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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- --------
Commission file 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 identification no.)
incorporation or organization)
975 Benecia Avenue, Sunnyvale, CA 94086-2805
(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 November 13, 1997
$.01 Par Value 7,303,042 shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
September 30, December 31,
1997 1996
------------- ------------
Assets
Cash $ 2,042 $ 1,870
Accounts receivable, net 16,816 18,383
Inventories 23,800 24,293
Deferred taxes 2,989 2,989
Other assets 2,499 508
------- -------
Total current assets 48,146 48,043
------- -------
Property, plant and equipment, net 14,421 14,310
Intangible assets, net 3,030 3,374
Other assets 848 864
------- -------
Total assets $66,445 $66,591
======= =======
Liabilities
Current maturities of long-term debt $ 783 $ 1,321
Accounts payable 4,133 5,289
Accrued expenses 7,328 8,512
Income taxes payable -- 295
Customer advances 1,710 1,048
------- -------
Total current liabilities 13,954 16,465
------- -------
Deferred income taxes 1,809 1,809
Long-term debt, net of current maturities 15,187 13,408
Stockholders' Equity
Common stock 73 72
Additional paid-in capital 12,362 12,095
Retained earnings 23,060 22,742
------- -------
Total stockholders' equity 35,495 34,909
------- -------
Total liabilities and stockholders' equity $66,445 $66,591
======= =======
The accompanying notes are an integral part of
the condensed consolidated financial statements.
Page 2 of 11
<PAGE>
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
(unaudited)
<CAPTION>
Quarter ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 25,639 $ 31,624 $ 78,195 $ 81,043
Cost of sales 21,764 24,389 63,445 64,182
-------- -------- -------- --------
Gross profit 3,875 7,235 14,750 16,861
Selling, general and administrative expense 3,833 5,239 12,773 13,791
Research and development expense 261 93 652 394
-------- -------- -------- --------
Operating income (219) 1,903 1,325 2,676
Interest expense 277 343 777 1,037
-------- -------- -------- --------
Income (loss) before income taxes (496) 1,560 548 1,639
Provision for (benefit from) income taxes (176) 565 230 629
-------- -------- -------- --------
Net income (loss) ($ 320) $ 995 $ 318 $ 1,010
======== ======== ======== ========
Net income (loss) per share ($ 0.04) $ 0.13 $ 0.04 $ 0.13
======== ======== ======== ========
Shares used in calculating net income (loss)
per share 7,277 7,652 7,706 7,663
<FN>
The accompanying notes are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
Page 3 of 11
<PAGE>
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 1,303 $ 1,450
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (2,685) (1,480)
Proceeds from disposal of property, plant and equipment 3 186
Other assets 42 24
-------- --------
Net cash used by investing activities (2,640) (1,270)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 268 379
Borrowing under bank revolving credit facility 26,200 16,629
Repayments of borrowings under bank revolving credit
facility (24,200) (16,629)
Payments of long-term debt (759) (221)
-------- --------
Net cash provided by financing activities 1,509 158
-------- --------
Net increase in cash 172 338
Cash, beginning of period 1,870 1,584
-------- --------
Cash, end of period $ 2,042 $ 1,922
======== ========
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 of 11
<PAGE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
1. The condensed consolidated financial statements of the Company as of
September 30, 1997, and for the nine months ended September 30, 1997 and
1996 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, 1997, 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, 1996,
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 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:
(In thousands)
-------------------------------
September 30, December 31,
1997 1996
------- -------
Inventories
Raw materials $ 6,019 $ 8,225
Work in progress 18,744 18,912
Finished goods 720 307
------- -------
25,483 27,444
Less: unliquidated progress payments 1,683 3,151
------- -------
$23,800 $24,293
======= =======
Property, Plant and Equipment
Land $ 592 $ 592
Building and improvements 7,639 7,285
Machinery and equipment 25,684 24,217
Furniture and fixtures 2,579 2,285
------- -------
36,494 34,379
Less accumulated depreciation 22,073 20,069
------- -------
Net property, plant and equipment $14,421 $14,310
======= =======
Page 5 of 11
<PAGE>
4. Contingencies
The Company is involved from time to time in litigation incidental to its
business.
In April 1996, the Company sold its facility in Weymouth, Massachusetts but
retained the environmental liability and responsibility associated with
groundwater contaminants present at the site. This facility 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 of Weymouth well
field across the street from the 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. The Company is continuing to conduct
investigations of 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
remediation, if any, will be required.
A third party has filed a breach of contract suit against the Company
alleging that it has a contractual duty to indemnify the third party for
costs incurred as a result of environmental contamination and subsequent
remediation. The claim is based upon allegations that the Company assumed
certain liabilities when it acquired one of the divisions of the third
party. The Company believes it has meritorious defenses with respect to
this claim and intends to vigorously defend its position in the suit. The
Company also believes that the ultimate disposition will not materially
affect its financial position or results of operations.
Page 6 of 11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations for the Three Months Ended September 30, 1997 and 1996
Net sales in the third quarter of 1997 decreased $6.0 million, or 18.9%, as
compared to the third quarter of 1996. Backlog decreased from $87.2 million to
$80.7 million at September 30, 1997 on new orders of $19.1 million. This
compares to a decrease in backlog from $103.8 million to $93.8 million on new
orders of $21.7 million in the third quarter of 1996.
Compared with the third quarter of 1996, all operations of the Company
experienced lower shipment levels with most of the decreases, approximately 50%,
from the Keltec Operation. As reported in the second quarter of 1997, shipments
continue to be impacted by production inefficiencies including key material
shortages. Actions taken by the Company to correct the problems in the third
quarter continue into the fourth quarter. Benefits from these actions will not
be realized till the later part of the fourth quarter.
Gross profit during the third quarter of 1997 decreased $3.4 million or 46.4%,
as compared to the third quarter of 1996. Gross profit as a percentage of sales
decreased from 22.9% in the third quarter of 1996 to 15.1% in 1997. Gross profit
was adversely affected by lower shipment levels and costs associated with the
inefficiency mentioned above. Keltec and the Arizona Operation both experienced
additional costs associated with several development contracts and contributed
significantly to the decrease in gross profit.
Selling, general and administrative expenses decreased $1.4 million or 26.8% in
the third quarter of 1997 as compared to the third quarter of 1996 and as a
percentage of net sales decreased from 16.6% in 1996 to 15.0% in 1997.
Research and development activities increased in the third quarter of 1997 as
compared to the same period last year. Research and development expense for the
quarter was $261 thousand in 1997 versus $93 thousand for the third quarter of
last year.
Interest expense decreased $66 thousand or 19.2% from $343 thousand in the third
quarter of 1996 to $277 thousand in the third quarter of 1997 primarily as a
result of lower levels of borrowings. Average borrowings outstanding during the
third quarter of 1997 were approximately $1.6 million lower than in the
comparable 1996 period.
Results of Operations for the Nine Months Ended September 30, 1997 and 1996
Net sales in the first nine months of 1997 decreased $2.8 million, or 3.5%, as
compared to the first nine months of 1996. Backlog decreased to $80.7 million at
September 30, 1997 on new orders of $71.0 million. This compares to an increase
in backlog from $92.8 million to $93.8 million on new orders of $82.3 million in
the first nine months of 1996.
Sales for the first nine months of 1997 were adversely impacted by the low sales
in the third quarter as mentioned above. Again, Keltec accounted for most of the
decrease in sales, approximately 85%. The Company's California Operation also
experienced lower shipments for the first nine months of 1997, but were
partially offset with higher shipments at all other operations.
Gross profit during the first nine months of 1997 decreased $2.1 million or
12.5%, as compared to the first nine months of 1996. Gross margin as a
percentage of sales decreased from 20.8% in 1996 to 18.9%
Page 7 of 11
<PAGE>
in 1997. Gross profit for the first nine months of 1997 was affected by the
lower shipment levels, primarily at Keltec Operation and the related
inefficiencies. Also contributing to the lower margins were the additional costs
associated with several development contracts at both the Keltec and the Arizona
Operations.
Selling, general and administrative expenses decreased $1.0 million or 7.4% in
the first nine months of 1997 as compared to the first nine months of 1996 and
as a percentage of net sales decreased from 17.0% in 1996 to 16.4% in 1997.
Research and development activities increased in the first nine months of 1997
as compared to the same period last year. Research and development expense for
the nine months was $652 thousand in 1997 versus $394 thousand for the nine
months of last year.
Interest expense decreased $260 thousand or 25.1% from $1,037 thousand in the
first nine months of 1996 to $777 thousand in the first nine months of 1997
primarily as a result of lower levels of borrowings. Average borrowings
outstanding during the first nine months of 1997 were approximately $2.8 million
lower than in the comparable 1996 period.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $34.2 million as
compared to $31.6 million at December 31, 1996. Net debt (bank borrowings less
cash on hand) increased from $12.9 million at December 31, 1996 to $13.9 million
at September 30, 1997. Net cash provided by operating activities during the
first nine months of 1997 totaled $1.3 million.
In addition to the cash on hand of approximately $2.0 million at September 30,
1997, the Company had approximately $3.1 million available for borrowing under
its bank revolving credit facility.
In October, the Company closed on the purchase of its 40,350 square foot
manufacturing facility in Beverly, Massachusetts for approximately $2.4 million.
The property was previously leased for $230 thousand per year. The lease was to
expire in December 1997. Interim financing was through the Company's unsecured
bank revolving credit facility. Permanent financing, scheduled for the end of
November, will be through the Company's bank real estate term loan facility.
Current available borrowing on the facility is approximately $1.1 million. The
total facility is anticipated to increase from approximately $4.3 to $6.0
million to accommodate the additional property.
The Company has no other material commitments for any acquisitions, product
requirements or for capital expenditures at September 30, 1997.
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.
Page 8 of 11
<PAGE>
Recent Pronouncements
During February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128 "Earnings per share" (FAS 128) which establishes
standards for computing earnings per share ("EPS"). FAS 128 simplifies the
standards for computing EPS and makes them comparable to international
standards. The Company has not yet determined the impact that the adoption of
FAS 128, which is effective for financial statements issued for periods ending
after December 15, 1997, will have on its EPS calculation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130)"Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of financial
statements. The impact of adopting SFAS 130, which is effective in fiscal 1999,
has not been determined.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 requires publicly held
companies to report financial and other information about key revenue producing
segments of the entity for which such information is available and is utilized
by the chief operation decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment information to amounts reported in
the financial statements would be provided. SFAS 131 is effective in fiscal 1999
and the impact has not been determined.
Page 9 of 11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
11. Statement regarding computation of net income 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
/s/ Dale L. Peterson
------------------------------------
Chief Executive Officer
DATE: November 13, 1997
Page 10 of 11
<TABLE>
EXHIBIT 11.
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF
NET INCOME (LOSS) PER SHARE
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (loss) ($ 320) $ 995 $ 318 $1,010
====== ====== ====== ======
Weighted average number of shares outstanding during the period
7,277 7,136 7,244 7,049
Add:
Assumed exercise of common share options -- 881 877 1,179
Less:
Purchase of common stock under the treasury stock method
-- (365) (415) (565)
------ ------ ------ ------
Common and common equivalent shares outstanding for purpose of
calculating primary income (loss) per share 7,277 7,652 7,706 7,663
Incremental shares to reflect full dilution -- -- -- --
------ ------ ------ ------
Total shares for purpose of calculating fully diluted income
(loss) per share 7,277 7,652 7,706 7,663
====== ====== ====== ======
Primary income (loss) per share ($ 0.04) $ 0.13 $ 0.04 $ 0.13
====== ====== ====== ======
Fully diluted income (loss) per share ($ 0.04) $ 0.13 $ 0.04 $ 0.13
====== ====== ====== ======
</TABLE>
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,042
<SECURITIES> 0
<RECEIVABLES> 16,816
<ALLOWANCES> 0
<INVENTORY> 23,800
<CURRENT-ASSETS> 48,146
<PP&E> 36,494
<DEPRECIATION> 22,073
<TOTAL-ASSETS> 66,445
<CURRENT-LIABILITIES> 13,954
<BONDS> 15,187
0
0
<COMMON> 73
<OTHER-SE> 35,422
<TOTAL-LIABILITY-AND-EQUITY> 66,445
<SALES> 78,195
<TOTAL-REVENUES> 78,195
<CGS> 63,445
<TOTAL-COSTS> 76,870
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 777
<INCOME-PRETAX> 548
<INCOME-TAX> 230
<INCOME-CONTINUING> 318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
