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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended December 29, 2000
Commission File No. 0-12588
Salient 3 Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 23-2280922
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P.O. Box 1498, Reading, Pennsylvania 19603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 856-5500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $1.00 per share
(Title of Class)
Class B Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate 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
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's Class B (voting) common
stock held by non-affiliates computed by reference to the closing sale price
for the registrant's Class A (non-voting) common stock at February 23, 2001,
as reported by the Nasdaq Stock Market, was $464,000.
Class A Class B
------- -------
Number of shares of each class
of common stock outstanding as
of February 23, 2001 (excluding
2,770,476 treasury shares): 5,939,993 274,831
PART I
ITEM 1. BUSINESS.
Throughout Item 1 through Item 9 of this Form 10-K, dollar amounts are
reported in thousands, except for per share amounts.
In October 1999, Salient 3 Communications, Inc. (the Company)
announced that its Board of Directors had retained Robert W. Baird &
Co. (Baird) to assist in evaluating and pursuing various strategic
alternatives intended to enhance stockholder value. After extensive
exploration and evaluation of various strategic alternatives, the board
concluded that the dissolution and liquidation of the Company would
enhance stockholder value and was in the best interests of the
stockholders.
Prior to this decision, the Company was a leading telecommunications
equipment and services company with subsidiaries that supported public,
private and wireless network operators. The Company manufactured and
provided telecommunications equipment and services to the industrial,
access products and wireless communications markets. The Company's
primary subsidiaries consisted of GAI-Tronics Corporation (GTC) -
Industrial Segment, XEL Communications, Inc. (XEL) - Access
Products Segment, and SAFCO Technologies, Inc. (SAFCO) - Wireless
Segment.
The Company was organized as a holding company in 1984. Prior to
forming the holding company, the Company was an operating company
and owner of several subsidiaries. The Company was originally
organized in 1942 under its prior name, Gilbert Associates, Inc. The
holding company structure separated the administrative and financing
activities of the Company from the activities of its operating subsidiaries.
CORPORATE DEVELOPMENTS
On April 17, 2000, the Board of Directors of the Company adopted a
Plan of Dissolution and Liquidation (the Plan). Under the Plan, the
Company will be liquidated by (1) the sale of its non-cash assets, (2) the
payment of or providing for all of its claims, obligations and expenses,
(3) the pro rata distribution of assets, primarily cash, to the stockholders,
and (4) if required, the distribution of assets to one or more liquidating
trusts established for the benefit of the stockholders. The Plan was
approved by stockholders on July 21, 2000.
Prior to June 30, 2000, seven stockholders, who together control more
than 51% of the issued and outstanding Class B common stock, had
agreed to vote their shares in favor of the Plan and in favor of the sales of
SAFCO and GTC. As a result, the Company adopted the liquidation
basis of accounting for the second quarter of 2000. Under the liquidation
basis of accounting, assets are stated at their estimated net realizable
values and liabilities are stated at their anticipated settlement amounts.
In July 2000, the Company closed the sales of SAFCO and GTC. In
December 2000, the Company closed the sale of XEL. Details of these
sale transactions are included in the discussions of the industry segments
below.
On August 11, 2000, the Company filed a Certificate of Dissolution with
the State of Delaware. Under Delaware law, the Company will continue
to exist for a period of three years for the purpose of winding up its
affairs. The Board of Directors and officers of the Company will
continue to oversee the liquidation and dissolution.
On September 8, 2000, the Company paid an initial liquidating
distribution of $12 per share to holders of Class A (non-voting) and Class
B (voting) common stock. The Board of Directors will determine the
timing and amount of all future distributions made to stockholders.
In April 2000, the Board of Directors authorized immediate vesting of all
outstanding restricted stock, and, effective with the first subsidiary sale,
vesting of stock options granted under the 1989 Stock Option Plan and
the 1996 Long Term Incentive Plan and extension of the exercise period
to August 25, 2000, the record date of the initial liquidating distribution.
The Board also added a provision to convert all unexercised options at the
record date of the initial liquidating distribution into Limited Stock
Appreciation Rights (LSAR's). In addition, all warrant holders were given
the opportunity to convert their warrants into LSAR's. These rights entitle
the holder to receive cash payments for each share equal to the difference
between the aggregate per share liquidating distribution payable to
stockholders upon liquidation and the per share exercise price applicable to
each converted option or warrant. In August, 2000, 1,097,200 options and
705,555 warrants were converted into LSAR's. Holders of LSAR's were paid
$1,866 in connection with the initial liquidating distribution on
September 8, 2000.
INDUSTRIAL SEGMENT
GTC, based in Reading, Pennsylvania, is principally engaged in the
development, assembly and marketing of communications systems for
industrial operations. In serving such customers, GTC provides custom
services by adapting communication systems to operate under
extraordinary plant conditions such as excessive dust and explosive
atmospheres. GTC also designs emergency notification systems and land
mobile communications systems. GAI-Tronics Limited, a wholly-owned
subsidiary based in Burton Upon Trent, England, is a designer,
manufacturer and marketer of ruggedized communications systems for
the mining, energy and transportation industries, and specialized
communications and integrated entertainment systems. Irmel, a wholly-
owned subsidiary acquired in November 1999, is based in Milan, Italy
and designs and assembles public address and closed circuit television
systems.
On July 26, 2000, the Company completed the sale of GTC to Hubbell
Incorporated for cash of $36,246, after consideration of certain closing
balance sheet adjustments and employee-related expenses. This sale
terminated all operations of the Company in the Industrial Segment.
ACCESS PRODUCTS SEGMENT
XEL, based in Aurora, Colorado, designs and sells transmission products
to the access products market. XEL's products are used by its customers
in the telecommunications network to provide customer access for voice
and data services. XEL has entered into new technology partnerships to
broaden its product offerings to include technology to provide high speed
transmission. XEL completed development of its own new product for
the access market in the second quarter of 2000.
On December 29, 2000, the Company completed the sale of XEL to a
company controlled by XEL's president, James S. Kennedy, for $4,900
in the form of a promissory note bearing interest payable monthly at 8%,
with the principal due after 24 months. If XEL is resold to another party
within 24 months, the Company would receive full payment on the note
and 70% of all proceeds in excess of $5,000. If XEL is resold after 24
months but within 36 months, the Company would receive 50% of all
proceeds over $5,000. If there is a default in payment of principal or
interest on the promissory note, the Company has the right to retake
control of XEL. This sale terminated all operations of the Company in
the Access Products Segment.
The sale of XEL excluded the building it occupies in Aurora, Colorado.
The Company is independently attempting to sell this building to
unrelated third parties.
WIRELESS SEGMENT
SAFCO, based in Chicago, Illinois, provides products and services which
focus on measurement, analysis and predictive tools and engineering and
technical services used by the wireless communication industry. The
TEC Cellular division, based in Melbourne, Florida, provides radio
frequency engineering consulting services and software applications to
the wireless industry.
On July 25, 2000, the Company completed the sale of SAFCO to Agilent
Technologies, Inc. for $121,426 in cash, after consideration of certain
closing balance sheet adjustments. The purchase price included $11,000
which has been placed into escrow for certain expenses and possible
indemnification claims. On August 29, 2001, the Company will be
entitled to receive distribution of the balance remaining in the escrow
account, after reduction for any indemnification claims made by the
buyer before that date. This sale terminated all operations of the
Company in the Wireless Segment.
DISSOLUTION AND LIQUIDATION PROCESS
After approval of the Plan and filing of the Certificate of Dissolution, the
Company ceased to exist for the purpose of continuing business
operations, but will continue for a period of three years, under Delaware
law, for the purpose of winding up its affairs. The Board of Directors
and officers of the Company will continue to oversee the liquidation and
dissolution. During this period the Company will: (1) convert to cash as
much of its non-cash assets as possible, (2) pay or make provision for the
payment of all of its expenses and liabilities, (3) distribute its remaining
assets, which should be primarily cash, to its stockholders, and (4) if
required, transfer any remaining assets and obligations to a liquidating
trust established for the benefit of stockholders.
As discussed in each industry segment, all of the operating businesses
were sold during 2000. The remaining non-cash assets consist primarily
of notes receivable from sales of the operating businesses, sale proceeds
held in escrow, the land and building occupied by XEL and land near
Reading, Pennsylvania.
Claims, liabilities and expenses, including operating costs, salaries,
income taxes, payroll and local taxes and miscellaneous office expenses
will continue to be incurred during the liquidation period. These
liabilities and expenses will reduce the assets available for ultimate
distribution to the stockholders.
Before making distributions to stockholders, the Board of Directors is
required by Delaware law to first make adequate provision for the
payment, satisfaction and discharge of all the Company's obligations.
Such obligations include (1) all claims and obligations, including all
contingent, conditional or unmatured contractual claims known to the
Company, (2) any claim against the Company which is the subject of a
pending action, suit or proceeding to which the Company is a party, and
(3) claims that have not been made known to the Company or that have
not arisen, but that are likely to arise or become known based on facts
known to the Company. The Company will reserve assets in a
contingency reserve deemed by management and the Board of Directors
to be adequate to provide for such liabilities and obligations when due.
After considering these factors, the Board of Directors will determine the
timing and amount of all future distributions made to stockholders.
The valuation of assets and liabilities in liquidation necessarily requires
many estimates and assumptions and there are substantial risks and
uncertainties in carrying out the provisions of the Plan. The actual value
of any liquidating distributions will depend upon a variety of factors
including, but not limited to, (1) the actual cash proceeds from the sale of
the Company's subsidiaries and other assets, (2) the ultimate settlement
amounts of its liabilities and obligations, including indemnifications
provided in connection with subsidiary sale transactions, (3) actual costs
incurred in connection with carrying out the Plan, including
administrative costs during the liquidation period, and (4) the actual
timing of distributions. Accordingly, it is not possible to predict with
certainty the aggregate net values ultimately distributable to stockholders
and no assurance can be given that the amount to be received in
liquidation will equal or exceed the price or prices at which the Class A
common stock has generally traded or is expected to trade in the future.
If all of the Company's assets are not distributed within three years after
filing the certificate of dissolution, the remaining assets, subject to the
claims of creditors, will be transferred to a liquidating trust established
for the benefit of stockholders. The Board of Directors is authorized to
appoint trustees of the liquidating trust. Property transferred into a
liquidating trust will thereafter be sold, used to pay creditors' claims or
distributed to stockholders, as determined by the trustees.
ITEM 2. PROPERTIES
The physical properties owned and leased by the Company consist primarily of
office and manufacturing space, land and furniture and equipment.
The Company owns the office and manufacturing facility used by XEL
and located in Aurora, Colorado. The entire facility is approximately
112,000 square feet. All of XEL's warehouse functions, warranty and
service functions and executive and administrative functions are located
there. The Company is attempting to sell this facility and XEL will find
other suitable space for its business operations.
The Company owns approximately 104 acres of undeveloped land near
Reading, Pennsylvania. It consists of two parcels which are under option
to a developer who owns adjacent property. The options expire in
September 2002.
The Company owns office furniture and equipment which it uses to carry
out the Plan. The Company also leases office space and certain
office equipment, for terms of three years or less.
ITEM 3. LEGAL PROCEEDINGS
The Company has received notice of a complaint filed in Delaware
Chancery Court on August 29, 2000, and amended on February 26, 2001,
by a group of former employees and current Class A stockholders,
challenging the compensation packages granted by the Company to its
senior management in connection with the dissolution of the Company.
The Company is vigorously defending against the complaint and believes
that the Board of Directors acted appropriately and within its discretion
in structuring the benefits provided to management.
The Company is involved in various disputes arising in the ordinary
course of business which have resulted in pending litigation. In the
opinion of management of the Company, none of these matters will
materially affect the Company's net assets in liquidation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter required to be reported pursuant to this item was submitted to
security holders in the fourth quarter of 2000.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT.
The names, ages, positions and previous experience to the extent required to be
presented herein of all current executive officers of the Company are as
follows:
Name Position and Previous Experience Age
- ---- -------------------------------- ---
Timothy S. Cobb Mr. Cobb has been Chairman of the Board of Directors 59
since July 1995. He has been Chief Executive Officer
since March 1994 and President and
Chief Operating Officer since October 1993.
Mr. Cobb served as President of Gilbert/
Commonwealth, Inc. (former subsidiary of
Company) from January 1991 to September
1993. He served as President of GTC
(former subsidiary of Company) from October 1988
to December 1990. Upon joining
the Company, Mr. Cobb had 21 years
experience in the telecommunications industry,
culminating with his being President of the major systems
subsidiary of Ameritech in Chicago, Illinois. He is a
director of Central Vermont Public Service Corporation.
Paul H. Snyder Mr. Snyder has been Senior Vice President and 53
Chief Financial Officer since February 1997 and Vice
President and Chief Financial Officer from August 1995
to January 1997. From August 1994 to July 1995,
Mr. Snyder was Vice President and Chief Financial Officer
of The Dreyfus Corporation, a subsidiary of Mellon Bank
Corporation. From 1988 through 1994, he was
Senior Vice President and Chief Financial Officer of
Mellon PSFS, Mellon Bank Corporation's affiliate
in Philadelphia, Pennsylvania. Mr. Snyder became Senior Vice
President and Chief Financial Officer of DecisionOne
Corporation, a provider of multivendor computer maintenance
services, in February 2001.
Thomas F. Hafer Mr. Hafer has been Senior Vice President since February 52
1997 and Vice President from September 1995 to January
1997. He has served as General Counsel and Corporate
Secretary since February 1994. Mr. Hafer was
President of Green Hills Management Co. (former division of
Company) from September 1993 to July 1997.
None of the above officers has a family relationship with another such officer.
None of the officers was selected as a result of any arrangement or
understanding with any other person other than directors of the Company
acting solely in their capacities as such.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS.
The Company's Class A common stock is traded on the Nasdaq Stock Market
(Nasdaq) under the symbol STCIA. The following tabulation sets
forth the high and low closing sale prices as reported by Nasdaq.
2000 1999
--------------------- --------------------
High Low High Low
---- --- ---- ---
First Quarter $13.50 $6.63 $9.00 $6.38
Second Quarter 13.31 9.50 8.75 6.13
Third Quarter 14.06 2.38 9.25 5.38
Fourth Quarter 2.44 2.00 8.00 5.50
On September 8, 2000, the Company paid an initial liquidating
distribution of $12.00 per share on each share of Class A and Class B
common stock. There were no other cash dividends declared during 1999 or
2000.
At December 29, 2000, the approximate numbers of stockholders of Class A
and Class B common stock were 3,000 and 12, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL REVIEW
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Five Year Summary / Selected Financial Data
(000's except for share and per share information and number of employees)
Liquidation
Basis (1) Going-Concern Basis (1)
------------- ----------------------------------------------------------
Three Months Years Ended
As of Ended --------------------------------------------
Summary of Operations: Dec. 29, 2000 Mar. 31, 2001 1999 1998 1997 1996
------------- ------------- ---- ---- ---- ----
Telecommunications Sales N/A $ 25,015 $ 115,630 $ 119,282 $ 110,469 $ 96,459
Net Income (Loss) from
Continuing Operations N/A (1,348) 1,200 (17,459) (2) (7,845) (3) (7,928) (4)
Per Share of Common Stock (Basic):
Net Income (Loss) from
Continuing Operations N/A (0.23) 0.20 (2.83) (2) (1.24) (3) (1.26) (4)
Dividends to Stockholders - - - 0.10 0.40 0.60
Basic Weighted Average
Shares Outstanding N/A 5,989,073 5,973,328 6,158,587 6,305,384 6,299,127
Summary of Financial Position:
Total Assets $ 41,441 N/A $ 124,547 $ 118,455 $ 147,497 $ 155,747
Long-Term Debt - N/A 13,647 10,616 11,245 26,549
Net Assets in Liquidation 20,780 N/A N/A N/A N/A N/A
Net Assets in Liquidation Per Share $ 3.34 N/A N/A N/A N/A N/A
Stockholders' Equity N/A N/A 79,318 77,989 97,860 97,620
Stockholders' Equity Per Share N/A N/A 12.90 12.74 15.20 15.37
Number of Employees 5 743 797 760 905 788
(1) On April 17, 2000, the Board of Directors of Salient 3 Communications, Inc. (the Company) adopted a Plan of
Dissolution and Liquidation (the Plan). Under the Plan, the Company will be liquidated by (i) the sale of
its non-cash assets, (ii) the payment of or providing for all of its claims, obligations and expenses, (iii)
the pro rata distribution of assets, primarily cash, to the stockholders, and (iv) if required, the
distribution of assets to one or more liquidating trusts established for the benefit of the stockholders.
As a result, the Company adopted the liquidation basis of accounting effective April 1, 2000. All
information presented prior to April 1, 2000 is reported on a going-concern basis. (See Note 1 to the
Consolidated Financial Statements appearing elsewhere herein).
(2) Amount includes $18,684, or $2.99 per share, of non-recurring adjustments (See Note 20 to the
Consolidated Financial Statements appearing elsewhere herein).
(3) Amount includes $6,150 (after-tax), or $0.97 per share, of charges from the write-off of purchased in-
process research and development associated with the TEC Cellular, Inc. acquisition.
(4) Amount includes $10,300 (net of tax benefit of $6,500), or $1.63 per share, of charges from the write-
off of purchased in-process research and development associated with the SAFCO acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
(000's except for share and per share information)
LIQUIDATION BASIS
Introduction
On April 17, 2000, the Company's Board of Directors
adopted a Plan of Dissolution and Liquidation ("the
Plan"). Under the Plan, the Company will be
liquidated by (i) the sale of its non-cash assets,
(ii) the payment of or providing for all of its
claims, obligations and expenses, (iii) the pro rata
distribution of assets, primarily cash, to the
stockholders, and (iv) if required, the distribution
of assets to one or more liquidating trusts
established for the benefit of the stockholders. The
Plan was approved by stockholders on July 21, 2000.
On August 11, 2000, the Company filed a Certificate
of Dissolution with the State of Delaware. Under
Delaware law, the Company will continue to exist for
a period of three years for the purpose of winding up
its affairs. The Board of Directors and officers of
the Company will continue to oversee the liquidation
and dissolution.
Prior to June 30, 2000, seven stockholders, who
together control more than 51% of the issued and
outstanding Class B common stock, had agreed to vote
their shares in favor of the Plan and in favor of the
sales of SAFCO Technologies, Inc. (SAFCO) and GAI-
Tronics Corporation (GTC). As a result, the Company
adopted the liquidation basis of accounting for the
second quarter of 2000. Under the liquidation basis
of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at
their anticipated settlement amounts.
The valuation of assets and liabilities at their
estimated net realizable values and anticipated
settlement amounts necessarily requires many
estimates and assumptions and there are substantial
uncertainties in carrying out the provisions of the
Plan. The actual value of any liquidating
distributions will depend upon a variety of factors
including, but not limited to, (i) the actual
proceeds from the sale of the Company's subsidiaries
and other assets, (ii) the ultimate settlement
amounts of its liabilities and obligations, including
indemnifications provided in connection with
subsidiary sale transactions, (iii) actual costs
incurred in connection with carrying out the Plan,
including administrative costs during the liquidation
period, and (iv) the actual timing of distributions.
An initial liquidating distribution of $12.00 per
share was paid on September 8, 2000 to holders of
Class A (non-voting) and Class B (voting) common
stock.
Sale of Assets
On July 25, 2000, the Company completed the sale of
SAFCO to Agilent Technologies, Inc. for $121,426 in
cash, after consideration of certain closing balance
sheet adjustments. The purchase price included
$11,000 which has been placed into escrow for certain
expenses and possible indemnification claims. On
August 29, 2001, the Company will be entitled to
receive distribution of the balance remaining in the
escrow account, after reduction for any
indemnification claims made by the buyer before that
date. As of December 29, 2000, the Company is not
aware of any such indemnification claims.
On July 26, 2000, the Company completed the sale of
GTC to Hubbell Incorporated for cash of $36,246,
after consideration of certain closing balance sheet
adjustments.
The Company is providing certain indemnifications to
the buyers of SAFCO and GTC under the representations
and warranties sections of the purchase agreements.
It is not possible to predict what claims could
possibly be asserted by buyers or what values those
potential claims could have. The Company has
purchased certain insurance to minimize its exposure
on some, but not all, of the areas for which they are
indemnifying the buyers.
On December 29, 2000, the Company completed the sale
of XEL Communications, Inc. (XEL) to a company
controlled by XEL's president, James S. Kennedy, for
$4,900 in the form of a promissory note bearing
interest payable monthly at 8%, with the principal
due after 24 months. In connection with the sale,
the Company extended XEL a $500 line of credit
expiring March 31, 2001. If XEL is resold to another
party within 24 months, the Company would receive
full payment on the note and 70% of all proceeds in
excess of $5,000. If XEL is resold after 24 months
but within 36 months, the Company would receive 50%
of all proceeds over $5,000. If there is a default
in payment of principal or interest on the promissory
note, the Company has the right to retake control of
XEL. The sale of XEL excluded the building it
occupies in Aurora, Colorado. The Company is
attempting to sell this building to unrelated third
parties.
Liquidity and Capital Resources
On December 29, 2000, the Company had cash and cash
equivalents of $18,426. The future cash needs of the
Company will be dependent on the continuing
implementation of the Plan. The Company believes
that its cash and cash equivalents, its collection of
deferred payments on sales of subsidiaries and its
conversion of other assets to cash will be sufficient
to fund its working capital requirements through the
completion of the Plan.
Pursuant to the Plan, after payment or provision for
payment of the Company's indebtedness and other
obligations, the cash proceeds of any asset sales,
together with other available cash, will be
distributed from time to time pro rata to the holders
of the common stock. The record dates with respect
to each distribution will be selected by the Board of
Directors. An initial liquidating distribution of
$12.00 per share was paid on September 8, 2000.
The Company estimates that its total capital
expenditures during the liquidation period will be
insignificant.
Before distributing assets to its stockholders, the
Company is required by Delaware law to make provision
for all known claims and obligations and any
unasserted claims that are reasonably likely to arise
after the certificate of dissolution became
effective. The accrual for asserted and unasserted
claims represents management's judgment as to the
estimated amounts required to settle such claims,
should they arise and should they have merit.
Ultimate settlement amounts for such claims are
expected to differ from estimates recorded as of
December 29, 2000. Accordingly, it is not possible
to predict with certainty the amount required for
such claims.
Other
In April 2000, the Board of Directors authorized
immediate vesting of all outstanding restricted
stock, and, effective with the first subsidiary sale,
vesting of stock options granted under the 1989 Stock
Option Plan and the 1996 Long Term Incentive Plan and
extension of the exercise period to the record date
of the initial liquidating dividend. The Board also
added a provision to convert all unexercised options
at the record date of the initial liquidating
dividend into Limited Stock Appreciation Rights.
These rights entitle the holder to receive cash
payments for each share equal to the difference
between the aggregate per share liquidating
distribution payable to stockholders upon liquidation
and the per share exercise price applicable to each
converted option. In August, 2000, 1,097,200 options
and 705,555 warrants were converted into LSAR's.
Holders of LSAR's were paid $1,866 in connection with
the initial liquidating distribution on September 8,
2000. The estimated remaining liability for
settlement of the LSAR's at December 29, 2000 is
$3,056 and is included in accrued liabilities in the
statement of net assets in liquidation.
GOING-CONCERN BASIS
Results of Operations - First Quarter of 2000 versus
First Quarter of 1999.
Summary
The Company reported a net loss for the first quarter
of 2000 of $1,348, or $.23 per share compared to net
income of $68, or $.01 per share for the same period
of 1999. Sales decreased 13% for the quarter from
$28,623 in 1999 to $25,015 in 2000. The decline in
net income was due to decreased sales and gross
margins in the Industrial and Access Products
Segments. The Wireless Segment reported improved
operating income for the first quarter of 2000.
In November and December 1999, the Company acquired
the net assets of Irmel S.r.l. and Red Alert, Inc.,
respectively, for a total of $4,467, including a
deferred payment of $884 due December 31, 2000 and
acquisition costs of $253. Irmel, based in Milan,
Italy, expanded the Industrial Segment's European
Operations and Red Alert was merged into its US
operations.
Effective February 23, 1999, the Company acquired all
of the outstanding stock of ComOpt AB (ComOpt), a
Swedish wireless software company, for $4,098,
including acquisition costs. ComOpt was part of the
Company's Wireless Segment.
Sales and Gross Profit
The following is a breakdown of sales by segment for
the first quarter of each year:
2000 1999
----- -----
Access Products 3,392 $ 6,552
Industrial 3,614 16,124
Wireless 8,009 5,947
------ ------
Total $25,015 $28,623
====== ======
Access Products sales declined by 48% in 2000
compared to 1999, due to a continuing reduction in
customer demand for analog channel units and a
slowdown of orders for partnership products.
Contributing to the decreases were customer reuse
programs and customer evaluation of their inventory
stocking programs. This segment also suffered from
delays in completing development of its new
integrated access product, which became available for
production in the second quarter of 2000. Industrial
sales decreased 16% in 2000 compared to 1999,
primarily because of lower sales by the Reading,
Pennsylvania location due to sluggish capital
spending by domestic crude oil related industries.
Sales declines in the European operations were offset
by sales by Irmel, acquired in December 1999.
Wireless sales grew 35% year-over-year due to
improved hardware sales, increased demand for
engineering services and the ComOpt acquisition in
February, 1999.
The consolidated gross profit percentage increased
from 40.7% in 1999 to 41.4% in 2000. The increase
was due to a larger percentage of sales from the
Wireless Segment, which traditionally has higher
gross profit percentages from its software-based
products. Both the Access Products and Industrial
Segments experienced declines in gross profit
percentages due to their sales declines.
Selling, General and Administration
Selling, general and administration increased 12% in
2000 compared to 1999. As a percentage of sales,
selling, general and administration was 38% and 30%
in 2000 and 1999, respectively. The increases came
from the Wireless Segment, which normally has higher
operating costs than the other segments, and the
Industrial Segment, where the cost increases relate
to the acquisitions and to increased selling expense.
In addition, the first quarter of 2000 includes
charges of $266 for retention bonuses and $100 for
severance costs and credits of $326 for elimination
of reserves due to collection of a note receivable
and a credit from an insurance company in connection
with its conversion to a stock company.
Research and Development, Goodwill Amortization and
Interest Expense
Research and development decreased 11% due to
capitalization of software development costs, net of
amortization, of $1,040 during the first quarter of
2000 compared to $500 during the first quarter of
1999. Costs are capitalized for the development of
software for external use in accordance with
Statement of Financial Accounting Standards No. 86
"Accounting for Cost of Computer Software to be Sold,
Leased, or Otherwise Marketed." The Wireless and
Access Products Segments are responsible for most of
the capitalized costs.
Goodwill amortization increased 35% due to the
amortization of goodwill related to the acquisitions
of ComOpt, Irmel and Red Alert.
Interest expense increased 37% due to additional
borrowings for the acquisitions of ComOpt, Irmel and
Red Alert, an increase in short-term borrowings in
2000 and interest rate increases.
Provision for taxes on income
The effective tax rate was 38% for 2000 and 30% for
1999. The change in the effective tax rate was due
to the anticipated reduction in availability of
research and development tax credits in 2000.
Capitalized software development costs are not
eligible for the credit.
Other
In order to ensure continuing value in the Company
and its operating subsidiaries, various members of
management and key employees of the subsidiaries
were offered incentives to continue employment
through the completion of the subsidiary sale
process. Portions of these incentives were
guaranteed to the employees, subject to their continued
employment through December 15, 2000, and were being
recognized over the related service period, including
$266 charged to selling, general and administration
during the first quarter of 2000. Other incentives,
including sale bonuses and severance, were dependent
on completion of sale transactions and were
recognized in connection with the subsidiary sales.
Results of Operations - 1999 vs. 1998
Summary
The Company reported net income from continuing
operations of $1,200, or $.20 per share, for 1999,
compared with a net loss from continuing operations
of $17,459, or $2.83 per share, for 1998. Excluding
non-recurring adjustments, income from continuing
operations was $1,204, or $.20 per share for 1999.
Excluding adjustments discussed below, income from
continuing operations was $1,225, or $.20 per share
for 1998. Revenue declined 3% from 1998 to 1999, and
gross profit declined 4%. The decrease in gross
profit was offset by a decrease in research and
development, due to capitalization of a larger amount
of software development costs in 1999. Excluding
adjustments, net income from continuing operations
decreased 2%. Results for 1999 were negatively
impacted by approximately $290, or $.03 per share
after taxes, of charges related to the Company's
decision to pursue strategic alternatives, including
the evaluation of converting to one class of stock.
The reduction of research and development expense in
1999 was due to the Company's capitalizing more
software under development than it had in 1998, as
development efforts at SAFCO (Wireless Segment) and
XEL (Access Products Segment) became much more
focused on products that would generate sales over an
extended period, versus performing research and
providing maintenance on existing products. The net
amount capitalized, after related amortization, was
$3,340 in 1999, compared to $327 in 1998.
As part of a cost reduction initiative in the second
quarter of 1999, the Industrial Segment accrued for
severance costs of $356 and wrote off $650 of
inventory in connection with the consolidation of the
Instrument Associates division of GAI-Tronics into
its Reading, Pennsylvania facility. Also during the
second quarter of 1999, the Company determined that
$1,000 of its reserves was no longer required and
could be reduced. The effect of these adjustments
was to increase cost of goods sold by $830 and reduce
selling, general and administration by $824.
Included in the results for 1998 were expenses of
$23,089 resulting from charges for restructuring and
asset impairment ($18,190), inventory write-downs
($4,353), and other miscellaneous expenses ($546).
The $23,089 charge after an income tax benefit of
$4,225 was $18,864 or $3.02 per share during the
second quarter. Also included in the results was
pre-tax income of $267 resulting from reversal of the
majority of a reserve for the retention layer on
certain insurance coverages ($2,167), offset in part
by a charge for retirement expenses associated with a
former officer ($1,200) and provisions to strengthen
certain other operating reserves ($700). This
resulted in income of $180, net of $87 income tax
expense, or $.03 per share during the fourth quarter.
The restructuring and asset impairment charges of
$18,190 included $2,401 relating to severance and
other costs of outsourcing the manufacturing process
at XEL Communications, Inc. (XEL), as well as the
consolidation of manufacturing of the Instrument
Associates Division of GAI-Tronics Corporation into
its Reading, Pennsylvania headquarters operations.
These charges also included an asset impairment
charge of $15,789 relating to the write-down of the
carrying value of goodwill related to XEL ($10,987
with no tax benefit) and the Instrument Associates
Division of GAI-Tronics (pretax charge of $4,802).
The Company also re-evaluated its product offerings
and decided to discontinue certain low margin product
lines. As a result, other expenses of the Company's
business transition included inventory write-downs at
the Company's SAFCO Technologies, Inc. and XEL
subsidiaries and Instrument Associates Division of
$4,353, which were included in cost of goods sold,
and miscellaneous expenses of $546, which were
included in selling, general and administration.
The reversal of the insurance reserve resulted from
the Company's transition to a different structure in
its insurance coverages, reflecting both its
streamlined telecommunications businesses and a
favorable climate in the commercial insurance
markets.
During the years 1999 and 1998, the Company
purchased stock or assets of several companies. The
Industrial Segment includes the operations of Red
Alert, Inc., acquired in December 1999, Irmel S.r.l.,
acquired in November 1999 and Elemec Systems, Ltd.,
acquired in January 1998. The Wireless Segment
includes the operations of ComOpt AB, acquired in
February 1999. Each acquisition is included in the
segment's operating results since the date of
acquisition. Note 13 to the Consolidated Financial
Statements provides additional information about
these acquisitions.
Sales and Gross Profit
Sales decreased 3% for the year from $119,282 in 1998
to $115,630 in 1999. Both the Industrial and the
Access Products Segments experienced declines, while
sales in the Wireless Segment increased by 14%.
Approximately 40% of the increase in the Wireless
Segment sales resulted from the ComOpt acquisition in
the first quarter of 1999.
The following is a breakdown of sales by segment:
1999 1998 1997
---- ---- ----
Access Products $21,149 $25,160 $27,568
Industrial 60,180 64,033 59,809
Wireless 34,301 30,089 23,092
------- ------- -------
Total $115,630 $119,282 $110,469
======= ======= =======
Access Products sales decreased by 16% in 1999
compared to 1998. Customer demand for analog channel
units continued the declines experienced in the past
two years. In addition, sales of partnership
products declined 10%. Some of the decreases
resulted from customer reuse programs and customer
evaluation of their inventory stocking programs.
This segment also suffered from delays in completing
development of its new integrated access product,
which is now planned for production in the second
quarter of 2000. Industrial sales declined 6% in
1999 compared to 1998. The decline was largely due
to a continued soft order flow from the segment's
customers in oil related industries. However, modest
growth was seen in its European operations, acquired
in 1997 and 1998. Wireless sales increased 14% in
1999 over 1998. The sales growth came from software-
based products and engineering and testing services.
The acquisition of ComOpt in February 1999 also
contributed to the growth.
Including the adjustments, the gross profit
percentage increased from 38% in 1998 to 41% in 1999.
Excluding the adjustments, the gross profit
percentage remained constant at 42%. The Wireless
Segment traditionally has a higher gross profit
margin than the other segments, but its overall
profit margin declined in 1999 due to significant
revenue increases in its lower-margin services
business. However, the Industrial Segment increased
its gross margin by one percentage point and the
Access Products Segment had a fractional increase
both due to the restructuring and other cost
reduction efforts in these segments.
Selling, General and Administration
Excluding the adjustments, selling, general and
administration increased 1% in 1999 compared to 1998.
Increases were caused by the ComOpt acquisition and
expansions of sales and marketing efforts, but these
increases were largely offset by cost reduction
efforts in other areas.
As a percentage of sales, selling, general and
administration increased from 30% in 1998 to 31% in
1999. The Wireless Segment, which normally has a
higher percentage of selling, general and
administration to sales, reduced its percentage as a
result of the sales growth. However, the other
segments saw increases in their percentages due to
the sales declines.
Research and Development, Goodwill Amortization and
Interest Expense
Research and Development decreased 19% in 1999
compared to 1998, due to the capitalization of
software for external use in accordance with
Statement of Financial Accounting Standards No. 86,
"Accounting for Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed." Including
costs capitalized, the total expenditures for
research and development increased 9% in 1999
compared to 1998, as the company placed increased
emphasis on new product development.
Goodwill amortization increased 14% from 1998 to 1999
due to the acquisitions of ComOpt and Irmel in 1999.
Interest expense declined 9% as proceeds from sale of
a subsidiary in July 1998 were available to reduce
short-term borrowings and fund other cash
requirements.
Provision for Taxes on Income
Excluding the adjustments, the effective tax rate was
37% in 1999 and 27% in 1998. The increase in the
effective tax rate was due to the lower availability
of research and development tax credits in 1999.
Income from discontinued operations
As a result of a decision by the Board of Directors
to focus its business on telecommunications equipment
and services, the Company adopted discontinued
operations treatment for its Technical Services
Segment during the first quarter of 1997.
On July 24, 1998, the Company completed the last of
its planned divestitures with the sale of its
Resource Consultants, Inc. (RCI) subsidiary to the
management of RCI and an investor group for $19,317,
substantially all in cash. The Company reported an
after tax gain of $100, or $.02 per share on the
transaction. Proceeds of the sale were used to pay
down outstanding debt.
Other
In the second quarter of 1998, the Financial
Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities"
(SFAS 133). The Company will adopt SFAS 133 during
the first quarter of 2001. SFAS 133 will not have an
impact on the Company's statement of net assets in
liquidation.
Forward-Looking Statements
This Form 10-K contains certain statements of a
forward-looking nature relating to future events or
the future financial performance of the Company,
including statements regarding the timing and outcome
of the sale of the Company's assets, its dissolution
and liquidation and the expected distribution
therefrom. Such statements are only predictions and
involve risks and uncertainties, and actual events or
performance may differ materially from that expressed in any
such forward-looking statements. Potential risks and
uncertainties include, without limitation: ultimate
values realizable for unsold assets, adjustments to
subsidiary sale prices, collection of deferred
payments on sales of assets, post-closing
indemnification obligations relating to subsidiary
sales, costs and expenses relating to the
dissolution, including income taxes, and the nature
and amount of any unknown contingent liabilities.
Further information on factors that could affect the
Company's future financial performance can be found
in the Company's other filings with the Securities
and Exchange Commission. Words such as "estimates",
"positioned", "yields", "should generate", "appears",
"viewed", "could", "would position", "expected",
"does not expect" and "should allow" indicate the
presence of forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company's only financial instruments with market
risk exposure are short-term cash investments which
total $18,470 at December 29, 2000. Based on this
balance, a change of one percent in the interest rate
would cause a change in interest income for the
period of approximately $185. This interest amount,
less a related tax effect, would have no effect on
the net assets in liquidation per outstanding share
since interest income on cash investments is not
accrued in the statement of net assets in
liquidation.
These financial instruments are non-trading (not
entered into for trading purposes) and carry interest
at a market rate. The Company's objective in
maintaining these variable rate investments is the
flexibility obtained in having cash available for
payment of accrued liabilities and distributions to
stockholders without penalties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and notes
thereto are the responsibility of, and have been prepared by,
management of the Company in accordance with generally accepted
accounting principles. Management believes the consolidated
financial statements for the quarter ended March 31, 2000 and for
prior years, presented on a going-concern basis, reflect fairly
the results of operations and financial position of the Company
in all material respects. The consolidated financial statements
include certain amounts that are based upon management's best
estimates and judgment regarding the ultimate outcome of
transactions which are not yet complete.
As a result of adoption and approval of the plan of liquidation,
financial statements for the period subsequent to March 31, 2000
are presented on a liquidation basis. Accordingly, the carrying
values of assets are presented at estimated realizable values and
all liabilities are presented at estimated settlement amounts.
Management believes these statements present fairly the estimated
net assets in liquidation based on facts and circumstances
available when the statements were prepared. It is not presently
determinable whether the amounts realizable from the remaining
assets or the amounts required to settle outstanding obligations
will differ materially from the amounts shown in the liquidation
basis financial statements.
Management believes that the accounting systems and related
systems of internal control are sufficient to provide reasonable
assurance that assets are safeguarded, transactions are properly
authorized and included in the accounting records, and that those
records provide a reliable basis for preparation of the Company's
consolidated financial statements. Reasonable assurance is based
upon the concept that the cost of a system of internal control
must be related to the benefits derived.
The Company's consolidated financial statements have been audited
by Arthur Andersen LLP, independent public accountants, as stated
in their report below. They have been elected to perform this
function by the stockholders of the Company. Management has made
available to Arthur Andersen LLP all of the Company's financial
records and related data, as well as the minutes of stockholders'
and directors' meetings.
T. S. Cobb
Chairman, President
and Chief Executive Officer
P. H. Snyder
Senior Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors, Salient 3
Communications, Inc.:
We have audited the accompanying consolidated balance sheet of
Salient 3 Communications, Inc. and Subsidiaries as of December
31, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two fiscal
years in the period ended December 31, 1999 and the consolidated
statements of operations, stockholders' equity, and cash flows
for the period from January 1, 2000 to March 31, 2000. In
addition, we have audited the statement of net assets in
liquidation as of December 29, 2000, and the related statement of
changes in net assets in liquidation for the period from April 1,
2000 to December 29, 2000. 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 auditing standards
generally accepted in the United States. 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.
As described in Notes 1 and 2 to the consolidated financial
statements, the stockholders of Salient 3 Communications, Inc.
approved a plan of liquidation and the Company commenced
liquidation shortly thereafter. As a result, the Company has
changed its basis of accounting for the periods subsequent to
March 31, 2000, from the going-concern basis to the liquidation
basis. Accordingly, the carrying value of the remaining assets
as of December 29, 2000, are presented at estimated realizable
values and all liabilities are presented at estimated settlement
amounts. It is not presently determinable whether the amounts
realizable from the remaining assets or the amounts due in the
settlement of obligations will differ materially from the amounts
shown in the accompanying financial statements. The accompanying
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Salient 3 Communications, Inc. and Subsidiaries as of
December 31, 1999, the results of their operations and their cash
flows for each of the two fiscal years in the period ended December
31, 1999 and for the period from January 1, 2000 to March 31, 2000,
their net assets in liquidation as of December 29, 2000, and the
changes in their net assets in liquidation for the period from
April 1, 2000 to December 29, 2000, in conformity with accounting
principles generally accepted in the United States applied on the
bases described in the preceding paragraph.
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 27, 2001
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Statement of Net Assets in Liquidation (Liquidation Basis)
December 29, 2000
(000's except for share and per share information)
December 29,
2000
------------
ASSETS
Cash and cash equivalents $ 18,426
Investments in liquidation 14,837
Income tax refunds receivable 3,980
Other assets 4,198
------
Total Assets 41,441
------
LIABILITIES
Accrued and other liabilities 20,661
------
Net assets in liquidation $ 20,780
======
Number of common shares outstanding 6,214,824
=========
Net assets in liquidation per outstanding share $ 3.34
====
The accompanying notes are an integral part of this financial statement.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Statement of Changes In Net Assets In Liquidation (Liquidation Basis)
Nine Months Ended December 29, 2000
(000's)
Nine Months
Ended
December 29, 2000
-----------------
Net assets in liquidation, beginning of period $ 93,985
------
Changes in estimated liquidation values
of assets and liabilities:
Investments in subsidiaries (11,527)
Other assets 3,174
Accrued and other liabilities 811
Income taxes 8,919
------
Net changes in estimated liquidation values 1,377
------
Liquidating distribution to stockholders (74,582)
------
Net assets in liquidation, end of period $ 20,780
======
Supplemental Cash Information:
Changes in cash and cash equivalents
Exercise of stock options $ 588
Net proceeds from sales of subsidiaries 137,230
Cash receipts for other assets 5,852
Payment of outstanding debt,
including accrued interest (18,861)
Payment of accrued liabilities (14,876)
Payment of income taxes (17,061)
Liquidating distribution to stockholders (74,582)
------
Net changes in cash and cash equivalents $ 18,290
======
The accompanying notes are an integral part of this financial statement.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Going-Concern Basis)
For the Three Months Ended March 31, 2000 and the Years 1999 and 1998
(000's except for share and per share information)
For the Three For the Years
Months Ended --------------------
March 31, 2000 1999 1998
-------------- ---- ----
Telecommunications sales $ 25,015 $ 115,630 $ 119,282
Cost of goods sold 14,668 68,007 73,492
------ ------ -------
Gross profit 10,347 47,623 45,790
Selling, general and administration 9,616 34,957 35,480
Research and development 2,161 8,717 10,735
Goodwill impairment and restructuring charge - - 18,190
Goodwill amortization 507 1,699 1,485
----- ----- ------
Operating income (loss) (1,937) 2,250 (20,100)
----- ----- ------
Interest and other income 91 873 301
Interest expense 329 1,211 1,336
----- ----- ------
Pre-tax income (loss) from continuing operations (2,175) 1,912 (21,135)
----- ----- ------
Provision (benefit) for taxes on income (loss) (827) 712 (3,676)
----- ----- ------
Net income (loss) from continuing operations (1,348) 1,200 (17,459)
----- ----- ------
Income from discontinued operations:
Technical Services Segment (less applicable income taxes of
$643) - - 1,050
Gains on disposals of subsidiaries - - 100
----- ----- -----
Net income from discontinued operations - - 1,150
----- ----- -----
Net income (loss) $ (1,348) $ 1,200 $ (16,309)
===== ===== ======
Per share of common stock (basic and diluted):
Net income (loss) from continuing operations $ (0.23) $ 0.20 $ (2.83)
Net income from discontinued operations:
Technical Services Segment - - 0.17
Disposals of subsidiaries - - 0.02
---- ---- ----
Net income (loss) per share $ (0.23) $ 0.20 $ (2.65)
==== ==== ====
Basic weighted average shares outstanding 5,989,073 5,973,328 6,158,587
Note: The net income (loss) per share is computed independently for each item.
Therefore the total net income (loss) per share may not equal the sum of the individual items.
The accompanying notes are an integral part of the consolidated financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Going-Concern Basis)
For the Three Months Ended March 31, 2000 and the Years 1999 and 1998
(000's)
For the Three For the Years
Months Ended ----------------
March 31, 2000 1999 1998
-------------- ---- ----
Cash flows from operating activities:
Net income (loss) $ (1,348) $ 1,200 $ (16,309)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of subsidiaries - - (100)
Depreciation and amortization 2,026 7,172 6,535
Goodwill write-off - - 15,789
Reserve provisions 711 798 4,318
Deferred income tax provision (benefit) - 1,230 (2,050)
Changes in current assets and current liabilities,
net of effects from acquisitions and dispositions:
Accounts receivable and unbilled revenue 3,696 273 (4,257)
Inventories (1,196) (2,169) 15
Other current assets (843) (1,726) (512)
Accounts payable and salaries and wages (2,142) 2,496 (1,639)
Other accrued liabilities (572) (3,663) 3,684
Income taxes, currently payable (89) (60) (2,773)
Estimated liability for contract losses - - (385)
Other, net 47 190 143
----- ----- -----
Net cash provided by operating activities 290 5,741 2,459
----- ----- -----
Cash flows from investing activities:
Software development costs (1,475) (4,219) (543)
Payments for acquisitions, net of cash acquired (351) (7,550) (952)
Proceeds from sale of subsidiaries - - 15,005
Payments for property, plant and equipment (601) (3,442) (5,631)
Proceeds from sale of property, plant and equipment - 6,045 -
----- ----- -----
Net cash provided by (used for) investing activities (2,427) (9,166) 7,879
----- ----- -----
Cash flows from financing activities:
Payments of long-term debt (183) (393) (635)
Borrowings (repayments) under note payable 2,995 (1,626) (6,729)
Proceeds from issuance of debt - 4,216 -
Proceeds from notes receivable - 500 500
Issuance of treasury stock in connection
with stock purchase plan 32 254 546
Payments to acquire treasury stock (103) (292) (3,655)
Cash dividends paid - - (642)
Other, net (260) (129) (120)
----- ----- ------
Net cash provided by (used for) financing activities 2,481 2,530 (10,735)
----- ----- ------
Net increase (decrease) in cash and
cash equivalents 344 (895) (397)
Cash and cash equivalents at beginning of period 1,687 2,582 2,979
----- ----- -----
Cash and cash equivalents at end of period $ 2,031 $ 1,687 $ 2,582
===== ===== =====
Supplemental cash flow disclosures:
Interest paid $ 321 $ 1,125 $ 1,318
=== ===== =====
Income taxes paid, net of refunds received $ 150 $ 663 $ 2,086
=== === =====
The accompanying notes are an integral part of the consolidated financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Going-Concern Basis)
December 31, 1999
(000's except for share information)
December 31,
1999
------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,687
Accounts receivable, net of allowance
for doubtful accounts of $1,556 27,239
Inventories 17,425
Deferred income taxes 4,940
Other current assets 7,302
------
Total current assets 58,593
------
Property, plant and equipment, at cost:
Land 1,994
Buildings 4,353
Furniture and equipment 36,430
------
42,777
Less accumulated depreciation and
amortization 24,973
------
17,804
------
Deferred income taxes 6,470
Other assets 2,850
Software development costs 4,068
Goodwill 34,762
-------
Total Assets $ 124,547
=======
The accompanying notes are an integral part of the consolidated financial
statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Going-Concern Basis)
December 31, 1999
(000's except for share information)
December 31,
1999
------------
LIABILITIES
Current liabilities:
Notes payable $ 202
Accounts payable 9,946
Salaries and wages 1,428
Income taxes, currently payable 406
Estimated liability for contract losses 1,756
Deferred revenue 2,164
Other accrued liabilities 8,690
------
Total current liabilities 24,592
------
Long-term debt 13,647
Other long-term liabilities 6,990
Commitments and contingencies -
STOCKHOLDERS' EQUITY
Preferred stock, nonvoting, par value $1 per share,
1,000,000 shares authorized, 0 shares outstanding -
Class A common stock, nonvoting, par value $1 per share
Issued: 8,478,729 shares 8,479
Class B common stock, voting, par value $1 per share
Issued and outstanding: 506,571 shares; 506
Capital in excess of par value 36,974
Warrants outstanding 1,755
Retained earnings 74,178
Foreign currency translation adjustment (14)
Deferred compensation-restricted stock (1,420)
Class A common stock held in treasury, at cost:
2,837,709 shares (41,140)
------
79,318
------
Total Liabilities and Stockholders' Equity $ 124,547
=======
The accompanying notes are an integral part of the consolidated financial
statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Going-Concern Basis)
For the Three Months Ended March 31, 2000 and the Years 1999 and 1998
(000's except for share information)
Common Stock
-----------------------------------------------
Class A Class B
--------------------- --------------------
Shares Amount Shares Amount
--------- ------ -------- ------
Balances at January 2, 1998 8,404,288 $ 8,404 581,012 $ 581
Conversion from Class B to
Class A, net 73,077 73 (73,077) (73)
--------- ----- ------- ---
Balances at January 1, 1999 8,477,365 8,477 507,935 508
Conversion from Class B to
Class A, net 1,364 2 (1,364) (2)
--------- ----- ------- ---
Balances at December 31, 1999 8,478,729 8,479 506,571 506
Conversion from Class B to
Class A, net 12,441 12 (12,441) (12)
--------- ----- ------- ---
Balances at March 31, 2000 8,491,170 $ 8,491 494,130 $ 494
========= ===== ======= ===
The accompanying notes are an integral part of the consolidated financial
statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Going-Concern Basis)
For Three Months Ended March 31, 2000 and the Years 1999 and 1998
(000's except for share information) Foreign Deferred Class A
Capital in Currency Compensation - Treasury Stock
Excess of Warrants Retained Translation Restricted --------------------
Par Value Outstanding Earnings Adjustment Stock Shares Amount
--------- ----------- -------- ----------- -------------- --------- --------
Balances at January 2, 1998 $ 37,835 $ 1,665 $ 89,929 $ 52 $ (1,368) 2,547,390 $(39,238)
Net loss (16,309)
Cash dividends paid, $.10 per
share (642)
Translation adjustment 47
Issuance of restricted stock (212) (427) (45,000) 639
Restricted stock amortization 142
Restricted stock forfeitures 6 43 3,250 (49)
Purchase of treasury stock 393,230 (3,655)
Issuance of treasury stock in
connection with stock
purchase plan (235) (36,500) 781
------ ----- ------ --- ----- --------- ------
Balances at January 1, 1999 37,394 1,665 72,978 99 (1,610) 2,862,370 (41,522)
Net income 1,200
Translation adjustment (113)
Restricted stock amortization 190
Issuance of warrants 90
Purchase of treasury stock 34,657 (292)
Issuance of treasury stock in
connection with stock
purchase plan (420) (59,318) 674
------ ----- ------ --- ----- --------- ------
Balances at December 31, 1999 36,974 1,755 74,178 (14) (1,420) 2,837,709 (41,140)
Net loss (1,348)
Translation adjustment (63)
Restricted stock amortization 47
Purchase of treasury stock 8,263 (103)
Issuance of treasury stock in
connection with stock
purchase plan (5) (1,783) 37
------ ----- ------ --- ----- --------- ------
Balances at March 31, 2000 $ 36,969 $ 1,755 $72,830 $ (77) $ (1,373) 2,844,189 $(41,206)
====== ===== ====== === ===== ========= ======
The accompanying notes are an integral part of the consolidated financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(000's except for share and per share information)
LIQUIDATION BASIS STATEMENTS
1. PLAN OF DISSOLUTION AND LIQUIDATION
On April 17, 2000, the Board of Directors of Salient
3 Communications, Inc. (the Company) adopted a Plan
of Dissolution and Liquidation (the Plan). Under the
Plan, the Company will be liquidated by (i) the sale
of its non-cash assets, (ii) the payment of or
providing for all of its claims, obligations and
expenses, (iii) the pro rata distribution of assets,
primarily cash, to the stockholders, and (iv) if
required, the distribution of assets to one or more
liquidating trusts established for the benefit of the
stockholders. The Plan was approved by stockholders
on July 21, 2000.
On August 11, 2000, the Company filed a Certificate
of Dissolution with the State of Delaware. Under
Delaware law, the Company will continue to exist for
a period of three years for the purpose of winding up
its affairs. The Board of Directors and officers of
the Company will continue to oversee the liquidation
and dissolution.
2. BASIS OF ACCOUNTING
Prior to June 30, 2000, seven stockholders, who
together control more than 51% of the issued and
outstanding Class B common stock, had agreed to vote
their shares in favor of the Plan and in favor of the
sales of SAFCO Technologies, Inc (SAFCO) and GAI-
Tronics Corporation (GTC). As a result, the Company
adopted the liquidation basis of accounting for the
second quarter of 2000. Under the liquidation basis
of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at
their anticipated settlement amounts.
The valuation of assets and liabilities at their
estimated net realizable values and anticipated
settlement amounts necessarily requires many
estimates and assumptions and there are substantial
uncertainties in carrying out the provisions of the
Plan. The actual value of any liquidating
distributions will depend upon a variety of factors
including, but not limited to, (i) the actual
proceeds from the sale of the Company's subsidiaries
and other assets, (ii) the ultimate settlement
amounts of its liabilities and obligations, including
indemnifications provided in connection with
subsidiary sale transactions, (iii) actual costs
incurred in connection with carrying out the Plan,
including administrative costs during the liquidation
period, and (iv) the actual timing of distributions.
An initial liquidating distribution of $12.00 per
share was paid on September 8, 2000 to holders of
Class A (non-voting) and Class B (voting) common
stock.
The valuations presented in the Statement of Net
Assets in Liquidation represent estimates, based on
present facts and circumstances, of the net
realizable values of assets and the anticipated
settlement amounts for liabilities, including the
costs associated with carrying out the provisions of
the Plan, based on the assumptions set forth in the
accompanying notes. The actual values and costs are
expected to differ from the amounts shown herein and
could be higher or lower than the amounts recorded.
Such differences may be material. Accordingly, it is
not possible to predict with certainty the aggregate
net values ultimately distributable to stockholders
and no assurance can be given that the amount to be
received in liquidation will equal or exceed the
price or prices at which the Class A common stock has
generally traded or is expected to trade in the
future.
The changes in estimated liquidation values of assets
and liabilities in the Statement of Changes in Net
Assets in Liquidation is the result of changes in the
actual proceeds on the sales of assets and
settlements made on outstanding obligations as well
as changes in management estimates during the
reporting period.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of amounts on
deposit in banks and cash invested temporarily in
instruments with maturities of three months or less
at time of purchase. The Company is subject to
concentration of credit risk; however, it invests its
excess cash with large banks where preservation of
principal is the main concern. Interest income on
the Company's cash and short-term investments through
the final liquidation date has not been reflected.
4. INVESTMENTS IN LIQUIDATION
Investments in liquidation include the estimated net
realizable values of subsidiary sale proceeds
collectible after December 29, 2000, less related
unpaid costs of the sales, and the estimated net
realizable value of the building occupied by XEL.
The value of the building included in the financial
statements is net of a mortgage loan of $207. This
loan was fully paid in January 2001.
On July 25, 2000, the Company completed the sale of
SAFCO to Agilent Technologies, Inc. for $121,426 in
cash, after consideration of certain closing balance
sheet adjustments. The purchase price included
$11,000 which has been placed into escrow for certain
expenses and possible indemnification claims. On
August 29, 2001, the Company is entitled to receive
distribution of the balance remaining in the escrow
account, after reduction for any indemnification
claims made by the buyer before that date.
On July 26, 2000, the Company completed the sale of
GTC to Hubbell Incorporated for cash of $36,246,
after consideration of certain closing balance sheet
adjustments.
The gross proceeds noted above are before
transaction-related expenses of approximately
$10,600, including $1,200 not paid at December 29,
2000.
The Company is providing certain indemnifications to
the buyers of SAFCO and GTC under the representations
and warranties sections of the purchase agreements.
It is not possible to predict what claims could
possibly be asserted by buyers or what values those
potential claims could have. As of December 29,
2000, the Company is not aware of any such
indemnification claims. The Company has purchased
certain insurance to minimize its exposure on some,
but not all, of the areas for which they are
indemnifying the buyers.
On December 29, 2000, the Company completed the sale
of XEL Communications, Inc. (XEL) to a company
controlled by XEL's president, James S. Kennedy, for
$4,900 in the form of a promissory note bearing
interest payable monthly at 8%, with the principal
due after 24 months. In connection with the sale,
the Company has extended XEL a $500 line of credit
expiring March 31, 2001. If XEL is resold to another
party within 24 months, the Company would receive
full payment on the note and 70% of all proceeds in
excess of $5,000. If XEL is resold after 24 months
but within 36 months, the Company would receive 50%
of all proceeds over $5,000. If there is a default
in payment of the principal or interest on the
promissory note, the Company has the right to retake
control of XEL. The note is valued at $1,900 in the
statement of net assets in liquidation based on the
estimated realization values of XEL's net assets.
The sale of XEL excluded the building it occupies in
Aurora, Colorado. The Company is attempting to sell
this building to an unrelated third party.
5. INCOME TAXES
All income tax accounts have been restated to reflect
the liquidation basis of accounting. The estimated
amount of income tax refunds receivable reflects
federal income taxes, at statutory rates, which would
become refundable if the assets are realized and
liabilities settled at the amounts shown. The
refunds primarily result from anticipated carrybacks
of tax losses. Future tax losses will arise from tax
deductible costs of carrying out the plan of
liquidation and settling other accrued liabilities.
The estimate is subject to significant variation if,
among other things, the actual values of assets sold
vary from current estimates, the amounts or timing of
settlement of liabilities differ from current
estimates, or there are potential adjustments related
to the sales transactions. No material state income
tax refunds are anticipated.
6. OTHER ASSETS
Other assets include a $2,750 note receivable
relating to the 1998 sale of a former subsidiary to
management of the subsidiary and an investor group.
The note bears interest at 8%. Principal payments of
$275, $366, $456 and $1,653 are due in July of years
2001 through 2004 respectively. Other assets also
include accrued interest and real estate.
7. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities include estimates of
costs to be incurred in carrying out the Plan,
provisions for known liabilities and provisions for
certain asserted and unasserted claims at December
29, 2000. The balance at December 29, 2000 consists
of the following:
Compensation and benefits $ 8,172
Liquidation period expenses 4,121
Unfunded retirement obligations for
former employees 1,490
Accrued distributions to LSAR holders (Note 9) 3,056
Accrual for asserted and unasserted claims (Note 11) 3,822
--------
$20,661
======
Compensation and benefits include salaries of
officers and employees assigned to effect the sales
and carry out the Plan, and payments under the
Special Incentive Plan approved by the stockholders
to provide incentives to executives who contributed
materially to the successful sale of the operating
businesses. Liquidation period expenses include
office costs, insurance and costs of legal,
accounting and other services expected to be incurred
during the liquidation period.
The actual costs incurred could vary significantly
from the related accrued expenses due to uncertainty
related to the length of time required to complete
the Plan and the outcome of certain contingencies.
8. ADJUSTMENTS FROM GOING-CONCERN TO LIQUIDATION
BASIS OF ACCOUNTING
Stockholders' equity, March 31, 2000 (Going-Concern
Basis) $ 77,883
--------
To increase investments to estimated net realizable
values 79,080
To increase estimated income taxes (34,424)
To increase liabilities to anticipated settlement
amounts (28,452)
To adjust other assets (102)
-------
Total adjustments 16,102
--------
Net assets in liquidation, March 31, 2000
(Liquidation Basis) $ 93,985
=======
The increase in liabilities includes estimates of
costs to be incurred in carrying out the Plan and
provisions for known liabilities, including Limited
Stock Appreciation Rights (Note 9). The estimated
costs include legal and accounting fees and salaries
and related expenses of officers and employees who
will be assigned to complete the liquidation and
dissolution.
The actual costs incurred could vary significantly
from the related provisions due to uncertainty
related to the length of time required to complete
the Plan, the timing of sales of subsidiaries, and
complexities which may arise in disposing of the
remaining assets and settling certain contingencies.
Interest income on the Company's cash and short-term
investments through the final liquidation date has
not been reflected.
9. OPTIONS AND WARRANTS
In April 2000, the Board of Directors authorized
immediate vesting of all outstanding restricted
stock, and, effective with the first subsidiary sale,
vesting of stock options granted under the 1989 Stock
Option Plan and the 1996 Long Term Incentive Plan and
extension of the exercise period to the record date
of the initial liquidating distribution. The Board
also added a provision to convert all unexercised
options at the record date of the initial liquidating
distribution into Limited Stock Appreciation Rights
(LSAR's). In addition, all warrant holders were
given the opportunity to convert their warrants into
LSAR's. These rights entitle the holder to receive
cash payments for each share equal to the difference
between the aggregate per share liquidating
distribution payable to stockholders upon liquidation
and the per share exercise price applicable to each
converted option or warrant. At March 31, 2000,
there were options and warrants outstanding for the
purchase of 1,905,495 shares of the Company's common
stock. Options to purchase 5,750 shares were granted
after that date and 32,300 options expired or were
forfeited. Options to purchase 76,190 shares were
exercised in August, 2000. In August, 2000,
1,097,200 options and 705,555 warrants were converted
into LSAR's. Holders of LSAR's were paid $1,866 in
connection with the initial liquidating distribution
on September 8, 2000. The estimated remaining
liability for settlement of the LSAR's at December
29, 2000 is $3,056 and is included in accrued
liabilities in the statement of net assets in
liquidation.
10. LINES OF CREDIT AND OTHER LONG TERM BORROWINGS
Under the terms of a 1999 loan agreement with First Union
National Bank, the Company had a working capital line
of credit of $12,000 and an acquisition line of
credit of $6,000. On June 30, 2000, the working
capital line was reduced to $10,000 and its
availability was extended to September 30, 2000. The
agreement required the Company to pay a commitment
fee of one-quarter of one percent on the unused
portion of the lines. The loan agreement contained a
number of financial and other covenants, the most
restrictive of which prescribed a limited ratio of
funded debt to earnings before interest and taxes.
Interest charges were based, at the Company's option,
on the bank's prime rate or a function of LIBOR. The
loan was collateralized by substantially all of the
Company's tangible and intangible assets.
The acquisition line of credit expired on June 30,
2000 and the outstanding balance of $3,267 was
converted to a term loan. Monthly repayments of $58
plus interest began in March 2000.
As a result of the completion of the sales of SAFCO
and GTC discussed above, the working capital and
acquisition lines of credit were repaid on July 27,
2000 and subsequently cancelled. In addition, a note
payable of $10,000, which related to the 1996
purchase of SAFCO, was repaid with the proceeds of
these sales.
11. CONTINGENCIES
The Company has received notice of a complaint filed
in Delaware Chancery Court on August 29, 2000, and
amended on February 26, 2001, by a group of former
employees and current Class A stockholders,
challenging the compensation packages granted by the
Company to its senior management in connection with
the dissolution of the Company. The Company intends
to vigorously defend against the complaint and
believes that the Company's Board acted appropriately
and within its discretion in structuring the benefits
provided to management.
Before distributing assets to its stockholders, the
Company is required by Delaware law to make provision
for all known claims and obligations and any
unasserted claims that are reasonably likely to arise
after the certificate of dissolution became
effective. The accrual for asserted and unasserted
claims represents management's judgment as to the
estimated amounts required to settle such claims,
should they arise and should they have merit.
Ultimate settlement amounts for such claims are
expected to differ from estimates recorded as of
December 29, 2000. Accordingly, it is not possible
to predict with certainty the amount required for
such claims. However, management believes that the
outcome will not have a material adverse effect on
the Company's net assets in liquidation.
GOING-CONCERN BASIS STATEMENTS
12. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION: The Company was a leading
telecommunications equipment and services company
with subsidiaries that operated in the industrial,
access products, and wireless markets. The
Industrial Segment developed, assembled, and marketed
communications systems for industrial operations.
The Access Products Segment designed and marketed
voice and data transmission system products. The
Wireless Segment's products and services focused on
the measurement, analysis and predictive tools used
by the wireless communication industry.
FISCAL YEAR: The Company uses a 52-53 week fiscal
year ending on the Friday nearest December 31. The
1999 and 1998 fiscal years included 52 weeks each and
ended on December 31, 1999 and January 1, 1999,
respectively. The three months ended March 31, 2000
consisted of 13 weeks.
PRINCIPLES OF CONSOLIDATION: The consolidated
financial statements include the accounts of the
Company and its subsidiaries. All material
intercompany transactions have been eliminated.
RECOGNITION OF REVENUE: The Company recognized
revenue upon shipment of goods and accrued costs
associated with the training and installation for its
products upon shipment. The Company recognized
revenue on contracts entered into for radio frequency
engineering as the work was performed. Costs and
expenses were charged to operations as incurred.
Losses, estimated to be sustained upon completion of
contracts, were charged to income in the year such
estimates were determinable. The Company recognized
software license fees for perpetual licenses upon
delivery of the product. If any portion of the fees
related to maintenance or support services, it was
deferred and recognized over the contract term,
generally one to three years. Software license fees
for fixed-term licenses were recognized ratably over
the term of the license. At December 31, 1999, the
Company deferred $2,164 of software licensing
revenue.
INSURANCE PROGRAMS: Through 1997, the Company's
overall workers compensation and general liability
insurance coverages have, and in some cases do,
contain provisions for significant deductibles and
funding on a claims paid basis. Subsequent to 1997,
the Company's insurance coverages do not contain
provisions for significant deductibles and funding on
a claims paid basis. Accruals, which relate
primarily to workers' compensation, aggregate $1,187
at December 31, 1999 and were included in other
accrued liabilities on the consolidated balance
sheet.
INVENTORIES: Inventories, which consist of material,
labor and overhead, were determined on the first-in,
first-out (FIFO) method and were stated at the lower
of cost or market.
PROPERTY, PLANT AND EQUIPMENT: For financial
reporting purposes, the Company provided for
depreciation and amortization of property, plant and
equipment, including assets under capital leases, on
the straight-line method over the estimated useful
lives of the various classes of assets. For income
tax purposes, the Company used accelerated
depreciation where permitted. Useful lives of
depreciable assets, by class, are as follows:
Buildings 40 years
Furniture and equipment 3 to 10 years
Costs of maintenance and repairs were charged to
expense as incurred. Renewals and improvements were
capitalized. Upon retirement or other disposition of
plant and equipment, the cost of the item and related
accumulated depreciation were removed from the
accounts and any gain or loss was included in income.
SOFTWARE DEVELOPMENT COSTS: In accordance with
Statement of Financial Accounting Standards No. 86
"Accounting for Cost of Computer Software to be Sold,
Leased, or Otherwise Marketed," the Company
capitalized software development costs incurred after
the establishment of technological feasibility until
the product was available for general release. Costs
incurred prior to the establishment of technological
feasibility were charged to research and development
expense as incurred. In the three months ended March
31, 2000, and the year 1999, the Company capitalized
$1,475 and $4,219, respectively, of software
development costs. Costs were amortized over the
greater of the ratio of current revenues to total
anticipated revenues or on a straight-line basis over
the estimated useful lives of the products (2 to 3
years) beginning with the initial release to
customers. Such amortization amounted to $435 in the
first quarter of 2000, $879 in 1999 and $216 in 1998.
As of December 31, 1999, accumulated amortization was
$1,178.
GOODWILL: Goodwill was being amortized by charges to
operations on a straight-line basis over periods of
10 to 20 years for acquisitions since 1996 and over
40 years for earlier acquisitions, and such
amortization amounted to $507 in the first quarter of
2000, $1,699 in the year 1999 and $1,485 in the year
1998. Accumulated amortization amounted to $8,287 at
December 31, 1999. Goodwill related to a pre-1970
acquisition in the amount of $540 was not being
amortized and, in the opinion of management, there
had been no decrease in value.
The Company periodically reviewed goodwill to assess
recoverability, and impairments were recognized in
operating results if a permanent diminution in value
had occurred. The Company's primary financial
indicator for assessing recoverability of goodwill
was whether a subsidiary was projected to generate
sufficient income and cash flow on an undiscounted
basis. During 1998, the Company recorded a $15,789
impairment of goodwill (See Note 20).
INCOME TAXES: The Company utilized the liability
method of accounting for income taxes. Under this
method, deferred income taxes were determined based
on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax
rates.
RESEARCH AND DEVELOPMENT: Expenditures relating to
the development of new products and processes,
including significant improvements, refinements and
engineering support to existing products, were
expensed as incurred.
STATEMENTS OF CASH FLOWS: For purposes of the
consolidated statements of cash flows, the Company
considered all highly liquid investments with a
maturity of three months or less at the time of
purchase to be cash equivalents.
ESTIMATES: The preparation of financial statements
in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and
expenses during the reporting period. The ultimate
results could differ from those estimates.
DISCONTINUED OPERATIONS: In the first quarter of
1997, the Company accounted for its technical
services segment as discontinued operations. All
operating units included in this segment were sold
during 1998 or earlier years (See Note 13).
The results of operations for the technical services
segment had been classified as discontinued
operations for all periods presented in the
Consolidated Statements of Operations. Discontinued
operations had not been segregated in the
Consolidated Statements of Cash Flows and, therefore,
amounts for certain captions will not agree with the
respective Consolidated Statements of Operations.
Sales for the technical services segment for 1998
were $48,251.
The Company allocated interest not specifically
associated with any segment based upon a ratio of net
assets. Interest expense allocated to discontinued
operations was not material in 1998.
EARNINGS PER SHARE: Dilutive shares outstanding were
determined on the assumption that all outstanding
options, warrants and shares of restricted stock with
a strike price below the average stock price for the
period, would be exercised and the related shares
issued. Dilutive shares outstanding for the first
quarter of 2000, and the years 1999 and 1998 were
6,083,780, 5,983,158 and 6,184,471, respectively.
These additional shares had an insignificant effect
on the net income per share for the three months
ended March 31, 2000 and the year 1999 and had an
antidilutive impact on the Company's loss from
continuing operations for 1998.
Options and warrants to purchase 1,818,555 shares as
of December 31, 1999, at prices ranging from $7.63 to
$18.00, were outstanding, but were not included in
the computation of diluted earnings per share because
the exercise price was greater than the average
market price for the year.
13. ACQUISITIONS/DISPOSITIONS:
In November and December 1999, the Company acquired
the net assets of Irmel S.r.l. and Red Alert, Inc.,
respectively, for a total of $4,467, including a
deferred payment of $884 due December 31, 2000 and
acquisition costs of $253. The acquisitions were
accounted for as purchases and cost was assigned to
the net assets acquired based on their estimated fair
values at the dates of acquisition. The acquisitions
resulted in goodwill of $4,068 which is being
amortized on a straight-line basis over 15 years.
Irmel, based in Milan, Italy, expanded the Industrial
Segment's European Operations and Red Alert was
merged into its US operations.
Effective February 23, 1999, the Company acquired all
of the outstanding stock of ComOpt AB (ComOpt) for
$4,098, including acquisition costs. The Company
recorded goodwill of $3,892, which is being amortized
on a straight-line basis over 10 years. Under the
terms of the agreement, the Company will also pay
ComOpt's former stockholders additional amounts based
upon the achievement of certain performance goals.
Any additional payments will increase goodwill.
ComOpt is part of the Company's Wireless Segment and
was merged into the operations of SAFCO Technologies,
Inc.
On July 24, 1998, the Company completed the sale of
its Resource Consultants, Inc. (RCI) subsidiary to
the management of RCI and an investor group for
$19,317, substantially all in cash. The sale price
included a $2,750 note that is recorded in other
assets. The sale resulted in an after tax gain of
$100, or $0.02 per share. Proceeds of the sale were
used to pay down outstanding bank debt.
Effective January 3, 1998, the Company acquired all
of the outstanding stock of Elemec Systems, Ltd.
(Elemec) for $952, including acquisition costs.
Elemec is part of the Company's Industrial Segment
and was merged into its European operations - GAI-
Tronics Limited.
The following unaudited consolidated pro-forma
results of operations for the years 1999 and 1998
include Irmel, Red Alert, ComOpt and Elemec as if
they had been acquired at the beginning of each of
the respective periods:
1999 1998
------ ------
Telecommunications sales $ 119,261 $ 123,856
Net income (loss) from continuing operations $ 452 $ (18,663)
Net income (loss) from continuing operations
per share of common stock $ 0.08 $ (3.03)
The pro-forma statements of operations include
adjustments for interest expense and amortization of
goodwill.
14. INCOME TAXES:
At December 31, 1999, federal and state income tax
refunds of $1,838 were recorded in other current
assets. Income tax provisions (benefits) from
continuing operations consisted of the following:
Three Months Ended
March 31, 2000 1999 1998
------------------- ------ ------
Current:
Federal $ (740) $ (680) $ (2,809)
State and foreign (87) 162 768
------- ------- -------
(827) (518) (2,041)
------- ------- -------
Deferred:
Federal - 910 (1,155)
State - 320 (480)
------- ------- -------
- 1,230 (1,635)
------- ------- -------
$ (827) $ 712 $ (3,676)
======= ======= =======
The tax effects of temporary differences which
comprise the deferred income tax assets and
liabilities at December 31, 1999 were as follows:
Deferred income tax assets:
Goodwill $ 5,588
Retirement liabilities 1,717
Reserves for contract disallowances
and bad debts 1,179
Inventory obsolescence reserves 994
Deferred revenue 980
Inventory 735
Deferred gain on sale/leaseback 658
Workers' compensation reserves 297
Warranty reserve 186
Closure of United Energy Services Corp. 112
Other 1,794
------
14,240
------
Deferred income tax liabilities:
Capitalized software development 921
Depreciation 691
State income taxes 620
Unbilled revenue 273
Deferred installment sale gain 94
Prepaid insurance 79
Other 152
------
2,830
------
Net deferred income tax asset $11,410
======
In assessing the realizability of deferred tax
assets, management considered whether it was more
likely than not that some portion or all of the
deferred tax assets would not be realized. The
ultimate realization of deferred tax assets was
dependent upon the generation of future taxable
income during the periods in which those temporary
differences became deductible. Management considered
the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning
strategies in making this assessment. Based upon the
projections for future taxable income over the
periods in which the deferred tax assets were
deductible, management believed it was more likely
than not that the Company would realize the benefit
of these deductible differences at December 31, 1999.
A reconciliation of the statutory income tax rate to
the effective tax rate follows:
Three Months Ended
March 31, 2000 1999 1998
----------------- ---- ----
Federal statutory tax rate (34.0)% 34.0% (34.0)%
State and foreign taxes (2.6) (2.4) (0.9)
Amortization and write-off of goodwill 1.7 8.5 18.6
Research and development credit - - (1.2)
Foreign sales corporation - (1.8) (0.6)
Application of annualized effective tax rate (2.8) - -
Other, net (0.3) (1.1) 0.7
------ ------ ------
Effective tax rate (38.0)% 37.2% (17.4)%
==== ==== ====
15. LONG-TERM DEBT:
Long-term debt consisted of the following obligations
at December 31, 1999:
Acquisition line of credit (see below) $ 3,500
Note payable, interest due quarterly at 7%,
principal due 2001 10,000
Mortgage obligation, $21 due monthly
to 2001 including interest at 8.5% 446
Capital lease obligations, with monthly
payments not exceeding $32, with
maturity dates from 1999 to 2002 and
interest rates ranging from 7.5% to 10.4% 816
-------
14,762
Less current maturities (1,115)
-------
$13,647
======
The aggregate maturities of long-term debt, including
the capital lease obligations, were as follows at
December 31, 1999:
2000 $ 1,115
2001 11,225
2002 906
2003 700
2004 700
2005 116
------
Total $14,762
======
In connection with the aforementioned capital leases
and mortgage obligation, the Company had pledged
certain property, plant and equipment with a net book
value of $5,416.
Long term debt recorded at December 31, 1999
approximated fair market value.
See Note 10 for a discussion of the Company's line of
credit borrowings.
16. INVENTORIES:
Inventories consisted of the following at December
31, 1999:
Raw materials and components $ 9,760
Work in process 2,995
Finished goods 6,430
Reserves (1,760)
------
$17,425
======
17. POSTRETIREMENT BENEFITS:
Substantially all regular, full-time employees of the
Company and its subsidiaries were participants in
various defined contribution retirement plans.
Employer contributions under these plans were
generally at the discretion of the Company, based
upon profits and employees' voluntary contributions
to the plans. Company contributions charged to
operations in the first quarter of 2000, the years
1999 and 1998, totaled $401, $1,321 and $1,442,
respectively.
The Company maintained a contributory defined benefit
pension plan for employees of GAI-Tronics Limited, a
second tier U.K. subsidiary. Benefits were payable
based on years of service and an employee's
compensation during the last ten years of employment.
Contributions were intended to provide not only for
benefits attributed to service to date but also for
those expected to be earned in the future.
The following table sets forth the funded status of the plan as of
December 31, 1999.
Discount rate 4.50%
Salary escalation 2.50%
Expected return on plan assets 7.00%
Change in Benefit Obligation:
Benefit obligation, beginning balance $5,713
Service cost 245
Interest cost 247
Participant contributions 101
Actuarial loss 330
Benefits paid (163)
Currency translation adjustment (157)
------
Benefit obligation, ending balance $6,316
======
Change in Plan Assets:
Fair value, beginning balance $5,520
Actual return 1,004
Employer contribution 204
Participant contributions 101
Benefits paid (163)
Currency translation adjustment (152)
------
Fair value, ending balance $6,514
======
Funded Status - over (under) funded $198
Unrecognized net actuarial loss 525
Currency translation adjustment (1)
------
Prepaid benefit cost $722
======
Components of Net Periodic Pension Cost:
Service cost $245
Interest cost 247
Expected return (381)
Amortization of unrecognized loss 18
------
Net periodic pension cost $129
======
18. CAPITAL STOCK:
Except for voting privileges, shares of Class A and
Class B common stock are identical. Class B
stockholders must be either directors of the Company,
or active employees of the Company or its
subsidiaries. They may not sell or transfer such
stock without having first extended an offer of sale
to the Company.
As of December 31, 1999, there were 11,000,000
authorized shares, 10,000,000 shares of which are
common stock and 1,000,000 shares of which are
preferred stock. No shares of preferred stock were
outstanding as of December 31, 1999.
A Stock Purchase Assistance Plan authorized the
Company to extend loans to officers and other key
employees for the purpose of acquiring Company stock.
The loans bear market rate interest, due quarterly,
with principal payments generally due in 10 equal
annual installments. As of December 31, 1999, loans
aggregating $1,131 were outstanding and were
reflected as an element of treasury stock.
On October 30, 1996, the Board of Directors adopted a
Shareholder Rights Plan and declared a distribution
of one Nonvoting Common Stock Right for each
outstanding share of Class A Common Stock and one
Voting Common Stock Right for each outstanding share
of Class B Common Stock to stockholders of record at
the close of business on November 14, 1996 and for
each share of Company Common Stock issued (including
shares distributed from Treasury) by the Company
thereafter and prior to the date a distribution under
the Rights Plan takes place. The threshold for
triggering a subsequent distribution of the Rights is
ten days following the acquisition by a person of 20%
of the Company's stock. Each Nonvoting and Voting
Common Stock Right entitles the registered holder,
subject to the terms of the Rights Agreement,
to purchase from the Company one one-thousandth of a
share (a "Unit") of Series A and Series B,
respectively, Junior Participating Preferred Stock,
par value $1.00 per share, at a Purchase Price of
$60.00 per Unit, subject to adjustment.
19. STOCK OPTION, AWARD AND PURCHASE PLANS:
The 1996 Long Term Incentive Plan provided for the
granting of 1,100,000 stock options, stock
appreciation rights and shares of restricted stock.
During 1999, 215,100 stock options were granted, at
fair market value, with terms not exceeding ten years
and vesting over a three year period. At December
31, 1999, an aggregate of 1,950 options, rights, and
restricted shares were available for future grants.
As part of the Long Term Incentive Plan, 45,000 shares
of restricted stock were granted during 1998. These
shares vested over a three to ten year period, depending
upon certain financial achievements. The value of the
shares at the time of issuance was recorded in
stockholders' equity and amortized over the vesting
period. Through 1999, $475 had been expensed. No
shares of restricted stock were granted during 1999.
As of December 31, 1999, 156,250 restricted shares
were outstanding.
The Directors' Stock Option Plan provided for the
granting of 125,000 stock options at an exercise
price of 75% of market value at the date of grant.
Participating directors pre-paid the additional 25%
of the exercise price from a portion of their annual
retainers allocated for that purpose, as an
alternative to cash payments of such amounts. During
1999, 31,010 options were granted under the plan.
The options were granted with a twenty year term. At
December 31, 1999, options to purchase 48,810 shares
were available for issue.
The 1989 Stock Option Plan provided for issuance of
stock options to purchase an aggregate of 250,000
shares of Class B common stock at a price not less
than 75% of the fair market value at the date of
grant, and with terms not exceeding ten years.
Options to purchase 11,200 Class B shares were
granted at fair market value during 1999, with terms
not exceeding ten years and vesting over a three year
period. Authority to issue additional options
expired in 1999.
A summary of stock option activity related to the plans mentioned above is
as follows:
Weighted Number of
Number of Option Price Average Price Shares
Shares Per Share Per Share Exercisable
--------- ------------ ------------- -----------
Outstanding at
Jan. 2, 1998 841,099 $ 9.00-$21.00 $13.61 150,267
Granted 342,780 $ 6.85-$11.25 $9.44
Exercised - - -
Expired (129,349) $12.00-$21.00 $14.54
---------
Outstanding at
Jan. 1, 1999 1,054,530 $ 6.85-$17.50 $12.14 157,714
Granted 257,310 $ 5.50-$ 9.13 $7.34
Exercised - - -
Expired (80,650) $ 7.00-$17.50 $14.02
---------
Outstanding at
Dec. 31, 1999 1,231,190 $ 5.50-$16.00 $11.01 440,545
Granted 3,500 $ 7.00-$12.50 $9.49
Exercised - - -
Expired (34,750) $ 6.50-$12.75 $9.60
---------
Outstanding at
Mar. 31, 2000 1,199,940 $ 5.50-$16.00 $11.05 502,619
==========
The weighted average price per share of exercisable
options at March 31, 2000 was $12.91. The weighted
average option lives remaining at March 31, 2000,
December 31, 1999 and January 1, 1999 were
approximately 8 years.
The Company had elected to continue to follow the
Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and
related interpretations to account for its stock
options. The following pro forma amounts, in
accordance with the disclosure requirements of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123),
were determined as if the Company had accounted for
its stock options using the fair value method as
described in that statement:
Three Months Ended
March 31, 2000 1999 1998
-------------------- --------- --------
Net income (loss) from
continuing operations $(1,457) $721 $(17,905)
Net income (loss) from continuing
operations per share of
common stock $(0.24) $0.12 $(2.91)
The fair value was estimated at the date of grant
using the Black-Scholes option pricing model with the
following weighted average assumptions for 2000, 1999
and 1998, respectively: risk free interest rates of
6.5%, 5.8% and 4.5%; dividend yields of 0.0%, 0.0%
and 0.1%; volatility factors of 31.3%, 20.0% and
24.4%; and average stock option expected life of 5,
5.6 and 5.2.
The weighted average fair value of stock options
granted was $3.79, $2.64 and $2.96 per share in 2000,
1999 and 1998, respectively.
Under the Stock Bonus Purchase Plan, certain
employees and directors may use up to 50% of their
annual incentive compensation and directors fees,
respectively, to purchase shares of common stock at
fair market value. Employees purchasing shares
received a stock bonus as determined by the Board of
Directors each year. The Company may grant an
aggregate of 200,000 shares under this plan. During
2000, no shares were issued under this plan. As of
December 31, 1999, 68,866 shares had been issued, and
131,134 shares remain available for future grants.
20. SPECIAL CHARGES
In connection with the Company's actions to sell its
subsidiaries, various members of management and key
employees were offered incentives to continue
employment through the completion of the sale
process. Portions of these incentives are guaranteed
to the employees subject to continued employment
through December 15, 2000, and the cost will be
recognized over the related service period. Other
incentives, including sale bonuses and severance, are
dependent on completion of sale transactions and will
be recognized if and when there is a triggering
event.
In the first quarter of 2000, the Company accrued for
retention bonuses of $266 and severance costs of
$100. The Company also eliminated reserves of $326
due to collection of a note receivable and credits
from an insurance company in connection with its
conversion to a stock company. The net effect of
these adjustments was a $40 increase in selling,
general and administration expense.
In the second quarter of 1999, the Company accrued for
severance costs of $356 and wrote off $650 of
inventory in connection with the consolidation of its
Instrument Associates division into its GAI-Tronics,
Reading, Pennsylvania facility. Also during the
quarter, the Company determined that $1,000 of its
reserves was no longer required and could be reduced.
The effect of these adjustments was to increase cost
of goods sold by $830 and reduce selling, general and
administration by $824.
In the fourth quarter of 1998, the Company recorded
income of $267 resulting from a reversal of the
majority of a reserve for the retention layer on
certain insurance coverages ($2,167), offset in part
by a charge for retirement expenses associated with a
former officer ($1,200) and provisions to strengthen
certain other operating reserves ($700). The net $267
benefit after an income tax expense of $87 was $180 or
$0.03 per share. The reversal of the insurance
reserve resulted from the Company's transition to a
different structure in its insurance coverages,
reflecting both its streamlined telecommunications
businesses and a favorable climate in the commercial
insurance markets. The net pre-tax impact of these
adjustments was an increase in cost of goods sold of
$200 and a reduction of selling, general and
administrative expenses of $467.
In the second quarter of 1998, the Company recorded
$23,089 as a result of charges for restructuring and
asset impairment ($18,190), inventory write-downs
($4,353), and other miscellaneous expenses ($546).
The $23,089 charge after an income tax benefit of
$4,225 was $18,864 or $3.02 per share for the second
quarter. The restructuring and asset impairment
charges of $18,190 include: (a) $2,401 relating to
severance and other costs for approximately 140
manufacturing employees due to outsourcing the
manufacturing process at XEL Communications, Inc.
(XEL), as well as the consolidation of manufacturing
of the Instrument Associates Division of GAI-Tronics
into its Reading, Pennsylvania headquarters and (b) an
asset impairment charge of $15,789 relating to the
write-down of the carrying value of goodwill related
to XEL ($10,987 with no tax benefit) and the
Instrument Associates Division of GAI-Tronics (pretax
charge of $4,802) as a result of updated cash flow
analysis. The Company also re-evaluated its product
offerings and decided to discontinue certain low
margin product lines. As a result, other expenses of
the transition include inventory write-downs at the
Company's SAFCO and XEL subsidiaries and Instrument
Associates Division of $4,353, which are included in
cost of goods sold, and miscellaneous expenses of
$546, which are included in selling, general and
administration.
The following table displays a rollforward of the
liabilities for the restructuring charge from January
1, 1999 to December 31, 1999.
January 1, December 31,
1999 1999
Type of Cost Balance Additions Payments Balance
- ------------ ------- -------- -------- -------
Employee separations $ 515 $ - $ (515) $ -
Facility closings 798 - (682) 116
Other 141 - (141) -
-------- ------- -------- --------
Total $1,454 $ - $(1,338) $ 116
======== ======= ======== ========
21. OPERATING LEASES:
The Company leased, as lessee, facilities, data
processing equipment, office equipment and
automobiles under leases expiring during the next ten
years. Total rental expense under operating lease
agreements amounted to $679 in the first quarter of
2000, $1,700 in 1999 and $1,800 in 1998.
In December 1999, the Company entered into a contract
for the sale and leaseback of the Industrial
Segment's headquarters and manufacturing facility.
The property had a net book value of $3,534 at the
sale date. A gain on the sale of $1,784 was deferred
and was being amortized into income over the lease
term as a reduction of rent expense. The initial
lease term is 14 years with a 2-year renewal option.
The minimum annual rental cost approximates $677. At
December 31, 1999, other long-term liabilities
included $1,645 which represents the non-current
portion of the unamortized gain.
22. FINANCIAL INSTRUMENTS:
Letters of credit were issued by the Company during
the ordinary course of business through major
domestic banks. The Company had outstanding letters
of credit, not reflected in the consolidated
financial statements, in the amount of $2,228 at
December 31, 1999.
Financial instruments which potentially subject the
Company to the concentration of credit risk, as
defined by SFAS No. 105, consisted principally of
accounts receivable. Concentration of credit risk
with respect to receivables was limited, as the
majority of the balance represents billings for work
performed or products sold to various financially
secure companies.
23. COMMITMENTS AND CONTINGENCIES:
In July 1998, the Company sold its RCI subsidiary to
the management of RCI and an investor group.
Pursuant to the Stock Purchase Agreement, the Company
agreed to indemnify, defend and hold harmless, the
buyers of RCI against certain litigation, claims or
judgments brought or continued against the Company
arising out of the actions or operations of its
former RCI subsidiary.
Various other lawsuits, claims and contingent
liabilities arise in the ordinary course of the
Company's business. While the ultimate disposition
of any of these contingencies is not determinable at
this time, management believes that there are no
current outstanding liabilities that will materially
affect the Company's financial position or results of
operations.
24. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a tabulation of the unaudited quarterly
financial data for each of the four quarters of the year
1999:
QUARTER ENDED
--------------------------------------------------------
April 2, 1999 July 2, 1999 Oct. 1, 1999 Dec. 31, 1999
--------------------------------------------------------
Telecommunications sales $28,623 $27,597 $27,812 $31,598
Gross profit 11,648 10,894 11,960 13,121
Pre-tax income 97 300 427 1,088
Net income 68 210 299 623
Per share of common stock:
Net income $0.01 $0.04 $0.05 $0.10
NOTES:
The results of operations for the quarter ended July
2, 1999 include a charge for severance expenses of
$356 and a write off of inventory of $650 associated
with the consolidation of the Instrument Associates
division of GAI-Tronics, and a $1,000 reduction of
reserves which were no longer required.
25. SEGMENT INFORMATION:
The Company had three reportable segments: Industrial,
Access Products and Wireless. The Industrial Segment
developed, assembled and marketed communication systems
for industrial operations. Industrial communication
products were designed to operate under extraordinary
plant conditions and provide emergency notification. In
addition, the segment included land mobile radio
communications devices. The Access Products Segment
designed and marketed voice and data transmission system
products. The access products provided access to
telecommunications services and automated monitoring and
maintenance of telecommunications network performance.
The Wireless Segment's products and services focused on
the measurement and analysis of signal strength, data
communications and radio frequency transmitted between
the wireless phone and cellsites. The Wireless Segment
also provided radio frequency engineering design
services.
Each reportable segment operated as a separate,
standalone business unit with its own management.
The Company evaluated segment performance based on
profit or loss from continuing operations before income
tax, goodwill amortization and corporate overhead
allocation. Profit or loss from continuing operations
was determined in accordance with generally accepted
accounting principles described in the summary of
significant accounting policies. Intersegment sales
were not significant. Identifiable assets were those
assets used in the operations of a reportable segment
and excluded goodwill and deferred taxes. Corporate
assets included land, deferred income taxes and other
corporate assets. Depreciation and capital expenditures
for 1998 will not agree with the Consolidated Statements
of Cash Flows because discontinued operations had not
been segregated in the Consolidated Statements of Cash
Flows.
Information about the Company's operations by segment
for the three months ended March 31, 2000, and the years
1999 and 1998 is as follows:
Industrial Access Products Wireless Consolidated
- --------------------------------------------------------------------------------------------
Three months ended March 31, 2000:
Telecommunications sales $13,614 $3,392 $8,009 $25,015
====== ====== ====== ======
Segment profit (loss) ($24) ($612) $214 ($422)
====== ====== ======
General interest expense (294)
General corporate expenses (1,043)
Goodwill amortization (507)
Interest and other income 91
---------
Pre-tax loss ($2,175)
===========================================================================================
Identifiable assets $28,719 $13,894 $24,080 $66,693
====== ====== ======
Corporate assets 21,625
Goodwill 34,606
---------
Total assets, March 31, 2000 $122,924
===========================================================================================
Depreciation $436 $150 $488
===== ====== ======
Capital expenditures $302 $162 $228
===== ====== ======
Reconciliation of Other Significant Items:
Geographic Information Sales Long Lived Assets
--------------------------- ------ ----------------------
United States $17,742 $23,382
United Kingdom 2,610 904
Japan 1,027 64
Israel 644 -
Italy 639 295
Brazil 562 70
Other foreign countries 1,791 564
-------- ---------
$25,015 $25,279
======== =========
Sales to Major Customers:
Sales to a customer of the Company's Access Products Segment represented approximately
$2,224, or 9% of the Company's consolidated sales. Sales to a customer of the Company's
Industrial and Wireless Segments represented approximately $2,458, or 10% of the
Company's consolidated sales.
Industrial Access Products Wireless Consolidated
- --------------------------------------------------------------------------------------------
Year ended December 31, 1999:
Telecommunications sales $60,180 $21,149 $34,301 $115,630
====== ====== ====== ======
Segment profit (loss) $4,006 ($829) $4,600 $7,777
====== ====== ======
General interest expense (1,117)
General corporate expenses (4,272)
Goodwill amortization (1,699)
Restructuring and other charges (650)
Reversal of reserves 1,000
Interest and other income 873
---------
Pre-tax income $1,912
===========================================================================================
Identifiable assets $28,733 $13,909 $26,165 $68,807
====== ====== ======
Corporate assets 20,978
Goodwill 34,762
---------
Total assets, December 31, 1999 $124,547
===========================================================================================
Depreciation $1,967 $699 $1,887
===== ====== ======
Capital expenditures $878 $441 $2,189
===== ====== ======
Reconciliation of Other Significant Items:
Geographic Information Sales Long Lived Assets
----------------------------- ------ ----------------------
United States $75,376 $22,886
United Kingdom 9,084 851
Japan 4,589 64
Mexico 3,638 -
Brazil 3,116 70
China 1,716 64
Other foreign countries 18,111 787
---------- ----------
$115,630 $24,722
========== ==========
Sales to Major Customers:
Sales to a customer of the Company's Access Products Segment represented approximately
$11,701, or 10% of the Company's consolidated sales. Sales to a customer of the Company's
Industrial and Wireless Segments represented approximately $12,364, or 11% of the Company's
consolidated sales.
Industrial Access Products Wireless Consolidated
- --------------------------------------------------------------------------------------------
Year ended January 1, 1999:
Telecommunications sales $64,033 $25,160 $30,089 $119,282
====== ====== ====== ======
Segment profit $6,011 $325 $2,427 $8,763
====== ====== ======
General interest expense (1,294)
General corporate expenses (4,598)
Goodwill amortization (1,485)
Goodwill impairment, restructuring and other charges (23,089)
Net insurance reserve reversal and other 267
Interest income 301
---------
Pre-tax loss from
continuing operations ($21,135)
===========================================================================================
Identifiable assets $34,994 $15,052 $17,947 $67,993
====== ====== ======
Corporate assets 21,962
Goodwill 28,500
---------
Total assets, January 1, 1999 $118,455
===========================================================================================
Depreciation $2,047 $1,066 $1,530
===== ====== ======
Capital expenditures $3,262 $218 $2,007
===== ====== ======
Reconciliation of Other Significant Items:
Geographic Information Sales Long Lived Assets
----------------------------- -------- ----------------------
United States $76,413 $25,323
United Kingdom 10,527 1,096
Japan 5,262 -
Brazil 4,996 109
China 2,920 99
Taiwan 2,285 -
Other foreign countries 16,879 333
-------- --------
$119,282 $26,960
======== ========
Sales to Major Customers:
Sales to a customer of the Company's Access Products Segment represented approximately
$14,605, or 12% of the Company's consolidated sales. Sales to a customer of the Company's
Industrial and Wireless Segments represented approximately $11,058, or 9% of the
Company's consolidated sales.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in or disagreements with
accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The names, ages and present positions of the
directors and executive officers of Salient 3
Communications, Inc. as well as other
relevant information are set forth below:
Year In Which
First Became
Name Age Position With Company Director
- ---- --- --------------------- --------------
John W. Boyer, Jr. . . . . 72 Director 1984
Timothy S. Cobb . . . . . . 59 Chairman of the Board, President 1993
and Chief Executive Officer
Dennis E. Foster . . . . . 60 Director 1998
Thomas F. Hafer . . . . . . 52 Senior Vice President, General Counsel ----
and Secretary
Robert E. LaBlanc . . . . . 67 Director 1997
Donald E. Lyons . . . . . 71 Director 1989
Paul H. Snyder . . . . . . 53 Senior Vice President, Chief 1995
Financial Officer and Director
Dennis F. Strigl . . . . . 54 Director 1998
Donald K. Wilson, Jr. . . 65 Director 1990
Mr. Boyer retired in May 1993 as Chairman of
Philadelphia Suburban Corporation whose principal
subsidiary, Philadelphia Suburban Water Company, is
a regulated water utility. Mr. Boyer served in
various senior executive positions with that
company since 1981. He is a director of The
Rittenhouse Trust Company.
Mr. Cobb has been Chairman of the Board since
July 1995, Chief Executive Officer of the Company
since March 1994 and President and Chief Operating
Officer of the Company since October 1993. He
served as President of Gilbert/Commonwealth, Inc.,
then a subsidiary of the Company, from January 1991
to September 1993 and as President of GAI-Tronics,
a subsidiary of the Company, from June 1988 to
December 1990. He is a director of Central
Vermont Public Service Corporation.
Mr. Foster retired in 2000 as Vice Chairman of
ALLTEL Communications, Inc., which provides
telecommunications and information services. He
had assumed that position when it merged with 360 Degree
Communications Company, formerly Sprint
Corporation's cellular and wireless division, in
1998. Mr. Foster had been President and Chief
Executive Officer of 360 Degree Communications Company
since January 1996. Mr. Foster joined Sprint in
1992 as Senior Vice President of operations for its
local telecommunications division and became
President and Chief Operating Officer of its
cellular and wireless division in March 1993.
Prior to joining Sprint, Mr. Foster held management
positions in the areas of marketing, regulatory and
corporate strategic planning, as well as
operational assignments with AT&T and GTE. He
serves on the board of ALLTEL Corporation, NiSource
Corporation and Yellow Corporation and is a trustee
of the University of Findlay in Ohio.
Mr. Hafer was appointed Vice President of the
Company in September 1995 and Senior Vice President
in February 1997. He has served as General Counsel
and Corporate Secretary of the Company since
February 1994. Mr. Hafer served as President of
Green Hills Management Company, a division of the
Company, from September 1993 until July 1997. He
served as Vice President of Green Hills Management
Company from February 1991 through September 1993.
Mr. LaBlanc has served as President of Robert
E. LaBlanc Associates, Inc., an information
technologies consulting and investment banking
firm, since 1981. Prior to that, he was Vice
Chairman of Continental Telecom, Inc., a major
telecommunications services company now merged with
GTE. Mr. LaBlanc began his career in the former
Bell System and served as telecommunications
analyst and general partner with Salomon Brothers,
Inc., before joining Continental. He is a director
of Chartered Semiconductor Manufacturing Ltd.,
Storage Technology Corporation, The Titan
Corporation, Tribune Company, and two families of
Prudential Mutual Funds.
For five years prior to his retirement in 1987,
Mr. Lyons served as Chief Executive Officer and
President of the Power Systems Group of Combustion
Engineering, Inc., a supplier of technology,
equipment and services to the power and process
industries. Mr. Lyons served as Chairman of the
Board of CANISCO Resources, Inc. from 1996 to 1999.
He also chaired the Atomic Industrial Forum in
Washington, D.C. and served on the Advisory Board
of the Institute of Nuclear Power Operations.
Mr. Snyder was appointed Vice President of the
Company in September 1995 and Senior Vice President
in February 1997. He has been Chief Financial
Officer of the Company since August 1995. He
served as Vice President and Chief Financial
Officer of The Dreyfus Corporation from August 1994
until joining the Company. For more than five
years prior to joining Dreyfus, Mr. Snyder served
as Senior Vice President and Chief Financial
Officer of Mellon PSFS. Mr. Snyder became Senior
Vice President and Chief Financial Officer of
DecisionOne Corporation, a provider of multivendor
computer maintenance services, in February 2001.
Mr. Strigl has served as President and Chief
Executive Officer of Verizon Wireless since April
2000 and Executive Vice President of Verizon
Communications since June 2000. Prior to that, he
served as President and Chief Executive Officer of
Bell Atlantic Mobile since 1991 and as Group
President and Chief Executive Officer of Bell
Atlantic Global Wireless Group since 1997. He
joined Bell Atlantic Mobile in 1989, serving as
Vice President-Product Management for Network
Services and later as Vice President-Operations and
Chief Operating Officer, and a member of the Board
of Directors of New Jersey Bell. Mr. Strigl is a
director of Anadigics, Inc. and the Executive
Committee of the Cellular Telecommunications
Industry Association, serving as Chairman of the
latter for 1996-1997.
Mr. Wilson is currently a partner of Green,
Wilson, & Associates, management consultants, in
Hartford, Connecticut. From 1994 until the end of
1998, Mr. Wilson was a consultant with American
Phoenix Corporation of Connecticut, an insurance
brokerage company. In 1994, he retired as
Executive Vice President of The Hartford Steam
Boiler Inspection and Insurance Company, which he
had served in various capacities since 1962 and
which is engaged in insurance underwriting,
investments and engineering. He is also a director
of Spencer Turbine Company in Windsor, Connecticut.
The terms of office for all directors will expire
at the completion of the Company's dissolution
and liquidation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's
directors, officers and persons who own more than 10%
of a registered class of the Company's equity securities
to file with the SEC initial reports of ownership and
reports of changes in ownership of the Company's common
shares. These persons are also required to furnish the
Company with copies of Section 16(a) forms they file.
To our knowledge, based solely on the review of such reports
furnished to us and written representations from these individuals
that no other reports were required, during fiscal 2000 such
individuals complied with all Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER
INFORMATION
Dollar amounts in Item 11 are in actual dollars and are
not rounded.
Summary of Cash and Certain Other Compensation
The following table shows, for fiscal 2000, 1999 and
1998, the cash compensation paid by the Company, as
well as other compensation paid, accrued or awarded
for those years, to the Company's Chief Executive
Officer and to each of the remaining most highly
compensated Executive Officers whose total annual
salary and bonus exceeded $100,000 in fiscal 2000
(collectively, the "Executive Officers").
Summary Compensation Table
Long-Term Compensation
----------------------------------
Awards Payouts
Annual ---------------------- --------
Compensation Restricted Securities
Name and ------------------------- Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Awards(2) Options (3) Payouts(4) Compensation
- ------------------- ----- ------- ------ -------- -------- -------- ------------
T. S. Cobb 2000 $300,000 $50,000(1) $ - - $1,419,221 $882,887 (5)
President & Chief 1999 390,000 - - - - 28,723
Executive Officer 1998 390,000 150,000 209,000 55,000 - 29,113
T. F. Hafer 2000 206,725 62,708(1) - - 731,041 67,700 (5)
Sr. Vice President, General 1999 215,000 - - - - 23,723
Counsel & Secretary 1998 205,000 60,000 83,600 18,700 - 24,113
P. H. Snyder 2000 214,926 64,167(1) - - 739,291 68,739 (5)
Sr. Vice President & 1999 220,000 - - - - 23,723
Chief Financial Officer 1998 210,000 60,000 83,600 22,000 - 24,113
____________
(1) The amounts indicated were paid under the Company's Annual
Incentive Plan. The Executive Officers are also entitled
to receive payments under the Company's Special Incentive
Plan as a result of the completion of the sales of the
Company's subsidiaries, with respect to which partial
payments were made in early 2001. As of December 29, 2000,
the Company has accrued $3,200,000 as the estimated amount
payable for sale bonus awards. The Executive Officers are
eligible to receive an aggregate of 90% of the award pool.
(2) In connection with the adoption of the Plan in
April 2000, the Board of Directors authorized
full vesting of all restricted stock. At
December 29, 2000, Mr. Cobb held 80,500 shares,
which had been awarded as restricted stock,
with an aggregate value (after the $12 per
share liquidating distribution) of $191,188;
Mr. Snyder held 30,300 shares valued at $71,963
and Mr. Hafer held 30,300 shares valued at
$71,963.
(3) In July 2000, all outstanding stock options were
fully vested. In August 2000, all options were
converted to Limited Stock Appreciation Rights
(LSAR) entitling the holder to receive cash
payments equal to the difference between the
aggregate per share liquidating distribution
payable to stockholders upon liquidation and the
per share exercise price applicable to each
converted option. At December 29, 2000, Mr.
Cobb, Mr. Hafer and Mr. Snyder held 252,000,
78,700 and 84,000 LSARs respectively.
(4) Payouts under Long-Term Incentive Plans (LTIP)
include the following:
Mr. Cobb Mr. Hafer Mr. Snyder
-------- --------- ----------
Restricted stock vesting $777,328 $292,584 $292,584
Deferred dividends on
restricted stock 24,950 8,750 8,750
Benefit equalization plan 479,443 382,957 382,957
Liquidating distribution
on LSARs 137,500 46,750 55,000
--------- ------- -------
$1,419,221 $731,041 $739,291
========= ======= =======
(5) Includes: (a) for Mr. Cobb, Mr. Snyder, and Mr.
Hafer, non-compete payments of $858,462,
$47,231 and $46,192, respectively; (b) for Mr.
Cobb, Mr. Snyder, and Mr. Hafer, Company
contributions of $11,900 to each of their
accounts under the Company's Retirement Savings
Plan and $1,275 to each of their accounts in
the Company's Stock Purchase Program; (c) for
Mr. Cobb, Mr. Snyder and Mr. Hafer, taxable
expense reimbursements of $11,250, $8,333 and
$8,333, respectively.
Stock Options
No stock options were granted to Executive
Officers during 2000.
Aggregate Option Exercises and Year-End Values
No stock options were exercised by Executive
Officers during 2000. In August 2000, all
outstanding stock options were converted to
LSARs (see Note 3 to Summary Compensation
Table).
Compensation Committee Interlocks
There were no Executive Development Committee
interlocks in 2000.
Employment Contracts and Termination of Employment
and Change in Control Arrangements
Effective January 1, 2000, the Executive Officers
have entered into individual employment agreements
with the Company. Mr. Cobb serves as president and
chief executive at an initial base salary of $390,000
per year. Mr. Hafer serves as senior vice president,
general counsel and secretary at an initial base salary
of $215,000 per year. Mr. Snyder serves as senior
vice president and chief financial officer at an
initial base salary of $220,000 per year.
In addition, each of Messrs. Hafer, Snyder and
Cobb are eligible to receive target annual
incentive compensation equal to 35%, 35% and 75%,
respectively, of his base salary, with the maximum
annual incentive compensation to be equal to 70%,
70% and 150%, respectively, of his base salary.
The initial term of each Executive's Officer's employment
agreement is two years and is automatically
extended for successive one-year periods, beginning
on January 1, 2002, and each January 1 thereafter,
unless the Company terminates the agreement by
written notice to the executive at least 90 days
beforehand, or there is a change of control of the
Company, in which case the term is automatically
extended for two years beginning on the date of the
change in control.
A change in control is defined in the
employment agreements to include a sale of
substantially all of the Company's assets, which
occurred by virtue of the sale of the Company's
subsidiaries, or approval of the dissolution and
the plan of liquidation, which occurred in July
2000.
Within two years after a change in control, if
the Company terminates any of the three executives
without cause, other than due to death or
disability, or the executive terminates his
employment for good reason, the Company will
provide him with:
(a) a cash lump sum payment of:
- any unpaid base salary through his
termination date;
- for Mr. Cobb only, as severance
payment, an amount equal to the sum
of his base salary plus his target
annual bonus for the year of
termination;
(b) as a non-compete payment, an amount equal
to two times his base salary plus his
target annual bonus, each for the year of
termination, payable in twenty-four equal
monthly installments starting as soon as
practicable after his termination date;
(c) continuing benefits under the Company's
welfare benefit plans and programs for
two years following termination, plus an
additional year for Mr. Cobb;
(d) outplacement services for twelve months,
not to exceed 15% of his base salary; and
(e) any other compensation or benefits owed
under his employee agreement or any of
the Company's plans or programs,
including for Mr. Hafer, a benefit
equalization plan equal to the benefit
that would be payable to Mr. Snyder if
his employment were terminated at such
time.
The employment agreements also provide that, if
any payment(s) the Company makes to an executive,
whether under his employment agreement or
otherwise, cause that executive to incur an excise
tax under Section 4999 of the Internal Revenue Code
(relating to parachute payments made in connection
with a change in control), the Company will make an
additional tax "gross-up" payment to him such
that, after the payment of all taxes due with
respect to both the initial payments(s) and the tax
"gross-up" payment (including any related penalties
or interest), the executive receives a net payment
equal to the amount he would have received had the
excise tax under Section 4999 of the Internal
Revenue Code not applied.
Each executive originally agreed in his
employment agreement not to compete with the
Company for one year after his termination date in
any geographic area where the Company's businesses
are operated. Additionally, each executive has
agreed not to solicit the Company's employees for
one year after his termination date and to maintain
the confidentiality of the Company's information.
Effective as of June 1, 2000, the employment
agreements were amended, with the consent of each
of the three executives. The amendments extend the
promises not to compete and not to solicit
employees to two years following termination of the
executive's employment and expand them to prohibit
competition with, and solicitation of employees of,
the Company and the businesses of the Company's
subsidiaries, whether or not such subsidiaries
continue to be subsidiaries of the Company.
Mr. Cobb's employment was terminated September 30,
2000 and Mr. Hafer's and Mr. Snyder's employment
was terminated October 31, 2000. Mr. Hafer and Mr.
Snyder have been re-engaged in their former positions
at revised compensation levels to oversee the
liquidation and dissolution.
In 1989, the Board of Directors adopted a
Benefit Equalization Plan which provides
supplemental retirement income to several retired
officers of the Company and its subsidiaries. In
1997, the Board added Messrs. Cobb, Snyder and
Hafer to the Plan. Payments under the Plan will be
made to those three Executive Officers only to the
extent that income from Social Security, the
Company-paid portions of Company retirement plans,
and the value of any restricted stock which has
vested by the passage of time do not equal 50% of
an individual's average annual salary for the three
highest paid years. The plan is unfunded and
terminates for a participant upon termination of
employment for any reason other than retirement,
death or disability. However, if a participant is
terminated for any reason within three years
following a change in control, (as defined in the
plan) then he will be entitled to receive a lump
sum payment, in lieu of any other benefits under
the plan, equal to the actuarial present value of
the payment to which he would have otherwise become
entitled had he retired upon the date of such
termination. That lump sum payment will not be
reduced to reflect its commencement prior to the
participant's normal retirement date under the plan
(age 65). Pursuant to Mr. Hafer's employment
agreement with the Company, upon termination of his
employment with the Company for any reason
following a change in control, Mr. Hafer will be
entitled to a benefit under the plan equal to the
benefit that would be payable to Mr. Snyder under
the plan if he were terminated at the time of Mr.
Hafer's termination. Following the change in
control and termination of these executives, Mr.
Cobb, Mr. Hafer and Mr. Snyder were paid $479,443,
$382,957 and $382,957, respectively, under this
plan in 2000.
In December 1999, the Board of Directors adopted the
Special Incentive Plan in order to provide incentives
for the Company's executives who are in positions to
contribute materially to the successful sale of the
Company's business. The plan was amended on May 16,
2000 in order to qualify for an exemption from the
limitations of Section 162(m) of the Internal Revenue
Code and was approved by the stockholders on July 21,
2000. The Executive Officers are eligible to receive
sale bonus awards based on the aggregate net proceeds
the Company receives from sales of its subsidiaries,
less certain indebtedness and other liabilities. The
final amount of the sale bonus awards is uncertain,
pending receipt of amounts held in escrow and collectible
under promissory notes and the determination of the cost
of all obligations during the period of dissolution.
As of December 29, 2000, the Company has accrued $3,200,000
as the estimated amount payable for sale bonus awards.
The Executive Officers are eligible to receive an aggregate
of 90% of the award pool.
Director Compensation
Each Board member, other than officers of the
Company, receives an annual retainer of $18,000;
committee chairmen receive an additional $5,000.
Each such director also receives $1,000 for each
committee or Board meeting attended.
In 1996 the Board adopted, and the stockholders
approved, the Directors' Stock Option Plan. Under
the terms of that plan, each non-employee Board
member may elect to receive stock options in lieu
of all or a specified portion of his annual
retainer to be earned during that year. In July
2000, all outstanding options were fully vested and
the options were exercised prior to the Company
filing its certificate of dissolution.
ITEM 12. BENEFICIAL OWNERSHIP OF EQUITY
SECURITIES BY CERTAIN PERSONS
As of February 15, 2001, the number and
percentage of equity securities of the Company
beneficially owned by (i) each of the directors, (ii)
each Executive Officer named in the Summary
Compensation Table, (iii) all Executive Officers and
directors of the Company as a group and (iv) all
holders of more than five percent (5%) of the Class B
common stock are set forth in the following table:
Class B Percentage Class A Percentage
Individuals Common Stock of Class (1) Common Stock Of Class (1)
- ----------- ------------ ------------ ------------ ------------
J. W. Boyer, Jr 810 * % 14,400 *
T. S. Cobb 136,001 (2) 48.1 --- ---
D. E. Foster 4,836 1.7 4,430 *
T. F. Hafer 40,551 (2) 14.4 --- ---
R. E. LaBlanc --- --- --- ---
D. E. Lyons 4,238 1.5 13,775 *
P. H. Snyder 57,239 20.3 --- ---
D. F. Strigl 3,732 1.3 8,860 *
D. K. Wilson, Jr 2,585 * 17,975 *
All Executive Officers, directors
as a group (nine persons) 249,992 (2) 88.5 59,440 1.0
(1) Asterisks indicate beneficial ownership of less
than 1% of the outstanding shares of the class.
(2) Includes shares purchased through February 15,
2001 on behalf of Mr. Cobb under the Company's
Stock Purchase Program and shares for Mr. Hafer
from contributions to the Payroll Stock
Ownership portion of the Retirement Savings
Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Dollar amounts in Item 13 are in actual dollars and are not rounded.
Indebtedness of Management
Under the provisions of the Stock Purchase
Assistance Plan, selected key executives of the
Company and certain subsidiaries were extended
Company loans for the purpose of acquiring Company
stock as well as to refinance loans previously
incurred in the purchase of Company stock. All
loans were full recourse loans, evidenced by
promissory notes, and were secured by the shares
purchased or refinanced with the loan proceeds.
Loan interest, at the Company's approximate cost of
borrowing, was payable quarterly with principal
payments generally due in ten equal annual
installments.
Under the provisions of the plan, $444,338 was
advanced to seven individuals during 2000.
Advances to Mr. Cobb, Mr. Snyder and Mr. Hafer
represented 51.5%, 19.4% and 19.4%, respectively,
of the total advanced. The largest aggregate
amount of indebtedness outstanding during 2000
under the plan for Messrs. Cobb, Snyder and Hafer
was $602,923, $283,251 and $166,166 respectively.
The rate of interest charged on the indebtedness
ranged from 7.07% for the first fiscal quarter of
1999 to 8.13% for the third fiscal quarter of 2000.
The loans were repaid in full using proceeds from
the initial liquidating distribution in September
2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) The financial statements filed herewith under Part II, Item 8,
include the statement of net assets in liquidation (liquidation basis) as of
December 29, 2000, the statement of changes in net assets in liquidation
(liquidation basis) for the nine months ended December 29, 2000, the
consolidated balance sheet (going-concern basis) at December 31, 1999,
and the consolidated statements of operations, stockholders' equity and
cash flows (going-concern basis) for the three months ended March 31, 2000
and years 1999 and 1998 of Salient 3 Communications, Inc. and its
subsidiaries.
(b) The Company did not file any Form 8-K during the fourth quarter
of 2000.
(c) Exhibits.
2 Plan of Dissolution and Liquidation approved
by the stockholders on July 21, 2000. Incorporated
by reference to Annex F to the Proxy Statement for
the Annual Meeting of Stockholders held July 21, 2000.
3.1 Amended Certificate of Incorporation of Salient 3
Communications, Inc. as currently in effect.
Incorporated by reference to Exhibit 3(i) to the Quarterly
Report of the Company on Form 10-Q for the
period ended July 4, 1997 (File No. 0-12588).
3.2 Amended By-laws of Salient 3 Communications, Inc. as
currently in effect. Incorporated by reference to Exhibit
3(ii) to the Quarterly Report of the Company on Form
10-Q for the period ended July 4, 1997 (File No. 0-12588).
10.1 Stock Purchase Agreement dated as of June 6, 2000 between
Salient 3 Communications, Inc. and Hubbell Incorporated.
Incorporated by reference to Annex A to the Proxy Statement
for the Annual Meeting of Stockholders held July 21, 2000.
10.2 Stock Purchase Agreement dated as of May 11, 2000 between
Agilent Technologies, Inc and Salient 3 Communications, Inc.
Incorporated by reference to Annex C to the Proxy Statement
for the Annual Meeting of Stockholders held July 21, 2000.
10.3 Escrow Agreement dated as of July 25, 2000 between Chase
Manhattan Bank and Trust Company, NA, Agilent Technologies,
Inc. and Salient 3 Communications, Inc. Incorporated by
reference to Annex D to the Proxy Statement for the Annual
Meeting of Stockholders held July 21, 2000.
The following Exhibits 10.4 through 10.7 are compensatory plans or
arrangements required to be filed as exhibits to this Annual
Report on Form 10-K pursuant to Item 14(c):
10.4 Salient 3 Communications, Inc. Employment
Agreement with Timothy S. Cobb, effective
January 1, 2000. Incorporated by reference
to Exhibit 10.1 of the Quarterly Report of
the Company on Form 10-Q for the fiscal
period ended June 30, 2000 (File No. 0-12588).
10.5 Salient 3 Communications, Inc. Employment
Agreement with Paul H. Snyder, effective
January 1, 2000. Incorporated by reference
to Exhibit 10.2 of the Quarterly Report of
the Company on Form 10-Q for the fiscal
period ended June 30, 2000 (File No. 0-12588).
10.6 Salient 3 Communications, Inc. Employment
Agreement with Thomas F. Hafer, effective
January 1, 2000. Incorporated by reference
to Exhibit 10.3 of the Quarterly Report of
the Company on Form 10-Q for the fiscal
period ended June 30, 2000 (File No. 0-12588).
10.7 Salient 3 Communications, Inc. Special
Incentive Plan, effective December 7, 1999.
Incorporated by reference to Annex I to the
Proxy Statement for the Annual Meeting of
Stockholders held July 21, 2000.
21 The Company had no subsidiaries at the close of
business on December 29, 2000.
All previously owned subsidiaries were sold on or
before that date.
99.1 Annual Report on Form 11-K, pursuant to Section 15(d)
of the Securities Exchange Act of 1934, of the Stock Purchase
Program for Employees of Salient 3 Communications, Inc. and its
subsidiaries for the year ended December 31, 2000. (To be filed
by amendment.)
(d) Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves is set forth below.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders and Board of Directors, Salient 3
Communications, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have
issued our report thereon dated March 27, 2001. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule referred to in Item 14(d) in this Form 10-K 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
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated 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
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 27, 2001
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the three months ended March 31, 2000 and the years 1999 and 1998
Column A Column B Column C Column D Column E Column F
Balance at Additions Balance at
Beginning Charged to Other End of
Description of Period Costs and Expenses Deductions Changes Period
----------- ---------- ------------------ ---------- ------- ---------
Three months ended March 31, 2000:
Allowance for doubtful accounts $ 1,556 $ 462 $ 57 (A) $ 3 (C) $ 1,964
===== ===== ===== ===== =====
Estimated liability for
contract losses $ 1,756 $ - $ - $ - $ 1,756
===== ===== ===== ===== =====
Inventory reserves $ 1,760 $ 249 $ 64 $(11) (C) $ 1,934
===== ===== ===== ===== =====
Restructuring reserves $ 116 $ - $ 116 $ - $ -
===== ===== ===== ===== =====
1999:
Allowance for doubtful accounts $ 1,711 $ 251 $ 585 (A) $ 42 (G) $ 1,556
===== ===== ===== 137 (C) =====
=====
Estimated liability for
contract losses $ 1,756 $ - $ - $ - $ 1,756
===== ===== ===== ===== =====
Inventory reserves $ 3,855 $ 547 $2,832 $201 (F) $ 1,760
===== ===== ===== (11) (C) =====
=====
Restructuring reserves $ 1,454 $ - $1,338 $ - $ 116
===== ===== ===== ===== =====
1998:
Allowance for doubtful accounts $ 1,680 $ 300 $ (27) (A) $ 55 (E) $ 1,711
===== ===== ===== (351) (C) =====
=====
Estimated liability for
contract losses $ 1,470 $ 300 $ 14 (B) $ - $ 1,756
===== ===== ===== ===== =====
Inventory reserves $ 2,190 $ 493 $ 668 $ 16 (E) $ 3,855
===== 4,353 (D) 2,880 351 (C) =====
===== ===== =====
Restructuring reserves $ - $2,401 (D) $ 947 $ - $ 1,454
===== ===== ===== ===== =====
(A) Uncollectible accounts written off.
(B) Contract losses realized.
(C) Reclassification of reserves.
(D) Second quarter 1998 non-recurring charge.
(E) Acquisition of Elemec.
(F) Acquisition of Irmel.
(G) Acquisition of ComOpt.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized this 27th day of
March, 2001.
SALIENT 3 COMMUNICATIONS, INC.
By /s/T. S. Cobb
-------------
T. S. Cobb
Chairman, President and
Chief Executive Officer
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 Company and in the
capacities and on the dates indicated.
Signature Title Date
- ---------- ------ ----
Chairman, President and Chief
Executive Officer
(Principal Executive
/s/T. S. Cobb Officer)and Director March 27, 2001
- -------------
T. S. Cobb
Senior Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
/s/P. H. Snyder and Director March 27, 2001
- ---------------
P. H. Snyder
/s/J. W. Boyer, Jr. Director March 27, 2001
- -------------------
J. W. Boyer, Jr.
/s/D. E. Lyons Director March 27, 2001
- --------------
D. E. Lyons
/s/D. K. Wilson, Jr. Director March 27, 2001
- --------------------
D. K. Wilson, Jr.
/s/R. E. LaBlanc Director March 27, 2001
- ----------------
R. E. LaBlanc
/s/D. E. Foster Director March 27, 2001
- ---------------
D. E. Foster
/s/D. F. Strigl Director March 27, 2001
- ---------------
D. F. Strigl