10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-7445 DATRON SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) Delaware 95-2582922 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3030 Enterprise Court, Vista, California 92083-8347 (Address of principal executive offices) (zip code) (760) 734-5454 (Registrant's telephone number, including area code) (Former name, former address and formal fiscal year, if changed since last report) 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. [ X ] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of July 21, 2000, the Registrant had only one class of common stock, par value $0.01, of which there were 2,730,199 shares outstanding. 1 PART I - FINANCIAL INFORMATION
Item 1. Financial Statements DATRON SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, 2000 March 31, (Unaudited) 2000 --------- -------- ASSETS Current assets: Cash and cash equivalents $7,278 $12,183 Accounts receivable, net 11,340 12,658 Inventories 11,705 11,626 Deferred income taxes 2,603 2,603 Prepaid expenses and other current assets 589 343 ------ ------ Total current assets 33,515 39,413 Property, plant and equipment, net 9,141 9,427 Goodwill, net 5,186 5,237 Other assets 419 320 ------- ------- Total assets $48,261 $54,397 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,353 $2,921 Accrued expenses 6,155 9,632 Customer advances 615 1,408 Income taxes payable 371 1,433 Current portion of long-term debt 91 90 ----- ------ Total current liabilities 9,585 15,484 Long-term debt 3,056 3,080 Deferred income taxes 1,614 1,614 Deferred rent 118 103 ------ ------ Total liabilities 14,373 20,281 ------ ------ 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, 3,106,881 and 3,098,943 shares issued in June and March, respectively 31 31 Additional paid-in capital 10,963 10,904 Retained earnings 25,133 25,460 Treasury stock, at cost; 376,682 and 387,303 shares in June and March, respectively (2,075) (2,115) Stock option plan and stock purchase plan notes receivable (164) (164) ------ ------ Total stockholders' equity 33,888 34,116 ------ ------ Total liabilities and stockholders' equity $48,261 $54,397 ====== ====== See notes to consolidated financial statements.
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DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts) Three Months Ended June 30, 2000 1999 ------- ------- Net sales $13,354 $13,523 Cost of sales 9,946 9,638 ------ ------ Gross profit 3,408 3,885 Selling, general and administrative 2,996 2,807 Research and development 1,023 996 ------ ------ Operating income (loss) (611) 82 Interest expense (53) (55) Interest income 130 69 Other expense (8) (9) ----- ----- Income (loss) before income taxes (542) 87 Income taxes (benefit) (215) 35 ----- ----- Net income (loss) ($327) $52 ===== ===== Earnings (loss) per common share--basic ($0.12) $0.02 ===== ===== Weighted average number of common shares outstanding 2,721 2,696 ===== ===== Earnings (loss) per common share--diluted ($0.12) $0.02 ===== ===== Weighted average number of common and common equivalent shares outstanding 2,721 2,701 ===== ===== See notes to consolidated financial statements.
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DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited) (In thousands) Three Months Ended June 30 2000 1999 ------ ------ Cash Flows from Operating Activities Net income (loss) ($327) $52 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 482 535 Changes in operating assets and liabilities: Accounts receivable 1,318 (1,237) Inventories (79) (248) Prepaid expenses and other assets (347) 314 Accounts payable and accrued expenses (4,045) (1,693) Customer advances (793) l,210 Income taxes payable (1,062) 35 Deferred rent 15 58 Other 14 13 ----- ---- Net cash used in operating activities (4,824) (961) ----- ---- Cash Flows from Investing Activities Additions to property, plant and equipment (154) (410) Proceeds from sales of property, plant and equipment --- 384 --- --- Net cash used in investing activities (154) (26) --- --- Cash Flows from Financing Activities Repayments of long-term debt (23) (21) Stock options exercised 39 --- Issuance of common stock 57 36 ---- ---- Net cash provided by financing activities 73 15 ---- ---- Decrease in cash and cash equivalents (4,905) (972) Cash and cash equivalents at beginning of period 12,183 5,548 ------ ----- Cash and cash equivalents at end of period $7,278 $4,576 ====== ===== See notes to consolidated financial statements.
4 Datron Systems Incorporated Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation --------------------- The unaudited consolidated financial statements included herein contain the accounts of Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that these financial statements be read in connection with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended March 31, 2000. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments, consisting only of normal recurring adjustments, unless otherwise stated, which are necessary to present fairly its financial position at June 30, 2000 and the results of its operations and its cash flows for the periods presented. Results of operations for the periods presented herein are not necessarily indicative of what results will be for the entire fiscal year. The balance sheet at March 31, 2000 has been derived from audited financial statements. 2. Earnings (Loss) per Share ------------------------- Basic earnings per share ("EPS") is calculated based on the weighted average number of shares outstanding during the period. Diluted EPS is calculated based on the weighted average number of shares outstanding during the period plus equivalent shares issuable under the Company's stock option plans when such amounts are dilutive. Options to purchase 433,150 shares of common stock at prices ranging from $5.10 to $15.73 were not included in the computation of diluted EPS at June 30, 2000 because the effect of such options would be anti-dilutive. Such options expire at various dates from September 19, 2000 to May 16, 2010. At June 30, 1999, options to purchase 225,000 shares of common stock at prices ranging from $7.23 to $15.73 were not included in the computation of diluted EPS because the effect of such options would be anti-dilutive. 3. Accounts Receivable ------------------- At June 30, 2000 and March 31, 2000, accounts receivable were as follows:
June 30, March 31, 2000 2000 ----------- ----------- Billed $ 7,231,000 $ 9,108,000 Unbilled 4,229,000 3,659,000 ---------- ---------- Subtotal 11,460,000 12,767,000 Allowance for doubtful accounts (120,000) (109,000) ---------- ---------- Total $11,340,000 $12,658,000 ========== ==========
5 4. Inventories ----------- At June 30, 2000 and March 31, 2000, inventories were as follows:
June 30, March 31, 2000 2000 ---------- ---------- Raw materials $ 7,410,000 $ 7,587,000 Work-in-process 2,824,000 2,233,000 Finished goods 1,471,000 1,806,000 ---------- ---------- Total $11,705,000 $11,626,000 ========== ==========
Inventories are presented net of allowances for obsolescence of $1,480,000 and $1,572,000 at June 30, 2000 and March 31, 2000, respectively. 5. Property, Plant and Equipment ----------------------------- At June 30, 2000 and March 31, 2000, property, plant and equipment was as follows:
June 30, March 31, 2000 2000 ----------- ---------- Land and buildings $ 8,902,000 $ 8,901,000 Machinery and equipment 15,370,000 15,298,000 Furniture and office equipment 1,542,000 1,548,000 Leasehold improvements 748,000 726,000 Construction-in-process 19,000 --- ---------- ---------- Subtotal 26,581,000 26,473,000 Accumulated depreciation and amortization (17,440,000) (17,046,000) ----------- ---------- Total $ 9,141,000 $ 9,427,000 =========== ==========
6. Segment Information ------------------- Segment information was as follows for the periods shown:
Three Months Ended June 30, 2000 1999 ---------- ----------- Net sales: Antenna and Imaging Systems $ 9,848,000 $ 9,862,000 Communication Products 3,506,000 3,661,000 ----------- ----------- Consolidated net sales $13,354,000 $13,523,000 =========== =========== Operating income (loss): Antenna and Imaging Systems $ 206,000 $ 850,000 Communication Products (464,000) (438,000) General corporate expenses (353,000) (330,000) ---------- --------- Consolidated operating income (loss) (611,000) 82,000 Interest income, net 77,000 14,000 Other expense (8,000) (9,000) --------- --------- Income (loss) before income taxes $(542,000) $ 87,000 ========= =========
6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") report 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. The Communication Products business segment designs, manufactures and distributes high frequency and very high frequency radios and accessories for worldwide military and civilian purposes. 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. Results of Operations --------------------- Net loss for the first quarter of fiscal 2001 was $327,000, or $0.12 per diluted share, compared with net income of $52,000, or $0.02 per diluted share, in the first quarter of fiscal 2000. Net sales in the first quarter of fiscal 2001 were $13,354,000, a 1% decrease from first quarter sales last fiscal year of $13,523,000. The decline from net income to a net loss was primarily due to lower gross margins in the recent quarter. Operating results for each business segment were as follows: Antenna and Imaging Systems
Three Months Ended June 30, 2000 1999 ---------- ---------- Net sales $9,848,000 $9,862,000 ========== ========== Gross profit $2,540,000 $2,863,000 ========== ========== Operating income $206,000 $850,000 ========== ==========
Sales of Antenna and Imaging Systems products in the first quarter of fiscal 2001 were essentially flat compared with the first quarter of fiscal 2000. Higher sales of tracking antenna systems for military and commercial customers and higher sales of DBS antenna products were partially offset by lower sales of remote sensing satellite earth stations. Gross profit percentage on sales of Antenna and Imaging Systems products was 25.8% in the first quarter of fiscal 2001 compared with 29.0% in the first quarter last fiscal year. The decrease was primarily due to a less favorable product mix. 7 Operating income percentage from sales of Antenna and Imaging Systems products was 2.1% in the first quarter of fiscal 2001 compared with 8.6% in the first quarter last fiscal year. The decrease resulted primarily from lower gross profits and higher selling and new product development expenses. Communication Products
Three Months Ended June 30, 2000 1999 ---------- ---------- Net sales $3,506,000 $3,661,000 ========== ========== Gross profit $868,000 $1,022,000 ========== ========== Operating loss ($464,000) ($438,000) ========== ==========
Sales of Communication Products decreased 4% in the first quarter of fiscal 2001 compared with the first quarter of fiscal 2000. The decrease in sales was due to a lower order backlog at March 31, 2000 than at March 31, 1999. Order bookings of radio products in the first quarter of fiscal 2001 were strong, and the Company expects sales of those products to improve in the second and third quarters of fiscal 2001. Gross profit percentage on sales of Communication Products was 24.8% in the first quarter of fiscal 2001 compared with 27.9% in the first quarter last fiscal year. The decrease was primarily due to a less favorable product mix and to production inefficiencies. Operating loss percentage from sales of Communication Products was 13.2% in the first quarter of fiscal 2001 compared with an operating loss percentage of 12.0% in the first quarter last fiscal year. The increase resulted primarily from lower gross profits, partially offset by lower new product development and administrative expenses. Consolidated expenses Selling, general and administrative expenses were $2,996,000 in the first quarter of fiscal 2001, a 7% increase compared with first quarter of fiscal 2000 expenses of $2,807,000. The increase was primarily due to higher selling and adminstrative expenses at the Antenna and Imaging Systems business segment, partially offset by lower administrative expenses at the Communication Products business segment. Research and development expenses were $1,023,000 in the first quarter of fiscal 2001 compared with $996,000 in the first quarter last fiscal year. The 3% increase was primarily due to programs to improve mobile DBS antenna products. Order backlog at June 30
2000 1999 ----------- ----------- Antenna and Imaging Systems $19,361,000 $21,758,000 Communication Products 7,609,000 2,033,000 ----------- ----------- Total $26,970,000 $23,791,000 =========== ===========
The 11% decrease in Antenna and Imaging Systems backlog at June 30, 2000 compared with June 30, 1999 resulted primarily from lower order bookings of remote sensing satellite earth stations in the recent quarter. The 274% increase in Communication Products backlog at June 30, 2000 compared with June 30, 1999 was due to receipt of an $8 million order for tactical radios near the end of the recent quarter. The Company expects the improved backlog of Communication Products will result in smoother production flow and manufacturing efficiencies during the next two quarters. 8 Liquidity and Capital Resources ------------------------------- At June 30, 2000, working capital was $23,930,000, essentially unchanged compared with $23,929,000 at March 31, 2000. Major changes affecting working capital during this period were as follows: accounts receivable decreased $1,318,000 primarily due to low sales during the recent quarter; inventories increased $79,000; accounts payable and accrued expenses decreased $4,045,000 primarily due to payment of expenses associated with a large sale of radio products in the previous quarter; customer advances decreased $793,000; and income taxes payable decreased $1,062,000. The Company's cash position at June 30, 2000 was $7,278,000 compared with $12,183,000 at March 31, 2000, a decrease of 40%. At June 30, 2000, the Company had no borrowings against its revolving line of credit. Capital equipment expenditures were $154,000 in the first quarter of fiscal 2001 compared with $410,000 in the first quarter last fiscal year. Although capital expenditures in the first quarter of fiscal 2001 were lower than in the first quarter of fiscal 2000, the Company anticipates total capital expenditures in fiscal 2001 will be greater than the fiscal 2000 total of $1,289,000 due to anticipated tooling requirements for new products. At June 30, 2000, the Company had a $13,000,000 revolving line of credit with a bank. The line may be used for the issuance of letters of credit and for direct working capital advances, 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 on 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. At June 30, 2000, there were no borrowings under the line of credit and the bank had issued letters of credit against the line totaling $3,809,000. 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. Recently Issued Accounting Pronouncements ----------------------------------------- In December, 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which summarizes the SEC's interpretation of applying generally accepted accounting principles to revenue recognition in the financial statements. SAB No. 101 was subsequently amended in June 2000 and becomes effective for the fourth fiscal quarter of fiscal years beginning after December 15, 1999. Based on the Company's current revenue recognition policies, the Company does not believe the adoption of SAB No. 101, as amended, will have a material affect on the Company's consolidated financial position or its results of operations. 9 PART II -- OTHER INFORMATION Item 2. Changes in Securities. ------------------------------ Pursuant to a business loan agreement with a bank, the Company must comply with certain financial covenants. The agreement also prohibits the Company from declaration or payment of dividends or other distributions on the Company's stock, except under certain conditions specified in the agreement. The Company is in compliance with both requirements. Item 3. Legal Proceedings. ------------------------- 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 June 14, 2000, the district court issued an order awarding ATACS and AIRTACS damages of $30,075.01 including prejudgment interest. On July 12, 2000, ATACS and AIRTACS appealed the district court's judgment to the U.S. Court of Appeals. 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. Item 6. Exhibits and Reports on Form 8-K. ----------------------------------------- (a) Exhibits: 27.1 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATRON SYSTEMS INCORPORATED Date: July 28, 2000 By: /s/William L. Stephan William L. Stephan Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)