EX-13 8 ex7.txt EXHIBIT 13 EXHIBIT 13 CERTAIN PORTIONS OF REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 2001 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 2001 Quarter Ended High Low ------- ------- June 30, 2000 $13.750 $ 8.625 September 30, 2000 $15.750 $ 9.563 December 31, 2000 $13.250 $10.625 March 31, 2001 $14.625 $10.750 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
On March 31, 2001, there were approximately 2,600 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, --------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- Statements of Operations Net sales $62,262,000 $61,887,000 $59,084,000 $54,628,000 $53,269,000 Net income (loss) 2,957,000 2,504,000 1,702,000 (3,163,000) 268,000 Earnings (loss) per share - basic $1.08 $0.93 $0.63 $(1.18) $0.10 - diluted $1.06 $0.92 $0.63 $(1.18) $0.10 Balance Sheets Working capital $27,278,000 $23,929,000 $20,307,000 $20,354,000 $24,756,000 Total assets 57,269,000 54,397,000 48,167,000 51,284,000 56,476,000 Long-term debt 3,080,000 3,170,000 3,254,000 5,600,000 8,900,000 Total liabilities 19,783,000 20,281,000 16,772,000 21,679,000 23,868,000 Stockholders equity 37,486,000 34,116,000 31,395,000 29,605,000 32,608,000 Book value per share $13.64 $12.58 $11.65 $11.05 $12.26
[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, including the U.S. Department of Defense. Its major product lines are (i) satellite tracking antenna systems used for remote sensing, telemetry, tracking and control ("TT&C") and satellite communication purposes by government and commercial users, and (ii) mobile broadband communication systems for airlines, military transports and mobile land and marine direct broadcast satellite ("DBS") television users. Fiscal 2001 sales for this segment were $36,930,000, a 7% decrease from fiscal 2000 sales of $39,756,000. Product line sales for this segment in fiscal 2001 and 2000 were as follows:
2001 2000 ----------- ----------- Antenna Systems $26,243,000 71% $31,155,000 78% Mobile Broadband 10,687,000 29% 8,601,000 22% ----------- ----------- Total $36,930,000 100% $39,756,000 100% =========== ===========
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. The Communication Products business segment designs, manufactures and distributes voice and data communication radios for worldwide military and civilian purposes. At the end of fiscal 2001, it introduced a new radio targeting the federal public safety wireless network ("PSWN") market, a market it has not previously served. Fiscal 2001 sales for this segment were $25,332,000, a 14% increase from fiscal 2000 sales of $22,131,000. Foreign customers accounted for 96% of this segment's fiscal 2001 sales and 89% of fiscal 2000 sales. During fiscal 2001, sales of radio products to two Asian customers accounted for 36% and 29% of this segment's sales and collectively 26% of consolidated 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. Consolidated sales for fiscal 2001 were $62,262,000, up slightly from fiscal 2000 consolidated sales of $61,887,000. The relatively flat sales were due to higher sales of radio communication products, offset by lower sales of antenna systems products. Net income for fiscal 2001 was $2,957,000, or $1.06 per diluted share, compared with net income in fiscal 2000 of $2,504,000, or $0.92 per diluted share. The increase in net income was primarily due to a $2,801,000 pre-tax gain (approximately $1,685,000, or $0.60 per diluted share after-tax) on the sale of the Company's microwave products line in the third quarter. Net income in fiscal 2000 included a $1,050,000 pre-tax license fee (approximately $632,000, or $0.23 per diluted share after- tax) received for manufacturing rights to the Company's DBS- 2100 antenna for business jets. 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 that may be imposed by the U.S. government on the export of Company products, and the impact of competition. For more information, please review 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, 2001 2000 1999 ------- ------- ------- Net sales $36,930 $39,756 $39,084 ======= ======= ======= Percent of consolidated net sales 59% 64% 66% Gross profit $9,299 $11,219 $11,315 Operating expenses before corporate expenses 8,656 8,455 8,182 Gain on sale of product line (2,801) --- --- ------ ------ ------ Operating income $3,444 $2,763 $3,133 ====== ====== ====== Percent of consolidated operating income before corporate expenses 59% 61% 73% ====== ====== ======
Sales of Antenna and Imaging Systems decreased $2,826,000, or 7%, in fiscal 2001 compared with fiscal 2000 sales. The decrease was primarily due to lower sales of remote sensing satellite earth stations and the absence of microwave product sales during the last five months of the fiscal year due to the sale of that product line in November 2000. The decrease was partially offset by higher sales of mobile broadband communication systems. 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. Remote sensing is currently an especially difficult market with fewer contracts being awarded and increased competition for the remaining business, as several service providers have suffered launch failures and delays. The Company has responded by cutting costs at this business segment; however, softness in the remote sensing market is expected to continue for at least two more quarters, which is likely to result in reduced performance for the Company during the first half of fiscal 2002. Gross profit percentage on Antenna and Imaging Systems' sales was 25.2% in fiscal 2001 compared with 28.2% in fiscal 2000 and 29.0% in fiscal 1999. The decrease in fiscal 2001 from fiscal 2000 was primarily due to a less favorable product mix and lower unit sales prices. The decrease in fiscal 2000 from fiscal 1999 was primarily due to a less favorable product mix in the fourth quarter and lower unit sales prices for DBS products resulting from new competition. Operating income percentage on sales of Antenna and Imaging Systems' products was 9.3% in fiscal 2001 compared with 6.9% in fiscal 2000 and 8.0% in fiscal 1999. The increase in fiscal 2001 from fiscal 2000 was primarily due to the gain on sale of the microwave products line, partially offset by lower gross profits and higher administrative expenses. 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.
COMMUNICATION PRODUCTS Years Ended March 31, 2001 2000 1999 ------- ------- ------- Net sales $25,332 $22,131 $20,000 ======= ======= ======= Percent of consolidated net sales 41% 36% 34% ======= ======= ======= Gross profit $8,611 $7,832 $7,445 Operating expenses before corporate expenses 6,218 6,031 6,308 ------- ------- ------ Operating income $2,393 $1,801 $1,137 ======= ======= ====== Percent of consolidated operating income before corporate expenses 41% 39% 27% ======= ======= ======
Sales of Communication Products increased $3,201,000, or 14%, in fiscal 2001 compared with fiscal 2000 sales. The increase was due to higher order bookings of traditional radio products. Sales of radio products to two Asian customers accounted for $9,060,000 and $7,389,000, or collectively 65% of this segment's fiscal 2001 sales. Sales of Communication Products increased $2,131,000, or 11%, in fiscal 2000 compared with fiscal 1999 sales. The increase was due to higher 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. 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 96%, 89% and 93% of this segment's sales in fiscal 2001, 2000 and 1999, respectively. Orders from this international customer base are subject to economic and political instability and often are delayed. Additionally, in fiscal 2002 the Company will enter the federal PSWN market with its new GuardianTM radio. This is a new domestic market for the Company and market acceptance of the Guardian radio is uncertain. Company performance in fiscal 2002 will depend, in part, on successfully obtaining new international orders and market acceptance of the Guardian radio. Gross profit percentage on Communication Products' sales was 34.0% in fiscal 2001 compared with 35.4% in fiscal 2000 and 37.2% in fiscal 1999. The decrease in fiscal 2001 from fiscal 2000 was primarily due to a less favorable product mix. The decrease in fiscal 2000 from fiscal 1999 was primarily due to higher labor costs. Operating income percentage on sales of Communication Products was 9.4% in fiscal 2001 compared with 8.1% of sales in fiscal 2000 and 5.7% of sales in fiscal 1999. The increase in fiscal 2001 compared with fiscal 2000 was primarily due to lower selling, administrative and R&D expenses as a percentage of sales, partially offset by lower gross margins. The increase in fiscal 2000 compared with fiscal 1999 was primarily due to lower selling and administrative expenses as a percentage of sales, partially offset by lower gross margins. Consolidated expenses Selling, general and administrative ("SG&A") expenses were $12,567,000 in fiscal 2001 compared with $12,100,000 in fiscal 2000 and $12,610,000 in fiscal 1999. Fiscal 2001 SG&A expenses increased 4% from fiscal 2000 SG&A expenses primarily due to higher administrative expenses at the Antenna and Imaging Systems business segment and at the corporate office. 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. Research and development ("R&D") expenses were $3,993,000 in fiscal 2001 compared with $3,960,000 in fiscal 2000 and $3,269,000 in fiscal 1999. Fiscal 2001 R&D expenses increased slightly over fiscal 2000 expenses as higher spending on development programs for new radio products was offset by lower spending on development programs to improve mobile DBS products. 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. Interest expense was $212,000 in fiscal 2001 compared with $217,000 in fiscal 2000 and $326,000 in fiscal 1999. The fiscal 2001 and 2000 interest amounts represented payments on long-term debt. There were no borrowings against the Company's revolving line of credit during those two fiscal years. The 33% decrease in interest expense 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. See Note 5 to the Consolidated Financial Statements. Interest income in fiscal 2001 was $405,000 compared with $194,000 in fiscal 2000 and $231,000 in fiscal 1999. The 109% increase in fiscal 2001 was the result of higher average cash balances. Fiscal 2001 and 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. The effective income tax provision rates for fiscal 2001, 2000 and 1999 were 32.9%, 38.9% and 39.9%, respectively. The provision rate in fiscal 2001 was lower than the rate in fiscal 2000 primarily because of a larger R&D tax credit in fiscal 2001. 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.
Order backlog at March 31 2001 2000 ----------- ----------- Antenna and Imaging Systems $14,249,000 $24,293,000 Communication Products 1,784,000 1,702,000 ----------- ----------- Total $16,033,000 $25,995,000 =========== ===========
The 41% decrease in Antenna and Imaging Systems' backlog at March 31, 2001 compared with March 31, 2000 was primarily due to continued softness in the markets for antenna systems and remote sensing earth stations and to the absence of microwave product orders due to the sale of that product line in the third quarter of fiscal 2001. As mentioned above, the Company has responded by cutting costs at this business segment; however, because of the low beginning backlog and softness in the remote sensing market that is expected to continue for at least two more quarters, the Company expects reduced performance in the first half of fiscal 2002. Communication Products' backlog at March 31, 2001 was 5% higher than at March 31, 2000 due to a stronger market for traditional radio products, which resulted in an 18% increase in bookings during fiscal 2001 compared with fiscal 2000. This segment's business has historically been driven by one or two large contracts each fiscal year. As a result, financial performance from quarter-to-quarter is often uneven. Because of a relatively low order backlog at March 31, 2001 compared with recent fiscal year sales, fiscal 2002 financial performance in this segment is expected to be driven by second half results, much as has been the case the previous two fiscal years. Also, the second half may be heavily influenced by market acceptance of the new Guardian radio for the federal PSWN market. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, working capital was $27,278,000 compared with $23,929,000 at March 31, 2000, an increase of $3,349,000 or 14%. Significant changes affecting working capital during fiscal 2001 were as follows: accounts receivable increased $6,994,000 due to strong fourth quarter sales; gain on sale of product line was $2,801,000; accounts payable and accrued expenses decreased $964,000 primarily due to lower commission accruals; and customer advances increased $521,000. The Company had cash at March 31, 2001 of $8,380,000 compared with $12,183,000 at March 31, 2000, a decrease of 31%. At March 31, 2001, the Company had no borrowings against its revolving line of credit. Capital expenditures were $1,266,000 in fiscal 2001, a 2% decrease compared with fiscal 2000 capital expenditures of $1,289,000. Capital expenditures in fiscal 2002 are expected to be higher than fiscal 2001 expenditures due to anticipated tooling requirements for new products. At March 31, 2001, the Company had a $13,000,000 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, 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 expired on April 1, 2001. The remaining $11,000,000 facility expires on April 1, 2002. In May 2001, the Company entered into a $15,000,000 revolving line of credit with a new bank, replacing the line of credit described above. The line of credit may be used for the issuance of standby letters of credit up to $15,000,000 and working capital advances up to $5,000,000 provided total credit extended does not exceed $15,000,000. The line of credit expires on August 2, 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. 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.
DATRON SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS March 31, ---------------------- 2001 2000 ---------- ----------- ASSETS Current assets: Cash and cash equivalents $8,380,000 $12,183,000 Accounts receivable, net 19,652,000 12,658,000 Inventories 11,495,000 11,626,000 Deferred income taxes 2,426,000 2,603,000 Prepaid expenses and other current assets 493,000 343,000 ---------- ---------- Total current assets 42,446,000 39,413,000 Property, plant and equipment, net 9,004,000 9,427,000 Goodwill, net 5,032,000 5,237,000 Other assets 787,000 320,000 ----------- ----------- Total assets $57,269,000 $54,397,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $4,835,000 $2,921,000 Accrued expenses 6,754,000 9,632,000 Customer advances 1,929,000 1,408,000 Income taxes payable 1,554,000 1,433,000 Current portion of long- term debt 96,000 90,000 ---------- ---------- Total current liabilities 15,168,000 15,484,000 Long-term debt 2,984,000 3,080,000 Deferred income taxes 1,481,000 1,614,000 Deferred rent 150,000 103,000 ---------- ---------- Total liabilities 19,783,000 20,281,000 ---------- ---------- Commitments and contingencies -- Note 8 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, 3,116,292 and 3,098,943 shares issued in 2001 and 2000, respectively 31,000 31,000 Additional paid-in capital 11,114,000 10,904,000 Retained earnings 28,417,000 25,460,000 Treasury stock, at cost; 368,005 and 387,303 shares in 2001 and 2000, respectively (2,076,000) (2,115,000) Stock option plan and stock purchase plan notes receivable --- (164,000) ---------- ---------- Total stockholders' equity 37,486,000 34,116,000 ---------- ---------- Total liabilities and and stockholders' equity $57,269,000 $54,397,000 =========== =========== See notes to consolidated financial statements
DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended March 31, 2001 2000 1999 ----------- ----------- ----------- Net sales $62,262,000 $61,887,000 $59,084,000 Cost of sales 44,352,000 42,836,000 40,324,000 Gross profit 17,910,000 19,051,000 18,760,000 Selling, general and administrative 12,567,000 12,100,000 12,610,000 Research and development 3,993,000 3,960,000 3,269,000 Gain on sale of product line (2,801,000) --- --- --------- --------- --------- Operating income 4,151,000 2,991,000 2,881,000 Interest expense (212,000) (217,000) (326,000) Interest income 405,000 194,000 231,000 Other income 64,000 1,129,000 47,000 --------- --------- -------- Income before income taxes 4,408,000 4,097,000 2,833,000 Income taxes 1,451,000 1,593,000 1,131,000 --------- --------- --------- Net income $2,957,000 $2,504,000 $1,702,000 ========= ========= ========= Earnings per common share -- basic $1.08 $0.93 $0.63 ========= ========= ========= Weighted average number of common shares outstanding 2,735,000 2,703,000 2,688,000 ========= ========= ========= Earnings per common share -- diluted $1.06 $0.92 $0.63 ========= ========= ========= Weighted average number of common and common equivalent shares outstanding 2,792,000 2,727,000 2,688,000 ========= ========= ========= See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Stock Option Plan & Stock Common Stock Additional Purchase Par Paid-In Retained Treasury Plan Notes Shares Value Capital Earnings Stock Receivable Total --------- ------- ----------- ---------- ---------- --------- ----------- Balance at April 1, 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 Stock issued under employee stock purchase plan 17,349 --- 134,000 --- --- --- 134,000 Treasury stock received for note payment and stock option exercise (23,287) --- --- --- (306,000) 164,000 (142,000) Stock options exercised for treasury stock and tax benefits 42,585 --- 65,000 --- 345,000 --- 410,000 Stock option compensation --- --- 11,000 --- --- --- 11,000 Net income --- --- --- 2,957,000 --- --- 2,957,000 --------- ------- ----------- ----------- ---------- ------- ----------- Balance at March 31, 2001 2,748,287 $31,000 $11,114,000 $28,417,000 ($2,076,000) --- $37,486,000 ========= ======= =========== =========== ========== ====== =========== See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, ------------------------------------- 2001 2000 1999 ----------- ---------- ---------- Cash Flows from Operating Activities Net income $2,957,000 $2,504,000 $1,702,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,851,000 1,924,000 2,301,000 Gain on sale of product line (2,801,000) --- --- Changes in operating assets and liabilities: Accounts receivable (7,270,000) (1,691,000) 4,520,000 Inventories (419,000) 264,000 2,158,000 Deferred income taxes 44,000 257,000 342,000 Prepaid expenses and other assets (620,000) 397,000 6,000 Accounts payable and accrued expenses (1,218,000) 2,663,000 (2,787,000) Customer advances 521,000 (186,000) 629,000 Income taxes payable 121,000 1,151,000 79,000 Restructuring reserve --- --- (320,000) Deferred rent 47,000 103,000 --- Other 40,000 40,000 13,000 ---------- --------- ---------- Net cash provided by (used in) operating activities (6,747,000) 7,426,000 8,643,000 ---------- --------- ---------- Cash Flows from Investing Activities Additions to property, plant and equipment (1,266,000) (1,289,000) (1,535,000) Proceeds from sales of property, plant and equipment 17,000 387,000 77,000 Proceeds from sale of product line 3,881,000 --- --- --------- ---------- ---------- Net cash provided by (used in) investing activities 2,632,000 (902,000) (1,458,000) --------- --------- ---------- Cash Flows from Financing Activities Proceeds from long-term debt --- --- 3,300,000 Repayments of long-term debt (90,000) (84,000) (46,000) Decrease in revolving credit facility --- --- (5,600,000) Stock options exercised and tax benefits 268,000 116,000 1,000 Issuance of common stock 134,000 79,000 74,000 --------- -------- ---------- Net cash provided by (used in) financing activities 312,000 111,000 (2,271,000) --------- -------- ---------- Increase (decrease) in cash and cash equivalents (3,803,000) 6,635,000 4,914,000 Cash and cash equivalents at beginning of year 12,183,000 5,548,000 634,000 ---------- --------- --------- Cash and cash equivalents at end of year $8,380,000 $12,183,000 $5,548,000 ========== =========== ========= Supplemental Cash Flow Information Interest paid $212,000 $217,000 $327,000 Income tax paid (refunds received) $1,216,000 ($355,000) $596,000 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 products and services addressing the needs of emerging satellite and radio communication markets. The Company reports operations in two business segments: Antenna and Imaging Systems, which operates from facilities in Simi Valley, California, and Communication Products, which operates from facilities in Vista, California. The Antenna and Imaging Systems business segment designs and manufactures two primary product lines: (i) satellite tracking antenna systems used for remote sensing, TT&C (telemetry, tracking and control) and satellite communication purposes by government and commercial users, and (ii) mobile broadband communication systems for airlines, military transports, and mobile land and marine direct broadcast satellite ("DBS") TV users. The Communication Products business segment designs, manufactures and distributes voice and data communication radios and accessories for worldwide military and commercial purposes. The Company's 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 prior year amounts to conform to the presentation for fiscal 2001. 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 seven 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 $2,669,000 at March 31, 2001 and $2,464,000 at March 31, 2000. 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 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 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 82,000 shares of common stock at prices ranging from $12.75 - $15.73 were not included in the computation of diluted EPS at March 31, 2001 because the effect of such options would be anti-dilutive. Such options expire at various dates from November 10, 2005 to January 30, 2011. At March 31, 2000 and 1999, options to purchase 87,000 shares and 311,000 shares, respectively, of common stock at exercise prices ranging from $12.75 - $15.73 and $6.50 - $15.73, 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 7). Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires all derivatives to be recorded on the balance sheet at fair value and established accounting standards for hedging activities. In June 1999, the FASB issued SFAS No. 137, which amended SFAS No. 133 by deferring its effective date one year to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which amended certain accounting and reporting standards of SFAS No. 133. The Company adopted SFAS No. 133 as of April 1, 2001. The adoption of SFAS 133 did not have a material affect on the Company's financial position, results of operations or cash flows. NOTE 3. GAIN ON SALE OF PRODUCT LINE In November 2000, the Company sold its microwave products line, part of the Antenna and Imaging Systems business segment, to Nurad Technologies, Inc. for $3,881,000 cash. A gain on the sale of $2,801,000 was recorded in the third quarter of fiscal 2001. NOTE 4. BALANCE SHEET INFORMATION
Accounts receivable at March 31: 2001 2000 ----------- ---------- Billed $15,484,000 $9,108,000 Unbilled 4,285,000 3,659,000 ----------- ---------- Subtotal $19,769,000 12,767,000 Allowance for doubtful accounts (117,000) (109,000) ----------- ---------- Total $19,652,000 $12,658,000 =========== ========== Inventories at March 31: 2001 2000 ---------- ---------- Raw materials $7,714,000 $7,587,000 Work-in-process 2,395,000 2,233,000 Finished goods 1,386,000 1,806,000 ----------- ----------- Total $11,495,000 $11,626,000 ========== ==========
Inventories are presented net of allowances for obsolescence of $1,665,000 and $1,527,000 at March 31, 2001 and 2000, respectively.
Property, plant and equipment at March 31: 2001 2000 ---------- ---------- Land and buildings $9,052,000 $8,901,000 Machinery and equipment 15,400,000 15,298,000 Furniture and office equipment 1,552,000 1,548,000 Leasehold improvements 751,000 726,000 Construction-in-process 57,000 --- ---------- ---------- Subtotal 26,812,000 26,473,000 Accumulated depreciation and amortization (17,808,000) (17,046,000) ---------- ---------- Total $9,004,000 $9,427,000 ========== ========== Accrued expenses at March 31: 2001 2000 ---------- ---------- Salaries and employee benefits $2,825,000 $2,911,000 Commission and service fees 2,103,000 4,540,000 Warranty allowance 1,079,000 1,085,000 Royalties 190,000 257,000 Other 557,000 839,000 ---------- ---------- Total $6,754,000 $9,632,000 ========== ==========
NOTE 5. LONG-TERM DEBT At March 31, 2001, the Company had a committed $13,000,000 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, 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 expired on April 1, 2001 and was subject to a borrowing base formula. The remaining $11,000,000 credit facility expires on April 1, 2002. Interest is payable on borrowings under the line of credit at the bank's prime rate plus 0.50%. At March 31, 2001, the bank's prime rate was 8.0%. 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, 2001, there were no borrowings under the line and the bank had issued letters of credit against the line totaling $3,871,000. In May 2001, the Company entered into a $15,000,000 revolving line of credit with a new bank, replacing the line of credit described above. The line may be used for the issuance of standby letters of credit up to $15,000,000 and working capital advances up to $5,000,000 provided total credit extended does not exceed $15,000,000. The line of credit expires August 2, 2002 and is not subject to a borrowing base formula. Interest is payable on borrowings under the line of credit at the bank's prime rate, which at March 31, 2001 was 8.0%. The line of credit is secured by assets of the Company and contains certain financial covenants with which the Company is in compliance. 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:
2001 2000 6.76% note payable due September 1, 2008 $3,080,000 $3,170,000 Less current portion (96,000) (90,000) ---------- ---------- Long-term debt $2,984,000 $3,080,000
Aggregate principal payments for each of the years ending March 31 are as follows:
Year Principal Payments 2002 $96,000 2003 103,000 2004 110,000 2005 118,000 2006 126,000 Thereafter 2,527,000 Total $3,080,000
The Company believes the carrying amount of its outstanding long-term debt at March 31, 2001 and 2000 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, 2001 and 2000 for loans with similar terms and maturities. NOTE 6. INCOME TAXES
The Company's deferred income tax assets and liabilities at March 31 are as follows: 2001 2000 Deferred income tax assets: Contract loss and other allowances $1,590,000 $1,801,000 Accrued employee benefits 467,000 503,000 Amortization of intangibles 179,000 200,000 Deferred rent 65,000 --- Other 125,000 99,000 Total 2,426,000 2,603,000 Deferred income tax liabilities: Depreciation (1,356,000) (1,479,000) State taxes (125,000) (135,000) Total (1,481,000) (1,614,000) Net deferred income tax asset $ 945,000 $ 989,000
As of March 31, 2001, the Company had no federal or California net operating loss carryforwards or credit carryforwards. The provision for income taxes for the years ended March 31 is as follows:
2001 2000 1999 Federal: Current $1,238,000 $1,233,000 $746,000 Deferred 12,000 50,000 139,000 State: Current 169,000 103,000 43,000 Deferred 32,000 207,000 203,000 Total $1,451,00 $1,593,000 $1,131,000
The provision for income taxes differs from the federal statutory tax rate for the years ended March 31 due to the following:
2001 2000 1999 Expected tax at statutory rate $1,499,000 $1,393,000 $963,000 State tax, net of federal effect 133,000 205,000 163,000 Research & Development credit (160,000) (36,000) --- Foreign Sales Corporation earnings (141,000) (132,000) (104,000) Goodwill amortization 70,000 70,000 70,000 Other differences 50,000 93,000 39,000 Total $1,451,000 $1,593,000 $1,131,000
NOTE 7. 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 19%, 17% and 21%, respectively, net income and earnings per share would have been reduced to the pro forma amounts indicated below:
2001 2000 1999 Net income As reported $2,957,000 $2,504,000 $1,702,000 Pro forma $2,315,000 $2,071,000 $1,460,000 Earnings per common share--basic As reported $1.08 $0.93 $0.63 Pro forma $0.85 $0.77 $0.54 Earnings per common share--diluted As reported $1.06 $0.92 $0.63 Pro forma $0.83 $0.76 $0.54
The weighted-average fair value of options granted under the two stock option plans with exercise prices equal to market price during fiscal years 2001, 2000 and 1999 is estimated at $7.24, $7.04 and $2.87, respectively, and the weighted- average exercise prices for those options was $12.15, $12.32 and $6.54, 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 2001, 2000 and 1999 is estimated at zero, $3.58 and zero, respectively, and the weighted-average exercise prices for those options was zero, $5.10 and zero, 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 2001, 2000 and 1999, respectively: dividend yield of 0%, 0% and 0%; expected volatility of 64%, 59% and 41%; risk-free rate of return of 6.13%, 6.15% and 5.31%; 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, 2001, 2000 and 1999 and activity during the years then ended is as follows:
2001 2000 1999 ------------------ ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 379,690 $ 9.41 311,130 $ 9.32 319,960 $ 9.96 Granted 134,000 $12.15 124,500 $10.00 53,000 $6.54 Canceled (33,725) $10.63 (47,130) $10.24 (61,830) $10.22 Exercised (42,585) $ 8.00 (8,810) $10.14 --- --- Outstanding at end of year 437,380 $10.08 379,690 $9.41 311,130 $9.32 Options exercisable year 228,880 $ 9.60 186,190 $9.61 173,667 $10.35
Stock option compensation expense related to options granted at less than fair value on date of grant pursuant to the 1995 Plan was $11,000, $22,000 and $13,000 in fiscal years 2001, 2000 and 1999, respectively. Information about fixed stock options outstanding at March 31, 2001 is as follows:
Options Outstanding Options Exercisable ----------------------------------------------- ------------------------------ Weighted-Ave Ave. Range of Number Remaining Weighted-Ave. Number Weighted-Ave Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price > $5.10 - $7.23 87,210 7.7 years $ 6.03 43,210 $ 6.23 $8.13 - $9.50 111,170 5.7 years $ 8.71 111,170 $ 8.71 $10.00 - $12.75 159,500 8.2 years $11.31 40,500 $11.51 $13.50 - $15.73 79,500 8.2 years $13.99 34,000 $14.48 $5.10 - $15.73 437,380 7.5 years $10.08 228,880 $ 9.60
At March 31, 2001, 65,455 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. During the fiscal year ended March 31, 2001, a promissory note in the amount of $164,000 that had been issued pursuant to the Purchase Plan was paid in full by the maker. 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 $171,000, $195,000 and $151,000 for the fiscal years ended March 31, 2001, 2000 and 1999, 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, 2001, 2000 and 1999 were $5,000, $9,000 and $14,000, 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:
2000 1999 1998 ------------------- -------------------- ----------------- Offering Shares Purchase Shares Purchase Shares Purchase Period Ended Issued Price Issued Price Issued Price June 30 7,938 $7.12 7,713 $4.68 6,648 $5.74 December 31 9,411 $8.23 6,698 $6.22 7,821 $4.62 Total 17,349 14,411 14,469
NOTE 8. 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 2002 $ 657,000 2003 648,000 2004 625,000 2005 585,000 2006 599,000 Thereafter 1,949,000 Total $5,063,000
Total rent expense under noncancelable operating leases was $772,000, $793,000 and $624,000 for the fiscal years ended March 31, 2001, 2000 and 1999, respectively. Additional rent payments in the amount of $175,000 were charged to a restructuring reserve during the fiscal year ended March 31, 1999. 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. During the second fiscal quarter ended September 30, 2000, the Company reached a settlement with the Contracting Officer and refunded a portion of the contract value plus accrued interest using amounts previously reserved. Resolution of this matter did not have a material effect on 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 June 14, 2000, the district court issued an order awarding ATACS and AIRTACS damages of $30,075 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. In December 2000, Datron World Communications Inc. (DWC), a wholly owned subsidiary of the Company, was named as defendant in a lawsuit filed by Jose Maria Santos Ramos, an individual, and Tecserve (Private) Limited trading as Vista Communications (Plaintiffs). In the lawsuit, Plaintiffs allege that DWC breached a representative agreement and that Plaintiffs are entitled to payment of a commission in the amount of $3,750,000 based on the alleged agreement. DWC denies that it breached the agreement and/or that it owes any commissions to Plaintiffs. 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 9. 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.
2001 2000 1999 Net sales: Antenna and Imaging Systems $36,930,000 $39,756,000 $39,084,000 Communication Products 25,332,000 22,131,000 20,000,000 Consolidated net sales $62,262,000 $61,887,000 $59,084,000 Operating income: Antenna and Imaging Systems $3,444,000 $2,763,000 $3,133,000 Communication Products 2,393,000 1,801,000 1,137,000 General corporate expenses (1,686,000) (1,573,000) (1,389,000) Consolidated operating income 4,151,000 2,991,000 2,881,000 Interest income (expense), net 193,000 (23,000) (95,000) Other income 64,000 1,129,000 47,000 Income before income taxes $4,408,000 $4,097,000 $2,833,000 Identifiable assets: Antenna and Imaging Systems $19,736,000 $18,848,000 $19,146,000 Communication Products 24,656,000 19,068,000 18,579,000 Corporate 12,877,000 16,481,000 10,442,000 Consolidated total $57,269,000 $54,397,000 $48,167,000 Capital expenditures: Antenna and Imaging Systems $777,000 $ 788,000 $ 404,000 Communication Products 483,000 486,000 1,046,000 Corporate 6,000 15,000 85,000 Consolidated total $1,266,000 $1,289,000 $1,535,000 Depreciation and amortization: Antenna and Imaging Systems $ 768,000 $ 836,000 $1,226,000 Communication Products 1,061,000 1,069,000 1,060,000 Corporate 22,000 19,000 15,000 Consolidated total $1,851,000 $1,924,000 $2,301,000 Net sales by customer location: Asia $22,921,000 $10,867,000 $ 9,009,000 Europe 6,409,000 9,132,000 11,841,000 Africa 3,603,000 12,287,000 6,620,000 South America 2,493,000 1,100,000 4,405,000 Other 421,000 452,000 488,000 Subtotal foreign net sales 35,847,000 33,838,000 32,363,000 U.S. 26,415,000 28,049,000 26,721,000 Consolidated net sales $62,262,000 $61,887,000 $59,084,000 Sales for U.S. Department of Defense: Antenna and Imaging Systems $8,875,000 $12,670,000 $11,105,000 Communication Products 113,000 670,000 713,000 Consolidated total $8,988,000 $13,340,000 $11,818,000
For the fiscal year ended March 31, 2001, two customers accounted for 36% and 29% of Communication Products' net sales. 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. NOTE 10. QUARTERLY FINANCIAL DATA - Unaudited (in thousands, except per-share data)
Fiscal Year 2001 Net Gross Net Earnings (Loss) Per Sales Profit Income(Loss) Share - Diluted First Quarter $13,354 $ 3,408 ($327) ($0.12) Second Quarter 14,616 4,722 373 0.13 Third Quarter 13,070 3,401 1,369 0.49 Fourth Quarter 21,222 6,379 1,542 0.55 Fiscal Year $62,262 $17,910 $2,957 $1.06
First quarter results reflect a net loss due to low sales of Communication Products. Sales of Communication Products were higher in the second and third quarters due to an $8 million radio order booked in the first quarter, but were partially offset by lower sales of Antenna and Imaging Systems products primarily due to lower sales of remote sensing satellite earth stations. The improvement in net income in the third quarter resulted from a $2,801,000 pre-tax gain (approximately $1,685,000, or $0.60 per diluted share after-tax) on the sale of the Company's microwave products line. Excluding the one-time gain, the Company would have recorded a net loss for the third quarter of approximately $316,000, or $0.11 per diluted share. Sales and gross profits were significantly higher in the fourth quarter primarily due to a $7 million radio order received in the third quarter, most of which was shipped in the fourth quarter. The higher Communication Product sales in the fourth quarter were partially offset by lower sales of Antenna and Imaging Systems products due to lower order bookings resulting from fewer contract awards and aggressive competition.
Fiscal Year 2000 Net Gross Net Earnings (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 for fiscal years 2001 and 2000 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. 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, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2001. 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, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP San Diego, California May 11, 2001