SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
--------------------
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 193
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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)
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<S> <C>
Delaware 04-2758268
(State Or Other Jurisdiction Of Incorporation Or (I.R.S. Employer Identification No.)
Organization)
222 Rosewood Drive, Danvers, MA 01923-450
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 774-2281
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of class)
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
On March 17, 2000, the aggregate fair value of the Registrant's Common Stock
held by non-affiliates was $133,151,508. On March 17, 2000, there were 7,770,096
shares of the Registrant's Common Stock issued and outstanding.
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Documents Incorporated By Reference
Part III incorporates information by reference from the definitive Proxy
Statement in connection with the Registrant's Annual Meeting of Shareholders to
be held on May 16, 2000. Certain exhibits are incorporated by reference from the
Registrant's Registration Statement on Form S-1, as amended (File No. 33-61124)
and Form 8-K dated November 24, 1993.
2
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Signal Technology Corporation and Subsidiary
INDEX TO ANNUAL REPORT ON FORM 10-K
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PART I
Page
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Item 1. Business 4
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 11
Item 6. Selected Consolidated Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 38
PART III
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management 38
Item 13. Certain Relationships and Related Transactions 38
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
Signatures 42
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3
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PART I
Item I Business
General
Signal Technology Corporation (the "Company") designs, develops, manufactures
and markets sophisticated electronic components and subsystems that are utilized
in a broad range of advanced defense, space and wireless telecommunication
applications. The budget down cycle appears to have ended in the defense
industry and we intend to take advantage of being one of the remaining
independent merchant suppliers in defense electronics. In addition to the
Company's commitment to grow its core defense electronics business, the
Company's parallel strategy for growth is to continue its penetration into the
rapidly growing wireless telecommunication market through a balanced combination
of internal new product development and selective acquisitions of complementary
businesses and product lines. One year into implementing its strategic vision to
diversify to the broadband wireless infrastructure market the Company now serves
two separate customer bases with complementary technology.
The Company's core technology involves precision control, management and
generation of radio, microwave and millimeterwave frequencies and electrical
currents. Principal uses for the Company's products include telecommunications
networks, satellite communications, electronic countermeasures, intelligence
guidance systems and radar subsystems.
The Company's major defense customers are prime government contractors which
integrate the Company's products into complex systems sold to agencies of the
United States government and to foreign countries. In recent years, changes in
the global political situation have resulted in reductions in defense budgets
and an apparent increase in United States military reliance upon sophisticated
electronic equipment. However, it appears the defense downturn has ceased with
budget forecasts flat to slightly increasing in the coming years. In addition,
military agencies are seeking to maximize resources by enhancing and upgrading
existing systems and platforms. The Company believes that its products are well
positioned to take advantage of current defense trends due to its substantial
incumbency on key existing programs and platforms.
In the commercial wireless markets the Company's principal customers are
world-wide major telecommunication corporations which integrate the Company's
products into a variety of complex digital radio products employed in wireless
transport infrastructure applications. The advent of wireless communication
(cellular/PCSA) and wireless data transfer has created a millimeterwave and
microwave based industry that is experiencing enormous growth. While the
transport segment is still in its early product life cycle, high speed
(broadband) internet access is just now emerging and is anticipated to be a
significantly larger market. On December 23, 1999, the Company purchased
substantially all of the assets of Advanced Frequency Products LLC, a
manufacturer of high-frequency millimeterwave and microwave transceivers for the
broadband wireless infrastructure marketplace. During January 2000 the company
created the Signal Wireless Group to focus on this growth market.
The Company integrates acquired businesses and product lines where possible with
existing operations, reducing redundancies in administration, operations,
facilities and other areas. In addition, the Company is diversifying its
customer base by directing marketing and product development resources to
commercial wireless applications in both domestic and international markets. The
Company has embarked on a company wide Lean Enterprise initiative which is
focused on streamlining operations, reducing cycle time throughout the company
and establishing low cost, value-added business models for its customers.
Structure and Organization
The Company was incorporated in 1982 and became a public company in 1993. The
company has six operating divisions; referred to as Arizona, California,
Systems, Advanced Frequency Products, Keltec and Olektron and reports its
operations within three segments: Microwave Components and Subsystems
4
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(Arizona, California, Advanced Frequency Products and Systems), Power Management
Products (Keltec) and Radio Frequency (RF) Components and Subsytems (Olektron).
Products and Customers
The Company's products are integrated into complex electronic systems and
subsystems that require precision control, management and generation of radio,
microwave and millimeterwave frequencies and electrical currents. The Company is
dedicated to supplying high quality and highly reliable products that meet rigid
customer requirements for performance and on-time delivery, while at the same
time being competitively priced.
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The following table sets forth information concerning net sales by business
segment for years ending December 31:
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(amounts in thousands) 1999 1998 1997
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Microwave Components & Subsystems $44,950 $51,858 $59,362
Power Management Products 25,403 24,262 25,298
RF Components & Subsystems 12,096 15,963 17,579
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Total $82,449 $92,083 $102,239
====================================================================================================================================
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For selected financial data by business segment see ("Segment Information") Note
15 to the consolidated financial statements. Each of the Company's business
segments market products to one or more of the following industries.
Defense
The Company continues to be a leading supplier of sophisticated,
state-of-the-art electronic components and systems for missile guidance,
airborne and ground based radars, electronic countermeasures (ECM), and
electronic intelligence (ELINT). The Company supplies products on key missiles
programs such as the AMRAAM, Tomahawk, Sparrow, Standard Missile (SM), BAT and
PAC3/Patriot missile system. Key programs in ECM include the ALQ-99, ALQ-131,
ALQ-135, ALQ-156, ALQ-165 (ASPJ), ALQ-172, ALQ-184, ALQ-211 (SIRFC), IDECM,
APR-48A (RFIS), APR-39, ALR-66/67 and Salamandre. Radar programs include
MILSTAR, ARINE, GRIFO and a number of active electronically scanned array (AESA)
programs. The Company provides microwave and RF components and subsystems that
primarily generate, manage and control frequencies in the range of 1 Khz to
40Ghz. A typical example is a radar jamming system which incorporates a
microwave oscillator that generates a signal to render enemy radar ineffective.
Power supply products are typically used for direct electric current (DC) to DC
conversion or alternating electric current (AC) to DC conversion, and high or
low voltage power at varied currents. For example, power management products
would be used to convert 400 Hz AC current generated by an aircraft's generators
into the high voltage high current required for the aircraft's radar.
Space
The Company provides products for spacecraft and launch vehicles. Principal
space applications include satellite communications, intelligence, surveillance
and sensing. The Company designs, develops and manufactures frequency components
such as isolators, circulators, oscillators and power components such as DC to
DC converters. The Company's products are used on satellite-based communication
systems such as Astrolink, Beam Link, Globalstar (TM), Tempo (TM), GPS (Global
Positioning System), SBIRS (Space Based Infared Sensor), HESSI (High Energy
Solar Spectroscopic Imager), N.E.A.R. (Near Earth Asteriod Rendezvous), Milstar
II and others. Such systems are designed to offer various combinations of voice,
data, video, paging and facsimile to telephones and data terminals,
environmental astrological experiment results and phenomena data, positioning
and locating data and threat detection and warning.
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Telecommunications
The Company is currently supplying the world-wide telecommunication industry
with a large selection of communication products including complex microwave and
millimeterwave transceivers, IF conversion modules (a device which allows
signals to be converted from low frequency to high through intermediate
staging), phase locked oscillators, synthesizers, power supplies, digital
switching equipment, digitally tunable notch filters (a device which allows for
the selection of a specific signal from an array of signals) as well as a large
portfolio of single function microwave components. The Company's communication
products cover a diverse range of applications such as cellular phone backhaul
systems, fixed wireless local loop (WLL), terrestrial & space based satellite
communications (SATCOM)/(VSAT) and local/wide area networks. The Company's
products are generally marketed directly to telecommunication equipment
providers who in turn support the end use service providers. In some
applications, the Company's current customers are end use service providers.
The Company's principal customers are prime contractors and military agencies of
the United States government and certain foreign countries. With the exception
of Raytheon Company, which accounted for 18%, 23%, and 20% of the Company's net
sales in 1999, 1998, and 1997, respectively, the Company believes that the loss
of any single customer would not have a material adverse effect on the Company.
<TABLE>
The following table sets forth information concerning net sales of the Company's
products to categories of customers and geographic markets. The sales
information includes direct sales by the Company to the customer or market and
indirect sales to prime contractors selling to the customer or market.
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Year Ended December 31,
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1999 1998 1997
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(dollars in thousands) $ % $ % $ %
- ------------------------------------ -------------- ----------- --------------- --------------- ----------------- ------------------
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U.S. government
Military $54,830 66% $64,599 70% $77,117 75%
Non-Military 3,063 4 1,262 1 792 1
U.S. Commercial 7,422 9 7,639 9 7,510 7
International
Military 14,924 18 16,689 18 14,420 15
Commercial 2,210 3 1,894 2 2,400 2
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Total $82,449 100% $92,083 100% $102,239 100%
====================================================================================================================================
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Government Contracts
A substantial portion of the Company's business is conducted under United States
government contracts and subcontracts. These contracts are either competitively
bid or sole source contracts. Competitively bid contracts are awarded after a
formal bid and proposal competition among suppliers. Sole source contracts are
awarded when a single contractor is deemed to have an expertise or technology
that is superior to that of competing contractors.
Virtually all of the Company's United States government contracts and
subcontracts are fixed price contracts, pursuant to which the Company agrees to
develop a product or to manufacture a product for a fixed price and assumes the
risk of cost overruns. Substantially all of the Company's net sales are derived
from fixed price manufacturing contracts. The Company believes that the risk of
cost overruns is lower on fixed price manufacturing contracts than it is on
fixed price product development contracts.
Sales and Marketing
The Company markets its products through its own sales force and a network of
knowledgeable independent sales representatives and distributors. The Company's
sales force is comprised of divisional Vice Presidents, Marketing; regional
sales managers;sales personnel and support staff. The Company has independent
sales representatives in the U.S. and numerous foreign countries.
6
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The Company's sales managers are responsible for coordinating the independent
sales representatives and for having extensive knowledge of government and
commercial programs in their respective regions. They also keep the Company's
engineering, manufacturing and management personnel advised of possible future
trends and requirements of customers.
The key to the Company's sales and marketing strategy is the development of
long-term relationships with its customers and to have its products designed
into its customers' systems. This is achieved by regular communications and
meetings between Company personnel at all levels and their counterparts in the
customer's organization. The Company is active in forming strategic alliances
and buying agreements.
Product Engineering, Manufacturing and Development
The Company believes that a principal reason for its success is the quality of
its product design, engineering, manufacturing and testing capabilities. These
capabilities enable the Company to design and engineer products that meet or
exceed its customers' demanding specifications for performance and reliability
and to manufacture the products at competitive prices.
The Company maintains engineering, product design and manufacturing operations
and related support systems at all of its operating facilities. In addition, all
operations utilize computer systems for product design and product documentation
and to control product performance testing. A key to the Company's ability to
reduce manufacturing cost has been the reduction of direct labor through the
introduction of automated or semi-automated manufacturing and product testing
systems and processes.
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The Company invests in product development, principally engineering, to meet and
anticipate customer requirements for new products or enhancements of existing
products. In addition, the Company undertakes customer-sponsored product
development contracts. Accordingly, the Company's development activities,
whether Company-funded or customer-sponsored, are generally product or program
specific. The Company retains rights from customer-sponsored development work.
The amounts of company-funded and customer-sponsored development work performed
in each of the last three years are as follows:
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Year Ended December 31,
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(dollars in thousands) 1999 1998 1997
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Company-funded $1,786 $ 274 $ 777
Customer-sponsored 1,607 1,794 1,787
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Total $3,393 $2,068 $2,564
===========================================================================================================
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Sources of Raw Materials
The raw materials and sub-components that the Company requires for the
manufacture of its products are generally available from several sources. The
Company purchases some raw materials and components from single sources, but
believes it could purchase similar or comparable raw materials from alternative
sources of supply on comparable terms. From time to time, the Company
experiences minor delays in obtaining raw materials and components; however,
such delays have not materially affected its operations.
Backlog
At December 31, 1999 and December 31, 1998, the Company had a backlog of
unshipped orders of $83,439 thousand and $64,803 thousand, respectively. The
Company expects to ship all of the December 31, 1999 backlog within 2000, except
for approximately $33,800 thousand which will be shipped in later periods.
7
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Competition
Reduced defense spending, by the United States government and many of its
allies, has intensified competition in defense electronics. Competition in the
commercial wireless industry is global, and consequently the company competes
with both domestic and international companies in this market. Competition in
both the defense and commercial segments is based primarily on price, product
performance, reliability and customer support. The Company believes that it
competes effectively in all of these areas. The Company's continued success will
depend in part on its ability to develop and introduce innovative, low cost,
quality products that meet or exceed customers' specifications.
The Company believes its technological legacy and financial strength will make
it a strong competitor in both the defense electronics and commercial wireless
markets. There is no single competitor that competes with the Company in all of
its product lines. Some of the Company's competitors have greater financial and
operating resources than the Company. In addition, certain of the Company's
customers have technological capabilities in the Company's product areas and
could choose to manufacture certain products themselves rather than purchase
from suppliers such as the Company.
Employees
As of December 31, 1999, the Company had 657 full-time employees at its various
divisions. No employees are represented by unions. The Company believes its
relations with its employees are good.
Intellectual Property
The Company holds patents issued in the United States and certain European
countries. While the Company considers its patents to be of some value, the
Company believes that its technological position depends primarily on the
technical competence and the creative ability of its engineering staff in the
areas of product design and manufacturing processes. All of the Company's key
personnel are subject to confidentiality agreements. The Company also relies on
a combination of copyright and trademark protection with respect to certain of
its intellectual property.
Government Regulation
All of the Company's operations are subject to compliance with regulatory
requirements of federal, state and municipal authorities, including regulations
concerning employment obligations and affirmative action, workplace safety and
protection of the environment. While compliance with applicable regulations has
not adversely affected the Company's operations in the past, there can be no
assurance that the Company will continue to be in compliance in the future or
that these regulations will not change.
In particular, the Company must comply with detailed government procurement and
contracting regulations and with United States government security regulations,
certain of which carry substantial penalty provisions for nonperformance or
misrepresentation in the course of negotiations. Failure of the Company to
comply with its government procurement, contracting or security obligations
could result in penalties or suspension of the Company from government
contracting, which would have a material adverse effect on the Company's results
of operations.
The Company is required to maintain a United States government facility security
clearance at each of its locations. This clearance could be suspended or revoked
if the Company is found not to be in compliance with applicable security
regulations. Any such revocation or suspension would delay the Company's
delivery of its products to customers. Although the Company has adopted policies
directed at assuring its compliance with applicable regulations and there have
been no suspensions or revocations of any of its facilities, there can be no
assurance that the approved status of the Company's facilities will continue
without interruption. United States government regulations require a license for
the export of advanced weapons systems. Changes in United States government
policies towards the export of these systems may impact the Company's
international business.
8
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Item 2 Properties
The Company's principal executive offices are located in Danvers, Massachusetts.
The Company's principal operating facilities, containing light manufacturing and
associated engineering and support services are located in four states:
Arizona: The Company owns a modern 84,260 square foot building in
Chandler.
California: The Company leases a modern 54,280 square foot building in
Sunnyvale. The lease does not include utilities,
maintenance and repairs, insurance and real estate taxes.
The lease expires in 2003. The current annual rent is
$670,896 with an average annual escalation of
approximately 6.6% through the term of the lease.
Florida: The Company owns a modern 68,000 square foot building in
Fort Walton Beach.
Massachusetts: The Company owns a modern 25,000 square foot building in
Webster and a modern 40,350 square foot building in
Beverly. The Company leases 10,760 square feet in a modern
building in Andover, MA. The lease includes water,
maintenance of common areas and real estate taxes. The
lease expires July 31, 2000. The Company does not expect
to renew the lease and the balance of rent to be paid is
$75,887.
The Company believes that its properties are in good operating condition and
repair and considers its facilities to be suitable and adequate for the
Company's current and reasonably foreseeable future activities. The Company
believes that there is capacity at the Company's facilities to absorb acquired
businesses of a certain size and product lines and/or internal growth. The
properties owned by the Company are all subject to either mortgages or
industrial revenue bond financing.
9
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Item 3 Legal Proceedings
The Company is involved from time to time in litigation incidental to its
business. Ongoing legal proceedings are as follows:
Weymouth Environmental Contamination
In April 1996, the Company sold its manufacturing facility in Weymouth,
Massachusetts but retained the environmental liability and responsibility
associated with groundwater contaminants present at and associated with the
site. This site 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 site and still present in the groundwater at
the site; 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.
In accordance with the applicable provisions of the Massachusetts Contingency
Plan, the Company has completed its investigation of the Site and has submitted
an evaluation of remedial alternatives to the DEP. The recommended remedial
alternative involves continued operation of the currently operating groundwater
remediation system with the addition of a supplemental well. It is not possible
at this stage of the proceedings to predict whether the DEP will approve the
recommended alternative, and if not, the specific remedial actions, if any, that
it will require.
Sunnyvale Indemnification Claim
Eaton Corporation has filed a suit against the Company in United States District
Court, Northern District of California, alleging that it has a contractual duty
to indemnify Eaton Corporation 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 Eaton Corporation. The indemnification claim was recently dismissed
at the trial level, but is now being appealed by Eaton Corporation. The matter
is pending before the Ninth Circuit of the United States Court of Appeals and
the outcome as to the results is uncertain.
DeCoursey v. Signal Technology Corporation
The case was filed on August 25, 1998 in the United States District Court for
the District of Massachusetts. Plaintiffs allege that they purchased Common
Stock of the Company between April 28, 1997 and August 17, 1998 and seek to
represent the class of all persons purchasing during that period. The Complaint,
which was amended on March 29, 1999, alleges that the Company and its former
Chief Executive Officer, Dale Peterson, violated Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 and seeks monetary damages. The Amended
Complaint alleges that various public statements by the Company during 1997 and
1998 were false or misleading as a result of alleged accounting irregularities.
On June 11, 1999, the Company filed a motion to dismiss the Amended Complaint.
Subsequently, the parties reached an agreement-in-principle to settle. The
agreement-in-principle is subject to a number of customary contingencies,
including court approval of the settlement. During the third quarter of 1999 the
Company took a charge to earnings of $1,250 thousand in connection with the
agreement-in-principle to settle the lawsuit.
L3 Communications Corporation v. Signal Technology Corporation, et al
This case was filed on September 3, 1998 in the Superior Court in Fulton County,
Georgia. 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, tortuous interference
with prospective and contractual relations, under both the Georgia
10
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Deceptive Trade Practices Act and the Uniform Trade Secrets Act and seeks
monetary damages. The complaint was dismissed in October 1999 without prejudice.
Transistor Devices, Inc. v. Signal Technology Corporation
On October 29, 1999, Transistor Devices, Inc. filed suit in the Superior Court
in Morris County, New Jersey, against the Company's Keltec division. The Company
removed the case to the United States District Court for the District of New
Jersey, where it is currently pending. The complaint alleges that Keltec is
liable for defamation and intentional interference with contractual relations
based on alleged statements made by Keltec's President to representatives of
Lockheed Martin Corporation in connection with Lockheed Martin's solicitation of
bids for the design and manufacture of a certain power supply unit in August
1999. Transistor Devices claims that the alleged statements were intended to
injure its reputation and interfere with its bid and prospective economic
advantage with Lockheed Martin.
In December 1999, Keltec denied the allegations set forth in the complaint and
filed counterclaims against Transistor Devices for breach of contract and breach
of the implied covenant of good faith and fair dealing. Keltec claims that
Transistor Devices' bid to Lockheed Martin directly contravenes the non-compete
provisions in an Asset Purchase Agreement executed by Transistor Devices and
Keltec on December 6, 1996. The case is being defended by the Company's insurer.
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters
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The Company's Common Stock is listed on the American Stock Exchange ("AMEX"),
under the symbol STZ. The high and low closing prices for shares of the
Company's Common Stock for the past two years were as follows:
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1999 1998
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High Low High Low
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First Quarter $ 4-3/4 $ 2-9/16 $ 7 $ 4-3/4
Second Quarter 5-7/8 3-11/16 6-1/2 5-1/4
Third Quarter 5-3/4 5 6-3/8 3-1/2
Fourth Quarter 9-5/8 4 3-1/2 2-1/2
====================================================================================================================================
</TABLE>
There were approximately 85 holders of record of the Company's Common Stock on
March 17, 2000. The closing price per share of the Company's Common Stock on
March 17, 2000 as reported on the AMEX was $ 23.
The Company has never paid cash dividends on its Common Stock. The Company
currently anticipates that it will retain all available funds for use in
operations and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
11
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Item 6 Selected Consolidated Financial Data
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SELECTED CONSOLIDATED FINANCIAL DATA
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(in thousands, except per share amounts
and employees at year-end) 1999 1998 1997 1996 1995
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OPERATIONS
Net Sales $ 82,449 $ 92,083 $ 102,239 $ 113,064 $ 89,728
Operating income (loss) (1) 5,565 (6,600) 76 4,252 1,040
Income (loss) before taxes 3,947 (7,497) (994) 2,907 (123)
Net Income (loss) 4,476 (7,173) (657) 1,698 (269)
Net income (loss) per share (1):
Basic 0.59 (0.97) (0.09) 0.24 (0.04)
Diluted $ 0.56 $ (0.97) $ (0.09) $ 0.22 $ (0.04)
Shares used in calculating net income
(loss) per share:
Basic 7,587 7,365 7,268 7,076 6,880
Diluted 7,986 7,365 7,268 7,676 6,880
(1) In 1995, includes restructuring expense of $779 or $(0.07) per share
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets $ 32,434 $ 30,707 $ 42,670 $ 47,096 $ 46,421
Current liabilities 18,818 11,006 13,631 16,065 15,682
Total assets 57,601 48,983 62,840 65,644 66,117
Long-term debt, less current maturities 5,573 9,928 13,408 13,408 17,283
Total debt 9,178 10,408 13,888 14,729 17,658
Stockholders' equity 31,686 26,487 34,274 34,362 31,944
Shares outstanding at year-end 7,676 7,349 7,417 7,172 6,949
Book value per share $ 4.13 $ 3.60 $ 4.62 $ 4.79 $ 4.60
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA
Orders $ 95,171 $ 68,187 $ 101,875 $ 103,829 $ 110,656
Year-end backlog $ 83,439 $ 64,803 $ 88,699 $ 89,063 $ 92,837
Employees at year-end 657 754 817 993 894
Net sales per employee $ 125 $ 122 $ 125 $ 114 $ 100
</TABLE>
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary Note
The Annual Report on Form 10-K may contain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including, but
not limited to, (i) trends in the federal defense budget and military reliance
upon sophisticated electronic equipment, (ii) the impact upon the Company of
loss of customers or sales, (iii) the impact and effects of competition and the
Company's continued ability to compete in its markets, (iv) the suitability and
adequacy of the Company's properties for its intended uses, (v) the Company's
anticipated policy with respect to dividends, (vi) the incidence, materiality,
and frequency of fluctuations in the Company's operating results, (vii) the
Company's optimism about improvements in its operating deficiencies, (viii) the
impact on the Company and effects of the expansion of the Company's business in
the wireless infrastructure market place, (ix) the Company's ability to
successfully intergrate acquisitions into its operations and (x) certain other
statements identified or qualified by words such as "likely", "will",
"suggests", "may", "would", "could", "should", "expects", "anticipates",
"estimates", "plans", "projects", "believes", "is optimistic about", or similar
expressions (and variants of such words or expressions).
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Investors are cautioned that forward-looking statements are inherently
uncertain. These forward-looking statements represent the best judgment of the
Company as on the date of this Annual Report on Form 10-K, and the Company
cautions readers not to place undue reliance on such statements. Actual
performance and results of operations may differ materially from those projected
or suggested in the forward-looking statements due to certain risks and
uncertainties including, without limitation, risks associated with fluctuations
in the Company's operating results, volume and timing of orders received,
changes in the mix of products sold, competitive pricing pressure, the Company's
ability to meet or renegotiate customer demands, the ability to anticipate
changes in the market, the Company's ability to finance its operations on terms
that are acceptable, the Company's ability to attract and retain qualified
personnel including the Company's management, changes in the global economy,
changes in regulatory processes, the dependence on certain key customers
(including the U.S. government), the Company's ability to realize sufficient
margins on sales of its products, the availability and timing of funding for the
Company's current products and the development of future products.
Overview
The Company's principal business is the design, development, manufacture and
marketing of sophisticated electronic components and subsystems. The Company's
principal strategy for growth is to pursue existing business opportunities at
its current operations in the defense, space and wireless telecommunication
markets and acquire complementary businesses and product lines.
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 requirements. 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.
Results of Operations for the Years Ended December 31, 1999, 1998 and 1997
Net sales for 1999 totaling $82.4 million decreased 10.5% from 1998 net sales of
$92.1 million. Backlog increased to $83.4 million at the end of 1999 from $64.8
million at the end of 1998 on orders of $95.2 million in 1999 compared to $68.2
million in 1998. Included in 1999 backlog was $5.8 million resulting from the
purchase of Advanced Frequency Products LLC. A reduction in orders during the
last six months of 1998 at the Microwave and RF components and subsystem
businesses was the primary reason for the overall decreased sales in 1999.
1998 net sales of $92.1 million decreased 10.0% from 1997 net sales of $102.2
million. Backlog decreased to $64.8 million at the end of 1998 from $88.7
million at the end of 1997 on orders of $68.2 million in 1998 compared to $101.9
million in 1997. A reduction in orders was the primary reason for the decreased
sales in 1998. Orders throughout the Company were moderately affected by
economic conditions in Asia. Government sanctions placed on certain shipments to
India and Pakistan cancelled shipments and delayed orders.
Gross profit during 1999 increased $12.4 million as compared to 1998. Gross
profit was adversely effected during 1998 by contract adjustments and inventory
write-downs at the Company's Keltec Operation and to a lesser extent at its
Microwave Components and Subsystems businesses. The impact of these adjustments
in 1998 was approximately $8.2 million and were a result of an investigation by
Corporate management with the aid of its independent accountants and outside
counsel into contract and inventory accounting practices at its Keltec
Operation. For 1999 gross profit as a percentage of sales was 31.8% as compared
to 15.1% in 1998. The improved performance over 1998 is attributable to the
Company's corrective actions taken including a new management team at Keltec,
strengthening performance assessment, tightening financial controls,
streamlining operations as well as favorable changes in contract mix.
13
<PAGE>
For the year ended 1998 gross profit as a percentage of sales decreased to 15.1%
from 17.6% in 1997. The decrease in gross profit percentage is attributable to
the Company recognizing losses on contracts and inventory write-downs taken at
the Keltec Operation and to a lesser extent the Microwave Components and
Subsystems business.
Selling, general and administrative expenses decreased to $18.9 million for 1999
from $20.2 million in 1998. The $1.3 million decrease is primarily due to a
reduction in commissions and selling expenses.
Selling, general and administrative expenses increased to $20.2 million for 1998
from $17.1 million in 1997. The $3.1 million increase is in part due to the
Company taking a charge for environmental remediation costs at the Weymouth
facility due to a settlement with the state of Massachusetts and a revision to
its estimates for future remediation costs. In addition, the Company recognized
increased legal and accounting costs associated with the Company's restatement
of its 1996 and 1997 financial statements as well as expenses related to the
relocation of new executive employees and severance paid to former executive
employees.
Company-funded research and development for 1999 was $1.8 million compared to
$.3 million in 1998 and $.8 million in 1997. The company instituted an enhanced
research and development program for 1999.
Other expense of $1.3 million in 1999 is a charge to earnings in connection with
reaching an agreement-in-principle to settle the pending securities class action
lawsuit.
Business Segments
The Company has six operating divisions engaged in the engineering,
manufacturing and marketing of electronic components and subsystems. The four
operating divisions aggregated into the Microwave Components and Subsystems
segment have similar products, production processes and types of customers.
Microwave Components and Subsystems
Engaged in the design and manufacture of microwave and millimeter wave
transceivers, oscillators, frequency synthesizers and microwave amplifiers,
microwave switch matrices and a wide range of single function components
including ferrite circulators and isolators, mixers and filters.
Power Management Products
Engaged in the design and manufacture of military and space based DC to DC
converters, high and low voltage power supplies, and military high power
amplifiers and transmitters for use in radar systems.
Radio Frequency Components and Subsystems
Engaged in the design and manufacture of radio frequency and intermediate
frequency signal processing components, integrated multi-function devices, and
switching systems for the defense, space and wireless telecommunications
markets.
14
<PAGE>
<TABLE>
The following tables display net sales and operating income by business segment
for each of the three years ending December 31 which correspond to the segment
information presented in Note 15 to the consolidated financial statements.
<CAPTION>
(amounts in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Net Sales
-----------------------------------------------
<S> <C> <C> <C>
Microwave Components & Subsystems $ 44,950 $ 51,858 $59,362
Power Management Products 25,403 24,262 25,298
RF Components & Subsystems 12,096 15,963 17,579
-----------------------------------------------
$ 82,449 $92,083 $102,239
Operating Income
-----------------------------------------------
Microwave Components & Subsystems $ 4,618 $ 2,265 $ 2,856
Power Management Products 4,025 (7,401) (3,676)
RF Components & Subsystems 310 2,127 2,300
Other (1) (3,388) (3,591) (1,404)
-----------------------------------------------
$ 5,565 $(6,600) $ 76
-----------------------------------------------
<FN>
(1) Other is primarily the portion of corporate headquarters expenses that have not been allocated to the business segments.
</FN>
</TABLE>
Microwave Components and Subsystems
Net sales of Microwave Components and Subsystems decreased by 13.3% in 1999
compared to 1998 and decreased 12.6% in 1998 compared to 1997. The primary
reason for the 1999 decrease in sales was a reduction in second half 1998
orders. The principal reason for the 1998 reduction in sales in this segment was
a $6.5 million reduction in sales at the Arizona operation caused mainly by the
completion of two large contracts in 1997.
Operating income of Microwave Components and Subsystems increased by $2.4
million in 1999 compared to 1998 and decreased by $.6 million or 20.6% in 1998
compared to 1997. Gross profit was adversely effected in 1998 by contract
adjustments and inventory write-downs of approximately $1.9 million. The
reduction in 1998 income compared to 1997 was due to the above mentioned
contract adjustments and sales volume reductions partially offset by increases
in income at the Arizona and Systems operations.
Power Management Products
Net sales of Power Management Products increased by 4.7% in 1999 compared to
1998 and decreased by 4.0% in 1998 compared to 1997. The primary reason for the
increase was a focused effort by the new management team to increase
efficiencies in manufacturing and ship delinquent orders during the first six
months of 1999. The reduction in 1998 sales was caused by late contract
deliveries.
Operating income of Power Management Products increased by $11.4 million in 1999
compared to 1998 and decreased by $3.7 million in 1998 compared to 1997. Gross
profit was adversely effected in 1998 by contract adjustments and inventory
write-downs of approximately $6.3 million. Contributing to the increase in
operating income in 1999 was increased sales volume, greater efficiencies in
manufacturing as well as changes in contract mix. The reduction in 1998 income
is primarily attributable to the above mentioned contract adjustments and
inventory write-downs.
RF Components and Subsystems
Net sales of RF Components and Subsystems decreased by 24.2% in 1999 compared to
1998 and decreased 9.2% in 1998 compared to 1997. The primary reason for the
decreased sales in 1998 and 1999 was a reduction in orders during the last six
months of 1998 and first quarter 1999.
15
<PAGE>
Operating income of RF Components and Subsystems decreased by $1.8 million in
1999 compared to 1998 and decreased by $.2 million or 7.5% in 1998 compared to
1997. The decrease in 1999 operating income is mainly attributable to the above
mentioned decrease in sales volume, technical problems on the Sparrow program as
well as changes in contract mix. The reduction in 1998 operating income is
mainly attributable to the above mentioned sales volume reductions.
Interest expense in 1999 decreased to $.4 million from $.9 million in 1998 and
from $1.1 million in 1997. The decreased interest expense reflects lower levels
of borrowing during 1999. Total debt decreased to $9.2 million at year end 1999
from $10.4 million at the end of 1998.
The benefit for income taxes in 1999 was $.5 million compared to an income tax
benefit of $.3 million in 1998. The 1999 benefit for income taxes primarily
relates to the full reversal of the valuation allowance on the deferred tax
asset, which the Company believes is more likely than not to be realized, based
on the Company's earnings performance. The 1998 benefit reflects loss carry
backs to the extent available. The effective income tax rate was (13.4%) benefit
in 1999 as compared to a (4.3%) benefit in 1998 and (33.9%) benefit in 1997
Liquidity and Capital Resources
The Company's primary source of liquidity during 1999, 1998 and 1997 was cash
flow from operations totaling $12.0 million, $6.9 million and $4.9 million
respectively.
The Company's borrowing arrangement requires the Company to maintain certain
minimum balances and ratios, the most significant of which requires the
maintenance of a minimum tangible net worth. At December 31, 1999 the Company
was not in compliance with the net worth covenant as a result of the Advanced
Frequency Products LLC acquisition and the Company obtained a waiver with
respect to such non-compliance. The Company and its bank have amended the loan
agreement as of March 9, 2000 including a change to the minimum net worth
covenant. The amount available for borrowing still may not exceed $15.0 million
but the borrowing limit is no longer based on the Company's receivables.
At December 31, 1999 the Company had working capital of $13.6 million, including
cash of $3.6 million, as compared to working capital and cash of $19.7 million
and $2.4 million, respectively at December 31, 1998. In 1999 cash used for
acquisitions and related costs was $8.0 million and accounted for most of the
cash used for investing activities compared to no expenditures for acquisitions
and related costs during 1998 or 1997. In 1999 cash used for additions to
property, plant and equipment was $1.9 million compared to $1.6 million in 1998
and $5.4 million in 1997. The $5.4 million includes approximately $2.4 million
for the purchase of its Beverly, Massachusetts facility, formerly under lease.
In 1999, the Company paid back borrowings under the Company's revolving credit
facility of $1.0 million compared to $3.0 million in 1998 and $2.5 million in
1997.
On February 17, 2000, the Company entered into a non-binding letter of intent
pursuant to which the Company proposes to acquire Logimetrics, Inc. (Note 17).
The Company has loaned approximately $2.0 million to Logimetrics, Inc. for
working capital and other purposes. Logimetrics granted to the Company the
option to purchase Logimetrics high-power amplifier business, currently
conducted at Logimetrics facility in Bohemia, New York, for $2.0 million less
the unpaid portion of any loans made by the Company to Logimetrics. In addition,
the Company assumed management of Logimetrics' Bohemia, New York business and
has assumed all current liabilities. The Company is responsible for all expenses
incurred and is entitled to retain all revenues generated in connection with its
operation of that business. The Company has also agreed to make interest
payments on Logimetrics' outstanding bank indebtedness during the period it is
operating the Bohemia, New York business.
The Company continues to investigate acquisition opportunities in complementary
businesses, product lines and markets. The Company believes that it has adequate
cash, working capital and available financing to meet its operating and capital
requirements in the foreseeable future and to pursue acquisition opportunities.
16
<PAGE>
Impact of Year 2000,
Management is aware of the potential software and hardware anomalies associated
with the date change commonly known as the Year 2000 problem (Y2K). A
comprehensive review of the Company's computer systems, software and internal
embedded systems was completed during 1999 and management believes at this time
that Year 2000 issues have been addressed and resolved.
The Company has evaluated all of its product lines and has found no product with
embedded date functions that the Company feels in any way might have any Y2K
exposure.
The Company incurred expenses of approximately $441 thousand associated with the
Company's overall plan to achieve Y2K compliance. These costs include internal
labor, outside consultants and, to a lesser extent, new computer hardware and
software required to achieve Y2K compliance.
Risks associated with the Y2K problem include, among other things, (i) failure
of systems and software used by the Company's customers which will impact their
financial ability to purchase products from the Company, (ii) failure of systems
and software used by vendors and third-party service providers upon which the
Company relies for outsource services and products, (iii) Y2K problems with the
Company's suppliers which could negatively impact the Company's ability to
fulfill its own orders promptly, and (iv) errors or failures of systems in which
the Company's devices are implemented which could result in improper interfacing
or operation of such devices.
Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's second quarter of the
fiscal year 2000. The effects of applying this guidance, if any, will be
reported as a cumulative effect adjustment resulting from a change in accounting
principle. The Company's evaluation of SAB 101 is not yet complete.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company does not engage in trading market risk sensitive instruments or
purchasing hedging instruments or "other than trading" instruments that are
likely to expose the Company to market risk, whether interest rate, foreign
currency exchange, commodity price or equity price risk. The Company has not
purchased options or entered into swaps or forward or futures contracts. The
Company's primary market risk exposure is that of interest rate risk on
borrowings under its revolving credit facility, which are subject to interest
rates based on the bank's base rate plus 1/2% . The Company also has a
collateralized real estate loan at the bank's base rate and a change in the
applicable interest rate on these loans would affect the rate at which the
Company could borrow funds.
17
<PAGE>
Item 8 Financial Statements and Supplementary Data
<TABLE>
Signal Technology Corporation and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
Year ended December 31,
(dollar amounts in thousands, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 82,449 $ 92,083 $ 102,239
Cost of sales 56,215 78,203 84,247
- ---------------------------------------------------------------------------------------------------------
Gross profit 26,234 13,880 17,992
Selling, general and administrative expenses 18,883 20,206 17,139
Research and development expenses 1,786 274 777
- ---------------------------------------------------------------------------------------------------------
Operating income (loss) 5,565 (6,600) 76
Other expense 1,250 - -
Interest expense 368 897 1,070
- ---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 3,947 (7,497) (994)
- ---------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes (529) (324) (337)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,476 $ (7,173) $ (657)
=========================================================================================================
Net income (loss) per share
Basic $ 0.59 $ (0.97) $ (0.09)
Diluted $ 0.56 $ (0.97) $ (0.09)
=========================================================================================================
Shares used in calculating net income (loss) per share
Basic 7,587 7,365 7,268
Diluted 7,986 7,365 7,268
=========================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>
18
<PAGE>
<TABLE>
Signal Technology Corporation and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31,
----------------------------------------
(dollar amounts in thousands) 1999 1998
- ------------------------------------------------------------------------------------ ----------------- --- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,571 $ 2,366
Accounts receivable, net of allowance for doubtful
accounts of $199 in 1999 and $332 in 1998 13,299 12,894
Inventories, net of progress payments 10,446 11,358
Deferred income taxes 4,134 1,562
Refundable income taxes 638 2,319
Prepaid expenses and other current assets 346 208
- ------------------------------------------------------------------------------------ ----------------- --- ------------------
Total current assets 32,434 30,707
- ------------------------------------------------------------------------------------ ----------------- --- ------------------
Property, plant and equipment, net 14,954 14,935
Intangibles assets, net 9,365 2,505
Other assets 848 836
- ------------------------------------------------------------------------------------ ----------------- --- ------------------
Total assets $ 57,601 $ 48,983
- ------------------------------------------------------------------------------------ ----------------- --- ------------------
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 3,605 $ 480
Accounts payable 3,292 3,067
Accrued expenses 10,318 7,456
Customer advances 1,603 3
- ------------------------------------------------------------------------------------ ----------------- --- ------------------
Total current liabilities 18,818 11,006
- ------------------------------------------------------------------------------------ ----------------- --- ------------------
Deferred income taxes 1,524 1,562
Long-term debt, net of current maturities 5,573 9,928
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued
Common stock, $0.01 par value; 30,000,000 authorized;
7,828,189 shares in 1999 and 7,501,323 shares in 1998 issued and 7,676,089
shares in 1999 and 7,349,223 shares
in 1998 outstanding 78 75
Additional paid-in-capital 13,667 12,947
Retained earnings 18,841 14,365
- ----------------------------------------------------------------------------------- ---------------- ----- ------------------
32,586 27,387
Less treasury stock; 152,100 shares in both 1999 and 1998 at cost (900) (900)
- ----------------------------------------------------------------------------------- ---------------- ----- ------------------
Total stockholders' equity 31,686 26,487
- ----------------------------------------------------------------------------------- ---------------- ----- ------------------
Total liabilities and stockholder's equity $ 57,601 $ 48,983
- ----------------------------------------------------------------------------------- ---------------- ----- ------------------
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
Signal Technology Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Years ended December 31, 1999, 1998 and 1997
-------------------------------------------------------------------------------------------
Common Stock Treasury Stock
--------------------------- Additional ------------------------- Total
Shares Paid-in Retained Amount Stockholders'
(dollar amounts in thousands) Issued Amount Capital Earnings Shares at Cost Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 7,171,506 $ 72 $ 12,095 $ 22,195 - $ - $ 34,362
Exercise of stock options 246,534 2 566 568
Issuance of common stock 5,000 - 32 32
Stock repurchase program (6,000) (31) (31)
Net loss (657) (657)
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1997 7,423,040 74 12,693 21,538 (6,000) (31) 34,274
Exercise of stock options 36,599 1 74 75
Issuance of common stock 41,684 - 180 180
Stock repurchase program (146,100) (869) (869)
Net loss (7,173) (7,173)
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1998 7,501,323 75 12,947 14,365 (152,100) (900) 26,487
Exercise of stock options 233,305 2 376 $ 378
Issuance of common stock 93,561 1 216 217
Stock compensation expense 128 128
Net income 4,476 4,476
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1999 7,828,189 $ 78 $ 13,667 $ 18,841 (152,100) $ (900) $ 31,686
============================================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
20
<PAGE>
<TABLE>
Signal Technology Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Years ended December 31,
--------------------------------------------------
(dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,476 $ (7,173) $ (657)
Adjustments to reconcile net income (loss) to net cash provided
by operations:
Depreciation 2,754 3,028 3,292
Amortization 444 419 422
Compensation charge on stock options 128 - -
(Gain) or loss on disposal of property, plant and equipment 17 (4) 10
Deferred taxes (2,610) 800 380
Changes in operating assets and liabilities:
Accounts receivable 316 3,007 2,482
Inventory 1,566 8,847 2,898
Refundable income taxes 1,681 305 (2,205)
Prepaid expenses and other current assets (137) 278 (154)
Accounts payable (770) (2,287) 65
Accrued expenses 2,560 836 (1,787)
Customer advances 1,560 (1,174) 129
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,985 6,882 4,875
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions and associated costs (7,977) - -
Additions to property, plant and equipment (1,928) (1,608) (5,404)
Proceeds from disposal of property, plant and equipment and other 10 59 58
- ------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (9,895) (1,549) (5,346)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 378 75 568
Proceeds from issuance of stock 217 180 32
Purchase of treasury stock - (869) (31)
Borrowings on bank term note - - 2,980
Borrowings under bank revolving credit facilities 7,600 26,950 33,700
Repayment of borrowings under bank revolving credit facilities (8,600) (29,950) (36,200)
Payments of long-term debt (480) (480) (1,321)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (885) (4,094) (272)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,205 1,239 (743)
Cash, beginning of year 2,366 1,127 1,870
- ------------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 3,571 $ 2,366 $ 1,127
========================================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. NATURE OF OPERATIONS
The Company designs, develops, manufactures and markets sophisticated electronic
components and subsystems that are utilized in a broad range of advanced
defense, space and wireless telecommunications applications. The Company has six
operating divisions and reports its operations within three segments: Microwave
Components and Subsystems, Power Management Products and Radio Frequency (RF)
Components and Subsystems.
The Company's core technology involves precision control, management and
generation of radio, microwave and millimeterwave frequencies and electrical
currents. Principal uses for the Company's products include telecommunications
networks, satellite communications, electronic countermeasures, intelligence and
guidance systems and radar subsystems.
The Company's major defense customers are prime government contractors which
integrate the Company's products into complex systems sold to agencies of the
United States government and to foreign countries.
In the commercial wireless markets the Company's principal customers are
world-wide major telecommunication corporations which integrate the Company's
products into a variety of complex digital radio products employed in wireless
transport infrastructure applications. During January 2000 the company created
the Signal Wireless Group to focus on this market.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Signal Technology
Corporation and its wholly-owned subsidiaries, (collectively, the "Company").
Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
The Company records revenue on a percentage of completion basis generally using
units of delivery as the basis to measure the contract work which has been
completed. Estimated losses on contracts are recognized in full in the period
they become known. A provision is made currently for estimated returns and
warranty costs.
Research and Development
Research and development expenditures are charged to operations as incurred.
22
<PAGE>
Income Taxes
Deferred tax assets and liabilities consist of differences between the tax basis
of assets and liabilities and their basis for financial reporting purposes and
are measured based on the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Deferred tax assets are stated at their
estimated realizable value. The provision for income taxes consists of estimated
federal and state income taxes currently payable adjusted for changes between
periods in the measurement of deferred tax assets and liabilities.
Earnings per Share
The Company presents 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 for all
periods using the treasury stock method.
Comprehensive Income (Loss)
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"), effective January 1, 1998. SFAS 130
requires that items defined as comprehensive income, such as foreign currency
translation adjustments, be separately classified in the financial statements
and that the accumulated balance of other comprehensive income be reported
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. There were no differences between net income
(loss) and comprehensive income (loss) for the years ended December 31, 1999,
1998 and 1997.
Inventories
Inventories, other than inventoried costs relating to contracts and programs,
are stated at the lower of cost (principally first-in, first-out) or market.
Inventoried costs relating to contracts are stated at the actual production
cost, including overhead incurred to date reduced by amounts identified with
revenue recognized on units delivered or progress completed. Inventoried costs
relating to long-term contracts and programs are reduced by charging any amounts
in excess of estimated realizable value to cost of sales.
In accordance with industry practice, inventories may include amounts relating
to contracts and programs having production cycles longer than one year and a
portion thereof will not be realized within one year.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, and depreciation is provided
using the straight-line method over the estimated useful life of the asset, as
follows:
Buildings 33 years
Building improvements 15 years
Machinery and equipment 7 years
Furniture and fixtures 5-7 years
Leasehold improvements are amortized over the lesser of their useful lives or
the life of the lease. Maintenance and repairs are charged to expense as
incurred; improvements are capitalized. Upon retirement or sale, the cost of the
assets disposed of and the related accumulated depreciation are removed from the
accounts; any resulting gain or loss is credited or charged to income.
Intangible Assets
Intangible assets which consist principally of goodwill and are being amortized
on a straight line basis over periods of three to twenty years. At each
reporting date, management assesses whether there has been a permanent
impairment in the value of its long-term assets and the amount of such
impairment by comparing anticipated undiscounted future operating income from
acquired business units with the carrying value of the related goodwill. The
factors considered by management in performing this assessment
23
<PAGE>
include current operating results, trends and prospects, as well as the effects
of demand, competition and other economic factors. At December 31, 1999 and 1998
accumulated amortization was $2,174 and $1,730 respectively.
Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's second quarter of the
fiscal year 2000. The effects of applying this guidance, if any, will be
reported as a cumulative effect adjustment resulting from a change in accounting
principle. The Company's evaluation of SAB 101 is not yet complete.
Concentrations of Risk
The market for the Company's products is largely dependent on the availability
of new contracts from U.S. Government authorities to prime contractors to which
the Company provides components. Any decline in expenditure by U.S. government
authorities may have an adverse effect on the Company's financial performance.
The Company generally extends credit to customers and, therefore, collection of
receivables is affected by the defense industry economy. The Company closely
monitors extensions of credit, maintaining reserves for potential credit losses,
and such losses have been within management's expectations.
Also, the Company's international sales are denominated in U.S. currency.
Consequently, changes in exchange rates that strengthen the U.S. dollar could
increase the price in local currencies of the Company's products in foreign
markets and make the Company's products relatively more expensive than
competitors' products that are denominated in local currencies, leading to a
reduction in sales or profitability in those foreign markets. The Company has
not taken any protective measures against exchange rate fluctuations, such as
purchasing hedging instruments with respect to such fluctuations.
The amounts reported for cash equivalents, receivables and other financial
instruments are considered to be approximate fair values based upon comparable
market information available at the respective balance sheet dates. Financial
instruments that potentially subject the Company to concentrations of credit
risks consist principally of cash and note and trade receivables. Substantially
all of the Company's cash is deposited in a single bank.
The Company must comply with detailed government procurement and contracting
regulations and with United States government security regulations, certain of
which carry substantial penalty provisions for nonperformance or
misrepresentation in the course of negotiations. Failure of the Company to
comply with its government procurement, contracting or security obligations
could result in penalties or suspension of the Company from government
contracting, which would have a material adverse effect on the Company's results
of operations.
The Company's inventories include high-technology parts and components that may
be specialized in nature or subject to rapid technology obsolescence. While the
Company has programs to minimize the required inventories on hand and considers
technology obsolescence in estimating reserves to reduce recorded amounts to
market values, such estimates could change in the future.
3. ACQUISITIONS AND DISPOSALS
In December 1999, the Company paid $7,977 for substantially all of the assets of
Advanced Frequency Products LLC a manufacturer of high-frequency millimeter wave
and microwave transceivers for the broadband wireless infrastructure
marketplace. The purchase was financed with $4,977 in cash and
24
<PAGE>
borrowing of $3,000 on the Company's revolving credit facitility (Note 9). The
transaction was accounted for as a purchase and results of operations since the
acquisition date are included in the consolidated statements of income.
The assets and liabilities recorded in connection with the acquisition of
Advanced Frequency Products LLC are based upon estimates of fair value. The
assets and liabilities recorded were $2,117 and $1,444, respectively. The
identifiable intangible assets of $2,300 consist of the Advanced Frequency
Products workforce, tradename and completed technology and is being amortized on
a straightline basis over the estimated useful life of 3-7 years. Goodwill of
$5,004 is being amoritized on a straightline basis over the estimated useful
life of 10 years.
Assuming the acquisition described above had been made on January 1, 1998, the
Company's unaudited pro forma condensed results of operations would have been as
follows:
Years ended December 31,
1999 1998
- --------------------------------------------------------------------------------
Net sales $ 86,023 $ 96,691
Net income (loss) $ 3,231 $ (7,918)
Net income (loss) per share:
Basic $ 0.43 $ (1.08)
Diluted $ 0.40 $ (1.08)
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisitions
been made on January 1, 1998, or of results which may occur in the future.
4. OTHER ASSETS
At December 31, 1999 and 1998 other assets includes a mortgage receivable in the
amount of $820 and $831, respectively. In April 1996, the Company issued the
mortgage related to the sale of its former operating facility in Weymouth,
Massachusetts and retained an environmental liability present at the site. The
mortgage receivable matures on September 1, 2023, and principal and interest
payments of approximately $6 are due monthly (see Note 10 Commitments and
Contingencies). The Company earns interest on the mortgage receivable at a rate
of 8.0% per annum and interest income for the years ended December 31, 1999,
1998 and 1997 amounted to $66, $63 and $61, respectively.
5. STATEMENTS OF CASH FLOWS
Years ended December 31,
----------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Cash paid during period for:
Interest $ 471 $ 842 $1,063
Taxes 303 -- 1,227
Non-cash investing and financing activity:
Capital lease equipment $ 148 -- --
25
<PAGE>
6. INVENTORIES
December 31,
---------------------
1999 1998
- --------------------------------------------------------------------------------
Raw materials $ 2,914 $ 3,595
Work in progress 9,739 10,936
Finished goods 587 279
- --------------------------------------------------------------------------------
13,240 14,810
Less: unliquidated progress payments (2,794) (3,452)
- --------------------------------------------------------------------------------
$ 10,446 $ 11,358
================================================================================
7. PROPERTY, PLANT AND EQUIPMENT
December 31,
-----------------------------
1999 1998
- --------------------------------------------------------------------------------
Land $ 992 $ 992
Building and improvements 10,132 9,986
Machinery and equipment 27,162 25,570
Furniture and fixtures 3,487 3,025
- --------------------------------------------------------------------------------
41,773 39,573
Less: accumulated depreciation (26,819) (24,638)
- --------------------------------------------------------------------------------
Net property, plant and equipment $ 14,954 $ 14,935
================================================================================
8. ACCRUED EXPENSES
December 31,
------------------------
1999 1998
- --------------------------------------------------------------------------------
Payroll & employee benefits $ 2,439 $ 2,248
Vacation 1,497 1,129
Warranty 1,084 1,249
Commissions 942 934
Litigation 1,250 --
Environmental 1,125 981
Other 1,981 915
- --------------------------------------------------------------------------------
$10,318 $ 7,456
================================================================================
<TABLE>
9. LONG-TERM DEBT AND NOTES PAYABLE
<CAPTION>
December 31,
-------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts Industrial Revenue Bond,
maturing in 2009, interest at 62% of the prime rate plus 1/2%
effective interest rate of 4.5% and 4.6% in 1999 and 1998
respectively, payable in annual principal payments of $80 $ 728 $ 808
Capital lease obligations(Note 10) 250 -
Bank revolving credit facility 3,000 4,000
Bank real estate term loan facility 5,200 5,600
- ---------------------------------------------------------------------------------------------------------------------
9,178 10,408
Less: current maturities (3,605) (480)
- ---------------------------------------------------------------------------------------------------------------------
$ 5,573 $ 9,928
=====================================================================================================================
</TABLE>
26
<PAGE>
The Massachusetts Industrial Revenue Bond is collateralized by real estate with
a net book value of $1,412 at December 31, 1999.
The Company has a $15,000 unsecured bank revolving credit facility, (the
"Revolver"). The Revolver expires in June 2000, and amounts may be borrowed,
paid and reborrowed at the election of the Company through the expiration date.
In the event that the facility is not extended or renegotiated, any amounts
borrowed would become due at the expiration date. Amounts available under the
Revolver are reduced by actual borrowings and outstanding letters of credit. The
Company has the option of borrowing under one or more differing interest rate
formulas and at December 31, 1999 and 1998, the weighted average interest rate
was 8.06% and 7.64% respectively. The Company also pays a quarterly commitment
fee at an annual rate of 3/8% on the amount of the unused facility. After
reduction for outstanding letters of credit under the Revolver, the Company has
approximately $12,000 available as of December 31, 1999.
The Real Estate Loan is collateralized by real estate with a net book value of
$4,475 at December 31, 1999. Maturing in January, 2003, the Real Estate Loan is
payable in quarterly principal payments of $100, plus interest at the bank's
base rate (8.50% at December 31, 1999), with the last installment equal to the
remaining unpaid loan balance.
The Real Estate Loan and the Revolver contains certain covenants related to
tangible net worth and interest coverage, as defined. Default on any covenant
may affect the commitment by the bank to continue to lend, and, if not
corrected, could accelerate the maturity of any borrowings outstanding. At
December 31, 1999 the Company was not in compliance with the tangible net worth
covenant as a result of the Advanced Frequency Products LLC acquisition and the
Company obtained a waiver with respect to such non-compliance. The Company and
its bank have amended the loan agreement as of March 9, 2000 including a change
to the minimum net worth covenant and the amount available for borrowing still
may not exceed $15,000 but the borrowing limit is no longer based on the
Company's receivables.
10. COMMITMENTS AND CONTINGENCIES
Lease Obligations:
The Company leases real estate and equipment under operating leases expiring at
various dates through 2003. The leases include provisions for rent escalation
which are inflationary in nature, renewals and purchase options and the Company
is generally responsible for taxes, maintenance and repairs. Aggregate rental
expense included in operations amounted to $900 in 1999, $907 in 1998 and $1,256
in 1997. Additionally, the Company leased equipment under leases that have been
accounted for as capital leases.
Equipment under capital leases included in property, plant and equipment are as
follows:
December 31,
----------------------------------
1999 1998
----------------------------------
Machinery and equipment $ 425 --
Less accumulated amortization ($117) --
----------------------------------
Net capital lease assets $ 308
27
<PAGE>
The following is a schedule by year of future minimum lease payments at December
31, 1999:
Capital Operating
Fiscal Year Leases Leases
----------- ------ ------
2000 $140 $1,015
2001 47 930
2002 36 905
2003 36 723
2004 33 -
----------- ----------
$292 $3,573
Less amounts representing interest 42
-----------
Present value of minimum lease payments
(includes current portion of $125) $250
-----------
Weymouth Environmental Contamination:
The Company is subject to extensive and changing federal state and local
environmental laws and regulations, and has made provisions for the estimated
financial impact of environmental cleanup related costs.
The Company is subject to certain indemnification obligations under agreements
with a previously sold facility located in Weymouth, Massachusetts for potential
environmental liabilities associated with groundwater contaminants present at
and associated with the site.
In accordance with the applicable provisions of the Massachusetts Contingency
Plan, the Company has completed its investigation of the Site and has submitted
an evaluation of remedial alternatives to the Massachusetts Department of
Environmental Protection ("DEP"). The recommended remedial alternative involves
continued operation of the currently operating groundwater remediation system
with the addition of a supplemental well. It is not possible at this stage of
the proceedings to predict whether the DEP will approve the recommended
alternative, and if not, the specific remedial actions, if any, that it will
require. 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 fourth quarter of 1998 the Company
took a charge for environmental remediation costs due to a settlement with the
Commonwealth of Massachusetts and a revision to its estimates for future
remediation costs at the site.
At December 31, 1999 the Company had recorded liabilities of $1.1 million
calculated on the discounted cash flow method using an 8% discount rate, for
anticipated costs including legal and consulting fees, site studies and design
and implementation of remediation plans, post-remediation monitoring and related
activities to be performed during the next 20 years.
Sunnyvale Indemnification Claim:
Eaton Corporation has filed a suit against the Company in United States District
Court, Northern District of California, alleging that it has a contractual duty
to indemnify Eaton Corporation 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 Eaton Corporation. The indemnification claim was recently dismissed
at the trial level, but is now being appealed by Eaton
28
<PAGE>
Corporation. The matter is pending before the Ninth Circuit of the United States
Court of Appeals and the outcome as to the results is uncertain.
DeCoursey v. Signal Technology Corporation:
The case was filed on August 25, 1998 in the United States District Court for
the District of Massachusetts. Plaintiffs allege that they purchased Common
Stock of the Company between April 28, 1997 and August 17, 1998 and seek to
represent the class of all persons purchasing during that period. The Complaint,
which was amended on March 29, 1999, alleges that the Company and its former
Chief Executive Officer, Dale Peterson, violated Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 and seeks monetary damages. The Amended
Complaint alleges that various public statements by the Company during 1997 and
1998 were false or misleading as a result of alleged accounting irregularities.
On June 11, 1999, the Company filed a motion to dismiss the Amended Complaint.
Subsequently, the parties reached an agreement-in-principle to settle. The
agreement-in-principle is subject to a number of customary contingencies,
including court approval of the settlement. During the third quarter of 1999 the
Company took a charge to earnings of $1,250 in connection with the
agreement-in-principle to settle the lawsuit.
L3 Communications Corporation v. Signal Technology Corporation, et al:
This case was filed on September 3, 1998 in the Superior Court in Fulton County,
Georgia. 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, tortuous interference
with prospective and contractual relations, under both the Georgia Deceptive
Trade Practices Act and the Uniform Trade Secrets Act and seeks monetary
damages. The complaint was dismissed in October 1999 without prejudice.
Transistor Devices, Inc. v. Signal Technology Corporation:
On October 29, 1999, Transistor Devices, Inc. filed suit in the Superior Court
in Morris County, New Jersey, against the Company's Keltec division. The Company
removed the case to the United States District Court for the District of New
Jersey, where it is currently pending. The complaint alleges that Keltec is
liable for defamation and intentional interference with contractual relations
based on alleged statements made by Keltec's President to representatives of
Lockheed Martin Corporation in connection with Lockheed Martin's solicitation of
bids for the design and manufacture of a certain power supply unit in August
1999. Transistor Devices claims that the alleged statements were intended to
injure its reputation and interfere with its bid and prospective economic
advantage with Lockheed Martin.
In December 1999, Keltec denied the allegations set forth in the complaint and
filed counterclaims against Transistor Devices for breach of contract and breach
of the implied covenant of good faith and fair dealing. Keltec claims that
Transistor Devices' bid to Lockheed Martin directly contravenes the non-compete
provisions in an Asset Purchase Agreement executed by Transistor Devices and
Keltec on December 6, 1996. The case is being defended by the Company's insurer.
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. If Raytheon exercises all of its options within this contract,
the total value could be in excess of $19,000. Based on an assessment by
management in 1998, if all options are exercised at current estimated costs and
prices, the Company's loss could total up to $4,000. In 1999 the Company
negotiated new prices and specifications for the same amplifiers under a new
contract and the Company believes prices are at Keltec's manufacturing cost. The
Company believes that other future orders and options for T-3 amplifiers will be
renegotiated.
29
<PAGE>
11. INCOME TAXES
Years ended December 31,
---------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Current (benefit) provision
Federal $ 569 $(1,121) $ (717)
State 25 -- --
Foreign Sales Corporation 11 -- --
- --------------------------------------------------------------------------------
Deferred (benefit) provision
Federal 845 (936) 317
State 234 (480) 63
- --------------------------------------------------------------------------------
Less: Valuation allowance
Federal (1,544) 1,544 --
State (669) 669 --
- --------------------------------------------------------------------------------
(Benefit) provision for income taxes $ (529) $ (324) $ (337)
================================================================================
The benefit for income taxes primarily relates to the full reversal of the
valuation allowance on the deferred tax asset, which the Company believes is
more likely than not to be realized based on the Company's earnings performance.
The Company's effective tax rate differs from the statutory federal income tax
rate as follows:
Years ended December 31,
----------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory federal income tax rate 34.0% (34.0)% (34.0)%
State income taxes, net of federal benefit 6.5 (4.2) (7.8)
Benefit from foreign sales corporation (0.5) -- --
Non-deductible expenses and other 2.7 4.4 7.9
Change in valuation allowance (56.1) 29.5 --
- --------------------------------------------------------------------------------
Effective tax rate (13.4)% (4.3)% (33.9)%
================================================================================
The non-deductible expenses consist principally of goodwill resulting from
certain of the Company's acquisitions and other amounts not deductible for tax
purposes.
The tax effect of temporary differences that give rise to the net deferred tax
asset and liability are as follows:
December 31,
1999 1998
- --------------------------------------------------------------------
Deferred tax asset:
Net operating losses and credits $ 25 $ 972
Vacation accrual 514 293
Inventories 1,458 792
Warranty 414 222
Deferred compensation 83 267
Environmental reserve 433 388
Contract reserves and other 1,207 841
- --------------------------------------------------------------------
Gross deferred tax asset 4,134 3,775
Less: valuation allowance -- 2,213
- --------------------------------------------------------------------
Net deferred tax asset $4,134 $1,562
Deferred tax liability:
Depreciation $1,524 $1,562
- --------------------------------------------------------------------
Deferred tax liability $1,524 $1,562
====================================================================
As of December 31, 1999, the Company has state net operating loss carry forwards
of $154 which expire at various dates through 2019.
30
<PAGE>
12. STOCKHOLDERS' EQUITY
The Company has stock option plans (the "Plans") under which options for a
maximum of 3,167 shares of the Company's common stock may be granted. During
1999 the Company recorded compensation expense of $89 for options issued below
fair market value. Options vest in increments and over periods determined by the
Company's Compensation Committee and expire not more than ten years from date of
grant. At December 31, 1999, 1,754 shares of common stock were reserved for
future issuance under the plans and 171 were available for future grant.
Additionally, non-qualified options to purchase a total of 110 shares of the
Company's common stock have been granted to certain directors and other
non-employees. These options were generally granted at the fair market value of
the Company's common stock at the date of option grant, vest generally over a
five year period and expire between 1999 and 2003. During 1999 the Company
recorded compensation expense of $39 for options granted to non-employees.
<TABLE>
Information concerning the plans and non-qualified stock options is as follows:
<CAPTION>
Available Option Option Price Weighted Avg.
for Grant Shares per Share Exercise Price
- ---------------------------------------------- ------------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
December 31, 1996 502 1,042 $1.57 - $8.25 $3.65
Options granted (175) 250 4.94 - 7.63 6.96
Options canceled 238 (238) 4.25 - 8.25 5.19
Options exercised --- (246) 1.57 - 5.75 2.31
- ---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
December 31, 1997 565 808 1.57 - 8.25 4.63
- ---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
Options granted (656) 656 2.50 - 6.25 2.82
Options canceled 217 (249) 2.36 - 8.25 6.65
Options exercised - (37) 1.58 - 5.75 2.00
- ---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
December 31, 1998 126 1,178 1.58 - 8.25 3.27
- ---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
Options granted (544) 544 4.00 - 5.44 4.39
Options canceled 89 (98) 1.58 - 7.63 5.76
Options exercised - (233) 1.58 - 4.19 1.63
Increase in available options, 1992 500 - - - - -
Plan
- ---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
December 31, 1999 171 1,391 $1.80 - $8.25 $3.80
- ---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
</TABLE>
A total of 539 options were exercisable at December 31, 1999
A total of 544 options were exercisable at December 31, 1998
A total of 488 options were exercisable at December 31, 1997
<TABLE>
The following table summarizes information with respect to stock options
outstanding as of December 31, 1999:
<CAPTION>
Range of Outstanding Weighted-Average Weighted-Average Exercisable Weighted-Average
Exercise Prices as of Remaining Contractual Exercise Price as of Exercise Price
12/31/99 Life 12/31/99
- ---------------------------- ---------------- ------------------------ ------------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$1.5700 - $1.8000 45 2.0 $1.8000 45 $1.8000
$2.0000 - $3.9400 610 8.7 2.5130 321 2.5052
$4.0000 - $5.7500 576 8.2 4.4323 67 4.5359
$6.0600 - $7.0000 103 2.6 6.4421 67 6.4213
$7.2500 - $8.2500 57 1.7 7.8718 39 7.8876
- --------------- ------------ ---------------- --------------- -------- ------------------------ ----------------- -----------------
Total 1,391 7.6 539 $3.5781
=============== ============ ================ =============== ======== ======================== ================= =================
</TABLE>
31
<PAGE>
The following information concerning the Company's stock option and employee
stock purchase plans is provided in accordance with SFAS No. 123, "Accounting
for Stock-Based Compensation." The Company accounts for such plans in accordance
with APB No. 25 and related Interpretations.
<TABLE>
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions are as follows:
<CAPTION>
1999 1998 1997
------------------- ----- ---------------------- ----------------
<S> <C> <C> <C>
Risk-free Interest Rates 4.5% 5.3% 6.2%
Expected Life 6.8 years 4.5 years 4.4 years
Volatility 0.66 0.65 0.65
Dividend Yield -- -- -
</TABLE>
The weighted average fair value of those options granted in 1999, 1998 and 1997
was $2.95, $1.60 and $4.03 respectively.
The following pro forma income information has been prepared following the
provisions of SFAS No. 123:
Years ended December 31,
-----------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net income (loss):
As reported $ 4,476 $ (7,173) $ (657)
Pro forma 3,812 (7,821) (1,102)
Basic EPS:
As reported $ 0.59 $ (0.97) $ (0.09)
Pro forma 0.50 (1.06) (0.15)
Diluted EPS:
As reported $ 0.56 $ (0.97) $ (0.09)
Pro forma 0.48 (1.06) (0.15)
32
<PAGE>
<TABLE>
13. EARNING PER SHARE
A reconciliation of the numerator and denominator of both basic and diluted EPS
is provided as follows:
<CAPTION>
1999 1998 1997
------------------- -- ------------------- -- ---------------
<S> <C> <C> <C>
Numerator - Basic and Diluted EPS
Net income (loss) $ 4,476 $ (7,173) $ (657)
Denominator - Basic EPS
Common shares outstanding 7,587 7,365 7,268
=================== =================== ===============
Basic earnings (loss) per share $ 0.59 $ (0.97) $ (0.09)
=================== =================== ===============
Denominator - Diluted EPS
Denominator - Basic EPS 7,587 7,365 7,268
Effect of Dilutive Securities
Common Stock Options 399 -- --
Denominator - Diluted EPS 7,986 7,365 7,268
=================== =================== ===============
Diluted earnings (loss) per share $ 0.56 $ (0.97) $ (0.09)
=================== =================== ===============
</TABLE>
As of December 31, 1998 and 1997 the number of dilutive shares was 238 and 423,
respectively and such shares have not been included in above calculations as the
effect would be anti-dilutive.
14. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan covering substantially all of its employees.
Eligible employees may contribute up to 15% of their annual compensation, as
defined, to this plan. The Company may also make a discretionary contribution.
The Company's contributions to this plan totaled $377 in 1999, $378 in 1998 and
$401 in 1997.
The Company has an Employee Stock Purchase Plan ("the Purchase Plan") under
which 300 shares of common stock have been reserved for issuance. Eligible
employees may designate not more than 10% of their cash compensation to be
deducted each pay period for the purchase of common stock under the Purchase
Plan, and participants may purchase not more than $25 of common stock in any one
calendar year. On the last business day of each six month offering period shares
of common stock are purchased with the employees' payroll deductions over the
immediately preceding six months at a price per share of 85% of the lesser of
the market price of the common stock on the purchase date or the market price on
the first day of the period. The Purchase Plan will terminate on June 30, 2002
unless its term is extended. Common stock issued under the Purchase Plan was 94
in 1999, 42 in 1998 and 5 in 1997.
15. SEGMENT INFORMATION
The Company is engaged in the engineering, manufacturing and marketing of
electronic components and subsystems. The Company has six operating divisions;
referred to as Arizona, California, Systems, Advanced Frequency Products, Keltec
and Olektron and reports its operations within three segments: Microwave
Components and Subsystems (Arizona, California, Advanced Frequency Products,
Systems), Power Management Products (Keltec) and Radio Frequency (RF) Components
and Subsystems (Olektron). The operations aggregated into the Microwave
Components and Subsystems segment have similar products, production processes
and types of customers.
33
<PAGE>
The Company's reportable segments are as follows:
Microwave Components and Subsystems
Engaged in the design and manufacture of microwave and millimeterwave
transceivers, oscillators, frequency synthesizers and microwave amplifiers,
microwave switch matrices and a wide range of single function components
including ferrite circulators & isolators, mixers and filters.
Power Management Products
Engaged in the design and manufacture of military and space based DC to DC
converters, high and low voltage power supplies, and military high power
amplifiers and transmitters for use in radar systems.
Radio Frequency Components and Subsystems
Engaged in the design and manufacture of radio frequency and intermediate
frequency signal processing components, integrated multi-function devices, and
switching systems for the defense, space and wireless telecommunications
markets.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies". Segment data includes a charge for
allocating a portion of corporate-headquarters costs. The table below presents
selected financial data by business segment for the years ending December 31:
Selected Financial Data by Business Segment
(amounts in thousands) 1999 1998 1997
- ----------------------------------------- --------- --------- ---------
Net Sales
Microwave Components & Subsystems $ 44,950 $ 51,858 $ 59,362
Power Management Products 25,403 24,262 25,298
RF Components & Subsystems 12,096 15,963 17,579
--------- --------- ---------
$ 82,449 $ 92,083 $ 102,239
Operating Income
Microwave Components & Subsystems $ 4,618 $ 2,265 $ 2,856
Power Management Products 4,025 (7,401) (3,676)
RF Components & Subsystems 310 2,127 2,300
Other (3,388) (3,591) (1,404)
--------- --------- ---------
$ 5,565 $ (6,600) $ 76
Total Assets
Microwave Components & Subsystems $ 28,571 $ 22,890 $ 29,799
Power Management Products 12,099 12,173 20,129
RF Components & Subsystems 7,504 7,110 7,170
Other 9,427 6,810 5,742
--------- --------- ---------
$ 57,601 $ 48,983 $ 62,840
Long-lived Assets - net
Microwave Components & Subsystems $ 16,045 $ 8,944 $ 10,218
Power Management Products 4,478 4,762 5,486
RF Components & Subsystems 3,529 3,606 3,583
Other 267 128 37
--------- --------- ---------
$ 24,319 $ 17,440 $ 19,324
Long Lived Asset Additions
Microwave Components & Subsystems $ 8,205 $ 679 $ 1,882
Power Management Products 599 329 709
RF Components & Subsystems 375 467 2,790
Other 196 133 23
--------- --------- ---------
$ 9,375 $ 1,608 $ 5,404
Depreciation and Amoritization Expense
Microwave Components & Subsystems $ 1,766 $ 1,922 $ 2,212
Power Management Products 928 1,050 1,008
RF Components & Subsystems 448 440 467
Other 56 35 27
--------- --------- ---------
$ 3,198 $ 3,447 $ 3,714
34
<PAGE>
Net Sales by Customer Category
(amounts in thousands) 1999 1998 1997
- ----------------------------------------- --------- --------- ---------
U.S. Government Military
Microwave Components & Subsystems $ 23,907 $ 33,819 $ 43,258
Power Management Products 21,537 17,709 18,739
RF Components & Subsystems 9,386 13,071 15,120
--------- --------- ---------
$ 54,830 $ 64,599 $ 77,117
U.S. Government Non-Military
Microwave Components & Subsystems $ 2,635 $ 949 $ 348
Power Management Products -- -- --
RF Components & Subsystems 428 313 444
--------- --------- ---------
$ 3,063 $ 1,262 $ 792
U.S. Commercial
Microwave Components & Subsystems $ 6,239 $ 6,485 $ 6,107
Power Management Products 59 179 515
RF Components & Subsystems 1,124 975 888
--------- --------- ---------
$ 7,422 $ 7,639 $ 7,510
International Military
Microwave Components & Subsystems $ 10,139 $ 9,389 $ 8,340
Power Management Products 3,802 5,926 5,109
RF Components & Subsystems 983 1,374 971
--------- --------- ---------
$ 14,924 $ 16,689 $ 14,420
International Commercial
Microwave Components & Subsystems $ 2,030 $ 1,216 $ 1,376
Power Management Products 5 448 807
RF Components & Subsystems 175 230 217
--------- --------- ---------
$ 2,210 $ 1,894 $ 2,400
--------- --------- ---------
Total $ 82,449 $ 92,083 $ 102,239
========= ========= =========
Significant Customer
Revenue of approximately $14,770 (18%), $21,474 (23%) and $20,456 (20%) was
attributable to Raytheon Company for the years ended December 31, 1999, 1998 and
1997 respectively. At December 31, 1999 and 1998, accounts receivable from
Raytheon Company accounted for approximately $1,638 (12%) and $2,447 (19%),
respectively, of the total amount of accounts receivable due to the Company.
35
<PAGE>
<TABLE>
16. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following quarterly financial information should be read in conjunction with
Notes 1 and 2. The first three quarters in each year consist of thirteen week
periods with the fourth quarter ending on December 31.
<CAPTION>
First Second Third Fourth
1999: Quarter Quarter Quarter Quarter
-------------------------------------------- ------------------ ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 20,436 $ 20,934 $ 20,819 $ 20,260
Gross profit 5,889 6,142 6,809 7,394
Operating income 801 946 1,480 2,337
Net income 639 825 1,428 1,584
Net income per share:
Basic $ 0.09 $ 0.11 $ 0.19 $ 0.21
Diluted $ 0.08 $ 0.10 $ 0.18 $ 0.20
Shares used in calculating Net income per share:
Basic 7,503 7,585 7,652 7,673
Diluted 7,824 8,032 8,106 8,065
-------------------------------------------- ------- ---------- ------ ------------ ----- ----------- ------- -----------
1998:
-------------------------------------------- ------- ---------- ------ ------------ ----- ----------- ------- -----------
Net sales $ 23,687 $ 22,190 $ 22,766 $ 23,440
Gross profit 5,503 (3,315) 5,903 5,789
Operating income (loss) 593 (8,049) 286 570
Net income (loss) 203 (7,832) 85 371
Net income (loss) per share:
Basic $ 0.03 $ (1.07) $ 0.01 $ 0.05
Diluted $ 0.03 $ (1.07) $ 0.01 $ 0.05
Shares used in calculating
Net income (loss) per share:
Basic 7,411 7,335 7,349 7,349
Diluted 7,663 7,335 7,618 7,480
</TABLE>
36
<PAGE>
17. SUBSEQUENT EVENTS
On February 17, 2000, the Company entered into a non-binding letter of intent
pursuant to which the Company proposes to acquire Logimetrics, Inc.
("Logimetrics").
In connection with the letter of intent, the Company has loaned approximately
$2,000 to Logimetrics for working capital and other purposes. Logimetrics
granted to the Company the option to purchase Logimetrics' high-power amplifier
business, currently conducted at Logimetrics' facility in Bohemia, New York (the
"New York Business"), for $2,000 less the unpaid portion of any loans made by
the Company to Logimetrics.
Upon execution of the letter of intent, the Company, through its Keltec
division, assumed the management and operation of the New York Business and has
assumed all current liabilities of the New York Business. The Company is
responsible for all expenses incurred and is entitled to retain all revenues
generated in connection with its operation of that business. The Company also
has agreed to make interest payments on Logimetrics' outstanding bank
indebtedness during the period it is operating the New York Business.
Logimetrics is obligated under certain circumstances to re-pay all loans made by
the Company, together with a prepayment penalty, and to pay certain termination
fees and costs in the event that Logimetrics enters into a letter of intent or
similar agreement for an acquisition transaction with a third party. In
addition, if Logimetrics enters into an acquisition transaction with a third
party, under certain circumstances the Company has the right to retain ownership
of the New York Business for no additional consideration.
The consummation of the proposed merger is subject to the satisfaction or waiver
of a number of customary conditions precedent, including the satisfactory
completion of due diligence investigation of the business and affairs of one
another. No assurances can be given that the merger will be consummated on the
terms summarized above or at all.
37
<PAGE>
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
- --------------------------------------------------------------------------------
PART III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
All information required by Items 10, 11, 12 and 13 is incorporated herein by
reference to the Company's definitive proxy statement for its annual meeting of
stockholders to be held on May 16, 2000, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A.
38
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Index to Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements for the Years Ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Operations 18
Consolidated Balance Sheets 19
Consolidated Statements of Stockholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
Report of Independent Accountants 43
Schedule II Valuation and Qualifying Accounts 44
All other schedules are omitted because they are not applicable, not
required under the instructions, or all the information required is set
forth in the consolidated financial statements or notes thereto.
</TABLE>
<TABLE>
(2) The following described exhibits are filed herewith or incorporated
herein by reference indicated:
<CAPTION>
Exhibit
Number Description
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of Registrant, as amended to date.*
3.2 By-Laws of Registrant, as amended to date.***
10.1 Amended and Restated Credit Agreement among The First National Bank of Boston, the Registrant and its
subsidiaries, dated as of April 14, 1992.*
10.0.1 Second Amendment and Restatement of Credit Agreement with First National Bank of Boston, dated as of
September 30, 1993.***
10.4 Employee Incentive Stock Option Plan-1982 of the Registrant.*
10.5 1992 Equity Incentive Plan of the Registrant.*
10.6 Signal Technology Corporation 401(k) Plan.*
10.8 Lease dated as of October 18, 1990 by and between Benecia Associates and ST Microwave Corp.*
10.18 Asset Purchase and Sale Agreement by and between Adaptive Power Solutions, L.L.C. and Keltec Corporation
dated October 12, 1995. *****
10.19 Trade License and Purchase and Sale Agreement by and between Western Microwave, Inc. and ST Microwave
Corporation, a wholly owned subsidiary of Signal Technology Corporation, dated July 21, 1995. *****
10.20 Purchase and Sale Agreement by and between Tecnetics, Incorporated and Keltec Corporation, dated September
7, 1995. *****
10.22 Amendment agreement No.1 to the Second Amendment and Restated Credit Agreement, dated as of September 30, 1993,
with the First National Bank of Boston, dated as of July 20, 1995. *****
39
<PAGE>
Exhibit
Number Description
- --------------------------------------------------------------------------------------------------------------------------------
10.23 Amendment agreement No.2 to the Second Amendment and Restated Credit Agreement dated as of September 30,1993, with
the First National Bank of Boston, dated as of September 30, 1995. *****
10.24 Amendment agreement No. 3 to the Second Amendment and Restated Credit Agreement, dated as of September 30,
1993, with the First National Bank of Boston, dated as of March 29, 1996. *******
10.25 Amendment agreement No. 4 to the Second Amendment and Restated Credit Agreement, dated as of September 30,
1993, with the First National Bank of Boston, dated as of March 10, 1997. *******
10.26 Asset Purchase Agreement by and between Transistor Devices Inc. and ST Keltec Corporation, a wholly owned
subsidiary of Signal Technology Corporation, dated as December 6, 1996. *******
10.27 Asset Purchase Agreement by and between Pulau Electronics Corporation and ST Microwave (Arizona) Corporation, a
wholly owned subsidiary of ST Microwave Corporation, dated as of June 14, 1996. *******
10.28 Agreement and instrument of purchase and sale by and between Communications & Power Industries, Inc. and ST
Microwave Corporation, a wholly owned subsidiary of Signal Technology Corporation, dated as of May 24,1996.
*******
10.29 First Amendment to lease, dated as of September 9, 1996, by and between Benicia Associates and Signal Technology
Corporation. *******
10.30 Employee Stock Purchase Plan. ******
10.31 Amendment No. 5 to the second and restated credit agreement, dated as of September 30, 1993, with the First
National Bank of Boston, dated as of December 15, 1997.********
10.32 Purchase and sale agreement by and between Communications and Power Industries, Inc. (Seller)
and Signal Technology Corporation (Buyer) dated July 25, 1997 for all real estate at 26-28 Tozer Road,
Beverly Massachusetts.********
10.33 Sublease Agreement as of October 1, 1998 by and between Copyright Clearance Center, Inc. and Signal Technology
Corporation.*********
10.34 Amendment Agreement No. 6 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with
BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of October 20, 1998.*********
10.35 Amendment Agreement No. 7 to Second Amended and Restated Credit Agreement, dated as of September 30, 1999, with
Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston,
dated as of March 9, 2000
21.1 Schedule of Registrant's subsidiaries.
23.1 Consent of Independent Accountants
* Incorporated by reference to the corresponding exhibit filed as part of the Registrant's registration statement on
Form S-1, as amended (File No. 33-61124).
*** Incorporated by reference to the corresponding exhibit filed
as part of the Registrant's 1993 Annual Report on Form 10-K.
**** Incorporated by reference to the corresponding exhibit filed
as part of the Registrant's 1994 Annual Report on Form 10-K.
***** Incorporated by reference to the corresponding exhibit filed as part of the Registrant's 1995 Annual Report on
Form 10-K.
****** Incorporated by reference to the definitive Proxy Statement to be filed with the SEC in connection with Company's
Annual Meeting of Shareholders to held on May 6, 1997.
40
<PAGE>
******* Incorporated by reference to the correspondence exhibit filed as part of the registrant's 1996 Annual Report on
Form 10-K.
******** Incorporated by reference to the correspondence exhibit filed as a part of the registrants 1997 Annual Report on
Form 10-K.
********* Incorporated by reference to the correspondence exhibit filed as a part of the registrant 1998 Annual Report on
Form 10-K.
</TABLE>
(b) Reports on Form 8-K
During the first quarter 2000, the Company made the following filings
on Form 8-K:
Signal Technology Corporation Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 5, 2000 related to the
acquisition of Advanced Frequency Products LLC.
Signal Technology Corporation Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 20, 2000, related to the
letter of intent with Logimetrics, Inc.
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SIGNATURES
Pursuant to the requirements of Section 13 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/ Robert Nelsen
-----------------------------------------------------------------------
Chief Financial Officer and Principle Accounting Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ George E. Lombard March 30, 2000
--------------------------------------------------------
Chairman, Chief Executive Officer and Principle Executive Officer
/s/ Robert Nelsen March 30, 2000
--------------------------------------------------------
Chief Financial Officer
/s/ Bernard P. O'Sullivan March 30, 2000
--------------------------------------------------------
Bernard P. O'Sullivan
Director
/s/ Harvey C. Krentzman March 30, 2000
--------------------------------------------------------
Harvey C. Krentzman
Director
/s/ Joseph S. Schneider March 30, 2000
--------------------------------------------------------
Joseph S. Schneider
Director
/s/ Larry L. Hansen March 30, 2000
--------------------------------------------------------
Larry L. Hansen
Director
/s/ Thomas McInerney March 30, 2000
--------------------------------------------------------
Director
/s/ Thomas Skelly March 30, 2000
--------------------------------------------------------
Director
</TABLE>
42
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Signal Technology Corporation
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a) present fairly, in all material respects, the
financial position of Signal Technology Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a) presents fairly in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 22, 2000, except as to Note 9 which is as of March 9, 2000
43
<PAGE>
<TABLE>
Schedule II Valuation and Qualifying Accounts
<CAPTION>
Years ended December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balanced at
Beginning Costs and Other End
Description of Period Expenses Accounts of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Inventory reserve 2,384,000 1,933,000 (2,588,000)(2) 1,729,000
Allowance for doubtful accounts 170,000 (8,000) (3,000)(1) 159,000
- ------------------------------------------------------------------------------------------------------------------------------------
1998
Inventory reserve 1,729,000 5,823,000 (1,624,000)(2) 5,928,000
Allowance for doubtful accounts 159,000 196,000 (23,000)(1) 332,000
- ------------------------------------------------------------------------------------------------------------------------------------
1999
Inventory reserve 5,928,000 1,643,000 (2,764,000)(2) 4,807,000
Allowance for doubtful accounts 332,000 73,000 (206,000)(1) 199,000
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes
(1) Write-off of bad debts
(2) Charged to inventory accounts from previously established reserved amounts
</FN>
</TABLE>
44
AMENDMENT AGREEMENT NO. 7 TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 7 (this "Amendment"), dated as of March
9, 2000, by and among SIGNAL TECHNOLOGY CORPORATION, a Delaware corporation
("STC"), SIGNAL TECHNOLOGY SALES CORP., a United States Virgin Islands
corporation ("Sales" and, together with STC, the "Companies"), and FLEET
NATIONAL BANK, a national banking association formerly known as BankBoston, N.A
and as The First National Bank of Boston (the "Bank"), amends the Second Amended
and Restated Credit Agreement dated as of September 30, 1993, as amended (as the
same may be further amended, modified, or supplemented from time to time the
"Credit Agreement"), by and among the Companies and the Bank. Capitalized terms
used but not defined herein shall have the meanings set forth for such terms in
the Credit Agreement.
WHEREAS, the Companies have requested that the Bank agree to certain
amendments to the Credit Agreement; and
WHEREAS, subject to the terms and provisions hereof, the Bank is
willing to so amend the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Amendment to Credit Agreement. Subject to the satisfaction
of the conditions precedent set forth in Section 3 hereof, the Credit Agreement
is hereby amended as follows:
(a) The definition of the term "Bank" is hereby amended to read as
follows:
"Bank - Fleet National Bank, a national banking association."
(b) Amendment of Section 2.1. Section 2.1 of the Credit Agreement
is hereby amended effective as of February 22, 2000 to read in its
entirety as follows:
"ss.2.1 Commitment to Lend. Subject to the terms and
conditions hereinafter set forth, the Bank agrees to lend to the
Companies, on a joint and several basis, during the period commencing
on the Effective date and ending on the Revolving Credit Maturity Date,
upon notice by the Companies pursuant to ss.2.4 from time to time an
amount (a "Revolving Credit Loan", or if more than one, "Revolving
Credit Loans") equal to the aggregate principal amount of the Revolving
Credit Loan requested by the Companies in such notice, for working
capital and general corporate purposes as permitted pursuant to the
provisions of this Agreement, provided that in no event shall the sum
of (a) the aggregate
<PAGE>
outstanding principal balance of all Revolving Credit Loans (after
giving effect to all amounts requested), plus (b) the aggregate Maximum
Drawing Amount of Letters of Credit outstanding (collectively the
"Total Credit Extended"), exceed at any one time the Revolving Credit
Commitment Amount."
(c) Amendment of Section 11.4. Section 11.4(g) of the Credit
Agreement is hereby amended effective as of February 22, 2000 to read
in its entirety as follows:
"(g) [Omitted]; and"
(d) Amendment of Section 12.7. Section 12.7 of the Credit Agreement
is hereby amended to read in its entirety as follows:
"ss.12.7 Net Worth. Permit at any time Consolidated Tangible
Net Worth to be less than the amount equal to the sum of $23,000,000
plus, on a cumulative basis, 50% of positive Consolidated Net Income
for each fiscal quarter ending after December 31, 1999 (without
deduction for any fiscal quarter in which Consolidated Net Income is
negative)."
Section 2. Representations and Warranties. The Companies hereby
represent and warrant to the Bank as follows:
(a) Representations and Warranties in Credit Agreement. Except as
specified in writing by the Companies to the Bank with respect to the
subject matter of this Amendment prior to the execution and delivery
hereof by the Bank and the Companies, the representations and
warranties of the Companies contained in the Credit Agreement were true
and correct in all material respects when made and continued to be true
and correct in all material respects on the date hereof, except, in
each case to the extent of changes resulting from transactions
contemplated or permitted by the Loan Documents and this Amendment, and
changes occurring in the ordinary course of business which singly or in
the aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date.
(b) Authority, No Conflicts, Enforceability of Obligations, Etc.
Each of the Companies hereby confirms that the representations and
warranties of the Companies contained in Sections 8.1 and 8.3 of the
Credit Agreement are true and correct on and as of the date hereof as
if made on the date hereof, treating this Amendment, the Credit
Agreement as amended hereby, and the other Loan Documents as amended
hereby, as "Loan Documents" for the purposes of making said
representations and warranties.
Section 3. Conditions to Effectiveness. The effectiveness of this
Amendment shall be subject to the delivery to the Bank by (or on behalf of) each
of the Companies, as the case
-2-
<PAGE>
may be, contemporaneously with the execution hereof, of the following, in form
and substance satisfactory to the Bank:
(a) this Amendment signed by each of the Companies and the Bank;
and
(b) any other confirmatory or corporate authority document or
instrument the Bank may reasonably request.
Section 4. Waiver of Noncompliance with Covenants. The Bank hereby
waives the Companies' noncompliance with Section 12.7 of the Credit Agreement
(as in effect immediately prior to giving effect to this Amendment) for the
period ended December 31, 1999.
Section 5. Miscellaneous Provisions. Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement and the other Loan Documents shall remain in full force and
effect. Each of the Companies confirms and agrees that the joint and several
Obligations of the Companies to the Bank, as amended and supplemented hereby,
are entitled to the benefits of the Loan Documents. The parties hereto hereby
acknowledge and agree that all references to the Credit Agreement and the
Obligations thereunder contained in any of the Loan Documents shall be
references to the Credit Agreement and the Obligations as amended hereby and as
the same may be amended, modified, supplemented, or restated from time to time.
This Amendment may be executed in any number of counterparts, but all such
counterparts shall together constitute but one instrument. In making proof of
this Amendment it shall not be necessary to produce or account for more than one
counterpart signed by each party hereto by and against which enforcement hereof
is sought. The Companies hereby jointly and severally confirm their obligations
to pay promptly upon request all reasonable out-of-pocket costs and expenses
incurred or sustained by the Bank in connection with this Amendment, including
the reasonable fees and expenses of Sullivan & Worcester LLP.
Section 6. Governing Law. This Amendment shall be construed according
to and governed by the internal laws of The Commonwealth of Massachusetts
without reference to principles of conflicts of law.
[The remainder of this page has been
intentionally left blank.]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.
SIGNAL TECHNOLOGY CORPORATION
By: /s/ ROBERT N. NELSEN
-----------------------------------------------
Name: Robert N. Nelsen
Title: V.P.
SIGNAL TECHNOLOGY SALES CORP.
By: /s/ ROBERT N. NELSEN
-----------------------------------------------
Name: Robert N. Nelsen
Title: Treas.
FLEET NATIONAL BANK
By: /s/ GISELA A. LOPIANO
-----------------------------------------------
Name: Gisela A. Lopiano
Title: Director
Exhibit 21.1
Subsidiary of Registrant
Name Jurisdiction of Incorporation
Signal Technology Sales Corporation Virgin Islands
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-78248, and 33-78250) of Signal Technology
Corporation of our report dated February 22, 2000, except as to Note 9 which is
as of March 9, 2000 relating to the consolidated financial statements and
financial statement schedule which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,571
<SECURITIES> 0
<RECEIVABLES> 13,299
<ALLOWANCES> 0
<INVENTORY> 10,446
<CURRENT-ASSETS> 32,434
<PP&E> 41,773
<DEPRECIATION> 26,819
<TOTAL-ASSETS> 57,601
<CURRENT-LIABILITIES> 3,605
<BONDS> 5,573
0
0
<COMMON> 78
<OTHER-SE> 31,608
<TOTAL-LIABILITY-AND-EQUITY> 57,601
<SALES> 82,449
<TOTAL-REVENUES> 82,449
<CGS> 56,215
<TOTAL-COSTS> 76,884
<OTHER-EXPENSES> 1,250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368
<INCOME-PRETAX> 3,947
<INCOME-TAX> (529)
<INCOME-CONTINUING> 4,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,476
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.56
</TABLE>
