American Nucleonics Emits Attractive Signals : Strides in Military Communications Systems Draw the Notice of Suitors
A few years ago, executives at American Nucleonics in Westlake Village came across a passage from a Russian textbook that sounded familiar.
After reading the translation closely, they realized why. The text described a device the company had designed to reduce interference in military radio transmissions. American Nucleonics officials said the textbook reference was lifted almost word-for-word from some public patent documents the company had filed with the federal government.
Although that sort of attention from the Russians might have been mildly flattering, American Nucleonics is becoming accustomed to getting noticed. The company’s growth has spurted recently, thanks to increased defense spending and improvements American Nucleonics has made in its military communications products.
Potential Acquisition
That, in turn, has attracted the attention of investment experts, possible suitors and, company executives believe, potential competitors.
Founded in 1963, American Nucleonics at first intended to work on nuclear-related projects. Instead, it evolved into a firm with three main kinds of products, all unrelated to nuclear work: antenna systems used in military communications, devices that help locate the origins of radio signals, and equipment that clears up radio transmissions, the so-called “interference cancellation” devices that are the company’s best-known products.
Walter A. Sauter, the company’s vice president of research and development and its technical guru, gets most of the credit for developing the interference reduction equipment. Sauter said he was inspired to make the product by the military’s experience in the Vietnam War.
Because there were so many troops operating in such a small country, Sauter said, the radio frequency bands were crowded. Enemy soldiers also would jam radio signals. To counter those problems, Sauter designed equipment to eliminate extraneous signals.
Sales of that equipment, which have benefited from increased defense spending, along with elimination of the company’s debt and other obligations, has translated into higher profit for American Nucleonics. In its last fiscal year, ended Aug. 31, the company’s net income more than doubled to $1.2 million, and revenue was up 38% to $6.7 million. Executives expect the company’s revenue to grow at least 40% to 50% annually during the next few years, to about $20 million by 1988.
Engineering Center Planned
The company’s growth has prompted plans for construction of an engineering center next to its headquarters on Hampshire Road. The company employs 56 people, mostly engineers, all in Westlake Village. During full production, however, employment sometimes increases temporarily to about 120.
Craig Fischer, director of research for Baltimore, Md.-based Atlantic Securities, which recently recommended American Nucleonics’ stock to investors, attributes the company’s recent success partly to the reluctance of larger companies to enter the same businesses.
“Major companies haven’t gone into the area because they see more growth in other areas. They want to leave it to the smaller companies,” Fischer said.
Still, William L. Foley, American Nucleonics’ president and chief executive, acknowledges that the company’s rapid expansion, lack of debt and technology--which would cost competitors millions to develop from scratch--make it a tempting acquisition. He confirmed that the company has been approached by several suitors, but added that it is not involved in merger discussions.
Major Shareholders
Any decision to sell would have to be approved by Monsanto Co., Emerson Electric Co. and the insurance giant Aetna Life & Casualty, which together own nearly two-thirds of American Nucleonics’ 2.5 million shares.
The companies were partners in Innoven, a Saddle Brook, N. J., venture capital firm that disbanded in the early 1980s for tax reasons after backing American Nucleonics. That has left Monsanto and Emerson each with 26% of the shares, and Aetna with 11%. Another partner in Innoven, First Atlanta, the holding company for First National Bank of Atlanta, has a stake of about 3%.
Those companies influence company policy through two representatives on American Nucleonics’ four-member board of directors. At times, Foley has differed with his company’s major shareholders.
Foley, a former Northrop Corp. executive and Coast Guard officer, was brought in by Innoven in 1977 to turn the company around. At one time, he wanted to sell more common stock to retire debt and to buy back preferred stock.
The major shareholders thwarted him, however, because they didn’t want their stake in the company diluted. Instead, the company paid off its debt from its own cash flow.
American Nucleonics owns nearly 20 patents, but Foley worries that someday its technology may be pirated by a large or foreign competitor.
Patent Defenses Worrisome
“I would dread the day when we have to defend our patents against a large company that has more lawyers than we have employees,” Foley said.
All of American Nucleonics’ work is for defense, with about 85% of revenue coming from federal contracts and the remainder from NATO allies, Israel, New Zealand and Australia.
The company’s relationship with its largest customer, the U. S. government, hasn’t always been smooth. The Air Force scrapped a contract with American Nucleonics in 1981, claiming that the firm defaulted because it failed to provide acceptable test procedures for antennas and radomes, which protect antennas. The Air Force found another contractor that charged more.
American Nucleonics and the Air Force are still battling over the issue in U. S. Claims Court, where the company has filed a $177,000 claim against the service. The company claims in a Securities and Exchange Filing that the specifications the Air Force wanted were “beyond the state of the art” and that the government’s interpretation of the contract’s specifications was incorrect.
Seeks to Expand Markets
Meanwhile, American Nucleonics is looking into non-defense markets. Foley said potential customers are cable television firms and owners of satellite earth stations who could use the company’s equipment to improve their reception.
Ten years ago, American Nucleonics sold one of its systems for $30,000 to a cable company to help eliminate “ghosts” caused by a nearby mountain. That price, Foley said, was too high for most companies. Now American Nucleonics can sell the devices for about $4,000, a price Foley believes is affordable for cable companies.
“We didn’t want to sell them until we were able to present an affordable, economic solution to the commercial market,” Foley said.
