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UNITED STATES
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
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ____________________to
____________________.
Commission file number 0-21236
APPLIED SIGNAL TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0015491
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 WEST CALIFORNIA AVE., SUNNYVALE, CA 94086
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(Address of principal executive offices)
(408) 749-1888
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: Not
Applicable.
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, without par value.
Indicate by a check 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 periods 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 a check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant:
Common Stock, without par value -- $30,950,712 as of January 22, 1997.
Number of shares of registrant's common stock outstanding:
Common Stock, without par value -- 8,028,188 Shares as of January 22, 1997.
Total Number of Pages in this Report 116
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The registrant's Proxy Statement dated January 26, 1997 for the Annual Meeting
of Shareholders to be held on March 6, 1997 is incorporated herein by reference
in Part III to the extent stated herein.
Exhibit index on page 29.
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INDEX
APPLIED SIGNAL TECHNOLOGY, INC.
PART I.
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III.
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
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Signatures
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PART I
ITEM 1: BUSINESS
This report contains forward-looking statements about future events and
results of operations. These forward-looking statements are subject to a number
of risks discussed below in "Business" and, in particular, in "Business --
Summary of Business Considerations and Certain Factors that may Affect Future
Results of Operations and/or Stock Price." Actual events and results may differ
materially from the Company's current expectation and beliefs.
GENERAL
Applied Signal Technology, Inc. (the Company) designs, develops, and
manufactures signal processing equipment to collect and process a wide range of
telecommunication signals. This equipment is used for reconnaissance of foreign
telecommunications by the United States government and allied foreign
governments, as well as the private sector in a variety of commercial
applications. Signal reconnaissance systems are composed of collection equipment
and processing equipment. Collection equipment consists of sophisticated
receivers that scan the radio frequency (RF) spectrum (cellular telephone,
microwave, ship-to-shore, and military transmissions) to collect certain signals
from, potentially, thousands of signals within the RF spectrum. Signal
processing equipment, using sophisticated software and hardware, evaluates the
characteristics of the collected signals and selects signals that are likely to
contain relevant information. The Company's commercial products include
processing equipment for the information superhighway, as well as chip modem
designs that bring price efficiencies to personal communication systems. Since
inception, the Company has focused its efforts primarily on processing
equipment, but also provides specialized collection equipment, as well as
complete signal reconnaissance systems.
Purchases by intelligence agencies of the United States government have
historically accounted for almost all of the Company's revenues, and most of the
Company's business is conducted under contracts that include United States
government security requirements. While the Company believes its current
customers offer significant additional sales growth opportunities and,
accordingly, directs much of its marketing and research and development (R&D)
resources toward these customers, in recent years the Company has attempted to
broaden its customer base to include new customers in both the military and
commercial markets. The efforts have been successful with revenue contributions
having grown from 0.3% of revenues in fiscal 1993 to 2.8% of revenues in fiscal
1996 for the Company's Commercial Telecommunications Division, and from 2.3% of
revenues in fiscal 1993 to 6.2% of revenues in fiscal 1996 for the Company's
Military Reconnaissance Division. (See Item 7-- Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
In recent years, accurate and comprehensive information regarding foreign
affairs and developments has become increasingly important to the United States
government. The reduction of United States military tactical forces overseas,
coupled with political instability in certain regions such as the Middle East,
Eastern Europe, Africa and South America, has heightened the United States
government's need to be able to
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monitor overseas activities. In order to obtain information about activities
within foreign countries, the United States government gathers and analyzes
telecommunication signals emanating from those countries.
The Company devotes significant resources toward understanding the United
States government's signal reconnaissance goals, capabilities and perceived
future needs. The Company obtains information about these signal reconnaissance
needs through frequent marketing contact between its employees and technical and
contracting officials of the United States government. The Company believes that
it has much more marketing contact with customers and potential customers than
is customary among its competitors. In addition, the Company invests in R&D
which it anticipates will enable it to develop signal reconnaissance equipment
that meets these needs. The Company believes that it invests a greater
percentage of its revenues in R&D than is typical among its competitors. (See
"Research and Development.")
Budgetary constraints and critical time-to-deployment have caused many
United States government agencies to search for more flexible and cost-effective
signal reconnaissance solutions that can be deployed promptly. The Company's
signal reconnaissance products can be used, with or without further
modification, to satisfy requirements of a variety of customers. The Company
believes its products can be readily deployed in a wide variety of circumstances
to meet current United States government signal reconnaissance requirements. The
Company designs its products to use advanced circuitry and highly integrated
components, including Company-designed application specific integrated circuits
(ASICs). This enables the Company to offer products that are smaller, consume
less power, and cost customers less when multiple units are built than equipment
of similar functionality that use fewer advanced designs and materials.
Potential commercial applications of the Company's technology and
equipment include digital video processing for High Definition TV (HDTV or
interactive TV, wireless local loop demodulators and test equipment for the new
technologies in wireless communications. In this new market area, the Company
intends to license its technology to a strategic partner and, to a lesser
degree, the Company may develop the entire commercial product.
The Company believes its employees are its most valuable resource.
DESCRIPTION OF THE BUSINESS
Applied Signal Technology designs, develops, and manufactures equipment
to collect and process telecommunication signals for signal reconnaissance and
commercial applications. The signal reconnaissance equipment is purchased by
both the military as well as the intelligence organizations of the United States
government and is used for foreign signal reconnaissance. The commercial
telecommunications processing equipment has been developed for use in digital
video transmission, wireless local loop systems, and as test equipment for a
variety of wireless communication technologies.
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SIGNAL RECONNAISSANCE
In recent years, accurate and comprehensive information regarding foreign
affairs and developments has become increasingly important to the United States
government. The reduction in United States military tactical forces overseas has
heightened the United States government's need to quickly assess military risks,
particularly in areas of instability as they develop around the world. The
breakup of the Soviet Union and civil unrest in certain nations in Eastern
Europe, Africa, and South America indicate an increase in geographic areas that
might require monitoring. In addition, the United States government requires
information regarding overseas activities to conduct drug interdiction
operations.
As part of its efforts to obtain information, the United States
government gathers and analyzes telecommunication signals emanating from foreign
countries. In recent years, the use of established telecommunication
technologies has increased throughout the world and new telecommunication
technologies, supplementing rather than replacing prior technologies, have been
developed and commercialized. These trends have led to a significant increase in
the overall volume of information communicated and an increase in the density of
signals transmitted throughout the radio frequency spectrum. This increase can
be seen in the proliferation of facsimile, cellular, and digital signal
telecommunications equipment and the global information network (World-Wide Web)
in the last decade, resulting in a significant increase in the amount of
information being communicated. These trends have required the development of
signal reconnaissance equipment capable of collecting and processing an
increased volume of signals as well as new types of signals.
Traditionally, organizations within the United States government have
satisfied their signal reconnaissance needs by first identifying their specific
requirements and then contracting with government contractors to provide
equipment. Contractors typically designed and built custom signal processing
systems optimized to satisfy the particular needs of various agencies.
Development of custom systems usually required many years of effort and involved
great expense. The time required to develop these systems often meant that when
a system was delivered, it did not address new telecommunications technologies
that had evolved during the development process. These factors, combined with
growing budgetary constraints, have caused many agencies to search for more
flexible and cost-effective signal reconnaissance solutions that can be deployed
promptly.
COMMERCIAL TELECOMMUNICATIONS
The concept of an information superhighway involves the use of digital
forms of telecommunications for transmission techniques. Digital
telecommunications are subject to a variety of impairments that must be overcome
by sophisticated, automatic signal processing. The Company continues working to
exploit its existing technology in these new areas of opportunity. The
processing techniques developed by the Company for its signal reconnaissance
products can be applied to commercial digital video processing. The Company's
signal reconnaissance analysis products also serve as a basis for commercial
test equipment that can be used by wireless communications providers for
transmission quality assessments.
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STRATEGY
SIGNAL RECONNAISSANCE
Applied Signal Technology's objective is to anticipate the signal
reconnaissance needs of the United States government and to invest in research
and development in an effort to provide solutions before the Company's
competitors. In some cases, this involves the development of equipment to
address new telecommunications technologies. In other cases, it involves the
development of equipment that offers smaller size, lower power consumption, and
lower cost than potentially competitive products. The Company's strategy to
accomplish its objective includes the following elements:
- Anticipate Government Needs. The Company devotes significant
resources in order to understand the United States
government's signal reconnaissance goals, capabilities, and
perceived future needs. The Company monitors technological and
commercial advances in telecommunications to identify advances
it believes may have an impact on the United States
government's signal reconnaissance programs. The Company
obtains information about the United States government's
signal reconnaissance needs through frequent contact with
employees and technical and contracting officials of the
United Stated government. In contrast, the Company believes
that its competitors often wait until the United States
government requests competitive proposals for equipment to
satisfy specific requirements and then respond to these
requests.
Sole source contracts are let by the United States government
when a single contractor is deemed to have an expertise or
technology that is superior to that of competing contractors.
Since the Company's inception, almost all of its revenues have
been from sole source contracts. The Company believes that the
large number of sole source contracts it obtains demonstrates
that it often anticipates the signal reconnaissance needs of
the United States government correctly. There can be no
assurance, however, that the Company will anticipate correctly
the signal reconnaissance needs of the United States
government in the future.
- Invest in Research and Development. The Company invests in
research and development it believes will enable it to develop
signal reconnaissance equipment that will satisfy the needs of
the United States government. The Company believes that it
invests a greater percentage of its revenues in R&D than is
typical among its competitors. The Company believes its R&D
investments often enable it to offer superior products before
its competitors once the United States government identifies a
need.
- Develop Flexible Products. The Company develops signal
reconnaissance products that can be used, with or without
further modification, to satisfy the needs of a variety of
customers. The Company uses its prior product development
efforts to offer customers cost-effective solutions and to
offer these solutions promptly. The Company believes that
custom equipment developed by many of the Company's
competitors, generally, cannot be as readily deployed in as
wide a variety of circumstances as the Company's products.
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- Develop Highly Integrated Products. The Company designs its
products to use advanced circuitry and highly integrated
components. This enables the Company to offer products that
are smaller, consume less power, and cost customers less when
multiple units are built than equipment of similar
functionality that use fewer advanced designs and materials.
The lower cost of many of the Company's products appeals to
customers with budget constraints, and the smaller size and
low power consumption of many of the Company's products appeal
to customers with physical installation constraints.
- Focus on Signal Processing. Since inception, the Company has
focused much of its attention on developing signal processing
equipment. The Company believes that there have been and will
continue to be more opportunities to develop specialized
signal processing equipment than collection equipment as new
types of signals can often be collected with available
collection equipment but cannot be processed by available
processing equipment.
- Increase Penetration and Broaden Customer Base. The Company
believes that its current customers offer significant
additional opportunities for sales growth both in terms of
additional units of developed products and the development of
new products and, accordingly, directs much of its marketing
efforts toward these customers. The Company attempts to
broaden its customer base through marketing efforts directed
at United States government agencies that are not now
customers (that is, certain military and law enforcement
agencies) as well as at offices within its customer agencies
that have not contracted with the Company previously.
COMMERCIAL TELECOMMUNICATION PRODUCTS
The Company's strategy for commercial marketplace penetration is to take
full advantage of the R&D funded by government contracts in years past. This R&D
is the result of government development contracts and the Company's independent
R&D (IR&D). As a result of these investments, the Company believes it has
developed technology that commercial companies require and the Company attempts
to seek strategic partnering relationships with certain of these commercial
companies to exploit this technology.
PRODUCTS
The Company's products consist of signal collection and processing
equipment that use software and hardware developed over many years by the
Company in the course of performing hundreds of development contracts to provide
signal reconnaissance equipment to the United States government. This software
and hardware enables the Company's processing equipment to evaluate large
numbers of radio frequency signals and to select the relatively small proportion
which contain information likely to be useful in the signal reconnaissance
programs of the United States government. Further, the Company has recently
begun developing a line of products using existing technology for use in the
commercial telecommunications market.
The Company offers a variety of signal reconnaissance products, which can
be categorized as follows:
- Voice Grade Channel Processors. These processors are designed
to process voice grade channels (VGCs) which carry audio and
other signals. The standard telecommunication systems used
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throughout the world put a large number of VGCs on a single
carrier channel to increase the number of signals that can be
transmitted at a particular frequency. VGC processors can scan
thousands of signals in less than one second and use
sophisticated processing technology to detect and record
relevant data which is then analyzed by United States
government personnel. These processors evaluate the
characteristics of collected signals and select signals that
are likely to contain relevant information. The Company's VGC
processors currently range in price from approximately $40,000
to approximately $200,000.
- Wideband Processors. These processors "clean"
telecommunication signals for further processing by VGC
processors by adjusting for signal distortions that commonly
occur during transmission. The two primary types of distortion
these processors correct are multipath interference (caused by
the reception of a signal and its reflections) and cochannel
interference (caused by the reception of multiple interfering
signals). Commercial telecommunications companies overcome
these distortions with careful alignment and tuning which
requires interruption of the telecommunication signals. The
Company's wideband processors perform this alignment
independently and automatically by adjusting processing
parameters using proprietary adaptive algorithms that let the
processors "learn" how to process the incoming signals. One of
the Company's wideband processors processes signals that carry
thousands of VGCs in a digital format which is rapidly being
proliferated through the world and is particularly susceptible
to distortions. The Company's wideband processors currently
range in price from approximately $80,000 to approximately
$150,000.
- Processing Systems. Although the Company has emphasized
subsystem or "product" development since its inception, it has
also developed and delivered signal processing systems in
situations where the capabilities of its products have enabled
it to obtain a system development contract on a sole source
basis from the United States government. The Company's two
largest system installations, for which the Company developed
custom systems software, integrated a number of the Company's
standard VGC processors and were developed to exacting United
States government software and documentation standards.
- Collection Products. The Company offers a limited number of
signal collection products designed to complement certain of
the Company's processing products. The Company's collection
products include a low-cost, small-size receiver that collects
very complex signaling formats and a receiver that overcomes
cochannel interference and certain forms of multipath
interference by optimizing multiple antenna inputs. The
Company's collection products currently range in price from
approximately $20,000 to approximately $60,000.
In addition to its line of signal reconnaissance products, the Company
has recently started development of commercial products. The types of commercial
products that the Company is developing can be categorized as follows:
- Digital Video Processing Equipment. The Company is developing
a key processing function of digital demodulation in one ASIC
to be marketed to television set-top converter manufacturers.
The Company has also developed the QAMalyzer(TM) digital video
analyzer test unit.
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- Wireless Local Loop Equipment. The Company is developing a
QPSK demodulator in the form of an ASIC to integrate into the
Ericsson Corporation Freeset 1900(TM) handset for their
wireless local loop system.
CUSTOMERS, CONTRACTS, AND MARKETING
CUSTOMERS
To date, purchases by the United States government have accounted for
almost all of the Company's revenues. Most of the Company's revenues have come
from contracts directly with the United States government. The Company also has
subcontracts under which it supplies products or services to prime contractors
that have contracts with the United States government. Subcontract revenues
accounted for approximately 5%, 6%, and 27% of the Company's total revenues for
its fiscal years 1994, 1995, and 1996, respectively. In addition, the Company
occasionally sells small quantities of equipment to foreign governments. Foreign
revenues have accounted for approximately 2%, 6%, and 2% of the Company's total
revenues for fiscal years 1994, 1995, and 1996, respectively.
The Company's United States government customers consist of approximately
five military and intelligence agencies with signal reconnaissance needs. Within
these five agencies, the Company has contracts with approximately 20 different
offices, each with separate budgets and contracting authority. Although
concentration of revenue sources is significant for the United States
government, no single contract accounted for more than 5% of the Company's
revenues in fiscal year 1994, 3% in fiscal year 1995, or more than 16% in fiscal
year 1996.
Two intelligence agencies accounted for approximately 78% and 12%,
respectively, of revenues in fiscal year 1994; approximately 69% and 17%,
respectively, of revenues in fiscal year 1995; and approximately 53% and 27%,
respectively, of revenues in fiscal year 1996.
In recent years, the United States defense budget has been reduced,
causing customers and potential customers of the Company's products to
reevaluate their needs. The Company believes that budget reductions have caused
agencies increasingly to favor standard products similar to the Company's
products rather than custom products that generally are more expensive, take
longer to deliver, and provide solutions to a narrower range of signal
reconnaissance problems. Future reductions in United States government spending
on signal reconnaissance equipment or future changes in the kinds of signal
reconnaissance products or services required by United States government
agencies, however, could limit demand for the Company's products, which would
have a material adverse effect on the Company's operating results.
CONTRACTS
Government Contracts. Most of the Company's business is conducted under
contracts that include United States government security requirements. The
Company's contracts with United States government agencies can be categorized in
several ways.
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Sole source contracts are let by the United States government when a
single contractor is deemed to have an expertise or technology that is superior
to that of competing contractors. Potential suppliers compete informally for
sole source contracts through R&D investment and marketing efforts. This
competition requires a contractor to identify the United States government's
requirements early and invest in developing potential solutions so that the
contractor can demonstrate a distinguishing expertise or technology promptly
after the United States government has identified a signal reconnaissance
requirement.
Competitive bid contracts are awarded after a formal bid and proposal
competition among suppliers and sole source contracts are awarded without a
formal competition. During fiscal years 1994, 1995, and 1996, approximately 99%,
95%, and 75%, respectively, of the Company's revenues were from sole source
contracts, and approximately 1%, 5%, and 25%, respectively, were from
competitive bid contracts.
During fiscal 1996, the Company experienced an increase in the percentage
of contracts awarded on a competition basis and an increase in revenues
generated from subcontracts. This change is due to the award of one subcontract
during fiscal 1996. Management does not believe the shift in percentages will
have a material impact on the operating results of the Company.
As a government contractor, the Company is subject to price
redetermination on certain fixed-price contracts if it is determined that the
Company did not price its products and services consistent with the requirements
of the Federal Acquisition Regulations. As of October 31, 1996, the Company has
not had a material claim sustained against it for noncompliance.
In April 1994 the Company was served with a subpoena by the Department of
Defense Office of Inspector General (OIG) in connection with pricing of products
related to approximately six contracts. Shortly thereafter, a second agency
issued a request for information related to nine additional contracts. To date,
the Company has not received any allegation of wrongdoing from the OIG or the
other agency. Through its internal review of the contracts in question, the
Company has provided voluntary disclosure to the government which is expected to
result in a downward price adjustment on certain contracts. In anticipation of a
settlement, the Company recorded a charge of $1.2 million to third quarter
fiscal 1995 operating results.
In April 1996, the Company was served with a second subpoena by the OIG
in connection with all contracts entered into between 1990 and the present
related to three products: the Model 102P Voice Channel Demodulator, the Model
120 Multichannel Processor, and the Model 150 FAX Scanner. While management
believes this charge is adequate to cover all related risks, the government has
not concluded its investigation or agreed to a settlement with the Company. (See
Item 3 -- Legal Proceedings.)
Competitive bid contracts are awarded based on objective proposal
evaluation criteria established by the procuring agency. Interested contractors
prepare a bid and proposal that responds to the agency's request for proposal. A
bid and proposal is usually prepared in a short period of time (for example, 45
days) in response to a deadline and requires the extensive involvement of
numerous technical and administrative personnel.
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Competitive bid or sole source contracts can be either fixed-price
contracts, pursuant to which the Company agrees to deliver equipment for a fixed
price and assumes the risk of cost overruns, or cost-plus contracts, pursuant to
which the Company is reimbursed for its direct and indirect costs and paid a
negotiated profit. During fiscal years 1994 and 1995, approximately 66% of the
Company's revenues were from fixed-price contracts and 34% were from cost-plus
contracts. During fiscal year 1996, approximately 52% of the Company's revenues
were from fixed-price contracts and approximately 48% were from cost-plus
contracts.
Most of the Company's fixed-price contracts are for the manufacture of
multiple units of its products, rather than the development of new products. The
Company believes that the risk of cost overruns is much less in the case of
fixed-price manufacturing contracts, where the product already has been
developed and at least a prototype made, than in the case of fixed-price
development contracts.
Almost all of the Company's contracts contain termination clauses that
permit contract termination upon the Company's default or for the convenience of
the other contracting party. In either case, termination could adversely affect
the Company's operating results. Although the Company has not experienced any
material cancellations in the past, there can be no assurance such cancellations
will not occur in the future.
Commercial Contracts. During fiscal years 1994 and 1995, commercial
contracts have accounted for approximately 1.2% and 2.9% of the Company's
revenue, respectively. In fiscal 1996, commercial contracts accounted for
approximately 2.8% of the Company's revenue. The commercial contracts are
typically fixed-price for development or manufacturing and often require R&D
investments by the Company. Commercial contracting is a maturing business area
for the Company and due to the highly competitive nature of these commercial
endeavors, there is risk that the Company's investments may not produce income
and that the fixed-price contracts may experience cost overruns. Losses on any
individual contracts are provided for at the time they become known.
MARKETING
Signal Reconnaissance. The Company's primary signal reconnaissance
marketing efforts consist of personal contact between government technical
representatives and technical personnel of the Company. The Company involves all
technically qualified staff members in its marketing program. The Company
believes it is extremely important to have technically knowledgeable staff make
marketing contacts since an initial system concept is often developed during the
first such contact. The Company believes that it has much more marketing contact
with customers and potential customers than is customary among its competitors
generally, and that this contact enables the Company to anticipate the United
States government's signal reconnaissance needs, thereby giving the Company a
potential advantage over its competitors.
The Company's signal reconnaissance marketing occurs at three levels. The
top level of marketing involves contact between the Company's senior management
and officials of the United States government responsible for signal
reconnaissance policy. The purpose of these contacts is to understand national
level requirements in future years (five to ten years out), obtain guidance for
direction of the Company's R&D,
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and keep the United States government community informed about the Company, its
technology, and its products.
The intermediate level of marketing is performed by the Company's systems
engineers contacting government officials responsible for allocating budgets.
These engineers seek to identify new requirements that will result in projects
within the next six to 18 months and work with government technical
representatives to develop system concepts. The Company invests in R&D to
address these requirements and to obtain potential projects. To assist with this
level of marketing, the Company's technical staff often constructs a theoretical
model of the problem and tests processing solutions so that the Company and the
customer can determine whether a product can be developed or modified to meet
the customer's requirements. At this stage of marketing, the customer often
awards a sole source contract to the Company.
The final level of marketing involves establishing precise cost estimates
and detailed specifications. This level of marketing is performed by development
engineers who are involved in the actual development or modification of the
product.
In addition to its primary technical marketing, the Company also conducts
marketing activities designed to increase its visibility with existing and
potential customers. Each year the Company conducts two equipment shows in the
Washington, D.C. area demonstrating the operation of many of its products. The
Company uses direct mail and magazine advertising from time to time to inform
potential customers of available products. The Company also produces a product
summary catalog that is updated every six months and included with the quarterly
newsletter mailing. The Company's mailing list includes contacts at private
sector companies that may purchase the Company's products for their own use or
for inclusion in systems they are developing for United States government
customers, as well as contacts at United States government agencies that buy
products but do not contract for development efforts.
Commercial Marketing. The Company's approach to marketing of commercial
products is to form strategic alliances with other companies that have had
experience in a particular commercial marketplace. The Company will rely on the
marketing techniques of these strategic partners to attempt penetration of the
new commercial marketplaces. Further, the Company intends to license its
technology, which the Company believes should minimize the risk of lost
investment in these new marketplaces.
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BACKLOG
The Company's backlog, which consists of anticipated revenues from the
uncompleted portions of existing contracts, was $30.9 million, $29.6 million,
and $82.9 million at October 31, 1994, 1995, and 1996, respectively. Anticipated
revenues included in backlog may be realized over a multi-year period. The
Company includes a contract in backlog when the contract is executed. The
Company believes the backlog figures are firm, subject only to the cancellation
and modification provisions contained in its government contracts.
RESEARCH AND DEVELOPMENT
The Company conducts R&D pursuant to United States government R&D
contracts and as part of its own R&D program. United States government R&D
contracts generated approximately $23.0 million, of revenues in fiscal years
1994 and 1995, and approximately $37.0 million in 1996. The Company's own R&D
program is funded both by the United States government, through reimbursement of
certain of the Company's R&D expenditures, and by the Company's own investment,
which is not reimbursed. The Company's R&D expenditures as a percentage of
revenues in fiscal years 1994, 1995, and 1996 were 13.3%, 14.6%, and 12.1%,
respectively. Research and development conducted by the Company and sponsored by
the United States government (excluding United States government R&D contracts)
was $5.9 million, $6.8 million, and $6.7 million in fiscal years 1994, 1995, and
1996, respectively, while research and development conducted and sponsored by
the Company was $2.7 million, $3.1 million, and $2.7 million in those same
periods, respectively. The Company believes that its investment in R&D provides
it with a significant competitive advantage.
The Company seeks to develop technology capable of addressing new signal
reconnaissance requirements before its competitors. In addition, the Company
focuses its R&D on developing products that can be used, with or without further
modification, to satisfy various needs of a variety of customers, thereby
permitting the Company to offer a solution promptly. The Company attempts to
allocate its R&D funds among projects intended to yield revenues within one to
two years, projects intended to yield revenues in two to five years, and
projects intended to yield revenues in more than five years. Most of the
Company's R&D expenditures are for projects intended to yield revenues within
one to two years.
An important aspect of the Company's R&D efforts is understanding
telecommunication trends to anticipate the future signal reconnaissance needs of
its customers. Not only does this allow the Company to direct its R&D
engineering efforts to produce solutions promptly once a customer expresses a
need, but it often allows the Company to educate the customer about its
potential needs and simultaneously present a conceptual solution to those needs.
Another important aspect of the Company's R&D is the development of
components or products utilizing advanced technology. This enables the Company
to develop products superior to competing products in size, power consumption,
delivery time, and cost. The Company has developed an in-house
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capability to design very large scale integration (VLSI) circuits. Using its
VLSI capabilities, the Company has designed proprietary application specific
integrated circuits that enhance the processing power of many of its signal
processing products.
The Company's commercial endeavors attempt to apply technology developed
for signal reconnaissance to commercial areas of telecommunications. The Company
intends to identify opportunities where it believes it has technology that
commercial companies have not developed and can form strategic alliances with
other commercial companies in an attempt to exploit these opportunities.
COMPANY DIVISIONS
The Company is organized into four technical divisions and a finance
division. Three of the four technical divisions--Military Reconnaissance,
Commercial Telecommunications, and Strategic Systems--are engineering divisions
which perform all of the Company's development. The engineering divisions are
primarily responsible for conducting R&D and the initial development of
products, while the Operations Division is primarily responsible for
manufacturing multiple units of products. All divisions work together to ensure
that production-related issues, such as manufacturability, reliability, and
maintainability, are addressed from initial product definition through final
product shipment. The Company's technical staff includes personnel with system
development expertise, which the Company applies not only to system development
but also to its product development in order to ensure the compatibility of its
products with a variety of system requirements. As of January 17, 1997, there
were 295 employees in the engineering divisions and 164 employees in the
operations division. (See "Employees".)
Engineering. The engineering divisions are responsible for the Company's
R&D. The Company's R&D activities include both United States government R&D
contracts and the Company's R&D projects. The engineering division activities
are directed toward developing products that will ultimately be produced by the
Operations Division. The engineering divisions work in conjunction with the
Operations Division to assure that the development efforts will culminate in a
product able to be manufactured efficiently in quantity.
The Company has offices which also support the Company's marketing
activities in Herndon, Virginia and Jessup, Maryland. As of January 17, 1997,
there were 21 employees in the Virginia office and 11 employees in the Maryland
office. Most of the personnel staffing these offices are technical personnel
and, in addition to marketing activities, are involved in research and
development and customer support (for example, installation, training, and
troubleshooting).
Operations. The Operations Division is responsible for completing final
product development and manufacturing multiple units of products. By combining
engineering and production expertise within the Operations Division, the Company
believes it is able to maximize manufacturing efficiency and, therefore, reduce
overall production costs. Operations manufactures products using batch
production methods. The division achieves labor efficiency by extensive
cross-training of its personnel, which permits these personnel to participate in
the production of all of the Company's products. The division is also
responsible for
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managing the Company's purchases of goods and services, including third party
manufacturing and assembly services. (See "Suppliers".)
SUPPLIERS
The Company uses suppliers in order to obtain quality goods and services
without incurring the costs of providing those goods and services in-house. The
Company purchases from suppliers nearly all circuit boards, integrated circuits,
and other components used in its products. In addition, the Company contracts
with suppliers to assemble some of its products. The Company's reliance on
suppliers involves several risks, including the possibility of a shortage of
certain key components and assemblies and reduced control over delivery
schedules, manufacturing yields, quality, and costs. If the Company experiences
significant availability or quality control problems in the future, its revenues
and profitability could be adversely affected.
Although the Company procures most of its parts and components from
multiple sources or believes that these components are readily available from
numerous other sources, certain components are available only from sole sources
or from a limited number of sources. A number of the Company's products contain
critical components like single board computers available solely from Motorola,
Inc. and Force Computers, Inc. and digital signal processing integrated circuits
available solely from Texas Instruments, Inc. While the Company believes that
substitute components or assemblies could be obtained, use of substitutes would
require development of new suppliers or would require the Company to re-engineer
its products, or both, which could delay the Company's shipment of its products
and could have a material adverse effect on the Company's operating results.
Many of the Company's products currently use application specific
integrated circuits (ASICs) designed by the Company but manufactured by third
parties. The Company purchases these ASICs on a purchase order basis and is
required to pay for all ASICs produced, whether or not they perform correctly.
The Company has experienced unanticipated low yields of working ASICs from time
to time, causing the cost of products using these ASICs to be higher than
expected. In addition, as chip manufacturing technology evolves, the Company may
be forced to redesign certain cards as cards produced with older technology may
no longer be manufactured. The Company may be required to bear the cost of
redesign. To date, these have not had a material adverse impact on the Company's
results. The Company is likely to design and use ASICs in new products in the
future. There can be no assurance that the Company will not continue to
experience unanticipated low yields of working ASICs and therefore higher
product costs, which could have a material adverse effect on the Company's
results of operations.
COMPETITION
SIGNAL RECONNAISSANCE
The signal reconnaissance equipment market is highly competitive and the
Company expects that competition will increase in the future. Some of the
Company's current and potential competitors have
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significantly greater technical, manufacturing, financial, and marketing
resources than the Company. The Company's current competitors include
Adams-Russell, Inc. (a subsidiary of M/A-Com, Inc.); ARGOSystems, Inc. (a
subsidiary of The Boeing Company); E-Systems, Inc. (a subsidiary of Raytheon
Corporation); GTE Government Systems Corporation; Harris Corporation; Lockheed
Martin Corporation; Motorola Government Electronics Group (a subsidiary of
Motorola, Inc.); and TRW, Inc. Substantial competition could have a material
adverse effect on the Company's results of operations.
The competition for competitive bid contracts differs from the
competition for sole source contracts. Companies competing for competitive bid
contracts prepare bids and proposals in response to government request for
proposals. Potential suppliers compete informally for sole source contracts
through R&D investment and marketing efforts. Companies competing for sole
source contracts attempt to identify the United States government's requirements
early and invest in solutions so that they can demonstrate a distinguishing
expertise or technology promptly after the United States government has
identified a signal reconnaissance requirement. The Company competes primarily
for sole source contracts and conducts its operations accordingly. The principal
factors of competition for sole source contracts include investments in R&D; the
ability to respond to government needs promptly; product price relative to
performance, quality, and customer support. The Company believes that it
competes favorably on each of these factors.
COMMERCIAL
The commercial marketplace is relatively new for the Company and highly
competitive. The Company feels that competition can be the highest risk of
commercial ventures. The Company believes that this risk may be minimized by
striving to secure strategic alliances for the majority of commercial
activities, including co-funding of product development and marketing. The
Company continues to employ a cautious, measured approach to commercial
investments which should help minimize the risk and, at the same time, the
Company continues to nurture business relationships which are expected to result
in maturing this segment of the Company's business.
PROPRIETARY RIGHTS
The United States government has rights to most of the technology
developed by the Company under government contracts, including rights to permit
other companies, including the Company's competitors, to use this technology to
develop products for the United States government. The Company is not aware that
the United States government has exercised these rights.
The Company has filed limited patent applications for its technology. As
of October 31, 1996, one patent has been granted to the Company for "Efficient
QAM Equalizer Demodulator with Non-Integer Sampling", and one patent is pending
for the "Digital Cable Test System". The Company believes that given the rapidly
changing nature of signal collection and processing technology, its future
success will depend primarily upon the technical competence and creative skills
of its personnel. The Company attempts to protect its trade secrets and other
proprietary information through agreements with customers, employees,
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and consultants and other security measures. There can be no assurance that the
measures adopted by the Company for the protection of its intellectual property
will be adequate.
Although the Company does not believe and has not received notice that it
is infringing upon the intellectual property rights of others, there can be no
assurance that such a claim will not be asserted against the Company. In the
event any third party made a valid claim against the Company and a license was
not made available to the Company on commercially reasonable terms, this could
have a material adverse effect on the Company's results of operations.
GOVERNMENT REGULATIONS
Many of the Company's operations are subject to compliance with
regulatory requirements of federal, state and municipal authorities, including
regulations concerning employment obligations and affirmative action, workplace
safety and protection of the environment. While compliance with applicable
regulations has not adversely affected the Company's operations in the past,
there can be no assurance that the Company will continue to be in compliance in
the future or that these regulations will not change.
In particular, the Company must comply with detailed government
procurement and contracting regulations and with United States government
security regulations, certain of which carry substantial penalty provisions for
nonperformance or misrepresentation in the course of negotiations. Failure of
the Company to comply with its government procurement or contracting obligations
or security obligations could result in penalties or suspension of the Company
from government contracting, which would have a material adverse effect on the
Company's results of operations. (See Item 1 -- Business - "Customers,
Contracts, and Marketing" and Item 3 --Legal Proceedings.)
EMPLOYEES
As of January 17, 1997, the Company had approximately 568 full-time
employees, 101 of whom hold advanced technical degrees (master and/or doctoral
degrees), including 14 with doctoral degrees.
The Company's business requires that a large number of its technical
employees obtain security clearances from the United States government which
limits the available pool of eligible candidates for such positions to those who
can satisfy the prerequisites to obtaining these clearances. In particular, the
personnel involved in marketing require the appropriate clearances to meet with
government technical representatives and discuss the government's signal
reconnaissance needs. The Company has a United States government-sanctioned
security program that allows staff members to obtain appropriate clearances.
Approximately 59% of the Company's current technical staff have security
clearances. The success of the Company is dependent on attracting, retaining,
and motivating qualified key management and technical personnel, the loss of
whom, by one or more, could adversely affect the Company's business. Such
personnel are in great demand and limited supply.
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The Company believes its employees are its most valuable resource and
that its workforce possesses a strong feeling of dedication to and pride in the
Company. This dedication is reinforced through incentive compensation
arrangements based on Company performance. The Company's employees are not
represented by any collective bargaining agreements, and the Company has never
experienced a work stoppage.
During fiscal 1995 and into early fiscal 1997, the Company experienced
increased turnover among its staff. The Company believes that this is primarily
due to a much more favorable economic environment in Silicon Valley and to the
explosive growth of the telecommunications industry creating a preponderance of
new opportunities for the staff. In response to the increased turnover,
management initiated certain steps aimed at stabilizing the turnover rate and
attracting new talent during fiscal 1996. The continuing challenge confronting
the Company in fiscal 1997 will be to attract and retain qualified staff to
support the Company's growth objectives. There can be no assurance that the
Company will be successful in this area.
SUMMARY OF BUSINESS CONSIDERATIONS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS AND/OR STOCK PRICE
Defense and intelligence agencies have accounted for almost all of the
Company's revenues. Future reductions in United States government spending on
signal reconnaissance equipment or future changes in the kind of signal
reconnaissance products or services required by United States government
agencies could limit demand for the Company's products which would have a
material adverse effect on the Company's operating results and financial
condition.
The signal reconnaissance equipment market is highly competitive and the
Company expects that competition will increase in the future. Some of the
Company's current and potential competitors have significantly greater
technical, manufacturing, financial and marketing resources than the Company.
Substantial competition could have a material adverse effect on the Company's
results of operations and financial condition.
The Company believes its employees are its most valuable resource and,
accordingly, focuses much of its attention on attracting and retaining staff
members. Over the last year, the Company has experienced an increase in its
attrition rate as well as a difficulty in attracting new talent into the Company
due to increased competition for qualified personnel. Management believes these
effects are attributable to the expanding U.S. economy and, in particular, the
local California economy where the Company must compete for new talent in the
rapidly expanding telecommunications sector. The Company has implemented a more
aggressive recruiting program and an employee referral program aimed at
countering this new environment. The Company's ability to execute its business
plan is contingent upon attracting and retaining qualified employees. While the
Company believes progress has been made during the most recent quarters, there
can be no assurances that the Company will be successful at attracting and
retaining sufficient personnel. Failure to do so will have a material adverse
effect on the Company's future operating results.
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Almost all of the Company's contracts contain termination clauses which
permit contract termination upon the Company's default or for the convenience of
the other contracting party. In either case, termination could adversely affect
the Company's operating results. Although the Company has not experienced any
material cancellations to date, there can be no assurances that such
cancellations will not occur in the future.
A significant portion of the Company's revenues are derived from
fixed-price contracts. Under fixed-price contracts, unexpected increases in the
cost to develop or manufacture a product, whether due to inaccurate estimates in
the bidding process, unanticipated increases in materials costs, inefficiencies
or other factors, are borne by the Company. The Company has experienced cost
overruns in the past that have caused the Company to realize losses on
contracts. There can be no assurance that the Company will not experience cost
overruns in the future or that such overruns will not have a material adverse
effect on the Company's operating results.
The Company has experienced some constraint in earnings resulting from
lower average profitability on its production jobs. This is due, in part, to the
unfavorable adjustments in estimated costs-to-complete on production jobs
recorded during the fiscal year and due, in part, to absorbing unrecoverable
indirect costs at a rate higher than was provided for in the contract prices of
these contracts. The Company has taken several steps aimed at improving its
contract margins. This includes revising prices of its products and services,
review of operational processes for efficiency, and examining its cost
structures. Although the Company believes some improvements were apparent in the
operating results for the third quarter of fiscal year 1996, there can be no
assurances that these steps will result in improved margins on future results of
operations.
The Company has experienced significant fluctuations in operating results
from quarter to quarter and expects that it will continue to experience such
fluctuations in the future. These fluctuations are caused by, among other
factors, factors inherent in government contracting and the Company's business
such as the timing of cost and expense recognition for contracts and the United
States government contracting and budget cycles. Fluctuations in quarterly
results may cause the price of the Company's common stock to fluctuate
substantially.
The market for the Company's products is characterized by rapidly
changing technology. The Company believes that it has been successful to date in
identifying United States government signal reconnaissance needs early,
investing in research and development to meet these needs and delivering
products before the Company's competitors. The Company believes that its future
success will depend upon continuing to develop and introduce, in a timely
manner, products capable of collecting or processing new types of
telecommunications signals. There can be no assurance that the Company will be
able to develop and market new products successfully in the future or respond
effectively to technological changes or that new products introduced by others
will not render the Company's products or technologies noncompetitive or
obsolete.
The Company has had numerous discussions with companies in the commercial
cable TV/video compression and telecommunications marketplaces. The Company's
primary business strategy in this area is to capitalize on its experience as a
technology company and to explore areas where current or newly
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developed technology can be licensed or products can be manufactured and sold
into the commercial marketplace. To date, revenues from the commercial
marketplace have been less than 5% of the Company's revenues and have consisted
primarily of product development fees. There can be no assurance that the
Company's commercial marketplace strategy will be successful or that the company
will maintain or increase revenues from the commercial marketplace.
There can be no assurance that an active trading market will be sustained
for the Company's common stock. Further, the market price of the common stock
could be subject to significant fluctuations in response to quarter-to-quarter
variations in operating results, United States government spending patterns and
other factors. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many technology companies and that have been unrelated or
disproportionate to the operating performance of such companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the future market price of the Company's common stock.
ITEM 2: PROPERTIES
The Company currently leases five buildings (51,851, 52,464, 34,862,
76,379, and 58,000 square feet, respectively) in Sunnyvale, California pursuant
to a lease which expires in March 2012. Under the terms of the lease, the lessor
will construct a sixth building (58,000 square feet) which the Company will
lease commencing approximately December 1997 through March 2012. These buildings
are used as the Company's headquarters and include development, engineering,
production, marketing, and administrative offices.
The Company leases a 15,250 square foot building in Herndon, Virginia
pursuant to a lease which expires in October 1998. This building houses a small
development facility and marketing and administrative offices.
The Company leases a 6,300 square foot building in Jessup, Maryland
pursuant to a lease which expires in August 1997. This building also houses a
small development facility and marketing and administrative offices. The Company
has made provisions to lease a new 29,121 square foot building in Annapolis
Junction, Maryland commencing April 1997 and terminating April 2004.
In addition, the Company also leases two warehouses (19,835 and 5,900
square feet) in Sunnyvale, California for use as storage facilities. Both leases
expire in 1998.
The Company's business requires that it maintain at each of its offices a
facility clearance sponsored and approved by the United States government. This
approval could be suspended or revoked if the Company is found not to have
complied with security regulations applicable to such facilities. Any revocation
of such approval, and any suspension of such approval that materially delayed
the Company's delivery of its products to customers would materially adversely
affect the Company's results of operations. Although the Company has adopted
policies directed at assuring its compliance with relevant regulations,
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there can be no assurance that the approved status of the Company's facilities
will continue without interruption.
ITEM 3: LEGAL PROCEEDINGS
In April 1994, the Company was served with a subpoena by the Department
of Defense Office of Inspector General (OIG) in connection with approximately
six contracts, several of which had been audited by the Defense Contract Audit
Agency (DCAA) the previous year. As is routine in such matters involving
government contracts, the OIG referred the matter to another government agency
which also had contracts with the Company. Shortly thereafter, this second
agency issued a request for information related to nine additional contracts. To
date, the Company has not received any allegations of wrong-doing from the OIG
or the other agency. At the request of the Board of Directors, the Company
initiated its own review of the contracts in conjunction with its legal counsel.
Further review of the contracts in question and related contracts through
April 1995 indicated the Company was not compliant with Public Law 87-653, Truth
in Negotiations Act, which requires disclosure of all actual costs available on
the date of cost certification on certain contracts performed during the 1989
and 1990 timeframe. These findings have resulted in a voluntary disclosure to
the government which is expected to result in a downward price adjustment on
certain contracts. In June 1995, the Company announced it was taking a charge
against the third quarter operating results in anticipation of a settlement with
the government on the subject contracts. The charge resulted in a reduction of
the fiscal 1995 third quarter's operating income of $1.2 million.
In April 1996, the Company was served with a second subpoena by the OIG
in connection with all contracts entered into between 1990 and the present
related to three products: the Model 102P Voice Channel Demodulator, the Model
120 Multichannel Processor, and the Model 150 FAX Scanner. The Company is
presently in discussions with the OIG to determine the scope of the subpoena and
intends to fully comply with the request.
While management believes the fiscal year 1995 third quarter charge is
adequate to cover all related risks, the government has not concluded its
investigation or agreed to a settlement with the Company. There can be no
assurances the Company will not be required to take additional charges in
connection with this matter in future periods. However, management believes that
any such charges would not have a material effect on the operating results and
financial condition of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to age and background
for each of the remaining officers of the Company:
NAME AGE POSITION
---- --- --------
Gary L. Yancey 51 President and Chairman of the Board
E. Keith McNett* 55 Vice President-- Strategic Systems Division
Brian M. Offi 43 Vice President-- Finance and Chief Financial Officer
Mary Rogge 50 Secretary
Bani M. Scribner, Jr. 52 Vice President-- Strategic Systems Division
Ken Snow 56 Vice President-- Operations Division
* Deceased
Gary L. Yancey, a co-founder of the Company, has served the Company as
President and Chairman of the Board since the Company's incorporation in January
1984. Prior to co-founding the Company, he was employed for 10 years by
ARGOSystems, a manufacturer of electronic reconnaissance systems.
Brian M. Offi joined the Company in October 1990 as Chief Financial
Officer and was elected Vice President-Finance in May 1991. From May 1987 to
October 1990, he served as Chief Financial Officer of S-Tron, Inc., a
manufacturer of life-support equipment worn by military personnel.
Mary Rogge joined the Company in 1986 as an executive secretary reporting
to the President and was elected Secretary of the Company in March 1988.
Bani M. Scribner, Jr. joined the Company in 1992 as senior staff
reporting to the president. In November 1996 he was elected Vice President of
the Strategic Systems Division.
Ken Snow joined the Company in January 1990 as a senior staff engineer.
He was promoted to the position of Deputy Director of Engineering in 1991. In
October of 1994 he became the Director of the Operations Division and in March
1995 he was elected Vice President of Operations.
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated in Exhibit 13.1 from sections captioned "Selected Common
Stock Data:" and "NASDAQ Market Makers:" on page 8 of the Annual Report to
Shareholders for the year ended October 31, 1996.
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ITEM 6: SELECTED FINANCIAL DATA
Incorporated in Exhibit 13.1 from sections captioned "Selected Financial
Data -- Summary Of Operations Fiscal Year Ended:" and "-- Financial Position at
End of Fiscal Year:" on page 8 of the Annual Report to Shareholders for the year
ended October 31, 1996.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated in Exhibit 13.1 from sections captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 9 through 13 of the Annual Report to Shareholders for the year ended
October 31, 1996.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements included on pages 14 through 24 of the Annual
Report to Shareholders for the year ended October 31, 1996 are in Exhibit 13.1.
Quarterly Results included on page 12 of the Annual Report to
Shareholders for the year ended October 31, 1996 are in Exhibit 13.1.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 6 and 7 of Applied Signal Technology,
Inc.'s Proxy Statement dated January 26, 1997, with respect to directors of the
Company, is incorporated herein by reference. Information with respect to
Officers of the Company is contained in Part I of this report.
ITEM 11: EXECUTIVE COMPENSATION
The information contained on pages 15 through 19 of Applied Signal
Technology, Inc.'s Proxy Statement dated January 26, 1997, with respect to
executive compensation and other matters, is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on pages 4 and 5 of Applied Signal Technology,
Inc.'s Proxy Statement dated January 26, 1997, with respect to security
ownership of certain beneficial owners and management, is incorporated herein by
reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) AND (2) -- The following financial statements of Applied Signal
Technology, Inc., included in the annual report of the registrant to its
shareholders for the year ended October 31, 1996 are included in
Exhibit 13.1:
Balance Sheets -- October 31, 1996 and 1995
Statements of Income -- Years ended October 31, 1996, 1995, and 1994
Statements of Shareholders' Equity -- Years ended October 31, 1996,
1995, and 1994
Statements of Cash Flow -- Years ended October 31, 1996, 1995, and
1994
Notes to Financial Statements -- October 31, 1996
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
(3) -- Listing of Exhibits -- See Exhibit Index on page 29 of this Form
10-K.
(b) Reports on Form 8-K filed in the Company's fiscal year ended October 31,
1996:
Not applicable.
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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, therewith duly authorized.
APPLIED SIGNAL TECHNOLOGY, INC.
(Registrant)
Dated January 26, 1997 /s/ Gary L. Yancey
------------------------------
Gary L. Yancey, President and
Chairman of the Board
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 DATE TITLE
--------- ---- -----
/s/ Gary L. Yancey ____________ President and Chairman of the Board (Principal
- ---------------------------- Executive Officer)
/s/ Brian M. Offi ____________ Vice President of Finance and Chief Financial
- ---------------------------- Officer (Principal Financial and Accounting
Officer)
/s/ James F. Collins ____________ Director
- ----------------------------
/s/ John P. Devine ____________ Director
- ----------------------------
/s/ David D. Elliman ____________ Director
- ----------------------------
/s/ John R. Treichler ____________ Director
- ----------------------------
/s/ Stuart G. Whittelsey, Jr. ____________ Director
- ----------------------------
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APPLIED SIGNAL TECHNOLOGY
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER -----------------------
- -------
3.1(1) Second Amended and Restated Articles of Incorporation
3.2(1) Amended and Restated Bylaws
4.1(1) Specimen Common Stock Certificate
4.2(1) Rights Agreement dated January 25, 1991
10.1(1) Form of Indemnification Agreement for directors and officers
10. (1) 1984 Stock Purchase Plan and form of agreement thereunder
10.3(1) 1991 Stock Option Plan and forms of agreements thereunder
10.4(1) 1993 Employee Stock Purchase Plan
10.5(1) Profit Sharing Policy
10. (1) Summary Plan Description of 401(k) Retirement Plan
10.7(1) Warrant to Purchase Common Stock dated June 27, 1990 issued to
Owenoake Partners, L.P. ("Owenoake"), Letter Agreement with
Owenoake dated September 20, 1990, and Amendment Number One to
Warrants to Purchase Common Stock with Owenoake and certain
warrant holders dated February 8, 1993
10.8(1) Warrants to Purchase Common Stock dated September 25, 1990 issued
to certain warrant holders
10.9(2) Line of Credit Agreement dated June 10, 1993 with Sanwa Bank
California and related Equipment Purchase Line of Credit
Agreement dated June 10, 1993
10.10(1) Lease Agreement dated August 21, 1985 with Lincoln Mathilda
Associates, Ltd. and Patrician Associates, Inc., and amendments
thereto
10.11(3) Lease agreements dated November 23, 1994 with Lincoln Property
Company Management Services, Inc. for Buildings H and I
10.12(4) Amendment to Commercial Credit Agreement dated March 7, 1995 with
Sanwa Bank California and related Equipment Purchase Line
Agreement dated March 10, 1995
10.13(5) Amendments to Commercial Credit Agreements dated March 1, 1996
with Sanwa Bank California
10.14(5) Certified Corporate Resolution to borrow dated March 6, 1996
with Sanwa Bank California
10.15 Lease agreement dated May 31, 1996 with Constellation Real
Estate, Inc., for 135 National Business Parkway
10.16 Amendments to lease agreements dated November 23, 1994 with
Lincoln Property Company Management Services, Inc.
11.1 Statement regarding computation of net income per share
13.1 Annual Report to Shareholders for fiscal year ended October 31,
1996
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
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(1) Incorporated by reference to corresponding Exhibit filed as an Exhibit to
Registrant's Registration Statement on Form S-1 filed January 29, 1993
(File No. 33-58168).
(2) Incorporated by reference to corresponding Exhibit filed with the
Registrant's Form 10-K for fiscal year 1993 dated January 22, 1994.
(3) Incorporated by reference to corresponding Exhibit filed with the
Registrant's Form 10-K for fiscal year 1994 dated January 27, 1995.
(4) Incorporated by reference to corresponding Exhibit filed with the
Registrant's Form 10-K for fiscal year 1995 dated January 26, 1996.
(5) Incorporated by reference to corresponding Exhibit filed with the
Registrant's Form 10-Q for fiscal year 1996 dated August 2, 1996.
30