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, 1995
[ ] 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 (I.R.S. Employer Identification No)
of incorporation or organization)
304 Enterprise Street, Escondido, California 92029-1297
(Address of principal executive offices) (zip code)
(619) 747-3734
(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 26, 1995, the Registrant had only one class of
common stock, par value $0.01, of which there were 2,596,222
shares outstanding.
1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS (In Thousands)
June 30,
1995 March 31,
(Unaudited) 1995
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $894 $3,510
Accounts receivable, net 21,644 17,611
Inventories 9,348 10,001
Deferred income taxes 2,579 2,579
Prepaid expenses and other current assets 529 635
------- -------
Total current assets 34,994 34,336
Property, plant and equipment, net 14,039 14,155
Goodwill, net 6,915 6,977
Other assets 462 476
------- --------
Total assets $56,410 $55,944
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,023 $8,909
Accrued expenses 4,529 5,740
Customer advances 2,641 2,457
Income taxes payable 2,101 2,551
Current portion of restructuring reserve 438 438
------ -------
Total current liabilities 16,732 20,095
Long-term debt 3,400 --
Restructuring reserve 2,049 2,144
Deferred income taxes 817 817
Other liabilities 51 23
------ ------
Total liabilities 23,049 23,079
------ ------
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 June and March 31 31
Additional paid-in capital 10,466 10,587
Retained earnings 25,805 25,390
Treasury stock, at cost; 467,715 and 504,314
shares in June and March, respectively (2,697) (2,979)
Stock option plan and stock purchase plan notes
receivable (244) (164)
------- -------
Total stockholders' equity 33,361 32,865
------- -------
Total liabilities and stockholders' equity $56,410 $55,944
======= =======
See notes to consolidated financial statements.
2
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per-share amounts)
Three Months Ended
June 30,
1995 1994
------- -------
Net sales $14,356 $12,132
Cost of sales 8,996 7,992
------- -------
Gross profit 5,360 4,140
Selling, general and admin. 3,694 3,141
Research and development 995 334
------ -------
Operating income 671 665
Interest expense (15) (37)
Interest income 13 13
------- -------
Income before income taxes 669 641
Income taxes 254 248
------- -------
Net income $415 $393
======= =======
Net income per share $0.16 $0.15
======= =======
Weighted average number of
common and common equivalent
shares outstanding 2,648 2,583
======= =======
See notes to consolidated financial statements.
3
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended
June 30,
1995 1994
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $415 $393
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 713 497
Restructuring (95) (241)
Changes in operating assets and liabilities:
Accounts receivable (4,033) 1,816
Inventories 653 (2,304)
Deferred income taxes --- 160
Prepaid expenses and other assets 101 (485)
Accounts payable and accrued expenses (3,097) 180
Customer advances 184 (1,696)
Income taxes payable (450) (156)
Other liabilities 28 (400)
------- -------
Net cash used in operating activities (5,581) (2,236)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (516) (870)
------- --------
Net cash used in investing activities (516) (870)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 3,400 1,200
Stock options exercised 212 110
Purchase of treasury stock (51) ---
Payment advanced against stock option
plan note receivable (80) ---
------- -------
Net cash provided by financing activities 3,481 1,310
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (2,616) (1,796)
Cash and cash equivalents at beginning of period 3,510 1,955
------ -------
Cash and cash equivalents at end of period $894 $159
====== =======
See notes to consolidated financial statements.
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,
1995.
In the opinion of the Company, 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, 1995 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, 1995 has been
derived from audited financial statements.
2. Income per Share
Shares used in computing income per share include the weighted
average of common stock outstanding plus equivalent shares issuable
under the Company's stock option plan.
3. Accounts Receivable
At June 30, 1995 and March 31, 1995, accounts receivable were as
follows:
June 30, March 31,
1995 1995
--------- -----------
Billed $12,004,000 $ 7,363,000
Unbilled 9,812,000 10,495,000
----------- -----------
Subtotal 21,816,000 17,858,000
Allowance for
doubtful accounts (172,000) (247,000)
----------- -----------
Total $21,644,000 $17,611,000
=========== ===========
4. Inventories
At June 30, 1995 and March 31, 1995, inventories were as follows:
June 30, March 31,
1995 1995
---------- ----------
Raw materials $4,021,000 $ 4,038,000
Work-in-process 3,832,000 3,779,000
Finished goods 1,495,000 2,184,000
---------- -----------
Total $9,348,000 $10,001,000
========== ===========
5
5. Property, Plant and Equipment
At June 30, 1995 and March 31, 1995, property, plant and equipment
was as follows:
June 30, March 31,
1995 1995
---------- ----------
Land and buildings $8,441,000 $ 8,406,000
Leasehold improvements 733,000 706,000
Machinery and equipment 11,943,000 11,627,000
Furniture and office
equipment 1,450,000 1,365,000
Construction-in-process 456,000 404,000
---------- ----------
Subtotal 23,023,000 22,508,000
Accumulated depreciation and
amortization (8,984,000) (8,353,000)
----------- -----------
Total $14,039,000 $14,155,000
=========== ===========
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Datron Systems Incorporated and its wholly owned subsidiaries (the
"Company") reports operations in two business segments:
Communication Products and Services (formerly called the Radio
Communication Products business segment), and Antenna and Imaging
Systems (formerly called the Antenna and Satellite Communication
Systems business segment). The Communication Products and Services
business segment designs, manufactures and distributes high
frequency and very high frequency radios and accessories. It
recently introduced private international telephone service and
began carrying satellite paging traffic. The Antenna and Imaging
Systems business segment designs and manufactures specialized
satellite communication systems, subsystems and antennas, and
provides ground station hardware, software and image processing
systems for the remote sensing market.
Results of Operations
Net income for the first quarter of fiscal 1996 was $415,000 or
$0.16 per share compared with net income of $393,000 or $0.15 per
share in the first quarter of fiscal 1995, an increase of 6%. Net
sales in the first quarter of fiscal 1996 were $14,356,000, an 18%
increase over first quarter sales last fiscal year of $12,132,000.
The increase in sales was primarily due to sales of remote sensing
products by the Company's International Imaging Systems division,
which was acquired in August 1994. The increase in net income was
lower than the increase in sales because of a significant increase
in research and development expenditures in the recent quarter,
most of which related to expanded development programs for Direct
Broadcast Satellite (DBS) TV antennas and remote sensing.
6
Operating results for each business segment were as follows:
Communication Products and Services
Three Months Ended
June 30,
1995 1994
---------- ----------
Net sales $5,078,000 $4,484,000
=========== ==========
Gross profit $1,576,000 $1,749,000
=========== ==========
Operating income $ 198,000 $ 260,000
=========== ==========
Sales of Communication Products and Services increased 13% in the
first quarter of fiscal 1996 compared with the first quarter of
fiscal 1995. The increase resulted from improved sales of standard
radio products.
Gross profit percentage on sales of Communication Products and
Services was 31.0% in the first quarter of fiscal 1996 compared
with 39.0% in the first quarter last fiscal year. The decrease was
primarily due to a less favorable sales mix of products and
services in the recent quarter and to higher overhead costs.
Operating income percentage from sales of Communication Products
and Services was 3.9% in the first quarter of fiscal 1996 compared
with 5.8% in the first quarter last fiscal year. The decrease
resulted primarily from lower gross profits and higher
international selling expenses. This segment is developing new
markets for its communication systems and services. That activity,
which is expected to continue for the next few quarters, requires
initial expenditures that do not result in immediate sales and
accordingly reduce operating income. As a result, operating income
percentages for the next few quarters will likely be lower than
they were for comparable periods last fiscal year.
Antenna and Imaging Systems
Three Months Ended
June 30,
1995 1994
--------- ---------
Net sales $9,278,000 $7,648,000
=========== ==========
Gross profit $3,784,000 $2,391,000
=========== ==========
Operating income $ 855,000 $ 851,000
=========== ==========
Sales of Antenna and Imaging Systems products increased 21% in the
first quarter of fiscal 1996 compared with the first quarter of
fiscal 1995. The increase was primarily due to sales of remote
sensing image processing products by this segment's International
Imaging Systems division, which was acquired in August 1994.
Gross profit percentage on sales of Antenna and Imaging Systems
products was 40.8% in the first quarter of fiscal 1996 compared
with 31.3% in the first quarter last fiscal year. The increase was
primarily due to lower manufacturing costs associated with a more
favorable mix of profitable contracts.
Operating income percentage from sales of Antenna and Imaging
Systems products was 9.2% in the first quarter of fiscal 1996
compared with 11.1% in the first quarter last fiscal year. The
decrease resulted from higher research and development expenditures
and from higher international selling expenses associated with the
products of International Imaging Systems, partially offset by
higher gross profits.
7
Consolidated expenses were as follows:
Selling, general and administrative expenses were $3,694,000 in the
first quarter of fiscal 1996, an 18% increase compared with first
quarter of fiscal 1995 expenses of $3,141,000. The increase was
primarily due to higher selling expenses associated with the
Company's focus on international markets in both segments of its
business and to selling expenses associated with the products of
International Imaging Systems.
Research and development expenses were $995,000 in the first
quarter of fiscal 1996 compared with $334,000 in the first quarter
last fiscal year. The 198% increase resulted from an acceleration
of development programs for DBS TV antennas for commercial
aviation, recreational vehicles and long-haul trucks, and for
remote sensing services to the agricultural community. The Company
believes the markets for these new products and services are
nearing the commercialization stage.
Order backlog at June 30 was as follows:
1995 1994
---------- ----------
Communication Products and Services $ 5,877,000 $ 8,381,000
Antenna and Imaging Systems 22,466,000 37,997,000
----------- -----------
Total $28,343,000 $46,378,000
=========== ===========
The 30% decrease in Communication Products and Services backlog and
the 41% decrease in Antenna and Imaging Systems backlog at June 30,
1995 resulted primarily from continued delays in receipt of several
anticipated international orders for communication products and
remote sensing systems. One of those delayed orders, an $8.8
million remote sensing satellite image processing facility for use
in the Middle East, was received in July 1995.
Liquidity and Capital Resources
At June 30, 1995, working capital was $18,262,000 compared with
$14,241,000 at March 31, 1995, an increase of $4,021,000 or 28%.
Major changes affecting working capital during this period were the
following: accounts receivable increased $4,033,000 due to strong
June sales and slower collections; inventories decreased $653,000
in response to lower than expected new order bookings; and accounts
payable and accrued expenses decreased $3,097,000 as payments were
made for expenses associated with large fourth quarter fiscal 1995
sales. As a result of these changes, cash decreased $2,616,000 and
the Company borrowed $3,400,000 from its bank to meet the
additional cash requirement.
Capital equipment expenditures were $516,000 during the first three
months of fiscal 1996 compared with $870,000 in the first three
months last fiscal year. The decrease was primarily due to lower
purchases of equipment for the Communication Products and Services
business segment.
At June 30, 1995, the Company had a $23,535,000 revolving line of
credit with its bank that contains a $15,000,000 credit limit for
the issuance of letters of credit and an $8,535,000 credit limit
for direct working capital advances. The Company believes that 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.
8
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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
9
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: August 2, 1995 By: /s/ WILLIAM L. STEPHAN
William L. Stephan
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)