Item 1. Business 4
Item 2.
ITEM 2. PROPERTIES
Our principal executive offices are located in Danvers, Massachusetts. Our principal operating facilities, containing light manufacturing and associated engineering and support services, are located in five states:
ARIZONA
- We own a modern 84,260 square foot building in Chandler.
CALIFORNIA
- We lease 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 $723,012 with an average annual escalation of approximately 4.0% through the term of the lease.
FLORIDA
- We own a modern 68,000 square foot building in Fort Walton Beach.
MASSACHUSETTS
- We own a modern 25,000 square foot building in Webster and a modern 40,350 square foot building in Beverly.
TEXAS
- We lease a modern 4,197 square foot office in Plano.
- The lease does not include insurance or electricity exceeding $1.75 per square foot.
- The lease expires in 2005.
- The current annual rent is $81,842 with an escalation of 2.6% for the last two years of the lease.
We believe that our properties are in good operating condition and repair and consider our facilities to be suitable and adequate for our current and reasonably foreseeable future activities. We believe that there is capacity at our facilities to absorb acquired businesses of a certain size and product lines and/or internal growth. The properties owned by us are all subject to either mortgages or industrial revenue bond financing.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are involved from time to time in litigation incidental to our business. Ongoing legal proceedings include the following:
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 and well head treatment at Weymouth Winter Street well No. 2 through an agreement with the Town of Weymouth. We have been informed that no recovery of costs incurred in the treatment of the groundwater at the facility is possible under existing insurance arrangements. We have not reached an agreement with the Town of Weymouth relative to well head treatment and, 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 $1.6 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 (Eaton) Indemnification Claim:
Eaton Corporation 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 reversed this decision and found that we do owe Eaton a duty of indemnification. In December 2000, the decision by a jury was in favor of an indemnification claim by Eaton and Eaton was awarded a judgment of $4.2 million, related to environmental liabilities assumed by Signal when it purchased Eaton's Microwave Products division in 1989. On March 7, 2001, the U.S. District Court ruled on various motions pending before it, including denying our motion for a new trial and denying certain of Eaton's motions. The U.S. District Court amended the judgment to increase it to an aggregate of $6.04 million and clarified that we are responsible for fifty percent of the reasonable costs and expenses of remediation. We have recorded liabilities of $9.0 million for anticipated costs including the $6.04 million judgment, legal and consulting fees, site studies, implementation of remediation plans, post-remediation monitoring and related activities to be performed during the next 20 years. We intend to appeal the amended judgment.
SEC Investigation:
The Boston District Office of the Securities and Exchange Commission advised us on September 27, 2000 that the Commission has entered a formal order of private investigation. We understand that the investigation relates to our restatement in 1998 of our financial statements for 1996, 1997 and the first quarter of 1998. We intend to continue to cooperate with the Commission on this investigation.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol "STCO". The following table sets forth, for the periods indicated, the high and low closing prices per share of our common stock as reported in the Nasdaq National Market.
On March 26, 2001 the last reported sales price of our common stock on the Nasdaq National Market was $7.25 per share. As of March 26, 2001 there were approximately 89 stockholders of record of the common stock.
We have never paid cash dividends on our common stock. We anticipate retaining all available funds for use in operations and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
ITEM 7.
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 us due to loss of customers or sales, (iii) the impact and effects of competition and our continued ability to compete in its markets, (iv) the suitability and adequacy of our properties for its intended uses, (v) our anticipated policy with respect to dividends, (vi) the incidence, materiality, and frequency of fluctuations in our operating results, (vii) our optimism about improvements in its operating deficiencies, (viii) the impact on us and effects of the expansion of our business in the wireless infrastructure market place, (ix) our ability to successfully integrate 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). Investors are cautioned that forward-looking statements are inherently uncertain. These forward-looking statements represent our best judgment as on the date of this Annual Report on Form 10-K, 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, our 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 our products, the availability and timing of funding for our current products and the development of future products.
OVERVIEW
Our principal business is the design, development and manufacture of power management products and electronic radio frequency components and subsystems that are used in broadband wireless equipment, digital cellular/PCS wireless infrastructure equipment and defense electronics. We were incorporated in 1982 and have traditionally been a supplier to the defense industry. Our sophisticated RF, microwave and millimeter wave electronic components are used in applications such as radar, communications, smart weapons and contain vital technology to receive, transmit and process wireless data signals. Our experience in designing, manufacturing and marketing wireless equipment for the demanding defense industry has positioned us well to effectively penetrate the commercial broadband wireless market.
This past year our management has focused on developing and implementing our strategic initiative to grow our business in the commercial wireless market.
We have been active in the pursuit and acquisition of complementary businesses over the years. Most recently, in December of 1999, we acquired Advanced Frequency Products, or AFP, which provided us with an entry into the rapidly growing broadband wireless millimeter wave communications market. AFP has been integrated into our Olektron operation and is part of the Signal Wireless Group and their products focus on the commercial wireless industry.
We have experienced and expect to continue to experience significant fluctuations in our results of operations. Factors that affect our results of operations include the volume and timing of orders received, changes in the mix of products sold, competitive pricing pressures and our ability to meet customer requirements. As a result of the forgoing or other factors, there can be no assurance that we will not experience material fluctuations in the future operating results on a quarterly or annual basis, which would materially and adversely affect our business, financial condition and results of operations.
RESULTS OF OPERATIONS
The following table displays the percentage of net sales of certain items in our consolidated financial statements for the periods indicated:
Fiscal Year Ended December 31, 2000 vs. Fiscal Year Ended December 31, 1999.
Net Sales. Net sales increased 19.5% from $82.4 million during fiscal year 1999 to $98.5 million during fiscal year 2000. The primary reason for the increase was the addition of $15.9 million in commercial wireless product sales from Signal Wireless Group. The net sales to the defense electronics and other markets were approximately the same in fiscal year 2000 and fiscal year 1999.
Gross Profit. Gross profit increased 21.6% from $26.2 million in fiscal year 1999 to $31.9 million during fiscal year 2000. The increase in gross profit associated with the increased sales from Signal Wireless Group was $2.4 million; consisting of $3.1 million from increased sales reduced by a $.7 million loss on a terminated contract. Gross profit increased $3.3 million in defense electronics and other due to changes in product and contract mix, streamlining of operations and higher gross margin contracts in our Microwave Components and Subsystems and Power Management Products business segments.
Selling, general and administrative expenses. Selling, general and administrative expenses increased by 17.5% from $18.9 million in fiscal year 1999 to $22.2 million during fiscal year 2000. The increase is primarily due to the increase in selling, general and administrative expenses associated with the acquisition of Advanced Frequency Products of $2.0 million which includes the amortization of intangible assets. Additionally, there was a $.6 million expense associated with remediation plans for groundwater contaminants at a previously owned manufacturing facility in Weymouth, Massachusetts and a non-cash stock option expense of $.2 million primarily related to stock options granted to non-employees.
Research and development expenses. Research and development expense increased 138.9% from $1.8 million during fiscal year 1999 to $4.3 million during fiscal year 2000. During 2000 we have increased research and development expenditures as part of our continued focus on the commercial wireless industry and to produce technology upgrades to existing products.
Other expenses. Other expenses were $9.1 million in fiscal year 2000. Included in other expenses during 2000 was a $9.0 million charge for liabilities associated with Eaton Corporation's indemnification claim. In February 2000 we assumed the management and operation of the LogiMetrics' high-power amplifier business as a security interest for a loan. We were responsible for all expenses incurred and entitled to retain all revenue generated in connection with the operation of the business and assumed all current liabilities of the business. Included in other expenses was $.1 million in expense associated with managing the LogiMetrics' power amplifier business before our acquisition of the business in November 2000. Other
expenses were $1.3 million during fiscal year 1999 and were related to a settlement of a class action suit against us.
Interest expense, net. Interest expense, net decreased 51.9% from $.4 million during fiscal year 1999 to $.2 million during fiscal year 2000. The primary reason for the decrease is we repaid borrowings under our revolving credit facility during the third quarter reducing the amount borrowed to zero. During the third quarter of 2000 we issued 2 million shares of common stock with net proceeds of $35.1 million. After repaying our revolving credit facility the remaining funds were invested in cash equivalents and generated interest income of $.5 million during the fourth quarter of 2000.
Income taxes. The benefit for income taxes during fiscal year 1999 was $.5 million compared to an income tax benefit of $1.3 million during fiscal year 2000. The effective income tax rate was (34.0)% benefit for 2000 compared to a (13.4)% benefit for 1999. The loss before income taxes during fiscal 2000 included a $9.0 million charge for liabilities associated with Eaton's indemnification claim. We believe a valuation allowance against our deferred tax assets is not required based on our continuing earnings performance excluding the $9.0 million charge in fiscal 2000. The 1999 benefit for income taxes primarily relates to the full reversal of the valuation allowance on the deferred tax assets, which we believed was more likely than not to be realized based on our earnings performance.
Fiscal Year Ended December 31, 1999 vs. Fiscal Year Ended December 31, 1998
Net Sales. Net sales decreased 10.5% from $92.1 million during fiscal year 1998 to $82.4 million during fiscal year 1999. 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. A reduction in orders during the last six months of 1998 at the Microwave and RF Components and Subsystems business was the primary reason for the overall decreased net sales in 1999. The decrease in orders and delayed orders produced lower backlog at the beginning of 1999 and subsequently lower net sales.
Gross Profit. Gross profit increased 89.0% from $13.9 million during fiscal year 1998 to $26.2 million during fiscal year 1999 and as a percentage of net sales, gross profit increased from 15.1% in 1998 to 31.8% in 1999. Gross profit was adversely affected during 1998 by contract adjustments and inventory write-downs at our Keltec operation and also our Microwave Components and Subsystems business. In addition, in 1999 we began to recognize the benefits of the implementation of new financial and manufacturing controls.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased 6.5% from $20.2 million during fiscal year 1998 to $18.9 million during fiscal 1999. The $1.3 million decrease is primarily due to a reduction in commissions and selling expenses.
Research and development expenses. Research and development expenses increased 551.8% from $.3 million during fiscal year 1998 to $1.8 million during fiscal year 1999. During 1999, our management team made the decision to increase research and development expenditures as part of our new focus on the commercial wireless industry.
Other expenses. Other expenses were $1.3 million during fiscal year 1999 and were related to an agreement-in-principle to settle a pending class action suit against us.
Interest expense. Interest expense decreased 59.0% from $.9 million during fiscal year 1998 compared to $.4 million during fiscal year 1999. The decrease is primarily due to paying down of our revolving credit facility. Total debt decreased to $9.2 million at fiscal year ending 1999, from $10.4 million at the end of fiscal year 1998.
Income taxes. The benefit for income taxes in fiscal year 1998 was $.3 million compared to an income tax benefit of $.5 million during fiscal year 1999. The 1999 benefit for income taxes primarily relates to the full reversal of the valuation allowance on the deferred tax assets, which we believe was more likely than not to be realized, based on our earnings performance.
BUSINESS SEGMENTS
We have six operating divisions engaged in the development, manufacturing and marketing of electronic components and subsystems. The operating divisions; referred to as Arizona, California, Systems, Advanced Frequency Products, Keltec and Olektron report their operations within four segments: Signal Wireless Group (established in January 2000 and includes Advanced Frequency Products and products from Arizona, California and Olektron that 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. Signal Wireless Group was added as a new business segment in fiscal year 2000. The fiscal year 1999 and 1998 business segment reporting has been adjusted to include Signal Wireless Group business originally reported in Microwave Components and Subsystems and RF Components and Subsystems in our previous segment reporting. In reporting business segment operating income corporate headquarters expenses have been allocated to the business segments based on a percentage of net sales.
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 supplies, 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 three years ending December 31 which correspond to the segment information presented in Note 15 to the consolidated financial statements.
[1] Corporate headquarters expenses have been allocated to the business segments based on a percentage of net sales.
Business Segments Fiscal Year Ended December 31, 2000 vs. Fiscal Year Ended December 31, 1999
SIGNAL WIRELESS GROUP
Net Sales. Net sales of Signal Wireless Group increased 450.4% from $3.5 million during fiscal year 1999 to $19.5 million during fiscal year 2000. The increase was primarily due to $12.4 million in sales from Advanced Frequency Products (acquired in December 1999) along with increased sales from other operations due to an increased demand for wireless products.
Operating Loss. Operating loss of Signal Wireless Group increased by 1,099% from a $.4 million loss during fiscal year 1999 to a $4.7 million loss during fiscal year 2000. The increase is primarily the result of a $3.0 million increase in spending on research and development, and a $2.0 million increase in selling, general and administrative costs associated with the Advanced Frequency Products acquisition including the amortization of intangible assets and a $.7 million loss incurred on a terminated contract partially offset by operating profits from increased sales during fiscal 2000.
MICROWAVE COMPONENTS AND SUBSYSTEMS
Net Sales. Net sales of Microwave Components and Subsystems decreased 2.4% from $41.8 million during fiscal year 1999 to $40.8 million during fiscal year 2000. The primary reason for the decrease was lower A/V switch and HF/UHF distribution equipment sales at our Systems operation.
Operating Income. Operating income of Microwave Components and Subsystems increased by 111.2% from $2.7 million during fiscal year 1999 to $5.8 million during fiscal year 2000. The increase is primarily due to a $2.1 million increase in gross margin attributable to streamlining of operations and a favorable change in product mix and a $.6 million decrease in research and development expense.
POWER MANAGEMENT PRODUCTS
Net Sales. Net sales of Power Management Products increased 9.9% from $25.4 million during fiscal year 1999 to $27.9 million in fiscal year 2000. The primary reason was an increase in shipments of production hardware and delivery of several preproduction units which experienced delays during the development stage of the program during 1999.
Operating Income. Operating income of Power Management Products increased by 58.9% from $2.9 million during fiscal year 1999 to $4.7 million during fiscal year 2000. The increase is primarily due to a $1.3 million increase in gross margin associated with favorable changes in product mix and lower manufacturing costs, and $.8 million from increased sales.
RF COMPONENTS AND SUBSYSTEMS
Net Sales. Net sales of RF Components and Subsystems decreased 12.2% from $11.7 million during fiscal year 1999 to $10.2 million during fiscal year 2000. The decrease was due to a reduction of sales across most product areas for which orders have been declining.
Operating loss. Operating income of RF Components and Subsystems decreased by 185.9% from $.3 million during fiscal year 1999 to an operating loss of $.3 million during fiscal year 2000. The decrease is primarily due to a $.8 million decrease in gross margin due to unfavorable changes in product mix and continued production problems on the Sparrow missile program and a $.4 million decrease in gross margin from decreased sales partially offset by a $.7 million reduction in operating expenses.
Business Segments Fiscal Year Ended December 31, 1999 vs. Fiscal Year Ended December 31, 1998
SIGNAL WIRELESS GROUP
Net sales. Net sales of Signal Wireless Group increased 185.1% from $1.2 million during fiscal 1998 to $3.5 million during fiscal year 1999. The increase in sales was primarily due to increased orders as demand for our wireless components increased.
Operating Loss. The operating loss of Signal Wireless Group increased 591.2% from $.1 million during fiscal year 1998 to $.4 million during fiscal year 1999. The increase in the operating loss is primarily due to increased spending on research and development.
MICROWAVE COMPONENTS AND SUBSYSTEMS
Net Sales. Net sales of Microwave Components and Subsystems decreased by 17.3% from $50.6 million during fiscal year 1998 to $41.8 million during fiscal year 1999. The primary reason for the decrease was a reduction in second half 1998 orders.
Operating Income. Operating income of Microwave Components and Subsystems increased from $.1 million during fiscal year 1998 to $2.7 million during fiscal year 1999. Gross profit was adversely affected in 1998 by contract adjustments and inventory write-downs of approximately $1.9 million.
POWER MANAGEMENT PRODUCTS
Net Sales. Net sales of Power Management Products increased by 4.7% from $24.3 million during fiscal year 1998 to $25.4 million during fiscal year 1999. 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.
Operating Income. Operating income of Power Management Products increased from an operating loss of $8.2 million during fiscal year 1998 to an operating profit of $2.9 million during fiscal year 1999. Gross profit was adversely affected in 1998 by contract adjustments and inventory write-downs of approximately $6.3 million. Contributing to the increase in operating income during 1999 was increased sales volume, greater efficiencies in manufacturing as well as changes in contract mix.
RF COMPONENTS AND SUBSYSTEMS
Net sales. Net sales of RF Components and Subsystems decreased by 27.0% from $16.0 million during fiscal year 1998 to $11.7 million during fiscal year 1999. The primary reason for the decreased sales was a reduction in orders during the second half of 1998 and first quarter 1999.
Operating Income. Operating income of RF Components and Subsystems decreased by 81.5% from $1.6 million during fiscal year 1998 to $.3 million during fiscal year 1999. The decrease in 1999 operating income is mainly attributable to the above mentioned decrease in sales volume, technical problems on the Sparrow Missile program as well as changes in contract mix.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal Year Ended December 31, 2000 vs. Fiscal Year Ended December 31, 1999
At December 31, 2000 we had working capital of $46.5 million, including cash and cash equivalents of $31.0 million, as compared to working capital of $13.6 million and cash and cash equivalents of $3.6 million, respectively at December 31, 1999. Net cash used by operations was $2.8 million during fiscal year 2000 compared to $12.0 million net cash provided by operations during fiscal year 1999. The primary reasons for the decrease in cash from operations during fiscal year 2000 as compared to fiscal year 1999 was a $7.1 million increase in inventory and a $5.9 million increase in accounts receivable from increased
sales and working capital requirements associated with the growth of our commercial wireless business during 2000. On March 22, 2001, a $6.2 million cash deposit was made with the Clerk, United States District Court by order of the United States District Court for the Northern District of California in association with our Eaton Indemnification claim.
Net cash used by investing activities was $2.3 million during fiscal 2000 compared to $9.9 million net cash used by investing activities during fiscal year 1999. During 2000 $2.1 million in cash was received from Logimetrics in exchange for assuming substantially all the assets and liabilities of LogiMetrics' power amplifier business. In fiscal 1999 $8.0 million in cash was used for an acquisition and related costs. During fiscal 2000 $4.2 million in cash was used for additions to property, plant and equipment compared to $1.9 million during fiscal year 1999. The primary reason for the increase was machinery and equipment required to support our growing commercial wireless business.
Net cash provided by financing activities was $32.5 million during fiscal 2000 compared to $.9 million used by financing activities during fiscal 1999. During fiscal year 2000 net proceeds from the issuance of 2 million shares of common stock were $35.1 million offset by the repayment of borrowings under our revolving credit facility of $3.0 million reducing the amount borrowed to zero. During fiscal 1999 we repaid borrowings under our revolving credit facility of $1.0 million.
Fiscal Year Ended December 31, 1999 vs. Fiscal Year Ended December 31, 1998
At December 31, 1999 we had working capital of $13.6 million and cash of $3.6 million, as compared to working capital and cash of $19.7 and $2.4 million respectively at December 31, 1998. Net cash provided by operations was $12.0 million during fiscal year 1999 compared to $6.9 million net cash provided by operations during fiscal year 1998.
Net cash used by investing activities was $9.9 million during fiscal 1999 compared to $1.5 million net cash used by investing activities during fiscal 1998. During fiscal 1999 $8.0 million in cash was used for an acquisition and related costs. During fiscal 1999 $1.9 million in cash was used for additions to property, plant and equipment compared to $1.6 million during fiscal year 1998.
Net cash used by financing activities was $.9 million during fiscal 1999 compared to $4.1 million used for financing activities during fiscal 1998. During fiscal 1999 we repaid borrowings under our revolving credit facility of $1.0 million compared to repaid borrowings under our credit facility of $3.0 million during 1998.
Our borrowing arrangement at December 31, 2000 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 December 31, 2000. Our borrowing arrangement also requires that we maintain an interest coverage ratio. December 31, 2000 we were not in compliance with the interest coverage covenant on the predecessor Revolver and we obtained a waiver with respect to such non-compliance. The predecessor revolving credit facility (the "Revolver") expired in February 2001. We have amended the Revolver as of February 27, 2001 including a change to the covenants and the amount available for borrowing is $20 million.
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.
ITEM 7A.
ITEM 7A. 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 us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have not purchased options or entered into swaps, forward or futures contracts. Our primary market risk exposure is that of interest rate risk on borrowings under our revolving credit facility, which are subject to interest rates based on the bank's base rate. We also have a collateralized real estate loan based on 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. The aggregate hypothetical loss in earnings for one year of those borrowings held by us at December 31, 2000 and 1999, which are subject to interest rate risk resulting from a hypothetical 10 percent increase in interest rates is approximately $30 thousand and $50 thousand after tax, respectively. The hypothetical loss was determined by calculating the aggregate impact of a 10 percent increase in each of our variable financial instruments held by us at December 31, 2000 and 1999. Fixed rate financial instruments were not evaluated.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of the consolidated financial statements.
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements.
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of the consolidated financial statements
SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data)
1. NATURE OF OPERATIONS
Our principal business is the design, development and manufacture of power management products and electronic radio frequency components and subsystems that are used in broadband wireless equipment, digital cellular/PCS wireless infrastructure equipment and defense electronics. We were incorporated in 1982 and have traditionally been a supplier to the defense industry. Our sophisticated RF, microwave and millimeter wave electronic components are used in applications such as radar, communications, smart weapons and contain vital technology to receive, transmit and process wireless data signals. Our experience in designing, manufacturing and marketing wireless equipment for the demanding defense industry has positioned us well to effectively penetrate the commercial broadband wireless market.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Signal Technology Corporation and its wholly-owned subsidiaries. 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
We record 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.
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
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.
STOCK BASED COMPENSATION
We account for stock based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and comply with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation."
COMPREHENSIVE INCOME (LOSS)
There were no differences between net income (loss) and comprehensive income (loss) for the years ended December 31, 2000, 1999 and 1998.
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments which have an original maturity of three months or less to be cash equivalents.
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 3-7 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 consist principally of goodwill which is 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 include current operating results, trends and prospects, as well as the effects of demand, competition and other economic factors. At December 31, 2000 and 1999 accumulated amortization was $3,539 and $2,202 respectively.
ENVIRONMENTAL COSTS
We expense environmental expenditures related to existing conditions from past or current operations. We determine our liability on a site by site basis and record a liability at the time when it is probable and can be reasonably estimated. Our liability is reduced to reflect the anticipated participation of other responsible parties when it is both probable that such parties are legally responsible and financially capable of paying their respective share of the relevant cost. The estimated liability is calculated using a discounted cash flow method. Refer to Note 10.
CONCENTRATIONS OF RISK
The market for our defense electronics products is largely dependent on the availability of new contracts from U.S. Government authorities to prime contractors to which we provide components. Any decline in expenditures by U.S. government authorities may have an adverse effect on our financial performance. We generally extend credit to customers and, therefore, collection of receivables is affected by the defense industry economy. We closely monitor extensions of credit, maintaining reserves for potential credit losses, and such losses have been within management's expectations.
Also, our 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 our products in foreign markets and make our products relatively more expensive than competitors' products that are denominated in local currencies, leading to a potential reduction in sales or profitability in those foreign markets. We have 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 us to concentrations of credit risks consist principally of cash and note and trade receivables. Substantially all of our cash is invested in short-term U.S. Treasury bills.
We 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. Our failure to comply with government procurement, contracting or security obligations could result in penalties or suspension from government contracting, which would have a material adverse effect on our results of operations.
Our inventories include high-technology parts and components that may be specialized in nature or subject to rapid technology obsolescence. While we have programs to minimize the required inventories on hand
and consider 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 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 Advanced Frequency Products workforce, tradename and completed technology and is being amortized on a straight-line basis over the estimated useful life of 3-7 years. Goodwill of $5,040 is being amortized on a straight-line basis over the estimated useful life of 10 years.
In November 2000, we received $2,090 in exchange for assuming substantially all the assets and liabilities of LogiMetrics' power amplifier business previously located in Bohemia, New York. The transaction was accounted for as a purchase and results of operations since the acquisition date are included in the consolidated statements of income. From February 2000 through the acquisition date we managed the business which was a security interest for a loan under an agreement with LogiMetrics and results from operations were reported as other expense. This loan was repaid in July 2000.
The assets and liabilities recorded in connection with the acquisition of LogiMetrics' power amplifier business are based upon estimates of fair value. The asset and liabilities recorded were $26 and $1,614, respectively. Excess of acquired net assets over cost of $502 is being amortized on a straight-line basis over three years.
Assuming the acquisitions described above had been made on January 1, 1999, the Company's unaudited pro forma condensed results of operations would have been as follows:
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, 1999, or of results which may occur in the future.
4. OTHER ASSETS
At December 31, 2000 and 1999 other assets includes a mortgage receivable in the amount of $808 and $820, respectively. In April 1996, we issued the mortgage related to the sale of our 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). We earn interest on the mortgage receivable at a rate of 8.0% per annum and interest income for the years ended December 31, 2000, 1999 and 1998 amounted to $65, $66 and $63, respectively. Also included in other assets at December 31, 2000, is an employee note receivable in the amount of $140. The note receivable accrues interest at the rate of our average rate of interest earned on our cash equivalents. In exchange for continued employment until January 2003, and under certain conditions, the note and accrued interest will be forgiven.
5. STATEMENTS OF CASH FLOWS
6. INVENTORIES
7. PROPERTY, PLANT AND EQUIPMENT
8. ACCRUED EXPENSES
9. LONG-TERM DEBT AND NOTES PAYABLE
The Massachusetts Industrial Revenue Bond is collateralized by real estate with a net book value of $1,355 at December 31, 2000.
We have an unsecured bank revolving credit facility, (the "Revolver"). The predecessor Revolver expired in February 2001. We have amended the Revolver; as of February 27, 2001 including a change to covenants and the amount available for borrowing is $20,000. Amounts may be borrowed, paid and reborrowed by us 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. We have the option of borrowing under one or more differing interest rate formulas and at December 31, 2000 and 1999, the weighted average interest rate was 9.63% and 8.06% respectively. We also pay a quarterly commitment fee at an annual rate of 1/4% on the amount of the unused facility. After reduction for outstanding letters of credit under the Revolver, we had approximately $18,753 available as of December 31, 2000.
The Real Estate Loan is collateralized by real estate with a net book value of $4,958 at December 31, 2000. Maturing in January 2003, the Real Estate Loan is payable in quarterly principal payments of $100, plus interest at the bank's base rate (8.98% at December 31, 2000), with the last installment equal to the remaining unpaid loan balance.
The Real Estate Loan and the Revolver contains certain covenants relating to 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, 2000 we were
not in compliance with the interest coverage covenant on the predecessor Revolver and we obtained a waiver with respect to such non-compliance.
10. COMMITMENTS AND CONTINGENCIES
Lease Obligations: We lease real estate and equipment under operating leases expiring at various dates through 2006. The leases include provisions for rent escalation which are inflationary in nature, renewals and purchase options and we are generally responsible for taxes, maintenance and repairs. Aggregate rental expense included in operations amounted to $989 in 2000, $900 in 1999 and $907 in 1998. Additionally, we leased equipment under capital leases.
Equipment under capital leases included in property, plant and equipment are as follows:
The following is a schedule by year of future minimum lease payments at December 31, 2000:
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 and well head treatment at Weymouth Winter Street well No. 2 through an agreement with the Town of Weymouth. We have been informed that no recovery of costs incurred in the treatment of the groundwater at the facility is possible under existing insurance arrangements. We have not reached an agreement with the Town of Weymouth relative to well head treatment and, 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 $1,571 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. The increase in the liability of $.4 million during fiscal 2000 is for legal and consulting fees and payments to the Town of Weymouth for well head treatment at Weymouth Winter Street well No. 2. Environmental cleanup expenses are included as general and administrative expense in our statement of operations. Cash payments for Weymouth environmental contamination are expected to be $577 in 2000, $90 per year for 2002-2004 and $1,355 for 2005 and thereafter.
Sunnyvale (Eaton) Indemnification Claim: Eaton Corporation 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 claim was dismissed at the trial level, but the Ninth Circuit of the U.S. Court of Appeals reversed this decision and found that we do owe Eaton a duty of indemnification. In December 2000, the decision by a jury was in favor of an indemnification claim by Eaton and Eaton was awarded a judgment of $4,200, related to environmental liabilities assumed by Signal when it purchased Eaton's Microwave Products division in 1989. On March 7, 2001, the U.S. District Court ruled on various motions pending before it, including denying our motion for a new trial and denying certain of Eaton's motions. The U.S. District Court amended the judgment to increase it to an aggregate of $6,040 and clarified that we are responsible for 50 percent of the reasonable costs and expenses of remediation. We have recorded liabilities of $9,000 for anticipated costs including the $6,040 judgment, legal and consulting fees, site studies, implementation of remediation plans, post-remediation monitoring and related activities to be performed during the next 20 years. We intend to appeal the amended judgment.
SEC Investigation: The Boston District Office of the Securities and Exchange Commission advised us on September 27, 2000 that the Commission has entered a formal order of private investigation. We understand that the investigation relates to our restatement in 1998 of our financial statements for 1996, 1997 and the first quarter of 1998. We intend to continue to cooperate with the Commission on this investigation.
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 under new contractual arrangements.
11. INCOME TAXES
The benefit for income taxes primarily relates to various deferred tax assets, which we believe are more likely than not to be realized based on our earnings performance.
Our effective tax rate differs from the statutory federal income tax rate as follows:
The non-deductible expenses consist principally of goodwill resulting from certain of our 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:
12. STOCKHOLDERS' EQUITY
We have stock option plans (the "Plans") under which options for a maximum of 3,167 shares of our common stock may be granted generally at prices not less than 100 percent of the fair market value of our common stock at the date of option grant. During 2000, 1999 and 1998 we recorded compensation expense of $77, $89 and none, respectively for options issued below fair market value. Options vest in increments and over periods determined by the Compensation Committee of our Board of Directors and expire not more than ten years from date of grant. At December 31, 2000, 2,354 shares of common stock were reserved for future issuance under the plans and 257 were available for future grant. Additionally, non-qualified options to purchase a total of 120 shares of our common stock are outstanding to certain directors and other non-employees. These options were generally granted at the fair market value of our common stock at the date of option grant, vest generally over a five-year period and expire between 2000 and 2004. During 2000, 1999 and 1998 we recorded compensation expense of $155, $39 and none, respectively for options granted to non-employees.
Information concerning the plans and non-qualified stock options is as follows:
A total of 603 options were exercisable at December 31, 2000 at a weighted average price of $3.35. A total of 539 options were exercisable at December 31, 1999 at a weighted average price of $3.58. A total of 544 options were exercisable at December 31, 1998 at a weighted average price of $2.91.
The following table summarizes information with respect to stock options outstanding as of December 31, 2000:
The following information concerning our stock option and employee stock purchase plans is provided in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." We account for such plans in accordance with APB No. 25 and related Interpretations.
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:
The weighted average fair value of those options granted in 2000, 1999 and 1998 was $13.57, $2.95 and $1.60 respectively.
The following pro forma income information has been prepared following the provisions of SFAS No. 123:
13. EARNINGS PER SHARE
A reconciliation of the numerator and denominator of both basic and diluted EPS is provided as follows:
As of December 31, 2000 and 1998 the number of dilutive shares was 849 and 238, respectively and such shares have not been included in above calculations as the effect would be anti-dilutive.
14. EMPLOYEE BENEFIT PLANS
We maintain a 401(k) plan covering substantially all of our employees. Eligible employees may contribute up to 15% of their annual compensation, as defined, to this plan. We may also make a discretionary contribution. Our contributions to this plan totaled $697 in 2000, $377 in 1999 and $378 in 1998.
We have 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 74 in 2000, 94 in 1999 and 42 in 1998.
15. 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 report their operations within four segments: Signal Wireless Group (established in January 2000 and includes Advanced Frequency Products and products from Arizona, California and Olektron that 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. Signal Wireless Group was added as a new business segment in fiscal year 2000. The fiscal year 1999 and 1998 business
segment reporting has been adjusted to include Signal Wireless Group business originally reported in Microwave Components and Subsystems and RF Components and Subsystems in our previous segment reporting. In reporting business segment operating income corporate headquarters expenses have been allocated to the business segments based on a percentage of net sales.
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 supplies, 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 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 corporate headquarters costs. The table below presents selected financial data by business segment for the years ending December 31:
SIGNIFICANT CUSTOMER
Revenue of approximately $16,617 (17%), $14,770 (18%) and $21,474 (23%) was attributable to Raytheon Company for the years ended December 31, 2000, 1999 and 1998 respectively. At December 31, 2000 and 1999, accounts receivable from Raytheon Company accounted for approximately $2,214 (11%) and $1,638 (12%), respectively, of the total amount of accounts receivable due to the Company.
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.
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, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 of America 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.
/s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 13, 2001, except as to Note 9 which is as of February 27, 2001 and Note 10 which is as of March 7, 2001.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.
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 15, 2001, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
All other schedules are omitted because they are not applicable, nor required under the instructions, or all the information required is set forth in the consolidated financial statements or notes thereto.
(2) The following described exhibits are filed herewith or incorporated herein by reference indicated:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 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.*
10.20 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.*****
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.*******
10.29 First Amendment to lease, dated as of September 9, 1996, by and between Benecia 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.********
10.33 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, 1993, 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.
10.36 Amendment Agreement No. 8 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of May 11, 2000.
10.37 Amendment Agreement No. 9 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of September 30, 2000.
10.38 Amendment Agreement No. 10 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of December 22, 2000.
10.39 Third Amended and Restated Credit Agreement, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston dated as of February 27, 2001.
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 be held on May 6, 1997.
******* Incorporated by reference to the corresponding exhibit filed as part of the Registrant's 1996 Annual report on Form 10-K.
******** Incorporated by reference to the corresponding exhibit files as a part of the Registrant's 1997 Annual report on Form 10-K.
********* Incorporated by reference to the corresponding exhibit files as a part of the Registrant's 1998 Annual report on Form 10-K.
(b) Reports on Form 8-K
None
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 Principal Accounting Officer
Date: March 28, 2001
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 28, 2001 -------------------------------------------------------- Chairman, Chief Executive Officer and Principal Executive Officer
/s/ Robert Nelsen March 28, 2001 -------------------------------------------------------- Chief Financial Officer
/s/ Bernard P. O'Sullivan March 28, 2001 -------------------------------------------------------- Bernard P. O'Sullivan Director
March 28, 2001 -------------------------------------------------------- Harvey C. Krentzman Director
/s/ Joseph S. Schneider March 28, 2001 -------------------------------------------------------- Joseph S. Schneider Director
/s/ Larry L. Hansen March 28, 2001 -------------------------------------------------------- Larry L. Hansen Director
/s/ Thomas McInerney March 28, 2001 -------------------------------------------------------- Director
/s/ Thomas Skelly March 28, 2001 -------------------------------------------------------- Director
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Notes (1) Write-off of bad debts (2) Charged to inventory accounts from previously established reserved amounts.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 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.*
10.20 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.*****
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.*******
10.29 First Amendment to lease, dated as of September 9, 1996, by and between Benecia 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.********
10.33 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, 1993, 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.
10.36 Amendment Agreement No. 8 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of May 11, 2000.
10.37 Amendment Agreement No. 9 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of September 30, 2000.
10.38 Amendment Agreement No. 10 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of December 22, 2000.
10.39 Third Amended and Restated Credit Agreement, with Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston dated as of February 27, 2001.
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 be held on May 6, 1997.
******* Incorporated by reference to the corresponding exhibit filed as part of the Registrant's 1996 Annual report on Form 10-K.
******** Incorporated by reference to the corresponding exhibit files as a part of the Registrant's 1997 Annual report on Form 10-K.
********* Incorporated by reference to the corresponding exhibit files as a part of the Registrant's 1998 Annual report on Form 10-K.
(b) Reports on Form 8-K
None