UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-7445
DATRON SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 95-2582922
(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
3030 Enterprise Court, Vista, California 92083-8347
(Address of principal executive offices) (zip code)
(760) 734-5454
(Registrant's telephone number, including area code)
(Former name, former address and formal fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15 (d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of July 21, 2000, the Registrant had only one class of
common stock, par value $0.01, of which there were 2,730,199 shares
outstanding.
<PAGE>1
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS (In thousands)
June 30,
2000 March 31,
(Unaudited) 2000
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $7,278 $12,183
Accounts receivable, net 11,340 12,658
Inventories 11,705 11,626
Deferred income taxes 2,603 2,603
Prepaid expenses and other current assets 589 343
------ ------
Total current assets 33,515 39,413
Property, plant and equipment, net 9,141 9,427
Goodwill, net 5,186 5,237
Other assets 419 320
------- -------
Total assets $48,261 $54,397
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,353 $2,921
Accrued expenses 6,155 9,632
Customer advances 615 1,408
Income taxes payable 371 1,433
Current portion of long-term debt 91 90
----- ------
Total current liabilities 9,585 15,484
Long-term debt 3,056 3,080
Deferred income taxes 1,614 1,614
Deferred rent 118 103
------ ------
Total liabilities 14,373 20,281
------ ------
Stockholders' equity:
Preferred stock -- par value $0.01;
authorized 2,000,000 shares, none
issued or outstanding --- ---
Common stock -- par value $0.01;
authorized 10,000,000 shares,
3,106,881 and 3,098,943 shares
issued in June and March,
respectively 31 31
Additional paid-in capital 10,963 10,904
Retained earnings 25,133 25,460
Treasury stock, at cost; 376,682 and
387,303 shares in June and March,
respectively (2,075) (2,115)
Stock option plan and stock purchase
plan notes receivable (164) (164)
------ ------
Total stockholders' equity 33,888 34,116
------ ------
Total liabilities and stockholders'
equity $48,261 $54,397
====== ======
See notes to consolidated financial statements.
</TABLE>
<PAGE>2
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
June 30,
2000 1999
------- -------
<S> <C> <C>
Net sales $13,354 $13,523
Cost of sales 9,946 9,638
------ ------
Gross profit 3,408 3,885
Selling, general and administrative 2,996 2,807
Research and development 1,023 996
------ ------
Operating income (loss) (611) 82
Interest expense (53) (55)
Interest income 130 69
Other expense (8) (9)
----- -----
Income (loss) before income taxes (542) 87
Income taxes (benefit) (215) 35
----- -----
Net income (loss) ($327) $52
===== =====
Earnings (loss) per common share--basic ($0.12) $0.02
===== =====
Weighted average number of
common shares outstanding 2,721 2,696
===== =====
Earnings (loss) per common share--diluted ($0.12) $0.02
===== =====
Weighted average number of
common and common equivalent
shares outstanding 2,721 2,701
===== =====
See notes to consolidated financial statements.
</TABLE>
<PAGE>3
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited)
(In thousands)
Three Months Ended
June 30
2000 1999
------ ------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ($327) $52
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 482 535
Changes in operating assets and liabilities:
Accounts receivable 1,318 (1,237)
Inventories (79) (248)
Prepaid expenses and other assets (347) 314
Accounts payable and accrued expenses (4,045) (1,693)
Customer advances (793) l,210
Income taxes payable (1,062) 35
Deferred rent 15 58
Other 14 13
----- ----
Net cash used in operating activities (4,824) (961)
----- ----
Cash Flows from Investing Activities
Additions to property, plant and equipment (154) (410)
Proceeds from sales of property, plant and equipment --- 384
--- ---
Net cash used in investing activities (154) (26)
--- ---
Cash Flows from Financing Activities
Repayments of long-term debt (23) (21)
Stock options exercised 39 ---
Issuance of common stock 57 36
---- ----
Net cash provided by financing activities 73 15
---- ----
Decrease in cash and cash equivalents (4,905) (972)
Cash and cash equivalents at beginning of period 12,183 5,548
------ -----
Cash and cash equivalents at end of period $7,278 $4,576
====== =====
See notes to consolidated financial statements.
</TABLE>
<PAGE>4
Datron Systems Incorporated
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The unaudited consolidated financial statements included herein
contain the accounts of Datron Systems Incorporated and its
wholly owned subsidiaries (the "Company") and have been prepared
in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations.
It is suggested that these financial statements be read in
connection with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 2000.
In the opinion of the Company's management, the accompanying
unaudited financial statements contain all adjustments,
consisting only of normal recurring adjustments, unless otherwise
stated, which are necessary to present fairly its financial
position at June 30, 2000 and the results of its operations and
its cash flows for the periods presented. Results of operations
for the periods presented herein are not necessarily indicative
of what results will be for the entire fiscal year. The balance
sheet at March 31, 2000 has been derived from audited financial
statements.
2. Earnings (Loss) per Share
-------------------------
Basic earnings per share ("EPS") is calculated based on the
weighted average number of shares outstanding during the period.
Diluted EPS is calculated based on the weighted average number of
shares outstanding during the period plus equivalent shares
issuable under the Company's stock option plans when such amounts
are dilutive. Options to purchase 433,150 shares of common stock
at prices ranging from $5.10 to $15.73 were not included in the
computation of diluted EPS at June 30, 2000 because the effect of
such options would be anti-dilutive. Such options expire at
various dates from September 19, 2000 to May 16, 2010. At June
30, 1999, options to purchase 225,000 shares of common stock at
prices ranging from $7.23 to $15.73 were not included in the
computation of diluted EPS because the effect of such options
would be anti-dilutive.
3. Accounts Receivable
-------------------
At June 30, 2000 and March 31, 2000, accounts receivable were as
follows:
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------- -----------
<S> <C> <C>
Billed $ 7,231,000 $ 9,108,000
Unbilled 4,229,000 3,659,000
---------- ----------
Subtotal 11,460,000 12,767,000
Allowance for doubtful accounts (120,000) (109,000)
---------- ----------
Total $11,340,000 $12,658,000
========== ==========
</TABLE>
<PAGE>5
4. Inventories
-----------
At June 30, 2000 and March 31, 2000, inventories were as
follows:
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
---------- ----------
<S> <C> <C>
Raw materials $ 7,410,000 $ 7,587,000
Work-in-process 2,824,000 2,233,000
Finished goods 1,471,000 1,806,000
---------- ----------
Total $11,705,000 $11,626,000
========== ==========
</TABLE>
Inventories are presented net of allowances for obsolescence of
$1,480,000 and $1,572,000 at June 30, 2000 and March 31, 2000,
respectively.
5. Property, Plant and Equipment
-----------------------------
At June 30, 2000 and March 31, 2000, property, plant and
equipment was as follows:
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------- ----------
<S> <C> <C>
Land and buildings $ 8,902,000 $ 8,901,000
Machinery and equipment 15,370,000 15,298,000
Furniture and office equipment 1,542,000 1,548,000
Leasehold improvements 748,000 726,000
Construction-in-process 19,000 ---
---------- ----------
Subtotal 26,581,000 26,473,000
Accumulated depreciation and
amortization (17,440,000) (17,046,000)
----------- ----------
Total $ 9,141,000 $ 9,427,000
=========== ==========
</TABLE>
6. Segment Information
-------------------
Segment information was as follows for the periods shown:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
---------- -----------
<S> <C> <C>
Net sales:
Antenna and Imaging Systems $ 9,848,000 $ 9,862,000
Communication Products 3,506,000 3,661,000
----------- -----------
Consolidated net sales $13,354,000 $13,523,000
=========== ===========
Operating income (loss):
Antenna and Imaging Systems $ 206,000 $ 850,000
Communication Products (464,000) (438,000)
General corporate expenses (353,000) (330,000)
---------- ---------
Consolidated operating income (loss) (611,000) 82,000
Interest income, net 77,000 14,000
Other expense (8,000) (9,000)
--------- ---------
Income (loss) before income taxes $(542,000) $ 87,000
========= =========
</TABLE>
<PAGE>6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Datron Systems Incorporated and its wholly owned subsidiaries
(the "Company") report operations in two business segments:
Antenna and Imaging Systems, and Communication Products. The
Antenna and Imaging Systems business segment designs and
manufactures satellite communication systems, subsystems and
antennas that are sold worldwide to commercial and governmental
customers. Its major product lines are remote sensing satellite
earth stations, tracking antennas and systems for U.S. and
foreign governmental agencies (including the U.S. Department of
Defense ("DoD")) and commercial satellite service providers, and
mobile direct broadcast satellite ("DBS") television reception
systems for recreational vehicles, boats and large business jets.
The Communication Products business segment designs, manufactures
and distributes high frequency and very high frequency radios and
accessories for worldwide military and civilian purposes.
This Management's Discussion and Analysis of Financial Condition
and Results of Operations contains "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of
1995. A variety of factors could cause the Company's actual
results to differ from the anticipated results expressed in such
forward-looking statements. These include, among others,
uncertainties stemming from the dependence of the Company on
foreign sales and on large orders from a relatively small number
of customers, risks relating to the decline in the Company's
traditional defense business and the Company's efforts to develop
and market consumer products, lack of timely development or
customer acceptance of new products, changes in or unavailability
of products and services offered by satellite service providers
and their related suppliers, worldwide economic downturns and
currency devaluations, restrictions imposed by the U.S.
government on the export of Company products, and the impact of
competition. Investors are referred to the Company's periodic
reports under the Securities Exchange Act of 1934, including
without limitation the Investment Considerations set forth in the
Company's Annual Report on Form 10-K.
Results of Operations
---------------------
Net loss for the first quarter of fiscal 2001 was $327,000, or
$0.12 per diluted share, compared with net income of $52,000, or
$0.02 per diluted share, in the first quarter of fiscal 2000.
Net sales in the first quarter of fiscal 2001 were $13,354,000, a
1% decrease from first quarter sales last fiscal year of
$13,523,000. The decline from net income to a net loss was
primarily due to lower gross margins in the recent quarter.
Operating results for each business segment were as follows:
Antenna and Imaging Systems
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
---------- ----------
<S> <C> <C>
Net sales $9,848,000 $9,862,000
========== ==========
Gross profit $2,540,000 $2,863,000
========== ==========
Operating income $206,000 $850,000
========== ==========
</TABLE>
Sales of Antenna and Imaging Systems products in the first
quarter of fiscal 2001 were essentially flat compared with the
first quarter of fiscal 2000. Higher sales of tracking antenna
systems for military and commercial customers and higher sales of
DBS antenna products were partially offset by lower sales of
remote sensing satellite earth stations.
Gross profit percentage on sales of Antenna and Imaging Systems
products was 25.8% in the first quarter of fiscal 2001 compared
with 29.0% in the first quarter last fiscal year. The decrease
was primarily due to a less favorable product mix.
<PAGE>7
Operating income percentage from sales of Antenna and Imaging
Systems products was 2.1% in the first quarter of fiscal 2001
compared with 8.6% in the first quarter last fiscal year. The
decrease resulted primarily from lower gross profits and higher
selling and new product development expenses.
Communication Products
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
---------- ----------
<S> <C> <C>
Net sales $3,506,000 $3,661,000
========== ==========
Gross profit $868,000 $1,022,000
========== ==========
Operating loss ($464,000) ($438,000)
========== ==========
</TABLE>
Sales of Communication Products decreased 4% in the first quarter
of fiscal 2001 compared with the first quarter of fiscal 2000.
The decrease in sales was due to a lower order backlog at March
31, 2000 than at March 31, 1999. Order bookings of radio
products in the first quarter of fiscal 2001 were strong, and the
Company expects sales of those products to improve in the second
and third quarters of fiscal 2001.
Gross profit percentage on sales of Communication Products was
24.8% in the first quarter of fiscal 2001 compared with 27.9% in
the first quarter last fiscal year. The decrease was primarily
due to a less favorable product mix and to production
inefficiencies.
Operating loss percentage from sales of Communication Products
was 13.2% in the first quarter of fiscal 2001 compared with an
operating loss percentage of 12.0% in the first quarter last
fiscal year. The increase resulted primarily from lower gross
profits, partially offset by lower new product development and
administrative expenses.
Consolidated expenses
Selling, general and administrative expenses were $2,996,000 in
the first quarter of fiscal 2001, a 7% increase compared with
first quarter of fiscal 2000 expenses of $2,807,000. The
increase was primarily due to higher selling and adminstrative
expenses at the Antenna and Imaging Systems business segment,
partially offset by lower administrative expenses at the
Communication Products business segment.
Research and development expenses were $1,023,000 in the first
quarter of fiscal 2001 compared with $996,000 in the first
quarter last fiscal year. The 3% increase was primarily due to
programs to improve mobile DBS antenna products.
Order backlog at June 30
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Antenna and Imaging Systems $19,361,000 $21,758,000
Communication Products 7,609,000 2,033,000
----------- -----------
Total $26,970,000 $23,791,000
=========== ===========
</TABLE>
The 11% decrease in Antenna and Imaging Systems backlog at June
30, 2000 compared with June 30, 1999 resulted primarily from
lower order bookings of remote sensing satellite earth stations
in the recent quarter.
The 274% increase in Communication Products backlog at June 30,
2000 compared with June 30, 1999 was due to receipt of an $8
million order for tactical radios near the end of the recent
quarter. The Company expects the improved backlog of
Communication Products will result in smoother production flow
and manufacturing efficiencies during the next two quarters.
<PAGE>8
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, working capital was $23,930,000, essentially
unchanged compared with $23,929,000 at March 31, 2000. Major
changes affecting working capital during this period were as
follows: accounts receivable decreased $1,318,000 primarily due
to low sales during the recent quarter; inventories increased
$79,000; accounts payable and accrued expenses decreased
$4,045,000 primarily due to payment of expenses associated with a
large sale of radio products in the previous quarter; customer
advances decreased $793,000; and income taxes payable decreased
$1,062,000. The Company's cash position at June 30, 2000 was
$7,278,000 compared with $12,183,000 at March 31, 2000, a
decrease of 40%. At June 30, 2000, the Company had no borrowings
against its revolving line of credit.
Capital equipment expenditures were $154,000 in the first quarter
of fiscal 2001 compared with $410,000 in the first quarter last
fiscal year. Although capital expenditures in the first quarter
of fiscal 2001 were lower than in the first quarter of fiscal
2000, the Company anticipates total capital expenditures in
fiscal 2001 will be greater than the fiscal 2000 total of
$1,289,000 due to anticipated tooling requirements for new
products.
At June 30, 2000, the Company had a $13,000,000 revolving line of
credit with a bank. The line may be used for the issuance of
letters of credit and for direct working capital advances, of
which $2,000,000 is restricted to working capital and letters of
credit required to finance non-military international business.
That portion of the line of credit expires on April 1, 2001 and
is subject to a borrowing base formula. The remaining
$11,000,000 credit facility expires on April 1, 2002 and is not
subject to a borrowing base formula. At June 30, 2000, there
were no borrowings under the line of credit and the bank had
issued letters of credit against the line totaling $3,809,000.
The Company believes its existing working capital, anticipated
future cash flows from operations and available credit with its
bank are sufficient to finance presently planned capital and
working capital requirements.
Recently Issued Accounting Pronouncements
-----------------------------------------
In December, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," which summarizes the SEC's
interpretation of applying generally accepted accounting
principles to revenue recognition in the financial statements.
SAB No. 101 was subsequently amended in June 2000 and becomes
effective for the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. Based on the Company's current revenue
recognition policies, the Company does not believe the adoption
of SAB No. 101, as amended, will have a material affect on the
Company's consolidated financial position or its results of
operations.
<PAGE>9
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
------------------------------
Pursuant to a business loan agreement with a bank, the Company
must comply with certain financial covenants. The agreement also
prohibits the Company from declaration or payment of dividends or
other distributions on the Company's stock, except under certain
conditions specified in the agreement. The Company is in
compliance with both requirements.
Item 3. Legal Proceedings.
-------------------------
In August 1992, Trans World Communications, Inc. ("Trans World"),
a wholly owned subsidiary of the Company and which was renamed
Datron World Communications Inc. on March 31, 1995, was named as
defendant in a lawsuit filed by ATACS Corporation ("ATACS") and
AIRTACS Corporation ("AIRTACS") relating to a contract to provide
radio communication shelters. ATACS and AIRTACS contend that
Trans World entered into an agreement to team with them on the
contract and then wrongfully failed to use them as
subcontractors. They seek damages in excess of $2,000,000. In
rulings on May 28, 1997 and September 3, 1997, the court found
Trans World in breach of a teaming agreement and awarded ATACS
and AIRTACS one dollar ($1.00) in damages. On September 8, 1998,
the appeal court affirmed the district court's decision except as
to the award of nominal damages, and remanded the matter to the
district court for further hearing on damages. On June 14, 2000,
the district court issued an order awarding ATACS and AIRTACS
damages of $30,075.01 including prejudgment interest. On July
12, 2000, ATACS and AIRTACS appealed the district court's
judgment to the U.S. Court of Appeals. The Company believes that
final resolution of this matter will not materially affect the
consolidated financial position of the Company or its results of
operations.
Item 6. Exhibits and Reports on Form 8-K.
-----------------------------------------
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
<PAGE>10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DATRON SYSTEMS INCORPORATED
Date: July 28, 2000 By: /s/William L. Stephan
William L. Stephan
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
