10-Q/A 1 d10qa.txt FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ______________________. Commission file no. 0-6272 DATUM INC. (Exact name of registrant as specified in its charter) DELAWARE 95-2512237 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9975 Toledo Way, Irvine, CA 92618-1819 (Address of principal executive offices) (Zip code) (949) 598-7500 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by a 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 the filing requirements for the past 90 days. YES X. NO ___. The registrant had 6,299,151 shares of common stock outstanding as of August 9, 2002. -1- INDEX
PART I. FINANCIAL INFORMATION Item 1. Financial Statements.....................................................................3 Item 6. Exhibits and Reports on Form 8-K........................................................11
-2- This amended report on Form 10-Q/A is filed solely to amend the disclosure contained in "Part I. Item 1--Financial Statements" contained in the Condensed Consolidated Balanced Sheet, "Liabilities and Stockholder's Equity." Registrant inadvertently included a line item entry as "Long-term debt," which amount had been reclassified and should have been inserted as a line item entry under Current Liabilities, "Long-term debt classified as current." Although the reclassification was not reflected in the balance sheet, the reclassification was discussed in Registrant's report on Form 10-Q for the period ended June 30, 2002 in Part I, Item 1, Financial Statements, under "Note E - Debt" and Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, under "Liquidity and Capital Resources." PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
June 30, December 31, 2002 2001 ----------- ------------- ASSETS Current assets Cash and cash equivalents................................................... $ 2,471 $ 2,381 Restricted cash............................................................. 530 1,828 Accounts receivable, less allowance for doubtful accounts of $671 and $574.. 14,834 22,023 Costs and estimated earnings in excess of billings.......................... 2,477 3,456 Inventories Purchased parts............................................................. 10,907 14,247 Work-in-process............................................................. 7,195 7,440 Finished products........................................................... 6,966 6,786 ----------- ------------- 25,068 28,473 Prepaid expenses............................................................ 689 468 Deferred income taxes....................................................... 3,158 3,158 Income tax refund receivable................................................ 897 2,222 ----------- ------------- Total current assets................................................... 50,124 64,009 Plant and equipment Land........................................................................ 2,040 2,040 Buildings................................................................... 8,061 5,867 Equipment................................................................... 26,081 25,997 Leasehold improvements...................................................... 1,128 1,362 ----------- ------------- 37,310 35,266 Less accumulated depreciation and amortization................................... 22,580 21,221 ----------- ------------- 14,730 14,045 Deferred income taxes............................................................ 4,746 374 Excess of purchase price over net assets acquired, net of accumulated amortization of $11,459 and $11,459............................................. 8,549 8,549 Capitalized software development costs........................................... 3,319 2,379 Other assets..................................................................... 1,653 831 ----------- ------------- $ 83,121 $ 90,187 =========== =============
See Notes to Condensed Consolidated Financial Statements -3- DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
June 30, December 31, 2002 2001 ------------ ------------- (restated) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable............................................... $ 5,695 $ 7,041 Accrued salaries and wages..................................... 2,206 3,047 Accrued warranty............................................... 1,386 1,577 Other accrued expenses......................................... 693 998 Deferred revenue............................................... 313 314 Current portion of long-term debt.............................. 60 1,810 Long-term debt classified as current........................... 2,605 -- ------------ ------------- Total current liabilities................................. 12,958 14,787 Long-term debt...................................................... -- 2,635 Postretirement benefits............................................. 1,178 1,239 Other long-term liabilities......................................... 498 674 Commitments and contingencies....................................... Stockholders' equity Preferred stock, par value $.25 per share Authorized--1,000,000 shares Issued--none................... Common stock, par value $.25 per share Authorized--10,000,000 shares Issued--6,280,946 shares in 2002 6,209,721 shares in 2001.................................... 1,570 1,552 Additional paid-in capital..................................... 54,356 53,619 Retained earnings.............................................. 13,385 16,704 Unamortized stock compensation................................. (103) (224) Accumulated other comprehensive loss........................... (721) (799) ------------ ------------- 68,487 70,852 ------------ ------------- Total liabilities and stockholders' equity.......................... $ 83,121 $ 90,187 ============ =============
See Notes to Condensed Consolidated Financial Statements -4- DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2002 2001 2002 2001 ---------- ---------- --------- --------- Net sales................................................. $ 15,777 $ 28,591 $ 31,571 $ 60,844 Operating expenses: Cost of sales........................................ 9,609 15,544 20,025 33,005 Selling.............................................. 3,660 4,504 7,284 8,561 Product development.................................. 2,827 3,508 5,906 7,299 General and administrative........................... 2,830 3,747 6,204 7,736 Impairment of long-lived asset....................... 2,718 2,718 ---------- ---------- --------- --------- Operating income (loss)................................... (3,149) (1,430) (7,848) 1,525 ---------- ---------- --------- --------- Interest expense.......................................... 33 101 84 220 Interest income........................................... (13) (10) (32) (46) ---------- ---------- --------- --------- Income (loss) before income taxes......................... (3,169) (1,521) (7,900) 1,351 Income tax provision (benefit)............................ (1,554) (350) (4,582) 769 ---------- ---------- --------- --------- Net income (loss)......................................... $ (1,615) $ (1,171) $ (3,318) $ 582 ========== ========== ========= ========= Net income (loss) per common share: Basic................................................ $ (0.26) $ (0.19) $ (0.53) $ 0.10 ========== ========== ========= ========= Diluted.............................................. $ (0.26) $ (0.19) $ (0.53) $ 0.09 ========== ========== ========= ========= Shares used in per share calculation: Basic................................................ 6,258 6,135 6,239 6,110 ========== ========== ========= ========= Diluted.............................................. 6,258 6,135 6,239 6,340 ========== ========== ========= =========
See Notes to Condensed Consolidated Financial Statements -5- DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, ----------------------- 2002 2001 --------- ----------- Cash flows from operating activities: Net income (loss)............................................................. $ (3,318) $ 582 --------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization............................................ 1,597 1,789 Amortization of capitalized software development costs................... 216 Write-down of impaired asset............................................. 2,718 Amortization of goodwill................................................. 1,063 Contribution of shares of common stock to the Company's 401(k) plan...... 388 340 Non-cash compensation.................................................... 121 184 Income tax benefit from stock options exercised.......................... 32 298 Changes in assets and liabilities: Decrease in accounts receivable.......................................... 7,188 8,664 (Increase) decrease in costs and estimated earnings in excess of billings............................................................. 979 (1,282) (Increase) decrease in inventories....................................... 3,405 (3,165) (Increase) decrease in income tax receivable............................. 1,325 (2,156) Increase in prepaid expenses............................................. (221) (154) Increase in deferred income taxes........................................ (4,372) Increase in other assets................................................. (822) (511) Decrease in accounts payable............................................. (1,348) (1,913) Decrease in accrued expenses............................................. (1,335) (698) Decrease in income taxes payable......................................... (1,705) Increase (decrease) in postretirement benefits........................... (61) 149 Decrease in other long-term liabilities.................................. (176) (18) --------- ----------- Total reconciling items....................................................... 6,916 3,603 --------- ----------- Net cash provided by operating activities..................................... 3,598 4,185 --------- ----------- Cash flows from investing activities: Capital expenditures.......................................................... (2,266) (2,153) Capitalized software development costs........................................ (1,156) (1,273) --------- ----------- Net cash used by investing activities.................................... (3,422) (3,426) --------- ----------- Cash flows from financing activities: Reduction of line of credit................................................... (485) Proceeds from long-term debt.................................................. 2,725 Payments of long-term debt.................................................... (1,780) (1,500) (Increase) decrease in restricted cash........................................ 1,298 (2,325) Proceeds from exercise of stock options....................................... 173 182 Proceeds from ESP plan........................................................ 162 190 --------- ----------- Net cash provided by (used for) financing activities..................... (147) (1,213) --------- ----------- Effect of exchange rate changes on cash and cash equivalents........................ 61 (377) --------- ----------- Net increase (decrease) in cash and cash equivalents................................ 90 (831) Cash and cash equivalents at beginning of period.................................... 2,381 1,017 --------- ----------- Cash and cash equivalents at end of period.......................................... $ 2,471 $ 186 ========= ===========
See Notes to Condensed Consolidated Financial Statements -6- DATUM INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented were such financial statements prepared in accordance with generally accepted accounting principles. The condensed consolidated balance sheet at December 31, 2001 was derived from the audited consolidated balance sheet at that date which is not presented herein. In the opinion of management, the accompanying financial statements reflect all adjustments, which are normal and recurring, necessary to provide a fair statement of the results for the interim period presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Operating results for interim periods are not necessarily indicative of operating results for an entire year. 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. NOTE B - EARNINGS PER SHARE Net income per share-basic excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Net income per share-diluted reflects the potential dilutive effect, calculated using the treasury stock method, of additional common shares that are issuable upon exercise of outstanding stock options and stock warrants as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ----------------------------- 2002 2001 2002 2001 ----------- ------------- ----------- ------------ Basic shares outstanding (weighted average) 6,258 6,135 6,239 6,110 Effect of dilutive securities 230 ----------- ------------- ----------- ------------ Diluted shares outstanding 6,258 6,135 6,239 6,340 =========== ============= =========== ============
Options outstanding during the three months ended June 30, 2002 and 2001 to purchase approximately 825,000 and 412,000 shares of common stock, and options outstanding during the six months ended June 30, 2002 and 2001 to purchase approximately 762,000 and 361,000 shares of common stock, respectively, were not included in the computation of dilutive securities because inclusion would be anti-dilutive. NOTE C - COMPREHENSIVE INCOME Total comprehensive loss was $(1.3) million and $(1.4) million for the three months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002 and 2001, total comprehensive income (loss) was $(3.2) million and $0.2 million, respectively. The difference from net income as reported is the change in cumulative translation adjustment. NOTE D - SEGMENT AND RELATED INFORMATION The Company has four reportable segments: Wireless; Wireline; Timing, Test and Measurement (TT&M); and Trusted Time. The Wireless segment, in Irvine, CA, produces equipment primarily for the wireless telecommunications market. The Wireline segment, in Austin, TX and Hofolding, Germany, manufactures products primarily for the wireline telecommunications market. In Beverly, MA, the TT&M segment, goods are produced for the enterprise computing, test and measurement, telecommunications and satellite markets. The Trusted Time segment, in Lexington, MA, provides secure time management solutions that manage the integrity of time in digital business processes for the Information Technology market. The Company evaluates performance of its segments and allocates resources to them based on segment operating income. Segment operating -7- income. Segment operating income does not include corporate expenses, amortization of goodwill and intersegment profit elimination. Identifiable assets include accounts receivable, inventories, and land, building and equipment and do not include cash, income tax refund receivable and deferred income taxes, prepaid expenses, goodwill and other long-term corporate assets. The tables below present information about reported segments for the quarters ended June 30 (amounts in thousands): SEGMENT SALES:
Trusted Wireless Wireline TT&M Time Total --------- ---------- ---------- ---------- ---------- 2002: Total sales $ 5,163 $ 6,440 $ 5,710 $ 746 $ 18,059 Intersegment sales (1,167) (3) (1,086) (26) (2,282) --------- ---------- ---------- ---------- ---------- Outside sales $ 3,996 $ 6,437 $ 4,624 $ 720 $ 15,777 ========= ========= ========== ========== ========== 2001: Total sales $ 10,148 $ 14,555 $ 9,415 $ 273 $ 34,390 Intersegment sales (4,041) (23) (1,734) (1) (5,799) --------- ---------- ---------- ---------- ---------- Outside sales $ 6,107 $ 14,532 $ 7,680 $ 272 $ 28,591 ========= ========== ========== ========== ==========
SEGMENT OPERATING INCOME (LOSS):
Trusted Wireless Wireline TT&M Time Total --------- ---------- ---------- ---------- ---------- 2002 $ (832) $ (452) $ 39 $ (584) $ (1,829) 2001 $ 778 $ 1,672 $ 1,563 $ (851) $ 3,162
A reconciliation of segment operating income to consolidated amounts as reported for the quarters ended June 30: 2002 2001 -------- -------- Segment operating income $ (1,829) $ 3,162 Corporate expenses (1,194) (1,267) Amortization of goodwill (531) Write-down of impaired asset (2,718) Intercompany profit elimination (126) (76) -------- -------- Consolidated operating income $ (3,149) $ (1,430) ======== ======== The table below presents identifiable segment assets as of June 30, 2002 compared to prior year end: IDENTIFIABLE SEGMENT ASSETS:
Trusted Wireless Wireline TT&M Time Total --------- ---------- ---------- ---------- ---------- June 30, 2002 $ 16,154 $ 18,736 $ 19,055 $ 3,831 $ 57,776 December 31, 2001 $ 18,989 $ 22,262 $ 22,560 $ 3,791 $ 67,602
NOTE E - DEBT On May 10, 2002, Datum amended its credit facility with Wells Fargo Bank. The credit facility expires May 29, 2003. The credit facility was reduced from $16.0 million to $10.0 million. The credit facility includes a line of credit and a term loan that funded July 7, 2000. The term loan is payable in monthly principal installments of $250,000 plus interest, which began August 1, 2000. Interest on the term loan is fixed at 9.15%, and interest on the line of credit is payable monthly at prime or at LIBOR plus 2.5%. The term loan matured and was paid off on June 15, 2002. Datum does not expect to replace the term loan in the foreseeable future. On June 1, 2001, the Massachusetts Development Finance Agency issued a $2.7 million industrial development bond on Datum's behalf to finance the expansion of Datum's manufacturing facility in Beverly, Massachusetts. The bond matures on May 1, 2021. Interest on the bond is payable monthly at an adjustable rate of interest. The remarketing agent determines the interest rate for each rate period to be the lowest rate which in its judgment would permit the sale of the bonds at par. The bond is collateralized by a letter of credit issued under Datum's credit facility with Wells Fargo Bank. -8- In connection with the issuance of promissory notes in 1996 that were fully paid off in 2000, Datum issued to The Prudential Insurance Company of America common stock warrants which currently allow for the purchase of 176,303 shares of common stock at an exercise price per share of $11.415. The warrants expire in September 2003. At June 30, 2002, Datum was in violation of a debt covenant under the terms of the May 2002 amended credit agreement facility with Wells Fargo Bank, for which Datum received a waiver. However, because it is not probable that Datum will be in compliance with all debt covenants under the existing credit facility with Wells Fargo Bank through the second quarter 2003, and because the credit facility serves as collateral for the $2.7 million industrial development bond, Datum has reclassified the long term portion outstanding under the $2.7 million industrial development bond as a current obligation. Datum is in the process of negotiating an amendment to the credit facility with Wells Fargo Bank. NOTE F - RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued Financial Accounting Standards No. 141, "Business Combinations," (FAS 141) and Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142). FAS 141 establishes new accounting and reporting standards for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FAS 142 establishes new standards for goodwill acquired in a business combination, eliminates amortization of goodwill and sets forth methods for periodically evaluating goodwill for impairment. The Company adopted the provisions of these statements in the quarter ended March 31, 2002. The implementation of FAS 142 resulted in a reduction of goodwill amortization of approximately $225 thousand per quarter beginning in 2002. Datum performed a transitional goodwill impairment test as of June 30, 2002, at which time it was determined that no impairment existed. The impact from implementing FAS 141 was not material to the Company's financial position or results of operations. The following unaudited pro forma summary presents the Company's net income and per share information as if the Company had been accounting for its goodwill under SFAS No. 142 for all periods presented:
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------ 2002 2001 2002 2001 ---------- ----------- ---------- ---------- Reported net income $ (1,615) $ (1,171) $ (3,318) $ 582 Add back goodwill amortization, net of tax 445 890 ---------- ----------- ---------- ---------- Adjusted net income $ (1,615) $ (726) $ (3,318) $ 1,472 =========== =========== ========== ========== Reported basic earnings per share $ (0.26) $ (0.19) $ (0.53) $ 0.10 Add back goodwill amortization, net of tax 0.07 0.14 ----------- ----------- ---------- ---------- Adjusted basic earnings per share $ (0.26) $ (0.12) $ (0.53) $ 0.24 ========== =========== ========== ========== Reported diluted earnings per share $ (0.26) $ (0.19) $ (0.53) $ 0.09 Add back goodwill amortization, net of tax 0.07 0.14 ----------- ----------- ---------- ---------- Adjusted diluted earnings per share $ (0.26) $ (0.12) $ (0.53) $ 0.23 ========== =========== ========== ==========
In June 2001, the Financial Accounting Standards Board issued Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," (FAS 143). FAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to adopt the provisions of FAS 143 no later than the first quarter of its fiscal year 2003. The Company is currently evaluating the impact of adopting FAS 143. In August 2001, the Financial Accounting Standards Board issued Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," (FAS 144). FAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. FAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the account and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Company adopted the provisions of FAS 144 in the quarter ended March 31, 2002. The impact from implementing FAS 144 was not material to the Company's financial position or results of operations. In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145 (FAS 145). This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Datum is -9- currently evaluating the impact of FAS 145. In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," (FAS 146) . FAS 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred. It nullifies the guidance of the Emerging Issues Task Force ("EITF") in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring). Under EITF Issue No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. In FAS 146, the Board acknowledges that an entity's commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability. FAS 146 also establishes that fair value is the objective for the initial measurement of the liability. FAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. Datum is currently evaluating the impact of FAS 146. NOTE G - SUBSEQUENT EVENT In July 2002, Datum reduced its workforce by approximately 60 employees. Datum expects to take a severance charge of approximately $0.8 million in the quarter ended September 30, 2002. -10- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Certification of Periodic Report by Chief Financial Officer 99.2 Certification of Periodic Report by Chief Executive Officer -11- 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. DATUM INC. /s/ Erik H. van der Kaay Date August 28, 2002 ----------------------------------------------------------- ------------------ Erik H. van der Kaay, President and Chief Executive Officer /s/ Robert J. Krist Date August 28, 2002 ----------------------------------------------------------- ------------------ Robert J. Krist, Vice President and Chief Financial Officer
-12- EXHIBIT INDEX Sequentially Numbered Exhibit No. Description ----------- ----------- 99.1 Certification of Periodic Report by Chief Financial Officer 99.2 Certification of Periodic Report by Chief Executive Officer -13-