-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mgvzi+akEbNsmuB/g6pzTxj6BZlp/HS0Q7c8vx4HR4G2XCN39SCVY9+8I7wBoVWf /YoZobSo1oYkrTLqQnGUeg== 0000912057-96-002358.txt : 19960216 0000912057-96-002358.hdr.sgml : 19960216 ACCESSION NUMBER: 0000912057-96-002358 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANFORD TELECOMMUNICATIONS INC CENTRAL INDEX KEY: 0000725727 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 942207636 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11473 FILM NUMBER: 96517728 BUSINESS ADDRESS: STREET 1: 1221 CROSSMAN AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087450818 MAIL ADDRESS: STREET 1: 221 CROSSMAN AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94088-3733 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995 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 0-12734 STANFORD TELECOMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-2207636 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1221 CROSSMAN AVENUE, SUNNYVALE, CA 94089 (Address of principal executives offices) (Zip Code) 408/745-0818 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) 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 --- --- APPLICABLE ONLY TO CORPORATE USERS: Indicate the number of outstanding shares of each of the issuer's classes of common stock, as of the latest practical date. 6,309,585 as of February 8, 1996 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STANFORD TELECOMMUNICATIONS, INC. CONDENSED FINANCIAL STATEMENTS (Unaudited) The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed financial statements have been prepared in all material respects in conformity with the standards of accounting measurement set forth in Accounting Principles Board Opinion No. 28 and reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Stanford Telecommunications, Inc. 1995 Annual Report. The results of operations for the first nine months of fiscal year 1996 ended December 31, 1995 are not necessarily indicative of results to be expected for the entire year ending March 31, 1996. STANFORD TELECOMMUNICATIONS, INC. CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
ASSETS December 31, March 31, 1995 1995 ------- ------- (unaudited) Current assets: Cash and cash equivalents $ 4,592 $ 2,910 Short-term investments 6,867 9,907 Accounts receivable 24,698 22,930 Unbilled receivables 12,019 16,891 Inventories, net of related progress billings 21,507 15,798 Prepaid expenses 6,691 3,558 ------- ------- Total current assets 76,374 71,994 ------- ------- Property and equipment at cost: Electronic test equipment 39,765 38,108 Furniture and fixtures 2,931 2,889 Leasehold improvements 3,587 3,052 ------- ------- 46,283 44,049 Less: Accumulated depreciation and amortization (30,988) (28,441) ------- ------- Net property and equipment 15,295 15,608 ------- ------- Other assets 441 403 ------- ------- $92,110 $88,005 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term obligations $ 118 $ 158 Accounts payable 8,413 11,268 Advance payments from customers 1,728 963 Accrued liabilities 10,217 10,183 Accrued and current deferred income taxes 2,856 1,463 ------- ------- Total current liabilities 23,332 24,035 ------- ------- Long-term obligations, less current maturities 98 161 ------- ------- Other long-term liabilities 961 927 ------- ------- Deferred income taxes 657 785 ------- ------- Shareholders' equity: Common shares - par value $.01; 15,000 shares authorized Outstanding - 6,310 shares at December 31, 1995 63 62 - 6,234 shares at March 31, 1995 Paid-in capital 37,873 37,051 Retained earnings 29,126 24,984 ------- ------- Total shareholders' equity 67,062 62,097 ------- ------- $92,110 $88,005 ------- ------- ------- -------
See accompanying notes. STANFORD TELECOMMUNICATIONS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
Three Months Nine Months Ended December 31, Ended December 31, 1995 1994 1995 1994 ------- ------- -------- -------- Revenues $36,384 $26,499 $107,933 $79,463 Cost of revenues 28,922 24,689 87,013 66,565 ------- ------- -------- -------- Gross profit 7,462 1,810 20,920 12,898 Expenses Research and development 2,046 1,345 5,889 5,680 Marketing and administrative 3,104 2,166 9,002 6,589 ------- ------- -------- -------- Total expenses 5,150 3,511 14,891 12,269 Operating income (loss) 2,312 (1,701) 6,029 629 Interest income, net 164 191 494 527 Arbitration settlement charge - (2,075) - (2,075) ------- ------- -------- -------- Income (loss) before income taxes 2,476 (3,585) 6,523 (919) (Provision) credit for income taxes (863) 1,281 (2,381) 322 ------- ------- -------- -------- Net income (loss) $ 1,613 $(2,304) $ 4,142 $ (597) ------- ------- -------- -------- ------- ------- -------- -------- Average shares and equivalents 6,361 6,256 6,328 6,240 Net income (loss) per share $ 0.25 $ (0.37) $ 0.65 $ (0.10) ------- ------- -------- -------- ------- ------- -------- --------
See accompanying notes STANFORD TELECOMMUNICATIONS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended December 31, --------------------- 1995 1994 ------ ------- Cash flows from operating activities: Net income (loss) $4,142 $ (597) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,779 3,253 Issuances of stock to employees under bonus and award plans 65 37 Provision for losses on receivables and contracts 654 3,288 (Gain) loss on retirements of property and equipment (7) 75 (Increase) decrease in assets: Receivables billed and unbilled 2,707 (1,096) Inventories (6,434) (2,761) Prepaid expenses and other assets (3,171) (1,890) Increase (decrease) in liabilities: Accounts payable, advance payments, and accrued expenses (1,588) 1,380 Other long-term liabilities 34 198 Accrued and deferred income taxes 1,265 446 ------ ------- Net cash provided by operating activities 1,446 2,333 ------ ------- Cash flows used in investing activities: Purchase of short-term investments (5,848) (5,907) Proceeds from maturities of short-term investments 8,888 4,897 Purchase of property and equipment (3,669) (4,066) Proceeds from sale of property and equipment 210 - ------ ------- Net cash used in investing activities (419) (5,076) ------ ------- Cash flows from financing activities: Payments on capital lease obligations (103) (61) Proceeds from transactions under stock plans 758 269 ------ ------- Net cash provided by financing activities 655 208 ------ ------- Net increase (decrease) in cash and cash equivalents 1,682 (2,535) Cash and cash equivalents at beginning of period 2,910 5,840 ------ ------- Cash and cash equivalents at end of period $4,592 $3,305 ------ ------- ------ -------
See accompanying notes. STANFORD TELECOMMUNICATIONS, INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS 1. Net income (loss) per share Net income (loss) per share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding during the periods. Common stock equivalents consist of the dilutive effect of outstanding options to purchase common stock. Fully diluted net income per share is substantially the same as reported net income per share. Common stock equivalents have been excluded from the loss per share calculation as its effects are antidilutive. 2. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Cost includes materials, labor and related indirect expenses. General and administrative costs are only included in inventory for government contracts, as such costs are reimbursed by the government. The components of inventory are (in thousands): Dec. 31, 1995 March 31, 1995 ------------- -------------- Raw materials and supplies $ 159 $ 176 Work-in-progress 19,408 13,092 Finished goods 2,042 1,820 Allocated general and administrative costs 531 872 Less: progress billings (633) (162) ------- ------- $21,507 $15,798 ------- ------- ------- ------- 3. Stock Purchase Rights On May 9, 1995 the Board of Directors adopted a Stockholders Rights Plan and declared a dividend of one Common Share Purchase Right (the "Right") for each share of the Company's common stock outstanding on May 25, 1995. Each Right entitles the holder thereof to purchase one share of the Company's common stock for $60. The Rights will be exercisable if a person or group acquires 15% or more of the Company's common stock. Upon such acquisition, each Right (other than those held by the acquiring person or group) will be exercisable for the number of shares of the Company's common stock having a market value at that time of twice the exercise price of the Right. If the Company subsequently enters into certain business combinations, each Right (other than those held by the acquiring person or group) will be exercisable for that number of shares of common stock of the other party to the business combination having a market value of two times the exercise price of the Right. The Rights are subject to redemption at the option of the Board of Directors at a price of $.01 per Right. The Rights expire on May 9, 2005. 4. Capital Stock On June 28, 1995, the Company's stockholders approved an amendment to Article 4 of the Company's Certificate of Incorporation to increase the number of authorized shares of common stock par value $0.01 per share ("common stock"), from 10,000,000 to 15,000,000 and to eliminate provisions authorizing the Board of Directors to issue the common stock in series, and to eliminate the Company's Series B common stock. 5. Credit Agreement On December 20, 1995 the Company amended and restated its bank credit line agreement to expire in December 1996. The bank credit commitment of $15.0 million requires the Company to maintain certain financial covenants. At December 31, 1995, the Company was in compliance with all such financial covenants. 6. Reclassifications Certain amounts in the prior year financial statements have been reclassified to conform with the fiscal year 1996 presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since the Company's inception in 1973, revenues have been generated primarily from sales to agencies of the U.S. Government, including the DoD, the U.S. Air Force, Army and Navy, NASA and the FAA, or their prime contractors. Such revenues are generated from many contracts including programs requiring multi-year hardware and software development and limited production of products and systems. The Company's contracts often require the design, production, operation and maintenance of sophisticated equipment and systems and provision of system integration services in the digital telecommunications and satellite communications fields. A substantial portion of the digital telecommunications and satellite communications research and development performed by the Company since its inception has been funded by its customers and recorded as revenues by the Company. Accordingly, the cost of performing this customer-funded research and development is included in "Cost of Revenues" in the Company's financial statements. The Company's government contracts are generally cost-reimbursement plus profit or fixed-price contracts. The Company generally recognizes revenues from its long-term government contracts on a percentage-of-completion basis. Commencing in the late 1980's, the Company began to pursue commercial opportunities utilizing its digital telecommunications technology developed and enhanced by the Company since its inception. Commercial revenues have risen from less than 6% of total revenues in fiscal 1989 to approximately 31% of total revenues in fiscal 1995. During fiscal 1995, commercial revenues which amounted to approximately $35.6 million included: (i) contract manufacturing revenues from the Company's electronics assembly business ($12.1 million); (ii) sales of ASICs, circuit boards and subsystems to the telecommunications industry ($9.1 million); (iii) sales of off-the-shelf products for secure voice transmissions and GPS instrumentation ($7.5 million); (iv) development programs for INTELSAT and for a vehicle tracking and information services system ($4.0 million); and (v) other commercial systems and product business ($2.9 million). During the first nine months of fiscal 1996, commercial revenues amounted to approximately 46% of total revenues reported. The Company includes in commercial revenues sales of standardized or off-the-shelf products such as the digital interfaces for secure voice transmissions or GPS simulators to any customers, including government customers. The Company's operating results have from time to time been adversely affected by non-recoverable cost overruns on certain fixed-price contracts, primarily fixed-price development contracts which have included significant software and hardware development. The Company's net income in fiscal 1993, 1994 and 1995 was adversely affected due to losses on a number of fixed-price development contracts. The Company has been instituting additional management controls to more closely monitor its bidding process and costs incurred on fixed-price development contracts, however, no assurance can be given that the Company will not incur losses on future fixed-price contracts or additional losses on existing contracts. The Company believes that development contracts are an important element in maintaining its technological leadership position in digital telecommunications. The Company plans to selectively bid on programs where it would be the sole provider or its technology leadership provides a competitive advantage. In addition, in order to position itself in the commercial marketplace, the Company may selectively enter into contracts with customers to deliver products where the Company will be funding a portion of the development costs. As a result, the Company may incur losses on certain fixed-price contracts. Such losses will be charged against results of operations in the period when they first become known, typically near the initiation of the contract and may have a material adverse effect on the Company's results of operations. CAUTIONARY STATEMENTS In the interest of providing the Company's shareholders and potential investors with certain Company information, including management's assessment of the Company's future potential, certain statements set forth herein contain or are based on projections of revenue, income, earnings per share and other financial items or relate to management's future plans and objectives or to the Company's future economic performance. Such statements are 'forward-looking statements' within the meaning of Section 27A(i) of the Securities Act of 1933, as amended, and in Section 21E(i) of the Securities Exchange Act of 1934, as amended. Although any forward-looking statements contained herein or otherwise expressed by or on behalf of the Company are to the knowledge and in the judgment of the officers and directors of the Company, expected to prove true and to come to pass, management is not able to predict the future with absolute certainty. Accordingly, shareholders and potential investors are hereby cautioned that certain events or circumstances could cause actual results to differ materially from those projected or predicted herein. In addition, the forward-looking statements herein are based on management's knowledge and judgment as of the date hereof, and the Company does not intend to update any forward-looking statements to reflect events occurring or circumstances existing hereafter. In particular, the Company believes that the following factors could impact forward-looking statements made herein or in future written or oral releases and by hindsight, prove such statements to be overly optimistic and unachievable: 1. Future revenues on government contracts, including contracts in progress, are subject to reduction or cancellation without prior notice at the convenience of the U.S. Government. Budgetary constraints and changes in spending priorities in government agencies such as the Department of Defense, NASA, and the FAA have resulted in sudden program changes, reductions or cancellations in the past and such conditions may be expected to continue. 2. The Company has in the past accepted fixed price development commitments for both government and commercial contracts. Although the Company attempts to bid fixed price development contracts at an amount above the expected costs of development and production, the Company has from time to time experienced significant cost overruns which cannot be recovered from the customer. The Company may in the future experience material cost overruns which could adversely affect operating results over the life of the program. 3. The Company's basic strategy is to employ its technology in wireless telecommunications and digital signal processing in the commercial environment, generally as components or subsystems in the product or service offerings for large telecommunications companies. The transition from a government contracts focus to commercial development will expose the Company to certain business risks not previously encountered. Of greatest significance will be the success of the Company's customers in marketing the products or services for which the Company provides key technology components, or subsystems. A successful product development effort will not produce meaningful long-term revenues or profits for the Company unless its customer obtains market acceptance of its end product or service. Factors such as system price, competitive pressures, consumer demand and the like will impact the customer's and the Company's level of commercial success. In addition, even if a product or service proves to be a commercial success, the Company will experience the continued risk that the customer will develop or obtain lower cost alternatives to the Company's products or technical solutions. 4. The Company's Commercial Manufacturing Division has grown significantly since being established in 1993. The Division provides manufacturing services to producers of electronics and medical products on either an inventory consignment or turnkey basis. The contract manufacturing business is subject to wide swings in demand, is price sensitive and extremely competitive. In addition, to the extent inventory is purchased in anticipation of future contracts, the failure to obtain such contracts can lead to a reduction in the value of such inventory. The Company's Commercial Manufacturing Division does not generally operate with long-term contracts and is often required to bid each new job even for major customers. 5. Many of the components incorporated in the Company's commercial products, including all semiconductor components, are purchased from third party vendors. Certain key components are sole sourced. From time to time, the Company may experience significant delays in component availability which could adversely impact its ability to make timely deliveries to its customers. Such events could cause expected revenues to be delayed and the possible loss of future orders. QUARTERLY RESULTS The following table presents the Company's financial results by quarter for fiscal 1995 and the first three quarters of fiscal 1996. These quarterly financial results are unaudited. In the opinion of management, however, they have been prepared on the same basis as the audited financial information and include all adjustments necessary for a fair presentation of the information set forth therein. The operating results for any quarter are not necessarily indicative of the results that may be expected for any future period. QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 1995 FISCAL 1996 ---------------------------------------- ------------------------------ JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------- -------- ------- ------- ------- -------- ------- STATEMENT OF OPERATIONS DATA: Revenues $24,645 $28,319 $26,499 $34,921 $35,952 $35,597 $36,384 Cost of revenues 19,244 22,633 24,689 29,113 29,876 28,215 28,922 ------- -------- ------- ------- ------- -------- ------- Gross profit 5,401 5,686 1,810 5,808 6,076 7,382 7,462 ------- -------- ------- ------- ------- -------- ------- Expenses: Research and development 2,032 2,302 1,345 2,044 1,793 2,050 2,046 Marketing and administrative 2,000 2,423 2,166 2,773 2,659 3,239 3,104 ------- -------- ------- ------- ------- -------- ------- Total expenses 4,032 4,725 3,511 4,817 4,452 5,289 5,150 Operating income (loss) 1,369 961 (1,701) 991 1,624 2,093 2,312 Interest income, net 180 156 191 130 178 152 164 Arbitration settlement expenses -- -- (2,075) -- -- -- -- ------- -------- ------- ------- ------- -------- ------- Income (loss) before (provision) credit for income taxes 1,549 1,117 (3,585) 1,121 1,802 2,245 2,476 (Provision) credit for income taxes (557) (403) 1,282 (393) (676) (842) (863) ------- -------- ------- ------- ------- -------- ------- Net income (loss) $992 $714 $(2,303) $728 $1,126 $1,403 $1,613 ------- -------- ------- ------- ------- -------- ------- ------- -------- ------- ------- ------- -------- ------- Net income (loss) per share $0.16 $0.11 $(0.37) $0.12 $0.18 $0.22 $0.25 ------- -------- ------- ------- ------- -------- ------- ------- -------- ------- ------- ------- -------- ------- Weighted average common shares and equivalents 6,221 6,244 6,256 6,252 6,272 6,346 6,361
The Company's revenues and results of operations are subject to fluctuation from period to period. Factors that could cause the Company's revenues and operating results to vary from period to period include: underestimating costs on fixed-price contracts particularly for software and hardware development; timing, bidding activity and delivery of significant contracts and orders; termination of contracts; mix of products and systems sold, and services provided; historically reduced levels of operation during the holidays which occur in the Company's third fiscal quarter; disruptions in delivery of components or subsystems; regulatory developments; and general economic conditions. Revenues have generally improved during the periods shown as a result of increasing revenues from commercial activities. Revenues are generally lower during the third fiscal quarter ending December 31 because the Company reduces operations during the holiday period, and it expects to continue to reduce activities in future holiday periods. The Company's result of operations are adversely affected by losses on fixed-price development contracts. Cost of revenues were adversely affected during fiscal 1995 by cost overruns on certain fixed-price development contracts. Research and development expenses include both research and development costs as well as bid and proposal expenses. Bid and proposal expenses, which often make up a substantial portion of this expense category, vary significantly from period to period based on the number of proposals being prepared at any time. These requests for proposals are not received evenly during the year or in any predictable pattern. COMPARISON OF THE THIRD QUARTER ENDED DECEMBER 31, 1995 AND 1994 REVENUES. Revenues for the third quarter of fiscal 1996 increased 37% to $36.4 million from the third quarter of the previous fiscal year. This increase was largely attributable to growth in commercial contracts. Commercial revenues during the third quarter of fiscal 1996 increased to approximately $17.3 million from approximately $7.4 million achieved during the third quarter of fiscal 1995. During the third quarter of fiscal 1996, the Company received approximately $7.4 million in revenues from its commercial contract manufacturing services compared with $3.2 million recognized during the third quarter of fiscal 1995. Third quarter fiscal 1996 revenues recognized for the INTELSAT contract were $2.8 million. There were no revenues recognized on the INTELSAT contract during the third quarter of fiscal 1995. Revenues recognized during the third quarter of fiscal 1996 and 1995 on government contracts remained unchanged at $19.1 million. COST OF REVENUES. Cost of revenues were $28.9 million and $24.7 million for the third quarter of fiscal 1996 and 1995, respectively, representing a 17% increase. The increase during the third quarter of fiscal 1996 was the result of the recognition of cost on an increased revenue base. During the third quarter of fiscal 1995, the Company recognized a $2.8 million reserve in its cost of revenues associated with projected cost increases on the INTELSAT contract. No such reserve was required for the third quarter of fiscal 1996. RESEARCH AND DEVELOPMENT. Research and development (R&D) cost which also include bid and proposal (B&P) expenses associated with the pursuit of government contracts and certain large commercial contracts were $2.0 million and $1.3 million in the third quarter of fiscal year 1996 and 1995, respectively. During the third quarter of fiscal 1996, the Company increased its R&D expenses to support new product development. The Company anticipates that R&D expenses during the second half of fiscal 1996 will exceed R&D expenses incurred during the first half of fiscal 1996 to support new commercial product developments. MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses were $3.1 million and $2.2 million for the third quarter of fiscal 1996 and 1995, respectively. This increase is primarily a result of increasing the Company's technical and marketing staff and increased marketing expenses in pursuit of commercial opportunities. OPERATING INCOME/LOSS. Operating income was $2.3 million for the third quarter of fiscal 1996 compared with an operating loss of $1.7 million for the third quarter of fiscal 1995. During the third quarter of fiscal 1995, the Company recognized a $2.8 million reserve associated with projected cost increases on the INTELSAT contract. No such reserve was required for the third quarter of fiscal 1996. The Company's gross profit achieved during the third quarter of fiscal 1996 exceed those gross profit amounts reported for each of the first two quarters of fiscal 1996. INTEREST INCOME. Interest income for the third quarter of fiscal 1996 was $164 thousand compared to $191 thousand for the third quarter of the previous fiscal year. Interest income generated during both periods was from short-term investments. ARBITRATION SETTLEMENT EXPENSES. During the third quarter of fiscal 1995, the Company received an unfavorable decision in an arbitration hearing involving an alleged default under a 1990 joint product development agreement. A charge of $1.6 million associated with the award to the prevailing party and other direct arbitration costs of approximately $.5 million were recognized during the third quarter of fiscal year 1995. PROVISION/CREDIT FOR INCOME TAXES. Provision for income taxes during the third quarter of fiscal 1996 was $863 thousand compared to a credit of $1.3 million for the third quarter of the previous fiscal year. During the third quarter of fiscal 1996 the provisional tax rate of 34.9% was applied to income before tax provision. During the third quarter of fiscal 1995 the provisional tax rate of 35.7% was applied to loss before tax credit. COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994 REVENUES. Revenues were $107.9 million and $79.5 million for the nine months ended December 31, 1995 and 1994, respectively, representing an increase of 36%. This increase was attributable to growth in both commercial and government contracts. During the nine months ended December 31, 1995, revenues generated by commercial activities represented approximately 46% of total revenues compared to approximately 32% in the same period of the prior fiscal year. The growth in the Company's commercial business has been supported in part by increased demand for the Company's contract manufacturing services. For the first nine months of fiscal 1996, revenues from the Company's government business increased by 8% compared to government revenues for the nine months ended December 31, 1994. COST OF REVENUES. Cost of revenues were $87.0 million and $66.6 million for the nine months ended December 31, 1995 and 1994, respectively, representing a 31% increase. The increase during the first nine months of fiscal 1996 was the result of the recognition of cost on an increased revenue base. During the third quarter of fiscal 1995, the Company recognized a $2.8 million reserve in its cost of revenues associated with projected cost increases on the INTELSAT contract. The Company's current cost-to-complete on INTELSAT and a U.S. Army satellite terminal contract will require the Company to continue to recognize cost of revenues equal or near the level of revenues reported for these contracts. The Company expects to complete these contracts by the end of the first quarter of fiscal 1997. RESEARCH AND DEVELOPMENT. Research and development (R&D) cost which also include bid and proposal (B&P) expenses associated with the pursuit of government contracts and certain large commercial contracts were $5.9 million and $5.7 million for the first nine months of fiscal year 1996 and 1995, respectively. Bid and proposal expenses represented approximately 39% and 41% of total R&D cost for the first nine months of fiscal 1996 and 1995, respectively. MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses were $9.0 million and $6.6 million for the first nine months of fiscal 1996 and 1995, respectively. This increase is primarily a result of increasing the Company's technical marketing staff and increased marketing expenses in pursuit of commercial opportunities. OPERATING INCOME. Operating income was $6.0 million and $629 thousand for the nine months ended December 31, 1995 and 1994, respectively. Gross margins during the first nine months of fiscal 1995 were adversely affected by the recognition of a $2.8 million reserve associated with projected cost increases on the INTELSAT contract. Although gross margins have improved during the first nine months of fiscal 1996 relative to gross margins reported during the first nine months of fiscal 1995, gross margins during fiscal 1996 have been affected by low or no margin revenues recognized on the INTELSAT and a U.S. Army satellite terminal contract. INTEREST INCOME. Interest income for the first nine months of fiscal 1996 was $494 thousand compared to $527 thousand for the first nine months of the previous fiscal year. Interest income generated during both periods was from short-term investments. ARBITRATION SETTLEMENT EXPENSES. During the third quarter of fiscal 1995, the Company received an unfavorable decision in an arbitration hearing involving an alleged default under a 1990 joint product development agreement. A charge of $1.6 million associated with the award to the prevailing party and other direct arbitration costs of approximately $.5 million were recognized during the third quarter of fiscal year 1995. PROVISION/CREDIT FOR INCOME TAXES. Provision for income taxes was $2.4 million for the first three quarters of fiscal 1996 and the credit for income taxes was $322 thousand for the first three quarters of fiscal 1995. This represents a provisional tax rate of 36.5% and 35.0% for the first nine months of fiscal 1996 and 1995, respectively. Bookings and Backlog Funded bookings were $33.5 million and $25.8 million for the third quarter of fiscal 1996 and 1995, respectively, and $113.3 million and $93.9 million for the nine months ended December 31, 1995 and 1994, respectively. The increase in bookings was derived from new orders received within the Company's commercial operations. The increase in bookings has resulted in the Company's backlog increasing from $73.5 million at the end of the third quarter of fiscal 1995 to $77.9 million at the end of the third quarter of fiscal 1996. Liquidity and Capital Resources Working capital increased from $47.6 million to $53.0 million at December 31, 1994 and 1995, respectively and increased by $5.1 million from the end of fiscal 1995. Net cash provided by operating activities for the first nine months of fiscal 1996 and 1995 was $1.4 million and $2.3 million, respectively. During the first nine months of fiscal 1996, the Company realized net income of $4.1 million, decreased its receivables, billed and unbilled, by $2.7 million, increased its inventories by $6.4 million and decreased its accounts payable, advance payments and accrued expenses by $1.6 million. During the first nine months of fiscal 1995, the Company realized a net loss of $597 thousand, increased its receivables by $1.1 million, increased its inventories by $2.8 million and increased its accounts payable, advance payments and accrued expenses by $1.4 million. The Company utilized its cash for the purchase of property and equipment totaling $3.7 million and $4.1 million during the first nine months of fiscal 1996 and 1995, respectively. During the third quarter of fiscal 1996, the Company negotiated and received an amended and restated credit agreement. The Company may utilize the bank credit commitment of $15.0 million to augment cash flow needs and secure standby letters of credit. Available borrowings under this line at December 31, 1995 were $15.0 million. Under this line of credit the Company must maintain certain financial covenants including provisions addressing debt coverage and profitability. As of December 31, 1995 Company was in compliance with all financial covenants. At December 31, 1995, the Company's long-term obligations (including current maturities) and other long-term liabilities totaled approximately $1.1 million. At December 31, 1995, cash and cash equivalents of $4.6 million were held in money market accounts and short-term investments of $6.9 million were held in U.S. Government Treasury instruments. The Company believes that its current cash position, funds generated from operations and funds available from its existing bank credit agreement, will be adequate to meet the Company's requirements for working capital, capital expenditures and debt service for the next several fiscal quarters. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION The Company's EDGAR Financial Data Schedule for the year-to-date period ending December 31, 1995 is attached to this Form 10-Q as an exhibit. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K During the quarter ended December 31, 1995 the Company was not required to file a Form 8-K with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements 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. Stanford Telecommunications, Inc. (Registrant) - ----------------------------------------- Gary Wolf Vice-President and Chief Financial Officer (Principal Financial and Accounting Officer) February 12, 1996 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-1996 DEC-31-1995 4,592 6,867 36,717 0 21,507 76,374 46,283 30,988 92,110 23,332 0 0 0 63 66,999 92,110 107,933 107,933 87,013 101,904 0 0 0 6,523 2,381 4,142 0 0 0 4,142 0 .65
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