Mail Stop 6010
March 23, 2006
VIA U.S. MAIL AND FACSIMILE (703) 322-1694
Victor F. Sellier
Chief Financial Officer
Argon ST, Inc.
12701 Fair Lakes Circle, Suite 800
Fairfax, Virginia 22033
Re: Argon ST, Inc.
Form 10-K for the fiscal year ended September 30, 2005
Filed December 14, 2005
Form 10-Q for the fiscal quarter ended January 1, 2006
Form 8-K dated February 9, 2006
File No. 000-08193
Dear Mr. Sellier:
We have reviewed your filing and have the following
comments.
We have limited our review of your filing to those issues we have
addressed in our comments. Where indicated, we think you should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the fiscal year ended September 30, 2005
Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies, page 51
Revenue and Cost Recognition, page 51
1. We see that you record contract revenues and costs of
operations
for interim reporting based on annual targeted indirect rates.
You
adjust revenue and costs at year-end for actual indirect rates.
Please tell us the reason for the use of targeted indirect rates
to
record revenues and whether there have historically been material
year-end adjustments as a result of the revised indirect rates.
We
also note that you believe that variances will be absorbed by
management actions to control costs during the remainder of the
year.
Please clarify the basis for this belief and specifically how you
can
ensure that such alternatives will effectively absorb the rate
variance. Additionally, please provide additional disclosure in
Note
19 in future filings to quantify the effect of material indirect
rate
adjustments during interim periods.
2. As a related matter, we see that during fiscal year 2005, you
had
accumulated a $3 million unfavorable variance. Please tell us and
revise future filings to disclose the circumstances that resulted
in
such a significant variance. Further, you disclose that you
absorbed
the unfavorable variance by increasing the indirect rates that are
applied to contracts. Please tell us the basis for increasing the
indirect rates and further clarify how this reduced the $3 million
unfavorable variance.
Form 10-Q for the fiscal quarter ended January 1, 2006
Note 5. Merger, page 10
3. We note that you were required to advance the purchase price
for
the Radix acquisition into an escrow and restricted cash account
at
September 30, 2005, which was recorded as an investing activity in
your consolidated statement of cash flows. In your Form 10-Q, you
disclose that you paid cash during the quarter for the merger,
which
was in escrow at September 30, 2005. However, the cash payment is
not reflected in the statement of cash flows. In future filings
please enhance your disclosure to explain how the acquisition is
presented on your statement of cash flows.
Form 8-K dated February 9, 2006
4. We note that you present your non-GAAP measures and
reconciliation
in the form of pro forma statements of income. That format may be
confusing to investors as it reflects several non-GAAP measures,
including pro forma cost of revenues, pro forma income from
operations, pro forma income before taxes, pro forma provision for
income taxes, pro forma net income and proforma earnings per
share.
In fact, it appears that management does not use these non-GAAP
measures but they are shown here as a result of the presentation
format. Please note that Instruction 2 to Item 2.02 of Form 8-K
requires that when furnishing information under this item you must
provide all the disclosures required by paragraph (e)(1)(i) of
Item
10 of Regulation S-K, including a reconciliation to the directly
comparable GAAP measure for each non-GAAP measure presented and an
explanation of why you believe the measures provide useful
information to investors. We also refer you to Question 8 of the
FAQ
Regarding the Use of Non-GAAP Financial Measures dated June 13,
2003
and SAB Topic 14-G.
* To eliminate investor confusion, please remove the pro forma
statements of income and pro forma balance sheets from all future
filings and instead disclose only those non-GAAP measures used by
management that you wish to highlight for investors, with the
appropriate reconciliations.
* Please note that in the event that your Form 8-K is incorporated
by
reference into a 33 Act registration statement, we may have
additional questions relating to the appropriateness of this
information being included in a document filed with, and not just
furnished to, the Commission. At that time, we may request an
amendment to the Form 8-K.
5. We note that throughout your press release, you have identified
and discussed the pro forma non-GAAP measures before addressing
the
changes in the GAAP measures. Item 10(e)(1)(i) of Regulation S-K
requires that whenever one or more non-GAAP financial measures are
provided the registrant must include a presentation, with equal or
greater prominence, of the most directly comparable financial
measure
or measures calculated and presented in accordance with Generally
Accepted Accounting Principles (GAAP). Please revise your
discussions in all future filings to fully comply with the
requirements of Item 10.
6. In addition, we note that you refer to your non-GAAP
information
as "pro forma" results. The pro forma terminology has very
specific
meaning in accounting literature, as indicated by Article 11 of
Regulation S-X. In future filings, please revise your presentation
to
omit the pro forma terminology when referring to your non-GAAP
information.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter with your response that keys your
responses to our comments and provides any requested information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed decision. Since the company and
its management are in possession of all facts relating to a
company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Kristin Lochhead at (202) 551-3664 or me at
(202) 551-3676 if you have questions. In this regard, please do
not
hesitate to contact Martin James, Senior Assistant Chief
Accountant,
at (202) 551-3671 with any other questions.
Sincerely,
Brian Cascio
Accounting Branch Chief
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Mr. Sellier
Argon ST, Inc.
March 23, 2006
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