UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission File
Ended March 31, 1996 Number 0-7445
DATRON SYSTEMS INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 95-2582922
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(State of Incorporation) (I.R.S. Employer Ident. No.)
304 Enterprise Street, Escondido, California 92029-1297
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 747-3734
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
-------------------------
(Title of Class)
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. Yes X No __.
Indicate by check mark if disclosure of delinquent filings pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ( X )
The aggregate market value of the voting stock (which consists
solely of shares of Common Stock) held by non-affiliates of the
registrant as of June 18, 1996 was $32.3 million, based on the
closing price on that date on the Nasdaq Stock Market.
The number of shares outstanding of each of the registrant's
classes of common stock as of June 18, 1996 was: Common Stock, par
value $0.01 -- 2,627,192 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1. Certain portions of registrant's Annual Report to
Stockholders for the fiscal year ended March 31, 1996 are
incorporated by reference in Parts I and II of this report.
2. Certain portions of registrant's Annual Proxy Statement to be
filed pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended, in connection with the Annual
Meeting of Stockholders of the registrant to be held August
14, 1996 are incorporated by reference into Part III of this
report.
3. Items contained in the above-referenced documents that are
not specifically incorporated by reference are not included
in this report.
<PAGE>
DATRON SYSTEMS INCORPORATED
FORM 10-K
FISCAL YEAR ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART I............................................................ 1
Item 1. Business..............................................1
Item 2. Properties........................................... 7
Item 3. Legal Proceedings.....................................8
Item 4. Submission of Matters to a Vote of Security Holders...8
PART II........................................................... 9
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................. 9
Item 6. Selected Financial Data.............................. 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 9
Item 8. Financial Statements and Supplementary Data.......... 9
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 9
PART III...........................................................10
Item 10. Directors and Executive Officers of the Registrant...10
Item 11. Executive Compensation...............................10
Item 12. Security Ownership of Certain Beneficial Owners and
Management. ........................................ 10
Item 13. Certain Relationships and Related Transactions...... 10
PART IV............................................................11
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..........................................11
<PAGE>1
PART I
Item 1. BUSINESS
COMPANY OVERVIEW
Datron Systems Incorporated and its wholly owned subsidiaries (the Company)
provide high quality radio communication products and services and specialized
satellite communication products and systems to worldwide markets and to
several United States Government customers, including the Department of
Defense (DoD). The Company was founded in 1969 and became an independent
publicly held corporation in 1985.
In October 1985, the Company acquired its wholly owned subsidiary, Datron
World Communications Inc., formerly known as Trans World Communications, Inc.
(DWC), through which the business of its Communication Products and Services
segment is conducted. In June 1990, the Company acquired its wholly owned
subsidiary, Datron/Transco Inc., formerly known as Transco Communications Inc.
(D/T), through which the business of its Antenna and Imaging Systems segment
is conducted. In September 1993, the Company formed a wholly owned
subsidiary, Datron Telecommunications International Inc., to provide private
international telecommunication systems. Datron Telecommunications
International Inc. was merged into DWC on March 31, 1995. The Company
discontinued its private international telecommunications business in fiscal
1996.
Because of a decline in U. S. defense spending, the Company decided to
streamline and restructure its Antenna and Imaging Systems business segment.
That decision was announced in February 1993 and implemented in June 1993. As
part of the restructuring, the then existing operations of the Antenna and
Imaging Systems segment were physically consolidated in one location and
operating assets and employees of D/T and the Company's Datron division were
combined at D/T. Datron Systems Incorporated became a holding company owning
two operating entities: DWC and D/T.
In March 1996, D/T decided to consolidate its image processing division in San
Jose, California, which was acquired in August 1994, with its remote sensing
earth station business in Simi Valley, California. In connection with that
decision, the Company recorded a restructuring charge of $1,421,000 ($855,000,
or $0.32 per share, after taxes).
INVESTMENT CONSIDERATIONS
This report contains certain forward-looking statements that may be used in
evaluating the opportunities and risks associated with future Company
performance. However, actual results could differ materially from those
described in the forward-looking statements due to, among other things, the
following factors:
Dependence on Sales to Foreign Customers
- - ----------------------------------------
Sales to foreign customers accounted for 58%, 62% and 56% of consolidated
sales in fiscal 1996, 1995 and 1994, respectively. Sales of Communication
Products and Services have been even more highly concentrated with foreign
customers: 93%, 95% and 94% in fiscal 1996, 1995 and 1994, respectively.
Sales to foreign customers often involve risk because of political and
economic uncertainties in many foreign countries, which can result in funding
delays or inability of those customers to obtain financing for anticipated
purchases of Company products. As a result, it is often more difficult to
predict order bookings from foreign customers than it is from domestic
customers. In addition, foreign political unrest, war and economic downturns
could have a significant impact on future Company sales and income.
<PAGE> 2
Reliance on Large Orders from a Small Number of Customers
- - ---------------------------------------------------------
A substantial percentage of sales may be heavily concentrated with a small
number of customers. Within the Communication Products and Services segment,
one customer (but not the same customer in successive years) accounted for
39%, 36% and 55% of that segment's sales in fiscal 1996, 1995 and 1994,
respectively. Although sales in the Antenna and Imaging Systems business
segment have not been so heavily concentrated with one customer, it is common
for a small number of customers to each account for approximately 5% to 15% of
that segment's sales each year. Because it is unusual to receive large orders
from the same customer in successive years, it is necessary to find new
customers each year to replace the previous year's sales. There can be no
assurance that the Company will be able to do so in the future. In addition,
reliance on large orders can result in financial performance varying widely
from quarter-to-quarter, and also carries contract cancellation risk that can
more adversely affect Company performance than it would if the Company
depended on small orders from a large number of customers.
New Consumer Product and Market
- - -------------------------------
In November 1995, the Company introduced its first consumer product, a mobile
satellite television reception system for recreational vehicles and long-haul
trucks. This product represents a departure from the Company's historical
business that has focused on large contracts, relatively small numbers of
deliverables and customers that are primarily government agencies or large
corporations. The Company has established a production line to meet expected
demand for the product and has signed agreements with national distributors
who will sell the product. The Company and the national distributors have
mutually established sales targets for the new product, and the distributors
have placed orders with the Company consistent with the sales targets. Those
orders are subject to adjustment for market conditions and may be canceled
without recourse (except for 4,000 units that are non-cancelable) should
demand for the product not support the sales targets. The Company does not
have previous experience in building or selling a consumer product. Although
it believes it can produce the product in required quantities, there can be no
assurance it will be able to do so. Also, although the Company believes its
sales targets are reasonable, there can be no assurance consumer demand for
the product will be as large or will develop as rapidly as the Company
anticipates.
Competitors
- - -----------
The Company has competitors for all the products and services it offers. The
level of competition varies by product line and ranges from many competitors
for its radio products to a few competitors for its tracking antenna products.
The Company could be adversely affected by competitors' development of new or
different products that may provide or be perceived as providing greater value
than the Company's products. Many of the Company's competitors and potential
competitors have substantially greater resources than the Company and may be
more successful in developing, producing and marketing their products, which
could have a material adverse effect on the Company's business.
Declining Sales for the U.S. Department of Defense
- - --------------------------------------------------
In fiscal 1993, the Company restructured its operations in anticipation of a
decline in DoD spending. Sales for the DoD have declined from $31.9 million
in fiscal 1993 to $18.2 million in fiscal 1996, primarily due to completion of
long-term DoD contracts that have not been replaced with new orders from the
DoD. Although the Company anticipates sales for the DoD will continue to
decline in the future, such sales are still expected to represent a
significant portion of the Company's consolidated sales. There can be no
assurance that new DoD orders will be received or that the orders received
will be sufficient to meet the Company's sales objectives.
<PAGE>3
GENERAL
The Company operates in two business segments: Communication Products and
Services, which are supplied by DWC, and Antenna and Imaging Systems, which
are supplied by D/T.
Communication Products and Services
- - -----------------------------------
This business segment designs, manufactures and distributes high frequency
(HF) radios and accessories for over-the-horizon radio communications and very
high frequency (VHF) radios and accessories for line-of-sight communications.
The Company's HF radios operate in the frequency range of 1.6 to 30 megahertz,
where radio waves generated from the transmitter can reflect off the
ionosphere back to the point of receipt on earth. The Company's VHF radio
products, which operate in the frequency range of 30 to 88 megahertz, provide
users high-quality transmission for line-of-sight communications.
In addition to its standard radios, the Company offers frequency hopping
options to its VHF product line and automatic link establishment options to
its HF product line. Frequency hopping is a technique that prevents
interruption or interception of radio signals by changing, at very high
speeds, the frequency at which they are transmitted. This technology utilizes
advanced synchronized mechanisms that ensure all radios in a network are
synchronized and frequency hop at the same time. Automatic link
establishment, when used in HF radio equipment, automatically determines the
best available frequencies on which to communicate.
The Company offers a wide range of accessory products to complement the HF and
VHF product lines. These accessory products include antennas and antenna
tuners, power sources, amplifiers, remote control systems, modems, data
communications equipment and audio accessories.
A substantial percentage of sales of Communication Products and Services are
often concentrated with a small number of customers. In fiscal 1996, sales of
radio products to an Asian customer accounted for 39% of this segment's sales.
In fiscal 1995, sales of radio products to an African customer accounted for
36% of this segment's sales. And, in fiscal 1994, sales of mobile
communication shelters to the Hellenic Army accounted for 55% of this
segment's sales. Because it is unusual to receive large orders from the same
customer in successive years, it is necessary to find new customers each year
to replace the previous year's sales. To minimize the impact fluctuating
sales may have on the Company's operations, temporary employees are used
extensively.
The Federal Communications Commission granted the Company a license to carry
international telephone traffic in May 1993 and the Company began carrying
international telephone traffic to customers in Ukraine and Latvia in
September 1993 and to a customer in Russia during fiscal 1995. Also in fiscal
1995, the Company established an uplink facility in California to carry
satellite paging traffic for customers in the United States. However, in
fiscal 1996, the Company determined that significantly larger resources would
be required to compete successfully in these markets and that competition
would likely drive margins to an unacceptably low level. Consequently, the
Company withdrew from these markets during fiscal 1996.
Customers and Marketing
Sales to foreign customers accounted for 93% of this segment's fiscal 1996
sales and 95% of the segment's fiscal 1995 sales. Most of its international
customers are agencies of foreign governments that perform civil defense,
paramilitary and military operations, and foreign governmental agencies that
perform civilian tasks, such as civil aviation agencies, drug interdiction
agencies, embassies and disaster relief organizations. Domestic customers are
primarily various agencies of the United States Government, including the Drug
Enforcement Administration and Department of State.
The Company's products are sold in over 80 countries by a network of
independent sales and service representatives. These representatives provide
both pre-sale and post-sale support. Many of them operate service facilities
that offer both warranty and long-term maintenance of the Company's equipment.
Sales are usually denominated in U.S. Dollars.
<PAGE> 4
In addition to direct sales, the Company sometimes sells its radio products to
international suppliers of complementary equipment. It also sometimes
licenses the local manufacturing of its equipment to customers in certain
countries. The latter practice is usually followed where local regulations
discourage the importation of complete units.
Manufacturing, Assembly and Sources of Supply
Communication products are designed and manufactured at facilities in
Escondido, California. Company engineers work closely with manufacturing and
marketing personnel to improve existing designs and to introduce new products
that meet the ever changing demands of the marketplace. The Company purchases
certain electronic components, circuit boards and fabricated metal parts, and
painting and silk screening services. Other than when it licenses overseas
manufacturing for a particular local market, the Company performs most other
manufacturing functions necessary for the production of its products.
The Company is not dependent on any single source of supply for the
manufacture of its communication products. Although only one supplier may be
used for certain parts, the Company believes that multiple sources are
available.
Antenna and Imaging Systems
- - ---------------------------
This segment designs and manufactures satellite communication terminals,
telemetry tracking and command systems, servo control products and high
quality microwave antennas. In fiscal 1994, the Company identified the remote
sensing satellite systems market as one that might replace its declining
defense business, and the Company now provides earth station hardware,
software and image processing systems to that market. In fiscal 1996, the
Company introduced the DBS-3000TM, a mobile satellite television reception
system for recreational vehicles and long-haul trucks. This system is the
Company's first consumer product.
The business of this segment was adversely affected in fiscal 1996 by the
cancellation of an $8.8 million remote sensing system order and by lower than
anticipated order bookings and sales of remote sensing systems. It was these
events that led to the consolidation of the remote sensing business in the
fourth fiscal quarter ended March 31, 1996.
Descriptions of the major product areas are as follows:
Satellite Communication (SATCOM) Terminals. The Company is a supplier of
satellite communication antenna systems and subsystems used to receive
defense-related data and data transmitted through satellites of other
government and commercial organizations. The stabilizing and automatic
tracking capabilities of its antenna systems make them particularly well
suited for use on ships, motor vehicles and other mobile platforms. Over the
past two decades, the Company has been a prime contractor to the U.S. Navy for
shipboard SATCOM antenna systems.
The United States military has developed a SATCOM system known as MILSTAR.
This system is designed to accommodate satellite communications by the U.S.
Army, Navy and Air Force in the EHF (extremely high frequency) spectrum and is
much less vulnerable to interference or interception than earlier generation
military SATCOM systems. The Company has been a subcontractor of Raytheon in
the Navy's segment of the MILSTAR program known as NESP. Under the
subcontract, the Company developed a pedestal for shipboard antennas that
supports and positions the antenna in response to external commands. Raytheon
was awarded the NESP production contract in November 1986 and the Company
received its first production award from Raytheon in March 1990 and continues
to perform under this long-term program, which currently runs through October
1996. Fiscal 1996 sales under this program were $3.7 million and cumulative
sales through fiscal 1996 were $29.5 million.
<PAGE>5
Telemetry Tracking and Command (TT&C) Systems. TT&C systems monitor and
control vehicles such as satellites, missiles and aircraft. They receive
radio telemetry signals containing vehicle status information, engage in
automatic tracking of the vehicle so that contact is maintained and transmit
command signals so that vehicle control can be established and maintained.
Servo Control Products. The Company's involvement with SATCOM and TT&C
markets has required a high capability in radio frequency electronics, antenna
engineering, servo controls and large precision mechanical systems. The
Company has developed a product line of pedestals and rotators, servo power
amplifiers and positioning control units that are often used as building
blocks for specific customer requirements. The Company has been selected as
supplier of pedestals and controllers to Raytheon for the Terminal Doppler
Weather Radar system to be installed at commercial and military airports
throughout the nation. This contract began in May 1989 and runs through
December 1996 at a sales value of $10.6 million.
Microwave Products. The Company designs and manufactures broad bandwidth
microwave antennas for the aerospace industry that are used on high
performance aircraft, missiles and space launch vehicles. The Company
formerly manufactured electromechanical radio frequency switches for use in
high performance aircraft, but sold that business in fiscal 1995.
Remote Sensing Satellite (RSS) Systems. The RSS systems market is a subset of
the broader earth observation market. It involves using several types of
satellites containing optical and radar sensors in conjunction with specific
ground acquisition and data processing equipment to produce images. The
images are in the form of hard copy and/or digital data that allow the user to
study changes on the earth's surface or environment. Applications include
locating minerals, updating maps, forecasting weather, monitoring crops,
studying the environment and monitoring earth resources.
The Company has supplied antennas for RSS purposes for several years. In
fiscal 1994, the Company began to focus more attention and resources on the
RSS systems market. As part of this strategy, the Company formed a joint
venture with International Imaging Systems, Inc. (I2S), a privately-held
company in Milpitas, California, to provide complete RSS systems for the
international marketplace. I2S's expertise was in the fields of digital image
processing and photogrammetry. The Company acquired I2S in fiscal 1995 and is
now able to offer its customers complete RSS earth stations, including image
processing capability. During fiscal 1996, RSS sales accounted for 29% of the
Antenna and Imaging Systems' sales compared with 26% of its sales in fiscal
1995 and 10% of its sales in fiscal 1994.
Customers and Marketing
Sales of Antenna and Imaging Systems' products and services have historically
been concentrated with the DoD, which accounted for 55% of fiscal 1996 sales
and 59% of fiscal 1995 sales. Marketing and sales activities for its DoD
customers are conducted by internal sales and engineering personnel. Most
customers for the RSS systems business are foreign government space and
communications agencies. Marketing and sales activities for those products
are conducted by internal sales and engineering personnel and by independent
sales representatives in Europe, South America and Asia.
Introduction of the DBS-3000 mobile satellite television reception system
required the Company to establish a new distribution network for its first
consumer product. Three national distributors have been signed to exclusive
agreements for territories that cover all 50 states. Company employees
provide sales and marketing support and installation training for the
distributors and their dealers.
Manufacturing, Assembly and Sources of Supply
Products and services for the Company's Antenna and Imaging Systems segment
are designed, manufactured and assembled primarily at facilities in Simi
Valley, California. Image processing systems have been designed and
manufactured at facilities in San Jose, California, but the Company is in
process of closing that facility and moving its operations to Simi Valley.
The Company purchases certain components and subsystems from subcontractors
<PAGE>6
and vendors. Some of these items are standard off-the-shelf components and
others are fabricated to Company specifications. The Company also fabricates
electronic assemblies from purchased electronic components and circuit boards.
A new production line was established in fiscal 1996 to assemble the DBS-3000.
The Company is not dependent on any single source of supply for materials,
parts or components. However, once a subcontractor is selected to provide
components built to Company specifications, the Company is often dependent on
that subcontractor. Failure of the subcontractor to perform can jeopardize
the ability of the Company to meet its required delivery schedules. The
Company experienced such difficulty in 1991 when a subcontractor failed to
make delivery. During fiscal 1994, the Company received a favorable
litigation settlement in the amount of $2,250,000 related to that matter. See
Note 3 to the Notes to Consolidated Financial Statements.
BACKLOG
Order backlog at March 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Communication Products and Services $ 2,801,000 $ 5,175,000
Antenna and Imaging Systems 19,321,000 24,070,000
----------- -----------
Total $22,122,000 $29,245,000
=========== ===========
</TABLE>
The 46% decrease in Communication Products and Services backlog at March 31,
1996 compared with the prior year was due to low order bookings in the fourth
quarter ended March 31, 1996. Although recent order bookings have been low,
it is common for order bookings in that business segment to vary widely from
quarter to quarter. The 20% decrease in Antenna and Imaging Systems backlog
at March 31, 1996 was primarily due to lower bookings of remote sensing
systems and to a continued decline in DoD business. Not included in the order
backlog figure at March 31, 1996 are $14.2 million of contingent orders from
distributors for direct broadcast satellite (DBS) television reception systems
that are subject to cancellation without recourse.
COMPETITION
The Company competes in each of its business segments with several companies.
Depending on the specific product, these companies may be similar in size to
the Company or may be large diversified companies which at times may also be
customers of the Company. The Company believes its major competitive
advantages are the quality of its products, their cost effective designs,
timeliness of delivery, ease of use and easy serviceability.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
The Company owns no significant patents or copyrights. It believes that
patents are not a significant factor in the Company's business and that the
success of the Company depends primarily on the technical competence and
managerial and marketing ability of the Company's personnel.
TRANSWORLD(R), I2S(R), PRI2SM(R) and OPEN 2000(R) are registered trademarks of
the Company. The Company is in process of applying to the U.S. Patent and
Trademark Office to use the trademarks VI2STA TM , DBS-2000 TM, DBS-3000 TM
and DBS-4000 TM, based on intent to use.
The Company has filed an application with the U.S. Patent and Trademark Office
requesting registration of the name DATRON and design.
<PAGE>7
The Company has obtained licenses for the VHF frequency hopping technology and
for the automatic link establishment technology used in the Company's VHF and
HF radio products, respectively.
EMPLOYEES
The Company employed approximately 345 employees at the end of fiscal 1996,
compared with approximately 371 employees at the end of fiscal 1995. The
decrease in employment during fiscal 1996 was primarily due to the
consolidation of the Company's remote sensing business in the fourth quarter
of fiscal 1996, partially offset by increases in production and engineering
personnel in the Communication Products and Services segment.
None of the Company's employees are covered by a collective bargaining
agreement and the Company considers its employee relations to be good.
FINANCIAL INFORMATION
Additional financial information concerning segment, geographic and major
customers is included in Note 11 of the Notes to Consolidated Financial
Statements in the Company's 1996 Annual Report to Stockholders (Annual
Report), that portion of which is attached hereto as Exhibit 13 and which
information is incorporated herein by reference.
ITEM 2. PROPERTIES.
DWC leases 63,000 square feet of office, engineering and manufacturing space
in Escondido, California. The lease term expires on January 31, 1999, with
one renewal option of five years. DWC and the Company's corporate
headquarters operate from that facility.
D/T owns a 110,000 square foot office, engineering and manufacturing building
located on a nine-acre site in Simi Valley, California. D/T conducts
operations from that facility and from a 20,000 square foot office,
engineering and manufacturing facility it leases in San Jose, California. The
lease term expires March 31, 1999. D/T will close the San Jose facility by
the end of June 1996 and relocate the operations previously conducted there to
Simi Valley. The Company has sublet that facility to a subtenant effective
July 1, 1996 through March 31, 1999. Prior to occupancy of the San Jose
facility, D/T leased a 48,000 square foot facility in Milpitas, California.
That lease expires on December 31, 1996 and the Company has sublet that
facility to two subtenants whose subleases expire on December 31, 1996.
D/T leases 139,000 square feet of office, engineering and manufacturing space
in Camarillo, California. The term of the lease is seven years expiring June
29, 1998. In June 1993, the Company moved from that facility as part of the
consolidation of D/T. The Company has sublet 20,300 square feet of the
facility to a subtenant whose sublease expires on August 31, 1996 and is
actively seeking to sublet the remainder of the facility.
Information with respect to obligations for lease rentals is included in Note
10 of the Notes to Consolidated Financial Statements. See Part II, Item 8.
The Company considers its properties to be suitable and adequate for its
present needs. The facilities in Escondido and Simi Valley are being fully
utilized. The facility in Camarillo is not presently needed and a portion of
it has been sublet. The facility in San Jose will not be needed after June 30
and has been sublet beginning July 1, 1996. The facility in Milpitas is not
needed and has been sublet.
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any litigation that is expected to have a
material effect on the Company's business or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Richard W. Pershing, 68, has been Chairman of the Board of Directors of the
Company since September 1984.
David A. Derby, 54, has been President and Chief Executive Officer of the
Company since May 1982.
William L. Stephan, 50, has been Vice President, Chief Financial Officer and
Treasurer of the Company since November 1993.
Executive officers are elected by and serve at the discretion of the Board of
Directors. There are no family relationships among directors or executive
officers of the Company.
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information required by Item 5 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Common
Stock Activity" on the inside back cover of the Annual Report, that portion of
which is attached hereto as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
Information required by Item 6 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Datron
Systems Incorporated Selected Financial Data" on the inside front cover of the
Annual Report, that portion of which is attached hereto as Exhibit 13.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information required by Item 7 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 7 through 11 of the Annual Report, that portion of which
is attached hereto as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information required by Item 8 of Form 10-K is incorporated herein by
reference from the consolidated financial statements of the Company at March
31, 1996 and 1995 and for each of the three years in the period ended March
31, 1996 and the Independent Auditors' Report appearing on pages 12 through 24
of the Annual Report, that portion of which is attached hereto as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the two most recent fiscal years ended March 31, 1996, there has not
been a change in accountants or a reported disagreement with accountants on
any matter of accounting principles or practices or financial statement
disclosure.
<PAGE> 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by Item 10 of Form 10-K with respect to directors is
incorporated herein by reference from the information contained in the section
captioned "Nomination and Election of Directors" in the Company's Notice of
Annual Meeting of Stockholders to be Held Wednesday, August 14, 1996 at 11:00
A.M. and Proxy Statement ("Proxy Statement"), a copy of which is to be filed
as Exhibit 22 within 120 days of the end of the Registrant's fiscal year.
Information required by Item 10 of Form 10-K with respect to executive
officers is set forth in Part I of this report under the section captioned
"Executive Officers of the Registrant," pursuant to instruction 3 to paragraph
(b) of Item 401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by Item 11 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Executive
Compensation" in the Proxy Statement, a copy of which is to be filed as
Exhibit 22 within 120 days of the end of the Registrant's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by Item 12 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement,
a copy of which is to be filed as Exhibit 22 within 120 days of the end of the
Registrant's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by Item 13 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Executive
Compensation" in the Proxy Statement, a copy of which is to be filed as
Exhibit 22 within 120 days of the end of the Registrant's fiscal year.
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
Page in 1996
Annual Report
-------------
(1)Financial Statements:
Consolidated Balance Sheets at March 31, 1996 and 1995....... 12
Consolidated Statements of Operations for the Years Ended
March 31, 1996, 1995 and 1994................................ 13
Consolidated Statements of Stockholders' Equity for
the Years Ended March 31, 1996, 1995 and 1994................ 14
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1996, 1995 and 1994................................ 15
Notes to Consolidated Financial Statements................... 16-23
Independent Auditors' Report................................. 24
(2) Financial Statement Schedules:
Page
----
Independent Auditors' Report on Financial Statement Schedule... S-1
Schedule II. Valuation and Qualifying Accounts................ S-2
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable,
and therefore have been omitted.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibits. The following exhibits are filed as part of this report:
Exhibit
Number Description
------ --------------------------------------------------
2.1 Asset Purchase Agreement between the Registrant and
International Imaging Systems, Inc. dated June 28, 1994.<F10>
2.2 Notice of Election to Exercise Option from Registrant to
International Imaging Systems, Inc. dated July 12, 1994.<F10>
3.1 Certificate of Incorporation.<F1>
3.2 Bylaws.<F1>
<PAGE>12
4.15 Stockholder Rights Agreement dated August 21, 1990.<F7>
4.16 First Amendment to Stockholder Rights Agreement dated as of
October 29, 1993.<F9>
10.5 1988 Key Employee Stock Purchase Plan.<F2>
10.8 Employment Agreement between the Registrant and David A.
Derby.<F3>
10.10 Employment Agreement between the Registrant and Richard W.
Pershing.<F3>
10.31 Lease of Trans World Communications, Inc. facilities at 298,
302 and 304 Enterprise Street, Escondido, California.<F4>
10.32 Sublease of Transco Products, Inc. facilities at 1001 Flynn
Rd., Camarillo, California.<F5>
10.33 Guaranty of Sublease for Transco Products, Inc. facilities.<F5>
10.34 Consent and Nondisturbance Agreement.<F5>
10.36 Amended and Restated 1985 Stock Option Plan.<F6>
10.37 First Amendment to Trans World Communications, Inc. Lease
Agreement dated January 15, 1993.<F9>
10.38 Contribution and Assumption Agreement between Datron Systems
Incorporated and Datron/Transco Inc. dated June 30, 1993.<F9>
10.39 Datron Systems Incorporated Profit Sharing and Savings Plan
(Amended and Restated as of March 1, 1994).<F9>
10.40 Trans World Communications, Inc. 401(k) Plan, as amended
effective April 1, 1994.<F9>
10.41 Credit Agreement and Note between the Registrant and Union
Bank dated May 11, 1994.<F9>
10.43 Agreement for Reinstatement and Consent to Assignment of
Leases dated August 11, 1994.<F11>
10.44 Guaranty of Leases for International Imaging Systems, Inc.
facilities by Datron Systems Incorporated dated August 11,
1994.<F11>
10.45 Second Amended and Restated Credit Agreement between the
Registrant and Bank of America National Trust and Savings
Association, successor by merger to Security Pacific National
Bank dated as of May 17, 1994.<F12>
10.46 1995 Stock Option Plan.<F12>
10.47 Second Amendment to Trans World Communications, Inc. Lease
Agreement dated February 8, 1995.<F12>
<PAGE>13
10.48 Agreement and Plan of Merger between Datron Telecommunications
International Inc. and Trans World Communications, Inc. dated
as of March 14, 1995.<F12>
10.49 First, Second, Third and Fourth Amendments to Credit Agreement
and Note between the Registrant and Union Bank dated as of
October 26, 1994, December 29, 1994, February 28, 1995 and
March 31, 1995, respectively.<F12>
10.50 Fifth Amendment to Credit Agreement and Note between the
Registrant and Union Bank dated as of August 17, 1995.<F13>
10.51 Sixth Amendment to Credit Agreement and Note between the
Registrant and Union Bank dated as of January 3, 1996.<F14>
10.52 Seventh Amendment to Credit Agreement and Note between the
Registrant and Union Bank dated as of January 31, 1996.<F14>
10.53 Datron Systems Incorporated Supplemental Executive Profit
Sharing Plan (Effective as of April 1, 1994).
10.54 Third Amendment to Trans World Communications, Inc. Lease
Agreement dated May 1, 1995.
10.55 Eighth Amendment to Credit Agreement and Note between the
Registrant and Union Bank dated as of May 24, 1996.
13 Certain portions of registrant's Annual Report to Stockholders
for the fiscal year ended March 31, 1996 containing
information required by Part I and Part II of this report.
21 Subsidiaries.
22 Proxy Statement, Notice of Annual Meeting of Stockholders to
be Held Wednesday, August 14, 1996 at 11:00 A.M. and Form of
Proxy (to be deemed filed only to the extent required by the
instructions to exhibits for reports on Form 10-K) to be filed
within 120 days of the end of the Registrant's fiscal year.
23 Independent Auditors' Consent -- Deloitte and Touche.
24 Power of Attorney (on signature page 16)
27 Financial Data Schedule.
- - ----------------
<F1>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registration Statement on Form 8-B of the Registrant on
November 13, 1987.
<F2>Incorporated by this reference to the Registration Statement on Form S-8
of the Registrant filed March 22, 1988.
<F3>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1988.
<PAGE>14
<F4>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1989.
<F5>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's report on Form 8-K dated July 13, 1990.
<F6>Incorporated by this reference to the Registration Statement on Form S-8
of the Registrant filed April 16, 1993.
<F7>Incorporated by this reference to Exhibit I to the Registrant's
Registration Statement on Form 8-A filed November 5, 1990.
<F8>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993.
<F9>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994.
<F10>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
<F11>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's report on Form 8-K dated August 11, 1994.
<F12>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995.
<F13>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.
<F14>Incorporated by this reference to the Exhibit bearing the same number
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995.
Supplemental Information
Copies of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held August 14, 1996 and copies of the form of proxy to be
used for such Annual Meeting will be furnished to the Securities and Exchange
Commission prior to the time they will be distributed to Stockholders.
<PAGE>15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 25, 1996 DATRON SYSTEMS INCORPORATED
By: /s/DAVID A. DERBY
President, Chief Executive
Officer and Director
<PAGE>16
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below appoints Richard W. Pershing, David A. Derby and William L. Stephan,
jointly and severally, as his true and lawful attorney-in-fact, each with full
power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, jointly and severally, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact, jointly and severally, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
----------- ----- ----
By: RICHARD W. PERSHING Chairman of the Board
of Directors June 25, 1996
By: DAVID A. DERBY President, Chief Executive
Officer and Director
(Principal Executive Officer) June 25, 1996
By: WILLIAM L. STEPHAN Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer) June 25, 1996
By: KENT P. AINSWORTH Director June 20, 1996
By: Director June , 1996
By: ADRIAN C. CASSIDY Director June 25, 1996
By: PETER F. SCOTT Director June 22, 1996
By: ROBERT D. SHERER Director June 18, 1996
<PAGE>S-1
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Datron Systems Incorporated
Escondido, California
We have audited the consolidated financial statements of Datron Systems
Incorporated (the Company) as of March 31, 1996 and 1995, and for each
of the three years in the period ended March 31, 1996, and have issued
our report thereon dated May 10, 1996; such financial statements and
report are included in your 1996 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the
financial statement schedule of the Company listed in Item 14(a)(2).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as whole, presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
San Diego, California
May 10, 1996
<PAGE> S-2
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
Balance at Balance at
Beginning End
Description of Year Additions Write-offs of Year
----------- ------- --------- ---------- -------
<S> <C> <C> <C> <C>
Year ended March 31, 1994
- - -------------------------
Allowance for doubtful accounts $90,000 $91,000 $10,000 $171,000
Allowance for inventory obsolescence 665,000 1,213,000 541,000 1,337,000
Allowance for warranties 164,000 246,000 10,000 400,000
------- --------- ------- ---------
$919,000 $1,550,000 $561,000 $1,908,000
======== ========== ======== ==========
Year ended March 31, 1995
- - -------------------------
Allowance for doubtful accounts $171,000 $79,000 $3,000 $247,000
Allowance for inventory obsolescence 1,337,000 323,000 936,000 724,000
Allowance for warranties 400,000 828,000 479,000 749,000
--------- ---------- ---------- ----------
$1,908,000 $1,230,000 $1,418,000 $1,720,000
========== ========== ========== ==========
Year ended March 31, 1996
- - -------------------------
Allowance for doubtful accounts $247,000 $98,000 $98,000 $247,000
Allowance for inventory obsolescence 724,000 45,000 60,000 709,000
Allowance for warranties 749,000 754,000 488,000 1,015,000
-------- ------- ------- ---------
$1,720,000 $897,000 $646,000 $1,971,000
========== ======== ======== ==========
</TABLE>
DATRON SYSTEMS INCORPORATED
SUPPLEMENTAL EXECUTIVE PROFIT SHARING PLAN
(Effective as of April 1, 1994)
TABLE OF CONTENTS
Page
INTRODUCTION ............................................ 1
1. DEFINITIONS ..................................... 1
2. PARTICIPATION ................................... 7
2.1 Service Requirement and Commencement Date.. 7
2.2 Period of Participation.................... 7
2.3 Suspended Participation.................... 7
2.4 Reemployment .............................. 7
3. PROFIT SHARING CREDITS ............................ 8
3.1 Profit Sharing Credits..................... 8
3.2 Time for Credits........................... 8
4. PARTICIPANTS' PROFIT SHARING ACCOUNTS.............. 8
4.1 Accounts................................... 8
4.2 Allocation of Profit Sharing Credits ...... 8
4.3 Balances of Accounts....................... 9
5. VESTING AND TREATMENT OF FORFEITURES............... 9
5.1 Vesting.................................... 9
5.2 Forfeitures................................10
6. PAYMENT OF BENEFITS................................11
6.1 Amount of Plan Benefit.....................11
6.2 Time of Payment............................11
6.3 Balances of Accounts for Payments..........12
7. DEATH BENEFITS AND BENEFICIARIES...................12
7.1 Death Benefits.............................12
7.2 Designation of Beneficiary.................12
7.3 Absence of Valid Designation of Beneficiary.12
8. PAYMENT OF BENEFITS AND EXPENSES................... 13
8.1 Payment of Benefits........................ 13
8.2 Expenses of Plan Administration............ 13
9. ADMINISTRATION..................................... 13
9.1 Board of Directors......................... 13
9.2 Administrator.............................. 13
9.3 Indemnification............................ 14
-i-
<PAGE>
10. CLAIMS AND REVIEW PROCEDURES....................... 14
10.1 Claims Procedure.......................... 14
10.2 Review Procedure.......................... 15
11. AMENDMENT AND TERMINATION.......................... 16
11.1 Amendment................................. 16
11.2 Termination, Partial Termination, or Complete
Discontinuance of Profit Sharing Credits.. 16
12. MISCELLANEOUS...................................... 16
12.1 No Effect on Employment Relationship...... 16
12.2 Mergers................................... 16
12.3 Prohibition Against Assignment............ 17
12.4 Permissible Reversions.................... 17
12.5 Masculine/Feminine; Singular/Plural....... 17
12.6 Notices and Elections..................... 17
12.7 Applicable Law and Severability........... 17
-ii-
<PAGE>
DATRON SYSTEMS INCORPORATED
SUPPLEMENTAL EXECUTIVE PROFIT SHARING PLAN
(Effective as of April 1, 1994)
INTRODUCTION
The purpose of the Plan is to provide certain executive
employees with additional funds for their retirement. The Plan
is intended to be a nonqualified deferred compensation plan under
the Code, and an unfunded deferred compensation plan maintained
for a select group of management or highly compensated employees
under ERISA.
SECTION 1. DEFINITIONS
The terms defined in this Section are indicated by
capitalized initial letters wherever they appear in the Plan and,
whenever used, shall have the following meanings:
1.1 "Administrator" shall mean the Company.
1.2 "Beneficiary" shall mean the person or persons
entitled to receive any benefits payable hereunder after the
death of a Participant (determined under Section 7.2).
1.3 "Board of Directors" shall mean the Board of
Directors of the Company.
1.3 "Change in Control" shall mean the occurrence of
any of the following:
(a) any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") (other than the Company, a subsidiary, an
affiliate or a Company-sponsored employee benefit plan, including
any trustee of such plan acting as trustee), becoming the
"beneficial owner" (as that term is defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then-outstanding securities;
(b) the solicitation of proxies (within the meaning of
Rule 14a-1(k) under the Exchange Act and any successor rule) with
respect to the electing of any director of the Company, where
such solicitation is for any candidate who is not a candidate
proposed by a majority of the directors in office immediately
before the time of such election; or
(c) the dissolution or liquidation (partial or total)
of the Company, a sale of assets involving 30% or more of the
assets of the Company, any merger or reorganization of the
Company whether or not another entity is the survivor, a
transaction pursuant to which the holders, as a group, of all of
the shares of the Company outstanding immediately before the
transaction hold, as a group, less than 60% of the shares of the
Company outstanding after the transaction, or any other event
that the Board of Directors determines, in its discretion, would
materially alter the structure or ownership of the Company.
-1-
1.5 "Code" shall mean the Internal Revenue Code of
1986, as amended.
1.6 "Company" shall mean Datron Systems Incorporated,
a Delaware corporation.
1.7 "Compensation" shall mean an Employee's Taxable
Compensation, plus the amount, if any, of his Deferred Pay
Contributions and the amount of any Participating Employer
contributions to a "cafeteria plan" governed by section 125 of
the Code that are made at the Employee's election.
1.8 "Deferred Pay Contributions" shall mean, with
respect to any Participant, the amount of his Compensation that
he has elected to contribute to the Qualified Plan pursuant to
its provisions.
1.9 "Eligible Employee" shall mean an executive
employee of a Participating Employer who is currently designated
by the Board of Directors as eligible to participate in the Plan.
1.10 "Employee" shall mean any individual employed by
the Company or a Related Company any portion of whose
Compensation is subject to withholding of income tax and/or for
whom social security contributions are made by the Company or
Related Company that employs him. An Employee's employment shall
not be considered terminated for purposes of the Plan while he is
on an unpaid leave of absence. "Leave of absence" shall mean a
leave granted by the Company or any Related Company, in
accordance with rules uniformly applied to all of its Employees,
for reasons of health or public service, or for other reasons
determined by the Company or Related Company to be in its best
interests, and shall include periods of military service for
which reemployment rights are prescribed by law. Notwithstanding
the foregoing provisions of this Section, Employees who do not
return to the employ of the Company or any Related Company within
30 days (or such longer period as may be prescribed by law)
following the end of their leave of absence, or in the case of
military service within the period their reemployment rights are
protected by law, shall be deemed to have terminated their
employment as of the earlier of (a) the date the leave ended, or
(b) the first anniversary of the date the leave began (unless
such failure to return was the result of death, Total Disability
or Normal Retirement, in which case employment shall be deemed to
have terminated on the date of death, Total Disability or Normal
Retirement, as applicable).
-2-
<PAGE>
1.11 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.12 "Hour of Service" shall mean, with respect to any
Employee:
(a) Each hour for which the Employee is paid or
entitled to payment by the Company or any Related
Company for the performance of duties. Hours of
Service credited under this paragraph shall be credited
to the Plan Year or Service Anniversary Year, as
appropriate, in which the duties are performed;
(b) Each hour for which the Employee is paid or
entitled to payment by the Company or any Related
Company on account of a period of time during which no
duties are performed due to vacation, holiday,
sickness, incapacity (including disability), leave of
absence, layoff, jury duty and military service;
provided that no more than 501 Hours of Service shall
be credited under this paragraph on account of any
single continuous period during which the Employee
performs no duties, and further provided that no Hours
of Service shall be credited under this paragraph if
the only payments made or due to the Employee with
respect to such period arise under a plan maintained
solely to comply with applicable worker's compensation,
unemployment compensation or disability insurance laws.
The number of Hours of Service credited under this
paragraph and the Plan Year or Service Anniversary
Year, as appropriate, to which they shall be credited
shall be determined in accordance with Department of
Labor Regulations, section 2530.200b-2(b);
(c) Solely for purposes of determining whether
the Employee has had a One-Year Break in Service, each
hour for which the Employee is absent from work by
reason of a Maternity or Paternity Absence; provided
that no more than 501 Hours of Service shall be
credited to the Employee under this paragraph by reason
of any one such absence. If the Employee needs any of
the Hours of Service credited under this paragraph to
avoid a One-Year Break in Service in the Plan Year or
Service Anniversary Year, as appropriate, in which the
Maternity or Paternity Absence begins, such Hours of
Service shall only be credited to such Year. If the
Employee does not need any of the Hours of Service
credited under this paragraph to avoid a One-Year Break
in Service in the Plan Year or Service Anniversary
Year, as appropriate, in which the Maternity or
Paternity Absence begins, such Hours of Service shall
be credited to the next such year. For each day of
Maternity or Paternity Absence covered by this
paragraph, the Employee shall be credited with the
number of Hours of Service with which he would have
been credited but for such absence, based on his normal
-3-
<PAGE>
work schedule for the pay period immediately prior to
the commencement of such absence;
(d) Each hour for which the Employee receives (or
is entitled to receive) back pay from the Company or
any Related Company, irrespective of mitigation of
damages; provided that no Hour of Service shall be
credited under this paragraph that has previously been
credited to the Employee under paragraph (a), (b) or
(c) above. The number of Hours of Service credited
under this paragraph and the Plan Year or Service
Anniversary Year, as appropriate, to which they shall
be credited shall be determined in accordance with
Department of Labor Regulations, section 2530.200b-
2(b); and
(e) Each hour during an unpaid leave of absence
granted in accordance with Section 1.10 (or during a
period of military service described in that Section)
for which the Employee would have been paid or entitled
to payment had he not been granted such leave of
absence (or performed such military service), based on
the Employee's normal work schedule for the pay period
immediately prior to the commencement of the leave (or
military service); provided that no more than 501 Hours
of Service shall be credited under this paragraph on
account of any one such unpaid leave of absence (or
period of military service), and further provided that
no Hours of Service shall be credited under this
paragraph for any period after the Employee's
employment is deemed to have terminated under the rules
set forth in Section 1.10. Hours of Service credited
under this paragraph shall be credited to the Plan
Year(s) or Service Anniversary Year(s), as appropriate,
that include the pay periods during which the leave (or
military service) occurs.
Any Employee with respect to whom an accurate record of Hours of
Service is not kept by the Company or any Related Company shall
be credited with 10 Hours of Service for each day during which he
completes at least one Hour of Service.
1.13 "Maternity or Paternity Absence" shall mean an
Employee's absence from employment with the Company or any
Related Company:
(a) Because of the pregnancy of the Employee;
(b) Because of the birth of a child of the
Employee;
(c) Because of the placement of a child with the
Employee in connection with his adoption of such child;
or
-4-
<PAGE>
(d) For purposes of caring for a child described
in paragraph (b) or (c) for a period beginning
immediately following its birth or placement with the
Employee.
An Employee shall submit to the Administrator such timely
information as the Administrator may reasonably require to
establish that an absence qualifies as a Maternity or Paternity
Absence.
1.14 "Normal Retirement" shall mean ceasing to be an
Employee upon or after attaining Normal Retirement Age.
1.15 "Normal Retirement Age" shall mean age 65.
1.16 "One-Year Break in Service" shall mean, with
respect to any Employee, a Service Anniversary Year or Plan Year,
as appropriate, during which the Employee does not complete more
than 500 Hours of Service.
1.17 "Participant" shall mean an Eligible Employee who
is participating in the Plan in accordance with Section 2.
1.18 "Participating Employer" shall mean the Company,
Datron/Transco Inc., Datron World Communications Inc. and any
other Related Company that has been authorized by the Board of
Directors to participate in this Plan and that has adopted this
Plan by appropriate corporate action.
1.19 "Plan" shall mean the Datron Systems Incorporated
Supplemental Executive Profit Sharing Plan, as set forth herein
and as it may be amended from time to time hereafter.
1.20 "Plan Benefit" shall have the meaning specified in
Section 6.1.
1.21 "Plan Year" shall mean each 12-consecutive month
period commencing April 1 and ending the next following March 31.
1.22 "Profit Sharing Account" shall mean the account
established for each Participant pursuant to Section 4.1, to
which his share of any Profit Sharing Credit made by his
Participating Employer is credited.
1.23 "Profit Sharing Credit" shall mean the amount
credited under the Plan by the Participating Employers pursuant
to Section 4.2.
1.24 "Qualified Plan" shall mean the Datron Systems
Incorporated Profit Sharing and Savings Plan, as it may be
amended from time to time.
1.25 "Qualified Plan Accounts" shall mean the accounts
established for the Participant under the Qualified Plan.
-5-
<PAGE>
1.26 "Related Company" shall mean: (i) any corporation
that is a member of the same "controlled group of corporations"
(as defined in section 414(b) of the Code) as the Company; (ii) a
trade or business (whether or not incorporated) that is under
"common control" (as defined in section 414(c) of the Code) with
the Company; (iii) a trade or business (whether or not
incorporated) that is a member of the same "affiliated service
group" (as defined in section 414(m) of the Code) as the Company;
and (iv) any other entity that must be combined with the Company
and treated as a single employer under regulations issued under
section 414(o) of the Code; provided that, except as provided in
the following sentence, status as a Related Company shall be
limited to periods after the date of the affiliation with the
Company described in this Section.
1.27 "Service Anniversary Year" shall mean, with
respect to any Employee, each 12-consecutive month period
commencing on the date the Employee first performs an Hour of
Service and anniversaries of such date.
1.28 "Taxable Compensation" shall mean, with respect to
any Employee, the Employee's wages, salaries, fees for
professional services, and other amounts received for personal
services actually rendered in the course of employment by the
Company or any Related Company, but excluding the following:
(a) Contributions to the Qualified Plan and any
other plan of deferred compensation, to the extent
deductible or not includable in gross income by the
Employee;
(b) Distributions from any plan of deferred
compensation other than an unfunded plan that is not
qualified under section 401 of the Code;
(c) Amounts realized from the exercise of a stock
option or the disposition of stock acquired on exercise
of a stock option;
(d) Amounts realized on the vesting of restricted
property; and
(e) All other amounts that receive special tax
benefits under the Code.
1.29 "Total Disability" or "Totally Disabled" shall
mean a physical or mental incapacity that prevents a Participant
from performing his normal job and that a medical examiner
satisfactory to the Administrator certifies is likely to be
permanent.
1.30 "Year of Service" shall mean, with respect to any
Employee: (a) for purposes of the service requirement set forth
in Section 3, and for purposes of determining vesting with
respect to periods prior to April 1, 1991, a Service Anniversary
-6-
<PAGE>
Year during which the Employee completes at least 1,000 Hours of
Service; and (b) for purposes of determining vesting with respect
to periods after March 31, 1991, a Plan Year during which the
Employee completes at least 1,000 Hours of Service, provided,
however, that, if an Employee completes at least 1,000 Hours of
Service in his Service Anniversary Year that ends on or after
April 1, 1991 and also completes at least 1,000 Hours of Service
in the Plan Year that commences on such date, he shall be
credited with two Years of Service for purposes of vesting at the
end of such Plan Year (or on an earlier date in such Plan Year on
which he ceases to be an Employee). Notwithstanding the
foregoing provisions of this Section, an Employee's Years of
Service shall not include the following:
(i) any Years of Service completed before the
Employee has five consecutive One-Year Breaks in
Service, if the Employee had not completed at least
three Years of Service before the first of such One-
Year Breaks in Service; or
(ii) any Years of Service completed prior to April
1, 1980.
SECTION 2. PARTICIPATION
2.1 Service Requirement and Commencement Date. Any
Employee shall automatically commence participating in the Plan
on the April 1 next following the date he first becomes an
Employee, provided he is an Eligible Employee on such day. If an
Employee is not an Eligible Employee on the April 1 next
following the date he first becomes an Employee, he shall
automatically commence participating in the Plan on the first day
of the first month that coincides with or next follows the date
he becomes an Eligible Employee.
2.2 Period of Participation. A Participant's partici-
pation in the Plan shall continue until the date he has received
the entire amount to which he is entitled under the Plan or, if
earlier, the date of his death.
2.3 Suspended Participation. A Participant who ceases
to be an Eligible Employee but continues to be an Employee shall
become a suspended Participant. No amounts shall be credited to
a suspended Participant's Profit Sharing Account that is based on
his Compensation for the period of his suspension. However, a
suspended Participant shall continue to vest and shall be
entitled to benefits in accordance with the other provisions of
the Plan throughout the period he is on suspended status.
2.4 Reemployment. If a former Employee is reemployed,
he shall automatically commence (or recommence) participating in
the Plan on the later of: (a) the April 1 following the date he
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first became an Employee; or (b) the first day he qualifies as an
Eligible Employee following reemployment.
SECTION 3. PROFIT SHARING CREDITS
3.1 Profit Sharing Credits. The Company may determine
that any or all of the Participating Employers will grant a
Profit Sharing Credit under the Plan for a given Plan Year. The
amount of any Profit Sharing Credit by any Participating Employer
shall be in the sole and absolute discretion of the Company.
3.2 Time for Credits. Any Profit Sharing Credit
granted under the Plan for a given Plan Year shall be credited to
the Participants' Profit Sharing Accounts on the date specified
by the Company, which shall be no later than the date prescribed
for filing the Company's federal income tax return for such Plan
Year (including extensions thereof).
SECTION 4. PARTICIPANTS' PROFIT SHARING ACCOUNTS
4.1 Accounts. The Administrator shall establish and
maintain for each Participant a Profit Sharing Account, which
will be credited with the Participant's share of any Profit
Sharing Credits granted under the Plan by his Participating
Employer.
4.2 Allocation of Profit Sharing Credits. Any Profit
Sharing Credit granted under the Plan by any Participating
Employer for any Plan Year shall be allocated to the Profit
Sharing Accounts of:
(1) those Participants who are Employees on the
last day of such Plan Year, who were employed by the
Participating Employer that grants the credit for all
or a portion of the relevant Plan Year, and who
completed at least 1,000 Hours of Service during such
Plan Year; and
(2) those Participants who were employed by the
Participating Employer that grants the credit for all
or a portion of the relevant Plan Year, but ceased to
be Employees during such Plan Year because of Normal
Retirement, Total Disability, or death (without regard
to the number of Hours of Service they completed during
such Plan Year).
Such allocation shall be in the amount determined in the sole
and absolute discretion of the Company, and the amount allocable
to each Participant's Profit Sharing Account for any Plan Year
shall be credited to such account as of the uniform date
specified by the Company.
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4.3 Balances of Accounts. Within 90 days after the
end of each Plan Year, the Administrator shall determine the
balance of each Participant's Profit Sharing Account, based on
the amounts credited to such account attributable to Profit
Sharing Credits and adjustments for deemed investment return.
The Administrator in its sole discretion may direct a
determination of the Profit Sharing Account balances as of any
other date, if such determination is considered to be in the
interest of equitable administration of the Plan, and any such
other date shall also constitute a determination date hereunder.
As of any determination date and prior to the crediting of Profit
Sharing Credits for the period covered by the determination, the
Administrator shall adjust the balance of each Participant's
Profit Sharing Account to reflect the deemed investment return
since the last preceding determination date on the balance of
such account as of such prior date. The deemed investment return
for the period ending on any given determination date shall be
based on the actual rate of investment return for such period
realized by the Participant's Qualified Plan Accounts. However,
if the entire balance of the Participant's Qualified Plan
Accounts is distributed before such determination date, the
deemed investment return for the period ending on that
determination date shall be considered the prevailing prime
interest rate charged by commercial bank lenders in the Los
Angeles area as of the beginning of such period.
SECTION 5. VESTING AND TREATMENT OF FORFEITURES
5.1 Vesting. The balance of a Participant's Profit
Sharing Account shall become fully (100%) vested and
nonforfeitable when a Change in Control occurs while he is still
an Employee, and when the Participant attains Normal Retirement
Age, becomes Totally Disabled, or dies while he is still an
Employee. If a Participant ceases to be an Employee prior to a
Change in Control or attaining Normal Retirement Age for any
reason other than death or Total Disability, the Participant's
vested interest in his Profit Sharing Account shall be determined
under the following schedule:
YEARS OF SERVICE VESTED PERCENTAGE
1 0%
2 0%
3 20%
4 40%
5 60%
6 80%
7 100%
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<PAGE>
5.2 Forfeitures.
(a) Forfeiture on Termination. When a Participant
ceases to be an Employee, the nonvested portion of his Profit
Sharing Account shall be forfeited. Such forfeited portion shall
be determined as of the determination date coinciding with or
immediately preceding the date the Participant ceases to be an
Employee. If the Participant is not reemployed by the last day
of the Plan Year in which he ceased to be an Employee, the
forfeited portion of such Account shall revert to the
Participating Employers in proportion to their grants of Profit
Sharing Credits allocated to the Participant's Profit Sharing
Account.
(b) Reemployment Before Five One-Year Breaks in
Service. The following rules, as applicable, shall be applied to
any Participant who ceases to be an Employee when he is not fully
(100%) vested in his Profit Sharing Account and who is reemployed
before he has five consecutive One-Year Breaks in Service:
(1) If the Participant is reemployed by the
last day of the Plan Year in which he ceased to be an
Employee, the amount forfeited as a result of the
termination of his employment shall be restored to the
Profit Sharing Account maintained for the Participant.
(2) If the Participant is reemployed after
the last day of the Plan Year in which he ceased to be
an Employee, an amount equal to the amount forfeited as
a result of the termination of his employment
(determined as of the date thereof) shall be credited
to the Profit Sharing Account maintained for the
Participant.
(3) Except in the case of a Participant
described in subparagraph (4) below, the Participant's
vested interest in his Profit Sharing Account at the
time he subsequently ceases to be an Employee shall be
determined under Section 5.1, on the basis of his total
Years of Service before and after reemployment.
(4) If the Participant had received payment
of any of the vested portion of his Profit Sharing
Account by the date he was reemployed, his vested
interest in such account at the time he subsequently
ceases to be an Employee shall be determined in
accordance with paragraph (d) of this Section.
(c) Reemployment After Five One-Year Breaks in
Service. If a Participant is not fully (100%) vested in his
Profit Sharing Account when he ceases to be an Employee and he is
not reemployed until after he has five consecutive One-Year
Breaks in Service, his reemployment and subsequent Years of
Service shall have no effect on, and shall not provide the
Participant with any interest in or right to, the amount that was
forfeited as a result of his previous termination of employment.
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<PAGE>
(d) Subsequent Termination Before Becoming Fully
Vested. Notwithstanding any other provision of the Plan, if a
reemployed Participant described in paragraph (b)(4) of this
Section subsequently ceases to be an Employee before he is fully
(100%) vested in his Profit Sharing Account (based on his total
Years of Service before and after reemployment), his vested
interest in such account shall be an amount "X", determined under
the following formula: X = P (AB + D) - D. For purposes of
applying this formula: P is the Participant's vested percentage
at the time he subsequently ceases to be an Employee (determined
under Section 5.1 on the basis of his total Years of Service
before and after reemployment); AB is the balance of the
Participant's Profit Sharing Account at the time he subsequently
ceases to be an Employee; and D is the amount that was paid to
the Participant from his Profit Sharing Account as a result of
his previous termination of employment.
(e) Special Definitions. For purposes of this
Section, the terms "employment", "reemployed" and "reemployment"
shall only refer to employment by the Company or any Related
Company.
SECTION 6. PAYMENT OF BENEFITS
6.1 Amount of Plan Benefit.
(a) Normal Retirement Age, Total Disability, Death or
Change in Control. If a Participant ceases to be an Employee
upon or after attaining Normal Retirement Age, or as a result of
Total Disability or death at any age, the Participant (or, in the
case of his death, his Beneficiary) shall be entitled to a Plan
Benefit equal to 100% of the balance of the Participant's Profit
Sharing Account. If a Change in Control occurs before a
Participant ceases to be an Employee, the Participant shall be
entitled to a Plan Benefit equal to 100% of the balance of the
Participant's Profit Sharing Account.
(b) Other Terminations. If a Participant ceases to be
an Employee before a Change in Control and before he has attained
Normal Retirement Age for any reason other than death or Total
Disability, he shall be entitled to a Plan Benefit equal to the
vested portion of the balance of his Profit Sharing Account,
determined under Section 5.1.
6.2 Time of Payment.
(a) Termination of Employment. When a Participant
ceases to be an Employee, payment of his Plan Benefit shall
automatically be made by the Company in the form of a single lump
sum payment of cash as soon as practicable following his
termination of employment, unless the Participant elected the
installment form of payment before termination of employment in
accordance with paragraph (c) below.
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<PAGE>
(b) Change in Control. A Participant may elect in
writing before a Change in Control to receive payment of his Plan
Benefit when a Change in Control occurs. Unless the Participant
elected the installment form of payment before the Change in
Control in accordance with paragraph (c) below, the Company shall
pay the Plan Benefit in the form of a single lump sum payment of
cash as soon as practicable following the Change in Control.
(c) Installment Payments. Each Participant may elect
in writing to have his Plan Benefit paid by the Company in three
substantially equal annual cash installments commencing as soon
as practicable after the Participant ceases to be an Employee or
a Change in Control occurs. To be effective, any such written
election must be filed with the Administrator before the later of
(i) one year before the date the Participant ceases to be an
Employee, or (ii) the date of the Change in Control.
6.3 Balances of Accounts for Payments. When a
Participant's Plan Benefit is to be paid, the balance of his
Profit Sharing Account shall be determined as of the
determination date coinciding with or immediately preceding the
date of payment.
SECTION 7. DEATH BENEFITS AND BENEFICIARIES
7.1 Death Benefits. If a Participant dies before his
entire vested interest in his Profit Sharing Account has been
paid, the unpaid portion of such interest shall be paid to the
Participant's Beneficiary in a single lump sum payment of cash.
Such payment shall be made by the Company as soon as practicable
following the Participant's death.
7.2 Designation of Beneficiary. Each Participant
shall have the right to designate a Beneficiary or Beneficiaries
to receive any amount payable under the Plan in the event of his
death, and shall have the right at any time to revoke such
designation or to substitute another such Beneficiary or
Beneficiaries. No designation made pursuant to this Section
shall be effective unless the Participant's spouse consents to
such designation in a writing that acknowledges the effects of
the designation and that is witnessed by a representative of the
Administrator or by a notary public. Such consent shall not be
required if the Beneficiary is the Participant's spouse, or if
the Administrator is satisfied that it cannot be obtained because
there is no spouse or because the spouse cannot be located.
7.3 Absence of Valid Designation of Beneficiary. If
there is no valid designation of a Beneficiary on file with the
Administrator upon the death of a Participant, such
Participant's Beneficiary shall be deemed to be his surviving
spouse, or if there is no surviving spouse, his estate.
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<PAGE>
SECTION 8. PAYMENT OF BENEFITS AND EXPENSES
8.1 Payment of Benefits. All Plan Benefits shall be
paid from the general assets of the Company upon the direction of
the Administrator, in accordance with the Plan. The Company
shall be entitled to reimbursement from the general assets of the
other Participating Employers to the extent the Company's payment
of Plan Benefits is attributable to Profit Sharing Credits
granted by each such Participating Employer.
8.2 Expenses of Plan Administration. All expenses of
administering the Plan shall be paid by the Company.
SECTION 9. ADMINISTRATION
9.1 Board of Directors. The Board of Directors shall
have the power to amend or terminate the Plan.
9.2 Administrator. The Administrator shall administer
the Plan. The Administrator shall have the following powers,
duties and responsibilities in connection with the administration
of the Plan:
(a) Determining the eligibility of Employees for
participation in the Plan;
(b) Determining the eligibility of Employees for
benefits provided by the Plan and the amount of the
benefit to which any Employee is entitled hereunder,
including such powers, duties and responsibilities as
are necessary and appropriate under the Plan's claims
and review procedures;
(c) Maintaining Profit Sharing Accounts and such
other records as it may determine are necessary or
appropriate in connection with the operation and
administration of the Plan;
(d) Communicating with Participants and other
persons with respect to the Plan;
(e) Authorizing, allocating and reviewing
expenses incurred by the Plan;
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<PAGE>
(f) Periodically reviewing any allocation or
delegation of duties and responsibilities made pursuant
to this Section; and
(g) Making recommendations to the Board of
Directors with respect to amendment or termination of
the Plan.
The Administrator shall establish such rules and regulations, and
shall take such other actions as it deems necessary or
appropriate to carry out its duties and responsibilities.
The Administrator may, by written resolution, delegate any of its
powers, duties and responsibilities to any other person or
persons; provided, however, that any such delegation shall be
terminable upon such notice as the Administrator deems reasonable
and prudent under the circumstances.
9.3 Indemnification. The Company shall indemnify and
hold harmless any Employee from and against any and all
liabilities, claims, demands, costs and expenses, including
attorney's fees, arising out of an alleged breach in the
performance of his or her duties under the Plan, other than such
liabilities, claims, demands, costs and expenses as may result
from willful misconduct. The Company shall have the right, but
not the obligation, to conduct the defense of any Employee in any
proceeding to which this Section applies. In lieu of the
foregoing, the Company may satisfy its obligations under this
Section through the purchase of a policy or policies of insurance
providing equivalent protection.
SECTION 10. CLAIMS AND REVIEW PROCEDURES
10.1 Claims Procedure.
(a) General Rule. The Administrator shall determine
Participants' and Beneficiaries' rights to benefits under the
Plan. If a Participant or Beneficiary disagrees with the
Administrator's determination, he may file a written claim for
benefits with the Administrator, provided the claim is filed
within 60 days of the date the Participant or Beneficiary
receives notification of the determination.
(b) Notice if Claim is Denied. If any claim for
benefits is wholly or partially denied, the Administrator shall
provide the claimant with a notice of denial, written in a manner
calculated to be understood by the claimant and setting forth:
(1) The specific reason(s) for the denial;
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<PAGE>
(2) Specific references to the Plan provisions on
which the denial is based;
(3) A description of any additional material or
information necessary for the claimant to perfect the
claim, with an explanation of why the material or
information is necessary; and
(4) An explanation of the steps to be taken if
the claimant wishes to submit the claim for review.
A notice of denial shall be provided within 90 days after the
claim is filed, unless special circumstances require an extension
of time for processing the claim. If an extension is required,
written notice shall be furnished to the claimant within 90 days
of the date the claim was filed, stating the special
circumstances requiring the extension and the date by which a
decision on the claim can be expected, which shall be no more
than 180 days from the date the claim was filed. If no notice of
denial or of the fact that an extension of time is necessary for
processing a claim is provided within the time prescribed in this
paragraph, the claim shall be deemed to have been denied as of
the last day of the applicable period, and the claimant may
appeal such denial in accordance with the procedure for review of
denied claims set forth in Section 10.2 below.
10.2 Review Procedure.
(a) Request for Review. Any person whose claim for
benefits is denied (or deemed denied), in whole or in part, or
such person's duly authorized representative, may appeal from
such denial by submitting a written request for a review of the
claim to the Administrator within 60 days after receiving written
notice of the denial (or, in the case of a deemed denial, within
60 days after the claim is deemed denied). The Administrator
shall give the claimant or representative an opportunity to
review pertinent Plan documents in preparing a request for
review. A request for review shall set forth all of the grounds
on which it is based, all facts in support of the request and any
other matters the claimant deems pertinent. The Administrator
may require the claimant to submit such additional facts,
documents or other material as it may deem necessary or
appropriate in making its review.
(b) Time for Response. The Administrator shall act on
each request for review within 60 days after receipt thereof,
unless special circumstances require an extension of time, up to
an additional 60 days, for processing the request. If such an
extension is required, written notice of the extension shall be
furnished to the claimant within the initial 60-day period.
(c) Notice of Decision on Review. The Administrator
shall give prompt, written notice of its decision to the
claimant. In the event the Administrator affirms the denial of
the claim for benefits, in whole or in part, such notice shall
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set forth, in a manner calculated to be understood by the
claimant, specific reasons for the denial and specific references
to the Plan provisions on which the decision is based.
SECTION 11. AMENDMENT AND TERMINATION
11.1 Amendment. The Board of Directors reserves the
right to amend the Plan at any time and for any reason, in whole
or in part, including without limitation, retroactive amendments.
However, no such amendment shall deprive any Participant or
Beneficiary of any Plan Benefit already vested or which would
have become vested with the passage of time.
11.2 Termination, Partial Termination, or Complete
Discontinuance of Profit Sharing Credits. The Company has
established the Plan with the bona fide intention and expectation
that it will be continued indefinitely. However, the Company
shall not be under any obligation or liability to maintain the
Plan for any given length of time, and the Board of Directors may
terminate the Plan at any time and for any reason, in its sole
and absolute discretion, without any liability for such
termination. The board of directors of any other Participating
Employer may, in its sole and absolute discretion, terminate the
Plan with respect to its Employees at any time and for any
reason, without any liability for such termination. If the Plan
shall be terminated or partially terminated, or if Profit Sharing
Credits under the Plan are completely discontinued, the Profit
Sharing Accounts of all affected Participants shall become fully
(100%) vested and nonforfeitable, and, as determined by the Board
of Directors, such accounts (and the Plan Benefits represented
thereby) shall be either distributed immediately to the affected
Participants or maintained until the balances (and the Plan
Benefits represented thereby) of all affected Participants have
been completely paid to or for the benefit of the Participants in
accordance with the Plan.
SECTION 12. MISCELLANEOUS
12.1 No Effect on Employment Relationship. Neither the
establishment of the Plan nor any modification thereof, nor the
creation of any Profit Sharing Account, nor the payment of any
benefits hereunder, shall be construed as modifying or affecting
in any way the terms of employment of any Employee, and shall not
affect any Participating Employer's right to terminate the
employment of any of its Employees, with or without cause.
12.2 Mergers. If the Company merges or consolidates
with or into another corporation, or if substantially all of the
assets of the Company shall be transferred to another
corporation, the Plan shall terminate on the effective date of
such merger, consolidation or transfer, the Profit Sharing
Accounts of all Participants shall become fully (100%) vested and
nonforfeitable, and such accounts (and the Plan Benefits
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represented thereby) shall be distributed immediately.
Notwithstanding the foregoing sentence, however, if the surviving
corporation resulting from such merger or consolidation, or the
corporation to which the assets have been transferred, adopts
this Plan, the Plan shall continue and said corporation shall
succeed to all rights, powers and duties of the Company
hereunder. The employment of any Employee who is continued in
the employ of such successor corporation shall not be deemed to
have been terminated for any purpose hereunder.
12.3 Prohibition Against Assignment. The benefits
provided by this Plan shall not be assigned, transferred,
mortgaged, pledged, hypothecated or otherwise alienated by any
Participant or Beneficiary, and the Company shall not recognize
any attempted assignment, transfer, mortgage, pledge,
hypothecation or other alienation by any Participant or
Beneficiary of all or any part of his interest hereunder. The
interest of any Participant or Beneficiary in any benefits
provided hereunder shall not be subject in any manner to transfer
by operation of law and shall be exempt from the claims of
creditors or other claimants under any order, decree, levy,
garnishment, execution or other legal or equitable process or
proceeding, to the fullest extent permitted by law.
12.4 Permissible Reversions. To the extent any Profit
Sharing Credit under the Plan is granted or credited to a Profit
Sharing Account by reason of a mistake of fact, such amount, as
adjusted for any deemed investment return, shall revert to the
appropriate Participating Employer.
12.5 Masculine/Feminine; Singular/Plural. Wherever
used herein, the masculine gender shall include the feminine, and
the singular number or tense shall include the plural.
12.6 Notices and Elections. Any notice, election or
designation required or permitted by Participants shall be made
on the form prescribed for such purpose by the Administrator.
Except as otherwise provided in the Plan, any notice, election or
designation by a Participant must be filed with the
Administrator.
12.7 Applicable Law and Severability.
(a) Applicable Law. The Plan shall be construed,
administered and governed in all respects in accordance with
ERISA, and, to the extent not preempted by ERISA, the laws of the
State of California; provided, however, that if any provision is
susceptible of more than one interpretation, the interpretation
given thereto shall be consistent with the Plan being: (a) a
nonqualified deferred compensation plan within the meaning of the
Code; and (b) an unfunded deferred compensation plan maintained
for a select group of management or highly compensated employees
within the meaning of ERISA. The obligations of the Company and
any other Participating Employer with respect to the amounts
payable under the Plan are paid out of their general assets and
are not secured by any form of trust, escrow or otherwise.
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(b) Severability. If any provision of the Plan shall
be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to
be fully effective.
TO RECORD THE ADOPTION OF THE PLAN EFFECTIVE AS OF
APRIL 1, 1994, the Company has caused this document to be
executed by its duly authorized officer this 13th day of
November, 1995.
DATRON SYSTEMS INCORPORATED
By D. A. DERBY
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THIRD AMENDMENT DATED MAY 1, 1995 TO THAT LEASE DATED NOVEMBER 15,
1988 BETWEEN ENTERPRISE HEIGHTS INDUSTRIAL CENTRE ASSOCIATES,
"LANDLORD", AND TRANSWORLD COMMUNICATIONS, A WHOLLY OWNED
SUBSIDIARY OF DATRON SYSTEMS, INC., "TENANT", FOR THE PREMISES AT
298, 302 AND 304 ENTERPRISE STREET IN ESCONDIDO, CALIFORNIA.
- - -----------------------------------------------------------------
All the terms and conditions of the Lease remain in full force
except the following:
1.01 The Revised Premises:
- - --------------------------
The revised premises shall be changed to:
298 Enterprise - Entire Building
302 Enterprise - Entire Building
304 Enterprise - Entire Building
300 Enterprise - Suites "A", "B", "C", "L" and "M"
(Approximately 63,025 square feet).
2.01 Term:
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The term of the lease shall be as follows:
2908, 302 and 304 Enterprise - February 1, 1993 thru January 1999
300 Enterprise, Suites "L" & "M" - March 1, 1994 thru January 31, 1999
300 Enterprise, Suites "A", "B" & "C" - May 1, 1995 thru January 31, 1999
Unless sooner terminated pursuant to any provision hereof.
3.01 Rent:
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The basic monthly rent shall be changed to:
May 1995 thru January 1999 - $30,062.66
(Subject to Rental Adjustment provisions contained in Paragraphs 3.02
and 15.2 of the First Amendment to Lease which remain unchanged).
15.6 Taxes and Reimbursement for Costs:
- - ---------------------------------------
The initial $4,000.00 monthly fee to cover all items required of
Tenant under articles VI and VIII shall be increased as follows:
May 1995 through January 1999 - $4,786.66
(Subject to the adjustment provisions contained in Paragraph 3.02).
LANDLORD TENANT
Enterprise Heights Industrial Transworld Communications, Inc.
Center Associates
By: s/s WILLIAM A. SHIRLEY By: s/s RICHARD DAILEY
General Partner Vice President, Finance &
Administration
Date: May 1, 1995 Date: May 2, 1995
EIGHTH AMENDMENT TO CREDIT AGREEMENT AND NOTE
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT AND NOTE ("Eighth
Amendment"), made and entered into as of the 14th day of May 1996,
by and between DATRON SYSTEMS INCORPORATED, a Delaware corporation
("Company"), and UNION BANK OF CALIFORNIA, N.A., a national banking
association (successor in interest to Union Bank) ("Bank"),
W I T N E S S E T H:
WHEREAS, on May 11, 1994, the Company and the Bank entered
into a certain Credit Agreement and Note (as amended by those
certain First, Second, Third, Fourth, Fifth , Sixth and Seventh
Amendments to Credit Agreement and Note, dated as of October 26,
1994, December 29, 1994, February 28, 1995, March 31, 1995, August
17, 1995, January 3, 1996 and January 31, 1996, respectively, the
"Credit Agreement") pursuant to which the Bank agreed to extend to
the Company and the Company agreed to accept from the Bank certain
credit facilities more particularly described therein; and
WHEREAS, the Company and the Bank desire to amend the Credit
Agreement (i) to modify availability under each of the Revolving
Loan Facility, the Standby Facility and the L/C Facility, (ii) to
modify certain of the covenants with which the Company is to
comply, and (iii) to provide for certain ancillary matters;
NOW, THEREFORE, for and in consideration of the premises
hereof, and other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. All capitalized terms used in this Eighth Amendment
shall, unless otherwise defined herein or unless the context
otherwise requires, have the meanings given thereto in the Credit
Agreement.
2. Section 1.01 of the Credit Agreement is amended to read
as follows:
1.01 Availability of the Facilities. Subject to the terms
and conditions of this Agreement, the Bank shall, from time to time
during the period commencing on the Eighth Amendment Effective Date
and ending on December 31, 1997 (the "Facilities Termination
Date"), advance to the Company such loans as the Company may
request under the Revolving Loan Facility (individually a
"Revolving Loan" and collectively the "Revolving Loans"), issue for
the account of the Company such standby letters of credit as the
Company may request under the Standby Facility (individually a
"Standby L/C" and collectively the "Standby L/C's"), and issue for
the account of the Company such commercial documentary letters of
credit as the Company may request under the L/C Facility
(individually a "Commercial L/C" and collectively the "Commercial
L/C's"); provided, however, that:
(a) Except as otherwise provided in Subsections
1.01(b), (c), (d), (e) and (f) hereof, the sum of:
(i) the aggregate principal amount of all
outstanding Revolving Loans ("Revolving Loan
Utilization");
(ii) the aggregate amount available to be
drawn under all Standby L/C's;
(iii) the aggregate amount of unpaid
reimbursement obligations in respect of all drafts
drawn under Standby L/C's (the sum of the
aggregate amounts described in Subsection 1.01(a)(ii)
hereof and in this Subsection 1.01(a)(iii) being
hereinafter referred to as "Standby L/C Utilization");
(iv) the aggregate amount available to be
drawn under all Commercial L/C's; and
(v) the aggregate amount of unpaid
reimbursement obligations in respect of all drafts
drawn under Commercial L/C's (the sum of the aggregate
amounts described in Subsection 1.01(a)(iv) hereof and
in this Subsection 1.01(a)(v) being hereinafter
referred to as "Commercial L/C Utilization");
shall not exceed in the aggregate at any one time Nineteen Million
Five Hundred Thousand Dollars ($19,500,000.00);
(b) Revolving Loan Utilization shall not exceed in
the aggregate at any one time the lesser of (i) Ten Million Five
Hundred Thousand Dollars ($10,500,000.00), or (ii) the difference
between Nineteen Million Five Hundred Thousand Dollars
($19,500,000.00) and the sum of Standby L/C Utilization and
Commercial L/C Utilization;
(c) Commercial L/C Utilization shall not exceed in
the aggregate at any one time the least of (i) Two Million Dollars
($2,000,000.00), (ii) the difference between Twelve Million Dollars
($12,000,000.00) and Standby L/C Utilization, or (iii) the
difference between Nineteen Million Five Hundred Thousand Dollars
($19,500,000.00) and the sum of Revolving Loan Utilization and
Standby L/C Utilization;
(d) Standby L/C Utilization shall not exceed in the
aggregate at any one time the lesser of (i) the difference between
Twelve Million Dollars ($12,000,000.00) and Commercial L/C
Utilization, or (ii) the difference between Nineteen Million Five
Hundred Thousand Dollars ($19,500,000.00) and the sum of Revolving
Loan Utilization and Commercial L/C Utilization;
(e) Standby L/C Utilization relating to Standby L/C's
issued in favor of beneficiaries located in countries listed in
Column B or Column C of Exhibit A hereto shall not exceed, as to
all beneficiaries located in any given country listed in Column B
or Column C of Exhibit A hereto, Three Million Five Hundred
Thousand Dollars ($3,500,000.00) in the aggregate at any one time;
and
(f) Standby L/C Utilization relating to Standby L/C's
issued in favor of beneficiaries located in countries listed in
Column D of Exhibit A hereto (individually a "column D Country" and
collectively the "column D Countries") shall not exceed in the
aggregate at any one time (i) in the case of all beneficiaries
located in any given Column D Country, Five Hundred Thousand
Dollars ($500,000.00), and (ii) in the case of all beneficiaries
located in all Column D Countries, the least of (A) Two Million
Five Hundred Thousand Dollars ($2,500,000.00), (B) the difference
between (l) Twelve Million Dollars, and (2) the sum of (I) Standby
L/C Utilization relating to Standby L/C's issued in favor of all
beneficiaries located in all countries other than Column D
Countries, and (II) Commercial L/C Utilization, or (C) the
difference between (1) Nineteen Million Five Hundred Thousand
Dollars ($19,500,000.00), and (2) the sum of (I) Standby L/C
Utilization relating to Standby L/C's issued in favor of all
beneficiaries located in all countries other than Column D
Countries, (II) Commercial L/C Utilization, and (III) Revolving
Loan Utilization.
Within limits set forth above, and except as otherwise provided
herein, the Company may utilize the Facilities, repay amounts owing
thereunder, and reutilize the Facilities.
3. Subsection 1.02(h) of the Credit Agreement is amended
to read as follows:
(h) Revolving Loan Commitment Fee. From the date
hereof until the Facilities Termination Date, the Company shall pay
to the Bank a commitment fee of one-quarter of one percent (1/4 of
1%) per annum on the difference between Ten Million Five Hundred
Thousand Dollars ($10,500,000.00) and the average daily principal
amount of outstanding Revolving Loans during each calendar quarter
or portion thereof (the "Revolving Loan Commitment Fee"). The
Revolving Loan Commitment Fee shall be payable quarterly in arrears
on the last day in each March, June, September and December
(commencing June 30, 1994), and at maturity (whether by
acceleration or otherwise).
4. Subsection 1.03(d) of the Credit Agreement is amended
by deleting therefrom the reference "Subsection 1.01(a)" where it
appears on the eleventh line of said subsection and by substituting
in lieu thereof the reference "Subsection 1.01(b)".
5. Subsection 1.04(d) of the Credit Agreement is amended
by deleting therefrom the reference "Subsection 1.01(a)" where it
appears on the eleventh line of said subsection and by substituting
in lieu thereof the reference "Subsection 1.01(b)"
6. Subsection 4.02(e) of the Credit Agreement is amended
to read as follows:
(e) Acquisitions. Without the prior written consent
of the Bank, which consent shall be timely (if given) and not
unreasonably withheld, the Company will not, and will not permit
any Subsidiary to, acquire by purchase of stock or by purcahse of
assets, in exchange for cash or shares of capital stock or other
securities of the Company or any other Person, all or any
substantial division or portion of the assets or business of any
other Person.
7. Subsection 4.02(h) of the Credit Agreement is amended
to read as follows:
(h) Capital Expenditures. The company will not, and
will not permit any Subsidiary to, make any expenditures for fixed
or capital assets (including, without limitation, expenditures
under capital leases) which would cause the aggregate of all
expenditures for fixed or capital assets made by the Company and
all Subsidiaries (including, without limitation, expenditures under
capital leases) to exceed Two Million Dollars ($2,000,000.00)
during fiscal year ending March 31, 1997.
8. Subsection 4.02(i) of the Credit Agreement is amended
to read as follows:
(i) Tangible Net Worth. The Company will not, as at
the end of any fiscal quarter of the Company, permit its
consolidated Tangible Net Worth to be less than the sum of (I)
Twenty-four Million Two Hundred Fifty Thousand Dollars
($24,250,000.00), (ii) seventy-five percent (75%) of the cumulative
consolidated net after tax profits of the Company for all fiscal
quarters of the Company ending after March 31, 1996 and on or prior
to the date of computation (without reduction, however, for
consolidated net after tax losses sustained by the Company for any
of such fiscal quarters) and (iii) the aggregate amount of all
infusions of equity made on or after April 1, 1996.
9. Subsection 4.02(k) of the Credit Agreement is amended
to read as follows:
(k) Profitability. The Company will not (i) suffer
or incur a consolidated net after tax loss in excess of One Hundred
Thousand Dollars ($100,000.00) for the year-to-date fiscal period
of the Company ending June 30, 1996, (ii) permit its consolidated
net after tax profits to be less than (A) Fifty Thousand Dollars
($50,000.00) for the year-to-date fiscal period of the Company
ending September 30, 1996, (B) Seven Hundred Thousand Dollars
($700,000.00) for the year-t0-date fiscal period of the Company
ending December 31, 1996, and (C) Two Million Four Hundred Thousand
Dollars ($2,400,000.00) for this fiscal year of the Company ending
March 31, 1997, and (iii) suffer or incur a consolidated net after
tax loss for any two (2) consecutive fiscal quarters of the Company
ending after March 31, 1997 (including, without limitation, the two
(2) consecutive fiscal quarters of the Company ending June 30,
1997), or for any fiscal year of the Company ending after march 31,
1997.
10. The definitions of "Column D Country" and "Column D
Countries" set forth in Section 7.01 of the Credit Agreement are
amended to read as follows:
"Column D Country" and "Column D Countries" shall have the
meanings given to those terms in Subsection 1.01(f).
11. The definition of "Commercial L/C Utilization" set
forth in Section 7.01 of the Credit Agreement is amended to read as
follows:
"Commercial L/C Utilization" shall have the meaning given
to that term in Subsection 1.01(a)(v).
12. The definition of "Standby L/C Utilization" set forth
in Section 7.01 of the Credit Agreement is amended to read as
follows:
"Standby L/C Utilization"shall have the meaning given to
that term in Subsection 1.01(a)(iii).
13. Section 7.01 of the Credit agreement is amended by
deleting therefrom the definition of "Revolving Loan Commitment".
14. Section 7.01 of the Credit Agreement is further amended
by the addition thereto of the following definitions in proper
alphabetic order:
"Eighth Amendment" shall mean that certain Eighth Amendment
to Credit Agreement and Note, dated as of May 24, 1996, by
and between the Company and the Bank.
"Eighth Amendment Effective Date" shall mean the date on
which the Eighth Amendment becomes effective as provided
in Paragraph 15 thereof.
"Revolving Loan Utilization" shall have the meaning given
to that term in Subsection 1.01(a)(i).
15. This Eighth Amendment shall become effective on the
date on which the Bank shall have received the following:
(a) This Eighth Amendment, duly executed by the
Company; and
(b) Two (2) written consents to entry by the
Company into this Eight Amendment, each in form and
substance satisfactory to the Bank and its counsel, one
(1) duly executed by each of D/T and DWC.
16. Except as expressly provided herein, the Credit
Agreement is unchanged and remains in full force and effect.
17. This Eighth Amendment shall be governed by and
construed in accordance with the laws of the State of California.
18. This Eighth Amendment may be executed in any number of
identical counterparts, any set of which signed by both parties
hereto shall be deemed to constitute a complete, executed original
for all purposes.
IN WITNESS WHEREOF, the Bank and the Company have caused this
Eighth Amendment to be executed as of the day and year first above
written.
UNION BANK OF CALIFORNIA, DATRON SYSTEMS INCORPORATED
N.A. (successor in interest
to Union Bank)
By: RICHARD A. PETRIE By: DAVID A. DERBY
Title: Vice President Title: President & CEO
By: BRUCE BRESLAU By: WILLIAM L. STEPHAN
Title: Vice President Title: Vice President and CFO
<PAGE>
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
National Market tier of the Nasdaq Stock Market under the symbol DTSI. The
following table sets forth the high and low closing sales prices by quarter
for the two most recent fiscal years as reported by Nasdaq:
<TABLE>
<CAPTION>
Fiscal Year 1996
----------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
June 30, 1995 $12.25 $9.75
September 30, 1995 $17.25 $10.75
December 31, 1995 $19.75 $14.50
March 31, 1996 $19.00 $11.875
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1995
----------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
June 30, 1994 $9.50 $8.25
September 30, 1994 $10.50 $7.25
December 31, 1994 $12.50 $9.25
March 31, 1995 $12.50 $11.00
</TABLE>
On March 31, 1996, there were approximately 2,000 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.
1
<PAGE>
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.
Selected Financial Data.
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
1996 1995 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net sales $61,165,000 $70,033,000 $65,636,000 $54,104,000 $73,010,000
Net(loss)income (1,241,000) 3,920,000 5,251,000 ( 8,367,000) 3,456,000
(Loss)income per share<F1> $(0.46) $1.51 $2.10 $ (3.32) $1.32
Balance Sheets
Working capital $18,042,000 $14,241,000 $13,540,000 $15,520,000 $19,498,000
Total assets 58,459,000 55,944,000 49,488,000 53,592,000 58,315,000
Long-term debt 5,200,000 0 0 8,750,000 12,075,000
Total liabilities 26,588,000 23,079,000 20,887,000 30,531,000 27,246,000
Stockholders' equity<F2> 31,871,000 32,865,000 28,601,000 23,061,000 31,069,000
Book value per share $12.24 $12.84 $11.40 $9.33 $12.68
</TABLE>
<F1> See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing (loss)
income per share.
<F2> No dividends were declared or paid during the years presented.
2
<PAGE>
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 7 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 radio and
satellite communication markets. It reports operations in two business
segments: Communication Products and Services, and Antenna and Imaging
Systems.
The Communication Products and Services business segment designs, manufactures
and distributes high frequency and very high frequency radios and accessories
for worldwide military and civilian purposes. Fiscal 1996 sales for this
segment were $29,293,000, a 5% increase from fiscal 1995 sales of $27,936,000.
Foreign customers accounted for 93% of fiscal 1996 sales and 95% of fiscal
1995 sales. During fiscal 1996, this segment sold radio products to an Asian
customer that accounted for 39% of this segment's sales and 19% of
consolidated sales. During fiscal 1995, sales of radio products to an African
customer accounted for 36% of this segment's sales and 14% of consolidated
sales.
The Antenna and Imaging Systems business segment designs and manufactures
specialized satellite communication systems, subsystems and antennas that are
sold worldwide to commercial and governmental customers, including the U.S.
Department of Defense (DoD). Fiscal 1996 sales for this segment were
$31,872,000, a 24% decrease from fiscal 1995 sales of $42,097,000. The DoD
accounted for 55% of this segment's fiscal 1996 sales and 59% of this
segment's fiscal 1995 sales. Because of the decline in U.S. defense spending,
the Company has been pursuing new markets for this segment's products. Remote
sensing satellite earth stations has been the primary such market. Sales of
remote sensing products represented 29% and 26% of this segment's sales in
fiscal 1996 and 1995, respectively. In fiscal 1996, this segment introduced
the DBS-3000TM, a mobile satellite television reception system for
recreational vehicles and long-haul trucks. This system is the Company's
first consumer product.
Consolidated sales for fiscal 1996 were $61,165,000, a 13% decrease from
fiscal 1995 consolidated sales of $70,033,000. The decrease in sales was
primarily due to lower sales of DoD products and remote sensing systems. A
net loss of $1,241,000, or $0.46 per share, was incurred in fiscal 1996
compared with net income of $3,920,000, or $1.51 per share in fiscal 1995.
The lower sales of remote sensing systems had a significant negative impact on
fiscal 1996 financial results because the Company had anticipated that
increased sales of those products would replace the expected decline in sales
of DoD products. Those lower-than-expected sales, costs associated with
cancellation of an $8.8 million order for a remote sensing system,
restructuring charges and product development expenses related to the
Company's new mobile satellite television reception systems were primarily
responsible for the net loss.
In March 1996, the Company announced its plan to consolidate its image
processing division in San Jose, California with its remote sensing earth
station business in Simi Valley, California. Both of those functions are part
of the Antenna and Imaging Systems business segment. Consolidation of those
functions is expected to provide a more integrated solution to the needs of
customers and to reduce future operating costs. In connection with the
consolidation, the Company recorded a restructuring charge of $1,421,000
($855,000, or $0.32 per share, after taxes). Major categories of costs and
expenses included in the restructuring charge were estimated employee
severance, $683,000; goodwill write-off, $679,000; and estimated future losses
on facility lease, $59,000.
3
<PAGE>
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain forward-looking statements. Actual results
could differ materially. Reference is hereby made to the statement of
Investment Considerations contained in Part I, Item 1 of the Company's Form
10-K, which is available from the Company upon request. 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):
<TABLE>
<CAPTION>
COMMUNICATION PRODUCTS AND SERVICES
Years Ended March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $29,293 $27,936 $32,699
======= ======= ========
Percent of consolidated net sales 48% 40% 50%
=== === ===
Gross profit $9,531 $9,640 $11,569
Operating expenses before corporate
expenses and restructuring 6,660 5,486 5,241
------ ------ -------
Operating income $2,871 $4,154 $6,328
====== ====== ======
Percent of consolidated operating
income before corporate expenses
and restructuring 237% 51% 78%
==== === ===
</TABLE>
Sales of Communication Products and Services increased $1,357,000, or 5%, in
fiscal 1996 compared with fiscal 1995 sales. The increase was due to higher
sales of standard radio products. Sales of radio products to an Asian
customer accounted for $11,457,000, or 39%, of this segment's fiscal 1996
sales. Sales of Communication Products and Services decreased $4,763,000, or
15%, in fiscal 1995 compared with fiscal 1994 sales. The decrease was
primarily the result of not completely replacing an $18 million sale in fiscal
1994 to a European customer. One customer will often account for a large
percentage of this segment's annual sales; however, it is unusual to have
large sales from the same customer in successive years.
Gross margin on Communication Products and Services sales was 32.5% in fiscal
1996 compared with 34.5% in fiscal 1995 and 35.4% in fiscal 1994. The decline
in fiscal 1996 from fiscal 1995 was primarily due to a less favorable mix of
products and services and to higher materials costs. The decline in fiscal
1995 from fiscal 1994 was primarily due to poor margins associated with a new
radio telephone product. Sales of that product have been discontinued.
Operating income for Communication Products and Services was 9.8% of sales in
fiscal 1996 compared with 14.9% of sales in fiscal 1995 and 19.4% of sales in
fiscal 1994. The decrease in fiscal 1996 compared with fiscal 1995 was due to
lower gross margins, higher international selling expenses, higher new product
development expenses and higher administrative expenses related to the
Company's decision not to continue pursuit of the satellite paging business.
The decrease in fiscal 1995 compared with fiscal 1994 resulted primarily from
higher selling expenses related to initial sales of new communication systems
and services and to lower gross margins. Because an operating loss was
incurred in the Antenna and Imaging Systems business segment in fiscal 1996,
237% of consolidated operating income before corporate expenses and
restructuring was attributed to the Communication Products and Services
business segment in fiscal 1996.
4
<PAGE>
ANTENNA AND IMAGING SYSTEMS
Years Ended March 31,
1996 1995 1994
---- ---- ----
Net sales $31,872 $42,097 $32,937
======= ======= =======
Percent of consolidated net sales 52% 60% 50%
=== === ===
Gross profit $8,682 $12,733 $8,976
Operating expenses before corporate
expenses and restructuring 10,341 8,768 7,159
------ ------- ------
Operating (loss) income $(1,659) $3,965 $1,817
======== ====== ======
Percent of consolidated operating
income before corporate expenses
and restructuring (137%) 49% 22%
====== === ===
The business of the Antenna and Imaging Systems segment was adversely affected
in fiscal 1996 by the cancellation of a major order. In the third quarter of
fiscal 1996, the Company learned that its customer for an $8.8 million remote
sensing satellite (RSS) image processing facility intended for installation in
the Middle East was not able to obtain funding for the order. The Company had
booked and announced this order in July 1995 and commenced work on it shortly
thereafter. The Company's customer, who was acting as prime contractor for a
larger project that included the RSS facility, was not able to obtain funding
from its customer for the image processing facility. Because the order was
conditioned upon funding, and after an extensive assessment of its likelihood
of being funded, the Company canceled the order in January 1996 for lack of
payment.
The Company concluded, because the RSS order was conditioned upon funding that
had not been obtained, that its financial statements for the second quarter
ended September 30, 1995 required restatement to remove from net sales for the
quarter $1,785,000 attributable to the order and originally included in net
sales using the percentage completion method of accounting. The canceled RSS
order also had a significant impact on financial results for the third and
fourth quarters of fiscal 1996, and was a major factor in the Company's
decision to consolidate its image processing division with its remote sensing
earth station business, which led to the $1,421,000 restructuring charge
described above.
Sales of Antenna and Imaging Systems decreased $10,225,000, or 24%, in fiscal
1996 compared with fiscal 1995 sales. Lower sales of DoD products and remote
sensing systems were responsible for most of the decrease. Because of the
expected decline in defense business, this segment has been pursuing new
markets for its products. In fiscal 1996, sales of remote sensing systems
were expected to replace declining DoD sales. Because of the canceled RSS
order and because the awards of several other such systems have been delayed,
sales of remote sensing systems failed to replace the declining DoD sales. It
is uncertain whether those delayed orders will be awarded and whether the
Company will receive them if they are awarded. Sales of Antenna and Imaging
Systems increased $9,160,000, or 28%, in fiscal 1995 compared with fiscal 1994
sales. Remote sensing satellite earth stations and image processing systems
were responsible for most of the sales increase. Approximately half of this
growth was due to sales resulting from the Company's acquisition of
International Imaging Systems (I2S) in August 1994.
Gross margin on Antenna and Imaging Systems sales was 27.2% in fiscal 1996
compared with 30.2% in fiscal 1995 and 27.2% in fiscal 1994. The decrease in
fiscal 1996 from fiscal 1995 was primarily due to higher expenses associated
with sales of remote sensing systems and to the write-off of non recoverable
costs associated with the canceled RSS order. The increase in fiscal 1995
compared with fiscal 1994 was primarily due to lower overhead expenses,
partially offset by higher materials costs resulting from changes in product
mix.
Antenna and Imaging Systems incurred an operating loss before provision for
the restructuring of 5.2% of sales in fiscal 1996 compared with operating
income of 9.4% of sales in fiscal 1995 and 5.5% of sales in fiscal 1994. The
5
<PAGE>
loss in fiscal 1996 was primarily due to lower gross margins, higher new
product development expenses and higher selling expenses resulting from the
first full year of consolidation with I2S since its acquisition. The increase
in fiscal 1995 compared with fiscal 1994 resulted primarily from higher gross
margins and from lower performance-based bonuses.
Consolidated expenses were as follows:
Selling, general and administrative (SG&A) expenses were $15,101,000 in fiscal
1996 compared with $14,111,000 in fiscal 1995 and $13,366,000 in fiscal 1994.
Fiscal 1996 SG&A expenses increased 7% over fiscal 1995 SG&A expenses due to
higher international selling expenses in both business segments, partially
offset by lower administrative expenses. Fiscal 1995 SG&A expenses increased
6% over fiscal 1994 SG&A expenses as higher expenses resulting from the
acquisition of I2S and from more extensive international marketing efforts
were partially offset by lower administrative expenses resulting from lower
performance-based bonuses and from the absence of corporate office relocation
expenses incurred in fiscal 1994.
Research and development (R&D) expenses were $3,280,000 in fiscal 1996
compared with $1,768,000 in fiscal 1995 and $1,116,000 in fiscal 1994. Fiscal
1996 R&D expenses increased 86% over fiscal 1995 R&D expenses due to
acceleration of development programs for direct broadcast satellite (DBS)
television reception systems for recreational vehicles, long-haul trucks and
commercial aviation, and also due to development of image processing
capabilities for the remote sensing agricultural services market. The Company
has identified the DBS television market for the mobile user as a potential
major new market for its products. The Company believes that most of the
development work necessary to enter the DBS market has been completed, and
although new products and enhancements to existing products are planned, R&D
expenditures are expected to decline in fiscal 1997. Fiscal 1995 R&D expenses
increased 58% over fiscal 1994 R&D expenses due to further development of the
Company's remote sensing earth stations and image processing systems, to
development of a new handheld encrypted frequency hopping radio and to initial
development of DBS television reception systems.
Interest expense in fiscal 1996 was $238,000 compared with $190,000 in fiscal
1995, an increase of 25%. The increase was due to higher levels of term debt
during fiscal 1996. Interest expense in fiscal 1995 was $190,000 compared
with $782,000 in fiscal 1994, a decrease of 76%. The reduction was due to
significantly lower levels of term debt during fiscal 1995 compared with
fiscal 1994 and to the termination of the Company's interest rate swap in the
first quarter of fiscal 1995.
In April 1991, the Company entered into a ten-year interest rate swap to
reduce the impact of changes in interest rates on its revolving line of
credit. Because the Company had no outstanding borrowings against its line of
credit at the end of fiscal 1994, the swap was no longer considered to be a
hedge. Consequently, it was marked to market, resulting in a loss of $400,000
in fiscal 1994. The swap agreement was terminated in June 1994 with no
additional significant effect on operations.
In fiscal 1994, the Company recorded other income of $2,194,000, consisting of
the following components:
<TABLE>
<CAPTION>
Income (Loss)
Pre-Tax After-Tax Per Share
------- --------- -------------
<S> <C> <C> <C>
Favorable litigation settlement $2,250,000 $1,448,000 $0.57
Loss on interest rate swap (400,000) (257,000) (0.10)
Gain on sale of product line 344,000 221,000 0.09
---------- ---------- -----
Total $2,194,000 $1,412,000 $0.56
========== ========== =====
</TABLE>
The effective income tax (benefit) provision rates for fiscal years 1996, 1995
and 1994 were (39.8)%, 37.8% and 35.6%, respectively. The higher rate of
benefit for fiscal 1996 compared with the provision rate for fiscal 1995 was
primarily due to the new California investment tax credit. The provision rate
for fiscal 1995 was higher than the provision rate for fiscal 1994 primarily
due to lower tax benefits related to the Company's foreign sales corporation
earnings in fiscal 1995 compared with fiscal 1994.
6
<PAGE>
Order backlog at March 31:
1996 1995
---- ----
Communication Products and Services $2,801,000 $ 5,175,000
Antenna and Imaging Systems 19,321,000 24,070,000
----------- -----------
Total $22,122,000 $29,245,000
=========== ===========
The 46% decrease in Communication Products and Services backlog at March 31,
1996 compared with the prior year was due to low order bookings in the fourth
quarter ended March 31, 1996. Although recent order bookings have been low,
it is common for order bookings in that business segment to vary widely from
quarter to quarter. The 20% decrease in Antenna and Imaging Systems backlog
at March 31, 1996 was primarily due to lower bookings of remote sensing
systems and to a continued decline in DoD business. Not included in the order
backlog figure at March 31, 1996 are $14.2 million of contingent orders from
distributors for DBS television reception systems that are subject to
cancellation without recourse.
Liquidity and Capital Resources
At March 31, 1996, working capital was $18,042,000 compared with $14,241,000
at March 31, 1995, an increase of $3,801,000 or 27%. Significant changes
affecting working capital during fiscal 1996 were the following: inventories
increased $5,807,000 primarily to meet production requirements for anticipated
radio orders and for the new DBS television reception system products;
accounts receivable decreased $2,594,000 primarily due to lower fourth quarter
sales in fiscal 1996; income taxes payable decreased $2,311,000 due to final
settlement of an IRS audit and due to the operating loss incurred in fiscal
1996; and other current assets increased $1,843,000 due to an income tax
receivable resulting from overpayment of estimated taxes and from the
Company's net operating loss carry back. The Company's cash position at March
31, 1996 was $1,393,000 compared with $3,510,000 at March 31, 1995, a decrease
of 60%. At March 31, 1996, the Company had borrowed $5,200,000 in term debt
from its bank to meet operating cash requirements. The Company had no long-
term debt at March 31, 1995.
Capital expenditures were $2,683,000 in fiscal 1996 compared with $2,306,000
in fiscal 1995. Capital expenditures in fiscal 1997 are expected to be lower
than they were in fiscal 1996.
At March 31, 1996, the Company had a $26,535,000 revolving line of credit with
its bank that contains an $18,000,000 credit limit for the issuance of letters
of credit and an $8,535,000 credit limit for direct working capital advances.
In May 1996, the Company amended its revolving line of credit with its bank.
The amended agreement provides a committed revolving line of credit in the
amount of $19,500,000, of which up to $12,000,000 may be used for the issuance
of letters of credit and up to $10,500,000 may be used for direct working
capital advances provided that total credit extended does not exceed
$19,500,000. The Company believes that its existing working capital,
anticipated future cash flows from operations and available credit with its
bank are sufficient to finance its 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.
7
<PAGE>
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.
8
<PAGE>
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,393,000 $3,510,000
Accounts receivable, net 15,017,000 17,611,000
Inventories 15,808,000 10,001,000
Deferred income taxes 2,602,000 2,579,000
Prepaid expenses and other current assets 2,478,000 635,000
------------ ------------
Total current assets 37,298,000 34,336,000
Property, plant and equipment, net 13,835,000 14,155,000
Goodwill, net 6,056,000 6,977,000
Investment 890,000 ---
Other assets 380,000 476,000
------------ ------------
Total assets $58,459,000 $55,944,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,490,000 $8,909,000
Accrued expenses 5,405,000 5,740,000
Customer advances 3,693,000 2,457,000
Income taxes payable 240,000 2,551,000
Current portion of restructuring reserve 1,428,000 438,000
------------ ------------
Total current liabilities 19,256,000 20,095,000
Long-term debt 5,200,000 ---
Restructuring reserve 1,063,000 2,144,000
Deferred income taxes 1,069,000 817,000
Other liabilities --- 23,000
------------ ------------
Total liabilities 26,588,000 23,079,000
------------ ------------
Commitments and contingencies -- Note 10
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,
3,063,937 shares issued in 1996
and 1995 31,000 31,000
Additional paid-in capital 10,568,000 10,587,000
Retained earnings 24,149,000 25,390,000
Treasury stock, at cost; 459,745 and
504,314 shares in 1996 and 1995,
respectively (2,633,000) (2,979,000)
Stock option plan and stock purchase
plan notes receivable (244,000) (164,000)
---------- ----------
Total stockholders' equity 31,871,000 32,865,000
---------- ----------
Total liabilities and stockholders' equity $58,459,000 $55,944,000
=========== ===========
See notes to consolidated financial statements.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
-----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $61,165,000 $70,033,000 $65,636,000
Cost of sales 42,952,000 47,660,000 45,091,000
------------ ------------ ------------
Gross profit 18,213,000 22,373,000 20,545,000
Selling, general
and administrative 15,101,000 14,111,000 13,366,000
Research and development 3,280,000 1,768,000 1,116,000
Restructuring 1,421,000 --- ---
------------ ------------ ------------
Operating (loss) income (1,589,000) 6,494,000 6,063,000
Interest expense (238,000) (190,000) (782,000)
Interest income 27,000 20,000 52,000
Other (expense) income (261,000) (22,000) 2,194,000
------------ ------------ ------------
(Loss) income before income
taxes and cumulative
effect of accounting change (2,061,000) 6,302,000 7,527,000
Income taxes (benefit) (820,000) 2,382,000 2,683,000
------------ ------------ ------------
(Loss) income before cumulative
effect of accounting change (1,241,000) 3,920,000 4,844,000
Cumulative effect of change in
accounting for income taxes --- --- 407,000
------------ ------------ ------------
Net (loss) income ($1,241,000) $3,920,000 $5,251,000
============ ============ ============
(Loss) income per share
(Loss) income before
cumulative effect of
accounting change ($0.46) $1.51 $1.94
Cumulative effect of change
in accounting for income
taxes --- --- 0.16
------------ ------------ ------------
Net (loss) income per share ($0.46) $1.51 $2.10
============ ============ ============
Weighted average number of
common and common equivalent
shares outstanding 2,669,000 2,600,000 2,503,000
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Stk Option Plan
Additional and Stk Purchase
Common Stock Paid-In Retained Treasury Plan Notes
Shares Par Value Capital Earnings Stock Receivable Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1993 2,471,896 $30,000 $10,573,000 $16,219,000 ($3,507,000) ($254,000) $23,061,000
Payment of stock purchase
plan note receivable 90,000 90,000
Stock options exercised
for treasury stock and
tax benefits 36,618 (98,000) 297,000 199,000
Net income 5,251,000 5,251,000
----------------------------------------------------------------------------------------
Balance at March 31, 1994 2,508,514 30,000 10,475,000 21,470,000 (3,210,000) (164,000) 28,601,000
Stock issued in connection
with acquisition of business 20,689 1,000 174,000 175,000
Purchase of treasury stock (4,472) (51,000) (51,000)
Stock options exercised
for treasury stock and
tax benefits 34,892 (62,000) 282,000 220,000
Net income 3,920,000 3,920,000
----------------------------------------------------------------------------------------
Balance at March 31, 1995 2,559,623 31,000 10,587,000 25,390,000 (2,979,000) (164,000) 32,865,000
Purchase of treasury stock (4,401) (51,000) (51,000)
Stock options exercised
for treasury stock and
tax benefits 48,970 (37,000) 397,000 (80,000) 280,000
Stock option compensation 18,000 18,000
Net loss (1,241,000) (1,241,000)
-----------------------------------------------------------------------------------------
Balance at March 31, 1996 2,604,192 $31,000 $10,568,000 $24,149,000 ($2,633,000) ($244,000) $31,871,000
=========================================================================================
See notes to consolidated financial statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) income ($1,241,000) $3,920,000 $5,251,000
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 3,317,000 2,366,000 1,981,000
Restructuring 588,000 (603,000) (1,753,000)
Changes in operating assets and liabilities:
Accounts receivable 2,594,000 (293,000) (3,284,000)
Inventories (5,807,000) (1,646,000) 7,989,000
Deferred income taxes 229,000 (146,000) 106,000
Prepaid expenses and other assets (1,819,000) (128,000) 893,000
Accounts payable and accrued expenses (754,000) 2,699,000 380,000
Customer advances 1,236,000 (3,564,000) (2,082,000)
Income taxes payable (2,311,000) 931,000 1,620,000
Other liabilities (23,000) (577,000) 400,000
------------ ------------ ------------
Net cash (used in) provided by operating activities (3,991,000) 2,959,000 11,501,000
------------ ------------ ------------
Cash Flows from Investing Activities
Additions to property, plant and equipment (2,683,000) (2,306,000) (1,572,000)
Purchase of investment (890,000) --- ---
Proceeds from sale of product line --- 1,148,000 ---
Acquisition of business --- (415,000) ---
------------ ------------ ------------
Net cash used in investing activities (3,573,000) (1,573,000) (1,572,000)
------------ ------------ ------------
Cash Flows from Financing Activities
Increase (decrease) in long-term debt 5,200,000 --- (8,825,000)
Stock options exercised and tax benefits 378,000 220,000 199,000
Purchase of treasury stock (51,000) (51,000) ---
Payment (advanced) received against stock option
plan and stock purchase plan notes receivable (80,000) --- 90,000
------------ ------------ ------------
Net cash provided by (used in) financing activities 5,447,000 169,000 (8,536,000)
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents (2,117,000) 1,555,000 1,393,000
Cash and cash equivalents at beginning of year 3,510,000 1,955,000 562,000
------------ ------------ ------------
Cash and cash equivalents at end of year $1,393,000 $3,510,000 $1,955,000
============ ============ ============
Supplemental Cash Flow Information:
Interest paid $224,000 $248,000 $949,000
Income taxes paid $3,306,000 $1,558,000 $1,399,000
Schedule of Noncash Investing Activities
Relating to Acquisition of Business:
Noncash assets acquired $ --- $3,563,000 $ ---
Liabilities assumed --- (2,973,000) ---
Common stock issued --- (175,000) ---
------------ ------------ ------------
Cash paid $ --- $415,000 $ ---
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
12
<PAGE>
DATRON SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Datron Systems Incorporated and its wholly owned subsidiaries (the Company)
provide high-quality radio and other wireless communication products to a
worldwide market through its Communication Products and Services business
segment and satellite communication and image processing systems through its
Antenna and Imaging Systems business segment. Communication products include
HF (high frequency) and VHF (very high frequency) radio products and
communication systems that are designed and manufactured in Escondido,
California. These products are sold worldwide through a network of Company
salespersons and independent dealers and sales representatives. The Antenna
and Imaging Systems business segment designs and manufactures specialized
satellite communication systems, subsystems and antennas that are sold
worldwide to commercial and governmental customers, including the U.S.
Department of Defense. It provides earth station hardware, software and image
processing systems for the remote sensing satellite systems market, and has
recently introduced a mobile satellite television reception system for
recreational vehicles and long-haul trucks. This business segment operates
from facilities in Simi Valley, California.
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.
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
disclosure of contingent assets and liabilities at the date of the financial
statements, and 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
original maturities of three months or less and which are readily convertible
into cash.
Inventories
Inventories are carried at the lower of cost (first-in, first-out) or
market (determined on the basis of estimated realizable value).
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Useful lives range from two to ten years for machinery and equipment
and furniture and fixtures, and from twenty to forty years for buildings and
building improvements. Leasehold improvements are amortized over the related
lease term.
13
<PAGE>
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 periods ranging from 20 to 38 years. The
recoverability of goodwill is evaluated on a recurring basis utilizing the
fair value methodology. As part of the restructuring charge at March 31,
1996, $679,000 in goodwill was written off. See Note 4. Accumulated
amortization of goodwill was $1,646,000 at March 31, 1996 and $1,464,000 at
March 31, 1995.
Investment
Investment represents preferred stock of EarthWatch Incorporated. It is
being carried at cost, which the Company believes approximates its fair value
based upon other recent sales of similar securities.
Treasury Stock
Repurchased shares of the Company's common stock are included in treasury
stock at cost. Shares issued from treasury stock for exercise of stock
options are issued at original cost on a first-in, first-out basis.
Revenue Recognition
Revenue from product sales is generally recognized at the time of shipment.
Revenue from certain fixed-price contracts requiring substantial performance
over several periods prior to commencement of deliveries is accounted for
under the percentage-of-completion (cost-to-cost) method of accounting.
Expected profits or losses on these contracts are based upon 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.
Income Taxes
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards 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 basis of assets and
liabilities.
(Loss) Income Per Share
Shares used in computing (loss) income per share include the weighted
average of common stock outstanding plus equivalent shares issuable under the
Company's stock option plans.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-
Based Compensation," which will be effective for the Company beginning April
1, 1996. SFAS No. 123 requires expanded disclosures for stock-based
compensation arrangements with employees and encourages (but does not require)
14
<PAGE>
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply
APB Opinion No. 25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will continue to apply
APB Opinion No. 25 to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and income per
share.
NOTE 3. OTHER (EXPENSE) INCOME
In August 1993, the Company was informed that it had received a favorable
decision in its litigation against Navcom Defense Electronics, Inc. (Navcom).
The court found that the Company had suffered damages of $6,950,000 and was
entitled to a judgment in that amount. In September 1993, the Company reached
a conditional settlement with Navcom and received a payment of $2,250,000, and
the Company and Navcom agreed to release any claims they may have against the
other in the absence of certain future events. Such future events did not
occur and the Company recorded the $2,250,000 settlement as income during the
quarter ended December 31, 1993. Losses associated with the litigation were
recorded in prior periods.
In April 1991, the Company entered into a ten-year interest rate swap to
reduce the impact of changes in interest rates on its revolving line of
credit. Quarterly interest payments on $5,000,000 of principal (reducing by
$250,000 annually and which at March 31, 1994 was $4,500,000) were paid by the
Company to the bank at a fixed annual interest rate of 8.72%, and London
Interbank Borrowing Rate (LIBOR) interest on the same principal was paid to
the Company by the bank. At March 31, 1994, the Company had no outstanding
borrowings against its revolving line of credit and provision for a loss of
$400,000 on the interest rate swap was made at that time. This amount was
estimated by discounting the expected cash flows using rates currently
available for interest rate swaps of similar terms and maturities. The
interest rate swap was terminated in June 1994.
In the first quarter ended June 30, 1993, the Company sold one of its
product lines in the Antenna and Imaging Systems business segment. A gain
from that sale in the amount of $344,000 was recorded in that quarter. In the
third quarter ended December 31, 1994, the Company sold another product line
in the same business segment and recorded a loss from that sale of $22,000.
NOTE 4. RESTRUCTURING
In March 1996, the Company announced its plan to consolidate its image
processing division in San Jose, California with its remote sensing earth
station business in Simi Valley, California. In connection with this
decision, a restructuring charge in the amount of $1,421,000 ($855,000, or
$0.32 per share, after taxes) was recorded in the fourth quarter ended March
31, 1996. The major categories of costs and expenses included in this
restructuring charge are as follows:
Estimated employee severance $ 683,000
Goodwill write-off 679,000
Estimated future losses on facility lease 59,000
----------
Total $1,421,000
==========
In fiscal 1993, the Company restructured its Antenna and Imaging Systems
business segment. The restructuring reserve at March 31, 1996 and 1995
includes remaining estimated future losses on the Company's Camarillo,
California facility lease of $2,166,000 and $2,582,000, respectively.
NOTE 5. ACQUISITION OF BUSINESS
On August 11, 1994, the Company acquired the business and assets of
International Imaging Systems, Inc. (I2S), a privately held company located in
15
<PAGE>
Milpitas, California. I2S was the Company's joint venture partner in DI2S,
which was formed in August 1993 to provide complete remote sensing satellite
earth stations. The Company made an initial payment to I2S of $250,000 for
the business and assets, $75,006 in cash and 20,689 shares of the Company's
common stock valued at $8.46 per share. Terms of the purchase agreement
provided for two additional payments to I2S if the acquired business achieved
minimum levels of profits and bookings during the Company's fiscal years
ending March 31, 1995 and March 31, 1996, respectively. No additional amounts
were incurred during either of these periods. The acquisition has been
accounted for as a purchase and the accounts of I2S have been included in the
accompanying financial statements since August 12, 1994. The $740,000 excess
of acquisition costs over fair value of assets acquired was recorded as
goodwill. At March 31, 1996, remaining goodwill from this acquisition in the
amount of $679,000 was written off as part of the Company's decision to
consolidate its remote sensing business. See Note 4.
NOTE 6. BALANCE SHEET INFORMATION
Accounts receivable at March 31:
1996 1995
----------- -----------
Billed $ 6,858,000 $ 7,363,000
Unbilled 8,406,000 10,495,000
----------- -----------
Subtotal 15,264,000 17,858,000
Allowance for doubtful accounts (247,000) (247,000)
----------- -----------
Total $15,017,000 $17,611,000
=========== ===========
Inventories at March 31:
1996 1995
----------- -----------
Raw materials $ 7,487,000 $ 4,038,000
Work-in-process 5,231,000 3,779,000
Finished goods 3,090,000 2,184,000
----------- -----------
Total $15,808,000 $10,001,000
=========== ===========
Inventories are presented net of allowances for obsolescence of $709,000
and $724,000 at March 31, 1996 and 1995, respectively.
Property, plant and equipment at March 31:
1996 1995
----------- -----------
Land and buildings $ 8,479,000 $ 8,406,000
Machinery and equipment 13,658,000 11,627,000
Furniture and office equipment 1,462,000 1,365,000
Leasehold improvements 910,000 706,000
Construction-in-process 183,000 404,000
--------- ----------
Subtotal 24,692,000 22,508,000
Accumulated depreciation
and amortization (10,857,000) (8,353,000)
----------- -----------
Total $13,835,000 $14,155,000
=========== ===========
Accrued expenses at March 31:
1996 1995
----------- -----------
Salaries and employee benefits $ 2,523,000 $ 2,539,000
Warranty allowance 1,015,000 749,000
Commission and service fees 573,000 503,000
Contract loss allowance 119,000 453,000
Other 1,175,000 1,496,000
----------- ----------
Total $ 5,405,000 $ 5,740,000
=========== ===========
16
<PAGE>
NOTE 7. LONG-TERM DEBT
At March 31, 1996, the Company had a committed revolving line of credit
with its bank of $26,535,000. The line of credit expires on December 31, 1997
and, prior to the amendment discussed below, contained an $18,000,000 credit
limit for the issuance of letters of credit and an $8,535,000 credit limit for
direct working capital advances. Interest is payable on borrowings under the
line of credit at the bank's prime rate plus 0.50% or at LIBOR plus 1.50%, at
the option of the Company. At March 31, 1996, the bank's prime rate was
8.25%. The line of credit is secured by assets of the Company and contains
certain financial covenants with which the Company is in compliance. A
commitment fee of 0.25% is payable to the bank on the unused portion of the
working capital facility. At March 31, 1996, there were borrowings of
$5,200,000 under the line and the bank had issued letters of credit against
the line totaling $4,524,000. In May 1996, the Company amended its revolving
line of credit with its bank. The amended agreement provides a committed
revolving line of credit in the amount of $19,500,000, of which up to
$12,000,000 may be used for the issuance of letters of credit and up to
$10,500,000 may be used for direct working capital advances. Total credit
extended may not exceed $19,500,000.
The Company believes that the carrying amount of its outstanding long-term
debt at March 31, 1996 and 1995 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, 1996 and 1995 for loans with similar terms and
maturities.
NOTE 8. INCOME TAXES
Effective April 1, 1993, the Company changed its method of accounting for
income taxes from the provisions of Accounting Principles Board Opinion No.
11, "Accounting for Income Taxes" (Deferred Method) to the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Liability Method). The cumulative effect of this accounting change on
the Company's financial statements was to increase net income by $407,000
($0.16 per share) for fiscal year 1994.
The Company's deferred income tax assets and liabilities at March 31 are as
follows:
1996 1995
---------- ----------
Deferred income tax assets:
Contract loss and other allowances $1,690,000 $1,755,000
Restructuring reserve 1,078,000 1,118,000
Accrued employee benefits 378,000 434,000
State taxes 133,000 200,000
Other 261,000 135,000
---------- ---------
Total 3,540,000 3,642,000
---------- ---------
Deferred income tax liabilities:
Depreciation (1,790,000) (1,694,000)
Other ( 217,000) ( 186,000)
---------- ----------
Total (2,007,000) (1,880,000)
----------- ----------
Net deferred income tax asset $1,533,000 $ 1,762,000
=========== ==========
17
<PAGE>
The (benefit) provision for income taxes for the years ended March 31 are
as follows:
1996 1995 1994
----------- ---------- -----------
Federal:
Current $(1,059,000) $ 1,751,000 $ 1,375,000
Deferred 335,000 17,000 592,000
State:
Current 10,000 777,000 411,000
Deferred (106,000) (163,000) 305,000
---------- ----------- -----------
Total $ (820,000) $ 2,382,000 $ 2,683,000
=========== =========== ===========
The (benefit) provision for income taxes differs from the federal statutory
tax rate for the years ended March 31 due to the following:
1996 1995 1994
----------- ----------- -----------
Expected (benefit) tax
at statutory rate $ (701,000) $ 2,143,000 $ 2,559,000
State (benefit) tax,
net of federal tax effect ( 63,000) 405,000 472,000
Foreign Sales Corporation
earnings 116,000) ( 309,000) ( 406,000)
Goodwill amortization 70,000 70,000 69,000
Other differences ( 10,000) 73,000 ( 11,000)
----------- ----------- -----------
Total $ (820,000) $ 2,382,000 $ 2,683,000
=========== =========== ===========
NOTE 9. 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. As of March 31, 1996,
15,000 shares of common stock had been issued in connection with the exercise
of an option granted pursuant to the 1985 plan for which $80,000 of the
exercise price received was in the form of a secured promissory note. The
note is due June 11, 1998 and bears interest at 6.27% per annum.
In February 1995, the Company adopted the 1995 Stock Option Plan (1995
Plan), which was approved by the Company's stockholders at the 1995 Annual
Meeting. The 1995 Plan permits up to 500,000 shares of common stock to be
issued upon the exercise of options granted under the 1995 Plan. However,
because the number of shares available for issuance under the 1995 Plan was
reduced by the number of options granted and outstanding under the 1985 Plan
at the time of its expiration in May 1995, the effective number of shares
authorized for issuance under the 1995 Plan is 206,700, of which 61,073 were
available under the 1985 Plan at the time of its expiration. Terms of
issuance and exercise of options granted under the 1995 Plan are similar to
those under the 1985 Plan.
18
Stock option activity for the three years ended March 31, 1996 is presented
below.
<TABLE>
<CAPTION>
Shares Available Options Outstanding
for Future Grant Shares Price Range
---------------- ------ ----------------
<S> <C> <C> <C>
Balance at April 1, 1993 113,233 297,650 $4.50 - $16.00
Granted (24,000) 24,000 $5.75 - $9.00
Canceled 16,340 (16,340) $4.50 - $10.50
Exercised (36,618) $4.50 - $5.50
------- ------- ----- ------
Balance at March 31, 1994 105,573 268,692 $4.68 - $16.00
Increase in shares available for grant 145,627
Granted (13,500) 13,500 $8.75 - $11.25
Canceled
Exercised (34,892) $4.68 - $5.50
------- ------- ----- ------
Balance at March 31, 1995 237,700 247,300 $4.68 - $16.00
Granted (84,500) 84,500 $11.75 - $19.00
Canceled 12,680 (12,680) $ 5.75 - $15.73
Exercised (48,970) $ 4.68 - $10.50
------- ------- ------ ------
Balance at March 31, 1996 165,880 270,150 $ 4.68 - $19.00
======= ======= ====== ======
</TABLE>
Options to purchase 182,650 shares were exercisable at March 31, 1996.
In March 1988, the Company adopted the 1988 Key Employee Stock Purchase
Plan (Purchase Plan). Under terms of the Purchase Plan, 75,000 shares of
common stock may be made available for purchase at fair market value to key
employees as determined by the board of directors. As of March 31, 1996,
50,000 shares had been purchased pursuant to the Purchase Plan, and a note
receivable in the amount of $164,000 due April 11, 1996 at an interest rate of
3.75% was outstanding. On April 11, 1996, the maturity date of that note was
extended to April 11, 1999 at an interest rate of 4.99%.
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 zero, $186,000 and
$265,000 for the fiscal years ended March 31, 1996, 1995 and 1994,
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. Such amounts were zero and $33,000 for the fiscal years
ended March 31, 1996 and 1995, respectively.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company leases certain production and office facilities and certain
equipment under noncancelable operating leases. As a result of the fiscal
year 1993 restructuring, a portion of one of the Company's production
facilities has been subleased to a subtenant whose sublease expires on August
31, 1996. The Company's Milpitas facility has been subleased to two subtenants
whose subleases expire on December 31, 1996. Future minimum operating lease
obligations for each of the years ended March 31 are as follows:
19
<PAGE>
<TABLE>
<CAPTION>
Total Lease Sublease Net Lease
Year Obligation Income Obligation
- - ---- ---------- ----------- -----------
<S> <C> <C> <C>
1997 $ 2,062,000 $ (372,000) $ 1,690,000
1998 1,685,000 1,685,000
1999 770,000 770,000
2000 37,000 37,000
2001 16,000 16,000
------------ ------------ -----------
Total $ 4,570,000 $ (372,000) $ 4,198,000
============ ============ ===========
</TABLE>
Approximately $2,225,000 of this future net lease obligation is included
in the restructuring reserve. See Note 4.
Total rent expense under noncancelable operating leases was $787,000,
$681,000 and $592,000 for the fiscal years ended March 31, 1996, 1995 and
1994, respectively. Additional rent payments in the amounts of $465,000,
$333,000 and $661,000 were charged to the restructuring reserve during the
fiscal years ended March 31, 1996, 1995 and 1994, respectively.
In the normal course of business, the Company is subject to claims and
litigation that may be raised by governmental agencies in connection with the
Company's long-term contract business. In connection with a Defense Contract
Audit Agency (DCAA) audit of a $9.6 million U.S. Navy contract completed in
1989, DCAA has submitted a report to the Contracting Officer alleging
deficiencies in the information provided to the Navy at the time the contract
was negotiated and recommending a reduction in the contract value of $2.7
million. During the fiscal year ended March 31, 1995, DCAA amended its
recommendation to a reduction in contract value of $1.9 million. The Company
is confident that its actions have been appropriate at all times and believes
that the conclusions in the DCAA report are erroneous; the Company intends to
challenge the report and its conclusions vigorously. Due to extensive
administrative proceedings, the Company does not expect an early resolution of
this matter, and there was no activity on this matter during fiscal 1996. In
the opinion of management, resolution of this and other such matters would not
materially affect the consolidated financial position of the Company.
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. Trans World has denied the claims and
intends to defend the lawsuit vigorously. Similar claims originally filed
against Datron Systems Incorporated have been dismissed by the court. In the
opinion of management, resolution of this matter would not materially affect
the consolidated financial position of the Company.
20
<PAGE>
NOTE 11. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two business segments: Communication Products and
Services, and Antenna and Imaging Systems. See Note 1. The following table
contains certain segment, geographic and customer information about the
Company's business:
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Communication Products and Services $29,293,000 $ 27,936,000 $32,699,000
Antenna and Imaging Systems 31,872,000 42,097,000 32,937,000
----------- ------------ -----------
Total $61,165,000 $ 70,033,000 $65,636,000
=========== ============ ===========
Operating income (loss):
Communication Products and Services $ 2,871,000 $ 4,154,000 $ 6,328,000
Antenna and Imaging Systems (1,659,000) 3,965,000 1,817,000
----------- ------------ -----------
Total 1,212,000 8,119,000 8,145,000
=========== ============ ==========
Restructuring (1,421,000)
General corporate expenses (1,380,000) (1,625,000) (2,082,000)
Interest expense-net (211,000) (170,000) (730,000)
Other(expense)income (261,000) (22,000) 2,194,000
----------- ------------ -----------
(Loss) income before income taxes $(2,061,000) $ 6,302,000 $ 7,527,000
=========== ============ ===========
Identifiable assets:
Communication Products and Services $22,807,000 $ 18,623,000 $19,801,000
Antenna and Imaging Systems 29,076,000 29,148,000 24,621,000
Corporate 6,248,000 8,173,000 5,066,000
----------- ------------ -----------
Total $58,131,000 $ 55,944,000 $49,488,000
=========== ============ ===========
Capital additions:
Communication Products and Services $ 861,000 $ 1,176,000 $ 726,000
Antenna and Imaging Systems 1,821,000 1,122,000 758,000
Corporate 1,000 8,000 88,000
----------- ------------ -----------
Total $ 2,683,000 $ 2,306,000 $ 1,572,000
=========== =========== ===========
Depreciation and amortization:
Communication Products and Services $ 1,163,000 $ 856,000 $ 790,000
Antenna and Imaging Systems 2,141,000 1,469,000 1,022,000
Corporate 13,000 41,000 169,000
----------- ----------- -----------
Total $ 3,317,000 $ 2,366,000 $ 1,981,000
=========== =========== ===========
Net sales:
U.S. $25,697,000 $26,714,000 $28,991,000
Asia 20,116,000 13,912,000 7,432,000
Africa 6,493,000 14,529,000 4,341,000
Europe 4,846,000 9,829,000 22,602,000
Other 4,013,000 5,049,000 2,270,000
----------- ----------- -----------
Total $61,165,000 $70,033,000 $65,636,000
=========== =========== ===========
Sales for U.S. Department of Defense:
Communication Products and Services $ 529,000 $ 822,000 $ 2,029,000
Antenna and Imaging Systems 17,658,000 24,929,000 26,908,000
----------- ----------- -----------
Total $18,187,000 $25,751,000 $28,937,000
=========== =========== ===========
</TABLE>
21
<PAGE>
For the fiscal year ended March 31, 1996, one customer accounted for 39% of
Communication Products and Services net sales and one customer accounted for
15% of Antenna and Imaging Systems net sales. For the fiscal year ended March
31, 1995, one customer accounted for 36% of Communication Products and
Services net sales and one customer accounted for 10% of Antenna and Imaging
Systems net sales. For the fiscal year ended March 31, 1994, one customer
accounted for 55% of Communication Products and Services net sales.
NOTE 12. QUARTERLY FINANCIAL DATA - Unaudited
(in thousands, except per-share data)
<TABLE>
<CAPTION>
Fiscal Year 1996
------------------------------------------------------
Net Gross Net Income (Loss)
Sales Profit Income (Loss) Per Share
------- ------- ------------- -------------
<S> <C> <C> <C> <C>
First Quarter $14,356 $ 5,360 $ 415 $0.16
Second Quarter 15,660 4,930 327 0.12
Third Quarter 19,339 5,158 177 0.07
Fourth Quarter 11,810 2,765 (2,160) (0.81)
------- ------- ------- ------
Fiscal Year $61,165 $18,213 $(1,241) $(0.46)
======= ======= ======= ======
</TABLE>
The sequential improvement in net sales from the first through third
quarters was primarily due to increasing sales of radio communication
products. However, net income declined during these three quarters primarily
because of higher research and development expenses, higher selling expenses
and the write-off of non recoverable expenses associated with a remote sensing
order that the Company canceled in January 1996 for lack of payment. Net
sales declined in the fourth quarter due to lower sales of both remote sensing
systems and radio communication products. The net loss in the fourth quarter
was primarily due to lower gross profits on the lower sales and to a
restructuring charge of $1,421,000 ($855,000, or $0.32 per share, after taxes)
resulting from the Company's decision to consolidate its image processing
division in San Jose, California with its remote sensing earth station
business in Simi Valley, California.
<TABLE>
<CAPTION
Fiscal Year 1995
--------------------------------------
Net Gross Net Income
Sales Profit Income Per Share
------- ------ ------ -------
<S> <C> <C> <C> <C>
First Quarter $12,132 $4,140 $393 $0.15
Second Quarter 16,088 4,611 773 0.30
Third Quarter 18,151 5,533 926 0.36
Fourth Quarter 23,662 8,089 1,828 0.70
------- ------- ------ -----
Fiscal Year $70,033 $22,373 $3,920 $1.51
======= ======= ====== =====
</TABLE>
The sequential improvement in net sales and net income from the first
quarter through the fourth quarter was primarily the result of a lower backlog
at the beginning of the year and strong first half bookings. The higher sales
in the third and fourth quarter were also partly due to the acquisition of
International Imaging Systems in the second quarter.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Datron Systems Incorporated
Escondido, California
We have audited the accompanying consolidated balance sheets of Datron
Systems Incorporated and its subsidiaries as of March 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended March 31, 1996.
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 generally accepted auditing
standards. 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, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years
in the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
San Diego, California
May 10, 1996
23
DATRON SYSTEMS INCORPORATED
SUBSIDIARIES
MARCH 31, 1996
<TABLE>
<CAPTION>
Percentage of Jurisdiction
Voting Securities in which
Name Owned by Parent Incorporated
- - -------------------------------- ----------------- -------------
<S> <C> <S>
Datron World Communications Inc. 100% California
Datron/Transco Inc. 100% California
Datron/Trans World Communications
Int'l Ltd. (a Foreign
Sales Corporation) 100% U.S. Virgin Islands
</TABLE>
PROXY STATEMENT, NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
WEDNESDAY AUGUST 14, 1996 AT 11:00 A.M. AND FORM OF PROXY (TO BE DEEMED FILED
ONLY TO THE EXTENT REQUIRED BY THE INSTRUCTIONS TO EXHIBITS FOR REPORTS ON
FORM 10-K) TO BE FILED WITHIN 120 DAYS OF THE END OF THE REGISTRANT'S FISCAL
YEAR
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Numbers 2-99763, 33-16985 and 33-20785 of Datron Systems Incorporated on Form
S-8 of our reports dated May 10, 1996, appearing in and incorporated by
reference in the Annual Report on Form 10-K of Datron Systems Incorporated for
the year ended March 31, 1996.
DELOITTE & TOUCHE LLP
San Diego, California
June 25, 1996
EXHIBIT 24
POWER OF ATTORNEY
(on signature page 16)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,393
<SECURITIES> 0
<RECEIVABLES> 15,264
<ALLOWANCES> 247
<INVENTORY> 15,808
<CURRENT-ASSETS> 37,298
<PP&E> 24,692
<DEPRECIATION> 10,857
<TOTAL-ASSETS> 58,459
<CURRENT-LIABILITIES> 19,256
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 31,840
<TOTAL-LIABILITY-AND-EQUITY> 58,459
<SALES> 61,165
<TOTAL-REVENUES> 61,192
<CGS> 42,952
<TOTAL-COSTS> 42,952
<OTHER-EXPENSES> 20,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238
<INCOME-PRETAX> (2,061)
<INCOME-TAX> (820)
<INCOME-CONTINUING> (1,241)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,241)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
