<PAGE> 1
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 JUNE 30, 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)
<TABLE>
<S> <C>
DELAWARE 04-2758268
(State Or Other Jurisdiction Of Incorporation (I.R.S. Employer Identification No.)
Or Organization)
222 ROSEWOOD DRIVE, DANVERS, MA 01923-4502
(Address of principal executive offices) (Zip Code)
</TABLE>
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.
<TABLE>
<CAPTION>
COMMON STOCK OUTSTANDING AT JULY 27, 2000
<S> <C>
$.01 PAR VALUE 7,924,085
</TABLE>
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 4 Submission of Matters to a vote of Security Holders 18
Item 6 Exhibits and Reports on Form 8-K 18
SIGNATURE 19
</TABLE>
Page 2 of 19
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Assets:
Cash $ 1,331 $ 3,571
Accounts receivable, net 15,513 13,299
Inventories 16,712 10,446
Deferred taxes 4,134 4,134
Refundable income taxes 638 638
Other current assets 2,269 346
-------- --------
Total current assets 40,597 32,434
-------- --------
Property, plant and equipment, net 15,249 14,954
Intangible assets, net 8,696 9,365
Other assets 876 848
-------- --------
Total assets $ 65,418 $ 57,601
======== ========
Liabilities and stockholders' equity:
Current maturities of long-term debt $ 10,158 $ 3,605
Accounts payable 4,762 3,292
Accrued expenses 8,957 10,318
Customer advances 501 1,603
-------- --------
Total current liabilities 24,378 18,818
-------- --------
Deferred income taxes 1,524 1,524
Long-term debt, net of current maturities 5,678 5,573
Stockholders' equity
Common stock 80 78
Additional paid-in capital 14,858 13,667
Retained earnings 19,800 18,841
-------- --------
34,738 32,586
Less treasury stock (900) (900)
-------- --------
Total stockholders' equity 33,838 31,686
-------- --------
Total liabilities and stockholders' equity $ 65,418 $ 57,601
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 3 of 19
<PAGE> 4
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter ended Six Months ended
June 30, June 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $23,062 $20,934 $43,351 $41,370
Cost of sales 15,218 14,792 28,602 29,339
------- ------- ------- -------
Gross profit 7,844 6,142 14,749 12,031
Selling, general and administrative expense 5,283 4,885 11,003 9,458
Research and development expense 870 311 1,290 825
------- ------- ------- -------
Operating income 1,691 946 2,456 1,748
Other expense 117 -- 276 --
Interest expense 327 104 517 252
------- ------- ------- -------
Income before income taxes 1,247 842 1,663 1,496
Provision for income taxes 529 17 704 32
------- ------- ------- -------
Net income $ 718 $ 825 $ 959 $ 1,464
======= ======= ======= =======
Net income per share
Basic $ 0.09 $ 0.11 $ 0.12 $ 0.19
Diluted $ 0.08 $ 0.10 $ 0.11 $ 0.18
Shares used in calculating net income per share
Basic 7,830 7,585 7,789 7,544
Diluted 8,863 8,032 8,806 7,922
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 4 of 19
<PAGE> 5
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
Net cash provided (used) by operating activities $ (6,010) $ 3,998
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,381) (752)
Other assets (2,028) 4
-------- --------
Net cash used by investing activities (3,409) (748)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 661 338
Proceeds from Employee Stock Purchase Plan 183 76
Borrowings on bank revolving credit facility 13,000 4,600
Payments on bank revolving credit facility (6,500) (8,600)
Payments of long-term debt (165) (200)
-------- --------
Net cash provided (used) by financing activities 7,179 (3,786)
-------- --------
Net decrease in cash (2,240) (536)
Cash, beginning of period 3,571 2,366
-------- --------
Cash, end of period $ 1,331 $ 1,830
======== ========
Supplemental Disclosure of Non-Cash Financing Activity:
Capital Lease - Equipment $ 323 --
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 5 of 19
<PAGE> 6
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 June
30, 2000, and for the three and six months ended June 30, 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
and six months ended June 30, 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 our 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.
Our fiscal quarter consists of a thirteen week period ending on the
Saturday closest to June 30. For ease of presentation, interim periods
are designated to have ended on June 30.
2. EARNINGS PER SHARE
We present 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:
<TABLE>
<CAPTION>
Quarter ended June 30, Six Months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic and Diluted EPS
Net income $ 718 $ 825 $ 959 $1,464
====== ====== ====== ======
Basic EPS
Common shares outstanding 7,830 7,585 7,789 7,544
------ ------ ------ ------
Basic earnings per share $ 0.09 $ 0.11 $ 0.12 $ 0.19
====== ====== ====== ======
Diluted EPS
Basic EPS 7,830 7,585 7,789 7,544
Effect of Dilutive Securities -
Common Stock Options 1,033 447 1,017 378
------ ------ ------ ------
8,863 8,032 8,806 7,922
Diluted EPS
Diluted earnings per share $ 0.08 $ 0.10 $ 0.11 $ 0.18
====== ====== ====== ======
</TABLE>
Page 6 of 19
<PAGE> 7
3. COMPREHENSIVE INCOME (LOSS)
There were no differences between net income and comprehensive income for
the quarter and six months ended June 30, 2000 and June 30, 1999.
4. Details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Net inventories:
Raw materials $ 5,234 $ 2,914
Work in progress 15,566 9,739
Finished goods 270 587
-------- --------
21,070 13,240
Less: unliquidated progress payments (4,358) (2,794)
-------- --------
$ 16,712 $ 10,446
======== ========
Property, plant and equipment:
Land $ 992 $ 992
Building and improvements 10,196 10,132
Machinery and equipment 28,541 27,162
Furniture and fixtures 3,716 3,487
-------- --------
43,445 41,773
Less accumulated depreciation (28,196) (26,819)
-------- --------
Net property, plant and equipment $ 15,249 $ 14,954
======== ========
</TABLE>
5. INCOME TAXES
In the quarter and six months ended June 30, 2000, we recorded a
provision for income taxes of $529 and $704 respectively. The provision
is at statutory rates after adjustments for non-deductible expenses which
consist principally of goodwill resulting from certain of our
acquisitions. In the quarter and six months ended June 30, 1999, we
recorded a provision for income taxes of $17 and $32 respectively for
alternative minimum tax. We provided a valuation allowance for the full
amount of our net deferred tax assets at June 30, 1999 because it was
more likely than not that the deferred tax-assets may not have been
realized.
6. OTHER CURRENT ASSETS
On February 17, 2000, we entered into a non-binding letter of intent
pursuant to which the Company proposed to acquire LogiMetrics, Inc. In
connection with the letter of intent, we loaned approximately $2,000 to
LogiMetrics for working capital and other purposes. LogiMetrics granted
us the option to purchase LogiMetrics' high-power amplified business,
currently conducted at LogiMetrics' facility in Bohemia, New York, for
$2,000 less the unpaid portion of any loans we made to LogiMetrics. The
$2,000 note receivable is included in other current assets in the quarter
ended June 30, 2000. Upon execution of the letter of intent, we, through
our Keltec division, assumed the management and operation of the Bohemia,
New York business and assumed all current liabilities of the business. We
are responsible for all expenses incurred and we are entitled to retain
all revenues generated in connection with our operation of that business.
We also agreed to make interest payments on LogiMetrics' outstanding bank
indebtedness during the period we operated the business.
On July 12, 2000 we terminated discussions relative to the proposed
acquisition of LogiMetrics. We have notified LogiMetrics of our intent to
exercise our option to return the Bohemia, New York business back to
LogiMetrics. We are in discussions with LogiMetrics concerning terms and
conditions under which we may retain the Bohemia, New York
Page 7 of 19
<PAGE> 8
business. Whether we retain the business in question or not, we expect no
material financial impact on our financial results. The $2,000 note
receivable was collected on July 25, 2000 along with $85 of interest.
7. COMMITMENTS AND CONTINGENCIES
We are involved from time to time in litigation incidental to our
business. Ongoing legal proceedings are as follows:
Weymouth Environmental Contamination:
In April 1996, we sold our 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, or 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, we have completed our investigation of the site and
have 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. The DEP has not approved our remedial action plan and
suggested that we consider that the recommended remedial plan could
include well head treatment at Weymouth Winter Street well number 2. We
are currently evaluating this approach. We have been informed that no
recovery of costs incurred in the treatment of the ground water at the
facility is possible under existing insurance arrangements. 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.
We have recorded liabilities of $1,100 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 us in U.S. District Court,
Northern District of California, alleging that we have 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 we assumed certain liabilities when we
acquired one of the divisions of Eaton Corporation. The indemnification
claim was dismissed at the trial level, but the Ninth Circuit of the U.S.
Court of Appeals has reversed this decision. We have filed a counterclaim
against Eaton Corporation alleging fraud and misrepresentation. A trial
date for Eaton Corporation's claim and our counterclaim has not been
scheduled. Eaton Corporation has informed us that if it prevails on all
of its claims and we are unsuccessful in our counterclaim, they believe
they could be entitled to damages in the range of $8 million to $10
million. While the likely outcome of the case is uncertain, we believe
that we have meritorious defenses to Eaton Corporation's claim and that
we have a valid counterclaim.
Page 8 of 19
<PAGE> 9
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 our Keltec division. We
removed the case to the U.S. 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 the
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.
Our insurer is defending this case. We are uncertain of the likely
outcome of the case.
T-3 Contract:
We are currently committed to a long term contract at our 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, our loss could total up to $4,000. In 1999 we
negotiated new prices and specifications for the same amplifiers under a
new contract and we believe prices are at Keltec's manufacturing cost. We
believe that other future orders and options for T-3 amplifiers will be
renegotiated.
8. SEGMENT INFORMATION
We have 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.
Page 9 of 19
<PAGE> 10
Our reportable segments are as follows:
Signal Wireless Group
Designs and manufactures commercial wireless products for the
telecommunications industry.
Microwave Components and Subsystems
Designs and manufactures microwave oscillators, frequency synthesizers and
converters, space qualified microwave assemblies, microwave amplifiers and
microwave switch matrices.
Power Management Products
Designs and manufactures military high and low voltage power suppliers, DC
to DC converters and military high power amplifiers and transmitters for
use in radar systems.
Radio Frequency Components and Subsystems
Designs and manufactures RF and intermediate frequency signal processing
components, integrated multi-function devices, and switching systems.
The following tables display net sales and operating income by business
segment for the quarter and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Quarter ended Six Months ended
June 30, June 30,
Net Sales 2000 1999 2000 1999
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Signal Wireless Group $ 3,301 $ 614 $ 6,416 $ 1,887
Microwave Components & Subsystems 10,095 10,739 18,551 19,946
Power Management Products 7,522 6,696 13,594 14,005
RF Components & Subsystems 2,144 2,885 4,790 5,532
-------- -------- -------- --------
$ 23,062 $ 20,934 $ 43,351 $ 41,370
Operating Income(1)
-------------------
Signal Wireless Group $ (727) $ (252) $ (1,577) $ (313)
Microwave Components & Subsystems 1,003 513 1,654 837
Power Management Products 1,579 492 2,633 916
RF Components & Subsystems (164) 193 (254) 308
-------- -------- -------- --------
$ 1,691 $ 946 $ 2,456 $ 1,748
</TABLE>
(1) Corporate selling, general and administrative expenses have been
allocated to business segments using net sales as an allocation base.
Page 10 of 19
<PAGE> 11
The following table displays total assets by business segment as of June
30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
Total Assets 2000 1999
------------ -------- ------------
<S> <C> <C>
Signal Wireless Group $16,509 $10,497
Microwave Components & Subsystems 18,065 18,094
Power Management Products 14,872 12,134
RF Components & Subsystems 6,701 7,227
Corporate 9,271 9,649
------- -------
Total $65,418 $57,601
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Results of Operations for the Three Months Ended June 30, 2000 and June 30, 1999
The following table set forth the percentage of net sales of certain items in
our consolidated financial statements for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
2000 1999
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 66.0% 70.7%
------ ------
Gross profit 34.0% 29.3%
Selling, general and administrative expenses 22.9% 23.3%
Research and development expenses 3.8% 1.5%
------ ------
Operating income 7.3% 4.5%
Other expense 0.5% 0.0%
Interest expense 1.4% 0.5%
------ ------
Income before income taxes 5.4% 4.0%
Provision for income taxes 2.3% 0.1%
------ ------
Net income 3.1% 3.9%
====== ======
</TABLE>
Net sales. Net sales increased 10.2% from $20.9 million during the second
quarter of 1999 to $23.1 million during the similar period in 2000. The primary
reason for the increase was the $2.7 million increase in sales of the Signal
Wireless Group which includes Advanced Frequency Products acquired in December
1999.
Gross profit. Gross profit increased 27.7% from $6.1 million for second quarter
of 1999 to $7.8 million during the similar period in 2000. The primary reasons
for the $1.7 million increase were changes in contract mix, streamlining of
operations, improvements in financial controls and increased sales volume.
Page 11 of 19
<PAGE> 12
Selling, general and administrative expenses. Selling general and administrative
expenses increased 8.1% from $4.9 million during the second quarter of 1999 to
$5.3 million during the similar period in 2000. The primary reason for the
increase in selling, general and administrative expenses is additional selling,
general and administrative expenses associated with the Advanced Frequency
Products operation including the amortization of intangible assets associated
with the acquisition of Advanced Frequency Products.
Research and development expenses. Research and development expenses increased
179.7% from $.3 million during the second quarter of 1999 to $.9 million during
the similar period in 2000. We continue to increase research and development
expenditures as part of our new focus on the commercial wireless industry and to
produce technology upgrades to existing equipment.
Other expenses. Other expenses were $117 thousand during the second quarter of
2000 and were related to the proposed acquisition of LogiMetrics Inc.'s
high-power amplifier business. We have notified LogiMetrics of our intent to
exercise our option to return the Bohemia, New York business back to
LogiMetrics. We are in discussions with LogiMetrics concerning terms and
conditions under which we may retain the Bohemia, New York business. Whether we
retain the business in question or not, we expect no material financial impact
on our financial results. A $2.0 million note receivable was collected on July
25, 2000 along with $85 thousand of interest.
Interest expense. Interest expense increased 214.4% from $.1 million during the
second quarter of 1999 to $.3 million during the similar period in 2000. The
increase is due to a higher level of borrowing at higher interest rates.
Provision for income taxes. Provision for income taxes increased to $.5 million
in the second quarter of 2000 from $17 thousand for alternative minimum tax
during the similar period of 1999 as the majority of 1999 taxable income was
offset by tax benefits. We provided a valuation allowance for the full amount of
our net deferred tax assets as of June 30, 1999 because it was more likely than
not the deferred tax-asset may not have been realized.
Business Segments
We have six operating divisions referred to as Arizona, California,
Systems, Advanced Frequency Products, Keltec and Olektron and reports our
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).
Page 12 of 19
<PAGE> 13
The following tables display net sales and operating income by business segment
for each of the quarters ended June 30:
<TABLE>
<CAPTION>
(amounts in thousands) 2000 1999
-------- --------
<S> <C> <C>
Net Sales
Signal Wireless Group $ 3,301 $ 614
Microwave Components and Subsystems 10,095 10,739
Power Management Products 7,522 6,696
RF Components & Subsystems 2,144 2,885
-------- --------
$ 23,062 $ 20,934
Operating Income(1)
Signal Wireless Group $ (727) $ (252)
Microwave Components & Subsystems 1,003 513
Power Management Products 1,579 492
RF Components & Subsystems (164) 193
-------- --------
$ 1,691 $ 946
-------- --------
</TABLE>
(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. Net sales increased 437.6% from $.6 million during the second quarter
of 1999 to $3.3 million during the similar period in 2000. The increase was due
to $1.4 million in sales from Advanced Frequency Products and $1.3 million in
increased sales from other operations due to a strong demand for wireless
products.
Operating income. Operating income decreased by 188.5% from a $252 thousand loss
during the second quarter of 1999 to a $727 thousand loss during the similar
period in 2000. 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. Net sales decreased 6% from $10.7 million during the second quarter
of 1999 to $10.1 million during the similar period in 2000. The decrease is
primarily due to lower A/V switch shipments at the Systems operation.
Operating income. Operating income increased 95.5% from $.5 million during the
second quarter of 1999 to $1.0 million during the similar period in 2000. The
increase is primarily due to an increase in gross margins attributable to
streamlining of operations, changes in contract mix and a reduction in spending
on research and development partially offset by a decrease in gross margin
associated with decreased sales volume.
Power Management Products
Net sales. Net sales increased 12.3% from $6.7 million during the second quarter
of 1999 to $7.5 million during the similar period in 2000. The increase is due
to delivery of a $.3 million preproduction unit and an increase in shipments of
production hardware for the quarter.
Page 13 of 19
<PAGE> 14
Operating income. Operating income increased 220.9% from $.5 million during the
second quarter of 1999 to $1.6 million during the similar period in 2000. The
increase is primarily due to an increase in gross margins associated with
changes in contract mix and lower manufacturing costs.
RF Components and Subsystems
Net sales. Net sales decreased 25.7% from $2.9 million during the second quarter
of 1999 to $2.1 million during the similar period in 2000. The decrease is
primarily due to a reduction in sales of log amplifier devices for which orders
have been declining.
Operating income. Operating income decreased 185% from $193 thousand during the
second quarter of 1999 to a $164 thousand loss during the similar period in
2000. The decrease is primarily due to a decrease in gross margin associated
with contract mix and decreased sales volume partially offset by reductions to
selling, general and administrative costs and research and development expenses.
Results of Operations for the Six Months Ended June 30, 2000 and 1999.
The following table set forth the percentage of net sales of certain items in
our consolidated financial statements for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
2000 1999
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 66.0% 70.9%
------ ------
Gross profit 34.0% 29.1%
Selling, general and administrative expense 25.4% 22.9%
Research and development expense 3.0% 2.0%
------ ------
Operating income 5.6% 4.2%
Other expense 0.6% 0.0%
Interest expense 1.2% 0.6%
------ ------
Income before income taxes 3.8% 3.6%
Provision for income taxes 1.6% 0.1%
------ ------
Net income 2.2% 3.5%
====== ======
</TABLE>
Net Sales. Net sales increased 4.8% from $41.4 million during the first six
months of 1999 to $43.4 million during the similar period in 2000. The primary
reason for the increase was the addition of $4.5 million in commercial wireless
equipment sales from the Signal Wireless Group. The net sales to the defense
electronics market were down 6.5% due to delays in new orders and delays in
completion of development contracts.
Gross profit. Gross profit increased 22.6% from $12.0 million during the first
six months of 1999 to $14.8 million during the similar period in 2000 and as a
percentage of net sales, gross profit increased from 29.1% in 1999 to 34.0% in
2000. The increase in gross profit is primarily attributable to streamlining of
operations, improvements in financial controls, changes in product mix and
increased sales volume.
Page 14 of 19
<PAGE> 15
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 16.3% from $9.5 million during the first six
months of 1999 to $11.0 million during the similar period in 2000. The increase
is partially a result of higher additional selling, general and administrative
expenses associated with the Signal Wireless Group and the acquisition of
Advanced Frequency Products. The expenses associated with Advanced Frequency
Products include the amortization of intangible assets. Additionally, there was
a non-cash stock option compensation expense of $.3 million related to stock
options granted to non-employees.
Research and development expenses. Research and development increased 56.4% from
$.8 million during the first six months of 1999 to $1.3 million during the
similar period in 2000. In 2000 our management team has continued to increase
research and development expenditures as part of our new focus on the commercial
wireless industry and to produce technology upgrades to existing equipment.
Other expenses. Other expenses were $276 thousand during the first six months of
2000 and were related to the proposed acquisition of LogiMetrics Inc.'s
high-power amplifier business. We have notified LogiMetrics of our intent to
exercise our option to return the Bohemia, New York business back to
LogiMetrics. We are in discussions with LogiMetrics concerning terms and
conditions under which we may retain the Bohemia, New York business. Whether we
retain the business in question or not, we expect no material financial impact
on our financial results. A $2.0 million note receivable was collected on July
25, 2000 along with $85 thousand of interest.
Interest expense. Interest expense increased by 105.2% from $252 thousand during
the first six months of 1999 compared to $.5 million during the similar period
in 2000. The increase is due to an increased level of borrowings at higher
interest rates.
Provision for income taxes. Income taxes were $32 thousand during the first six
months of 1999 compared to $.7 million during the similar period in 2000. The
$32 thousand in taxes paid was the alternative minimum tax as the majority of
taxable income was offset by tax benefits.
Business Segments
The following tables display net sales and operating income by business segment
for the six months ending June 30:
<TABLE>
<CAPTION>
(amounts in thousands)
Net Sales 2000 1999
--------- -------- --------
<S> <C> <C>
Signal Wireless Group $ 6,416 $ 1,887
Microwave Components and Subsystems 18,551 19,946
Power Management Products 13,594 14,005
RF Components & Subsystems 4,790 5,532
-------- --------
$ 43,351 $ 41,370
Operating Income(1)
-------------------
Signal Wireless Group $ (1,577) $ (313)
Microwave Components & Subsystems 1,654 837
Power Management Products 2,633 916
RF Components & Subsystems (254) 308
-------- --------
$ 2,456 $ 1,748
</TABLE>
(1) Corporate selling, general and administrative expenses have been allocated
to business segments using net sales as an allocation base.
Page 15 of 19
<PAGE> 16
Signal Wireless Group
Net sales. Net sales of Signal Wireless Group increased 240.0% from $1.9 million
for the first six months of 1999 to $6.4 million for the similar period in 2000.
The primary reason for the increase was $2.9 million in sales from Advanced
Frequency Products along with as increased sales from other operations due to a
strong demand for wireless products.
Operating income. Operation income of Signal Wireless Group decreased by 403.8%
from a $.3 million loss for the first six months of 1999 to a $1.6 million loss
for a similar period in 2000. The decrease is primarily a result of 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. Net sales of Microwave Components and Subsystems decreased 7.0% from
$19.9 million for the first six months of 1999 to $18.6 million for the similar
period in 2000. The primary reason for the decrease was lower A/V switch
shipments at the Company's Systems Operation.
Operating income. Operation income of Microwave Components and Subsystems
increased by 97.6%, from $.8 million for the first six months of 1999 to $1.7
million for a similar period in 2000. The increase is primarily due to an
increase in gross margins attributable to streamlining of operations and changes
in contract mix partially offset by a decrease in gross margin associated with
decreased sales volume.
Power Management Products
Net sales. Net sales of Power Management Products decreased 2.9% from $14.0
million for the first six months of 1999 to $13.6 million for the similar period
in 2000. The primary reason for the decrease was delays on certain contracts in
the development stage for which production hardware will not ship until later in
2000.
Operating income. Operation income of Power Management Products increased by
187.4% from $.9 million for the first six months of 1999 to $2.6 million for a
similar period in 2000. The increase is primarily due to an increase in gross
margins associated with changes in contract mix and lower manufacturing costs.
RF Components and Subsystems
Net sales. Net sales of RF Components & Subsystems decreased 13.4% from $5.5
million for the first six months of 1999 to $4.8 million for the similar period
in 2000. The decrease was primarily due to a reduction in sales of log amplifier
devices for which orders have been declining.
Operating income. Operating income of RF Components & Subsystems decreased by
182.5%, from $.3 million for the first six months of 1999 to a $.3 million loss
for a similar period in 2000. The decrease is primarily due to a decrease in
gross margin associated with contract mix, production problems on the Sparrow
program and decreased sales partially offset by reductions to research and
development expenditures.
Liquidity and Capital Resources
At June 30, 2000 the Company had working capital of $16.2 million, including
cash and cash equivalents of $1.3 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 six months of 2000,
Page 16 of 19
<PAGE> 17
the Company borrowed under the Company's revolving credit facility $6.5 million
increasing the amount borrowed to $9.5 million under the facility. Net cash flow
used by operations was $6.0 million for the first six months of 2000 compared to
$4.0 million net cash flow provided by operations for the first six months of
1999. A $6.3 million increase in inventory and a $2.2 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 six months of 2000.
Our borrowing arrangement requires us to maintain certain minimum balances and
ratios, including the requirement to maintain a minimum tangible net worth. We
were in compliance with the net worth covenant at June 30, 2000. Our borrowing
arrangement also requires that we maintain an interest coverage ratio. At June
30, 2000 we were not in compliance with the interest coverage covenant and we
obtained a waiver with respect to such non-compliance for the quarter ending
June 30, 2000. The revolving credit facility which will expire September 30,
2000, is shown as a current liability.
On February 17, 2000, we entered into a non-binding letter of intent pursuant to
which we proposed to acquire LogiMetrics, Inc. We have loaned approximately $2.0
million to LogiMetrics, Inc. for working capital and other purposes (see Note
6). The $2.0 million note receivable is included in other current assets on the
June 30, 2000 balance sheet. On July 12, 2000 the Company terminated discussions
relating to the proposed acquisition of LogiMetrics, Inc. We have notified
LogiMetrics of our intent to exercise our option to return the Bohemia, New York
business back to LogiMetrics. We are in discussions with LogiMetrics concerning
terms and conditions under which we may retain the Bohemia, New York business.
Whether we retain the business in question or not, we expect no material
financial impact on our financial results. A $2.0 million note receivable was
collected on July 25, 2000 along with $85 thousand of interest.
We continue to investigate acquisition opportunities in complementary
businesses, product lines and markets. We believe that we have adequate cash,
working capital and available financing to meet our operating and capital
requirements in the foreseeable future and to pursue acquisition opportunities.
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 and SAB 101B, will be required in
our fourth 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. Our 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 we are is involved, (ii)
the impact of an amendment to our credit facility on its liquidity, (iii) our
ability to meet operating and capital requirement and to pursue acquisition
opportunities, (iv) 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.
Page 17 of 19
<PAGE> 18
These forward-looking statements represent our best judgement on the date of
this Form 10-Q, and we caution 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 our operating results, volume and timing of orders
received, changes in the mix of products sold, competitive pricing pressure, our
ability to meet or renegotiate customer demands, the ability to anticipate
changes in the market, our ability to finance operations on terms that are
acceptable, our ability to attract and retain qualified personnel including our
management, changes in the global economy, changes in regulatory processes, the
dependence on certain key customers (including the U.S. Government), our ability
to realize sufficient margins on sales of its products, the availability and
timing of funding for our current products and the development of future
products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do 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. We have not purchased options or
entered into swaps or forward or futures contracts. Our 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%. We also have 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 we could borrow funds.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 6 - Commitments and Contingencies to our Condensed Consolidated Financial
Statements contained elsewhere in this Quarterly Report is incorporated herein
by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 16, 2000, to
consider and vote upon proposals to (i) elect two directors and (ii) ratify the
action of the directors in amending the Company's 1992 Equity Incentive Plan.
George E. Lombard and Thomas G. McInerney were elected as directors of the
Company by a vote of 7,030,168 and 7,030,168 for, respectively and 12,687 and
12,687 withheld, respectively. The second proposal was approved by a vote of
3,505,749 for 489,559 against, 20,408 abstaining, and 3,027,139 broker
non-voters.
The following directors continued in office after the meeting: Bernard P.
O'Sullivan, Joseph Schneider, Larry L. Hansen, Harvey C. Krentzman and Thomas F.
Skelly.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
Page 18 of 19
<PAGE> 19
(b) Reports on Form 8-K
We made the following filings on Form 8-K since the first quarter 2000:
Signal Technology Corporation Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 21, 2000 relating to the
announcement that we terminated discussions relative to our proposed
acquisition of LogiMetrics.
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: August 2, 2000
Page 19 of 19
