SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 000-21770
SIGNAL TECHNOLOGY CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 04-2758268
(State Or Other Jurisdiction (I.R.S. Employer
Of Incorporation Or Organization) Identification No.)
222 ROSEWOOD DRIVE, DANVERS, MA 01923-4502
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 774-2281
--------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: |X| No: | |
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Common Stock Outstanding at May 10, 2000
$.01 Par Value 7,828,637shares
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INDEX
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 3 Qualitative and Quantitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURE 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2000 1999
-------- --------
Assets:
Cash $ 2,788 $ 3,571
Accounts receivable, net 15,797 13,299
Inventories 13,110 10,446
Deferred taxes 4,134 4,134
Refundable income taxes 638 638
Other current assets 315 346
-------- --------
Total current assets 36,782 32,434
-------- --------
Property, plant and equipment, net 14,695 14,954
Intangible assets, net 9,031 9,365
Other assets 2,843 848
-------- --------
Total assets $ 63,351 $ 57,601
======== ========
Liabilities and stockholders' equity:
Current maturities of long-term debt $ 9,987 $ 3,605
Accounts payable 4,546 3,292
Accrued expenses 7,352 10,318
Customer advances 1,552 1,603
-------- --------
Total current liabilities 23,437 18,818
-------- --------
Deferred income taxes 1,524 1,524
Long-term debt, net of current maturities 5,558 5,573
Stockholders' equity
Common stock 79 78
Additional paid-in capital 14,571 13,667
Retained earnings 19,082 18,841
-------- --------
33,732 32,586
Less treasury stock (900) (900)
-------- --------
Total stockholders' equity 32,832 31,686
-------- --------
Total liabilities and stockholders' equity $ 63,351 $ 57,601
======== ========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
Quarter ended
March 31,
2000 1999
------- -------
Net Sales $20,289 $20,436
Cost of sales 13,384 14,547
------- -------
Gross profit 6,905 5,889
Selling, general and administrative expense 5,720 4,574
Research and development expense 420 514
------- -------
Operating income 765 801
Other expense 159 --
Interest expense 190 147
------- -------
Income before income taxes 416 654
Provision for income taxes 175 15
------- -------
Net income $ 241 639
======= =======
Net income per share
Basic $ 0.03 0.09
Diluted $ 0.03 0.08
Shares used in calculating net income per share
Basic $ 7,748 7,503
Diluted $ 8,794 7,824
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
Quarter Ended
March 31,
2000 1999
------- -------
Net cash provided (used) by operating activities $(5,289) $ 352
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (461) (417)
Other assets (1,995) 2
------- -------
Net cash used by investing activities (2,456) (415)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 412 313
Proceeds from Employee Stock Purchase Plan 183 76
Borrowings on bank revolving credit facility 9,000 4,300
Payments on bank revolving credit facility (2,600) (5,100)
Payments of long-term debt (33) (100)
------- -------
Net cash provided (used) by financing activities 6,962 (511)
------- -------
Net decrease in cash (783) (574)
Cash, beginning of period 3,571 2,366
------- -------
Cash, end of period $ 2,788 $ 1,792
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Notes To The Condensed Consolidated Financial Statements
(in thousands, except per share data)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of the Company as of
March 31, 2000, and for the three months ended March 31, 2000 and 1999
are unaudited. All adjustments (consisting only of normal recurring
adjustments) have been made, which in the opinion of management are
necessary for a fair presentation. Results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results
that may be achieved for the full fiscal year or for any future period.
These financial statements should be read in conjunction with the audited
financial statements for the fiscal year ended December 31, 1999,
included in the Company's annual report on Form 10-K. The year end
condensed balance sheet data was derived from the audited financial
statements and does not include all the disclosures required by generally
accepted accounting principles.
The Company's fiscal quarter consists of a thirteen week period ending on
the Saturday closest to March 31. For ease of presentation, interim
periods are designated to have ended on March 31.
2. EARNINGS PER SHARE
The Company 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.
A reconciliation of the numerator and denominator of both basic and
diluted EPS is provided as follows:
Quarter ended March 31,
2000 1999
------ ------
Basic and Diluted EPS
Net income $ 241 $ 639
====== ======
Basic EPS
Common shares outstanding 7,748 7,503
------ ------
Basic earnings per share $ 0.03 $ 0.09
====== ======
Diluted EPS
Basic EPS 7,748 7,503
Effect of Dilutive Securities -
Common Stock Options 1,046 321
------ ------
8,794 7,824
Diluted EPS
Diluted earnings per share $ 0.03 $ 0.08
====== ======
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3. COMPREHENSIVE INCOME (LOSS)
There were no differences between net income and comprehensive income for
the quarters ended March 31, 2000 and March 31, 1999.
4. Details of certain balance sheet accounts are as follows:
March 31, December 31,
2000 1999
-------- --------
Net inventories:
Raw materials $ 3,329 $ 2,914
Work in progress 13,397 9,739
Finished goods 196 587
-------- --------
16,922 13,240
Less: unliquidated progress payments (3,812) (2,794)
-------- --------
$ 13,110 $ 10,446
======== ========
Property, plant and equipment:
Land $ 992 $ 992
Building and improvements 10,148 10,132
Machinery and equipment 27,448 27,162
Furniture and fixtures 3,634 3,487
-------- --------
42,222 41,773
Less accumulated depreciation (27,527) (26,819)
-------- --------
Net property, plant and equipment $ 14,695 $ 14,954
======== ========
5. INCOME TAXES
In the quarter ended March 31, 2000, the Company recorded a provision for
income taxes of $175. The provision is at statutory rates after adjustments
for non-deductible expenses which consist principally of goodwill resulting
from certain of the Company's acquisitions. In the quarter ended March 31,
1999, the Company recorded a provision for income taxes of $15 for
alternative minimum tax. The Company provided a valuation allowance for the
full amount of its net deferred tax assets at March 31, 1999 because it was
more likely than not that the deferred tax-asset may not have been
realized.
6. OTHER ASSETS
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 amplified 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. The $2,000 note receivable is included in other assets in the
quarter ended March 31, 2000. Upon execution of the letter of intent, the
Company, through its Keltec division, assumed the management and operation
of the New York Business as a security interest for the loan 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.
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7. COMMITMENTS AND CONTINGENCIES
The Company is involved from time to time in litigation incidental to its
business. Ongoing legal proceedings are as follows:
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. The DEP has not approved the Remedial Action Plan and
suggested the Company consider that the recommended remedial alternative
could include well head treatment at Weymouth Winter Street well No. 2. The
Company is currently evaluating this approach. 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.
The Company has 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 on 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 has been appealed by
Eaton Corporation. The matter is pending before the Ninth Circuit of the
United States Court of Appeals and the outcome 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 was
approved by the court on April 24, 2000. During the third quarter of 1999
Page 8 of 16
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the Company took a charge to earnings of $1,250 in connection with the
agreement-in-principle to settle the lawsuit.
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.
8. SEGMENT INFORMATION
The Company formed a new business segment during the first quarter 2000
following its acquisition of Advanced Frequency Products in December of
1999. The new business segment is referred to as the Signal Wireless Group
and is being reported in this filing for the first time. First quarter 1999
segment reporting has been restated to reflect the segment reorganization.
The Company now has six operating divisions engaged in the development,
manufacturing and marketing of electronic components and subsystems. The
divisions; referred to as Arizona, California, Systems, Advanced Frequency
Products, Keltec and Olektron reports its operations within four segments:
Signal Wireless Group (Established in January 2000 includes Advanced
Frequency Products and products from Arizona, California, Olektron and
Systems which are produced for the world-wide wireless telecommunication
markets.), Microwave Components and Subsystems (products from Arizona,
California and Systems that primarily serve the defense and space
markets.), Power Management Products (Keltec) and Radio Frequency (RF)
Components and Subsystems (Olektron products that primarily serve the
defense market.) The products from the operating divisions aggregated into
the Signal Wireless Group and Microwave Components and Subsystems segments
have similar types of production processes and types of customers.
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The Company's reportable segments are as follows:
Signal Wireless Group
Engaged in the design and manufacture of products serving the
telecommunications industry including microwave and millimeterwave
transceivers, IF conversion modules, phase locked oscillators,
synthesizers, power supplies, digital switching equipment, digitally
tunable notch filters as well as a large portfolio of single function
microwave components.
Microwave Components and Subsystems
Engaged in the design and manufacture of microwave 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 for the defense and space markets.
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 market.
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The following tables display net sales and operating income by business segment
for each of the quarters ending March 31:
2000 1999
-------- --------
Net Sales
- ---------
Signal Wireless Group $ 3,115 $ 1,273
Microwave Components and Subsystems 8,456 9,207
Power Management Products 6,072 7,309
RF Components & Subsystems 2,646 2,647
-------- --------
$ 20,289 $ 20,436
Operating Income(1)
- -------------------
Signal Wireless Group $ (850) $ (61)
Microwave Components & Subsystems 651 323
Power Management Products 1,054 424
RF Components & Subsystems (90) 115
-------- --------
$ 765 $ 801
Total Assets
- ------------
Signal Wireless Group $ 12,133 $ 2,167
Microwave Components & Subsystems 19,046 20,277
Power Management Products 15,004 12,560
RF Components & Subsystems 6,674 6,766
Corporate 10,494 6,674
-------- --------
Total $ 63,351 $ 48,444
======== ========
(1) Corporate selling, general and administrative expenses have been allocated
to business segments using net sales as an allocation base.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations for the Three Months Ended March 31, 2000 and March 31,
1999.
Net Sales in the first quarter of 2000 decreased $.1 million, or .7% as compared
to the first quarter of 1999. The change in net sales is detailed by business
segment elsewhere in management's discussion and analysis.
Gross profit during the first quarter of 2000 increased $1.0 million, or 17.3%
as compared to the first quarter of 1999. For the first quarter of 2000 gross
profit as a percentage of sales increased to 34% from 28.8% in the first quarter
of 1999. The increase in gross profit is primarily attributable to streamlining
of operations, improvements in financial controls as well as changes in contract
mix.
Selling, general and administrative expenses increased $1.1 million or 25%
compared to the first quarter of 1999. The increase in selling, general and
administrative expenses is primarily due to additional selling, general and
administrative expenses associated with the Advanced Frequency Products
operation (acquired December 1999) including the amortization of
Page 11 of 16
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intangible assets and a non-cash stock option compensation expense of $.3
million related to stock options granted to non-employees.
Company-funded research and development decreased $.1 million for the first
quarter of 2000 or 18% compared to the first quarter of 1999.
Other expense of $159 thousand is the loss incurred during the first quarter of
2000 in connection with management of LogiMetrics high-power amplifier business.
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 $2.0 million 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 $2.0 million 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 as a security interest for the
loan 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.
Interest expense increased $43 thousand for the first quarter of 2000 as
compared to the first quarter of 1999. The increase is due to an increased level
of borrowings at higher interest rates.
In the first quarter of 2000 the Company recorded a provision for income taxes
of $175 thousand. In the first quarter of 1999, the Company recorded a provision
for income taxes of $15 thousand for alternative minimum tax. The Company
provided a valuation allowance for the full amount of its net deferred tax
assets at March 31, 1999 because it was more likely than not that the deferred
tax-asset may not have been realized.
Business Segments
The Company has six operating divisions referred to as Arizona, California,
Systems, Advanced Frequency Products, Keltec and Olektron and reports its
operations within four segments: Signal Wireless Group (commercial wireless
products for the telecommunications industry from Arizona, California, Systems,
Advanced Frequency Products and Olektron divisions); Microwave Components and
Subsystems (products from Arizona, California and Systems that primarily serve
defense and space markets), Power Management Products (Keltec) and Radio
Frequency (RF) Components and Subsystems (Olektron products that primarily serve
the defense markets).
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The following tables display net sales and operating income by business segment
for each of the quarters ending March 31:
2000 1999
-------- --------
Net Sales
- ---------
Signal Wireless Group $ 3,115 $ 1,273
Microwave Components and Subsystems 8,456 9,207
Power Management Products 6,072 7,309
RF Components & Subsystems 2,646 2,647
-------- --------
$ 20,289 $ 20,436
Operating Income(1)
- -------------------
Signal Wireless Group $ (850) $ (61)
Microwave Components & Subsystems 651 323
Power Management Products 1,054 424
RF Components & Subsystems (90) 115
-------- --------
$ 765 $ 801
======== ========
(1) Corporate selling, general and administrative expenses have been allocated
to business segments using net sales as an allocation base.
Signal Wireless Group
Net sales of Signal Wireless Group increased by $1.8 million in the first
quarter of 2000 compared to the first quarter of 1999. The primary reason for
the increase was the net sales from the acquisition of Advance Frequency
Products in December 1999.
Operating income of Signal Wireless Group decreased by $.8 million in the first
quarter of 2000 compared to the first quarter of 1999. The decrease is primarily
due to increased selling, general and administrative costs including the
amortization of intangible assets associated with the Advanced Frequency
Products acquisition and increased spending on research and development.
Microwave Components and Subsystems
Net sales of Microwave Components and Subsystems decreased by $.8 million in the
first quarter of 2000 compared to the first quarter of 1999. The decrease is
primarily due to lower A/V switch shipments at the Systems operation.
Operating income of Microwave Components and Subsystems increased by $.3 million
in the first quarter of 2000 compared to the first quarter of 1999. The increase
is primarily due to an increase in gross margins attributable to streamlining of
operations as well as changes in contract mix and a reduction in spending on
research and development partially offset by an increase in selling, general and
administrative expenses.
Power Management Products
Net sales of Power Management Products decreased by $1.2 million in the first
quarter of 2000 compared to the first quarter of 1999. The decrease is due to
delays on certain contracts currently in the development stage for which
production hardware will not ship until later in 2000.
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Operating income of Power Management Products increased by $.6 million in the
first quarter of 2000 compared to the first quarter of 1999. The increase is
primarily due to an increase in gross margins associated with changes in
contract mix and lower overall manufacturing costs.
RF Components and Subsystems
Net sales of RF Components and Subsystems were approximately the same in the
first quarter of 2000 compared to the first quarter of 1999.
Operating income of RF Components and Subsystems decreased by $.2 million in the
first quarter of 2000 compared to the first quarter of 1999. The decrease is
primarily due to a decrease in gross margin associated with contract mix and
production problems on the Sparrow program.
Liquidity and Capital Resources
At March 31, 2000 the Company had working capital of $13.3 million, including
cash and cash equivalents of $2.8 million, as compared to working capital of
$13.6 million and cash and cash equivalents of $3.6 million, respectively at
December 31, 1999. In the first quarter of 2000, the Company borrowed under the
Company's revolving credit facility $6.4 million increasing the amount borrowed
to $9.4 million under the facility to fund the negative cash flow from
operations. Net cash flow used by operations was $5.3 million for the first
quarter of 2000 compared to $.4 million net cask flow provided by operations for
the first quarter of 1999. A $2.7 million increase in inventory and a $2.5
million increase in accounts receivable along with a $1.3 million payment
associated with the shareholder lawsuit are the primary reasons for negative
cash flow from operations during the first quarter of 2000.
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 Company was in compliance with the net worth covenant at March 31,
2000. 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. The
Company's borrowing arrangement also requires the Company to maintain an
interest coverage ratio. At March 31, 2000 the Company was not in compliance
with the interest coverage covenant primarily due to a non-cash compensation
expense associated with non-employee stock options and the Company obtained a
waiver with respect to such non-compliance for the quarter ending March 31,
2000. The revolving credit facility is shown as a current liability.
On February 17, 2000, the Company entered into a non-binding letter of intent
pursuant to which the Company proposes to acquire LogiMetrics, Inc. 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 as a security interest for
the loan 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 $2.0 million note
receivable is included in other assets on the March 31, 2000 Balance Sheet.
Page 14 of 16
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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.
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. As of the date of this
filing the Company is not experiencing any year 2000 problems.
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 as amended by SAB 101A, 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.
Cautionary Note
This Form 10-Q 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 without limitation (i) the
anticipated outcome and impact of proceedings in which the Company is involved,
(ii) the impact of an amendment to the Company's credit facility on its
liquidity, (iii) the Company's ability to meet its operating and capital
requirement and to pursue acquisition opportunities, (iv) risks associated with
the Year 2000 problem, and (v) 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 of expressions). Investors are cautioned that forward-looking statements
are inherently uncertain. These forward-looking statements represent the best
judgement of the Company as on the date of this Form 10-Q, 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.
ITEM 3. 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
Page 15 of 16
<PAGE>
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Legal proceedings contained elsewhere in this Quarterly Report are incorporated
herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Exhibits Description
-------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
During the first quarter of 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 6, 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.
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNAL TECHNOLOGY CORPORATION
By: /s/ Robert Nelsen
------------------------------------------
Robert Nelsen
Chief Financial Officer and
Principal Accounting Officer
Date: May 12, 2000
Page 16 of 16
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