FORM 10-Q/A
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 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
incorporation or organization) identification no.)
222 Rosewood Drive, Danvers, MA 01923-4502
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 774-2281
--------------------
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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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 6-9
Item 2 Management's Discussion and Analysis of 10-12
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURE 13
Page 2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31, 1997
1998 (As restated)
(As restated)
-------------------- --------------------
<S> <C> <C>
Assets
Cash $1,300 $1,127
Accounts receivable, net 14,488 15,901
Inventories 21,306 20,205
Deferred taxes 2,327 2,327
Other current assets 2,767 3,110
-------------------- --------------------
Total current assets 42,188 42,670
-------------------- --------------------
Property, plant and equipment, net 15,956 16,400
Intangible assets, net 2,818 2,924
Other assets 843 846
-------------------- --------------------
Total assets $61,805 $62,840
==================== ====================
Liabilities
Current maturities of long-term debt $480 $480
Accounts payable 4,723 5,354
Accrued expenses 5,924 6,620
Customer advances 1,504 1,177
-------------------- --------------------
Total current liabilities 12,631 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 21,741 21,538
-------------------- --------------------
34,597 34,305
Less treasury stock (458) (31)
-------------------- --------------------
Total stockholders' equity 34,139 34,274
-------------------- --------------------
Total liabilities and stockholders' equity $61,805 $62,840
==================== ====================
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</FN>
</TABLE>
Page 3 of 13
<PAGE>
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
<CAPTION>
Quarter ended
March 31,
1998 1997
(As restated) (As restated)
------------------ -----------------
<S> <C> <C>
Net sales $23,687 $26,881
Cost of sales 18,184 21,659
------------------ -----------------
Gross profit 5,503 5,222
Selling, general and administrative expense 4,864 4,465
Research and development expense 46 234
------------------ -----------------
Operating income 593 523
Interest expense 255 234
------------------ -----------------
Income before income taxes 338 289
Provision for income taxes 135 78
------------------ -----------------
Net income $203 $211
================== =================
Net income per share
Basic $0.03 $0.03
Diluted $0.03 $0.03
================== =================
Shares used in calculating net income per share
Basic 7,411 7,187
Diluted 7,663 7,714
================== =================
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</FN>
</TABLE>
Page 4 of 13
<PAGE>
<TABLE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<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 13
<PAGE>
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
--------------------------------------------------------
1. Restatement Adjustments
The Company has restated its consolidated financial statements for
fiscal years 1996 and 1997. As announced in the Company's August 17,
1998 press release, the adjustments were a result of an investigation
by Corporate management with the aid of its independent accountants and
outside counsel at its Keltec Operation. The restatements are required
to record contract and inventory adjustments in the correct periods.
A summary of the impact of such restatements on the accompanying
financial statements is as follows:
<TABLE>
Condensed Consolidated Statements of Operations
- -----------------------------------------------
(in thousands except per share data)
<CAPTION>
Quarter ended Quarter ended
March 31, 1998 March 31, 1997
Previously As Previously As
Reported Restated Reported Restated
-------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $23,412 $23,687 $27,082 $26,881
Gross profit 5,795 5,503 6,141 5,222
Operating income 885 593 1,442 523
Income before income taxes 630 338 1,208 289
Net income 370 203 745 211
Net income per share
(Basic and diluted) $0.05 $0.03 $0.10 $0.03
</TABLE>
<TABLE>
Condensed Consolidated Balance Sheets
- -------------------------------------
(in thousands)
<CAPTION>
Quarter ended Year ended
March 31, 1998 December 31, 1997
Previously As Previously As
Reported Restated Reported Restated
-------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net inventories $24,143 $21,306 $22,707 $20,205
Total current assets 43,940 42,188 44,212 42,670
Total Assets 63,557 61,805 64,382 62,840
Retained earnings 23,450 21,741 23,080 21,538
Stockholders' equity 35,848 34,139 35,816 34,274
</TABLE>
2. 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
financial statements for the fiscal year ended December
Page 6 of 13
<PAGE>
31, 1997, included in the Company's annual report on Form 10-K/A. 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.
3. 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
<S> <C> <C>
Numerator - Basic and Diluted EPS
Net income $203 $211
================ ==============
Denominator - Basic EPS
Common shares outstanding 7,411 7,187
---------------- --------------
Basic earnings per share $0.03 $0.03
================ ==============
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 $0.03 $0.03
================ ==============
</TABLE>
Page 7 of 13
<PAGE>
<TABLE>
4. Details of certain balance sheet accounts are as follows:
<CAPTION>
(In thousands)
March 31, 1998 December 31, 1997
(As restated) (As restated)
------------------------ ---------------------------
<S> <C> <C>
Net inventories
Raw materials $6,160 $6,239
Work in progress 17,493 17,065
Finished goods 335 484
------------------------ ---------------------------
23,988 23,788
Less: unliquidated progress payments (2,682) (3,583)
------------------------ ---------------------------
$21,306 $20,205
======================== ===========================
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>
5. Commitments and 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 1997, the Company received funds from a third party in return for
a complete release from liability for any responsibility for the
contamination. This $350 thousand settlement has been included in the
Company's accrual for remediation.
Page 8 of 13
<PAGE>
Sunnyvale Indemnification Claim:
A third party has filed a 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
indemnification claim was recently dismissed at the trial level, but may
be the subject of an eventual appeal. The Company believes the dismissal
will be upheld and also has counterclaims it continues to assert. The
Company also believes that the ultimate disposition will not materially
affect its financial position or results of operations.
DeCoursey v. Signal Technology Corporation: This case was filed on August
25, 1998. The Complaint alleges that the Company and its former
president, Dale Peterson, violated ss. 10(b) of the Exchange Act and Rule
10b-5. The Complaint alleges that various public statements by the
Company during 1997 and 1998 were false or misleading arising from
alleged accounting irregularities that were unreported. The case is in
the initial stages, and the Court has not designated a lead plaintiff or
lead law firm as required by the Private Securities Litigation Reform
Act. Until it does so, the Company has no obligation to respond to the
Complaint. At present it is too early to evaluate the merits of the
action or to predict the likelihood of success. The Company intends to
defend the matter fully.
L-3 Communications Corporation v. Signal Technology Corporation, et al:
This case was filed on September 3, 1998. The Complaint alleges that
certain former employees of L-3 Communications now working for the
Company unlawfully misappropriated confidential and trade secret
information on behalf of the Company and unlawfully induced other L-3
Communications employees to join the Company. L-3 Communications has
brought claims for civil conspiracy, tortious interference with
prospective and contractual relations, under both the Georgia Deceptive
Trade Practices Act and the Uniform Trade Secrets Act. The Company denies
the allegations. At present it is too early to evaluate the merits of the
action or to predict the likelihood of success. The Company intends to
defend the matter fully.
T-3 Contract:
The Company is currently committed to a long term contract at its Keltec
division (the T-3 contract) for amplifiers for Raytheon. The current
contract value is $764 thousand. If Raytheon exercises all of its options
within this contract, the total value could be in excess of $19 million.
Based on an assessment by management in the third quarter of 1998, if all
options are exercised at current estimated costs and prices, the
company's loss could total up to $4 million.
The Company is currently negotiating with Raytheon for changes that would
reduce costs or increase prices and, therefore, any potential losses are
not currently estimable. The Company is not accepting options against
this contract until mutually agreeable terms are reached with Raytheon.
Page 9 of 13
<PAGE>
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 $3.2 million, or 11.9%, 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 $83.7
million at March 31, 1998. Backlog at December 31, 1997 was $88.7 million.
As compared to the first quarter of 1997, gross profit during the first quarter
of 1998 increased $281 thousand and as a percentage of sales, increased from
19.4% to 23.2%. 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 shipped during the first quarter of
1998. As announced in the Company's August 17, 1998 press release, corporate
management with the aid of its independent accountants and outside counsel,
conducted an investigation into contract and inventory practices at its Keltec
Operation. The investigation necessitated the restatement of fiscal years 1996
and 1997 and the first quarter of 1998. The impact of these adjustments on gross
profit in the first quarter of 1998 was $292 thousand compared to $919 thousand
in the first quarter of 1997.
Selling, general and administrative expense increased $399 thousand and as a
percentage of sales increased from 16.6% to 20.5%. Severance pay as a result of
layoffs at two of the Company's 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 participate in and to pursue customer funded development projects
and opportunities.
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 $29.6 million as compared
to $29.0 million at December 31,1997. The Company's net cash/debt (loan balances
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
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.
Page 10 of 13
<PAGE>
The Company and its bank have amended the loan agreement as of October 22, 1998.
The amendment increases the interest charged on the revolving credit facility
and the real estate term loans from the banks base rate to base rate plus 1/2%.
The amount available for current borrowing is calculated on the Company's
eligible receivables as defined in the agreement but not to exceed $15 million.
This provision is not anticipated to have a material impact on the Company's
cash requirements in the foreseeable future.
The Company continued its $2 million stock repurchase program through July 1998
at which time it was suspended. As of March 31, 1998, 77,200 shares at a total
cost of approximately $458 thousand had been reacquired.
With the exception of the T-3 contract discussed under the Commitments and
Contingencies Note, the Company has no other material potential contract losses
or commitments for any acquisitions, product requirements or 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
Management is aware of the potential software and hardware anomalies associated
with the upcoming century change commonly known as the Y2K problem. The Company
is presently in the second phase of a five stage plan to bring about complete
compliance in all of its products, internal systems, and suppliers and thus
ensure that there is no disruption of the Company's business at the turn of the
century. The Company is evaluating all of its product lines and has so far found
no product with an embedded date function which would cause any Y2K exposure.
A comprehensive review of the Company's computer systems, software and internal
embedded systems is presently underway and the Company is not aware at this time
of any significant year 2000 issues that will not be resolved prior to the year
2000. The Company is ahead of schedule in its corporate-wide plan to achieve
compliance by the third quarter of 1999. The projected costs associated with the
plan are not expected to have any material effect on the Company's operations or
financial position.
At this time, the Company has not developed a "worst case" scenario or an
overall year 2000 contingency plan and does not intend to do so unless, as a
result of its ongoing year 2000 review, Management believes such plans are
warranted. The only contingency planning that is currently set to be implemented
will come as a result of a comprehensive survey of the Company's suppliers in
order to learn which will be impacted by the Y2K problem. The Company's
suppliers are an important component of the Company's success and the Company is
undertaking the survey as part of its overall year 2000 plan.
Page 11 of 13
<PAGE>
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 or renegotiate 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. 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 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 is evaluating the
disclosure requirements of SFAS 131.
Page 12 of 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference the accompanying Notes to the Financial Statements, Note 5.
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/ Robert Nelsen
-----------------------------
Chief Financial Officer
DATE: October 30, 1998
Page 13 of 13
<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> 14,488
<ALLOWANCES> 0
<INVENTORY> 21,306
<CURRENT-ASSETS> 42,188
<PP&E> 39,240
<DEPRECIATION> 23,284
<TOTAL-ASSETS> 61,805
<CURRENT-LIABILITIES> 12,631
<BONDS> 13,508
0
0
<COMMON> 74
<OTHER-SE> 34,065
<TOTAL-LIABILITY-AND-EQUITY> 61,805
<SALES> 23,687
<TOTAL-REVENUES> 23,687
<CGS> 18,184
<TOTAL-COSTS> 23,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 338
<INCOME-TAX> 135
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
