reports also indicate that the contaminants do
not exceed safe drinking water levels in the finished water after normal
treatment. Other contaminants which did not originate at the facility have also
been detected in the well field.
Although the Company believes that the majority of the releases occurred prior
to the acquisition of the facility in 1980, as the owner at the time the
facility was classified as a tier 1A disposal site, the DEP has notified the
Company of its potential responsibility for past releases at the facility. The
Company is continuing to conduct investigations of the facility for soil and
groundwater contamination and operate a pilot remediation system in cooperation
with the DEP. It is not possible at this stage of the proceedings to predict
what additional remediations, if any, will be required.
Management believes that the outcome of current litigation and the matter
discussed above will not have a material adverse effect on the cash flow,
results of operations or financial condition of the Company
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations for the Three Months Ended June 30, 1996 and 1995
Net sales of $27.4 million in the second quarter of 1996 increased $5.4 million,
or 25%, as compared to the second quarter of 1995. Backlog increased to $103.8
million at June 30, 1996, on new order activity of $28.6 million. Backlog at
March 31, 1996 was $102.8 million compared to backlog of $74.4 million at June
30, 1995 and $70.6 million at March 31, 1995.
The significant increase in net sales was attributable to increased shipments at
all five of the Company's production facilities. This increase in shipments has
been fueled by strong performance in booking new business and the record levels
of backlog achieved in recent quarters. In addition, several programs have
completed their initial development phase and are beginning full production.
Gross profit during the second quarter of 1996 increased $903 thousand or 21% as
compared to the second quarter of 1995. Gross profit as a percentage of sales
dropped to 18.8% in the second quarter of 1996 from 19.4% in the second quarter
of 1995. The decline in gross profit as a percentage of sales is due to the
initial development costs required on new programs prior to entering full
production.
Selling, general and administrative expenses increased $414 thousand in the
second quarter of 1996 as compared to the second quarter of 1995 and as a
percentage of net sales, decreased from 18% in the 1995 period to 16% in 1996.
Spending on research and development activities decreased $130 thousand in the
second quarter of 1996 as compared to the second quarter of 1995. The decrease
signals the completion of Company-sponsored new product development and a return
to customer-funded development activities.
Interest expense increased in the second quarter of 1996 to $353 thousand from
$295 thousand in the second quarter of 1995 as a result of both higher
borrowings and interest rates. Average borrowings outstanding during the second
quarter of 1996 were approximately $3.2 million higher than in the comparable
1995 period due principally to the Company's business acquisitions in the second
half of 1995 and the need to finance generally higher levels of working capital
to support the higher volume of sales.
Results of Operations for the Six Months ended June 30, 1996 and 1995
Net sales in the first six months of 1996 were up $6.0 million, or 14%, as
compared to the first six months of 1995. Backlog increased to $103.8 million at
June 30, 1996, on new order activity of $60.6 million, compared to a backlog of
$74.4 million at June 30, 1996 on new order activity of $51.9 million. Higher
shipment levels resulted from the higher level of new business booked over the
last four quarters.
Gross profit during the first six months of 1996 increased $1.1 million as
compared to the first six months of 1995 and as a percent of sales, was 19.5%,
compared to 19.6% in 1995. The increase in gross profit resulted from the
increased sales flow. However, gross profit was adversely affected by initial
development costs required on new programs prior to entering full production.
Selling, general and administrative expenses increased $253 thousand in the
first six months of 1996 as compared to the first six months of 1995 but as a
percentage of net revenues, decreased from 19% in the 1995 period to 17% in
1996.
Page 7
<PAGE>
Spending on research and development activities decreased $404 thousand in the
first half of 1996 as compared to the first half of 1995. Spending decreased as
the Company has returned its focus to customer-funded development efforts.
Interest expense increased in the first half of 1996 to $694 thousand from $536
thousand in the first half of 1995 as a result of both higher borrowings and
interest rates. Average borrowings outstanding during the first half of 1996
were approximately $3.1 million higher than in the comparable 1995 period. This
was due principally to the need to finance generally higher levels of working
capital and the Company's business acquisitions in the second half of 1995.
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of $31.9 million as compared
to $30.7 million at December 31, 1995. Net debt (bank borrowings less cash on
hand) decreased to $15.8 million from $16.1 million at December 31, 1995. Cash
flow provided by operating activities during the first six months of 1996
totaled $758 thousand. Increases in inventory of approximately $1.7 million and
decreases in customer advances of approximately $1.6 million were financed with
trade payables. Higher levels of inventory are required to support higher sales
levels.
In addition to the cash on hand of approximately $1.4 million at June 30, 1996,
the company had approximately $1.8 million available for borrowing under its
bank revolving credit facility. The company has no material commitments for any
acquisitions, product requirements or for capital expenditures at June 30, 1996.
The company believes it has adequate cash, working capital and available
financing facilities to meet its operating and capital requirements for the
foreseeable future and to continue its acquisition program.
Safe Harbor for forward-looking statements:
forward-looking statements in this document involve
known and unknown factors and risks that may cause
future period results to be materially different from
future performance suggested in this document.
Factors that could cause actual results to differ
materially from those projected in this statement
include but are not limited to government spending on
programs that incorporates our products and delays in
government funding. In addition, the ability to
complete new product development programs on-time and
within budget can significantly effect financial
results.
Page 8
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held on May 6, 1996.
(b) Not required. See Instruction 3.
(c) Set forth below is a brief description of each matter voted upon
at the meeting, including the number of votes cast for, against or
withheld, as well as the number of abstentions and broker
non-votes as to each matter, and including a separate tabulation
with respect to each nominee for office:
(i) Election of Directors:
Larry L. Hansen: 5,155,212 votes in favor, and 246,643
votes withholding authority;
Harvey C. Krentzman: 5,155,984 votes in favor, and
245,871 votes withholding authority;
(ii) Ratification of the selection of Coopers & Lybrand
L.L.P. as independent accountants for the fiscal year
1996: 5,366,855 votes in favor, 21,700 votes abstaining
and 13,300 against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
11. Statement regarding computation of net income (loss)
per share.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirement 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.
SIGNAL TECHNOLOGY CORPORATION
BY: /s/ Russ D. Kinsch
------------------------------------
DATE: August 12, 1996 Principal Financial and Accounting Officer
Page 9
Exhibit ll.
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF
NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 170 $ (160) $ 15 $ (618)
======= ======= ======= =======
Weighted average number of shares outstanding during
the period 7,034 6,855 7,005 6,850
Add:
Assumed exercise of common share options 1,094 -- 1,101 --
Less:
Purchase of common stock under the treasury stock method (417) -- (436) --
------- ------- ------- -------
Common and common equivalent shares outstanding for
purpose of calculating primary income per share 7,711 6,855 7,670 6,850
======= ======= ======= =======
Incremental shares to reflect full dilution -- -- -- --
------- ------- ------- -------
Total shares for purpose of calculating fully diluted
income per share 7,711 6,855 7,670 6,850
======= ======= ======= =======
Primary income (loss) per share $ 0.02 $ (0.02) $ (0.00) $ (0.09)
======= ======= ======= =======
Fully diluted income (loss) per share $ 0.02 $ (0.02) $ (0.00) $ (0.09)
======= ======= ======= =======
</TABLE>
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,439
<SECURITIES> 0
<RECEIVABLES> 16,411
<ALLOWANCES> 0
<INVENTORY> 27,314
<CURRENT-ASSETS> 48,110
<PP&E> 33,190
<DEPRECIATION> 18,734
<TOTAL-ASSETS> 66,486
<CURRENT-LIABILITIES> 16,234
<BONDS> 16,836
<COMMON> 71
0
0
<OTHER-SE> 32,254
<TOTAL-LIABILITY-AND-EQUITY> 66,486
<SALES> 49,419
<TOTAL-REVENUES> 49,419
<CGS> 39,793
<TOTAL-COSTS> 48,646
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> 79
<INCOME-TAX> 64
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
