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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: