FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 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 of (I.R.S. employer
incorporation or organization) identification no.)
955 Benecia Avenue, Sunnyvale, CA 94086-2805
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 730 6318
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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 October 11, 1996
$.01 Par Value 7,145,024 shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
1996 1995
------------- ------------
Assets
Cash $ 1,922 $ 1,584
Accounts receivable, net 19,162 15,983
Inventory 26,872 25,598
Deferred taxes 1,837 2,202
Other assets 643 1,054
-------- --------
Total Current Assets $ 50,436 $ 46,421
Property, plant and equipment 33,671 34,088
Less: accumulated depreciation (19,488) (17,647)
-------- --------
Net property, plant and equipment $ 14,183 $ 16,441
Other assets 3,822 3,255
-------- --------
Total Assets $ 68,441 $ 66,117
======== ========
Liabilities
Current maturities of long-term debt $ 375 $ 375
Accounts payable 7,402 6,159
Accrued expenses 7,862 5,292
Customer advances 1,456 3,856
-------- --------
Total Current Liabilities $ 17,095 $ 15,682
Deferred income taxes 911 1,208
Long-term debt 17,062 17,283
Stockholders' Equity
Common stock 71 69
Additional paid-in capital 11,809 11,432
Unearned compensation (14) (54)
Retained earnings 21,507 20,497
-------- --------
Total Stockholders' Equity $ 33,373 $ 31,944
-------- --------
Total Liabilities and Stockholders' Equity $ 68,441 $ 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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 31,624 $ 22,310 $ 81,043 $ 65,770
Cost of Sales 24,389 16,896 64,182 51,832
-------- -------- -------- --------
Gross Profit $ 7,235 $ 5,414 $ 16,861 $ 13,938
Selling, general and administrative expense 5,239 3,889 13,791 12,188
Research and development expense 93 220 394 925
-------- -------- -------- --------
Operating income $ 1,903 $ 1,305 $ 2,676 $ 825
Interest expense 343 326 1,037 862
-------- -------- -------- --------
Income (loss) before income taxes $ 1,560 $ 979 $ 1,639 $ (37)
Provision (benefit) for income taxes 565 390 629 (8)
-------- -------- -------- --------
Net income (loss) $ 995 $ 589 $ 1,010 $ (29)
======== ======== ======== ========
Income (loss) per share $ 0.13 $ 0.08 $ 0.13 $ (0.00)
======== ======== ======== ========
Shares used in calculating income (loss)
per share 7,652 7,369 7,663 6,862
<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>
Nine Months Ended
September 30, September 30,
1996 1995
------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 1,010 $ (29)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization 2,929 2,693
Loss on disposal of property, plant and equipment 32 26
Unearned compensation 40 40
Deferred taxes 68 7
Changes in operating assets and liabilities:
Accounts receivable (3,179) 437
Inventory (1,274) (5,969)
Other current assets 411 (35)
Accounts payable 1,243 2,152
Accrued expenses 2,570 746
Income taxes payable (40)
Customer advances (2,400) 988
-------- --------
Net cash provided by operating activities $ 1,450 $ 1,016
-------- --------
Cash flows from investing activities:
Acquisitions and associated costs (4,125)
Additions to property, plant and equipment (1,480) (1,135)
Proceeds from disposal of property, plant and equipment 186 10
Other assets 24 (278)
-------- --------
Net cash used by investing activities $ (1,270) $ (5,528)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 379 128
Borrowing under bank revolving credit facility 16,629 18,855
Repayments of borrowings under bank revolving credit
facility (16,629) (14,700)
Payments of long-term debt (221) (221)
-------- --------
Net cash provided by financing activities $ 158 $ 4,062
-------- --------
Net increase (decrease) in cash 338 (450)
Cash, beginning of period 1,584 1,669
-------- --------
Cash, end of period $ 1,922 $ 1,219
======== ========
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 September 30,
1996, and for the three and nine months ended September 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 nine
months ended September 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 third fiscal quarter consists of a thirteen week period
ending on the Saturday closest to September 30. For ease of presentation,
interim periods are designated to have ended on September 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:
September 30, December 31,
1996 1995
------------- ------------
Inventory
Raw Materials $8,883 $11,135
Work in Progress 21,885 18,030
Finished Goods 295 341
------------- ------------
$31,063 $29,506
Less: Unliquidated Progress Payments 4,191 3,908
============= ============
$26,872 $25,598
============= ============
Property, Plant and Equipment
Land $592 $722
Building and Improvements 7,285 8,340
Machinery and Equipment 23,812 22,534
Furniture and Fixtures 1,982 2,492
============= ============
$33,671 $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 release 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 at the
facility for soil and groundwater contamination and operates 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of operations for the Three Months Ended September 30, 1996 and 1995
Net sales of $31.6 million in the third quarter increased $9.3 million, or
41.7%, as compared to the third quarter of 1995. Backlog increased to $93.8
million at September 30, 1996 as compared to a backlog of $93.2 million at
September 30, 1995. New order activity was $21.7 million in the third quarter of
1996.
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 new business awards resulting in the
significant increases to backlog in recent quarters. In addition, several
programs have completed their initial development phase and are beginning full
production.
Gross profit during the third quarter of 1996 increased $1.8 million or 33.6% to
$7.2 million as compared to $5.4 million for the third quarter of 1995. Gross
profit as a percentage of sales dropped to 22.9% in the third quarter of 1996
from 24.3% in the third 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 $1.4 million in the third
quarter of 1996 as compared to the third quarter of 1995 but as a percentage of
sales decreased from 17.4% in the 1995 period to 16.6% in the 1996 period.
Page 6
<PAGE>
Spending on research and development activities decreased $127 thousand in the
third quarter of 1996 as compared to the third 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 third quarter of 1996 to $343 thousand from
$326 thousand in the third quarter of 1995 as a result of slightly higher
borrowings. Average borrowings outstanding during the third quarter of 1996 were
approximately $1.0 million higher than in the comparable 1995 period due
principally to the need to finance generally higher levels of working capital to
support the higher volume of sales.
Results of Operations for the Nine Months ended September 30, 1996 and 1995
Net sales for the first nine months of 1996 were up $15.3 Million, or 23.2%, as
compared to the first nine months of 1995. Backlog increased to $93.8 million at
September 30, 1996, compared to a backlog of $93.2 million at September 30,
1995. Higher shipment levels in 1996 over 1995 have resulted from the higher
level of new business booked over recent quarters and the transition from
development to full production on several key programs.
Gross profit during the first nine months of 1996 increased $2.9 million or
21.0% as compared to the first nine months of 1995 and, as a percent of sales,
was 20.8% compared to 21.2% in 1995. Gross profit in 1996 was adversely affected
by initial development costs required on new programs prior to entering full
production.
Selling, general and administrative expenses increased $1.6 million in the first
nine months of 1996 as compared to the same period in 1995, but as a percentage
of sales, decreased from 18.5% in the 1995 period to 17.0% in 1996.
Spending on research and development activities decreased $531 thousand in the
first nine months of 1996 as compared to the same period in 1995. Spending
decreased as expected as the Company has returned its focus to customer-funded
development activities.
Interest expense increased in the first nine months of 1996 to $1,037 thousand
from $862 thousand in the same period of 1995. Average borrowings outstanding
during the first nine months of 1996 were approximately $2.3 million higher than
in the comparable 1995 period. Higher borrowings in 1996 were used to finance
higher levels of working capital required to accommodate the increased volume of
sales.
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $33.3 million as
compared to $30.7 million at December 31, 1995. Net debt (bank borrowings less
cash on hand) decreased to $15.5 million from $16.1 million at December 31,
1995. Cash flow provided by operating activities during the first nine months of
1996 totaled $1,450 thousand. Increases in inventory of $1.3 million, decreases
in customer advances of approximately $2.4 million, and increases in accounts
receivable of $3.2 million were financed with higher levels of trade payables
and accrued expenses. Higher levels of inventory and receivables are directly
attributable to the higher volume of sales.
Page 7
<PAGE>
In addition to the cash on hand of approximately $1.9 million at September 30,
1996, the Company had approximately $1.5 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 September
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 incorporate 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
11. Statement regarding computation of net income (loss) per share.
27. Financial Data Schedule
(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
/s/ Russell D. Kinsch
----------------------------------------------
Principal Financial and Accounting Officer
DATE: October 22, 1996
Page 8
EXHIBIT 11.
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
<TABLE>
COMPUTATION OF
NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 995 $ 589 $ 1,010 $ (29)
======= ======= ======= =======
Weighted average number of shares outstanding
during the period 7,136 6,885 7,049 6,862
Add:
Assumed exercise of common share options 881 901 1,179 --
Less:
Purchase of common stock under the treasury stock
method (365) (417) (565) --
------- ------- ------- -------
Common and common equivalent shares outstanding for
purpose of calculating primary income (loss) per
share 7,652 7,369 7,663 6,862
Incremental shares to reflect full dilution -- -- -- --
------- ------- ------- -------
Total shares for purpose of calculating fully
diluted income (loss) per share 7,652 7,369 7,663 6,862
======= ======= ======= =======
Primary income (loss) per share $ 0.13 $ 0.08 $ 0.13 $ (0.00)
======= ======= ======= =======
Fully diluted income (loss) per share $ 0.13 $ 0.08 $ 0.13 $ (0.00)
======= ======= ======= =======
</TABLE>
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,922
<SECURITIES> 0
<RECEIVABLES> 19,162
<ALLOWANCES> 0
<INVENTORY> 26,872
<CURRENT-ASSETS> 50,436
<PP&E> 33,671
<DEPRECIATION> 19,488
<TOTAL-ASSETS> 68,441
<CURRENT-LIABILITIES> 17,095
<BONDS> 17,062
<COMMON> 71
0
0
<OTHER-SE> 33,302
<TOTAL-LIABILITY-AND-EQUITY> 68,441
<SALES> 81,043
<TOTAL-REVENUES> 81,043
<CGS> 64,182
<TOTAL-COSTS> 78,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,037
<INCOME-PRETAX> 1,639
<INCOME-TAX> 629
<INCOME-CONTINUING> 1,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,010
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
