-----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, A9K/pLJH3uf3T8fbAImnWl43dAxrTzooWGJ2vMtEAE0zoCjZ1AgKv7ulrtqgr+VO IKRrC04iztQ0pczPcHNBjg== 0000950005-97-000605.txt : 19970626 0000950005-97-000605.hdr.sgml : 19970626 ACCESSION NUMBER: 0000950005-97-000605 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970625 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11473 FILM NUMBER: 97629182 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-K 1 FORM 10-K - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - ------------------------------------------------------------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 (I.R.S. Employer incorporation or organization) Identification No.) 1221 Crossman Avenue 94089 Sunnyvale, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (408) 745-0818 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock Common Stock Purchase Rights (Title of Class) Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. As of May 31, 1997, the aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing sale price of such stock on the Nasdaq National Market, was $170,523,827. Shares of Common Stock held by each officer, director and ten percent stockholder of the registrant, except for Kopp Investment Advisors, Inc., have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of the registrant's Common Stock outstanding on May 31, 1997 was 12,845,286. Documents Incorporated by Reference Portions of the registrant's Annual Report to Stockholders for the fiscal year ended March 31, 1997 (the "Annual Report to Stockholders"), are incorporated by reference in Parts II and IV of this Form 10-K. Portions of the definitive proxy statement for the Annual Meeting of Stockholders to be held on June 25, 1997 (the "Proxy Statement"), are incorporated by reference in Part III of this Form 10-K. PART I ITEM 1. BUSINESS Stanford Telecommunications, Inc. ("Stanford Telecom" or the "Company") designs, manufactures, and markets advanced digital telecommunications products and systems to establish or enhance communications via satellites, terrestrial wireless and cable. The Company also provides communication systems networking solutions and GPS navigation products. Stanford Telecom's expertise encompasses all the technologies required for these systems including radio frequency (RF), spread spectrum, waveform, coding, modem, ASIC, software and system design. The Company maintains a low cost commercial manufacturing capability and offers cost effective engineering services. The Company's principal base business areas and products include: Advanced Communications for Government Agencies Transportable Milstar Terminal Tri-band Terminals Communication Satellite Performance Monitoring Air Traffic Control Systems Modernization Commercial Telecommunications Chip and Board Level Products Satellite Based Air Traffic Control System Commercial Electronic Contract Manufacturing The Company was incorporated in California in 1973 and reincorporated in Delaware in 1988. The Company's fiscal year is composed of four 13-week quarters, each of which ends on the Thursday closest to the corresponding calendar quarter end. Fiscal year 1997 ended on March 27, 1997. BASE BUSINESS DISCUSSION Advanced Communications for Government Agencies DSCS Operational Control System ("DOCS"). The Company developed, installed and now assists in the operation of an extensive network of computers and software which performs control and monitoring functions for the Defense Satellite Communication System ("DSCS"). Control of the DSCS is complex due to the different types of multiple access techniques used and the need to react quickly to communications requirements and to hostile jamming actions. The task of optimizing and controlling the many thousand of parameters in the DSCS network is a sophisticated computational problem requiring both advanced computers and extensive information processing. The DOCS is comprised of a network management and control subsystems that are used as tools for managing DSCS ground station and space communication payload assets. The DSCS must be operated and maintained at peak efficiency and maximum availability as it is often the only means of communication with deployed forces. In September 1992, the Company was awarded a DOCS Support Services contract with four one-year renewable options for an aggregate of $38 million for operations, hardware, and software support. The Company completed the effort under this contract in January 1997. The DOCS3 contract was awarded to Stanford Telecom in December 1996 by the U.S. Army Space Command. With the award of this contract, Stanford Telecom will continue to provide on-site operations and maintenance support, software support, integrated logistics support, training, and depot support services at twelve worldwide sites. The contract consists of a one-year base and four one-year options, with a total base value after exercise of all options of approximately $43.9. Stanford Telecom has been the incumbent contractor for these services since 1981. In addition to these basic support tasks, the contract includes provisions which would allow the Government to increase the existing scope of the contract by adding effort -1- associated with system enhancements and system modifications, which may be required to extend the system's life expectancy. Under a separate contract, the Company is replacing existing Digital VAX equipment with newer minicomputers and operating systems. The upgraded hardware and software is currently being integrated at sixteen facilities worldwide in support of the DSCS Operational Control System. Replacement BATSON (RBATSON). During fiscal year 1997, the Company was awarded the RBATSON contract with a total value including options of $13.0 million. The RBATSON provides protection for critical satellite commanding and data transmission. The RBATSON system consists of a Key Generator/Data Processing Assembly chassis, a Frequency Generator/Radio Frequency Transmission chassis, and Maintenance Test Equipment and provides the capability for the Satellite Configuration Control Element (SCCE) of the DOCS to interface with the DSCS satellites. Deliveries will commence in fiscal 1999. Replacement Satellite Configuration Control Element. The Company was awarded a contract in fiscal year 1996 from the U.S. Army to provide the configuration control element in support of network management for the U.S. Government's DSCS. The total value including options is approximately $21.7 million. Under this contract, the Company will provide the software and hardware necessary to fully configure, test, and deliver this element of the satellite system. The base contract is expected to be completed during fiscal 1998. Production options are expected to extend the contract's period of performance through the year 2000 although there is no assurance that the Government will exercise their options to procure additional production hardware. Single Channel Transponder Injection Subsystem (SCTIS). The Company has employed its spread spectrum technology in the design, production and installation of high performance anti-jam uplink transmission systems for the U.S. Air Force which protect emergency messages being sent through the DSCS against jamming and interception. Since the program commenced in 1978, the Company has delivered twelve SCTIS systems plus spare parts to the U.S. Air Force. During fiscal 1996, the Company was awarded a contract to upgrade the system to replace obsolete units and enhance performance. Development of this upgrade is currently on-going. The Company is currently under contract to deliver an Enhanced Link Simulator in support of SCTIS. Delivery of these units is expected to be completed in fiscal 1998. The Company is currently under contract to deliver twelve new systems in support of SCTIS along with spare parts. Delivery of these units is expected to be completed in fiscal 1998. Tracking and Data Relay Satellite Systems (TDRSS). The National Aeronautics and Space Administration (NASA) Tracking and Data Relay Satellites enable NASA to maintain global continuous communications with the space shuttle and NASA satellites even when they are not in direct line-of-sight to tracking stations in the continental United States. The Company has been supporting NASA on the TDRSS Program since 1977. During fiscal year 1996, the Company was awarded a follow-on contract consisting of a one year base plus two one year options with a total value including options of $21 million. The Company has several important roles in this billion dollar satellite system, including study and system engineering support, a major long-term subcontract to support TDRSS network control, prime contracts to develop and assess space/ground segment architectures for upgrading the TDRSS system, and assisting NASA in the deployment of a new TDRSS ground terminal in Guam. The Company has developed a portable S-band, spread spectrum transmitter and companion receiver designed for operation with TDRSS. The Company believes the market may be significant for these products although revenues from these products have not been material to date and there is no assurance that these products will gain market acceptance. -2- Transportable Milstar Terminal and Other Milstar Activities Milstar Satellite Communications. The Company has been involved since 1981 in development of the U.S. Government's Milstar satellite communications program, designed to support stationary and mobile users in the joint military services in the 1990's and beyond. In addition to performing system engineering tasks, the Company has developed special test equipment in support of the Milstar program, including a subcontract for the Milstar EHF Test System to test the Milstar satellites in orbit. Presently, the Company is under contract to upgrade its Milstar Test Terminals to support the Medium Data Rate communication capabilities being added to the Milstar Block II satellites. During fiscal 1997 the Company invested in its development activities towards a proprietary low-cost transportable Milstar terminal. The Company will continue to demonstrate this new terminal to the Milstar communications satellite user community. The Company has recently been selected by Lockheed-Martin Missiles & Space (Sunnyvale, CA), prime contractor for the Milstar satellites, to provide three of these transportable Milstar terminals for use on special on-orbit satellite test operations. The Company believes that there may be a market for this product although there is no assurance that the Company will realize sales of its terminals or that the terminals will ever gain market acceptance. Joint In-Theater Injection Terminal (JITI). During fiscal year 1996, the Company received a subcontract to build a transportable Ku-band SATCOM RF prototype system for use in the military's Global Broadcast Service. The subcontract included design, integration, and production of the first JITI terminal for use by the U.S. Army Space Command. The JITI provides a flexible means of broadcasting video, audio, and data to Integrated Receiver Decoders located within a theater of operations. The system throughput is approximately 24 Mbps, which provides the means to broadcast Unmanned Aerial Vehicle video, Cable News Network, and programming from the Armed Forces Radio and Television Network. The prototype unit was delivered, and was used to provide large-bandwidth information sources in support of Operation Hope in Bosnia. The Company believes that this program will lead to other related Ku-band terminal programs, however, there is no assurances that the Company will realize any other sales. Tri-band Terminals Defense Information Infrastructure Contingency Satellite Communications Terminal (DSAT). During fiscal 1995, the Company received a contract from the Defense Information Systems Agency (DISA) for tri-band transportable satellite terminals. The DSAT terminals are valued in excess of $1 million each. The Company commenced delivery of the first units in January 1995. These satellite terminals are self-contained trailer-mounted with tri-band capability and can be configured for military, domestic and international satellites operating in C, X or Ku bands. The Company delivered seven DSAT systems through fiscal 1996 and delivered the final two in fiscal 1997. The existing contract allows DISA to exercise options for additional systems although their is no assurance that they will do so. The Company plans to pursue additional transportable tri-band satellite terminal opportunities for various agencies of the U.S. Government. Communication Satellite Performance Monitoring Communications Signal Monitoring. In April 1993, the Company was awarded a $13 million multi-year contract to provide a signal monitoring system for the world's largest communications satellite network, owned and operated by Intelsat, an international consortium of over 100 nations. The contract required the development, assembly, installation and test of multiple systems to be deployed world-wide. During fiscal 1994 and 1995 the Company recognized losses totaling $3.5 million against the completion of this contract. During fiscal 1996 the Company successfully delivered all systems required by the contract and completed all necessary installations and tests. During early fiscal 1997, the Company received final system acceptance from Intelsat. The Company currently has a maintenance contract with Intelsat to -3- support the monitoring systems. In addition, the Company offers its Transponder Access Control System (TACS) to serve the needs of customers with smaller communication satellite networks. Customers including the U.S. Government, Martin Marietta, Hughes, Network Systems, British Telecom, GTE Spacenet and Eutelsat have used TACS to monitor transponder performance including frequency power, bandwidth, interference, and unauthorized use to ensure that the satellite is functioning efficiently. Air Traffic Control System Modernization Since 1984, the Company has been supporting an FAA program to upgrade and modernize the nation's air traffic control and air transport navigation system. The Company's activities include air traffic control (ATC) automation and communications system engineering and support to FAA special projects activities such as the relocation of the Chicago O'Hare ATC Tower Complex. The Company is also supporting the FAA in its acquisition of the new terminal area ATC automation system. The above activities are being conducted under two separate contracts: one to GSA/FEDSIM for communication system engineering and one to DOT for transportation system engineering and R&D support. Commercial Telecommunications Chip and Board Level Products Commercial Telecommunications Chip and Board Level Products. The Company designs, manufactures and markets a wide range of Application Specific Integrated Circuits (ASIC) and board level assemblies for a variety of commercial telecommunication applications. These products provide the digital signal processing required to transmit and receive information. The Company offers products for PSK (Phase Shift Key) modulation and demodulation, digital down conversion, the reception and transmission of spread spectrum information, forward error correction, adaptive equalization and direct digital frequency synthesis. Key market areas addressed by the Company include: - Cable/Internet Communications. Stanford Telecom has developed the modulation/ demodulation technology required for the "upstream" (from the subscriber set-top box to the cable "headend") transmission of data over hybrid fiber/coax (HFC) networks. Products offered include the STEL-1109, a single-chip complete BPSK/QPSK (Bi-Phase Shift Key/Quadra-Phase Shift Key) modulator ASIC, specifically designed for the transmission of data from the subscriber to the headend and the STEL-9257, a Burst Demodulator board level assembly that provides demodulation of burst QPSK signals in the upstream environment. The Company believes that a number of Internet access product manufactures have incorporated Stanford Telecom's products into systems which are currently in field trials at locations throughout the United States. Although revenues from these products have not been material to date, the Company believes that future revenues may be significant if production orders are forthcoming. - Very Small Aperture Terminal (VSAT) Receiver Assemblies. The Company offers board level receiver assemblies for use in VSAT satellite systems. These digital demodulator assembly products are used for rural telephony, background music services and business data transmissions. The STEL-9236 product family and the recently introduced STEL-9258 Variable Bit Rate product can provide signal timing recovery, demodulation, down conversion, carrier tracking and forward error correction functions. Since product introduction, the Company has received orders for approximately 17,000 VSAT receiver assemblies. - Catalog Products. The Company offers a wide range of ASIC and board level products providing various digital communications functions such as ASICs for spread spectrum wireless data links, a family of ASICs for forward error correction in communication links, -4- and a series of numerically controlled oscillators and direct digital synthesizers for precise signal generation and control. Satellite Based Air Traffic Control System The Company was awarded a contract to support the FAA's implementation of a Global Positioning System (GPS) Wide Area Augmentation System (WAAS). The contract consists of a one-year base and two six-month options with a value after exercise of all options of $23 million. The Company has been supporting the WAAS Program since 1990. The FAA's WAAS Program is a central element of the FAA's plans to move toward a satellite based ATC System. The WAAS, through supplementing the GPS system, will enable this system to become a sole means navigation source for en route and terminal area aviation navigation purposes. This will greatly enhance aircraft navigation capability and allow the FAA to provide a more cost effective navigation infrastructure for civil aviation in the National Airspace System. The Company has performed a central role in the development of the WAAS concept through support to concept definition, prototyping and field testing. This contract will leverage the Company's substantial in-house expertise in satellite navigation to the provision of technical support services addressing communications, navigation, hardware, software and test issues that surround development of the WAAS. The Company believes that an international need exist for WAAS capabilities and it plans to pursue such opportunities as they arise. GPS Instrumentation. The Company provides standard off-the-shelf GPS navigation instrumentation products and GPS simulators, which allow laboratories, system integrators and manufactures of receivers to perform an automated test of GPS equipment by simulating a wide range of vehicle motions including aircraft flight, the motion of a ship or the route of a vehicle along a road. Automated testing using GPS simulators avoids time consuming dynamic testing on testbeds such as aircraft and ships. The Company believes that the market for this type of specialized product is currently limited and future revenues in this area are unlikely to be significant. Commercial Electronic Contract Manufacturing During fiscal 1993, the Company began to pursue opportunities in commercial contract manufacturing. In addition to producing its own products, the Company offers its contract manufacturing services to commercial customers. Revenues for the Company's contract manufacturing business amounted to approximately 20% of total revenues for fiscal 1996 and 1997, an increase from approximately 10% of revenues for fiscal 1995. The Company's Sunnyvale, California manufacturing facilities received ISO-9001 certification during fiscal 1996. During fiscal 1997, approximately 16% of the Company's manufacturing activities were associated with the Company's own products. COMMERCIAL STRATEGIC PRODUCT DEVELOPMENT Stanford Telecom has initiated a number of strategic product developments and business arrangements, including those addressed below, to address a growing worldwide market for digital telecommunication products and services. Revenues from these initiates have not been significant to date and there is no assurance that the Company will be successful in the development, marketing, distribution and sales of these products; however the Company believes that the market for these product and services is substantial. Satellite Personal Communications. In recent years a number of worldwide satellite-based cellular systems have been proposed, including TRW/Teleglobe's Odyssey, Inmarsat's ICO, Motorola's Iridium and Loral/Qualcomm's Globalstar. The Company has been carrying out research and development on the medium altitude Odyssey system being proposed by -5- TRW/Teleglobe. The Company hopes to play a key role in the ground station terminals that interface with the public switch telephone network. The Company expects Odyssey to use a Stanford Telecom proprietary version of the OCDMA (Orthogonal Code Division Multiple Access) waveform in transmission of voice communications. There has been no decision on whether Odyssey will proceed; however a decision is expected this calendar year. The Company is also a member of a team designing a high data rate satellite system for businesses and high end consumers. The Company hopes to expand its role on this program, however, a final decision has not been reached regarding the continuation of the program. Wireless Broadband Communications (LMDS/MMDS). Wireless broadband communications, also called Local Multipoint Distribution System (LMDS), Multichannel/Multipoint Distribution System (MMDS) or "wireless cable", is a new technique for two-way transmission of high speed digital data using terrestrial microwave links to homes and offices. The MMDS Systems operate at the 2.5 GHz frequency spectrum. Stanford Telecom and Hewlett Packard have signed a memorandum of understanding to develop a complete LMDS system. These systems operate in the 28-29 GHz microwave frequency spectrum. The Company has begun to conduct MMDS/LMDS technology demonstrations and continued to develop the capabilities of its system throughout fiscal 1997. There is growing international interest in this technology, however, it is unlikely that a sizable domestic market will develop for the LMDS system until after the FCC completes the auction for utilization of the frequency spectrum and the system has been adequately field demonstrated to potential customers. The Company believes that the potential for significant bookings may be realized in late fiscal 1998. Cable/Internet Communications. One of the major new cable markets that can be addressed by the CATV service provider is that of high-speed two-way Internet and worldwide Web access. The full potential of the Internet can be realized when high-resolution images can be quickly transmitted to the user. The use of cable for this application offers the potential to increase the rate of transmission by a factor of approximately 1,000 over typical telephone modem access. In order to realize these increased transmission speeds, the cable system needs to be augmented with both upstream and high speed downstream links. Stanford Telecom has developed and currently offers for sale products which address both upstream and downstream links. The Company plans to develop and offer next generation products to provide improved performance at lower cost. The Company believes it is in a good position to receive initial production orders during fiscal 1998. OTHER BUSINESS Manufacturing Stanford Telecom's products are generally manufactured from standard components, its proprietary ASICs and other components or subsystems produced to the Company's specifications. Most of the Company's current products contain microprocessors for which proprietary software is designed and tested by the Company's engineers. The Company does not have a semiconductor foundry or fabrication facility. For the production of ASICs, the Company contracts with companies that have foundry capability including Zilog, American Microsystems Inc., Lucent Technologies, and LSI. In many cases only a single source is available for specific components, and thus there is a risk of delay in delivering finished systems within contractual schedules. The Company attempts to minimize this risk by securing second sources, finding alternate technologies to perform the same function and maintaining adequate inventories of single source components. To date the Company has experienced no material adverse impact due to component unavailability, product returns or contract renegotiations. Many of the Company's products are covered by a 90-day to one-year warranty under which the Company will repair or replace defective parts. To date, warranty expense has not been significant. -6- Marketing and Customers. The Company markets its products and services to agencies of the U.S. Government, prime contractors to these agencies and an increasing number of commercial customers. The Company's marketing is conducted by its management and technical staff, and in the case of its commercial business, domestic and international sales representatives are also utilized. The Company's marketing efforts for its government business consist of responding to requests for proposals and solicitations for bids from U.S. Government agencies or prime contractors to these agencies and direct marketing of its off-the-shelf, standardized products. The Company markets its ASICs and commercial products primarily through its direct sales personnel consisting of 9 full-time employees, 22 independent sales representative locations covering the U.S. and Canada and 26 other independent sales representative offices covering other international territories. The Company also places advertisements for commercial products, particularly its ASIC products, in a number of trade magazines and participates in trade shows and industry symposiums. During fiscal 1997, 1996 and 1995 approximately 59%, 54% and 69%, respectively, of the Company's revenues were attributable to contracts with numerous agencies of the U.S. Government. No single contract accounted for more than 10% of revenues during fiscal 1997, 1996 or 1995. Some of the Company's U.S. Government sales are made under letter contracts in which the final contract price is agreed upon after work has begun. To date, the Company has had a small amount of revenue from international customers. Such sales are often subject to U.S. State Department approval and export license requirements. Competition. Competition is intense among providers of digital telecommunications equipment, products and services. In the Company's government business, competitors include major defense contractors, telecommunications equipment and electronics firms, and systems integrators, most of which have significantly greater financial, marketing and operating resources than the Company, as well as broader product lines and technological capabilities. As a result of reduced defense spending by the U.S. and other governments, competition has become more intense in the Company's government business. Although no single competitor competes with the Company in all of its product lines, a number of competitors such as Harris Corporation, Loral-Space, Lockheed-Martin, TRW, BDM, CSC, Texas Instruments, Hitachi, and Rockwell International compete with the Company in various market segments. Certain of the Company's customers have technological capabilities in the Company's product areas and could choose to develop and manufacture certain products themselves rather than purchase from suppliers such as the Company. As the Company continues to transition to more commercial business, it expects to face new and increasing competition with respect to its commercially oriented products and services. The Company believes that, in its highly specialized technical environment, price, performance, reputation, reliability, on-time delivery and customer support are the primary competitive factors among companies having similar technical capabilities. Backlog and Bookings. Funded backlog includes: (i) projects and orders covered by signed contracts for which the government has specifically allocated funding; and (ii) purchase orders from commercial customers. The Company's backlog is largely attributable to agencies of the U.S. Government. In the case of certain long-term contract awards, the U.S. Government typically makes the funds available over the life of the contract as opposed to the time of the contract award. In such cases the Company reports as funded bookings only the amount of the funds specifically allocated and the resultant backlog as funded backlog. The Company does not include unexercised options in backlog. The Company's funded bookings for fiscal 1997 and 1996 were $168.5 million and $155.0 million, respectively, and the Company's backlog at the end of fiscal 1997 and 1996 was -7- $83.9 million and $82.4 million, respectively. At March 31, 1997 backlog from the Company's government and commercial businesses were approximately $51.9 million and $31.9 million, respectively. There is no assurance that funded backlog will be completed and booked as revenue. The Company's contracts typically contain contingency provisions permitting termination by the customer at any time. Cancellation of pending contracts or termination or reductions of contracts in progress may have a material adverse effect on the Company's results of operations. Research and Development. The telecommunications industry is characterized by rapid technological change, requiring a continuous effort to enhance existing products and develop new products. The Company believes that its continued success depends in large part on its ability to develop new and enhanced digital telecommunications products. The Company conducts extensive research, development and engineering activities with the objective of developing products and systems that provide for cost-effective, high-quality satellite communications and digital wireless telecommunications. Since its inception, the Company has developed a number of innovative and proprietary digital telecommunications technologies through a combination of customer and internally funded research and development. A significant portion of these expenditures include bid and proposal expenditures which are largely the initial advanced technology development efforts directed toward a specific product or technical task for which the Company must show technical viability. Company-funded expenditures for research and development including bid and proposal activities for fiscal 1997, 1996, and 1995 were approximately $11.9 million, $8.4 million and $7.7 million, respectively, which represented 7.1%, 5.8%, and 6.8% of total revenues, respectively. The Company's revenues have historically been derived primarily from performing contract research and development and engaging in limited production contracts with agencies of the U.S. Government and their prime contractors. As a result, a substantial portion of the digital telecommunications 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 "Costs of Revenues" in the Company's financial statements. The Company is continually seeking to develop new products for commercial applications to leverage its leading digital telecommunications technologies that have been funded through many military and government research and development contracts since the early 1970's. Employees. As of March 31, 1997, the Company employed 951 full-time and 16 part-time employees and 20 professional consultants. Of the full-time employees, 472 are in technical operations, 181 in manufacturing operations, 122 in management, 90 professional non technical, and 86 in support positions. The majority of the Company's employees are highly skilled technical personnel. Several are nationally known leaders in the field of digital telecommunications. Over 560 employees hold advanced degrees, including approximately 35 with doctoral degrees. None of the employees are represented by a labor union and the Company has never had a work stoppage. The Company believes its employee relations to be excellent. Due to the nature of the Company's business, a large number of its technical employees must obtain security clearances from the U.S. Government, which limits the available pool of eligible candidates for such positions to those who can satisfy prerequisites for such clearances. Patents and Proprietary Rights. The success of the Company's business depends in part upon its ability to protect trade secrets, obtain or license patents and operate without infringing on the rights of others. Although the Company has obtained patents covering certain of its technologies, it believes that the -8- ownership of patents has not generally been a significant factor in its government business and that its success depends primarily on innovative skills, technical competence, and the marketing and managerial abilities of its personnel. The Company relies on a combination of trade secrets, copyrights, patents, nondisclosure agreements and technical measures to protect its proprietary rights in its products and technology. Such protection may not preclude competitors from developing products with features similar to the Company's products. The Company believes that patents will play an increasingly important role in its commercial business and during the past two years the Company has received or filed for approximately 60 patents with the U.S. Patent and Trademark Office. The Company expects it will continue to aggressively pursue additional patents to protect its intellectual property. The Company requires its employees to execute proprietary rights and nondisclosure agreements and to maintain the confidentiality of the Company's proprietary information. Government Regulation. The Company's operations are subject to compliance with regulatory requirements of federal, state and local authorities, including regulations concerning employment obligations and affirmative action, workplace safety and protection of the environment. In addition, many of the Company's products and proposed products are or will be subject to various regulations including regulations promulgated by the Federal Communications Commission, the FAA and the DoD. While compliance with applicable regulations has not adversely affected the Company's operations in the past, there can be no assurance that the Company will continue to be in compliance in the future or that these regulations will not change. In addition, the Company must comply with detailed government procurement and contracting regulations and with U.S. Government security regulations, including those necessary to maintain required facility clearances. Certain of these regulations carry substantial penalty provisions for nonperformance or misrepresentation in the course of negotiations. Failure of the Company to comply with its government procurement, contracting or security obligations could result in penalties or suspension of the Company from government contracting, which would have a material adverse effect on the Company's results of operations. The Company is required to maintain a U.S. Government facility clearance at most of its locations. This clearance could be suspended or revoked if the Company is found not to be in compliance with applicable security regulations. Any such revocation or suspension would delay the Company's delivery of its products to customers. Although the Company has adopted policies designed to assure its compliance with applicable regulations and there have been no suspensions or revocations of any of its facilities, there can be no assurance that the approved status of the Company's facilities will continue without interruption. Forward Looking and 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 (a) contain or are based on projections of revenue, income, earnings per share and other financial items or (b) relate to management's future plans, expectations, 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 -9- that certain events or circumstances could cause actual results to differ materially from those projected or predicted. In addition, forward-looking statements are based on management's knowledge and judgment as of the date such statements are made, and the Company does not intend to update any forward-looking statements to reflect events occurring or circumstances existing thereafter. In particular, the Company believes that the following factors could impact forward-looking statements made herein or in other 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. -10- ITEM 2. PROPERTIES The Company's headquarters and principal engineering and manufacturing facilities are currently located in four adjacent buildings in Sunnyvale, California where it leases approximately 172,000 square feet. The Company's Sunnyvale facility leases will expire in the year 2000. The leases contain options for renewal under terms and conditions to be negotiated at the time of expiration. The Company also leases approximately 84,000, 46,400, 30,900, 15,300, 11,300, and 8,000 square feet of office space in Reston, Virginia, Colorado Springs, Colorado, Annapolis Junction, Maryland, Lowell, Massachusetts, Seabrook, Maryland, and Tinton Falls, New Jersey, respectively, which space is used primarily for the performance of study, system engineering and hardware contracts. The Reston facility leases expire in 1998 through 2001. The Colorado Springs, Annapolis Junction, Lowell, Seabrook and Tinton Falls leases expire in 2002, 2003, 2001, 1997 and 2002, respectively. The Company believes its current facilities are suitable and adequate for the Company's operations over the next fiscal year. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of current litigation will not have a material adverse effect on its financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Inapplicable. CORPORATE OFFICERS OF THE COMPANY Set forth below are the names and ages of the executive officers of the Company, their principal occupations at present and for the past five years, certain directorships held by each, and the term of office with the Company. Dr. James J. Spilker, Jr. (age 63), a founder of the Company, has been Chairman of the Board since 1983. He served as President and Chief Executive Officer of the Company from August 1981 to June 1995. Since June 1995, Dr. Spilker also has been serving as Principal Scientist for the Company. Dr. Val P. Peline (age 66) was elected as a Director of the Company in October 1985. Dr. Peline joined the Company as its President and Chief Executive Officer effective June 5, 1995. Dr. Peline served as President of the Electronic Systems Group, a division of Lockheed Corp., from 1987 until he retired from such position in March 1995. Dr. Peline had been President of the Lockheed Space Division from 1984 to March 1987. Mr. Leonard Schuchman (age 60) was elected as a Director of the Company in April 1985. Mr. Schuchman joined the Company in January 1976 and became Vice President in February 1977. He is responsible for directing the Company's Communications and Navigation Systems Operation. Mr. Ernest L. Dickens, Jr. (age 50) joined the Company in October 1981. From April 1990 to October 1995 he directed the Company's Government Systems Services operation. Mr. Dickens was elected Vice President in November 1995 and currently directs the Company's Satcom Ground Systems operation. -11- Mr. Bronic C. Knarr (age 51) joined the Company in November 1988. From November 1988 to April 1992 Mr. Knarr held various management positions at the Company in support of key programs. From April 1992 to September 1995 Mr. Knarr directed the Company's Satellite Communications operations. In September 1995 Mr. Knarr was appointed director of the Company's Manufacturing and Quality Assurance operation and was elected Vice President in November 1995. Dr. John E. Ohlson (age 57) joined the Company in March 1981 as Director of Telecommunications Programs Operations and became Vice President in January 1982. In February 1991 he was named Director of Military Ground Terminals. Dr. Ohlson directed the Satellite Communications Group from June 1992 to November 1994. Dr. Ohlson was named as the Company's Chief Technical Officer in November 1994 and currently directs the Company's Satellite Personal Communications Operation. Mr. Gary S. Wolf (age 46) joined the Company in May 1978 and was elected Vice President, Chief Financial Officer, Secretary and Treasurer in December 1984. In January 1997 he was promoted to Executive Vice President. Mr. Jerome F. Klajbor (age 41) joined the Company in February 1989. Mr. Klajbor served as a Contracts Manager for the Company from 1989 to 1991. From 1991 to 1996, Mr. Klajbor served as Director and subsequently Vice President of Administration and Finance for the Company's Communication Navigation Systems. He was elected Vice President and Chief Financial Officer in January 1997. PART II ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Incorporated by reference from page 28 of the Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference from page 28 of the Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference from pages 15 through 18 of the Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements of Stanford Telecommunications, Inc. as of March 31, 1997 and March 31, 1996 and for each of the three years in the period ended March 31, 1997 and the report of independent public accountants thereon are incorporated by reference from pages 19 through 27 of the Annual Report to Stockholders. See Part IV, Item 14(a). ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Inapplicable. -12- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the caption "Election of Directors-Information with Respect to Nominees and Directors" beginning on page 2 of the Company's Proxy Statement is incorporated herein by reference and made a part hereof in response to the information required by this item. In addition, certain information pertaining to executive officers of the Company is set forth on pages 11-12 hereof. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" beginning on page 5 of the Company's Proxy Statement is incorporated herein by reference and made a part hereof in response to the information required by this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Stock Ownership" beginning on page 12 of the Company's Proxy Statement is incorporated herein by reference and made a part hereof in response to the information required by this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Inapplicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following report, financial statements and other information are incorporated by reference from the Annual Report to stockholders and form a part of this report: Reference Page -------------- 1997 Annual Report Form 10-K ------- --------- 1. Financial Statements. Report of Independent Public Accountants 19 Statements of income for each of the three years in the period ended March 31, 1997 19 Balance sheets at March 31, 1997 and March 31, 1996 20 Statements of shareholders' equity for each of the three years in the period ended March 31, 1997 21 -13- Reference Page -------------- 1997 Annual Report Form 10-K -------- --------- Statements of cash flow for each of the three years in the period ended March 31, 1997 22 Notes to financial statements 23 2. Financial Statement Schedules Report of Independent Public Accountants on Schedules 18 Schedule II - Valuation and Qualifying Accounts 19 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements or notes thereto. With the exception of such information in the Annual Report to Stockholders incorporated herein by reference, the Annual Report to Stockholders is not deemed "filed" as part of this report. 3. Exhibits. Exhibit Number Description - ------------- ------------ 3.1(2) Certificate of Incorporation, as amended. 3.2(2) Bylaws, as amended. 4.1(6) Rights Agreement dated as of May 9, 1995 between the Company and The First National Bank of Boston. 4.2 Agreement re. Rights of Holders of Long-Term Debt. 10.1(5) Consolidated, Amended and Restated Deed of Lease for the premises located at 1761 Business Center Drive, Reston, Virginia dated October 1, 1993 between the Company and the Variable Annuity Life Insurance Company. 10.2(1)* 1982 Stock Option Plan, as amended, and form of Agreements. 10.3(3)* 1992 Employee Stock Purchase Plan. 10.4(4) Lease dated November 19, 1992 for 480 Java Drive, Sunnyvale, California, 440 Moffett Park Drive, Sunnyvale, California, and 1221 Crossman Avenue, Sunnyvale, California. 10.5(5) Office Lease Agreement for 141 National Business Parkway, Annapolis Junction, Maryland dated March 1, 1993 between the Company and Constellation Real Estate, Inc. 10.6*(8) 1991 Stock Option Plan and form of Agreements. 10.7*(8) Management Incentive Plan. 10.8(8) Credit Agreement dated December 5, 1996 between the Company and Bank of America National Trust and Savings Association (the "Credit Agreement"). -14- 10.9 First Amendment to the "Credit Agreement" dated December 5, 1996. 13.1(7) Annual Report to Stockholders for the fiscal year ended March 31, 1997. 23.1 Consent of Arthur Andersen LLP, independent public accountants. 24.1 Power of Attorney (included on the signature pages hereof). 27.1 Financial Data Schedule - --------------------------- *Compensatory Plan (1) Incorporated by reference from the Company's Annual Report on Form l0-K for the fiscal year ended March 31, 1987. (2) Incorporated by reference from the Company's Annual Report on Form l0-K for the fiscal year ended March 31, 1989. (3) Incorporated by reference from the Company's Annual Report on Form l0-K for the fiscal year ended March 31, 1992. (4) Incorporated by reference from the Company's Annual Report on Form l0-K for the fiscal year ended March 31, 1993. (5) Incorporated by reference from the Company's Registration Statement on Form S-1, No. 33-72720. (6) Incorporated by reference from the Company's Registration Statement on Form 8-A, dated May 24, 1995. (7) Only those portions of the Annual Report to Stockholders that are specifically incorporated by reference in this form 10-K are included in this exhibit. (8) Incorporated by reference from the Company's Annual Report on Form 10K for the fiscal year ended March 31, 1996. Reports of Form 8-K No current Reports on Form 8-K were filed by the Company with the Securities and Exchange Commission during the last quarter of the period covered by this Form 10-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STANFORD TELECOMMUNICATIONS, INC. Dated: June 23, 1997 /s/ James J. Spilker, Jr. --------------------------------------- James J. Spilker, Jr. Chairman of the Board -15- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James J. Spilker, Jr. and Jerome F. Klajbor and both of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 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 dates indicated: Signature Title Date --------- ----- ----- /s/ James J. Spilker, Jr. Chairman of the Board June 17, 1997 - --------------------------- James J. Spilker, Jr. /s/ Val P. Peline President (Principal Executive June 17, 1997 - --------------------------- Officer) and Director Val P. Peline /s/ Jerome F. Klajbor Vice President and Secretary, June 19, 1997 - --------------------------- (Principal Financial Jerome F. Klajbor and Accounting Officer) /s/ Michael Berberian Director June 18, 1997 - --------------------------- Michael Berberian /s/ John W. Brownie Director June 18, 1997 - ----------------------- John W. Brownie /s/ P. Marshall Fitzgerald Director June 19, 1997 - -------------------------- P. Marshall Fitzgerald -16- /s/ Milton W. Holcombe Director June 18, 1997 - ----------------------- Milton W. Holcombe /s/ Leonard Schuchman Vice President and Director June 18, 1997 - ----------------------- Leonard Schuchman /s/ C. J. Waylan Director June 19, 1997 - ----------------------- C. J. Waylan -17- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To Stanford Telecommunications, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements included in Stanford Telecommunications, Inc.'s annual report to stockholders incorporated by reference in this Form l0-K, and have issued our report thereon dated April 22, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed at Item 14(a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California April 22, 1997 -18- SCHEDULE II STANFORD TELECOMMUNICATIONS, INC. Valuation and Qualifying Accounts Three years ended March 31, 1997 (In Thousands) Allowance for doubtful accounts Bal. at Beg. Charged to Bad Debts Bal. at End Year of Period Expense Written Off of Period ---- --------- ---------- ----------- ----------- 1995 $243 $541 $(134) $ 650 1996 $650 $468 $(198) $ 920 1997 $920 $135 $ (32) $1,023 -19- EX-4.2 2 EXHIBIT 4.2 EXHIBIT NUMBER 4.2 AGREEMENT RE. RIGHTS OF HOLDERS OF LONG-TERM DEBT The Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of the instruments which define the rights of holders of long-term debt of the Company. None of such instruments not included as exhibits herein represents long-term debt in excess of 10% of the total assets of the Company. EX-10.9 3 EXHIBIT 10.9 EXHIBIT NUMBER 10.9 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (MULTICURRENCY) THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (MULTICURRENCY) (the "Amendment"), dated as of December 5, 1996 is entered into by and between STANFORD TELECOMMUNICATIONS, INC. (the "Borrower") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank"). RECITALS A. The Borrower and the Bank are parties to an Amended and Restated Credit Agreement (Multicurrency) dated as of December 5, 1996 (the "Credit Agreement") pursuant to which the Bank has extended certain credit facilities to the Borrower. B. The Borrower has requested that the Bank agree to certain amendments of the Credit Agreement. C. The Bank is willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. (a) Section 1.01 of the Credit Agreement shall be amended at the defined term "Availability Period" by amending and restating such defined term as follows: "'Availability Period': the period commencing on the date of this Agreement and ending on the date that is the earlier to occur of (a) December 18, 1997, and (b) the date on which the Bank's commitment to extend credit hereunder terminates." (b) Section 1.01 of the Credit Agreement shall be amended at the defined term "Final Maturity Date" by amending and restating such defined term as follows: "'Final Maturity Date': (a) in respect of any Advances, December 18, 1997; (b) in respect of any commercial letters of credit, June 18, 1998; (c) in respect of any standby letters of credit, December 18, 1998; (d) in respect of any Bank Guaranties, December 18, 1998; and (e) in respect of any acceptances, June 18, 1998." (c) Section 7.13 of the Credit Agreement shall be amended and restated in its entirety so as to read as follows: "7.13 Tangible Net Worth. The Borrower shall not permit its Tangible Net Worth on a consolidated basis at any time to be less than $70,000,000 plus 75% of the Borrower's consolidated net income (but not less any net losses for any period) earned in each fiscal quarter commencing after September 30, 1996 plus the value of all Net Issuance Proceeds (whether in cash, other property or in kind) of equity securities issued by the Borrower from and after September 30, 1996. For purposes of this Section and Section 7.14, "Tangible Net Worth" means, as of any date of determination, (i) total assets (exclusive of goodwill, patents, trademarks, trade names, organization expense, treasury shares, unamortized debt discount and premium, deferred charges and other like intangibles) less (ii) all reserves applicable thereto and all liabilities (including accrued and deferred income taxes and subordinated liabilities). For purposes of this Section, "Net Issuance Proceeds" means, in respect of any issuance of common or preferred equity, proceeds (whether in cash, other property, or in kind) received in connection therewith, net of out-of-pocket costs and expenses paid or incurred in connection therewith in favor of any person not an affiliate of the Borrower and not to exceed 5% of the gross proceeds thereof." (d) Schedule 2 to Exhibit A of the Credit Agreement shall be amended and restated in its entirety so as to read as set forth in Schedule 2 attached hereto. 3. Representations and Warranties. The Borrower hereby represents and warrants to the Bank as follows: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any person (including any governmental authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Borrower contained in the Credit Agreement are true and correct. (d) The Borrower is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Bank or any other person. 4. Effective Date. The amendments set forth in Sections 2(a) and 2(b) hereof will become effective as of December 19, 1996, and the amendments set forth in Sections 2(c) and 2(d) hereof will become effective as of the date first above written, provided that each of the following conditions precedent has been satisfied: (a) The Bank has received from the Borrower a duly executed original of this Amendment. (b) The Bank has received from the Borrower a copy of a resolution passed by the board of directors of such corporation, certified by the Secretary or an Assistant Secretary of such corporation as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Amendment. 5. Reservation of Rights. The Borrower acknowledges and agrees that the execution and delivery by the Bank of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Bank to forbear or execute similar amendments under the same or similar circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Bank of a facsimile transmitted document purportedly bearing the signature of the Borrower shall bind the Borrower with the same force and effect as the delivery of a hard copy original. Any failure by the Bank to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document which hard copy page was not received by the Bank. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended or modified except in writing executed by both of the parties hereto. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) Borrower covenants to pay to or reimburse the Bank, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. STANFORD TELECOMMUNICATIONS, INC. By: /s/ Gary Wolf ------------------------------------ Name: Title: Vice President & CEO By: /s/ Chris Smallman ------------------------------------ Name: Title: Corporate Controller BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Debra G. Staiger ------------------------------------ Name: Title: Vice President EX-13.1 4 MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 year 1989 to approximately 41% of total revenues in fiscal year 1997. During fiscal year 1997, commercial revenues which amounted to approximately $68 million included: (i) contract manufacturing revenues from the Company's electronics assembly business ($34 million); (ii) sales of ASICs, circuit boards and subsystems to the telecommunications industry ($17 million); and (iii) other commercial systems and product business ($17 million). Over the last two fiscal years, the Company has focused on investing its own funds in certain strategic commercial initiatives, rather than paid development. During fiscal year 1997 approximately 75%, or $9 million of the Company's IR&D was invested in these strategic commercial initiatives. The Company anticipates that these commercial products will produce revenues during the next fiscal year. The Company includes in commercial revenues sales of standardized or off-the-shelf products such as the GPS simulators and other communications related products 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 year 1995 was adversely affected due to losses on a number of fixed-price development contracts. The Company has instituted 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. Results of Operations The following tables set forth, for the periods indicated, certain items from the Company's Statements of Income expressed as a percentage of the Company's total revenues: Year Ended March 31 ------------------- 1995 1996 1997 ---- ----- ---- Revenues 100.0% 100.0% 100.0% Cost of revenues 83.6 80.0 76.3 ---- ---- ---- Gross profit 16.4 20.0 23.7 ---- ---- ---- Research and development 6.8 5.8 7.1 Marketing and administrative 8.2 8.4 10.1 --- --- ---- Total expenses 15.0 14.2 17.2 Operating income 1.4 5.8 6.5 Interest income, net 0.6 0.6 0.8 Arbitration settlement charge (1.8) - - ----- ----- ----- Income before provision for income taxes 0.2 6.4 7.3 Provision for income taxes (0.1) (2.1) (2.5) ----- ----- ----- Net income 0.1% 4.3% 4.8% ---- ---- ---- 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. For further information on the foregoing, reference is made to the Company's Securities and Exchange Commission reports including its recent reports on Forms 10-Q and 10-K. Comparison of Fiscal Years 1995, 1996 and 1997 Revenues. Revenues were $114.4 million, $145.1 million and $167.0 million in fiscal year 1995, 1996, and 1997, respectively, representing year-to-year increases of 27% in fiscal year 1996 and 15% in fiscal year 1997. The increase in revenues from fiscal year 1995 to fiscal year 1996 was attributable to increases in the Company's commercial operations, including its commercial telecommunication products and services and its commercial manufacturing services as well as increases in its government business sector. Revenues generated by its government business sector increased from approximately $79 million in fiscal year 1995 and 1996 to $98.5 million in fiscal year 1997. Revenues generated from commercial products and services were $35.4 million, $66.2 million, and $68.5 million in fiscal year 1995, 1996 and 1997, respectively. The increase in commercial revenues in fiscal year 1996 is significantly attributable to two commercial development programs. Contract manufacturing services significantly accounted for the increase in commercial revenues in fiscal year 1997. Although the Company experienced an increase in its government business revenues during fiscal year 1997, the Company expects that budgetary pressures will continue to affect Department of Defense, FAA and NASA budgets. The Company anticipates that its revenues from these government customers may remain flat and could decline in future periods. All contracts with the government are cancelable at any time for the convenience of the government. The Company is not aware of the cancellation or proposed cancellation of any of its current contracts. The Company plans to continue to selectively pursue government business where it has a competitive advantage, can be the sole provider or can be a prime contractor rather than a subcontractor. The Company's commercial business represented approximately 31% in fiscal year 1995, 46% in fiscal year 1996, and 41% in fiscal year 1997. Although there was an overall increase in commercial revenues during fiscal 1997, the percentage of revenue decreased as a result of the revenue growth in the Company's government sector business. The Company is currently pursuing commercial opportunities in satellite, wireless and cable communication products. The Company expects that the percentage of its overall business represented by commercial sales will increase if it successfully develops, markets and sells those products currently under development. Cost of Revenues. Cost of revenues were $95.7 million, $116.0 million and $127.4 million in fiscal year 1995, 1996 and 1997, respectively, representing 83.6%, 80.0% and 76.3% of revenues in fiscal year 1995, 1996 and 1997, respectively. For fiscal year 1995, the Company announced a reserve of $2.8 million against the completion of a development contract with Intelsat and incurred losses on several other development contracts totaling $1.4 million. The decrease in cost of revenues as a percentage of revenues in fiscal year 1996 relative to fiscal year 1995 is attributable primarily to the avoidance of material cost overruns on its contracts and increased margins on its commercial catalog products. During fiscal year 1996 the Company recognized revenues on the Intelsat contract and a U.S. Army satellite terminal contract totaling $16.2 million in which the cost of revenues approximated the revenues recognized. The decrease in cost of revenues as a percentage of revenues in fiscal year 1997 relative to 1996 can be attributable to a profitable completion of the final phases of certain commercial development programs and increased margins on both commercial and Government contracts. In fiscal year 1995, 1996 and 1997, the Company experienced losses totaling $4.2million, $.2 million and $.9 million, respectively on a number of fixed-price development contracts. Gross Profit. Gross profit was $18.7 million, $29.1 million, and $39.6 million in fiscal year 1995, 1996 and 1997, respectively. Gross profit increased during fiscal year 1996 and 1997 as a percentage of revenues relative to fiscal year 1995 and 1996, respectively, as the Company experienced operational efficiencies as a result of its expanding business base, and increased margins on its Government sales, commercial catalog products and certain commercial programs. Research and Development. The Company's research and development expenses include bid and proposal expenses associated with government contracts and certain large commercial programs. Bid and proposal expenditures are largely the initial advanced technology development efforts directed toward a specific product or technical task for which the Company must show technical viability. Bid and proposal expenses have decreased since fiscal year 1995 as the Company has focused its available research and development funds on the development of commercial products. Research and development expenses, including bid and proposal expenses were $7.7 million, $8.4 million and $11.9 million in fiscal year 1995, 1996 and 1997, respectively. Excluding bid and proposal expenses, the Company's research and development expenses applied to the development of its products were $4.4 million, $5.7 million and $9.5 million in fiscal year 1995, 1996 and 1997 respectively. The Company expects research and development expenses in fiscal year 1998 to be approximately the same percentage of revenues experienced in fiscal year 1997. Marketing and Administrative. Marketing and administrative expenses were $9.4 million, $12.2 million and $16.8 million in fiscal year 1995, 1996, and 1997, respectively, representing year-to-year increases of 30% in fiscal year 1996, and 37% in fiscal year 1997. These increases were primarily a result of hiring additional technical marketing personnel and increased marketing expenses in pursuit of commercial opportunities. In addition, the Company has expanded its patent activities and has experienced increased legal costs associated with the prosecution of its patent activities. Operating Income. Operating income was $1.6 million, $8.4 million and $10.9 million for fiscal year 1995, 1996 and 1997, respectively, an increase of 425% in fiscal year 1996, and an increase of 29% in fiscal year 1997. The increase in fiscal year 1996 and 1997 was primarily attributable to operational efficiencies experienced as the Company expanded its business base, the avoidance of material cost overruns on its contracts and increased margins on its commercial catalog products. The Company has entered into and may continue to enter into certain fixed-price development contracts which it believes are essential to maintain and strengthen its competitive market position. Interest Income, Net. Interest income, net was $.7 million, $.8 million, and $1.3 million in fiscal year 1995, 1996 and 1997, respectively. During fiscal year 1997 the Company increased the amount of cash available for investment by generating positive cash from its operations which it invested in interest bearing short-term investments. Arbitration Settlement Expenses. During the third quarter of fiscal year 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 $.5 million were recognized. Provision for Income Taxes. Provision for income taxes was $.1 million, $3.1 million and $4.2 million in fiscal year 1995, 1996 and 1997, respectively. This represents an effective tax rate of 35.0% for fiscal year 1995, 33.5% tax rate for fiscal year 1996, and 34.5% for fiscal year 1997. The decrease in the effective tax rate during fiscal year 1996 compared to fiscal year 1995 results primarily from increased Research and Development (R&D) tax credits and other state income tax credits. The increase in the effective tax rate in fiscal year 1997 was primarily attributable to a non-recurring reduction of a valuation allowance in fiscal year 1996. The Company anticipates that its effective tax rate in future fiscal years will fall within the range of rates experienced over the past three years assuming continued extension of the federal R&D tax credit. Bookings and Backlog. Funded bookings were $127.8 million, $155.0 million and $168.5 million in fiscal year 1995, 1996 and 1997, respectively, representing year-to-year increases of 21% in fiscal year 1996 and 9% in fiscal year 1997. Government contract bookings were $87.3 million, $79.7 million and $103.5 million during fiscal year 1995, 1996 and 1997, respectively. Commercial contract bookings were $40.5 million, $75.3 million and $65.0 million during fiscal year 1995, 1996 and 1997, respectively. The increase in bookings has resulted in the Company's backlog increasing from $72.5 million at the end of fiscal year 1995 to $82.4 million at the end of fiscal year 1996, an increase of 14% and a further increase to $83.9 million at the end of fiscal year 1997. Summary. 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; disruptions in delivery of components or subsystems; regulatory developments; and general economic conditions. Revenues have generally increased on a quarterly basis since fiscal year 1995 as a result of increasing commercial activities during the past three years and increased government related activities experienced during fiscal year 1997. The Company's results of operation are adversely affected by losses on fixed-price development contracts. Direct and indirect costs were adversely affected throughout fiscal year 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 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. Quarterly Results The following table presents the Company's financial results by quarter for fiscal year 1995, 1996 and 1997. 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. Statement of Operations Data Quarter Ended (in thousands, except per share data)
Fiscal year 1995 Fiscal year 1996 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 Revenues $24,645 $28,319 $26,499 $34,921 $35,952 $35,597 $36,384 $37,168 Costs of revenues 19,244 22,633 24,689 29,113 29,876 28,215 28,922 29,001 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit 5,401 5,686 1,810 5,808 6,076 7,382 7,462 8,167 ------- ------- ------- ------- ------- ------- ------- ------- Expenses: Research and 2,032 2,302 1,345 2,044 1,793 2,050 2,046 2,541 development Marketing and 2,000 2,423 2,166 2,773 2,659 3,239 3,104 3,211 administrative ------- ------- ------- ------- ------- ------- ------- ------- Total expenses 4,032 4,725 3,511 4,817 4,452 5,289 5,150 5,752 Operating income (loss) 1,369 961 (1,701) 991 1,624 2,093 2,312 2,415 Interest income, net 180 156 191 130 178 152 164 345 Arbitration settlement - - (2,075) - - - - - expenses ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before 1,549 1,117 (3,585) 1,121 1,802 2,245 2,476 2,760 (provision) credit for income taxes (Provision) credit for (557) (403) 1,282 (393) (676) (842) (863) (729) income taxes ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) $ 992 $ 714 $(2,303) $ 728 $ 1,126 $ 1,403 $ 1,613 $ 2,031 ========= ========= ======== ========= ======== ======== ======== ======== Earnings (loss) per share $ 0.08 $ 0.05 $ (0.18) $ 0.06 $ 0.09 $ 0.11 $ 0.13 $ 0.16 ========= ========= ========== ========= ========= ========= ========= ========= Weighted average common 12,442 12,488 12,512 12,504 12,544 12,692 12,722 12,818 shares and equivalents
Quarter Ended (in thousands, except per share data) Fiscal year 1997 June 30 Sept. 30 Dec. 31 Mar. 31 Revenues $40,843 $41,058 $42,028 $43,073 Costs of revenues 31,993 30,889 32,305 32,245 -------- -------- -------- -------- Gross profit 8,850 10,169 9,723 10,828 -------- -------- -------- -------- Expenses: Research and 2,229 3,444 2,903 3,292 development Marketing and 4,022 4,105 4,170 4,511 administrative -------- -------- -------- -------- Total expenses 6,251 7,549 7,073 7,803 Operating income (loss) 2,599 2,620 2,650 3,025 Interest income, net 284 298 342 412 Arbitration settlement - - - - expenses -------- -------- -------- -------- Income (loss) before 2,883 2,918 2,992 3,437 (provision) credit for income taxes (Provision) credit for (995) (1,007) (1,032) (1,185) income taxes -------- -------- -------- -------- Net income (loss) $ 1,888 $ 1,911 $ 1,960 $ 2,252 ======== ======== ======== ======== Earnings (loss) per share $ 0.14 $ 0.15 $ 0.15 $ 0.17 ========= ========= ========= ========= Weighted average common 13,048 13,098 13,042 13,040 shares and equivalents Liquidity and Capital Resources Working capital increased from $48.0 million to $56.5 million at March 31, 1995 and March 31, 1996, respectively, and increased to $66.4 million at March 31, 1997. The increases in working capital at March 31, 1996 and March 31, 1997 were primarily attributable to cash generated from net income from operations. Net cash provided by operating activities for the years ended March 31, 1995, 1996 and 1997 was $1.2 million, $8.7 million and $18.6 million, respectively. The increase in cash provided by operating activities from fiscal year 1995 to fiscal year 1996 was largely attributable to an increase in net income and a decrease in billed and unbilled receivables. The increase from 1996 to fiscal year 1997 can be largely attributed to an increase in net income and the reduction of inventories. The Company utilized its cash for the purchase of property and equipment totaling $6.2 million, $4.5 million and $5.5 million in fiscal year 1995, 1996 and 1997, respectively. Capital expenditures in recent years are attributable to increased investments in the Company's commercial activities and leasehold improvements in the Company's facilities in order to support its growth. During fiscal years 1995, 1996 and 1997, $.5 million, $1.1 million and $1.6 million, respectively, of net cash was provided by financing activities. During fiscal year 1995, the Company received proceeds of $.6 million from transactions under stock plans and made payments of $.1 million on capital lease obligations. During fiscal year 1996, the Company received proceeds of $1.3 million from transactions under the stock plans and made payments of $.2 million on capital lease obligations. During fiscal year 1997, the Company received proceeds of $1.7 million from transactions under stock plans and made payments of $.1 million on capital lease obligations. The Company has a bank credit commitment of $15.0 million which it has utilized to augment cash flow needs and to secure term loans or standby letters of credit. Available borrowings under this line at March 31, 1997, were $15.0 million. Under this credit line the Company must maintain certain financial covenants. The Company was in compliance with all covenants throughout fiscal year 1997. At March 31, 1997, the Company's long-term obligations (including current maturities) and capital lease obligations totaled approximately $.1 million. At March 31, 1997, cash and cash equivalents of $8.2 million were held in money market accounts and short-term investments of $25.1 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 fiscal year. In February 1997, the Financial Accounting Standard Board issued SFAS No. 128, "Earnings per Share," which will be adopted by the Company in fiscal year 1998. The Company does not believe that this pronouncement will have a significant effect on previously stated earnings per share. Report of Independent Public Accountants To Stanford Telecommunications, Inc.: We have audited the accompanying balance sheets of Stanford Telecommunications, Inc. (a Delaware Corporation) as of March 31, 1997 and 1996, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stanford Telecommunications, Inc. as of March 31, 1997 and 1996 and the results of its operations and its cash flows for each of the three years in the period ended March 31, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Jose, California April 22, 1997 Statements of Income (in thousands, except for per share amounts)
Year Ended March 31 ------------------- 1997 1996 1995 -------- --------- ------ Revenues $167,002 $145,100 $114,384 Costs of revenues 127,432 116,014 95,679 ------- ------- ------ Gross profit 39,570 29,086 18,705 ------ ------ ------- Research and development 11,868 8,429 7,723 Marketing and administrative 16,808 12,213 9,362 ------ ------ ----- Total expenses 28,676 20,642 17,085 ------ ------ ------ Operating income 10,894 8,444 1,620 Interest income, net 1,336 839 657 Arbitration settlement charge -- -- (2,075) -------- ------- ---------- Income before provision for income taxes 12,230 9,283 202 Provision for income taxes 4,219 3,110 71 ------- ------- --------- Net income $ 8,011 $ 6,173 $ 131 ======== ======== ========= Earnings per share $ .61 $ .49 $ .01 ======== ======== ========= Weighted average number of common and common equivalent shares outstanding 13,070 12,702 12,484 ======== ======== ========
Balance Sheets (in thousands)
March 31 ------------------------- 1997 1996 --------- ------- Assets Current assets: Cash and cash equivalents $ 8,235 $ 4,409 Short-term investments 25,074 14,127 Accounts receivable 25,856 22,018 Unbilled receivables 19,754 11,993 Inventories, net of related progress billings 6,011 18,702 Prepaid expenses and other 4,201 4,903 -------- -------- Total current assets 89,131 76,152 -------- -------- Property and equipment at cost: Electronic test equipment 42,797 39,541 Furniture and fixtures 3,613 2,967 Leasehold improvements 3,722 3,657 -------- -------- 50,132 46,165 Less: Accumulated depreciation and amortization (36,019) (31,665) -------- --------- Net property and equipment 14,113 14,500 -------- --------- Other assets 274 296 -------- --------- $103,518 $ 90,948 ======== ========= Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term obligations $ 88 $ 80 Accounts payable 5,902 6,097 Advance payments from customers 1,581 515 Accrued liabilities 10,601 10,044 Accrued income taxes 4,549 2,921 -------- --------- Total current liabilities 22,721 19,657 -------- --------- Long-term obligations, less current maturities 30 85 -------- --------- Other long-term liabilities 910 986 -------- --------- Deferred income taxes 151 631 -------- --------- Commitments and contingencies (Notes 3 and 8) Shareholders' equity: Common stock - par value $.01; 25,000 shares authorized; 12,833 and 12,656 shares issued and outstanding in 1997 and 1996, respectively 128 127 Paid-in capital 40,410 38,305 Retained earnings 39,168 31,157 --------- ---------- Total shareholders' equity 79,706 69,589 --------- ---------- $103,518 $ 90,948
Statements of Shareholders' Equity (in thousands)
Total Common Stock Share- ------------------- Paid-In Retained holders' Shares Amount Capital Earnings Equity ------ ------ ------- -------- -------- Balance, March 31, 1994 12,362 $ 124 $ 36,390 $ 24,853 $ 61,367 Sale of common stock under Employee Stock Purchase Plan 72 1 429 -- 430 Sale of common stock under Employee Stock Option Plan, net of shares exchanged 28 -- 86 -- 86 Issuance of common stock as awards to employees 6 -- 42 -- 42 Tax benefits from employee stock transactions -- -- 41 -- 41 Net income -- -- -- 131 131 -------- ---- --------- ---------- --------- Balance, March 31, 1995 12,468 $ 125 $ 36,988 $ 24,984 $ 62,097 Sale of common stock under Employee Stock Purchase Plan 70 1 539 -- 540 Sale of common stock under Employee Stock Option Plan 110 1 479 -- 480 Issuance of common stock as awards to employees 8 -- 74 -- 74 Tax benefits from employee stock transactions -- -- 225 -- 225 Net income -- -- -- 6,173 6,173 -------- ------- --------- -------- -------- Balance, March 31, 1996 12,656 $ 127 $ 38,305 $ 31,157 $ 69,589 Sale of common stock under Employee Stock Purchase Plan 67 -- 959 -- 959 Sale of common stock under Employee Stock Option Plan 105 1 729 -- 730 Issuance of common stock as awards to employees 5 -- 102 -- 102 Tax benefits from employee stock transactions -- -- 315 -- 315 Net income -- -- -- 8,011 8,011 -------- -------- ---------- -------- -------- Balance, March 31, 1997 12,833 $ 128 $ 40,410 $ 39,168 $ 79,706 ====== ====== ======== ======== ========
Statements of Cash Flows (in thousands)
Year Ended March 31 ------------------------------------ 1997 1996 1995 ---------- --------- ----------- Cash flows from operating activities: Net income $ 8,011 $ 6,173 $ 131 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,558 5,009 4,330 Issuances of stock to employees under award plans 102 74 42 Change in provision for losses on receivables, contracts and inventories 1,388 857 3,073 Loss on disposition of property and equipment 305 143 210 (Increase) decrease in assets: Receivables billed and unbilled (11,803) 5,634 (8,355) Inventories 11,446 (3,492) (6,888) Prepaid expenses and other assets 724 (1,238) (2,018) Increase (decrease) in liabilities: Accounts payable, advance payments and accrued expenses 1,489 (5,851) 9,484 Other long-term liabilities (76) 59 301 Accrued and deferred income taxes 1,463 1,304 874 -------- -------- -------- Net cash provided by operating activities 18,607 8,672 1,184 -------- -------- -------- Cash used in investing activities: (Purchases) maturities of short-term investments (10,947) (4,220) 1,559 Purchases of property and equipment (5,501) (4,482) (6,210) Proceeds from sale of property and equipment 25 438 67 -------- -------- -------- Net cash used in investing activities (16,423) (8,264) (4,584) -------- -------- -------- Cash flows from financing activities: Payments on capital lease obligations (47) (154) (87) Proceeds from transactions under stock plans 1,689 1,245 557 -------- -------- -------- Net cash provided by financing activities 1,642 1,091 470 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 3,826 1,499 (2,930) Cash and cash equivalents at beginning of year 4,409 2,910 5,840 Cash and cash equivalents at end of year $ 8,235 $ 4,409 $ 2,910 ======== ======== ======== Supplemental Cash Flow Information: Cash paid for interest and income taxes 1997 1996 1995 -------- -------- -------- Interest $ 7 $ 12 $ 51 Income taxes $ 1,736 $ 3,987 $ 769
Notes to Financial Statements March 31, 1997 1. The Company and Summary of Significant Accounting Policies The Company. Stanford Telecommunications, Inc. (the Company), incorporated in Delaware, designs, manufactures and markets advanced digital telecommunication products and systems to establish or enhance communications via satellites, terrestrial wireless and cable. The Company also produces communication systems networking solutions and GPS navigation products. The Company's government revenues are generated from U.S. government contracts where the Company may be either the prime contractor or a subcontractor. The Company's commercial revenues include contract manufacturing revenues, sales of integrated circuits, circuit boards and subsystems, and development programs. In addition to the U.S. government, the principle markets for the Company's products include telecommunications and electronics markets primarily located in the U.S. Fiscal Year. The Company's fiscal year is comprised of four 13-week quarters, each of which ends on the Thursday closest to the corresponding calendar quarter end. For convenience, the Company has presented its fiscal year as ending on March 31. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect 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 period. The Company prepares and evaluates on-going cost to complete estimates in order to monitor its project costs. These estimates form the basis for calculating revenues and gross margins for each project under the percentage-of-completion method of accounting. Due to uncertainties inherent in the estimation process, estimated total costs are subject to revision on an on-going basis as additional information becomes available. The estimates are subject to change and actual results could be materially different from these estimates. Cash Equivalents. The Company considers all highly liquid securities with original maturities of 90 days or less to be cash equivalents. Short-Term Investments. Short-term investments are accounted for in accordance with Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At March 31, 1997, the Company's short-term investments consisted of U.S. Treasury securities totalling $25,074,000 at cost with unrealized gains of $246,000. At March 31, 1996 the Company's short- term investments consisted of U.S. Treasury securities totalling $14,127,000 at cost with unrealized gains of $109,000. The securities mature at various dates within one year. Receivables. The Company provides a reserve for doubtful accounts where circumstances indicate that one is necessary. As of March 31, 1997and 1996, the Company's reserve for doubtful accounts was $1,023,000 and $920,000, respectively. Unbilled Receivables. Unbilled receivables represent differences between billings and revenues recognized. At March 31, 1997, approximately 85% of the unbilled receivables represent revenues recognized on fixed price contracts under the percentage-of-completion method of accounting which exceed the amounts that are billable according to contract terms and are expected to be significantly collected within one year. In general, the Company is authorized to bill between 75% to 100% of the costs expended on a contract. The remaining portion of unbilled receivables at March 31, 1997 represents differences between actual indirect rates and government approved billing rates which are not billable until approval of final indirect rates by the respective governmental agencies. The Company has received final indirect rate approval for charges through fiscal 1993. 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. Work-in-process mainly represents costs incurred on short-term contracts. The components of inventory are as follows (in thousands): March 31 1997 1996 -------- --------- Raw materials and supplies $ -- $ 158 Work-in-process 3,721 18,615 Finished goods 2,318 1,850 Allocated general and administrative costs 118 808 Less: Progress billings (146) (2,729) -------- -------- $ 6,011 $ 18,702 ======== ======== The Company purchases certain inventories that have long purchase lead times and may be single sourced. Although there are a limited number of manufacturers of these particular inventory items, management believes that other suppliers could provide similar inventory on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which may affect operating results adversely. Depreciation and Amortization. Depreciation and amortization are provided over the estimated useful lives of the assets (3 to 7 years or the term of the lease if shorter), using the straight-line method. Income Taxes . Income taxes are provided for in accordance with SFAS No. 109 , "Accounting for Income Taxes," which provides for a liability approach under which deferred income taxes are based on enacted tax laws and rates applicable to the periods in which the taxes become payable. Accrued Liabilities Accrued liabilities consist of the following (in thousands): March 31 1997 1996 ------- ------- Compensation and employee benefits $ 8,003 $ 7,221 Accrued contract cost 2,054 2,125 Other 544 698 ------- ------- $10,601 $10,044 ======= ======= Revenue Recognition. The Company principally uses the percentage-of-completion method of accounting for contract revenues. The percentage-of-completion method is based on total costs incurred to date compared with estimated total costs upon completion of contracts. Certain contracts provide for milestone billings which are recorded as revenues when the defined milestones are met. The Company recognizes revenues for standard, off-the-shelf products and certain commercial products upon shipment to the customer. The Company charges all losses on contracts to cost of sales in the period when the loss is known. The principal government agencies to which the Company sells are the Department of Defense (DoD), NASA and the FAA. The DoD accounted for 33%, 31%, and 44% of total revenues in 1997, 1996, and 1995, respectively. Concentration of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments, and trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to a balanced mix of receivables due from the U.S. government and other customers which are dispersed across different industries and geographic regions. Classification. Consistent with industry practice, assets and liabilities relating to government long-term contracts are classified as current although a portion of these amounts is not expected to be realized within one year. 2. Line of Credit On December 5, 1996, the Company amended its bank line agreement extending the expiration date until December 1997. The Company has $15,000,000 in credit under this line, all of which is available at March 31, 1997. Under this line of credit the Company must maintain certain financial covenants. As of March 31, 1997, the Company was in compliance with all such covenants. 3. Commitments The Company leases its buildings and other equipment under noncancelable operating lease agreements that expire at various dates through 2004. The Company also leases certain office equipment under capital leases which expire during 2000. The terms of several of the Company's leases provide for deferral of cash rental payments over various periods. Rental expense under these agreements is recognized on a straight-line basis. As of March 31, 1997 the Company has accrued approximately $835,000 in related expense which is included in other long-term liabilities in the accompanying balance sheet. Approximate future minimum lease payments under these leases are as follows (in thousands): Year Ending March 31 Operating Leases Capital Leases - -------------------- ---------------- -------------- 1998 $ 3,683 $ 85 1999 3,619 34 2000 3,090 15 2001 2,112 -- 2002 825 -- Thereafter 768 -- -------- -------- Total minimum lease payments $ 14,097 134 -------- -------- Less:interest (16) -------- 118 -------- Less:current portion (88) -------- $ 30 ======== Rental expenses charged to operations totaled approximately $4,279,000, $4,272,000, and $3,432,000 for the years ended March 31, 1997, 1996, and 1995, respectively. During 1997, 1996, and 1995 the Company acquired equipment under capital leases in the amounts of $30,000, $8,000, and $81,000, respectively. 4. Earnings per Share In accordance with Accounting Principles Board (APB) No. 15 earnings per share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding during the reporting periods. Common stock equivalents consist of the dilutive effect of outstanding options to purchase common stock. Fully dilutive earnings per share is substantially the same as reported earnings per share. In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings per Share," which will be adopted by the Company in fiscal year 1998. SFAS No. 128 requires companies to compute earnings per share under two different methods, basic and diluted, and to disclose the methodology used for the calculation. The Company does not believe that this pronouncement will have a significant effect on previously stated earnings per share. 5. Retirement Plan The Company maintains a defined contribution plan covering substantially all employees. Amounts contributed are based on a percentage of eligible employees annual compensation. Percentages contributed equaled 4% in 1997 and 1996 and 3% in 1995. The Company's contributions totaled approximately $1,566,000 in 1997, $1,425,000 in 1996, and $1,037,000 in 1995. The Plan also permits eligible employees to make voluntary before-tax salary deferral contributions. 6. Income Taxes The provision for income taxes charged to operations was comprised of the following (in thousands):
Year Ended March 31 ------------------- 1997 1996 1995 ---- ---- ---- Provision for (benefit from) income taxes Current Federal $ 3,602 $ 4,422 $ 1,870 State 555 233 503 Deferred, net Federal 96 (1,470) (1,817) State (34) (75) (485) ------- -------- ------- Net tax provision $ 4,219 $ 3,110 $ 71 ======= ======= ========
The provision for income taxes for the three years ended March 31, 1997 differs from the U.S. statutory rate principally as follows: Year Ended March 31 ------------------- 1997 1996 1995 ---- ---- ---- Statutory Federal income tax rate 35.0% 34.0% 34.0% State income taxes, net of Federal benefit 2.8 1.7 5.3 Research and development credits (3.6) (1.0) (5.0) Other .3 1.0 0.7 Change in valuation allowance -- (2.2) -- ---- ---- ---- Effective income tax rate 34.5% 33.5% 35.0% ==== ==== ==== The major components of deferred tax assets and liabilities consisted of the following (in thousands): Year Ended March 31 ------------------- 1997 1996 ------- -------- Deferred tax asset: Reserves and accruals not currently deductible for tax $ 4,644 $ 4,232 purposes Tax credits 256 395 ------- ------- Total deferred tax asset 4,900 4,627 Deferred tax liability: Accelerated depreciation (151) (631) Percentage of completion contract accounting (931) (116) ------- ------- Total deferred tax liability (1,082) (747) ------- ------- Net deferred tax asset $ 3,818 $ 3,880 ======= ======= The $3,818,000 net deferred tax asset as of March 31, 1997 was allocated on the accompanying balance sheet with $151,000 included in long-term liabilities, and the remaining $3,969,000 included in prepaid expenses and other. 7. Common Stock On January 29, 1997, the Company's Board of Directors declared a two-for-one split of the Company's common stock effected in the form of a 100% stock dividend distributed on February 28, 1997 to shareholders of record as of February 10, 1997. Approximately 6.4 million shares of common stock were issued in connection with the split. The stated par value of each share was not changed from $.01. A total of $64,000 was reclassified from the Company's paid-in capital account to the Company's common stock account. All share and per share amounts included in these financial statements have been restated to retroactively reflect the stock split. On June 26, 1996, the Company's stockholders approved an amendment to Article 4 of the Company's Certificate of Incorporation, increasing the number of authorized shares of common stock with a par value $.01 per share ("common stock "), from 15,000,000 to 25,000,000. On February 6, 1997, the Company registered the additional authorized shares. On May 9, 1995, the Board of Directors adopted a Stockholder's 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 (pre split). 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. In August 1990, the Board of Directors authorized the purchase of up to $2,500,000 of the Company's common stock on the open market. Common stock of $1,501,000 has been repurchased as of March 31, 1997. The 1982 Stock Option Plan expired on January 26, 1991 precluding the issuance of option grants under that plan. On March 31, 1997 no options remained to be issued or exercised. The Company's 1991 Stock Option Plan provides for the issuance of either incentive or non-qualified options to employees and certain non-employee directors. Incentive options can be granted at an exercise price not less than fair market value of the stock on the date of grant. Non-qualified options can be granted at an exercise price not less than 85% of the fair market value of the stock on the date of the grant. Options granted under the 1991 Plan generally vest 25% one year after the date of grant and rateably thereafter over three years and options generally expire ten years from the date of grant. The 1991 Plan will expire in the year 2001. Information with respect to these plans is as follows:
1982 Stock Option Plan 1991 Stock Option Plan -------------------------- ---------------------------- Average Available Average Outstanding Option Prices for Grant Outstanding Option Prices ----------- ------------- --------- ----------- ------------- Balance at March 31, 1994 79,000 $ 5.44 645,004 306,872 $ 5.73 ------ --------- ------- ------- --------- Granted -- -- (256,334) 256,334 $ 7.74 Exercised (31,500) $ 5.40 -- (9,332) $ 4.58 Terminated -- -- 4,800 (4,800) $ 7.24 ------ ------ -------- --------- --------- Balance at March 31, 1995 47,500 $ 5.47 393,470 549,084 $ 6.66 Additional Authorized -- -- 1,000,000 -- -- Granted -- -- (365,442) 365,442 $ 7.85 Exercised (7,500) $ 2.72 -- (101,358) $ 4.53 Terminated -- -- 115,802 (115,802) $ 7.30 ------ ------ -------- ---------- --------- Balance at March 31, 1996 40,000 $ 5.98 1,143,830 697,366 $ 7.49 Granted -- -- (375,300) 375,300 $ 16.54 Exercised (40,000) $ 5.98 -- (64,534) $ 7.65 Terminated -- -- 45,711 (45,711) $ 10.39 ------- ------- --------- --------- -------- Balance at March 31, 1997 -- -- 814,241 962,421 $ 10.92 ======= ======= ======= ======= ========
Under the 1991 Stock Option Plan the options outstanding on March 31, 1997 were as follows:
Options Outstanding Options Exercisable Weighted Average Range of Number remaining Weighted Average Number Weighted Average Exercise Outstanding at Contractual Life in Exercise Exercisable at Exercise Prices 3/31/97 Years Price 3/31/97 Price --------- ---------- -------------- -------------- ----------- --------- $ 2.50 - $ 5.63 53,062 6.04 $ 4.50 35,892 $ 4.42 $ 6.38 - $ 10.00 548,859 5.29 $ 7.82 353,769 $ 7.65 $ 13.63 - $ 20.00 275,500 9.23 $ 14.96 -- -- $ 21.00 - $ 31.50 85,000 9.12 $ 21.95 -- -- ------ --------- Total 962,421 389,661 ======= =======
Pro Forma Information. The Company applies APB No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for the stock compensaton plans (the Plans) described above. Accordingly, no compensation cost has been recognized for the Plans. If compensation cost for the Plans had been determined consistent with SFAS No. 123 "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands except per share data) : Year Ended March 31 ------------------- 1997 1996 ------- ------ Net income As reported 8,011 6,173 Pro forma 6,755 5,615 Earnings per share - primary As reported .61 .49 Pro forma .52 .44 Because the method of accounting prescribed by SFAS No. 123 has not been applied to options granted prior to April 1, 1995, and because the Black-Scholes option valuation model was developed for traded options and requires the input of subjective assumptions, the resulting pro forma compensation cost may not be representative of that to be expected in future years The fair value of each option grant is estimated based on the date of grant using the Black-Scholes option pricing model with the following assumptions used for 1997 and 1996: risk-free interest rates of approximately 6.0% for 1997 and 6.1% for 1996, dividend yields of 0%, volatility factor of the expected market price of the Company's common stock of 76%, and a weighted average expected life of an option of approximately 3 years. The weighted average fair values of options granted in fiscal year 1997 and 1996 respectively were $7.34 and $3.37. Under the 1992 Employee Stock Purchase Plan, the Company makes offerings of common stock to its employees at such time and of such duration as its Board determines. A total of 400,000 shares of common stock has been reserved for issuance. In fiscal years 1997 and 1996, the Company has sold 66,512 shares and 70,788 shares at a weighted average fair value of $5.27 and $2.41 respectively. As of March 31, 1997, 165,832 shares remained available for purchase. 8. Litigation and Contingencies The Company is contingently liable with respect to lawsuits and other matters which arise in the normal course of business. The Company must comply with detailed government procurement and contracting regulations. The Company has prepared and presented documentation and support to a customer addressing its post-award audit recommendations. Management believes that the outcome of such contingencies will not have a material adverse effect on the Company's financial position or results of operations. Selected Financial Data (in thousands, except for per share data)
Year Ended March 31 Summary of Operations for the Fiscal Year 1997 1996 1995 1994 1993 Revenues $167,002 $145,100 $114,384 $ 98,055 $ 92,821 Operating income 10,894 8,444 1,620 4,498 2,319 Income before change in accounting method 8,011 6,173 131 2,836 1,159 Cumulative effect of change in accounting method -- -- -- 700 -- Net income 8,011 6,173 131 3,536 1,159 Earnings per share before change in accounting method .61 .49 .01 .27 .12 Cumulative effect of change in accounting method -- -- -- .07 -- Weighted average shares 13,070 12,702 12,484 10,394 9,730 Net income as a percent of revenues 4.8% 4.3% .1% 3.6% 1.3% Financial Position at End of Fiscal Year Current assets $ 89,131 $ 76,152 $ 71,994 $ 60,125 $ 45,007 Current liabilities 22,721 19,657 24,035 11,466 18,792 Working capital 66,410 56,495 47,959 48,659 26,215 Current ratio 3.9 3.9 3.0 5.2 2.4 Property and equipment, net 14,113 14,500 15,608 14,005 12,226 Total assets $103,518 $ 90,948 $ 88,005 $ 74,503 $ 57,492 Long-term debt 30 85 161 235 358 Shareholders' equity 79,706 69,589 62,097 61,367 37,571 Common stock outstanding 12,833 12,656 12,468 12,362 9,728 Book value per share $ 6.21 $ 5.50 $ 4.98 $ 4.96 $ 3.86
Selected Common Stock Data
Stanford Telecommunications, Inc. Common Stock was offered to the Fiscal 1997 High Low public on October 6, 1983, and since that date has been traded on First Quarter 32 7/8 13 3/8 the Nasdaq stock market under the symbol STII. During January 1994, Second Quarter 30 18 5/8 the Company completed a secondary offering of its common stock. The Third Quarter 26 3/4 11 1/4 price per share reflected in the table has been adjusted for a Fourth Quarter 21 1/16 14 1/2 two-for-one split of the Company's common stock distributed to shareholders on February 28, 1997 and represents the closing prices Fiscal 1996 in the Nasdaq National Market System. The quotations represent First Quarter 8 3/4 6 1/2 inter-dealer quotations, without retail markups, markdowns or Second Quarter 12 7/8 7 commissions, and may not necessarily represent actual transactions. Third Quarter 11 11/16 8 Fourth Quarter 15 5/8 8 1/8
The Company has not paid cash dividends on its Common Stock since its incorporation and anticipates that for the foreseeable future it will continue to retain its earnings for use in its business. A covenant under the current Line of Credit would require prior approval of any cash dividend by the Bank. On March 31, 1997, there were approximately 1,470 holders of record of the Company's Common Stock. Nasdaq Trading Volume Fiscal 1997 - 13,475,504 shares / Fiscal 1996 - 6,327,091 shares Nasdaq Market Makers Montgomery Securities Inc . o Mayer & Schweitzer Inc. o Troster Singer Corp. o John G. Kinnard & Co., Inc. o Oppenheimer & Co o Sherwood Securities Corp. EX-23.1 5 EXHIBIT 23.1 EXHIBIT NUMBER 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Forms S-8 (file nos. 33-45090, 33-68534, and 33-63771). /s/ Arthur Andersen LLP San Jose, California June 20, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS MAR-31-1997 APR-1-1996 MAR-31-1997 8,235 25,074 45,610 0 6,011 89,131 50,132 36,019 103,518 22,721 0 0 0 128 79,578 103,518 167,002 167,002 127,432 156,108 0 0 0 12,230 4,219 8,011 0 0 0 8,011 0.61 0.61
-----END PRIVACY-ENHANCED MESSAGE-----