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 March 31, 1998
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
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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 May 13, 1998
$.01 Par Value 7,333,873 shares
<PAGE>
INDEX
Page
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COVER PAGE 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURE 10
Page 2 of 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Assets
Cash $ 1,300 $ 1,127
Accounts receivable, net 14,488 15,901
Inventories 24,143 22,707
Deferred taxes 2,327 2,327
Other current assets 1,682 2,150
-------- --------
Total current assets 43,940 44,212
-------- --------
Property, plant and equipment, net 15,956 16,400
Intangible assets, net 2,818 2,924
Other assets 843 846
-------- --------
Total assets $ 63,557 $ 64,382
======== ========
Liabilities
Current maturities of long-term debt $ 480 $ 480
Accounts payable 4,723 5,354
Accrued expenses 5,967 6,620
Customer advances 1,504 1,177
-------- --------
Total current liabilities 12,674 13,631
-------- --------
Deferred income taxes 1,527 1,527
Long-term debt, net of current maturities 13,508 13,408
Stockholders' Equity
Common stock 74 74
Additional paid-in capital 12,782 12,693
Retained earnings 23,450 23,080
-------- --------
36,306 35,847
Less treasury stock (458) (31)
-------- --------
Total stockholders' equity 35,848 35,816
-------- --------
Total liabilities and stockholders' equity $ 63,557 $ 64,382
======== ========
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</FN>
</TABLE>
Page 3 of 10
<PAGE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
(unaudited)
Quarter ended
March 31,
1998 1997
------- -------
Net sales $23,412 $27,082
Cost of sales 17,617 20,941
------- -------
Gross profit 5,795 6,141
Selling, general and administrative
expense 4,864 4,465
Research and development expense 46 234
------- -------
Operating income 885 1,442
Interest expense 255 234
------- -------
Income before income taxes 630 1,208
Provision for income taxes 260 463
------- -------
Net income $ 370 $ 745
======= =======
Net income per share
Basic $ 0.05 $ 0.10
Diluted $ 0.05 $ 0.10
======= =======
Shares used in calculating net
income per share
Basic 7,411 7,181
Diluted 7,663 7,714
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Page 4 of 10
<PAGE>
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<CAPTION>
Quarter Ended
March 31,
1998 1997
------- -------
<S> <C> <C>
Net cash provided by operating activities $ 803 $ 3,032
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (409) (1,310)
Proceeds from disposal of property, plant and
equipment 14 --
Other assets 3 1
------- -------
Net cash used by investing activities (392) (1,309)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 196
Proceeds from Employee Stock Purchase Plan 89
Borrowings on bank revolving credit facility 8,200 7,400
Payments on bank revolving credit facility (7,900) (8,800)
Repurchase of treasury stock (427) --
Payments of long-term debt (200) (74)
------- -------
Net cash used by financing activities (238) (1,278)
------- -------
Net increase in cash 173 445
Cash, beginning of period 1,127 1,870
------- -------
Cash, end of period $ 1,300 $ 2,315
======= =======
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</FN>
</TABLE>
Page 5 of 10
<PAGE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
1. The condensed consolidated financial statements of the Company as of
March 31, 1998, and for the three months ended March 31, 1998 and 1997
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 three
months ended March 31, 1998, 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, 1997,
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 March 31. For ease of presentation, interim
periods are designated to have ended on March 31.
2. Earnings Per Share
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128") effective
December 31, 1997. SFAS 128 requires the presentation of basic and
diluted earnings per share ("EPS"). Basic EPS is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed giving
effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants for all periods using the treasury stock method. All prior
period earnings per share amounts have been restated to comply with the
provisions of SFAS 128.
<TABLE>
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of both basic and diluted
EPS is provided as follows:
<CAPTION>
Quarter ended March 31,
1998 1997
---- ----
Numerator - Basic and Diluted EPS
Net income $370 $745
================ ==============
<S> <C> <C>
Denominator - Basic EPS
Common shares outstanding 7,411 7,187
---------------- --------------
Basic earnings per share $ 0.05 $ 0.10
================ ==============
Denominator - Diluted EPS
Denominator - Basic EPS 7,411 7,187
Effect of Diluted Securities
Common Stock Options 252 527
---------------- --------------
Denominator - Diluted EPS 7,663 7,714
---------------- --------------
Diluted earnings per share $ 0.05 $ 0.10
================ ==============
</TABLE>
Page 6 of 10
<PAGE>
<TABLE>
3. Details of certain balance sheet accounts are as follows:
<CAPTION>
(In thousands)
March 31, 1998 December 31, 1997
------------------------ ---------------------------
<S> <C> <C>
Inventories
Raw materials $ 6,260 $ 6,339
Work in progress 19,288 18,250
Finished goods 335 484
------------------------ ---------------------------
25,883 25,073
Less: unliquidated progress payments (1,740) (2,366)
------------------------ ---------------------------
$24,143 $22,707
======================== ===========================
Property, Plant and Equipment
Land $992 $992
Building and improvements 9,759 9,793
Machinery and equipment 25,681 25,636
Furniture and fixtures 2,808 2,753
------------------------ ---------------------------
39,240 39,174
Less accumulated depreciation (23,284) (22,774)
------------------------ ---------------------------
Net property, plant and equipment $15,956 $16,400
======================== ===========================
</TABLE>
4. Contingencies
The Company is involved from time to time in litigation incidental to its
business.
Weymouth Environmental Contamination:
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 operate a pilot remediation system
in cooperation with the DEP. It is not possible at this stage of the
proceedings to predict what additional remediation and the costs thereby,
if any, will be required. The Company has been informed by its insurers
that no recovery of costs incurred in the treatment of the ground water
at the facility is possible under existing insurance arrangements.
During the year, the Company received funds from a third party in return
for a complete release from liability for any responsibility for the
contamination. This amount has been included in the Company accrued for
remediation.
Page 7 of 10
<PAGE>
Sunnyvale Indemnification Claim:
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations for the Three Months Ended March 31, 1998 and 1997
Net sales in the first quarter of 1998 decreased $3.7 million, or 13.6%, as
compared to the first quarter of 1997. Net sales were down in all the Company's
operations when compared to the same period last year. The first quarter of 1997
benefited from the high level of orders received during the quarter, $25.6
million, versus $18.7 million during the first quarter of 1998. The Company was
moderately affected by the current economic crisis in Asia with anticipated
orders, primarily from our Korean customers, either not awarded because of
funding cancellations or postponed indefinitely. Backlog decreased to $82.8
million at March 31, 1998. Backlog at December 31, 1997 was $87.5 million. The
Company believes it has adequate backlog to meet its short-term sales goals and
anticipates higher levels of orders during the remaining three quarters of 1998.
Gross profit during the first quarter of 1998 decreased $346 thousand but as a
percentage of sales, increased from 22.7% to 24.8%. The increased profit
percentage can be attributed to both the cost cutting measures taken by the
Company during the last half of 1997 as sales levels declined and also higher
margin jobs currently in inventory.
Selling, general and administrative expense increased $399 thousand and as a
percentage of sales increased from 16.5% to 20.8%. Severance pay as a result of
layoffs at two of our operations accounted for most of the increase.
Research and development activities decreased from $234 thousand to $46 thousand
in the first quarter of 1998 compared to the first quarter of 1997. The Company
is not currently engaged in any material Company-funded R & D projects, but
continues to pursue opportunities through customer-funded programs.
Interest expense was slightly higher, $21 thousand, in the first quarter versus
the same period last year and was a result of higher average levels of
borrowings.
Liquidity and Capital Resources
At March 31, 1998, the Company had working capital of $31.3 million as compared
to $30.6 million at December 31, 1997 and continues to maintain a current ratio
of better than 3 to 1. Net cash (bank borrowings less cash on hand) remained
near constant at $12.7 million versus $12.8 million at December 31, 1997. Net
cash provided by operating activities during the first
Page 8 of 10
<PAGE>
quarter of 1998 totaled $803 thousand. The primary non-operating uses of cash
were additions to property, plant and equipment of $409 thousand and the
repurchase of Company stock of $427 thousand under the Company's stock
repurchase program announced in December 1997.
In addition to the cash on hand of $1.3 million at March 31, 1998, the Company
had approximately $7.5 million available for borrowings under its bank revolving
credit facility.
The Company intends to continue its $2 million stock repurchase program through
July 1998. As of March 31, 1998, 77,200 shares at a total cost of approximately
$458 thousand had been reacquired.
The company has no other material commitments for any acquisitions, product
requirements of for capital expenditures at March 31, 1998.
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.
Impact of Year 2000
The Company is reviewing the material risk associated with the Year 2000 issue
on computer hardware and software. Computer systems are at risk where the date
using "00" is recognized as the year 1900 rather than the year 2000. The Company
is currently assessing its exposure and will have a plan in place by the fourth
quarter of 1998. While the Company doesn't anticipate costs for the Year 2000
issue to be material, final results of this review could be significantly
different.
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.
The Company has experienced and expects to continue to experience significant
fluctuations in its results of operations. Factors that affect the Company's
results of operations include the volume and timing of orders received, changes
in the mix of products sold, competitive pricing pressures and the Company's
ability to meet customer demands. As a result of the foregoing or other factors,
there can be no assurance that the Company will not experience material
fluctuations in the future operating results on a quarterly or annual basis,
which would materially and adversely affect the Company's business, financial
condition and results of operations.
Recent Pronouncements
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 Company has adopted SFAS 130 for fiscal 1998. For all periods
presented there was no Comprehensive Income.
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
Page 9 of 10
<PAGE>
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. The Company has adopted SFAS 131 for fiscal 1998. The Company operates
within one segment: electronic components and equipment.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
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/ Dale L. Peterson
-------------------------------------
Chief Executive Officer
DATE: May 14, 1998
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,300
<SECURITIES> 0
<RECEIVABLES> 14,657
<ALLOWANCES> 169
<INVENTORY> 24,143
<CURRENT-ASSETS> 43,940
<PP&E> 39,240
<DEPRECIATION> 23,284
<TOTAL-ASSETS> 63,557
<CURRENT-LIABILITIES> 12,674
<BONDS> 13,508
0
0
<COMMON> 74
<OTHER-SE> 35,774
<TOTAL-LIABILITY-AND-EQUITY> 63,557
<SALES> 23,412
<TOTAL-REVENUES> 23,412
<CGS> 17,617
<TOTAL-COSTS> 22,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 630
<INCOME-TAX> 260
<INCOME-CONTINUING> 370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 370
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
