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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2003

OR

For the transition period from          to          

Commission file number 000-21770

SIGNAL TECHNOLOGY CORPORATION

Registrant’s telephone number, including area code: (978) 774-2281

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:  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  x  No  o

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock as of the latest practicable date.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)

The accompanying notes are an integral part of the condensed consolidated financial statements.

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SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

The accompanying notes are an integral part of the condensed consolidated financial statements.

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SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

The accompanying notes are an integral part of the condensed consolidated financial statements.

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SIGNAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
Notes To The Condensed Consolidated Financial Statements
(In thousands, except per share data)

1.		BASIS OF PRESENTATION
		The condensed consolidated financial statements of the Company, or Signal, as of March 31, 2003 and for the three months ended March 31, 2003 and 2002 are unaudited. All adjustments (consisting only of normal recurring adjustments) have been made, which in the opinion of management are necessary for a fair presentation. Results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period. These financial statements should be read in conjunction with the audited financial statements for the fiscal year ended December 31, 2002, included in our annual report on Form 10-K filed March 31, 2003 and our Form 10-K/A filed April 30, 2003. The year-end condensed balance sheet data was derived from the audited financial statements and does not include all the disclosures required by generally accepted accounting principles.
		The financial statements for the three months ended March 31, 2002 have been restated from amounts previously reported in the filed Form 10-Q for the same period to reflect the cumulative effect of change in accounting principle related to goodwill (Note 8), discontinued operations (Note 12) and a change in accounting for a transaction with Northrop Grumman Corporation (see Note 16 of the Company’s 2002 Form 10-K).
		Our fiscal quarter consists of a thirteen week period ending on the Saturday closest to March 31. For ease of presentation, interim periods are designated to have ended on March 31.

2.		STOCK-BASED COMPENSATION
		Employee stock compensation plans are accounted for in accordance with APB No. 25, “Accounting for Stock Issued to Employees” and related interpretations, including FIN No. 44, “Accounting for Certain Transactions Involving Stock Compensation.” The Company adopted the disclosure requirements of SFAS No. 123, “Accounting for Stock–Based Compensation”. All stock based awards to non–employees are accounted for at their fair value as prescribed by SFAS No. 123. Accordingly, no compensation cost has been recognized under SFAS No. 123 for the Company’s employee stock option plans. Had compensation cost for the awards under the plans been determined based on the grant date fair values, consistent with the method required under SFAS No. 123, the Company’s net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below.
		The fair value of each option grant has been estimated on the date of grant using the Black–Scholes option pricing model with the following weighted average assumptions are as follows:

The weighted average fair value of those options granted during the first quarter of 2003 and 2002 was $9.63 and $6.65, respectively.

3.		SUBSEQUENT EVENT
		On April 16, 2003, the Company entered into an Agreement and Plan of Merger with Crane Co. and STC Merger Co., an indirect wholly owned subsidiary of Crane. On April 25, 2003, pursuant to the terms of the Merger Agreement, STC Merger Co. commenced a cash tender offer to acquire all of the outstanding shares of the Company for $13.25 per share. If the tender offer is successful, STC Merger Co. will merge with and into the Company with the Company continuing as the surviving corporation and a wholly owned subsidiary of Crane Co. This is anticipated to occur in the second quarter of 2003. The merger of STC Merger Co. with and into the Company is conditioned upon, among other things, adoption of the Agreement and Plan of Merger by the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock, unless STC Merger Co. acquires ninety (90%) percent or more of the outstanding shares pursuant to the tender offer, in which case, pursuant to the Delaware General Corporation Law, the merger will not require the approval of the other stockholders of the Company.
4.		RECENT ACCOUNTING PRONOUNCEMENTS
		In November 2002, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached a consensus on Issue 00–21, “Revenue Arrangements with Multiple Deliverables.” EITF 00–21 addresses revenue recognition on arrangements encompassing multiple elements that are delivered at different points in time defining criteria that must be met for elements to be considered to be a separate unit of accounting. If an element is determined to be a separate unit of accounting, the revenue for the element is recognized at the time of delivery. The pronouncement is not expected to have a material impact on our financial position or results of operations.
		In December 2002, the FASB issued Statement on Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock–Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock–Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock–based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock–based employee compensation and the effect of the method used on reported results. As provided for in SFAS No. 123, the Company has elected to apply Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock based compensation plans. APB No. 25 does not require stock options to be expensed when granted with an exercise price equal to fair market value. We intend to continue to apply the provisions of APB No. 25.
5.		NET INCOME (LOSS) PER SHARE
		Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed giving effect to all

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		dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants for all periods using the treasury stock method.
		The weighted average shares: outstanding for both basic and diluted EPS is as follows:

		As of March 31, 2003 and 2002, additional shares of 682 and 1,888, respectively, have not been included in the above calculations, as the effect of such shares would be antidilutive.
6.		COMPREHENSIVE INCOME (LOSS)
		There were no differences between net income (loss) and comprehensive income (loss) for the three months ended March 31, 2003 and March 31, 2002.

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7.

DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS:

		In April 2003, the Company accepted an offer from a third party to purchase the Company’s Webster, MA facility for $600. As a result, the Company recorded an impairment charge related to this facility in the amount of $118, which represents the difference between the asset’s net book value at the time of the offer and the offer price of $600.
8.		GOODWILL
		During the second quarter of 2002, the Company completed the transitional impairment test upon adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” and recorded the impact retroactive to the first quarter of 2002, in accordance with the provisions of this standard. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization and the requirement to test goodwill and other intangible assets for impairment at least annually. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. As part of the adoption of SFAS No. 142, the Company reassessed the useful lives of existing intangible assets and determined an adjustment was not necessary.
		The Company has identified the following reporting units (by operating segment) for the purposes of assessing impairments of goodwill:

		A two–step impairment test is used to first identify potential goodwill impairment and then to measure the amount of goodwill impairment loss. Impairment losses that arise due to the initial application of this standard will be reported as a cumulative effect of change in accounting principle.
		The Company utilized a discounted cash flow method to determine the fair value of all reporting units with recorded goodwill. The Company completed the transitional impairment test and recorded a goodwill impairment of $3,366, or $3,185, net of tax, as a cumulative effect of change in accounting principle in the first quarter of 2002. This charge consisted of $23 related to the Olektron Operation and $4,093 related to the former Signal Wireless reporting unit. In addition, the Company reversed into

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		income the excess of acquired net assets over cost in the amount of $750 in connection with the Keltec Operation as a cumulative effect of change in accounting principle in the first quarter of 2002. The Company completed its annual impairment test as of December 31, 2002. As a result of this review, no goodwill impairment was recorded.
		The following tables present a rollforward of the Company’s goodwill balance from December 31, 2002 to March 31, 2003 and December 31, 2001 to March 31, 2002, by reporting unit:

9.		COMMITMENTS AND CONTINGENCIES
		We are involved from time to time in litigation incidental to our business. Ongoing legal proceedings include the following:
		Weymouth Environmental Contamination:
		In April 1996, the Company sold its manufacturing facility in Weymouth, MA but retained the environmental liability and responsibility associated with groundwater contaminants present at and associated with the site. This site has been classified as a Tier 1A disposal site by the Massachusetts Department of Environmental Protection, or DEP, as a result of past releases of petroleum based solvents. Environmental assessment reports prepared by independent consultants indicate that contaminants present in the Town of Weymouth well field across the street from the facility are similar to those reportedly released at the site and still present in the groundwater at the site; however, these reports also indicate that the contaminants do not exceed safe drinking water levels in the finished water after normal treatment. Other contaminants, which did not originate at the facility, have also been detected in the well field.
		In accordance with the applicable provisions of the Massachusetts Contingency Plan, the Company has completed its investigation of the site and has submitted an evaluation of remedial alternatives to the DEP. The recommended remedial alternative involves continued operation of the currently operating groundwater remediation system, with the addition of a supplemental well and wellhead treatment at Weymouth Winter Street Well No. 2 through an agreement with the Town of Weymouth. The Company has been informed that no recovery of costs incurred in the treatment of the groundwater at the facility is possible under existing insurance arrangements. No agreement with the Town of Weymouth relative to wellhead treatment has been reached. It is not possible at this stage of the proceedings to predict whether the DEP will approve the recommended alternative and, if not, the specific remedial actions, if any, that it will require.
		The Company has recorded liabilities of $1,581 calculated on the discounted cash flow method using a 5.43% discount rate for anticipated costs, including legal and consulting fees, site studies and design and implementation of remediation plans, post–remediation monitoring and related activities to be performed during the next 15 years. Cash payments for Weymouth environmental contamination are expected to be $530 in 2003, $105 per year for 2004–2006 and $736 in total for 2007 and

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		beyond. The recorded liability is the Company’s estimate and there is a reasonable possibility that changes to this estimate may occur in the near term.
		Sunnyvale Indemnification Claim:
		Eaton Corporation filed a suit against Signal in U.S. District Court, Northern District of California, alleging that the Company has a contractual duty to indemnify Eaton Corporation for costs incurred as a result of environmental contamination and subsequent remediation. The claim is based upon allegations that the Company assumed certain liabilities when it acquired one of the divisions of Eaton Corporation in 1989. The indemnification claim was dismissed at the trial level, but the Ninth Circuit of the U.S. Court of Appeals reversed this decision and found that Signal does owe Eaton a duty of indemnification. In December 2000, the decision by a jury was in favor of an indemnification claim by Eaton and Eaton was awarded a judgment of $4,229, related to environmental liabilities assumed by the Company when it purchased Eaton’s Microwave Products division in 1989. On March 7, 2001, the U.S. District Court ruled on various motions pending before it, including denying our motion for a new trial and denying certain of Eaton’s motions. The U.S. District Court amended the judgment to increase it to an aggregate of $6,969 and clarified that Signal is responsible for fifty percent of the reasonable costs and expenses of remediation. At December 31, 2000, the Company recorded liabilities of $9,000 for anticipated costs including the judgment, legal and consulting fees, site studies, implementation of remediation plans, post–remediation monitoring and related activities to be performed during the next 20 years. Cash deposits of $6,969 were made during the first nine months of 2001 with the Clerk, United States District Court by order of the United States District Court for the Northern District of California. Recorded liabilities have been reduced by the cash deposits described above and were $2,031 at March 31, 2003. On April 26, 2001, the U.S. District Court denied Signal’s motion to reopen the amended judgment and to amend our answer and counterclaim. The Company appealed the amended judgment on May 24, 2001. By Order filed November 26, 2002, the United States Court of Appeals denied Signal’s Appeal and Eaton’s Cross–Appeal. The judgment of the United States District Court was affirmed. By Order filed January 6, 2003, the United States Court of Appeals denied Signal’s Petition for Panel Rehearing filed on December 10, 2002. On January 27, 2003, the United States Court of Appeals forwarded a Certified copy of the Decree of the Court to the United States District Court, reaffirming the order filed and entered on November 26, 2002. In April 2003, the Company and Eaton entered into a Settlement Agreement and Release, which provides, among other things, for mutual releases and the payment by the Company of $9,200. As of March 31, 2003, there was approximately $7,300 on deposit with the U.S. District Court that will be applied against this amount. Amounts related to this settlement were previously reserved in 2000.
		Claims Related to Signal Wireless Group:
		In mid–September 2002, Richardson Electronics, Ltd., a supplier, issued to Signal for the first time an invoice for $2,042 allegedly owed for orders going back approximately 18 months. The Company informed Richardson that these were blanket purchase orders requiring subsequent releases, which were never issued, and that all of these orders were either cancelled or put on hold. On December 20, 2002, Richardson filed a breach of contract action against Signal in the United States District Court for the Northern District of Illinois (the Federal Case). On February 14, 2003, Signal filed motions in the Federal Case seeking to dismiss the complaint based on lack of subject matter jurisdiction, lack of personal jurisdiction and improper venue. On the same date, Signal commenced an action (the Massachusetts State Action) in the Massachusetts Essex County Superior Court (Signal Technology Corporation vs. Richardson Electronics, Ltd., No. 3–0335) seeking a declaratory judgment of the relative rights of the parties. Richardson subsequently withdrew its Federal Case and filed a new complaint on March 4, 2003 (the Illinois State Action) in the Circuit Court of Cook County, Illinois (Richardson Electronics, Ltd. vs. Signal Technologies [sic] Corporation, No. 03 L 002661) seeking damages in excess of $1,750. Both the Massachusetts State Action and the Illinois State Action are pending. In management’s opinion, the Company does not have any liability to this supplier.

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		In mid–October 2002, Northrop Grumman stated that certain milestones related to the Company’s technology license and manufacturing agreement with Northrop Grumman had been reached and that the Company was obligated to issue Northrop Grumman an additional 301 shares. On March 20, 2003, the Company entered into a settlement agreement with Northrop Grumman, whereby all controversies regarding this matter would be settled and the technology license and manufacturing agreement would be terminated upon the Company buying back the 301 shares of stock held by Northrop Grumman at an agreed price of $12.00 per share, the payment of which occurred on March 26, 2003. The impact of this settlement is reflected in discontinued operations in 2002. As further stipulated by the settlement agreement, if at any time on or before February 29, 2004, the Company should sell shares of its common stock in a transaction or series of related transactions in which the aggregate gross proceeds to the Company equal at least $10,000 and at which the price per share of common stock is greater than $12.00 per share, or if the Company should merge or consolidate with or into another corporation, which results in the exchange of outstanding shares of the Company’s common stock for securities or other consideration issued or paid by such other corporation, then the Company will pay to Northrop Grumman in cash, an amount per share equal to the difference between $12.00 per share and the per share value of the consideration received in such transaction. Upon the consummation of the proposed merger of STC Merger Co., an indirect wholly owned subsidiary of Crane Co., with and into the Company, as described more fully in Note 3 hereof, Northrop Grumman will be paid an additional $376.
		In mid–October 2002, Vitesse sent the Company an invoice for approximately $1,200, in connection with the Company’s manufacturing supply agreement with Vitesse. On March 19, 2003, the Company entered into a settlement agreement with Vitesse, whereby all controversies regarding this matter would be settled and the manufacturing supply agreement would be terminated upon the Company buying back 500 outstanding Company warrants held by Vitesse at an agreed upon price of $3.00 per warrant, the payment of which occurred on March 19, 2003. The impact of this settlement is reflected in discontinued operations in 2002. As further stipulated by the settlement agreement, if, at any time on or before January 31, 2004, the Company should sell shares of its common stock in a transaction or series of related transactions in which the aggregate gross proceeds to the Company equals at least $10,000 and at which the price per share of common stock is greater than $12.29 per share, or the Company should merge or consolidate with or into another corporation, which results in the exchange of outstanding shares of Signal’s common stock for securities or other consideration issued or paid by such other corporation, then as part of either of such transactions referred to, the Company will pay, in cash, an amount equal to the difference between $12.29 and the per share value of the consideration received in such transaction. Upon the consummation of the proposed merger of STC Merger Co., an indirect wholly owned subsidiary of Crane Co., with and into the Company, as described more fully in Note 3 hereof, Vitesse will be paid an additional $480.
		SEC Proceedings:
		On March 27, 2002, the Securities and Exchange Commission (the “SEC”), with the consent of the Company, entered an order requiring that Signal cease and desist from committing or causing any violations and any future violations of the periodic reporting, record keeping, and internal control provisions of the federal securities laws set forth in Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b–20, 13a–1, and 13a–13 promulgated thereunder, related to the SEC’s completed investigation of the Company’s financial statements for 1996, 1997 and the first quarter of 1998.
		In connection with the above matter, the SEC has filed a civil injunctive action against several former officers, directors, and employees of the Company. Some of these individuals are seeking reimbursement or payment of certain costs or damages allegedly incurred as a result of the SEC investigation or ensuing civil proceeding.
		Guarantees, Including Indirect Guarantees of Indebtedness of Others
		On April 15, 2003, the Company entered into six-year indemnification agreements (collectively, the “Indemnification Agreements” and each, an “Indemnification Agreement”) with each of its then current officers and directors (each, an “Indemnitee”) whereby the Company (and, after the effective time (the “Effective Time”) of the proposed merger of STC Merger Co., an indirect wholly owned subsidiary of Crane Co., with and into the Company, as described more fully in Note 3 above), the surviving corporation in such merger (the “Surviving Corporation”)), subject to certain limitations, will indemnify each Indemnitee, to the fullest extent authorized by the Delaware General Corporation Law, from and against any expenses, judgments, fines, liabilities, losses and amounts paid in settlement, actually and reasonably incurred by such Indemnitee in connection with any threatened, pending or completed action, suit, claim or proceeding by reason of the fact that such Indemnitee is or was a director or officer of the Company, or, after the Effective Time, shall serve at the specific request of the Surviving Corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust or other enterprise, and whether or not the cause of such proceeding occurred before or after the date of such Indemnification Agreement. In the event of any proceeding against an Indemnitee which may give rise to a right of indemnification under its Indemnification Agreement, so long as such Indemnitee follows certain procedures, the Company shall advance to such Indemnitee amounts equal to reasonable expenses incurred by such Indemnitee in defending such proceeding in advance of the final disposition thereof. The Indemnification Agreements provide that the aggregate liability of the Company in respect of indemnification and expense obligations to all Indemnitees shall in no event exceed $10,000 and each Indemnification Agreement, unless earlier terminated due to the expiration of its six-year term, shall terminate on the date such $10,000 maximum amount is reached (subject, in each case, to certain limited exceptions). Crane Co. has agreed, subject to the occurrence of, and following, the Effective Time, to guarantee the obligations of the Surviving Corporation under the Indemnification Agreements subject to the $10,000 aggregate and other limitations discussed in the preceding paragraph.

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		The Company, as permitted by Delaware law, has indemnified its former officers and directors, who are not parties to the Indemnification Agreements referred to above, pursuant to oral arrangements and unwritten understandings for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The potential amount of future payments the Company could be required to make under these indemnification agreements is not presently determinable. In no instance, however, will indemnification be granted to a director otherwise entitled thereto who is determined to have (a) committed a breach of loyalty to the Company or its stockholders, (b) committed acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of the law, or (c) derived any improper personal benefit in connection with a particular transaction.
		Other than claims by certain former employees pursuant to our SEC proceedings, as noted above, no claim for indemnification has been made by any person covered by any of the foregoing agreements or agreements, and/or the relevant provisions of the Delaware law, the Company believes that its estimated exposure for these indemnification obligations is currently minimal. Accordingly, the Company has no liabilities recorded for these indemnity agreements, except for the $381 accrual related to the SEC proceedings referenced above, as of March 31, 2003.
		Product Warranties
		The Company provides product warranties in conjunction with certain product sales.
		Generally, product sales are accompanied by a one year warranty period and cover systems, accessories, equipment, parts, and software manufactured by the Company to certain contractual specifications. These warranties cover factors such as non–conformance to specifications and defects in material and workmanship.
		Estimated standard warranty costs are recorded in the period in which the related product sales occur. The warranty liability recorded at each balance sheet date reflects the estimated number of months of warranty coverage outstanding for products delivered times the average of historical monthly warranty payments, as well as additional amounts for certain major warranty issues that exceed a normal claims level. The following table summarizes product warranty activity recorded during the first three months of 2003:

10.		DEBT
		The Company has available a $10,000 revolving line of credit with a bank under an agreement dated December 23, 2002. This credit facility, which is an asset-based senior secured agreement, will expire on December 23, 2003. Borrowings under the line bear interest at the bank’s base rate (4.25% at March 31, 2003) plus 1% and are subject to certain financial covenants and restrictions on liquidity. As of March 31, 2003, there were no balances outstanding on the line and the Company was in compliance with all applicable financial covenants and restrictions. A commitment fee at an annual rate of 0.375% on the amount of the unused facility is payable quarterly.
		In conjunction with the new credit facility, the Company entered into a new real estate term loan agreement with proceeds of $4,300, which were used to repay the previous term loan of the same amount. The Real Estate term loan is collateralized by real estate with a net book value of $6,892 at March 31, 2003. Maturing on December 23, 2007, the Real Estate term loan is payable in monthly principal payments of $24, plus interest at the bank’s base rate (4.25% at March 31, 2003) plus 1%, with the last installment equal to the remaining unpaid loan balance. The balance on the real estate term loan as of March 31, 2003 was $4,252.
11.		SEGMENT INFORMATION
		During 2002, the Company completed its plan to sell its commercial wireless and mobile appliance businesses (formerly part of the Signal Wireless Group), in response to the global weakness in telecommunication spending. During the fourth quarter of 2002, the Company formed a new division, Advanced Integrated Systems Division (AISD) which focuses on defense and homeland security wireless unmanned sensor systems.

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		At December 31, 2002, the Company had five operating divisions engaged in the development, manufacturing and marketing of electronic components and subsystems. The operating divisions, referred to as Arizona, California, Keltec, Olektron and AISD, report their operations within five segments: Microwave Components & Subsystems – Arizona, Microwave Components & Subsystems – California, Power Management Products (Keltec), Radio Frequency (RF) Components & Subsystems (Olektron) and AISD (our new business unit in Texas that focuses on wireless networks of sensors). In reporting business segment operating income, corporate headquarters’ expenses have been allocated to the business segments based on a percentage of net sales.
		Our reportable segments are as follows:
		Microwave Components & Subsystems – Arizona Designs and manufactures microwave oscillators, frequency synthesizers and converters, microwave amplifiers and microwave switch matrices.
		Microwave Components & Subsystems – California
		Designs and manufactures microwave oscillators, converters, space qualified microwave assemblies, microwave amplifiers and microwave switch matrices.
		Power Management Products
		Designs and manufactures military high and low voltage power supplies, DC to DC converters and military high power amplifiers and transmitters for use in radar systems.
		Radio Frequency (RF) Components & Subsystems
		Designs and manufactures RF and intermediate frequency signal processing components, integrated multi–function devices, and switching systems.
		Advanced Integrated Systems Division (AISD)
		Design and integration of wireless unmanned sensor systems for defense and Homeland Security applications.
		The following tables display net sales and operating income by business segment for the three months ended March 31, 2003 and 2002:

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The following table displays total assets by business segment as of March 31, 2003 and December 31, 2002:

12.		DISCONTINUED OPERATIONS
		In response to the global weakness in the telecom industry and consistent with the Company’s desire to return to its core defense business, the Company completed the sale of certain assets of its commercial fixed wireless business unit to Endwave Corporation for approximately $3,400 in cash on September 24, 2002. As part of this transaction, the Company retained the receivables associated with this business, which amounted to approximately $2,100 at the time of closing. Additionally, on November 20, 2002, the Company completed the sale of certain assets of its mobile appliance business unit to Paratek Microwave, Inc. for approximately $1,300 in cash.
		In addition to the net loss from discontinued operations, the Company recorded a pretax loss on the disposal of both of these discontinued operations during the year ended December 31, 2002 in the amount of $2,608 pretax, $1,802 after tax and $1,251 pretax and $864 after tax, respectively. The benefits for income taxes included in discontinued operations for the current period reflect expected refunds of prior year taxes resulting from the carryback of net operating losses.
		The Company has no further continuing obligations related to these two businesses, with the exception of the outstanding accounts receivable balance discussed above and the Northrop Grumman, Vitesse and Richardson legal matters, as discussed in Note 9.
		The summary of operating results from discontinued operations is as follows:

Assets (liabilities) from discontinued operations consisted of the following:

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Signal’s principal business is the design, development and manufacture of power management products and electronic radio frequency components and subsystems that are used in defense electronics. The Company was incorporated in 1982 and has traditionally been a supplier to the defense industry. Signal’s sophisticated RF, microwave and millimeter wave electronic components are used in applications such as radar, communications and smart weapons and contain technology to receive, transmit and process wireless data signals.

Signal has experienced, and expects to continue to experience, significant fluctuations in its results of operations. Factors that affect the Company’s results of operations include the volume and timing of orders received, changes in the mix of products sold, competitive pricing pressures and our ability to meet customer requirements. As a result of the foregoing or other factors, there can be no assurance that the Company will not experience material fluctuations in future operating results on a quarterly or annual basis, which would materially and adversely affect the Company’s business, financial condition and results of operations.

On April 16, 2003, the Company entered into an Agreement and Plan of Merger with Crane Co. and STC Merger Co., an indirect wholly owned subsidiary of Crane. On April 25, 2003, pursuant to the terms of the Merger Agreement, STC Merger Co. commenced a cash tender offer to acquire all of the outstanding shares of the Company for $13.25 per share. If the tender offer is successful, STC Merger Co. will merge with and into the Company with the Company continuing as the surviving corporation and a wholly owned subsidiary of Crane Co. This is anticipated to occur in the second quarter of 2003. The merger of STC Merger Co. with and into the Company is conditioned upon, among other things, adoption of the Agreement and Plan of Merger by the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock, unless STC Merger Co. acquires ninety (90%) percent or more of the outstanding shares pursuant to the tender offer, in which case, pursuant to the Delaware General Corporation Law, the merger will not require the approval of the other stockholders of the Company.

Results of Operations

The following table sets forth the percentage of net sales of certain items in our consolidated financial statements for the periods indicated: