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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended January 2, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 0-12588
Salient 3 Communications, Inc. (Formerly Gilbert Associates, 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 From 10-K. [X]
(Dollar amounts shown in thousands except for share information)
The aggregate market value of the registrant's Class B (voting) Common
Stock held by non-affiliates computed by reference to the NASDAQ National
Market System closing sale price for the registrant's Class A (non-
voting) Common Stock at January 30, 1998, was $6,561.
Class A Class B
------------ -----------
Number of shares of each class
of common stock outstanding as
of January 30, 1998 (excluding
2,547,390 treasury shares): 5,848,191 589,719
PART I
ITEM 1. BUSINESS.
Salient 3 Communications, Inc. (the "registrant"), formerly Gilbert
Associates, Inc., is a leading telecommunications equipment and services
company with subsidiaries that support public, private, and wireless
network operators. The registrant changed its name effective April 30,
1997 to distinguish its new focus just on telecommunications equipment.
Previously, the registrant had operated in the technical services and
real estate businesses as well as telecommunications equipment.
The registrant was organized as a holding company in 1984. Prior
to forming the holding company, the registrant was an operating company
and owner of several subsidiaries. The original Gilbert Associates, Inc.
was organized in 1942. The holding company structure separates the
administrative and financing activities of the registrant from the
activities of its operating subsidiaries.
CORPORATE DEVELOPMENTS
In June, 1996 the registrant announced that its Board of Directors
had authorized management to explore strategic options for its remaining
subsidiaries within the technical services and real estate segments. The
decision was reached because of the registrant's desire to focus its
business only on telecommunications equipment.
In accord with this decision, during the first quarter of 1997, the
registrant adopted discontinued operations treatment for its technical
services and real estate segments.
On June 24, 1997, the registrant sold its SRA Technologies, Inc.
subsidiary to Dames & Moore, Inc. for $8,800 in cash. The sale resulted
in a $1,080 gain, net of income taxes of $583, or $.17 per share. On
July 31, 1997, the registrant sold its real estate complex, Green Hills
Corporate Center to Brandywine Realty Trust for $40,000, substantially
all in cash. The sale resulted in a $7,000 gain, net of income taxes of
$5,362, or $1.11 per share. As of January 2, 1998, the sole remaining
non-telecommunications company is Resource Consultants Inc. (RCI), which
the registrant expects to divest within the first half of 1998. The
registrant expects cash proceeds of approximately $16,000 - $18,000 from
the RCI sale.
During 1997, the wireline business, XEL Communications ("XEL"), reported
much lower sales due to certain market conditions. As a result, the
registrant is currently studying potential changes in the wireline business
model that could improve operations.
TELECOMMUNICATIONS
The registrant manufactures and provides telecommunications equipment
and services to the industrial, wireline and wireless communication
markets. The registrant's primary subsidiaries consist of GAI-Tronics
Corporation (GTC) - Industrial , XEL Communications Inc. (XEL) -
Wireline, and SAFCO Technologies Inc. (SAFCO) - Wireless.
GTC, based in Reading, Pennsylvania, is principally engaged in the
development, assembly and marketing of communication 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. Instrument Associates, Inc.
(IA) is a division of GTC which manufactures and designs land mobile
communications systems. The registrant includes IA in the wireless
group.
On April 30, 1997, the registrant purchased all of the outstanding
capital stock of DAC Ltd. (DAC) for $5,351. DAC became a subsidiary of
GTC. DAC, based in Burton Upon Trent, England, is a designer,
manufacturer and marketer of ruggedized communications systems for the
mining, energy and transportation industries in the United Kingdom,
Europe, Australia and South Africa.
XEL, based in Aurora, Colorado, designs, and manufactures and sells
transmissions products to the wireline market. XEL's products are used
by their customers in the telecommunications network to provide customer
access for voice and data services. Telephone companies' demand for
products that provide greater transmission speed have increased as a
result of Internet access and business needs. The majority of XEL's
core products do not include technology to provide for such high speed
transmission. As a result, XEL's sales declined 22% during 1997. The
registrant is currently pursuing various technology partnerships which
should broaden XEL's product offerings.
SAFCO, based in Chicago, Illinois, provides products and services
which focus on measurement analysis and predictive tools used by the
wireless communication industry. Historically, a significant portion of
SAFCO's sales and operating profits have been earned in the fourth
calendar quarter. The seasonality may or may not continue due to a
number of factors, including: the timing of new product introductions by
SAFCO or its competitors, market acceptance of SAFCO's products, the size
of customers capital budgets and other competitive factors. These
factors cause the wireless business to be inherently unpredictable and
sales and profits may fluctuate significantly from quarter to quarter.
On April 21, 1997, the registrant acquired all of the outstanding
capital stock of TEC Cellular, Inc. (TEC) for $14,139 in cash and seven
year warrants exercisable to purchase 100,000 shares of the registrant's
common stock at $18 per share. TEC provides radio frequency engineering
consulting services and software applications to the wireless industry.
TEC is based in Melbourne, Florida and is a subsidiary of SAFCO.
In connection with the TEC acquisition, the registrant incurred a
$6,150, or $.97 per share, after tax charge of in-process research and
development costs during the second quarter of 1997. The purchased in-
process research and development had not yet reached technological
feasibility and the technology had no alternative future use as of the
date of closing.
The value of orders range from a minimal amount to over $1,000. The
significant classes of products or services are (1) the design and
assembly of communications systems for industrial operations
(Industrial), (2) transmission system products (Wireline) and (3)
measurement analysis and land mobile radio (Wireless).
The following table sets forth for the past three fiscal years the
sales from each of the significant classes of products.
1997 1996 1995
---- ---- ----
Industrial $51,613 $42,256 $38,296
Wireline 27,568 35,543 5,679
Wireless 31,288 18,660 7,873
The approximate percentage of sales derived from the principal
markets served during 1997 and the approximate percentage of the
registrant's backlog as of January 2, 1998 represented by contracts with
clients in such markets, were as follows:
Percentage of Percentage of Backlog
Market for Products 1997 Sales as of January 2, 1998
- -------------------- ------------- ---------------------
U.S. Private Industry 66% 64%
Foreign Governments and
Businesses 31 33
U.S. Federal, State and Local
Governments and Agencies 3 3
The registrant's operating companies manufacture few of the basic
components employed in their equipment; instead, they primarily design
and assemble their products and systems using standard or special
components manufactured by others. Several sources of supply exist for
such components so that the companies are not dependent upon any single
supplier.
The companies maintain a substantial inventory of components to
satisfy their backlog of orders. The communications systems part of the
business requires keeping a significant amount of inventory on hand
because many of the orders are highly customized for specialized uses.
Also, some customers served require products within a very short time
frame. Therefore, maintaining an adequate level of inventory is required
to satisfy the registrant's customers.
The companies own various patents and trademarks. However, such
patents and trademarks are of less significance to the companies'
operations than are experience and reputation.
Although the registrant had sales to many customers in 1997, GTE
accounted for 13% of total sales. During 1996, GTE and Motorola
accounted for 18% and 12%, respectively, of total sales. No other
customer accounted for 10% or more of such sales in 1997 and 1996.
A substantial part of the registrant's business is obtained from
customers to whom it has made previous sales. In 1997 and 1996, sales
made to customers who had made purchases within the last four years
accounted for approximately 85% and 93%, respectively, of total sales.
There is no assurance that sales to such customers will account for a
similar percentage of total sales in the future. Many of the sales are
made as a result of proposals submitted in response to competitive
bidding invitations.
As of January 2, 1998 and January 3, 1997, the registrant had
backlog from which it had anticipated estimated future sales of
approximately $22,617 and $11,534, respectively. It is estimated that
substantially all of the goods reflected in the backlog at January 2,
1998 will be shipped in 1998. Also, the vast majority of sales generated
in 1998 will be from orders received during the year.
The registrant competes with a number of other organizations in all
of its product areas. XEL and SAFCO, in particular, compete in an
industry subject to rapid technological changes. Some of these
competitors have larger total sales, greater financial resources, larger
research and development organizations and facilities and a more
diversified range of telecommunications services and products. The
substantial industry competitors of GAI-Tronics are believed to be
Industroniks, Fitre, Motorola, Federal Signal and ATI. Direct
competitors of XEL in one or more of its markets include Adtran, Conklin,
Pulsecom, Teltrend, and Westell. SAFCO competes with LCC, Rohde and
Schwarz, Mobile System International and Comarco. Management believes
that a history of quality, reputation, experience and service are the
most important factors in being asked to submit bids and in purchasing
decisions made by customers.
The registrant's operating companies are continually modifying their
products and attempting to further expand their product lines. The
registrant spent $5,534, $4,541 and $2,217 during 1997, 1996 and 1995,
respectively, on company-sponsored product development. Several
professional employees within these companies routinely engage in
company-sponsored product development and improvement on a full-time
basis.
It is critical that the registrant continue to enhance functionality
of existing products, to develop new products that address technology
changes and to introduce these products in a timely fashion.
In the development of new or expanded product offerings,
specifically within the wireless business, the registrant's access to the
technical design of air interface devices is essential to the development
of wireless communication products. During 1997, certain product delays
within the wireless group had a negative impact on the registrant's
results of operations.
On January 2, 1998, the registrant had a total of 905 employees, of
which 543 employees were professional and technical personnel. In
comparison, the registrant had a total of 788 employees on January 3,
1997, of which 406 were professional and technical personnel. The
increase in employees was due primarily to the acquisitions. 1997 and
1996 number of employees exclude employees from the discontinued
subsidiaries.
The Telecommunications Act of 1996 ("Act") became law in February
1996. The Act has and is expected to result in further competition
within the telecommunications industry. Among other things, the Act
provides for cable television rate deregulation, a relaxation of
restrictions on the ownership of television and radio stations, allows
local Bell companies to provide long distance telephone service, and
removes certain restrictions to allow cable, long-distance and other
companies to provide local telecommunications services. The potential
effect of these provisions on the registrant's business is not certain.
MISCELLANEOUS
The registrant expects no material effect on the capital
expenditures, earnings and competitive position of the registrant and its
subsidiaries from its or their compliance with federal, state or local
laws or regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the environment.
A portion of the revenue of the companies is derived from customers
or projects located outside the United States. All foreign revenues were
from sales to customers unaffiliated with the companies. A summary of
foreign revenue is stated in Note 13 to the consolidated financial
statements contained in Part II, Item 8 of this report. The countries
providing the largest portion of foreign revenues in 1997 were China and
the United Kingdom.
ITEM 2. PROPERTIES.
The physical properties owned and leased consist primarily of office
and manufacturing space and furniture and equipment.
GAI-Tronics' manufacturing and office facilities are located near
Reading, Pennsylvania, and in Memphis, Tennessee. The facility near
Reading, Pennsylvania, which is used to design and assemble
communications systems, is owned by GAI-Tronics and consists of
approximately 103,000 square feet and is located on a 17 acre tract of
land owned by GAI-Tronics. The facility located in Memphis, Tennessee,
which is used to design and assemble land mobile radio communications
devices is leased by GAI-Tronics and consists of approximately 50,000
square feet with the lease expiring in 2000.
DAC Limited, located in Burton Upon Trent, United Kingdom, leases a
manufacturing and office facility of approximately 44,000 square feet.
The lease expires in April 1999.
XEL owns its office and manufacturing facility located in Aurora,
Colorado. The entire facility is approximately 112,000 square feet. All
of XEL's telecommunication transmission product manufacturing is
performed there, as are XEL's executive and administrative functions.
SAFCO leases approximately 30,000 square feet of office and
manufacturing space in Chicago, Illinois which expires in 2006.
TEC leases approximately 15,000 square feet of office space in
Melbourne, Florida which expires in 1999.
The registrant and its subsidiaries believe that their existing
facilities are suitable and adequate for their present purposes.
The registrant and its subsidiaries own the majority of the office
furniture and equipment used by them; however, they also lease a
substantial amount of equipment under agreements generally for terms not
in excess of five years.
ITEM 3. LEGAL PROCEEDINGS.
The registrant and its subsidiaries are involved in various disputes
which have resulted in pending litigation arising in the ordinary course
of business. In the opinion of the management of the registrant, none of
these disputes will materially affect the registrant's financial position
or results of operations.
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 1997.
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
registrant are as follows:
Name Position and Previous Experience Age
- ------ ---------------------------------- -----
Timothy S. Cobb Mr. Cobb has been Chairman of the Board of Directors 56
since July 1995. He was 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 registrant) from January 1991 to
September 1993. He served as President of GAI-Tronics
Corporation (subsidiary of registrant) from
October 1988 to December 1990. Upon joining
the registrant, 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.
Paul H. Snyder Mr. Snyder has been Senior Vice President and 50
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.
Thomas F. Hafer Mr. Hafer has been Senior Vice President since February 49
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
registrant) 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 registrant acting solely in their capacities as such.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS.
Private Placement
In connection with the acquisition of all outstanding stock of TEC
Cellular, Inc. (TEC) on April 21, 1997, the registrant issued warrants to
former TEC shareholders to purchase 100,000 shares of Common Stock at a
purchase price of $18.00 per share (the "Warrants"). The Warrants expire
on April 22, 2004. The registrant has agreed to register the shares of
Common Stock purchasable upon exercise of the Warrants for resale by
former TEC shareholders under the Securities Act of 1933 (the "Act")
under certain conditions. The sale of the Warrants was exempt from the
registration provisions of the Act pursuant to Section 4(2) of the Act
for transactions not involving a public offering, based on the fact that
the private placement was made to accredited investors who had access to
financial and other relevant data concerning the registrant, its
financial condition, business and assets.
The registrant's Class A Common Stock is traded in the over-the-
counter market. Price quotations are available through the NASDAQ
National Market system under the symbol STCIA. The following tabulation
sets forth the high and low price quotations by quarter as reported by
the NASDAQ Stock Market and cash dividends declared on each share of
Class A and Class B Common Stock. Prices quoted represent high and low
closing sale prices on the NASDAQ National Market System.
1997 1996 Dividends
High Low High Low 1997 1996
---- --- ---- --- ---- ----
$19.00 $14.00 $14.00 $11.00 First Quarter $.10 $.20
16.88 11.50 14.25 11.00 Second Quarter .10 .20
15.63 12.25 13.25 11.00 Third Quarter .10 .10
13.75 11.25 14.25 11.88 Fourth Quarter .10 .10
On January 28, 1998, the registrant announced the elimination of the $.10 per
share quarterly dividend after the March 10, 1998, payment. The decision was
based on a review of the registrant's growth projections and the need to fund
both working capital and fixed asset requirements over the next few years.
At January 2, 1998, the approximate number of shareholders of Class A and
Class B common stock was 3,200 and 400, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
Five Year Summary / Selected Financial Data
(000's except for share and per share
information and number of employees)
Summary of Operations: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Telecommunications Sales $ 110,469 $ 96,459 $ 51,848 $ 46,045 $ 41,987
Costs and Expenses 118,314 104,387 53,843 46,673 42,980
Net Loss from
Continuing Operations (7,845) (1) (7,928) (2) (1,995) (3) (628) (993)
Per Share of Common Stock:
Net Loss from
Continuing Operations (1.24) (1) (1.26) (2) (0.30) (3) (0.09) (0.13)
Dividends to Stockholders 0.40 0.60 0.80 0.80 0.76
Average Shares Outstanding 6,305,384 6,299,127 6,592,174 7,002,834 7,417,272
Summary of Financial Position:
Total Assets $ 147,497 $ 155,747 $ 135,589 $ 121,289 $144,512
Long-Term Debt 11,245 26,549 1,436 - 85
Stockholders' Equity 97,860 97,620 102,481 99,514 118,114
Stockholders' Equity Per Share 15.20 15.37 16.30 14.30 16.82
Number of Employees 905 788 686 426 459
(1) Decreased by $6,150, or $0.97 per share, resulting from the write-off of
purchased in-process research and development associated with the TEC Cellular,
Inc. acquisition (Note 2).
(2) Decreased by $10,300, or $1.63 per share, resulting from the write-off of
purchased in-process research and development associated with the SAFCO
acquisition (Note 2).
(3) Decreased by $2,500, or $0.40 per share, resulting from the write-off of
purchased in-process research and development associated with the XEL
Corporation acquisition (Note 2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
(000's except for share and per share information)
Results of Operations
In June, 1996 the Company announced that its Board of Directors
had authorized management to explore strategic options for its
remaining subsidiaries within the technical services and real
estate segments. The decision was reached because of the
Company's desire to focus its business only on telecommunications
equipment.
In accord with this decision, during the first quarter of 1997,
the Company adopted discontinued operations treatment for its
technical services and real estate segments.
In order to emphasize the new direction of its business, the
Company then changed its name in April 1997 to Salient 3
Communications, Inc.
1997 vs. 1996
The Company reported a net loss from continuing operations of
$7,845, or $1.24 per share in 1997 compared to a loss of $7,928,
or $1.26 per share for 1996. 1997 and 1996 include a charge of
$6,150 or $0.97 per share and $10,300 or $1.63 per share,
respectively, associated with purchased in-process research and
development (Note 2).
Excluding these adjustments, the net loss from continuing
operations was $1,695 or $0.27 per share for 1997, compared with
income of $2,372 or $0.38 per share for 1996. The loss from
continuing operations resulted primarily from product delays
within the wireless unit and reduced customer demand for wireline
products. Furthermore, higher interest expense and goodwill
amortization reduced results. Partially offsetting these factors
was a decline in corporate overhead expenditures from 1996 to
1997.
Sales increased 15% for the year from $96,459 in 1996 to $110,469
in 1997. The increase in sales was primarily due to the 1997
acquisitions and a full year of sales from the Company's 1996
SAFCO acquisition.
The following is a breakdown of sales by telecommunications group:
1997 1996 1995
---- ---- ----
Wireline $27,568 $35,543 $ 5,679
Industrial 51,613 42,256 38,296
Wireless 31,288 18,660 7,873
-------- ------- -------
Total $110,469 $96,459 $51,848
======== ======= =======
The wireline sales declined by 22% in 1997 compared to 1996, due
to a reduction in customer demand for analog channel units. This
was prompted by certain re-use programs now in place at some
wireline customers. Industrial sales increased 22% primarily from
the second quarter 1997 acquisition of DAC Ltd. The wireless sales
grew 68% year-over-year due to the inclusion of TEC Cellular, Inc.
(TEC), acquired in April 1997, and the SAFCO acquisition, made by
the Company in September 1996. Reduced sales from the Company's
Instrument Associates division partially offset the gain within
the wireless unit.
The gross profit percentage increased from 39% in 1996 to 40% in
1997. The increase in gross profit percentage is primarily due to
higher margins realized from the recently acquired businesses -
SAFCO and TEC. Higher SAFCO and TEC margins were partially offset
by lower margins realized within the wireline and industrial
groups. Lower margins within the wireline group reflect reduced
sales and competitive pressures, while the industrial group's
margins suffered from start up costs associated with the
introduction of new products.
Selling, General and Administration
Selling, general and administration increased 36% in 1997 compared
to 1996 despite a $3,000 reduction in corporate overhead
expenditures. The increase in selling, general and administration
stems primarily from the 1997 acquisitions and the full year
impact of SAFCO, which was acquired in September 1996. Lower
corporate overhead resulted primarily from reduced payroll related
and professional services expenditures.
As a percentage of sales, selling, general and administration was
31% and 26% in 1997 and 1996, respectively. The unfavorable
relationship stems primarily from the wireless and wireline units.
The wireless unit has a higher percentage of selling, general and
administration to sales compared to the industrial and wireline
units. Therefore, as a result of the wireless acquisition, the
percentage of selling, general, and administration to sales
increased. In addition, product delays within the wireless unit
and reduced sales without a corresponding decline in expense in
the wireline unit contributed to the unfavorable relationship.
Research and Development, Goodwill Amortization and Interest Expense
Research and development, goodwill amortization and interest
expense increased 29%, 89% and 165%, respectively, in 1997
compared to 1996. The increases are primarily due to the
acquisitions.
Provision for taxes on income
Excluding the purchased in-process research and development
charges, the provision for taxes on income was an effective rate
of 38% for 1996 and 1997.
Improvement in the Company's operations is dependent upon
successful product releases within the wireless unit. Continued
lack of demand for the analog products within the wireline unit
could depress results; however, the Company is in the process of
entering into new technology partnerships which are expected to
offset declining analog product sales.
1996 vs. 1995
The Company reported a net loss from continuing operations of
$7,928 or $1.26 per share in 1996 compared to a net loss of $1,995
or $0.30 per share in 1995. 1996 and 1995 include a charge of
$10,300 or $1.63 per share and $2,500 or $.40 per share,
respectively, associated with purchased in-process research and
development (Note 2).
Excluding adjustments, net income from continuing operations for
1996 was $2,372 or $0.38 per share compared to $505 or $.08 per
share in 1995. The increase relates primarily to the SAFCO
acquisition in September of 1996. Historically, SAFCO has
experienced higher profits and sales in the fourth quarter. Sales
increased 86% in 1996, primarily due to the 1996 SAFCO acquisition
and a full year of sales from the Company's October 1995 XEL
acquisition.
The gross profit percentage increased from 37% in 1995 to 39% in
1996 due primarily to the acquisition of SAFCO.
The increased sales within the wireline and wireless unit stem
from the acquisitions. Industrial sales increased 10% due to new
product sales and increased international shipments.
Selling, General and Administration
Selling, general and administration increased 56% in 1996
primarily due to the acquisitions. As a percentage of sales,
selling, general and administration was 26% and 31% in 1996 and
1995, respectively. The favorable relationship stems from the
higher fourth quarter sales at SAFCO and sales increases within
the wireline and industrial units.
Research and Development, Goodwill Amortization and Interest Expense
Research and development, goodwill amortization and interest
expense increased 114%, 101% and 224%, respectively, in 1996
compared to 1995. The increases were primarily due to the
acquisitions.
Provision for taxes on income
Excluding the purchased in-process research and development
charges, the provision for taxes on income decreased from an
effective rate of 42% in 1995 to 38% in 1996. The decrease was
caused primarily by lower state taxes.
Income from discontinued operations
On July 31, 1997, the Company sold its real estate complex, Green
Hills Corporate Center (GHMC), to Brandywine Realty Trust, for
$40,000, substantially all in cash. The sale resulted in a $7,000
gain, net of income taxes of $5,362, or $1.11 per share. On June
24, 1997, the Company sold its SRA Technologies, Inc. (SRA)
subsidiary to Dames & Moore, Inc. for $8,800 in cash. The sale of
SRA resulted in a $1,080 gain, net of income taxes of $583, or
$.17 per share. The Company reduced its debt levels with the
sales proceeds.
The Company expects that the remaining subsidiary included in
discontinued operations, Resource Consultants, Inc. (RCI), will
remain profitable until the disposition is completed. The exact
timing of the disposition is uncertain but is expected to occur
within the first half of 1998. The Company expects that the sale
of this subsidiary could generate after-tax proceeds of
approximately $16,000 - $18,000.
Liquidity and Capital Resources
Working capital decreased $26,912 from 1997 to 1996. The decline
in working capital is due to the fact that cash proceeds received
from the sales of GHMC and SRA were used to reduce long term debt
and finance acquisitions. Amounts generated from operations,
available cash and cash equivalents, anticipated cash proceeds
from the RCI sale and lines of credit should provide adequate
working capital through 1998. In addition, the Company announced
on January 28, 1998, the elimination of the $0.10 per share
quarterly dividend after the March 10, 1998 payment. Elimination
of the dividend will provide additional funds to satisfy working
capital requirements. The Company does not expect to make any
contingent payments to former XEL and SAFCO Corporation
shareholders during 1998.
Lines of credit agented by CoreStates Bank, N.A., are available to
fund both short-term cash needs as well as future acquisitions.
These lines are more fully discussed in Note 4. After
consideration of the outstanding borrowings and certain loan
covenants, the Company had approximately $15,000 available under
the lines of credit at January 2, 1998. Although the Company was
not in compliance with one of its loan covenants at January 2,
1998, it received a compliance waiver from its lenders.
On June 25, 1997, the Board of Directors authorized an expansion
of the 1995 share repurchase plan to allow the Company to
potentially purchase up to one million shares in the open market.
As part of the compliance waiver agreement, any amounts
repurchased in excess of $3,500 requires the lenders' approval.
The Company has made no repurchases under that authorization as of
January 2, 1998.
The Company estimates that its total capital expenditures in 1998,
excluding acquisitions, will be approximately $6,500. No
restrictions on cash transfers between the Company and its
subsidiaries exist.
Other
In the second quarter of 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). The Company will adopt SFAS
130 during the first quarter of 1998, and does not anticipate a
material impact. The Company will adopt SFAS 131 at the end of
1998 and expects to report three reportable business segments -
wireless, wireline and industrial.
The currency problems with certain Asian countries have had a
negative impact to their economies. The Company currently sells
to customers located in some of these countries and, although the
current financial conditions will most likely reduce the amount of
products sold, the Company does not expect a material impact on
operations.
The Company has assessed the Year 2000 issue and it is not
expected to have a significant impact on ongoing results of
operations.
The Form 10K contains certain statements of a forward-looking
nature relating to future events or the future financial
performance of the Company. Such statements are only predictions
and involve risks and uncertainties, and actual events or
performance may differ materially as expressed in any such forward
looking statements. Potential risks and uncertainties include,
without limitation: the effect of general economic conditions,
the impact of competitive products, services and pricing, and
demand and market acceptance risks of current and new products and
services; with respect to RCI, its dependence on the U.S.
government as a customer; and with respect to the
Telecommunications business, the uncertain effect of the
Telecommunications Act of 1996, technology change, and risks of
product development and commercialization difficulties, and the
Company's ability to complete its divestiture program in the time
frame and in the price range indicated. 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 used in this report
such as "positioned", "yields", "should generate", "appears",
"viewed", "could potentially", "would position", "expected", and
"should allow" indicate the presence of forward looking
statements.
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 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.
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
maintains an internal audit function that periodically assesses the
effectiveness of the systems of internal control and makes
recommendations for possible improvement.
The Company's 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
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Salient 3 Communications, Inc.:
We have audited the accompanying consolidated balance sheet of
Salient 3 Communications, Inc. and Subsidiaries as of January 2, 1998
and January 3, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the fiscal years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Salient 3
Communications, Inc. and Subsidiaries as of January 2, 1998 and January
3, 1997, and the results of their operations and their cash flows for the
fiscal years then ended, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 26, 1998
To the Stockholders and Board of Directors of Salient 3 Communications, Inc.:
The consolidated statements of Salient 3 Communications, Inc. and Subsidiaries
for the year ended December 29, 1995, were audited by other auditors whose
report dated January 31, 1996 expressed an unqualified opinion on those
statements. The opinion of such auditors, however, does not cover the
restatement of the consolidated statement of operations for the adoption of
discontinued operations as discussed in Note 1. We have audited the
adjustments that were applied to restate the fiscal 1995 consolidated
statement of operations for the adoption of discontinued operations treatment.
In our opinion, such adjustments were appropriate and have been properly
applied.
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 26, 1998
To the Stockholders and Board of Directors of Salient 3 Communications, Inc.:
We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of Salient 3 Communications, Inc. and Subsidiaries
(formerly Gilbert Associates, Inc. and Subsidiaries) for the year ended
December 29, 1995, prior to their restatement (and, therefore, are not
presented herein) for discontinued operations. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements (prior to restatement) based
on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements (prior to restatement) referred to
above present fairly, in all material respects, the consolidated results of
operations and cash flows of Salient 3 Communications, Inc. and Subsidiaries for
the year ended December 29, 1995 in conformity with generally accepted
accounting principles.
Coopers & Lybrand LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 31, 1996
Salient 3 Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended 1997, 1996 and 1995
(000's except for share and per share information)
1997 1996 1995
---- ---- ----
Telecommunications sales $110,469 $96,459 $51,848
Cost of goods sold 66,639 59,202 32,429
-------- ------- -------
Gross profit 43,830 37,257 19,419
Selling, general and
administration 34,061 25,099 16,040
Purchased in-process
research and development 6,150 16,800 2,500
Research and development 9,098 7,038 3,288
Goodwill amortization 1,726 915 455
------- -------- --------
Operating profit (loss) (7,205) (12,595) (2,864)
------- -------- -------
Interest income 135 298 1,439
Interest expense 1,805 681 210
----- ---- -----
Pre-tax income (loss)
from continuing operations (8,875) (12,978) (1,635)
------- -------- -------
Provision (benefit) for taxes
on income (loss) (1,030) (5,050) 360
------- ------- ------
Net income (loss)
from continuing operations (7,845) (7,928) (1,995)
------- ------- -------
Income from discontinued operations:
Technical Services Segment
(less applicable income taxes of
$939, $2,197 and $2,601) 1,628 3,555 3,549
Real Estate Segment
(less applicable income taxes of
$450, $928 and $209) 781 1,499 284
Gains on disposals of
subsidiaries (less applicable
income taxes of $5,945, $510,
and $5,930) 8,080 990 15,112
------ ------ ------
Net income from
discontinued operations 10,489 6,044 18,945
------ ------- -------
Total net income (loss) $2,644 $(1,884) $16,950
====== ======== =======
Per share of common stock (Basic and diluted):
Net income (loss) from continuing
operations $(1.24) $(1.26) $(0.30)
Net income from
discontinued operations:
Technical Services Segment 0.26 0.56 0.54
Real Estate Segment 0.12 0.24 0.04
Disposals of subsidiaries 1.28 0.16 2.29
----- ----- -----
Total earnings (loss) per share $0.42 $(0.30) $2.57
===== ======= =====
Basic weighted average
shares outstanding 6,305,384 6,299,127 6,592,174
The accompanying notes are an integral part of the consolidated
financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years 1997, 1996 and 1995
(000's)
1997 1996 1995
---- ---- ----
Cash flows from operating
activities:
Net income (loss) $ 2,644 $ (1,884) $ 16,950
Adjustments to reconcile net
income (loss) to net
cash provided by (used for)
operating activities:
Gain on sale of subsidiaries (14,025) - (26,542)
Disposition of United Energy Services
Corporation - (1,500) 5,500
Depreciation and amortization 7,105 5,770 4,976
Purchased research &
development write-off 6,150 16,800 2,500
Reserve provisions 808 222 239
Benefit from deferred income taxes (849) (3,880) (68)
Changes in current assets and current
liabilities, net of effects from
acquisitions and dispositions:
Accounts receivable and unbilled
revenue (1,697) 828 1,069
Inventories (2,963) (2,794) (112)
Other current assets (271) 605 (244)
Accounts payable and salaries and
wages 581 (101) (600)
Other accrued liabilities (3,757) (3,827) (1,859)
Income taxes, currently payable (266) 1,435 2,334
Estimated liability for contract
losses (56) (232) (2,750)
Other, net (8) 106 (216)
------- ------- -------
Net cash provided by (used for)
operating activities (6,604) 11,548 1,177
------- ------- -------
Cash flows from investing
activities:
Payments for acquisitions, net of cash
acquired (19,302) (22,162) (23,164)
Proceeds from sale of subsidiaries 45,013 - 45,932
Payments for property, plant and
equipment (8,142) (7,766) (4,406)
Proceeds from sale of property,
plant and equipment - 1,102 665
------ ------- -------
Net cash provided by (used for)
investing activities 17,569 (28,826) 19,027
------ -------- -------
Cash flows from financing
activities:
Payments of long-term debt (35,338) (1,689) (162)
Borrowings (repayments) under note
payable 8,557 - (2,000)
Proceeds from issuance of debt 19,900 14,800 -
Issuance of treasury stock in
connection with stock option, award
and purchase plans 161 341 825
Payments to acquire treasury stock (547) (857) (9,511)
Cash dividends paid (2,553) (3,785) (5,297)
Other, net 352 (1,169) (367)
------- ------- -------
Net cash provided by (used for)
financing activities (9,468) 7,641 (16,512)
======= ====== ========
Net increase (decrease) in cash and
cash equivalents 1,497 (9,637) 3,692
Cash and cash equivalents at
beginning of year 1,482 11,119 7,427
----- ------ ------
Cash and cash equivalents at end of year $ 2,979 $ 1,482 $ 11,119
===== ===== ======
Supplemental cash flow
disclosures:
Interest paid $ 2,405 $ 586 $ 122
===== === ===
Income taxes paid, net of refunds
received $ 7,420 $ 1,030 $ 6,834
===== ===== =====
The accompanying notes are an integral part of the consolidated
financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 1998 and January 3, 1997
(000's)
January 2, January 3,
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 2,979 $ 1,482
Accounts receivable, net of allowance
for doubtful accounts of $1,680 in 1997 and
$1,565 in 1996 23,798 20,723
Inventories 20,128 16,244
Deferred income taxes 3,805 4,180
Other current assets 4,013 2,640
Net assets held for sale 16,195 45,996
------ ------
Total current assets 70,918 91,265
------ ------
Property, plant and equipment, at cost:
Land 3,172 3,172
Buildings 9,800 9,683
Furniture and equipment 31,149 24,250
------ ------
44,121 37,105
Less accumulated depreciation and
amortization 20,334 17,821
------ ------
23,787 19,284
------ ------
Deferred income taxes 7,010 8,105
Other assets 1,000 500
Goodwill 44,782 36,593
------- -------
Total Assets $ 147,497 $ 155,747
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 1998 and January 3, 1997
(000's except for share information)
January 2, January 3,
1998 1997
---------- ----------
LIABILITIES
Current liabilities:
Notes payable $ 8,557 $ -
Accounts payable 7,587 7,657
Salaries and wages 1,437 1,256
Income taxes, currently payable 3,384 3,096
Estimated liability for contract losses 1,470 1,539
Other accrued liabilities 8,332 10,654
------ ------
Total current liabilities 30,767 24,202
------ ------
Long-term debt 11,245 26,549
Other long-term liabilities 4,948 4,967
Self-insured retention 2,677 2,409
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: 1997, 8,404,288 shares; 1996, 8,516,812 shares 8,404 8,517
Class B common stock, voting, par value $1 per share
Issued and outstanding: 1997, 581,012 shares;
1996, 468,488 shares 581 468
Capital in excess of par value 37,835 38,091
Warrants outstanding 1,665 1,180
Retained earnings 89,929 89,838
Foreign currency translation adjustment 52 -
Deferred compensation-restricted stock (1,368) (287)
Class A common stock held in treasury, at cost:
1997, 2,547,390 shares; 1996, 2,633,137 shares
(39,238) (40,187)
-------- --------
97,860 97,620
-------- --------
Total Liabilities and Stockholders' Equity $ 147,497 $ 155,747
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1997, 1996 and 1995
(000's except for share information)
Common Stock
---------------------------------------------------------
Class A Class B
Shares Amount Shares Amount
Balances at December 30, 1994 7,698,484 $ 7,698 1,286,816 $ 1,287
Conversion from Class B to
Class A, net 834,044 834 (834,044) (834)
--------- ----- --------- ------
Balances at December 29, 1995 8,532,528 8,532 452,772 453
Conversion from Class A to
Class B, net (15,716) (15) 15,716 15
---------- ------ ------- ---
Balances at January 3, 1997 8,516,812 8,517 468,488 468
Conversion from Class A to
Class B, net (112,524) (113) 112,524 113
---------- ------ ------- ---
Balances at January 2, 1998 8,404,288 $ 8,404 581,012 $ 581
========== ====== ======= ===
The accompanying notes are an integral part of the consolidated financial
statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1997, 1996 and 1995
(000's except for share information)
Deferred Foreign Class A
Capital in Compensation- Currency Treasury Stock
Excess of Warrants Retained Restricted Translation -----------------------
Par Value Outstanding Earnings Stock Adjustment Shares Amount
----------- ----------- --------- ---------- ----------- -----------------------
Balances at December 30, 1994 $ 38,707 $ - $ 83,854 $ - $ - 2,024,396 $ (32,032)
Net income 16,950
Cash dividends paid, $.80 per
share (5,297)
Purchase of treasury stock 738,734 (9,511)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (215) (66,654) 1,040
------- -------- ------ -------- -------- ---------- -------
Balances at December 29, 1995 38,492 - 95,507 - - 2,696,476 (40,503)
Net loss (1,884)
Cash dividends paid, $.60 per
share (3,785)
Issuance of restricted stock (86) (431) (34,500) 517
Restricted stock amortization 144
Issuance of warrants 1,180
Purchase of treasury stock 69,418 (857)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (315) (98,257) 656
------- ----- ------ ------ ----- ---------- ----------
Balances at January 3, 1997 38,091 1,180 89,838 (287) - 2,633,137 (40,187)
Net income 2,644
Cash dividends paid, $.40 per
share (2,553)
Translation adjustment 52
Issuance of restricted stock (116) (1,079) (80,000) 1,195
Restricted stock amortization (2)
Issuance of warrants 485
Purchase of treasury stock 41,120 (547)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (140) (46,867) 301
------- ------ ------ ------- -- ---------- --------
Balances at January 2, 1998 $ 37,835 $ 1,665 $ 89,929 $(1,368) $ 52 2,547,390 $ (39,238)
======= ====== ====== ======= == ========== ========
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)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION: The Company is a leading telecommunications
equipment and services company with subsidiaries that operate in
the industrial, wireline, and wireless markets. The industrial
group develops, assembles, and markets communications systems for
industrial operations. Industrial communications products are
designed to operate under extraordinary plant conditions and
provide emergency notification. The wireline group designs,
manufactures and markets voice and data transmission system
products. The wireless group's products and services focus on the
measurement analysis and predictive tools used by the wireless
communication industry. The wireless group also provides radio
frequency engineering design services.
FISCAL YEAR: The Company uses a 52-53 week fiscal year ending on
the Friday nearest December 31. The 1997 and 1995 fiscal years
included 52 weeks each and ended on January 2, 1998, and December
29, 1995, respectively. The 1996 fiscal year included 53 weeks and
ended on January 3, 1997.
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 recognizes revenue upon
shipment of goods and accrues costs associated with the training
and installation for its products upon shipment. The Company
recognizes revenue on contracts entered into for radio frequency
engineering as the work is performed. Costs and expenses are
charged to operations as incurred. Losses, estimated to be
sustained upon completion of contracts, are charged to income in
the year such estimates are determinable.
INSURANCE PROGRAMS: The Company's overall insurance coverages
contain provisions for significant deductibles and funding on a
claims paid basis for its workers compensation and general
liability coverages. Accruals, which relate primarily to workers'
compensation, aggregate $2,128 and $2,369 at January 2, 1998, and
January 3, 1997 respectively, and are included in other accrued
liabilities on the consolidated balance sheets.
The accrual for reported claims and for claims incurred but not
yet reported relating to professional liability exposures is
estimated on the basis of historical claims experience. This
accrual is reflected on the consolidated balance sheets as self-
insured retention.
INVENTORIES: Inventories, which consist of material, labor and
overhead, are determined on the first-in, first-out (FIFO) method
and are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION AND
AMORTIZATION: For financial reporting purposes, the Company provides 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 uses 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 are charged to expense as
incurred. Renewals and improvements are capitalized. Upon
retirement or other disposition of items of plant and equipment,
cost of the item and related accumulated depreciation are removed
from the accounts and any gain or loss is included in income.
In 1997, the Company capitalized $543 of costs associated with 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." As of January 2, 1998, $83 has been amortized.
GOODWILL: Goodwill is being amortized by charges to operations on
a straight-line basis over periods of 20 to 40 years, and such
amortization amounted to $1,726 in 1997, $915 in 1996, and $455 in
1995. Accumulated amortization amounted to $5,103 at January 2,
1998, and $3,377 at January 3, 1997.
The Company periodically reviews goodwill to assess
recoverability, and impairments would be recognized in operating
results if a permanent diminution in value were to occur. The
Company's primary financial indicator for assessing recoverability
of goodwill is whether a subsidiary is projected to generate
sufficient income and cash flow on an undiscounted basis.
INCOME TAXES: The Company utilizes the liability method of
accounting for income taxes. Under this method, deferred income
taxes are 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, are expensed as incurred.
STATEMENTS OF CASH FLOWS: For purposes of the consolidated
statements of cash flows, the Company considers 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. Also,
estimates are made for reported amounts of revenues and expenses
during the reporting period. The ultimate results could differ
from those estimates.
RECLASSIFICATIONS: The consolidated financial statements have
been reclassified to conform with current year presentation.
DISCONTINUED OPERATIONS: In the first quarter of 1997, the
Company elected discontinued operations treatment for both its
technical services and real estate segments.
The results of operations for technical services and the real
estate segments have been classified as discontinued operations for
all periods presented in the Consolidated Statements of Operations
and Balance Sheets. The assets and liabilities of the
discontinued operations have been classified in the Consolidated
Balance Sheets as "Net assets held for sale." Discontinued
operations have 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.
The following is a summary of sales by discontinued segment:
1997 1996 1995
--------- --------- ---------
Sales:
Technical Services $ 69,463 $ 84,888 $133,535
Real Estate 5,026 8,767 6,319
--------- --------- ---------
$ 74,489 $ 93,655 $139,854
========= ========= =========
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 1997,
1996 and 1995.
EARNINGS PER SHARE: During the fourth quarter of 1997, the
Company adopted Statement of Financial Accounting Standards No.
128 (SFAS 128), which requires companies to report both basic and
dilutive 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 respective yearend stock price,
would be issued. Dilutive shares outstanding for 1997, 1996 and
1995 were 6,393,234, 6,308,307 and 6,595,116, respectively. Since
these additional shares had an antidilutive impact on the
Company's loss from continuing operations, the adoption of SFAS
128 had no impact to the Company's earnings per share calculation.
Options to purchase 957,454 shares as of January 2, 1998, at
prices ranging from $14.25 to $21.00, were outstanding, but were
not included in the computation of diluted earnings per share
because the option price was greater than the average market
price.
NAME CHANGE: On April 30, 1997, the Company changed its name from
Gilbert Associates, Inc. to Salient 3 Communications, Inc. as part
of its strategy to solely focus on telecommunications.
2. ACQUISITIONS/DISPOSITIONS:
On July 31, 1997, the Company sold its real estate complex, Green
Hills Corporate Center, to Brandywine Realty Trust for $40,000,
substantially all in cash. The sale resulted in a $7,000 gain,
net of $5,362 of income taxes, or $1.11 per share. Proceeds were
used to reduce the Company's outstanding debt.
On June 24, 1997, the Company sold its SRA Technologies, Inc.
(SRA) subsidiary to Dames and Moore, Inc. for $8,800 in cash. The
sale of SRA resulted in a $1,080 gain, net of income taxes of
$583, or $.17 per share. Proceeds were used to reduce the
Company's outstanding debt.
On April 21, 1997, the Company acquired all of the outstanding
capital stock of TEC Cellular, Inc. (TEC) for $14,139 including
acquisition costs of $75. Also, the Company issued seven year
warrants exercisable to purchase 100,000 shares of the Company's
stock at $18 per share, which were valued at $485. The
acquisition was accounted for as a purchase and cost was assigned
to the net assets acquired based on their fair values at the date
of acquisition. The acquired assets had a fair value of $9,607 at
that date, and the Company assumed liabilities of $1,430, which
resulted in goodwill of $6,447. TEC is part of the Company's
wireless telecommunications business and is a division of SAFCO
Technologies, Inc.
In conjunction with the TEC acquisition, the Company recorded a
$6,150 after-tax charge, or $.97 per share, for purchased research
and development costs. The purchased in-process research and
development had not yet reached technological feasibility and the
technology had no alternative future use as of the date of
closing.
On April 30, 1997, the Company acquired all of the outstanding
stock of DAC Ltd. (DAC) for $5,351, including acquisition costs.
The acquisition was accounted for as a purchase and cost was
assigned to the net assets based on their fair values at the date
of acquisition. The acquired assets had a fair value of $5,006 at
that date, and the Company assumed liabilities of $1,979, which
resulted in goodwill of $2,324. DAC is part of the Company's
industrial telecommunications business and is a subsidiary of GAI-
Tronics Corporation.
The following unaudited consolidated pro-forma statements of
operations for the years 1997 and 1996 include TEC, DAC and SAFCO
as if they had been acquired at the beginning of each of the
respective periods:
1997 1996
====== ======
Sales $ 114,323 $ 124,584
Net loss from continuing operations $ (7,568) $ (8,732)
Net loss from continuing operations
per share of common stock $ (1.20) $ (1.39)
The pro-forma statements of operations include adjustments for
interest expense and amortization of goodwill.
During the first quarter of 1997, the Company paid an earnout of
$1,000 to the former principals of Instrument Associates, Inc.
pursuant to the 1993 purchase agreement.
On September 30, 1996, the Company acquired the assets of SAFCO
Corporation's Electronic Systems Division (ESD). The Company paid
$20,000 in cash plus $700 of acquisition costs, issued $10,000 in
notes payable and issued seven year warrants exercisable to
purchase 555,555 shares of the Company's stock at $18 per share.
The warrants were valued at $1,180. The acquisition was accounted
for as a purchase and cost was assigned to the net assets acquired
based on their fair values at the date of acquisition. The
acquired assets had a fair value of $24,506 at that date, and the
Company assumed liabilities of $3,031, which resulted in goodwill
of $10,405.
Under the terms of the agreement, the Company will also pay SAFCO
Corporation's shareholders additional incremental amounts through
1999 based upon the achievement of certain sales and operating
income levels. Any additional payments will increase goodwill.
The Company paid former shareholders $1,204 during the first
quarter of 1997.
In connection with the ESD acquisition, $10,300, net of $6,500
income tax benefit, or $1.63 per share, of in-process research and
development costs were expensed during the fourth quarter of 1996.
The purchased in-process research and development had not yet
reached technological feasibility and the technology had no
alternative future use as of the date of closing.
On October 27, 1995, the Company acquired all of the outstanding
capital stock of XEL Corporation (XEL) for $30,000. The
acquisition was accounted for as a purchase and cost was assigned
to the net assets acquired based on their fair values at the date
of acquisition. The acquired assets had a fair value of $26,425
at that date, and the Company assumed liabilities of $6,807, which
resulted in goodwill of $10,382.
As part of the stock purchase agreement, the Company paid XEL
shareholders approximately $954 in the first quarter of 1996.
Also, under the terms of the agreement, the Company will pay XEL
shareholders additional incremental amounts based upon achievement
of certain earnings and revenue objectives. Any additional
amounts paid will increase goodwill.
In connection with the XEL acquisition, the Company acquired in-
process research and development with a fair market value of
$2,500. Accordingly, the Company expensed $2,500, or $.40 per
share, in the fourth quarter of 1995 with no associated tax
benefit.
In the last quarter of 1995, the Company decided to close its
United Energy Services Corporation and recorded a $3,630 charge,
net of an income tax benefit of $1,870, or $0.57 per share. In
the fourth quarter of 1996, the Company determined that $990, net
of $510 income tax expense, or $0.16 per share, of closure
reserves were no longer required. As a result, gains on disposals
of subsidiaries was increased by $990.
On June 20, 1995, the Company sold Gilbert/Commonwealth, Inc. for
$45,932. The sale resulted in a $18,742 gain, net of income taxes
of $7,800, or $2.74 per share.
3. INCOME TAXES:
Income tax provisions (benefits) from continuing operations
consist of the following:
1997 1996 1995
---- ---- ----
Current:
Federal $ (1,793) $ (1,860) $ 1,890
State and foreign (328) (50) (615)
---------- ---------- ----------
(2,121) (1,910) 1,275
---------- ---------- ----------
Deferred:
Federal 881 (2,140) (1,580)
State 210 (1,000) 665
---------- ---------- ----------
1,091 (3,140) (915)
---------- ---------- ----------
$ (1,030) $ (5,050) $ 360
========== ========== ==========
The tax effects of temporary differences which comprise the
deferred tax assets and liabilities are as follows:
January 2, 1998 January 3, 1997
----------------- -----------------
Deferred income tax assets:
Goodwill $ 4,895 $ 5,671
Retirement liabilities 1,778 1,862
Reserves for contract disallowances
and bad debts 1,166 1,180
Self-insured retention 990 915
Workers' compensation reserves 671 754
Closure of United Energy Services Corp. 527 687
Inventory obsolescence reserves 810 518
Other 1,817 1,591
---------- ----------
$12,654 $13,178
---------- ----------
Deferred income tax liabilities:
Depreciation $ 741 $ 589
State income taxes 538 -
Cash to accrual 244 -
Prepaid insurance 209 129
Contract retention 95 136
Other 12 39
---------- ----------
1,839 893
---------- ----------
Net deferred income tax asset $10,815 $12,285
========== ==========
A reconciliation of the statutory income tax rate to the effective
tax rate follows:
1997 1996 1995
---- ---- ----
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
Purchased research & development
write-off 23.6 - 52.0
State and foreign taxes (1.0) (5.3) 2.0
Amortization of goodwill 2.9 1.3 3.5
Foreign sales corporation (1.3) - -
Other, net (1.8) (0.9) (1.5)
----- ----- -----
Effective tax rate (11.6)% (38.9)% 22.0%
====== ====== ====
4. LONG-TERM DEBT:
Long-term debt consists of the following obligations:
January 2, January 3,
1998 1997
--------- ---------
Acquisition line of credit(see below) $ - $14,800
Note payable, interest due quarterly at 7%,
principal due 2001 10,000 10,000
Mortgage obligation, $21 due monthly
to 2001 including interest at 8.5% 849 1,026
Note payable, interest and principal due
at maturity, with maturity date of
1997 and interest rate of 9% - 70
Note payable, interest and principal due
at maturity, with maturity date of
1999 and interest rate of 6% 250 250
Capital lease obligations, with monthly
payments not exceeding $33
with maturity dates from 1997 to 2002 and
interest rates ranging from 8.0% to 14.5% 474 725
-------- --------
11,573 26,871
Less current maturities (328) (322)
-------- --------
$11,245 $26,549
======== ========
The aggregate maturities of long-term debt, including the capital
lease obligations, are as follows:
1998 $ 328
1999 627
2000 363
2001 10,253
2002 2
-------
Total $11,573
=======
In connection with the aforementioned capital leases and mortgage
obligation, the Company has pledged as collateral the following:
January 2,
1998
-----------
Land and building $5,003
Equipment 913
Less accumulated depreciation (861)
---------
$5,055
=========
Long term debt recorded at January 2, 1998 approximates fair
market value.
Under terms of a 1996 loan agreement, agented by CoreStates Bank,
N.A., the Company has a working capital line of credit of $18,000
and an acquisition line of credit of $50,000, of which up to
$5,000 could be used for additional working capital. The
agreement requires maintenance of certain financial covenants, and
the Company pays a commitment fee of one-eighth of one percent on
the unused portion of the lines. As of January 2, 1998,
approximately $15,000 was available under the lines of credit
based on outstanding borrowings ($8,557), outstanding letters of
credit and the most restrictive loan covenant. The loan agreement
contains a number of financial and other covenants that, among
other things, require a certain ratio of funded debt to earnings
before interest, taxes, depreciation and amortization. Although
the Company was not in compliance with one of its loan covenants
as of January 2, 1998, it received a compliance waiver from its
lenders.
The working capital line of credit is available through June 30,
1998. The Company expects to renew the line on such date. At
January 2, 1998 and January 3, 1997, $1,464 and $1,554,
respectively, was committed for stand-by letters of credit.
The acquisition line of credit is available through January 1,
1999. Any balance outstanding at that time will convert to a term
loan and be amortized in equal principal payments over the
following 54 months.
Interest charges are based, at the Company's option, on a function
of LIBOR or the Prime Rate.
Although the aforementioned lines of credit are presently
unsecured, the Company has granted to its lender the right to use
the assets of the Company to secure the outstanding indebtedness
to its lender upon violation of any of the terms or conditions of
such lending arrangement and/or loan agreement. The above event
of default did not result in the lenders securing the Company's
assets.
5. INVENTORIES:
Inventories consist of the following:
January 2, January 3,
1998 1997
---------- ----------
Raw materials and components $12,465 $10,755
Work in process 2,500 1,768
Finished goods 5,163 3,721
---------- ----------
$20,128 $16,244
========== ==========
6. POSTRETIREMENT BENEFITS:
Substantially all regular, full-time employees of the Company and
its subsidiaries are participants in various defined contribution
retirement plans. Employer contributions under these plans are
generally at the discretion of the Company, based upon profits and
employees' voluntary contributions to the plans. Company
contributions charged to operations in 1997, 1996, and 1995,
totaled $1,536, $1,212, and $953, respectively.
In 1996, the Company completed arrangements with an insurance
carrier to assume the liability for certain five thousand dollar
postretirement death benefit obligations. In early 1995, the
Company discontinued this plan for most employees.
7. 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.
An amendment to the Company's Certificate of Incorporation was
approved during the second quarter of 1996 to reduce the number of
authorized shares from 24,000,000 shares to 11,000,000 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 January 2, 1998.
In 1996, the Board of Directors adopted a Stock Purchase
Assistance Plan, subsequently approved by the shareholders. The
plan authorizes 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
January 2, 1998, and January 3, 1997, loans aggregating $1,218 and
$818 respectively, were outstanding and are 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 Distribution Date. The threshold for
triggering 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.
8. STOCK OPTION, AWARD AND PURCHASE PLANS:
In 1997, the Board of Directors of the Company increased the
number of stock options, stock appreciation rights and restricted
stock available under the 1996 Long Term Incentive Plan by 600,000
subject to shareholder approval. The maximum number of shares
which may be issued under the Plan for all purposes is 1,100,000.
During 1997, 449,550 stock options were granted, at fair market
value, with terms not exceeding ten years and vesting over a three
year period.
As part of the Plan, 80,000 and 34,500 shares of restricted stock
were granted during 1997 and 1996, respectively. These shares
vest over a three to ten year period, depending upon certain
financial achievements. The value of the shares at the time of
issuance is recorded in stockholders' equity and $142 has been
expensed through 1997.
At January 2, 1998, an aggregate of 409,750 options, rights, and
restricted shares are available for future grants.
In 1997, the Board of Directors of the Company increased the
number of options available under the Directors' Stock Option Plan
by 75,000 subject to shareholder approval. The Directors' Stock
Option Plan provides for the granting of 125,000 stock options at
an exercise price of 75% of market value at date of grant.
Participating directors pre-pay 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 1997, 16,200 options were granted under the plan. The
options are granted with a twenty year term. At January 2, 1998,
options to purchase 95,600 shares are available for issue.
The 1989 Stock Option Plan provides for issuance of stock options
to purchase an aggregate of 250,000 shares of Class B common stock
at a price not less than seventy-five percent of the fair market
value at the date of grant, and with terms not exceeding ten
years. Options to purchase 52,550 Class B shares were granted at
fair market value during 1997. At January 2, 1998, options to
purchase 14,050 shares are available for future grants.
A summary of stock option activity related to the plans mentioned
above and other plans under which the Company is no longer
granting options is as follows:
Weighted Number of
Number of Option Price Average Price Share
Shares Per Share Per Share Exercisable
--------- ------------ ---------- -----------
Outstanding at
Dec. 30, 1994 278,947 $12.00-$26.50 178,098
Granted 139,000 $12.00-$13.25
Exercised (34,325) $12.00-$12.80
Expired (102,698) $12.80-$26.50
-------
Outstanding at
Dec. 29, 1995 280,924 $12.00-$26.50 $16.40 95,475
Granted 185,500 $ 9.00-$13.25 $12.15
Exercised - - -
Expired (64,625) $12.50-$26.50 $18.88
------
Outstanding at
Jan. 3, 1997 401,799 $ 9.00-$23.20 $13.42 81,000
Granted 518,300 $11.25-$16.00 $13.81
Exercised - - -
Expired (79,000) $11.25-$23.20 $16.94
------
Outstanding at
Jan. 2, 1998 841,099 $ 9.00-$21.00 $13.61 150,267
=======
The weighted average price per share of exercisable options at
January 2, 1998 is $14.09. The weighted average option lives
remaining at January 2, 1998, January 3, 1997 and December 29,
1995 are approximately 9, 6 and 3 years, respectively.
The Company has 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:
1997 1996 1995
-------- -------- --------
Net loss from
continuing operations $(8,110) $(8,031) $(2,020)
Net loss from continuing
operations per average
number of shares outstanding $(1.29) $(1.27) $(0.31)
The fair value was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995, respectively: risk free
interest rates of 6.2%, 6.3% and 6.5%; dividend yields of
2.9%, 3.2% and 6.3%; volatility factors of 19.2%, 17.7% and 18%;
and average stock option expected life of 5.2, 5 and 4.5 years.
The weighted average fair value of stock options granted was
$2.90, $2.39 and $1.41 per share in 1997, 1996 and 1995,
respectively.
Under the Stock Bonus Purchase Plan, 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 will receive 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 1997, 5,466 shares were issued under this plan. To date,
54,580 shares have been issued, and 145,420 shares remain
available for future grants as of January 2, 1998.
9. OPERATING LEASES:
The Company leases, as lessee, facilities, data processing
equipment, office equipment and automobiles under leases expiring
during the next nine years. Total rental expense under operating
lease agreements amounted to $1,500 in 1997, $1,100 in 1996, and
$1,100 in 1995. Minimum future rentals under noncancelable
operating leases with initial or remaining terms in excess of one
year at January 2, 1998 were as follows:
1998 $ 1,654
1999 1,357
2000 885
2001 612
2002 457
2003 and thereafter 1,082
-------
Total minimum rentals $ 6,047
=======
10. FINANCIAL INSTRUMENTS:
Letters of credit and performance bonds are issued by the Company
during the ordinary course of business through major domestic
banks and insurance companies. The Company has outstanding
letters of credit and performance bonds, not reflected in the
consolidated financial statements, in the amount of $1,464 at
January 2, 1998 and $1,554 at January 3, 1997.
Financial instruments which potentially subject the Company to the
concentration of credit risk, as defined by SFAS No. 105, consist
principally of accounts receivable. Concentration of credit risk
with respect to receivables is limited, as the majority of the
balance represents billings for work performed or product sold for
various financially secure companies.
11. COMMITMENTS AND CONTINGENCIES:
Various 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.
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a tabulation of the unaudited quarterly financial data for each of the four quarters of the
years 1997 and 1996:
QUARTER ENDED
--------------------------------------------------------------
April 4, 1997 July 4, 1997 Oct. 3, 1997 Jan. 2, 1998
--------------------------------------------------------------
Telecommunications sales $24,817 $24,560 $27,919 $33,173
Gross profit 9,395 8,975 10,524 14,936
Pre-tax income (loss) from
continuing operations (955) (9,293) (1,940) 3,313
Net income (loss) from
continuing operations (614) (8,115) (1,241) 2,125
Net income from
discontinued operations 869 650 476 414
Gain on disposals of
discontinued operations - 1,080 7,000 -
Total net income (loss) 255 (6,385) 6,235 2,539
Per share of common stock:
Net income (loss) from
continuing operations ($0.10) ($1.28) ($0.20) $0.34
Net income from
discontinued operations 0.14 0.10 0.08 0.06
Gain on disposals of
discontinued operations - 0.17 1.11 -
------- ------- ------- -------
Total earnings (loss)
per share $0.04 ($1.01) $0.99 $0.40
QUARTER ENDED
-----------------------------------------------------------------
March 29, 1996 June 28, 1996 Sept. 27, 1996 Jan. 3, 1997
------------------------------------------------------------------
Telecommunications sales $20,168 $20,472 $21,939 $33,880
Gross profit 7,179 7,187 7,614 15,277
Pre-tax income (loss) from
continuing operations 225 (79) 516 (13,640)
Net income (loss) from
continuing operations 140 (49) 321 (8,340)
Net income from
discontinued operations 906 1,243 1,635 1,270
Gain on disposals of
discontinued operations - - - 990
Total net income (loss) 1,046 1,194 1,956 (6,080)
Per share of common stock:
Net income (loss) from
continuing operations $0.02 ($0.01) $0.05 ($1.32)
Net income from
discontinued operations 0.15 0.20 0.26 0.20
Gain on disposals of
discontinued operations - - - 0.16
-------- ------- ------- -------
Total earnings (loss)
per share $0.17 $0.19 $0.31 ($0.96)
NOTES:
The results of operations for the quarter ended July 4, 1997 include a charge of $6,150, or $0.97 per share,
relative to the write-off of purchased in-process research and development associated with the TEC
transaction.
The results of operations for the quarter ended January 3, 1997 include a charge of $10,300, net of income
tax benefit of $6,500, or $1.63 per share, relative to the write-off of purchased in-process research and
development associated with the SAFCO transaction.
Net income from discontinued operations for the quarter ended September 27, 1996 includes a gain of $435,
net of income taxes of $265, or $.07 per share, relative to a settled claim filed by a former employee of a
subsidiary that was closed in 1988.
Earnings (loss) per share are computed independently for each of the quarters presented. Therefore, the sum
of the quarterly earnings (loss) per share does not equal the total computed for the year.
13. OTHER:
The Company's results of operations include sales derived from customers located
in areas of the world outside the U.S. The following is a summary of such sales
in 1997, 1996 and 1995 by geographic area:
Sales
----------------------------------
Geographic Area 1997 1996 1995
- ----------------- ---- ---- ----
Asia $16,042 $ 8,761 $ 5,693
Central and South America 5,673 4,505 2,428
Europe 7,712 1,328 533
Other 4,355 4,753 3,011
------ ------ ------
$33,782 $19,347 $11,665
====== ====== ======
Although the Company has sales to many customers, in 1997, GTE accounted for 13%
of total sales. In 1996, Motorola and GTE accounted for 18% and 12%,
respectively, of the Company's total sales. No customer accounted for more than
10% of sales in 1995.
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
Other than portions of Item 10, which are included in Item 4A
hereof, this part (i.e. Item 10 - Directors and Executive Officers of the
Registrant; Item 11 - Executive Compensation; Item 12 - Security
Ownership of Certain Beneficial Owners and Management; Item 13 - Certain
Relationships and Related Transactions) is incorporated by reference to
the registrant's 1998 definitive proxy statement.
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 consolidated balance sheets at January 2,
1998 and January 3, 1997, and the consolidated statements
of operations, stockholders' equity and cash flows for the
years 1997, 1996 and 1995 of Salient 3 Communications, Inc.
and its subsidiaries.
(b) The registrant did not file any Form 8-K during the fourth
quarter of 1997.
(c) Exhibits.
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 registrant 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
registrant on Form 10-Q for the period ended July
4, 1997 (File No. 0-12588).
The following Exhibits 10.1 through 10.5 are
compensatory plans or arrangements required to be
filed as exhibits to this Annual Report on Form 10-
K pursuant to Item 14(c):
10.1 Salient 3 Communications, Inc. Equity Award Plan.
Incorporated by reference to Exhibit 4 to
Registration Statement on Form S-8 filed by
registrant under the Securities Act of 1933 (File
No. 33-15289).
10.2 1989 Stock Option Plan. Incorporated by reference
to Exhibit 4(a) to Registration Statement on Form
S-8 filed by registrant under the Securities Act of
1933 (File No. 33-32288).
10.3 Salient 3 Communications, Inc. Stock Bonus Purchase
Plan. Incorporated by reference to Exhibit 4 to
Registration Statement on Form S-8 filed by
registrant under the Securities Act of 1933 (File
No. 33-37793).
10.4 Salient 3 Communications, Inc. Benefit Equalization
Plan, effective January 1, 1989. Incorporated by
reference to Exhibit 10(g) of Annual Report of the
registrant on Form 10-K for the fiscal year ended
January 1, 1993 (File No. 0-12588).
10.5 Salient 3 Communications, Inc. split dollar life
insurance policy for a former officer of the
registrant. Incorporated by reference to Exhibit
10(h) of Annual Report of the registrant on Form
10-K for the fiscal year ended January 1, 1993
(File No. 0-12588).
10.6 Salient 3 Communications, Inc. Long Term Incentive
Plan. Incorporated by reference to Exhibit 4 to
Registration Statement on Form S-8 filed by the
registrant under Securities Act of 1933 (File No.
333-09639).
10.7 Salient 3 Communications, Inc. Directors' Stock
Option Plan. Incorporated by reference to Exhibit
4 to registration Statement on Form S-8 filed by
the registrant under Securities Act of 1933 (File
No. 333-09635).
16 Change in independent accountants. Incorporated by
reference to Form 8-K filed on May 6, 1996.
21 A complete list of the registrant's subsidiaries.
23.1 Consent of Arthur Andersen LLP, registrant's
independent public accountants, to the use of their
reports on the consolidated financial statements
and financial data schedule.
23.2 Consent of Coopers & Lybrand LLP, registrant's
former independent public accountants, to the use
of their report on the consolidated financial
statements.
27 Financial Data Schedule for the year ended January
2, 1998.
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, 1997. (To be filed by
amendment.)
99.2 Annual Report on Form 11-K, pursuant to Section
15(d) of the Securities Exchange Act of 1934, of
the Retirement Savings Plan for Employees of
Salient 3 Communications, Inc. and its subsidiaries
for the year ended December 31, 1997. (To be filed
by amendment.)
99.3 Annual Report on Form 11-K, pursuant to Section
15(d) of the Securities Exchange Act of 1934, of
Resource Consultants, Inc. 401(k) Profit Sharing
Plan for the year ended December 31, 1997. (To be
filed by amendment.)
(d) Financial Statement Schedule, as required, are filed
herewith.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders and Board of Directors of 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 January 26, 1998. 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 the 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
January 26, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Salient 3 Communications, Inc.:
Our report of the consolidated financial statements of Salient 3
Communications, Inc. and Subsidiaries (formerly Gilbert Associates, Inc. and
Subsidiaries) for the year ended December 29, 1995, prior to restatement (and,
therefore, are not presented herein) for discontinued operations is included in
Part II of this Form 10-K. In connection with our audit of such financial
statements, we have also audited the related financial statement schedule, prior
to restatement (and, therefore, are not presented herein).
In our opinion, the financial statement schedule (prior to restatement)
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 31, 1996
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years 1997, 1996 and 1995
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
_____________________________________________________________________________________________________
1997:
Allowance for doubtful accounts $1,565 $ 76 $154 (A) $358 (D) $1,680
===== ===== ===== (165)(C) =====
=====
Estimated liability for
contract losses $1,539 $ - $ 69 (B) $ - $1,470
===== ===== ===== ===== =====
Inventory reserves $1,363 $ 513 $367 $516 (D) $2,190
===== ===== ===== 165 (C) =====
=====
1996:
Allowance for doubtful accounts $1,876 $ 103 $414 (A) $ - $1,565
===== ===== ===== ===== =====
Estimated liability for
contract losses $1,911 $ - $372 (B) $ - $1,539
===== ===== ===== ===== =====
Inventory reserves $ 936 $ 376 $249 $300 (C) $1,363
===== ===== ===== ===== =====
1995:
Allowance for doubtful accounts $1,651 $ 425 $200 (A) $ - $1,876
===== ===== ===== ===== =====
Estimated liability for
contract losses $1,285 $ 563 $(63)(B) $ - $1,911
===== ===== ===== ===== =====
Inventory reserves $ 430 $ 33 $ 23 $496 (E) $ 936
===== ===== ===== ===== =====
(A) Uncollectible accounts written off.
(B) Contract losses realized.
(C) Reclassification of reserves.
(D) Acquisition of DAC and TEC.
(E) Acquisition of XEL Corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized this 20th day of March, 1998.
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 registrant 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 20, 1998
- ----------------
T. S. Cobb
Senior Vice President and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
/s/P. H. Snyder and Director March 20, 1998
- -----------------
P. H. Snyder
/s/J. W. Boyer, Jr. Director March 20, 1998
- --------------------
J. W. Boyer, Jr.
/s/D. E. Lyons Director March 20, 1998
- -----------------
D. E. Lyons
/s/D. K. Wilson, Jr. Director March 20, 1998
- ----------------------
D. K. Wilson, Jr.
/s/R. E. LaBlanc Director March 20, 1998
- -------------------
R. E. LaBlanc
EXHIBIT 21
SUBSIDIARIES
The following list includes all significant subsidiaries of
the registrant and their state or jurisdiction of incorporation.
The registrant owns 100% of the outstanding voting stock of all of
the subsidiaries listed. The consolidated financial statements
include the registrant and all subsidiaries. Except as noted
below, none of the subsidiaries does business under a trade name
different from its corporate name.
State or
Jurisdiction in
which
Name of Subsidiary Incorporated
GAI-Tronics Corporation * Delaware
XEL Communications, Inc. Colorado
Resource Consultants, Inc. Virginia
SAFCO Technologies, Inc. * Illinois
* GAI-Tronics Corporation, in addition to doing business under
its corporate name, does business under the Instrument
Associates, Inc. (IA) trade name and DAC Ltd.
SAFCO Technologies, Inc. in addition to doing business under
its corporate name, does business under the TEC Cellular, Inc.
trade name.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Salient 3 Communications, Inc.:
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously
filed Registration Statements on Form S-8 (File Nos. 333-09639, 333-09635,
33-55139, 33-11693, 33-15289, 33-32288, 33-37792, 33-37793, 33-37795, 33-
43113, 33-44939 and 33-71242).
ARTHUR ANDERSEN LLP
1601 Market Street
Philadelphia, Pennsylvania
March 17, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Salient 3 Communications, Inc. and Subsidiaries (formerly Gilbert Associates,
Inc. and Subsidiaries) on Form S-8 (File Nos. 333-09639, 333-09635, 33-55139,
33-11693, 33-15289, 33-32288, 33-37793, 33-37795, 33-43113, 33-44939 and
33-71242) of our reports dated January 31, 1996, on our audit of the
consolidated financial statements and financial statement schedule, prior to
their restatement (and, therefore, are not presented herein) for discontinued
operations of Salient 3 Communications, Inc. and Subsidiaries and for the year
ended December 29, 1995, which report is included in this Annual Report on
Form 10-K.
COOPERS & LYBRAND LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 17, 1998