EX-13 5 0005.txt EXHIBIT 13 CERTAIN PORTIONS OF REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 2000 CONTAINING INFORMATION REQUIRED BY PART I AND PART II OF THIS REPORT Information required by Part II, Item 5: Market for Registrant's Common Equity and Related Stockholder Matters. This information is contained in the section captioned "Common Stock Activity" on the inside back cover of the Annual Report. Common Stock Activity The common stock of Datron Systems Incorporated is traded on the Nasdaq Stock Market under the symbol DTSI. The following table sets forth the high and low closing sales prices for the two most recent fiscal years as reported by Nasdaq: Fiscal Year 2000 Quarter Ended High Low ------------------ -------- ------ June 30, 1999 $7.750 $5.50 September 30, 1999 $7.750 $5.438 December 31, 1999 $9.750 $5.313 March 31, 2000 $19.125 $7.813 Fiscal Year 1999 Quarter Ended High Low ------------------ ------- ----- June 30, 1998 $8.375 $6.75 September 30, 1998 $7.375 $4.75 December 31, 1998 $6.875 $4.75 March 31, 1999 $8.75 $5.25 On March 31, 2000, there were approximately 1,600 stockholders of the Company's common stock. The Company has never paid a cash dividend on its common stock and does not anticipate doing so in the foreseeable future. Information required by Part II, Item 6: Selected Financial Data. This information is contained in the section captioned "Datron Systems Incorporated Selected Financial Data" on the inside front cover of the Annual Report. DATRON SYSTEMS INCORPORATED SELECTED FINANCIAL DATA
Fiscal Years Ended March 31, ------------------------------------------------------------ 2000 1999 1998 1997 1996 ------------------------------------------------------------ Statements of Operations Net sales $61,887,000 $59,084,000 $54,628,000 $53,269,000 $61,165,000 Net income (loss) 2,504,000 1,702,000 (3,163,000) 268,000 (1,241,000) Earnings (loss) per share - basic $0.93 $0.63 $(1.18) $0.10 $(0.48) - diluted $0.92 $0.63 $(1.18) $0.10 $(0.48) Balance Sheets Working capital $23,929,000 $20,307,000 $20,354,000 $24,756,000 $18,042,000 Total assets 54,397,000 48,167,000 51,284,000 56,476,000 58,459,000 Long-term debt 3,170,000 3,254,000 5,600,000 8,900,000 5,200,000 Total liabilities 20,281,000 16,772,000 21,679,000 23,868,000 26,588,000 Stockholders' equity 34,116,000 31,395,000 29,605,000 32,608,000 31,871,000 Book value per share $12.58 $11.65 $11.05 $12.26 $12.24
[FN] See Note 2 of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing earnings (loss) per share. No dividends were declared or paid during the years presented. Information required by Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations. This information is contained on pages 8 through 11 of the Annual Report. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") provide products and services that address the needs of emerging satellite and radio communication markets. It reports operations in two business segments: Antenna and Imaging Systems, and Communication Products. The Antenna and Imaging Systems business segment designs and manufactures satellite communication systems, subsystems and antennas that are sold worldwide to commercial and governmental customers. Its major product lines are remote sensing satellite earth stations, tracking antennas and systems for U.S. and foreign governmental agencies (including the U.S. Department of Defense ("DoD")) and commercial satellite service providers, and mobile direct broadcast satellite ("DBS") television reception systems for recreational vehicles, boats and large business jets. Fiscal 2000 sales for this segment were $39,756,000, a 2% increase from fiscal 1999 sales of $39,084,000. Product line sales for this segment in fiscal 2000 and 1999 were as follows (in thousands): 2000 1999 ------- ------- Remote sensing $14,131 36% $16,169 41% DoD/Other 17,316 43% 15,069 39% DBS 8,309 21% 7,846 20% ------- ---- ------- ---- Total $39,756 100% $39,084 100% ======= ==== ======= ==== During fiscal 2000, sale of a remote sensing system to an Asian customer accounted for 13% of this segment's sales and 8% of consolidated sales. During fiscal 1999, sale of a remote sensing system to a European customer accounted for 14% of this segment's sales and 9% of consolidated sales. The Communication Products business segment designs, manufactures and distributes high frequency and very high frequency radios and accessories for worldwide military and civilian purposes. Fiscal 2000 sales for this segment were $22,131,000, an 11% increase from fiscal 1999 sales of $20,000,000. Foreign customers accounted for 89% of fiscal 2000 sales and 93% of fiscal 1999 sales. During fiscal 2000, sales of radio products to an African customer accounted for 44% of this segment's sales and 16% of consolidated sales. During fiscal 1999, this segment sold radio products to another African customer that accounted for 20% of this segment's sales and 7% of consolidated sales. Consolidated sales for fiscal 2000 were $61,887,000, a 5% increase from fiscal 1999 consolidated sales of $59,084,000. The increase in sales was primarily due to higher sales of antenna systems and radio products, partially offset by lower sales of remote sensing satellite earth stations. Net income for fiscal 2000 was $2,504,000, or $0.92 per diluted share, compared with net income in fiscal 1999 of $1,702,000, or $0.63 per diluted share. The improvement in net income for fiscal 2000 was primarily due to the licensing of manufacturing rights to the Company's DBS-2100 antenna for business jets, partially offset by an increase in new product development expenses. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. A variety of factors could cause the Company's actual results to differ from the anticipated results expressed in such forward-looking statements. These include, among others, uncertainties stemming from the dependence of the Company on foreign sales and on large orders from a relatively small number of customers, risks relating to the decline in the Company's traditional defense business and the Company's efforts to develop and market consumer products, lack of timely development or customer acceptance of new products, changes in or unavailability of products and services offered by satellite service providers and their related suppliers, worldwide economic downturns and currency devaluations, restrictions imposed by the U.S. government on the export of Company products, and the impact of competition. Investors are referred to the Company's periodic reports under the Securities Exchange Act of 1934, including without limitation the Investment Considerations set forth in the Company's Annual Report on Form 10-K. The consolidated financial statements and notes thereto that appear on pages 12 through 23 should be read in conjunction with the following review. RESULTS OF OPERATIONS Operating results for the last three fiscal years are presented for each of the Company's two business segments (in thousands):
ANTENNA AND IMAGING SYSTEMS Years Ended March 31, --------------------------- 2000 1999 1998 ------- ------- ------- Net sales $39,756 $39,084 $33,789 ======= ======= ======= Percent of consolidated net sales 64% 66% 62% === === === Gross profit $11,219 $11,315 $4,963 Operating expenses before corporate expenses 8,455 8,182 7,472 ------ ------ ------- Operating income (loss) $2,763 $3,133 $(2,509) ====== ====== ======= Percent of consolidated operating income (loss) before corporate expenses 61% 73% 179% === === ====
Sales of Antenna and Imaging Systems increased $672,000, or 2%, in fiscal 2000 compared with fiscal 1999 sales. The increase was due to higher sales of tracking antenna systems for military and commercial customers and higher sales of DBS antenna products, partially offset by lower sales of remote sensing satellite earth stations. Sales of Antenna and Imaging Systems increased $5,295,000, or 16%, in fiscal 1999 compared with fiscal 1998 sales. The increase was due to higher sales of remote sensing satellite earth stations and DBS antenna products, partially offset by lower sales of tracking antenna systems for non- military governmental agencies. Gross profit percentage on Antenna and Imaging Systems' sales was 28.2% in fiscal 2000 compared with 29.0% in fiscal 1999 and 14.7% in fiscal 1998. The decrease in fiscal 2000 from fiscal 1999 was primarily due to a less favorable product mix in the fourth quarter and to lower unit sales prices for DBS products resulting from new competition. The increase in fiscal 1999 from fiscal 1998 was primarily due to production efficiencies and to a more favorable product mix in the third and fourth quarters. Operating income percentage on sales of Antenna and Imaging Systems' products was 6.9% in fiscal 2000 compared with 8.0% in fiscal 1999 and with an operating loss percentage of 7.4% of sales in fiscal 1998. The decrease in fiscal 2000 from fiscal 1999 was primarily due to lower gross profits and higher new product development expenses, partially offset by lower selling expenses. The improvement from an operating loss in fiscal 1998 to operating income in fiscal 1999 was primarily due to higher gross profits, partially offset by higher new product development expenses. [CAPTION] COMMUNICATION PRODUCTS Years Ended March 31, -------------------------- 2000 1999 1998 ------- ------- ------- Net sales $22,131 $20,000 $20,839 ======= ======= ======= Percent of consolidated net sales 36% 34% 38% === === == Gross profit $7,832 $7,445 $6,404 Operating expenses before corporate expenses 6,031 6,308 5,293 ------ ------ ------ Operating income $1,801 $1,137 $1,111 ====== ====== ====== Percent of consolidated operating income (loss) before corporate expenses 39% 27% (79%) === === ===
Sales of Communication Products increased $2,131,000, or 11%, in fiscal 2000 compared with fiscal 1999 sales. The increase was due to higher new order bookings in fiscal 2000, approximately half of which were received in the fourth quarter. Sales of radio products to an African customer accounted for $9,657,000, or 44% of this segment's fiscal 2000 sales. Sales of Communication Products decreased $839,000, or 4%, in fiscal 1999 compared with fiscal 1998 sales. The decrease was due to lower bookings of radio products resulting from economic instability in several of the Company's international markets. Sales of radio products to another African customer accounted for $4,026,000, or 20%, of this segment's fiscal 1999 sales. One customer will often account for a large percentage of this segment's annual sales, but it is unusual to have large sales from the same customer in successive years. International customers accounted for 89%, 93% and 88% of this segment's sales in fiscal 2000, 1999 and 1998, respectively. Orders from this customer base are subject to economic and political instability in those markets and often are delayed. Future anticipated orders may be delayed and some may never be awarded. In addition, some procurements the Company has identified as promising opportunities may be canceled. Gross profit percentage on Communication Products' sales was 35.4% in fiscal 2000 compared with 37.2% in fiscal 1999 and 30.7% in fiscal 1998. The decrease in fiscal 2000 from fiscal 1999 was primarily due to higher labor costs. The improvement in fiscal 1999 from fiscal 1998 was primarily due to production efficiencies resulting from lower materials costs and to a more favorable product mix. Operating income percentage on sales of Communication Products was 8.1% in fiscal 2000 compared with 5.7% of sales in fiscal 1999 and 5.3% of sales in fiscal 1998. The increase in fiscal 2000 compared with fiscal 1999 was primarily due to lower selling and administrative expenses, partially offset by lower gross margins. The increase in fiscal 1999 compared with fiscal 1998 was due to higher gross margins, partially offset by higher administrative, new product development and selling expenses. Because an operating loss was incurred in the Antenna and Imaging Systems business segment in fiscal 1998, and because a consolidated operating loss before corporate expenses was incurred in fiscal 1998, operating income attributable to the Communication Products business segment was (79%) of consolidated operating loss before corporate expenses in fiscal 1998. Consolidated expenses Selling, general and administrative ("SG&A") expenses were $12,100,000 in fiscal 2000 compared with $12,610,000 in fiscal 1999 and $12,179,000 in fiscal 1998. Fiscal 2000 SG&A expenses decreased 4% from fiscal 1999 SG&A expenses primarily due to lower selling expenses at both business segments, partially offset by higher administrative expenses at the Antenna and Imaging Systems business segment and higher expenses at the corporate office. Fiscal 1999 SG&A expenses increased 4% over fiscal 1998 SG&A expenses primarily due to higher selling expenses at both business segments and to higher administrative expenses at the Communication Products business segment. Research and development ("R&D") expenses were $3,960,000 in fiscal 2000 compared with $3,269,000 in fiscal 1999 and $1,987,000 in fiscal 1998. Fiscal 2000 R&D expenses increased 21% over fiscal 1999 expenses primarily due to higher spending on development programs to improve mobile DBS products and to improve core tracking antenna technologies. Fiscal 1999 R&D expenses increased 65% over fiscal 1998 expenses primarily due to higher spending on development programs for mobile DBS antenna products and for new radio products. Interest expense was $217,000 in fiscal 2000 compared with $326,000 in fiscal 1999 and $383,000 in fiscal 1998. The 33% decrease in fiscal 2000 compared with fiscal 1999 was due to the absence of borrowings against the Company's revolving line of credit in fiscal 2000. The 15% decrease in fiscal 1999 compared with fiscal 1998 was due to lower levels of term debt in fiscal 1999 and to a lower interest rate paid on a real estate loan. See Note 4 to the Consolidated Financial Statements. Interest income in fiscal 2000 was $194,000 compared with $231,000 in fiscal 1999 and $10,000 in fiscal 1998. Fiscal 2000 interest income resulted from short term investments of excess cash. Fiscal 1999 interest income included collection of interest on a past due account and income from short term investments of excess cash. Other income in fiscal 2000 of $1,129,000 was primarily due to the payment received for licensing the manufacturing rights to the Company's DBS-2100 antenna for business jets. Other expense of $1,126,000 in fiscal 1998 was primarily due to the loss on an investment in EarthWatch Incorporated. The effective income tax provision (benefit) rates for fiscal 2000, 1999 and 1998 were 38.9%, 39.9% and (26.4%), respectively. The provision rate in fiscal 2000 was lower than the rate in fiscal 1999 primarily due to the ability to use the R&D tax credit in fiscal 2000. The low benefit rate in fiscal 1998 was due to the Company's inability to take a deduction for the write- off of its investment in EarthWatch Incorporated because of a lack of offsetting capital gains. Order backlog at March 31 2000 1999 ----------- ----------- Antenna and Imaging Systems $24,293,000 $20,484,000 Communication Products 1,702,000 2,211,000 ----------- ----------- Total $25,995,000 $22,695,000 =========== =========== The 19% increase in Antenna and Imaging Systems' backlog at March 31, 2000 compared with March 31, 1999 was primarily due to strong fourth quarter bookings of antenna systems for the DoD and other governmental agencies. The 23% decrease in Communication Products' backlog at March 31, 2000 compared with March 31, 1999 was due to the Company's ability to fill orders faster in fiscal 2000 than in fiscal 1999. Order bookings in fiscal 2000 were 29% higher than they were in fiscal 1999. As previously noted, orders from this customer base are subject to economic and political instability in those markets and often are delayed. Future anticipated orders may be delayed and some may never be awarded. In addition, some procurements the Company had previously identified as promising opportunities may be canceled. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, working capital was $23,929,000 compared with $20,307,000 at March 31, 1999, an increase of $3,622,000. Significant changes affecting working capital during fiscal 2000 were as follows: accounts receivable, net increased $1,691,000 primarily due to strong fourth quarter sales; accounts payable and accrued expenses increased $2,663,000 primarily due to expenses associated with the strong fourth quarter sales; and income taxes payable increased $1,151,000. The Company's cash position at March 31, 2000 was $12,183,000 compared with $5,548,000 at March 31, 1999, an increase of 120%. At March 31, 2000, the Company had no borrowings against its revolving line of credit. Capital expenditures were $1,289,000 in fiscal 2000, a 16% decrease compared with fiscal 1999 capital expenditures of $1,535,000. The decrease was primarily due to the absence of improvements made to the new production and office facility the Communication Products business segment moved into in April 1999. Capital expenditures in fiscal 2001 are expected to be higher than fiscal 2000 expenditures due to anticipated tooling requirements for new products. At March 31, 2000, the Company had a $16,000,000 revolving line of credit with its bank. The line may be used for the issuance of letters of credit and for direct working capital advances in any combination up to the lesser of $16 million or an availability limit determined by a borrowing base formula. Five million dollars of the total credit facility was restricted to working capital and letters of credit required to finance non- military international business. That portion of the line of credit expired on April 1, 2000. The remaining $11,000,000 facility expires on April 1, 2001. On April 12, 2000, the Company amended the revolving credit agreement with its bank. Under the amended agreement, the total credit facility is $13,000,000, of which $2,000,000 is restricted to working capital and letters of credit required to finance non-military international business. That portion of the line expires April 1, 2001 and is subject to a borrowing base formula. The remaining $11,000,000 credit facility expires on April 1, 2002 and is not subject to a borrowing base formula. The Company believes its existing working capital, anticipated future cash flows from operations and available credit with its bank are sufficient to finance presently planned capital and working capital requirements. The Company has never paid a cash dividend on its common stock and does not anticipate doing so in the foreseeable future. Inflation and changing prices have not had a significant impact on the Company's historical operations. Year 2000 Issues Some software included in products sold or licensed to the Company's customers and certain portions of the Company's internal operating systems may be subject to failure as a result of what is commonly known as the Year 2000 date issue (the "Year 2000 issue"). The Company is not aware of any significant Year 2000 problems that have affected products sold or licensed to its customers or that affected its internal operating systems. The Company believes its plans for addressing the Year 2000 issue have been successful and are adequate to handle any remaining Year 2000 issues that may develop. The Company does not believe it will incur any material financial impact for the risk of failure, or from the costs associated with assessing the risks of failure, arising from the Year 2000 issue. Information required by Part II, Item 8: Financial Statements and Supplementary Data. This information is contained on pages 12 through 24 of the Annual Report. [CAPTION] DATRON SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS March 31, 2000 1999 ----------- ---------- ASSETS Current assets: Cash and cash equivalents $12,183,000 $5,548,000 Accounts receivable, net 12,658,000 10,967,000 Inventories 11,626,000 11,890,000 Deferred income taxes 2,603,000 2,998,000 Prepaid expenses and other current assets 343,000 754,000 ---------- ---------- Total current assets 39,413,000 32,157,000 Property, plant and equipment, net 9,427,000 10,248,000 Goodwill, net 5,237,000 5,442,000 Other assets 320,000 320,000 ----------- ----------- Total assets $54,397,000 $48,167,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,921,000 $2,521,000 Accrued expenses 9,632,000 7,369,000 Customer advances 1,408,000 1,594,000 Income taxes payable 1,433,000 282,000 Current portion of long- term debt 90,000 84,000 ---------- ---------- Total current liabilities 15,484,000 11,850,000 Long-term debt 3,080,000 3,170,000 Deferred income taxes 1,614,000 1,752,000 Deferred rent 103,000 --- ---------- ---------- Total liabilities 20,281,000 16,772,000 ---------- ---------- Commitments and contingencies -- Note 7 Stockholders' equity: Preferred stock - par value $0.01; authorized 2,000,000 shares, none issued or outstanding --- --- Common stock -- par value $0.01; authorized 10,000,000 shares, 3,098,943 and 3,084,532 shares issued in 2000 and 1999, respectively 31,000 31,000 Additional paid-in capital 10,904,000 10,758,000 Retained earnings 25,460,000 22,956,000 Treasury stock, at cost; 387,303 and 390,779 shares in 2000 and 1999, respectively (2,115,000) (2,106,000) Stock option plan and stock purchase plan notes receivable (164,000) (244,000) ---------- ---------- Total stockholders' equity 34,116,000 31,395,000 ---------- ---------- Total liabilities and stockholders' equity $54,397,000 $48,167,000 =========== =========== See notes to consolidated financial statements.
[CAPTION] DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended March 31, 2000 1999 1998 ----------- ----------- ----------- Net sales $61,887,000 $59,084,000 $54,628,000 Cost of sales 42,836,000 40,324,000 43,261,000 ---------- ---------- ---------- Gross profit 19,051,000 18,760,000 11,367,000 Selling, general and administrative 12,100,000 12,610,000 12,179,000 Research and development 3,960,000 3,269,000 1,987,000 ---------- ---------- ---------- Operating income (loss) 2,991,000 2,881,000 (2,799,000) Interest expense (217,000) (326,000) (383,000) Interest income 194,000 231,000 10,000 Other income (expense) 1,129,000 47,000 (1,126,000) --------- --------- --------- Income (loss) before income taxes 4,097,000 2,833,000 (4,298,000) Income taxes (benefit) 1,593,000 1,131,000 (1,135,000) --------- --------- --------- Net income (loss) $2,504,000 $1,702,000 ($3,163,000) ========= ========= ========== Earnings (loss) per common share - basic $0.93 $0.63 ($1.18) ========= ======= ======= Weighted average number of common shares outstanding 2,703,000 2,688,000 2,670,000 ========= ========= ========== Earnings (loss) per common share - diluted $0.92 $0.63 ($1.18) ========= ======== ========== Weighted average number of common and common equivalent shares outstanding 2,727,000 2,688,000 2,670,000 ========= ========= ========= See notes to consolidated financial statements.
[CAPTION] DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Stock Option Plan Additional & Stock Purchase Common Stock Paid-In Retained Treasury Plan Notes Shares Par Value Capital Earnings Stock Receivable Total Balance at April 1, 1997 2,659,416 $31,000 $10,602,000 $24,417,000 ($2,198,000) ($244,000) $32,608,000 Stock issued under employee stock purchase plan 6,126 --- 45,000 --- --- --- 45,000 Purchase of treasury stock (4,058) --- --- --- (53,000) --- (53,000) Stock options exercised for treasury stock and tax benefits 17,800 --- 4,000 --- 145,000 --- 149,000 Stock option compensation --- --- 19,000 --- --- --- 19,000 Net loss --- --- --- (3,163,000) --- --- (3,163,000) Balance at March 31, 1998 2,679,284 31,000 10,670,000 21,254,000 (2,106,000) (244,000) 29,605,000 Stock issued under employee stock purchase plan and tax benefits 14,469 --- 75,000 --- --- --- 75,000 Stock option compensation --- --- 13,000 --- --- --- 13,000 Net income --- --- --- 1,702,000 --- --- 1,702,000 Balance at March 31, 1999 2,693,753 31,000 10,758,000 22,956,000 (2,106,000) (244,000) 31,395,000 Stock issued under employee stock purchase plan 14,411 --- 79,000 --- --- --- 79,000 Treasury stock received for note payment (5,334) --- --- --- (80,000) 80,000 --- Stock options exercised for treasury stock and tax benefits 8,810 --- 45,000 --- 71,000 --- 116,000 Stock option compensation --- --- 22,000 --- --- --- 22,000 Net income --- --- --- 2,504,000 --- --- 2,504,000 Balance at March 31, 2000 2,711,640 $31,000 $10,904,000 $25,460,000 ($2,115,000) ($164,000) $34,116,000 See notes to consolidated financial statements.
[CAPTION] DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASHFLOWS Years Ended March 31, 2000 1999 1998 ---------- --------- ----------- Cash Flows from Operating Activities Net income (loss) $2,504,000 $1,702,000 ($3,163,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,924,000 2,301,000 2,513,000 Loss on investment --- --- 1,113,000 Changes in operating assets and liabilities: Accounts receivable (1,691,000) 4,520,000 2,409,000 Inventories 264,000 2,158,000 261,000 Deferred income taxes 257,000 342,000 (856,000) Prepaid expenses and other assets 397,000 6,000 297,000 Accounts payable and accrued expenses 2,663,000 (2,787,000) 1,927,000 Customer advances (186,000) 629,000 221,000 Income taxes payable 1,151,00 79,000 9,000 Restructuring reserve --- (320,000) (904,000) Deferred rent 103,000 --- --- Other 40,000 13,000 19,000 --------- --------- --------- Net cash provided by operating activities 7,426,000 8,643,000 3,846,000 --------- --------- --------- Cash Flows from Investing Activities Additions to property, plant and equipment (1,289,000) (1,535,000) (1,125,000) Proceeds from sales of property, plant and equipment 387,000 77,000 --- --------- --------- --------- Net cash used in investing activities (902,000) (1,458,000) (1,125,000) --------- --------- --------- Cash Flows from Financing Activities Proceeds from long-term debt --- 3,300,000 --- Repayments of long-term debt (84,000) (46,000) --- Decrease in revolving credit facility --- (5,600,000) (3,300,000) Stock options exercised and tax benefits 116,000 1,000 149,000 Issuance of common stock 79,000 74,000 45,000 Purchase of treasury stock --- --- (53,000) -------- --------- ---------- Net cash provided by (used in) financing activities 111,000 (2,271,000) (3,159,000) -------- ---------- ---------- Increase (decrease) in cash and cash equivalents 6,635,000 4,914,000 (438,000) Cash and cash equivalents at beginning of year 5,548,000 634,000 1,072,000 --------- --------- --------- Cash and cash equivalents at end of year $12,183,000 $5,548,000 $634,000 ========== ========== ========= Supplemental Cash Flow Information Interest paid $217,000 $327,000 $384,000 Income tax paid (refunds received) ($355,000) $596,000 ($367,000) See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") provide satellite communication and image processing systems through its Antenna and Imaging Systems business segment and high-quality radio and other wireless communication products to a worldwide market through its Communication Products business segment. The Antenna and Imaging Systems business segment designs and manufactures satellite communication systems, subsystems and antennas that are sold worldwide to commercial and governmental customers, including the U.S. Department of Defense. This business segment also provides earth station hardware, software and image processing systems for the remote sensing satellite systems market, and produces mobile satellite television reception systems for recreational vehicles, boats and airplanes. This business segment operates from facilities in Simi Valley, California. Communication products include HF (high frequency) and VHF (very high frequency) radio products and communication systems that are designed and manufactured in Vista, California. These products are sold worldwide through a network of Company salespersons and independent dealers and sales representatives. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the financial statements for prior years to conform to the presentation for fiscal 2000. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents Cash equivalents consist of highly liquid investments purchased with maturities of three months or less and which are readily convertible into cash. Inventories Inventories are carried at the lower of cost (first-in, first-out) or market (determined on the basis of estimated realizable value). Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Useful lives range from two to ten years for machinery and equipment and furniture and fixtures, and from twenty to forty years for buildings and building improvements. Leasehold improvements are amortized over the related lease term. Goodwill Goodwill represents the excess of the cost of purchased businesses over the fair value of their net assets at date of acquisition and is being amortized on a straight-line basis over 38 years. Accumulated amortization of goodwill was $2,464,000 at March 31, 2000 and $2,260,000 at March 31, 1999. Treasury Stock Repurchased shares of the Company's common stock are included in treasury stock at cost. Shares issued from treasury stock for exercise of stock options are issued at original cost on a first-in, first-out basis. Revenue Recognition Revenue from product sales is recognized at the time of shipment, except in the case of certain fixed-price contracts requiring substantial performance over several periods prior to commencement of deliveries, which are accounted for under the percentage-of-completion (cost-to- cost) method of accounting. Expected profits or losses on these contracts are based on the Company's estimates of total sales value and cost at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments resulting from such revisions are recorded in the periods in which revisions are made. Losses on contracts are recorded in full as they are identified. Accounts receivable include unbilled costs and accrued profits related to contracts accounted for under the percentage-of-completion method of accounting. There are no material amounts of contract holdbacks or claims subject to uncertainty of realization. Substantially all amounts are expected to be collected within one year. Funds received from customers in advance of contract work are classified as current liabilities. Foreign Sales All foreign sales are denominated in U.S. Dollars. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This statement requires that deferred income taxes be reported in the Company's financial statements utilizing the asset and liability method. Under this method, deferred income taxes are determined based on enacted tax rates applied to the differences between the financial statement and tax bases of assets and liabilities. Earnings (Loss) Per Share Basic earnings per share ("EPS") is calculated based on the weighted average number of shares outstanding during the year. Diluted EPS is calculated based on the weighted average number of shares outstanding during the year plus equivalent shares issuable under the Company's stock option plans when such amounts are dilutive. Options to purchase 87,000 shares of common stock at prices ranging from $12.75 - $15.73 were not included in the computation of diluted EPS at March 31, 2000 because the effect of such options would be anti-dilutive. Such options expire at various dates from November 10, 2005 to February 22, 2010. At March 31, 1999 and 1998, options to purchase 311,000 shares and 320,000 shares, respectively, of common stock at exercise prices ranging from $6.50 - $15.73 and $6.50 - $16.00, respectively, were not included in the computation of diluted EPS because the effect of such options would be anti- dilutive. Stock-Based Compensation As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company accounts for costs of stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, discloses the pro forma effect on net income (loss) and related per share amounts using the fair value-based method to account for its stock-based compensation (see Note 6). Segment Disclosures Effective March 31, 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement revises the definition of an operating segment and requires expanded disclosure of segment operations. Adoption of this statement did not affect the Company's results of operations or financial position (see Note 9). NOTE 3. BALANCE SHEET INFORMATION [CAPTION] Accounts receivable at March 31: 2000 1999 ---------- ---------- Billed $ 9,108,000 $ 7,430,000 Unbilled 3,659,000 3,724,000 ---------- ---------- Subtotal 12,767,000 11,154,000 Allowance for doubtful accounts (109,000) (187,000) ----------- ----------- Total $12,658,000 $10,967,000 =========== =========== Inventories at March 31: 2000 1999 ----------- ----------- Raw materials $ 7,587,000 $ 6,807,000 Work-in-process 2,233,000 3,230,000 Finished goods 1,806,000 1,853,000 ----------- ----------- Total $11,626,000 $11,890,000 =========== ===========
Inventories are presented net of allowances for obsolescence of $1,527,000 and $1,380,000 at March 31, 2000 and 1999, respectively. [CAPTION] Property, plant and equipment at March 31: 2000 1999 ----------- ----------- Land and buildings $ 8,901,000 $ 8,743,000 Machinery and equipment 15,298,000 15,110,000 Furniture and office equipment 1,548,000 1,674,000 Leasehold improvements 726,000 1,328,000 Construction-in-process --- 52,000 ----------- ---------- Subtotal 26,473,000 26,907,000 Accumulated depreciation and amortization (17,046,000) (16,659,000) ----------- ---------- Total $ 9,247,000 $10,248,000 =========== ========== Accrued expenses at March 31: 2000 1999 ---------- ---------- Commission and service fees $4,540,000 $2,460,000 Salaries and employee benefits 2,911,000 2,502,000 Warranty allowance 1,085,000 853,000 Royalties 257,000 350,000 Other 839,000 1,204,000 ---------- ---------- Total $9,632,000 $7,369,000 ========== ==========
NOTE 4. LONG-TERM DEBT At March 31, 2000, the Company had a committed $16,000,000 revolving line of credit with its bank. The line may be used for the issuance of letters of credit and for direct working capital advances in any combination up to the lesser of $16,000,000 or an availability limit determined by a borrowing base formula. At March 31, 2000, the availability limit was $16,000,000. Five million dollars of the total credit facility is restricted to working capital and letters of credit required to finance non-military international business. That portion of the line of credit expired on April 1, 2000. The remaining $11,000,000 credit facility expires on April 1, 2001. Interest is payable on borrowings under the line of credit at the bank's prime rate plus 0.50%. At March 31, 2000, the bank's prime rate was 9.00%. The line of credit is secured by assets of the Company and contains certain financial covenants with which the Company is in compliance. At March 31, 2000, there were no borrowings under the line and the bank had issued letters of credit against the line totaling $2,787,000. On April 12, 2000, the Company amended the revolving credit agreement with its bank. Under the amended agreement, the total credit facility is $13,000,000, of which $2,000,000 is restricted to working capital and letters of credit required to finance non-military international business. That portion of the line of credit expires April 1, 2001 and is subject to a borrowing base formula. The remaining $11,000,000 credit facility expires April 1, 2002 and is not subject to a borrowing base formula. A credit facility fee of $17,500 is payable annually to the bank. Other terms of the amended agreement are similar to the original agreement. On August 7, 1998, the Company issued a promissory note to a life insurance company in the amount of $3,300,000 pursuant to a loan agreement under which the Company borrowed the same amount. The note is secured by a deed of trust on the Company's Simi Valley facility and has a maturity date of September 1, 2008. Monthly payments are calculated on a 20- year amortization. Interest is payable at a rate of 6.76% per annum through September 1, 2003, at which date the interest rate becomes variable and tied to LIBOR, adjusting every quarter for the remainder of the term. On September 1, 2003, the Company may either prepay the note without penalty or accept the variable rate provisions as determined at that time. At March 31, long-term debt was as follows: 2000 1999 ---------- ---------- 6.76% note payable due September 1, 2008 $3,170,000 $3,254,000 Less current portion (90,000) (84,000) ---------- ---------- Long-term debt $3,080,000 $3,170,000 ========== ========== Aggregate principal payments for each of the years ending March 31 are as follows: Year Principal Payments ---- ------------------ 2001 $ 90,000 2002 96,000 2003 103,000 2004 110,000 2005 118,000 Thereafter 2,653,000 ---------- Total $3,170,000 ========== The Company believes the carrying amount of its outstanding long-term debt at March 31, 2000 and 1999 is a reasonable estimate of its fair value. This was determined based on a review of borrowing rates available to the Company at March 31, 2000 and 1999 for loans with similar terms and maturities. NOTE 5. INCOME TAXES The Company's deferred income tax assets and liabilities at March 31 are as follows:
2000 1999 ---------- ---------- Deferred income tax assets: Contract loss and other allowances $1,801,000 $1,709,000 Accrued employee benefits 503,000 438,000 Alternative minimum tax credits --- 353,000 Investment tax credits --- 236,000 Net operating loss carryover --- 63,000 Other 299,000 199,000 --------- --------- Total 2,603,000 2,998,000 --------- --------- Deferred income tax liabilities: Depreciation (1,479,000) (1,546,000) State taxes (135,000) (206,000) ---------- ---------- Total (1,614,000) (1,752,000) ---------- ---------- Net deferred income tax asset $989,000 $1,246,000 ========== ==========
As of March 31, 2000, the Company had no federal or California net operating loss carryforwards or credit carryforwards. The provision (benefit) for income taxes for the years ended March 31 is as follows:
2000 1999 1998 ---------- --------- ----------- Federal: Current $1,233,000 $746,000 $ (280,000) Deferred 50,000 139,000 (694,000) State: Current 103,000 43,000 --- Deferred 207,000 203,000 (161,000) ---------- ---------- ----------- Total $1,593,000 $1,131,000 $(1,135,000) ========== ========== ===========
The provision (benefit) for income taxes differs from the federal statutory tax rate for the years ended March 31 due to the following:
2000 1999 1998 ---------- -------- ----------- Expected tax (benefit) at statutory rate $1,393,000 $963,000 $(1,461,000) Disallowed capital loss --- --- 378,000 State tax (benefit), net of federal tax effect 205,000 163,000 (103,000) Foreign Sales Corporation Earnings (132,000) (104,000) (70,000) Goodwill amortization 70,000 70,000 70,000 Other differences 57,000 39,000 51,000 ---------- ---------- ----------- Total $1,593,000 $1,131,000 $(1,135,000) ========== ========== ===========
NOTE 6. EMPLOYEE INCENTIVE PLANS In May 1985, the Company adopted the 1985 Stock Option Plan (1985 Plan). Under the 1985 Plan, as amended, 500,000 shares of common stock may be issued upon the exercise of options granted to employees of the Company at not less than the fair market value on the date of grant and to directors of the Company at not less than 85% of the fair market value on the date of grant. Options become exercisable ratably over three years and expire ten years from the date of grant. The 1985 Plan expired in May 1995. During the fiscal year ended March 31, 2000, a promissory note in the amount of $80,000 that had been issued in connection with the exercise of an option granted pursuant to the 1985 Plan was paid in full by the maker. In February 1995, the Company adopted the 1995 Stock Option Plan (1995 Plan), authorizing the issuance of 206,700 option shares of which 61,073 were available under the 1985 Plan at the time of its expiration. In August 1999, the 1995 Plan was amended to increase by 200,000 the number of shares available for grant and to require all options be granted at fair market value. Other terms of issuance and exercise of options granted under the 1995 Plan are similar to those under the 1985 Plan. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Had compensation expense for the Company's two fixed stock option plans (the 1985 Plan and 1995 Plan) been determined consistent with the provisions of SFAS No. 123 based on the fair value at date of grant for awards made subsequent to March 31, 1995, and assumed forfeiture rates of 17%, 21% and 12%, respectively, net income (loss) and earnings (loss) per share would have been reduced (increased) to the pro forma amounts indicated below:
2000 1999 1998 ---------- ---------- ----------- Net income (loss) ----------------- As reported $2,504,000 $1,702,000 $(3,163,000) Pro forma $2,071,000 $1,460,000 $(3,601,000) Earnings (loss) per common share - basic --------------------- As reported $0.93 $0.63 $(1.18) Pro forma $0.77 $0.54 $(1.35) Earnings (loss) per common share - diluted ----------------------- As reported $0.92 $0.63 $(1.18) Pro forma $0.76 $0.54 $(1.35)
The weighted-average fair value of options granted under the two stock option plans with exercise prices equal to market price during fiscal years 2000, 1999 and 1998 is estimated at $7.04, $2.87 and $4.17, respectively, and the weighted- average exercise prices for those options was $12.32, $6.54 and $8.92, respectively. The weighted-average fair value of options granted under the two stock option plans with exercise prices at less than market price during fiscal years 2000, 1999 and 1998 is estimated at $3.58, zero and $4.36, respectively, and the weighted-average exercise prices for those options was $5.10, zero and $7.23, respectively. These estimates were determined by using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants awarded in fiscal years 2000, 1999 and 1998, respectively: dividend yield of 0%, 0% and 0%; expected volatility of 59%, 41% and 44%; risk- free rate of return of 6.15%, 5.31% and 5.81%; and expected lives of 5 years, 5 years and 5 years. A change in these assumptions could result in a significant change to the indicated fair value amounts. A summary of the status of the Company's two fixed stock option plans as of March 31, 2000, 1999 and 1998 and activity during the years then ended is as follows:
2000 1999 1998 ----------------- ---------------- ----------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- -------- ------- -------- ------- -------- Outstanding at beginning of year 311,130 $ 9.32 319,960 $ 9.96 219,580 $11.35 Granted 124,500 $10.00 53,000 $ 6.54 164,000 $ 8.81 Canceled (47,130) $10.24 (61,830) $10.22 (45,820) $13.42 Exercised (8,810) $10.14 --- --- (17,800) $ 7.67 ------- ------ ------- ------ ------- ------ Outstanding at end of year 379,690 $ 9.41 311,130 $ 9.32 319,960 $ 9.96 ======= ====== ======= ====== ======= ====== Options exercisable at end of year 186,190 $ 9.61 173,667 $10.35 145,293 $10.86 ======= ====== ======= ====== ======= ======
Stock option compensation expense related to options granted at less than fair value on date of grant pursuant to the 1985 Plan and 1995 Plan was $22,000, $13,000 and $19,000 in fiscal years 2000, 1999 and 1998, respectively. Information about fixed stock options outstanding at March 31, 2000 is as follows:
Options Outstanding Options Exercisable ----------------------------------- ---------------------- Weighted-Ave. Weighted- Weighted- Remaining Ave. Ave. Range of Number Contracatual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price $5.10 - $7.50 110,020 8.4 years $ 6.08 22,020 $ 6.61 $8.08 - $9.50 135,670 5.6 $ 8.60 106,003 $ 8.60 $10.13 - $12.75 49,500 6.1 $11.39 43,167 $11.52 $13.50 - $15.73 84,500 9.1 $13.89 15,000 $15.73 --------------- -------- ---------- ------ ------- ------ $5.10 - $15.73 379,690 7.3 years $ 9.41 186,190 $ 9.61 =============== ======== ========== ====== ======= ======
At March 31, 2000, 165,730 shares were available for grant under the 1995 Plan. In March 1988, the Company adopted the 1988 Key Employee Stock Purchase Plan (Purchase Plan). Under terms of the Purchase Plan, 75,000 shares of common stock may be made available for purchase at fair market value to key employees as determined by the board of directors. As of March 31, 2000, 50,000 shares had been purchased pursuant to the Purchase Plan, and a note receivable in the amount of $164,000 due April 10, 2002 at an interest rate of 4.64% was outstanding. The Company has a non-contributory qualified profit sharing plan. Employees are eligible to participate on April 1 following their date of employment and benefits vest over seven years. Annual contributions are determined by the board of directors. Such amounts were $195,000, $151,000 and zero for the fiscal years ended March 31, 2000, 1999 and 1998, respectively. In November 1995, the Company adopted the Supplemental Executive Profit Sharing Plan, effective as of April 1, 1994. The plan is a deferred compensation plan intended to provide certain executive employees with additional funds for their retirement. Terms of participation and vesting of benefits are similar to those of the qualified profit sharing plan. Eligibility for participation and annual contributions are determined by the board of directors. Contributions for the fiscal years ended March 31, 2000, 1999 and 1998, were $9,000, $14,000 and zero, respectively. In August 1997, the Company adopted the Employee Stock Purchase Plan, effective as of July 1, 1997. Employees are eligible to participate in the plan if they have been employed a minimum of five months and work at least 20 hours per week. Eligible employees may use funds from accumulated payroll deductions to purchase shares of Company common stock at the end of six-month offering periods. They may contribute up to 10% of gross earnings toward such purchases, not to exceed $12,500 per offering period, and may purchase a maximum of 1,000 shares per offering period. The purchase price for the shares is 85% of the lesser of the fair market value of the common stock at the beginning of the offering period or at the end of the offering period. Shares purchased must be held for a minimum of three months before they can be sold. A total of 200,000 shares has been authorized for issuance under the Employee Stock Purchase Plan. Common stock issued under the Employee Stock Purchase Plan is summarized as follows:
1999 1998 1997 Offering Shares Purchase Shares Purchase Shares Purchase Period Ended Issued Price Issued Price Issued Price June 30 7,713 $4.68 6,648 $5.74 --- --- December 31 6,698 $6.22 7,821 $4.62 6,126 $7.33 Total 14,411 14,469 6,126
NOTE 7. COMMITMENTS AND CONTINGENCIES The Company leases certain production and office facilities and certain equipment under noncancelable operating leases. In March 1998, the Company signed a ten-year lease for a production and office facility located in Vista, California. That lease commenced March 26, 1999. Future minimum operating lease obligations for each of the years ending March 31 are as follows: Total Lease Year Obligation 2001 $669,000 2002 659,000 2003 644,000 2004 623,000 2005 585,000 Thereafter 2,548,000 Total $5,728,000 Total rent expense under noncancelable operating leases was $793,000, $624,000 and $618,000 for the fiscal years ended March 31, 2000, 1999 and 1998, respectively. Additional rent payments in the amounts of $175,000 and $638,000 were charged to a restructuring reserve during the fiscal years ended March 31, 1999 and 1998, respectively. In the normal course of business, the Company is subject to claims and litigation that may be raised by governmental agencies in connection with U.S. government contracts, U.S. government export control regulations and other regulatory issues, and civil claims by private parties. In connection with a Defense Contract Audit Agency (DCAA) audit of a $9.6 million U.S. Navy contract completed in 1989, DCAA has submitted a report to the Contracting Officer alleging deficiencies in the information provided to the Navy at the time the contract was negotiated and recommending a reduction in the contract value of $2.7 million. During the fiscal year ended March 31, 1995, DCAA amended its recommendation to a reduction in contract value of $1.9 million. The Company is confident that its actions have been appropriate at all times and believes the conclusions in the DCAA report are erroneous; the Company intends to challenge the report and its conclusions vigorously. There was no activity on this matter during the fiscal year ended March 31, 2000. The Company believes that final resolution of this matter will not materially affect the consolidated financial position of the Company or its results of operations. In August 1992, Trans World Communications, Inc. (Trans World), a wholly owned subsidiary of the Company and which was renamed Datron World Communications Inc. on March 31, 1995, was named as defendant in a lawsuit filed by ATACS Corporation (ATACS) and AIRTACS Corporation (AIRTACS) relating to a contract to provide radio communication shelters. ATACS and AIRTACS contend that Trans World entered into an agreement to team with them on the contract and then wrongfully failed to use them as subcontractors. They seek damages in excess of $2,000,000. In rulings on May 28, 1997 and September 3, 1997, the court found Trans World in breach of a teaming agreement and awarded ATACS and AIRTACS one dollar ($1.00) in damages. On September 8, 1998, the appeal court affirmed the district court's decision except as to the award of nominal damages, and remanded the matter to the district court for further hearing on damages. On May 31, 2000, in a memorandum opinion, the district court awarded ATACS and AIRTACS damages of $18,900 plus prejudgment interest. The Company believes that final resolution of this matter will not materially affect the consolidated financial position of the Company or its results of operations. NOTE 8. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in two business segments: Antenna and Imaging Systems, and Communication Products. See Note 1. Management evaluates performance and allocates resources by focusing on operating income as the principal measurement of segment performance. Operating income is before net interest expense, other income (expense) and income taxes. Accounting policies of the two segments are the same as those described in Note 2, Summary of Significant Accounting Policies. The following table contains certain segment, geographic and customer information about the Company. There were no intersegment sales during the periods presented. All assets of the Company are located in the United States.
Years ended March 31, 2000 1999 1998 Net sales: Antenna and Imaging Systems $39,756,000 $39,084,000 $33,789,000 Communication Products 22,131,000 20,000,000 20,839,000 Consolidated net sales $61,887,000 $59,084,000 $54,628,000 Operating income (loss): Antenna and Imaging Systems $2,763,000 $3,133,000 $(2,509,000) Communication Products 1,801,000 1,137,000 1,111,000 General corporate expenses (1,573,000) (1,389,000) (1,401,000) Consolidated operating income (loss) 2,991,000 2,881,000 (2,799,000) Interest expense, net (23,000) (95,000) (373,000) Other income (expense) 1,129,000 47,000 (1,126,000) Income (loss) before income taxes $4,097,000 $2,833,000 $(4,298,000) Identifiable assets: Antenna and Imaging Systems $18,848,000 $19,146,000 $24,891,000 Communication Products 19,068,000 18,579,000 20,286,000 Corporate 16,481,000 10,442,000 6,107,000 Consolidated total $54,397,000 $48,167,000 $51,284,000 Capital expenditures: Antenna and Imaging Systems $ 788,000 $ 404,000 $ 655,000 Communication Products 486,000 1,046,000 456,000 Corporate 15,000 85,000 14,000 Consolidated total $1,289,000 $1,535,000 $1,125,000 Depreciation and amortization: Antenna and Imagaing Systems $ 836,000 $1,226,000 $1,658,000 Communication Products 1,069,000 1,060,000 837,000 Corporate 19,000 15,000 18,000 Consolidated total $1,924,000 $2,301,000 $2,513,000 Net sales by customer location: Africa $12,287,000 $6,620,000 $3,979,000 Asia 10,867,000 9,009,000 16,104,000 Europe 9,132,000 11,841,000 4,923,000 South America 1,100,000 4,405,000 4,547,000 Other 452,000 488,000 486,000 Subtotal foreign net sales 33,838,000 32,363,000 30,039,000 U.S. 28,049,000 26,721,000 24,589,000 Consolidated net sales $61,887,000 $59,084,000 $54,628,000 Sales for U.S. Department of Defense: Antenna and Imaging Systems $12,670,000 $11,105,000 $10,387,000 Communication Products 670,000 713,000 866,000 Consolidated total $13,340,000 $11,818,000 $11,253,000
For the fiscal year ended March 31, 2000, two customers accounted for 13% and 11% of Antenna and Imaging Systems' net sales and two customers accounted for 44% and 11% of Communication Products' net sales. For the fiscal year ended March 31, 1999, two customers accounted for 14% and 13% of Antenna and Imaging Systems' net sales and one customer accounted for 20% of Communication Products' net sales. For the fiscal year ended March 31, 1998, two customers accounted for 17% and 15% of Antenna and Imaging Systems' net sales and three customers accounted for 24%, 12% and 10% of Communication Products' net sales. NOTE 9. QUARTERLY FINANCIAL DATA - Unaudited (in thousands, except per-share data)
Fiscal Year 2000 Net Gross Net Earnings (Loss) Per (Loss) Per Sales Profit Income (Loss) Share-Diluted First Quarter $13,523 $ 3,885 $ 52 $0.02 Second Quarter 14,130 3,718 603 0.22 Third Quarter 12,729 3,457 (291) (0.11) Fourth Quarter 21,505 7,991 2,140 0.77 Fiscal Year $61,887 $19,051 $2,504 $0.92
Results for the first three quarters reflect low gross profits primarily due to low sales of Communication Products and lower gross margins on mobile DBS antenna products. Gross profits improved significantly in the fourth quarter due to receipt and shipment of a $9 million international radio order that had experienced several delays. Net income (loss) for the first three quarters reflects the low gross profits on the low sales and a 64% increase in new product development expenses for the nine months compared with the same nine-month period in fiscal 1999. The increase in net income in the second quarter resulted primarily from the licensing of manufacturing rights to the Company's airborne DBS-2100 antenna for business jets. The increase in net income in the fourth quarter was due to increased gross profits on the much higher sales. The total of quarterly earnings (loss) per share-diluted does not equal the fiscal year earnings per share-diluted because the calculation for each period is based on the weighted average number of common and common equivalent shares outstanding for each period.
Fiscal Year 1999 Net Gross Net Earnings Per Sales Profit Income Share-Diluted First Quarter $15,289 $ 4,078 $ 163 $0.06 Second Quarter 13,729 4,068 379 0.14 Third Quarter 15,266 4,780 585 0.22 Fourth Quarter 14,800 5,834 575 0.21 Fiscal Year $59,084 $18,760 $1,702 $0.63
First and second quarter results reflect lower gross profits from sales of remote sensing systems and military antennas. Gross profits improved in the third and fourth quarter due to production efficiencies at the Antenna and Imaging Systems business segment and to a more favorable product mix at the Communication Products business segment. The improvement in third and fourth quarter gross profits was partially offset by higher new product development expenses for radio and DBS products. INDEPENDENT AUDITORS' REPORT To the Board of Directors Datron Systems Incorporated Vista, California We have audited the accompanying consolidated balance sheets of Datron Systems Incorporated and its subsidiaries as of March 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Datron Systems Incorporated and its subsidiaries as of March 31, 2000 and 1999 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Deloitte & Touche LLP San Diego, California May 12, 2000