<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-10605
--------
ODETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2588496
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 South Manchester Avenue 92802
Anaheim, California (Zip Code)
(Address of principal executive office)
(714) 774-5000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
documents and 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares of Common Stock outstanding as of February 10, 2000
Class A Common Stock - 8,100,450 shares.
Class B Common Stock - 1,058,641 shares.
1
<PAGE>
INDEX
PART I FINANCIAL INFORMATION Page
-------------------------------- ----
ITEM 1. CONSOLIDATED STATEMENTS OF OPERATIONS FOR 3
THE THREE MONTHS AND NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 (UNAUDITED)
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1999 4
AND DECEMBER 31, 1999 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 6
THE NINE MONTHS ENDED DECEMBER 31, 1998 AND
1999 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 10
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 14
ABOUT MARKET RISK
PART II OTHER INFORMATION
-------------------------
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
In this Report, "Odetics," the "Company," "we," "us," and "our"
collectively refers to Odetics, Inc. and its subsidiaries.
2
<PAGE>
PART I FINANCIAL INFORMATION
ODETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales and contract revenues:
Net sales $16,210 $15,171 $52,550 $47,875
Contract revenues 3,957 4,436 9,519 13,979
--------- --------- -------- --------
Total net sales and contract revenues 20,167 19,607 62,069 61,854
Costs and expenses:
Cost of sales 10,846 13,920 36,737 37,930
Cost of contract revenues 2,624 3,225 6,151 10,197
--------- --------- -------- --------
Gross Profit 6,697 2,462 19,181 13,727
--------- --------- -------- --------
Selling, general and administrative expense 7,360 9,214 23,071 26,566
Research and development expense 2,731 3,964 8,098 12,172
--------- --------- -------- --------
Total operating expenses 10,091 13,178 31,169 38,738
--------- --------- -------- --------
(Loss) from operations (3,394) (10,716) (11,988) (25,011)
--------- --------- -------- --------
Non-operating items
Royalty income 0 38,437 0 38,437
Interest (expense), net (445) (454) (1,279) (1,821)
--------- --------- -------- --------
Income (loss) before taxes (3,839) 27,267 (13,267) 11,605
--------- --------- -------- --------
Income tax expense 0 6,575 0 0
--------- -------- -------- --------
Net income (loss) ($3,839) $20,692 ($13,267) $11,605
========= ======== ======== ========
Earnings (loss) per share:
Basic ($0.49) $2.27 ($1.77) $1.28
========= ======== ======== =========
Diluted ($0.49) $2.18 ($1.77) $1.24
========= ======== ======== =========
Weighted average number of shares outstanding
Basic 7,890 9,128 7,493 9,076
========= ======== ======== =========
Diluted 7,890 9,485 7,493 9,353
========= ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1999
---------------------- ---------------------
<S> <C> <C>
ASSETS (Unaudited)
Current Assets
Cash $ 787 $ 6,566
Trade accounts receivable, net 18,889 14,743
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,423 2,718
Inventories:
Finished goods 1,101 1,226
Work in process 749 601
Materials and supplies 14,135 13,012
---------------------- ---------------------
Total inventories 15,985 14,839
Prepaid expenses 1,295 1,126
Income taxes receivable 531 302
Deferred income taxes 376 372
---------------------- ---------------------
Total current assets 40,286 40,666
Property, plant and equipment:
Land 2,060 2,060
Buildings and improvements 18,674 18,781
Equipment, furniture and fixtures 31,303 33,110
---------------------- ---------------------
52,037 53,951
Less accumulated depreciation (29,561) (32,406)
---------------------- ---------------------
Net property, plant and equipment 22,476 21,545
Capitalized software costs, net 7,667 6,767
Other Assets 10,926 13,905
---------------------- ---------------------
Total Assets $ 81,355 $ 82,883
====================== =====================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS (cont'd)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1999
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 10,454 $ 5,776
Accrued payroll and related 5,441 4,330
Accrued expenses 1,933 2,982
Contractual loss accrual 3,892 3,264
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,276 1,617
Current portion of long-term debt 2,074 2,154
----- -----
Total current liabilities 25,070 20,123
Revolving line of credit 10,997 0
Long-term debt - less current portion 8,965 8,460
Other liabilities 0 5,000
Deferred income taxes 0 0
Stockholders' equity
Preferred stock, authorized 2,000,000 shares;
none issued -- --
Common stock, authorized 10,000,000 shares of
Class A and 2,600,000 shares of Class B;
8,072,961 shares of Class A and 1,058,641 shares
of Class B issued and outstanding at
December 31, 1999 - $.10 par value 901 913
Paid-in capital 59,579 60,576
Treasury stock (240) (91)
Notes receivable from associates (96) (101)
Retained earnings (23,913) (12,308)
Accumulated other comprehensive income 92 311
------ ------
Total stockholders' equity 36,323 49,300
------ ------
Total liabilities and stockholders' equity $ 81,355 $ 82,883
====== ======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ODETICS, INC.
CONSOLIDATED statements of CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Operating activities
Net income (loss) $ (13,267) $ 11,605
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,627 4,624
Provision for losses on accounts receivable 228 0
Provision for deferred income taxes 174 233
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,308 4,146
Decrease in net costs and
estimated earnings in excess of billings 50 46
Decrease in inventories 4,343 1,146
(Increase) Decrease in prepaids and other assets 1,041 (3,361)
(Decrease) in accounts payable and
accrued expenses (3,866) (5,154)
------------------- -------------------
Net cash provided by (used) in operating activities (5,362) 13,285
Investing activities
Purchases of property, plant and, equipment (1,903) (1,914)
Software development costs (3,647) (331)
Cash received on note receivable 10,019 0
------------------- -------------------
Net cash provided by (used in) investing activities 4,469 (2,245)
Financing activities
Proceeds from revolving line of credit and
long-term borrowings 32,997 22,456
Principal payments on line of credit, long-term
debt and capital lease obligations (40,210) (28,875)
Proceeds from issuance of common stock 8,030 1,158
------------------- -------------------
Net cash provided by (used in) financing activities 817 (5,261)
------------------- -------------------
Increase (Decrease) in cash (76) 5,779
Cash at beginning of year 1,131 787
------------------- -------------------
Cash at December 31 $1,055 $ 6,566
=================== ===================
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ODETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the consolidated financial position of Odetics, Inc. as
of December 31, 1999 and the consolidated results of
operations and cash flows for the three and nine month periods
ended December 31, 1998 and 1999. Certain information and
footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange
Commission. The results of operations for the three and nine
month periods ended December 31, 1999 are not necessarily
indicative of those to be expected for the entire year. The
accompanying financial statements should be read in
conjunction with the Company's Annual Report on Form 10-KA for
the year ended March 31, 1999 filed with the Securities and
Exchange Commission.
Note 2 - Income Taxes
Income tax expense (benefit) for the three and nine month
periods ended December 31, 1998 and 1999 has been provided at
the estimated annualized effective tax rates based on the
estimated income tax liability or assets and change in
deferred taxes for their respective fiscal years. Deferred
taxes result primarily from temporary differences in the
reporting of income for financial statement and income tax
purposes. These differences relate principally to the use of
accelerated cost recovery depreciation methods for tax
purposes, capitalization of interest and taxes for tax
purposes, capitalization of computer software costs for
financial statement purposes, deferred compensation, other
payroll accruals, reserves for inventory and accounts
receivable for financial statement purposes and general
business tax credit and alternative minimum tax credit
carryforwards for tax purposes. The Company did not provide
income tax benefit for the losses incurred in fiscal 1998 due
to the uncertainty as to the ultimate realization of the
benefit at that time.
Note 3 - Long-Term Debt
(in thousands)
March 31, December 31,
1999 1999
---- ----
Mortgage note 8,173 7,323
Contracts payable 2,866 3,291
------ ------
11,039 10,614
Less current portion 2,074 2,154
------ ------
$8,965 $8,460
====== ======
7
<PAGE>
NOTE 4 - Legal Proceedings
On October 11, 1999, Odetics settled its litigation with Storage Technology
Corporation through an agreement for Storage Technology Corporation to pay
license fees to Odetics of $100 million. Odetics realized a gain of
approximately $38 million in the quarter ended December 31, 1999 as a
result of the settlement, and expects to realize additional gains of $10
million in each of the quarters ended September 30, 2000 and 2001.
NOTE 5 - Comprehensive Income
The components of comprehensive income (loss) for the three months
and nine months ended December 31, 1998 and 1999 are as follows in
thousands:
<TABLE>
<CAPTION>
Three Months Nine Months
1998 1999 1998 1999
-------- ------- --------- -------
<S> <C> <C> <C> <C>
Net income (loss) $(3,839) $20,692 $(13,267) $11,605
Foreign currency translation adjustment 45 218 (33) 219
-------- -------- -------- --------
Comprehensive income (loss) $(3,794) $20,910 $(13,300) $(11,824)
========= ======== ======== ========
</TABLE>
NOTE 6 - Business Segment Information
The Company operates in three reportable segments: intelligent
transportation systems, video products, which includes products for
the television broadcast and video security markets, and
telecommunications. Selected financial information for the Company's
reportable segments for the three month and nine month periods ended
December 31, 1998 and 1999 follows in thousands:
<TABLE>
<CAPTION>
Total
Intelligent Video Telecom -----
Transportation Products Products
-------------- -------- --------
<S> <C> <C> <C> <C>
Three months ended 12/31/98
Revenue from external customers $ 2,483 $ 9,961 $3,449 $17,893
Intersegment revenues $ 0 $ 1,451 $ 37 $ 1,488
Segment income (loss) $ (409) $(1,170) $ (705) $(2,284)
Three months ended 12/31/99
Revenue from external customers $ 6,243 $ 8,867 $1,925 $17,035
Intersegment revenues $ 0 $ 2,113 $ 26 $ 2,139
Segment income (loss) $ (491) $(5,440) $(2,498) $(8,429)
</TABLE>
8
<PAGE>
The following reconciles segment income to consolidated income before income
taxes in thousands:
<TABLE>
<CAPTION>
3 months ended 3 months ended
Dec. 31, 1998 Dec. 31, 1999
------------- -------------
<S> <C> <C>
Revenue
Total revenues for reportable segments $19,381 $19,174
Non-reportable segment revenues 2,274 2,572
Elimination of intersegment sales (1,488) (2,139)
-------- -------
Total consolidated revenues 20,167 19,607
Total loss for reportable segments (2,284) (8,429)
Other profit or loss (315) 37,724
Unallocated amounts:
Corporate and other expenses (1,425) (1,574)
Interest expense (445) (454)
-------- -------
Income (Loss) before income taxes $(3,839) $27,267
======== =======
</TABLE>
<TABLE>
<CAPTION>
Total
Intelligent Video Telecom -----
Transportation Products Products
-------------- -------- --------
<S> <C> <C> <C> <C>
Nine months ended 12/31/98
Revenue from external customers $10,400 $34,777 $10,868 $56,045
Intersegment revenues 0 $ 3,939 $ 64 $ 4,003
Segment income (loss) $ (2,541) $(2,682) $(1,682) $(6,905)
Nine months ended 12/31/99
Revenue from external customers $17,448 $ 30,19 $ 7,630 $ 55,271
Intersegment revenues 0 $ 4,617 $ 66 $ 4,683
Segment (loss) $(1,947) $ (10,997) $ (5,317) $(18,261)
</TABLE>
The following reconciles segment income to consolidated income before income
taxes in thousands:
<TABLE>
<CAPTION>
9 months ended 9 months ended
Dec. 31, 1998 Dec. 31, 1999
------------- -------------
<S> <C> <C>
Revenue
Total revenues for reportable segments $60,048 $59,954
Non-reportable segment revenues 6,024 6,583
Elimination of intersegment sales (4,003) (4,683)
------- -------
Total consolidated revenues 62,069 61,854
Total loss for reportable segments (6,905) (18,261)
Other profit or loss (1,189) 36,348
Unallocated amounts:
Corporate and other expenses (3,893) (4,661)
Interest expense (1,280) (1,821)
--------- -------
Income (Loss) before income taxes $(13,267) $11,605
========= =======
</TABLE>
Note 7 - In December, 1999, the Company and Iteris, Inc. (Iteris), a newly
formed Delaware corporation and a 93% owned subsidiary of Odetics, entered into
a separation and distribution agreement, whereby the Company transferred the net
assets and liabilities of its intelligent transportation division to Iteris. On
December 17, Iteris filed a registration statement with the Securities and
Exchange Commission for an initial public offering of its common stock. On
January 5, 2000, Odetics filed an information statement on Form 10, announcing
its intent to distribute all of its shares of Iteris to Odetics stockholders in
a tax-free spin-off concurrent with the initial public offering of Iteris common
stock. While the Registration Statement relating to these securities has been
filed with the Securities Exchange Commission it has not yet become effective.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto contained in this Report
and in the Annual Report on Form 10-K of Odetics. Inc. When used in this Report,
the words "expect(s)," "feel(s)," "believe(s)," "intends," "plans," "will,"
"may," "anticipate(s)" and similar expressions are intended to identify forward-
looking statements. Such forward-looking statements include, among other things,
statements concerning projected revenues, funding and cash requirements, supply
issues, market acceptance of new products, the Odetics incubator strategy, and
estimated Y2K costs, and involve a number of risks and uncertainties, including
without limitation, those set forth at the end of this Item 2 under the caption
"Risk Factors." Odetics' actual results may differ materially from any forward-
looking statements discussed herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Odetics undertakes no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Results of Operations
General. Odetics defines its business segments as Video Products, Telecom
Products, and ITS. The Video Products segment includes our Broadcast division
and our Gyyr, Incorporated subsidiary. The Telecom Products segment includes our
Communications division, which manufactures timing and synchronization products,
and the business of Mariner Networks, a wholly owned subsidiary. The ITS segment
represents Odetics' 93% owned subsidiary Iteris.
Net Sales and Contract Revenues. Net sales and contract revenues consist of
(i) sales of products and services to commercial and municipal customers ("net
sales") and (ii) revenues derived from contracts with state, county and
municipal agencies for intelligent transportation systems projects ("contract
revenues"). Contract revenues also include revenue from contracts with agencies
of the United States Government and foreign entities for space recorders used
for geographical information systems. Total net sales and contract revenues
decreased 2.8% to $19.6 million for the three month period ended December 31
1999, compared to $20.2 million in the corresponding period of the prior fiscal
year. Total net sales and contract revenues decreased 0.3% to $61.9 million for
the nine month period ended December 31,1999 compared to $62.1 million in the
corresponding period of the prior fiscal year. Contract revenues increased 12.1%
to $4.4 million for the three month period ended December 31 1999 compared to
$4.0 million in the corresponding period of the prior fiscal year. Contract
revenues for the nine month period ended December 31, 1999 increased 46.9% to
$14.0 million compared to $9.5 million in the corresponding period of the prior
fiscal year. During the fiscal year ended March 31, 1999, we completed the
acquisition of Meyer Mohaddes Associates Inc. and the assets of Viggen
Corporation. The increase in contract revenues in the three and nine month
periods ended December 31, 1999 reflects primarily the revenue contribution from
these acquisitions. The ITS base business of contract revenues (before
acquisitions) increased 16.1% and 24.5% in the three and nine month periods
respectively compared to the same periods in the prior fiscal year but was
offset by a nearly corresponding decrease in revenue from contracts for space
recorders. The Company has experienced declining contract revenues from space
recorders due to soft market conditions for these products and because the
Company has shifted away from this business in its' strategic focus.
Net sales decreased 6.4% to $15.2 million for the three month period ended
December 31, 1999, compared to $16.2 million in the corresponding period of the
prior fiscal year. Net sales decreased 8.9% to $47.9 million for the nine month
period ended December 31, 1999 compared to $52.6 million in the corresponding
period of the prior fiscal year. The decrease in net sales in the three month
and nine month periods ended December 31, 1999 compared to the corresponding
periods of the prior year reflects increased sales of Iteris products, offset by
a decrease in sales of Video Products and, to a lesser extent, decreased sales
of Telecom Products. The increase in Iteris net sales in the three month and
nine month periods ended December 31, 1999 reflects increased unit sales of its
Vantage product, a video based traffic intersection control product. The
decrease in Video Products net sales reflects primarily reduced sales in our
10
<PAGE>
Broadcast division, which was largely due to delays in delivery of our Roswell
facility management system.
Gross Profit. Gross Profit as a percent of total net sales and contract
revenues decreased to 12.6% for the three month period ended December 31, 1999,
compared to 33.2% in the corresponding period of the prior fiscal year. For the
nine month period ended December 31, 1999, gross profit as a percent of total
net sales and contract revenues decreased to 22.2% compared to 30.9% in the
corresponding period of the prior year. Gross profit as a percent of net sales
decreased to 8.2% for the three month period ended December 31, 1999, compared
to 33.1% in the corresponding period in the prior fiscal year. For the nine
month period ended December 31, 1999 gross profit as a percent of net sales
decreased to 20.8% compared to 30.1% for the corresponding period of the prior
fiscal year. The decrease in gross profit performance in the three month and
nine month periods ended December 31, 1999 generally reflects lower sales levels
and higher unabsorbed manufacturing costs in Video Products and Telecom
Products. Gross profit performance in the three and nine month periods ended
December 31, 1999 was further impaired due to pricing concessions to certain
customers and adjustments to inventory reserves and capitalized software related
to certain discontinued products and product options in our Mariner Networks,
Broadcast and Gyyr businesses. This was partially offset by improved gross
profits on Vantage product sales by our ITS business as a result of increased
unit sales volume.
Gross profit as a percent of contract revenues decreased to 27.3% for
the three months ended December 31, 1999 compared to 33.7% in the comparable
period of the prior fiscal year. For the nine month period ended December 31,
1999 gross profit as a percentage of contract revenues decreased to 27.1% from
35.4% in the comparable period of the prior fiscal year. The decline in overall
gross profits on contract revenues for the three and nine month periods ended
December 31, 1999 primarily reflects a revenue shift toward increased ITS
contract revenue relative to total contract revenue. ITS contracts traditionally
experience a lower overall gross profit percentage than our contract revenues
from space recorders.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 25.2% to $9.2 million (or 47.0% of total net
sales and contract revenues) in the three months ended December 31, 1999
compared to $7.4 million (or 36.5% of total net sales and contract revenues) in
the corresponding period of the prior fiscal year. Selling, general and
administrative expenses increased 15.1% to $26.6 million (or 42.9% of total net
sales and contract revenues) for the nine months ended December 31, 1999
compared to $23.1 million (or 37.2% of total net sales and contract revenues) in
the corresponding period of the prior fiscal year. Sales and marketing and
general and administrative expenses in each of Odetics entities reflects the
unique growth attributes and maturity of each operation; consistent with
Odetics' incubator strategy. Broadcast, Iteris, and Mariner Networks each
experienced increased sales and marketing expenses in the three and nine month
periods ended December 31, 1999. The increase in sales and marketing expenses in
Iteris primarily reflects increased costs to support the roll-out of the Vantage
and AutoVue product lines, and acquired costs related to the acquisitions of
Meyer Mohaddes Associates and the assets of Viggen Corporation noted above. The
principal expense categories that increased include sales and marketing labor
costs, advertising and promotion to support new products and markets, and costs
related to international expansion.
Research and Development Expense. Research and development expense
increased 45.1% to $4.0 million (or 20.2% of total net sales and contract
revenues) in the three month period ended December 31, 1999 compared to $2.7
million (or 13.5% of total net sales and contract revenues) in the corresponding
period of the prior fiscal year. For the nine month period ended December 31,
1999 research and development expenses increased 50.3% to $12.2 million (or
19.7% of total net sales and contract revenues) compared to $8.1 million (or
13.0% of total net sales and contract revenues) in the corresponding period of
the prior fiscal year. The increase in research and development expense for the
three and nine month periods ended December 31, 1999 compared to the previous
fiscal year period principally reflects increased product development expenses
in Broadcast, Mariner Networks, and Iteris. Broadcast is incurring development
activities to support "Roswell," its software based control automation system
for broadcast station operations. Mariner Networks is developing a number of
ATM wide area access concentrators
11
<PAGE>
including its new product "Dexter." Iteris continued to spend development
resources in support of "AutoVue," its automotive lane guidance and warning
system. For competitive reasons, we closely guard the confidentiality of
specific development projects. The categories of increased product development
expense include development labor and related benefits, prototype material cost
and consulting fees. The acquisitions of Meyer Mohaddes Associates and the
assets of Viggen Corporation, noted above, did not contribute to the increases
in current year research and development expenses.
In December 1999, the Company's 93% owned subsidiary, Iteris, Inc.
(Iteris) filed a registration statement with the Securities and Exchange
Commission. The "Selected Consolidated Financial Data" and "Quarterly Data" as
reported in "Management Discussion and Analysis of Financial Condition and
Results of Operations" contained in the registration statement reported the
following information regarding net sales and income (loss) before income taxes
for Iteris, for the Quarter and Nine Month periods ended December 31, 1999 and
2000, respectively:
<TABLE>
<CAPTION>
Q398 Q399 YTD98 YTD99
<S> <C> <C> <C> <C>
Total Net Revenues $ 4,483 $ 6,242 $10,400 $17,447
Loss before Income taxes (1,224) (1,755) (4,655) (5,291)
</TABLE>
Odetics net sales and contract revenues, net of the results reported
for Iteris, Inc., decreased $2.3 million, or 14.8% in the third quarter ended
December 31, 1999 compared to the third quarter ended December 31, 1998. For the
nine months ended December 31, 1999, net sales and contract revenues decreased
$7.3 million, or 14.1% compared to the comparable nine month period of the
previous year. As previously discussed, Odetics experienced decreased sales for
both the quarter and nine month periods in its Video Products and Telecom
Products segments. Odetics gross profits on sales, net of the results reported
for Iteris, Inc., decreased in the third quarter and the nine months ended
December 31, 1999 compared to the previous year's third quarter reflecting lower
sales levels and higher unabsorbed manufacturing costs in the Video Products and
Telecom Products segments. Odetics loss before income taxes, net of the results
reported of Iteris, Inc. and the royalty income provided by the settlement with
Storage Technology Corporation, increased $6.8 million, to $9.4 million in the
third quarter ended December 31, 1999 compared to the third quarter ended
December 31, 1998. For the nine months ended December 31, 1999, loss before
income taxes increased $12.9 million, to $21.5 million compared to the nine
months ended December 31, 1998. The increase in the loss before income taxes for
Odetics, in the three and nine month periods ended December 31, 1999 principally
reflects the effect of increased spending for Research and Development and
increased Sales and Marketing expenses in its Video Products and Telecom
Products segments.
Interest Expense, Net. Interest Expense, Net reflects interest income
and interest expense as follows:
Three Months Nine Months
Ended December 31
-----------------
1998 1999 1998 1999
---- ---- ---- ----
(in thousands)
Interest Expense $445 $454 $1,474 $1,821
Interest Income $ 0 $ 0 $ 195 $ 0
---- ---- ------- ------
Interest Expense, Net $445 $454 $1,279 $1,821
==== ==== ====== ======
Interest expense primarily reflects interest on Odetics' line of credit
borrowings and mortgage interest. Interest income in the nine months ended
December 31,1998 was derived from a note receivable due to Odetics from ATL
Products Inc., its previously owned subsidiary. The note was repaid in full in
July 1998. The increase in interest expense for the nine month period ended
December 31, 1999 compared to the prior fiscal year reflects an increase in the
Odetics' average outstanding borrowings on its line of credit facility.
Income Taxes.
On October 11, 1999, Odetics settled its litigation with Storage
Technology Corporation through an agreement for Storage Technology Corporation
to pay royalties to Odetics of $100 million. Odetics realized royalty income of
approximately $38 million in the quarter ended December 31, 1999 as a result of
the settlement, and expects to realize additional royalty income of $10 million
in each of the quarters ended September 30, 2000 and 2001. As a result of the
$38 million in royalty income, Odetics recorded tax expense of $6.6 million in
the three and nine month periods ended December 31, 1999.
Liquidity and Capital Resources
For the nine months ended December 31, 1999, Odetics' earnings before
interest, taxes, depreciation, and amortization were $18.0 million, and cash
provided by operating activities was $13.3 million. Odetics used $1.9 million of
cash for purchases of property, plant, and equipment in the nine months ended
December 31, 1999.
On October 11, 1999, Odetics settled litigation with Storage Technology
Corporation in exchange for license fees of $100 million, $80 million of which
was paid the day of the settlement. The initial payment of $80 million resulted
in cash proceeds to Odetics, net of expenses and fees, of approximately $38.4
million. Odetics used a portion of the proceeds to retire its outstanding
borrowings on its line of credit with Transamerica Business Credit and to reduce
its trade accounts payables, and has retained the balance of the funds to
support general working capital requirements. Under the terms of the settlement
agreement, Odetics will receive two additional payments of $10 million each in
September of 2000 and 2001.
12
<PAGE>
Odetics has a line of credit relationship with Transamerica Business
Credit for a $17.0 million line of credit providing for borrowings at prime plus
2.0%(10.5 at December 31, 1999). At December 31, 1999, Odetics had no borrowings
outstanding on its line of credit. All of Odetics' future borrowings under this
line of credit are secured by substantially all of its assets.
In July 1999, Odetics sold an option to Manchester Capital LLC for an
aggregate purchase price of $5 million to purchase certain real property of
Odetics consisting of approximately 14 acres. The option exercise price is equal
to the lessor of (a) the appraised fair market value of this real property as
determined at November 1, 1999, or (b) at the option of Manchester Capital, the
appraised fair market value of this real estate at November 1, 2000 or November
1, 2002. Odetics used the proceeds of the option sale for general working
capital purposes.
The Odetics strategy of incubating companies for eventual spin-off or
sale requires significant investments of cash. Odetics has historically relied
upon its line of credit facilities and on the sale of additional equity and debt
instruments as potential sources of capital to enable it to finance its
strategy. Odetics anticipates that its cash reserves, and future cash payments
afforded by the settlement of its litigation with Storage Technology
Corporation, in addition to its line of credit facility will enable it to
execute its current operating plans and meet its obligations on a timely basis
for at least the next twelve months.
Year 2000 Compliance
In prior periods, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $500,000 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK FACTORS
At December 31, 1999, Odetics had approximately $6.5 million in cash
and cash equivalents, approximately $6.3 of which were invested in short-term
interest bearing securities. Our short-term interest bearing securities are
subject to interest rate fluctuations and an increase in interest rates could
adversely affect the market value of these securities. Changes in market value
of short-term interest bearing securities will not be material due to the
short-term nature of such securities. Odetics does not use derivative financial
instruments in its investment portfolio to manage interest risks.
Our business is subject to a number of risks, some of which are
discussed below. Other risks are presented elsewhere in this report. You should
consider the following risks carefully in addition to the other information
contained in this report before purchasing the shares of our common stock. If
any of the following risks actually occur, they could seriously harm our
business, financial condition or results of operations. In such case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.
Our quarterly operating results fluctuate as a result of many factors.
Our quarterly operating results have fluctuated and are likely to continue to
fluctuate due to a number of factors, many of which are not within our control.
Because of the factors listed below and other risks discussed in this report,
our future operating results could be below the expectations of securities
analysts and/or investors. If that happens, the trading price of our common
stock could be adversely affected.
Factors that could affect our revenues include the following:
. our significant investment in research and development for our
subsidiaries and divisions;
. our ability to develop, introduce, market and gain market
acceptance of new products applications and product enhancements in
a timely manner;
. the introduction of new products by competitors and technological
change in our target markets;
. the availability of components used in the manufacture of our
products;
. our ability to control costs;
. changes in our pricing policies and the pricing policies by our
suppliers and competitors, as well as increased price competition
in general;
. the long lead times associated with government contracts or
required by vehicle manufacturers;
. our success in expanding and implementing our sales and marketing
programs;
. our relatively small level of backlog at any given time; and
. the mix of sales among our business units;
In addition, our sales in any quarter may consist of a relatively small
number of large customer orders. As a result, the timing of a small number of
orders can impact our quarter to quarter results. The loss of or a substantial
reduction in orders from any significant customer could seriously harm our
business, financial condition and results of operations.
We have experienced substantial losses and expect future losses. We
incurred losses from operations of $10.7 million for the three months ended
December 31, 1999 and net losses of $20.1 million for the year ended March 31,
1999. We may not be able to achieve profitability on a quarterly or annual basis
in the future. Recent revenue growth also may not be sustainable and may not be
indicative of future operating results. Most of our expenses are fixed over the
short term, and we generally are unable to reduce our expenses significantly in
the short term to compensate for any unexpected delay or decrease in anticipated
revenues. In addition, in order to implement our incubator strategy
successfully, we expect to continue to make significant investments in each of
our business units. As a result, we may continue to experience losses, which
could cause the market price of our common stock to decline.
Our incubator strategy is expensive and may not be successful. We have
initiated a business strategy called our incubator strategy, which is expensive
and highly risky. The goal of this strategy is to nurture and develop companies
that can be spun-off to our stockholders. This strategy has in the past required
us to make significant investments in our business units, both for research and
development, and also to develop a separate infrastructure for each of our unit,
sufficient to allow the unit to function as an independent public company. We
expect to continue to invest heavily in the development of our business
14
<PAGE>
units with the goal of conducting additional public offerings. We may not
recognize the benefits of this investment for a significant period of time, if
at all. Our ability to complete an initial public offering of any of our
business units and spin-off our interest to our stockholders will depend upon
many factors, including:
. the overall performance and results of operations of the particular
business unit;
. the potential market for our business unit;
. our ability to assemble and retain a broad, qualified management team
for the business unit;
. our financial position and cash requirements;
. the business unit's customer base and product line;
. the current tax treatment of spin-off transactions and our ability to
obtain favorable determination letters from the Internal Revenue
Service;
. general economic and market conditions; and
. the current market for initial public offerings.
We may not be able to complete a successful initial public offering or
spin-off of any of our business units in the near future, or at all. Even if we
do complete additional public offerings, we may decide not to spin-off a
particular business unit, or to delay the spin-off until a later date.
We must keep pace with rapid technological change to remain
competitive. Our target markets are in general characterized by the following
factors:
. rapid technological advances;
. downward price pressure in the marketplace as technologies mature;
. changes in customer requirements;
. frequent new product introductions and enhancements; and
. evolving industry standards and changes in the regulatory environment.
We believe that we must continue to make substantial investments to
support ongoing research and development in order to remain competitive. In
particular, we will need to modify certain of our products to accommodate the
anticipated deployment of digital television and the corresponding phase-out of
analog transmissions. We will also have to continue to develop and introduce new
products that incorporate the latest technological advancements in hardware,
storage media, operating system software and applications software in response
to evolving customer requirements. Our recent shift towards providing more
software solutions may create additional challenges for us, particularly in our
Broadcast division. Our business and results of operations could be adversely
affected if we do not anticipate or respond adequately to technological
developments or changing customer requirements.
Our future success depends on the successful development and market
acceptance of new products. We believe our revenue growth and future operating
results will depend on our ability to complete development of new products and
enhancements, achieve broad market acceptance of these products and
enhancements, and reduce our product costs. We may not be able to introduce any
new products or any enhancements to our existing products on a timely basis, or
at all. In addition, the introduction of any new products could adversely affect
the sales of our certain of our existing products.
Our future success will also depend in part on the success of several
recently introduced products including:
. Roswell, our automated facility management system for broadcast
television stations;
. Bowser, our visual asset manager;
. Vortex, our high performance dome product;
15
<PAGE>
. Digi Scan Pro, our advanced digital multiplexer;
. Vantage One, our single camera traffic detection system;
. Auto Vue, our lane departure warning system; and
. Dexter, our networking access device.
Market acceptance of our new products depends upon many factors,
including our ability to resolve technical challenges in a timely and cost-
effective manner, the perceived advantages of our new products over traditional
products and the marketing capabilities of our independent distributors and
strategic partners. Our business and results of operations could be seriously
harmed by any significant delays in our new product development. We have
experienced delays in the past in the introduction of new products, particularly
with our Roswell system. Certain of our new products could contain undetected
design faults and software errors or "bugs" when first released by us, despite
our testing. We may not discover these faults or errors until after a product
has been installed and used by our customers. Any faults or errors in our
existing products or in our new products may cause delays in product
introduction and shipments, require design modifications or harm customer
relationships, any of which could adversely affect our business and competitive
position.
We currently anticipate that we will outsource the manufacture of Auto
Vue product line to a single manufacturer. This manufacturer may not be able to
produce sufficient quantities of this product in a timely manner or at a
reasonable cost, which could materially and adversely affect our ability to
launch or gain market acceptance of Auto Vue.
We may need additional capital in the future and may not be able to
secure adequate funds on terms acceptable to us. We recently raised
approximately $10.0 million in two private placements, approximately $8.0
million of which was raised in December 1998 and received net proceeds of
approximately $38 million in October 1999 in settlement of patent infringement
litigation. Approximately $2.0 million was raised from the sale of Class A
common stock to certain of our officers and directors in March 1999, following
stockholder approval of this offering. We may need to raise additional capital
in the future, either through additional bank borrowings or other debt or equity
financings. Our capital requirements will depend on many factors, including:
. Successful execution of our incubator strategy
. market acceptance of our products;
. increased research and development funding, and required investments
in our business units;
. increased sales and marketing expenses;
. potential acquisitions of businesses and product lines; and
. additional working capital needs.
If our capital requirements are materially different from those currently
planned, we may need additional capital sooner than anticipated. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced and such securities may have
rights, preferences and privileges senior to our common stock. Additional
financing may not be available on favorable terms or at all. If adequate funds
are not available or are not available on acceptable terms, we may be unable to
develop or enhance our products, expand our sales and marketing programs, take
advantage of future opportunities or respond to competitive pressures.
We have significant international sales and are subject to risks
associated with operating in international markets. International product sales
represented approximately 27% of our total net sales and contract revenues for
fiscal year ended March 31, 1999 and approximately 34% for the fiscal year ended
March 31, 1998. We believe that international sales will continue to represent a
significant portion of our revenues, and that continued growth and profitability
may require further expansion of our international operations. Accordingly, we
may be subject to many inherent risks related to international business
16
<PAGE>
operations, which could adversely affect our business, financial condition and
results of operations. These risks include:
. unexpected changes in regulatory requirements, tariffs and other
trade barriers;
. longer accounts receivable payment cycles;
. seasonal fluctuations resulting from lower sales that typically occur
during the summer months in Europe and other parts of the world;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences;
. the burdens of compliance with a wide variety of foreign laws;
. reduced protection for intellectual property rights in some countries;
and
. political and economic instability.
Many of our international sales are denominated in U.S. dollars. As a
result, an increase in the relative value of the dollar could make our products
more expensive and potentially less price competitive in international markets.
We do not engage in any transactions as a hedge against risks of loss due to
foreign currency fluctuations or restrictions.
Any of these factors may adversely effect our future international sales
and, consequently, on our business, financial condition and operating results.
Our operating results have been adversely affected by the Asian economic
crisis. Our telecommunications products are sold principally to LGIC of Korea.
As a result of economic instability in Asia, particularly in Korea, our sales in
this region declined over 70% in the past fiscal year and may continue to
decline in the future. It is possible that these sales could be further impacted
by the currency devaluations and related economic problems in this region.
We need to manage growth and the integration of our acquisitions. Over the
past two years, we have significantly expanded our operations and made several
substantial acquisitions of diverse businesses, including Intelligent Controls,
Inc., International Media Integration Services, Ltd., Meyer Mohaddes Associates,
Inc., Viggen Corporation and certain assets of the Transportation Systems
business of Rockwell International. A key element of our business strategy
involves expansion through the acquisition of complementary businesses, products
and technologies. Our failure to manage growth and integrate our acquisitions
successfully could be costly and could adversely affect our business, financial
condition and results of operations.
Acquisitions may require significant capital infusions and, in general,
acquisitions also involve a number of special risks, including:
. potential disruption of our ongoing business and the diversion of our
. resources and management's attention;
. the failure to retain or integrate key acquired personnel;
. the challenge of assimilating diverse business cultures;
. increased costs to improve managerial, operational, financial and
. administrative systems and to eliminate duplicative services;
. the incurrence of unforeseen obligations or liabilities;
. potential impairment of relationships with employees or customers as a
. result of changes in management; and
. increased interest expense and amortization of acquired intangible
assets.
17
<PAGE>
To accommodate our recent growth and successfully integrate our
acquisitions, we anticipate that we will be required to implement a variety of
new and upgraded operational and financial systems, procedures and controls,
including the improvement of our accounting and other internal management
systems. We may not be able to successfully integrate such systems, procedures
and controls.
We depend on government contracts and subcontracts and face additional risks
related to fixed price contracts. Over one half of the sales by our subsidiary,
ITERIS Inc., and a portion of our sales by our Communications division
were derived from contracts with governmental agencies, either as a general
contractor, subcontractor or supplier. Government contracts represented
approximately 16% of our net sales and contract revenues for the year ended
March 31, 1999 and approximately 23% for the six months ended December 31, 1999.
We expect revenue from government contracts will continue to increase in the
near future. Government business is, in general, subject to special risks and
challenges, including:
. long purchase cycles;
. competitive bidding and qualification requirements;
. performance bond requirements;
. delays in funding, budgetary constraints and cut-backs; and
. milestone requirements, and liquidated damage provisions for failure
to meet contract milestones.
In addition, a large number of our government contracts are fixed price
contracts. As a result, we may not be able to recover for any cost overruns.
These fixed price contracts require us to estimate the total project cost based
on preliminary projections of the project's requirements. The financial
viability of any given project depends in large part on our ability to estimate
these costs accurately and complete the project on a timely basis. In the event
our costs on these projects exceed the fixed contractual amount, we will be
required to bear the excess costs. These additional costs adversely affect our
financial condition and results of operations. Moreover, certain of our
government contracts are subject to termination or renegotiation at the
convenience of the government, which could result in a large decline in our net
sales in any given quarter. Our inability to address any of the foregoing
concerns or the loss or renegotiation of any material government contract could
seriously harm our business, financial condition and results of operations.
The markets in which we operate are highly competitive and have many more
established competitors. We compete with numerous other companies in our target
markets and we expect such competition to increase due to technological
advancements, industry consolidations and reduced barriers to entry. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could seriously harm our business, financial
condition and results of operations. Many of our competitors have far greater
name recognition and greater financial, technological, marketing and customer
service resources than we do. This may allow them to respond more quickly to new
or emerging technologies and changes in customer requirements. It may also allow
them to devote greater resources to the development, promotion, sale and support
of their products than we can. Recent consolidations of end users, distributors
and manufacturers in our target markets have exacerbated this problem. As a
result of the foregoing factors, we may not be able to compete effectively in
our target markets and competitive pressures could adversely affect our
business, financial condition and results of operations.
We cannot be certain of our ability to attract and retain key personnel and
we do not have employment agreements with any key personnel. Our inability to
attract and retain additional key employees or the loss of one or more of our
current key employees could adversely affect upon our business, financial
condition and results of operations. Due to the specialized nature of our
business, we are highly dependent on the continued service of our executive
officers and other key management, engineering and technical personnel,
particularly Joel Slutzky, our Chief Executive Officer and Chairman of the
Board, and Gregory A. Miner, our Chief Operating Officer and Chief Financial
Officer. We do not have any employment contracts with any of our officers or key
employees. The loss of any of these persons would seriously harm our development
and marketing efforts, and would adversely affect our business. Our
18
<PAGE>
success will also depend in large part upon our ability to continue to attract,
retain and motivate qualified engineering and other highly skilled technical
personnel. Competition for employees, particularly development engineers, is
intense. We may not be able to continue to attract and retain sufficient numbers
of such highly skilled employees.
We may not be able to adequately protect or enforce our intellectual
property rights. If we are not able to adequately protect or enforce the
proprietary aspects of our technology, competitors could be able to access our
proprietary technology and our business, financial condition and results of
operations will likely be seriously harmed. We currently attempt to protect our
technology through a combination of patent, copyright, trademark and trade
secret laws, employee and third party nondisclosure agreements and similar
means. Despite our efforts, other parties may attempt to disclose, obtain or use
our technologies or solutions. Our competitors may also be able to independently
develop products that are substantially equivalent or superior to our products
or design around our patents. In addition, the laws of some foreign countries do
not protect our proprietary rights as fully as do the laws of the United States.
As a result, we may not be able to protect our proprietary rights adequately in
the United States or abroad.
We have engaged in litigation in the past and litigation may be
necessary in the future to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Litigation
may also be necessary to defend against claims of infringement or invalidity by
others. An adverse outcome in litigation or any similar proceedings could
subject us to significant liabilities to third parties, require us to license
disputed rights from others or require us to cease marketing or using certain
products or technologies. We may not be able to obtain any licenses on terms
acceptable to us, or at all. Any of these results could adversely affect on our
business, financial condition and results of operations. In addition, the cost
of addressing any intellectual property litigation claim, both in legal fees and
expenses, and the diversion of management resources, regardless of whether the
claim is valid, could be significant and could seriously harm our business,
financial condition and results of operations.
The trading price of our common stock is volatile. The trading price of
our common stock is subject to wide fluctuations. We may not be able to increase
or sustain the current market price of our common stock in the future. The
market price of our common stock could continue to fluctuate in the future in
response to various factors, including, but not limited to:
. quarterly variations in operating results;
. shortages announced by suppliers;
. announcements of technological innovations or new products;
. acquisitions or businesses, products or technologies;
. changes in pending litigation;
. our ability to spin-off any business units;
. applications or product enhancements by us or by our competitors;
and
. changes in financial estimates by securities analysts.
The stock market in general has experienced volatility, which has
particularly affected the market prices of equity securities of many high
technology companies. This volatility has often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock.
We are controlled by certain of our officers and directors. As of
December 31, 1999, our officers and directors beneficially owned approximately
29% of the total combined voting power of the outstanding shares of our Class A
common stock and Class B common stock. As a result of their stock ownership, our
management will be able to significantly influence the election of our directors
and the outcome of corporate
19
<PAGE>
actions requiring stockholder approval, such as mergers and acquisitions,
regardless of how our other stockholders may vote. This concentration of voting
control may have a significant effect in delaying, deferring or preventing a
change in our management or change in control and may adversely affect the
voting or other rights of other holders of common stock.
Our stock structure and certain anti-takeover provisions may effect the
price of our common stock. Certain provisions of our certificate of
incorporation and our stockholder rights plan could make it difficult for a
third party to acquire us, even though an acquisition might be beneficial to our
stockholders. These provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock. Our Class A common
stock entitles the holder to one-tenth of one vote per share and our Class B
common stock entitles the holder to one vote per share. In addition, holders of
the Class B common stock are presently entitled to elect six of our nine
directors. The disparity in the voting rights between our common stock, as well
as our insiders' significant ownership of the Class B common stock, could
discourage a proxy contest or make it more difficult for a third party to effect
a change in our management and control. In addition, our board of directors is
authorized to issue, without stockholder approval, up to 2,000,000 shares of
preferred stock with voting, conversion and other rights and preferences
superior to those of our common stock, as well as additional shares of Class B
common stock. Our future issuance of preferred stock or Class B common stock
could be used to discourage an unsolicited acquisition proposal.
In March 1998, we adopted a stockholder rights plan and declared a
dividend of preferred stock purchase rights to our stockholders. In the event a
third party acquires more than 15% of the outstanding voting control of Odetics
or 15% of our outstanding common stock, the holders of these rights will be able
to purchase the junior participating preferred stock at a substantial discount
off of the then current market price. The exercise of these rights and purchase
of a significant amount of stock at below market prices could cause substantial
dilution to a particular acquirer and discourage the acquirer from pursuing
Odetics. The mere existence of the stockholder rights plan often delays or makes
a merger, tender offer or proxy contest more difficult.
In prior periods, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $500,000 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
We do not pay cash dividends. We have never paid cash dividends on our
common stock and do not anticipate paying any cash dividends on either class of
our common stock in the foreseeable future.
We may be subject to additional risks. The risks and uncertainties
described above are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also adversely affect our business operations.
20
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On October 11, 1999, Odetics settled its litigation with Storage
Technology Corporation through an agreement for Storage Technology Corporation
to pay license fees to Odetics of $100 million. Odetics will realize a gain of
approximately $38 million in the quarter ended December 31, 1999 as a result of
the settlement, and expects to realize additional gains of $10 million in each
of the quarters ended September 30, 2000 and 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
NONE
21
<PAGE>
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.
ODETICS, INC.
(Registrant)
By /s/ Gregory A. Miner
--------------------------------------------
Gregory A. Miner
Vice President, Chief Financial Officer
By /s/ Gary Smith
--------------------------------------------
Gary Smith
Vice President, Controller
(Principal Accounting Officer)
Dated: February 14, 1999
22
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