UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 January 30, 1996, the Registrant had only one class of
common stock, par value $0.01, of which there were 2,600,192 shares
outstanding.
1
Datron Systems Incorporated and its wholly owned subsidiaries (the
"Company") hereby amends Items 1 and 2 of Part I of its statement
on Form 10-Q for its second fiscal quarter ended September 30, 1995
as follows:
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS (In Thousands)
Sept 30, March 31
1995 1995
(Unaudited)
-------- --------
(Restated)
ASSETS
Current assets:
Cash and cash equivalents $110 $3,510
Accounts receivable, net 19,954 17,611
Inventories 12,063 10,001
Deferred income taxes 2,579 2,579
Prepaid expenses and other current assets 476 635
-------- --------
Total current assets 35,182 34,336
Property, plant and equipment, net 13,730 14,155
Goodwill, net 6,855 6,977
Other assets 441 476
-------- --------
Total assets $56,208 $55,944
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,855 $8,909
Accrued expenses 4,836 5,740
Customer advances 2,162 2,457
Income taxes payable 2,211 2,551
Current portion of restructuring reserve 438 438
-------- --------
Total current liabilities 18,502 20,095
Long-term debt 1,200 ---
Restructuring reserve 1,949 2,144
Deferred income taxes 817 817
Other liabilities 45 23
-------- --------
Total liabilities 22,513 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 September and March 31 31
Additional paid-in capital 10,463 10,587
Retained earnings 26,132 25,390
Treasury stock, at cost; 466,395 and 504,314
shares in September and March, respectively (2,687) (2,979)
Stock option plan and stock purchase plan
notes receivable (244) (164)
-------- --------
Total stockholders' equity 33,695 32,865
-------- --------
Total liabilities and stockholders' equity $56,208 $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 Six Months Ended
September 30, September 30,
1995 1994 1995 1994
------------------ ------------------
(Restated) (Restated)
Net sales $15,660 $16,088 $30,016 $28,220
Cost of sales 10,730 11,477 19,726 19,469
------------------ ------------------
Gross profit 4,930 4,611 10,290 8,751
Selling, general and admin. 3,709 2,934 7,403 6,075
Research and development 704 369 1,699 703
------------------ ------------------
Operating income 517 1,308 1,188 1,973
Interest expense (21) (64) (36) (101)
Interest income 6 (1) 19 12
------------------ ------------------
Income before income taxes 502 1,243 1,171 1,884
Income taxes 175 470 429 718
------------------ ------------------
Net income $327 $773 $ 742 $1,166
================== ==================
Net income per share $0.12 $0.30 $0.28 $0.45
================== ==================
Weighted average number of
common and common equivalent
shares outstanding 2,663 2,594 2,656 2,588
================== ==================
See notes to consolidated financial statements.
3
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
September 30,
1995 1994
--------- ---------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 742 $1,166
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,445 1,061
Restructuring (195) (408)
Changes in operating assets and liabilities:
Accounts receivable (2,343) (1,610)
Inventories (2,062) (3,279)
Deferred income taxes --- 160
Prepaid expenses and other assets 158 203
Accounts payable and accrued expenses (958) 2,321
Customer advances (295) (3,057)
Income taxes payable (340) 247
Other liabilities 22 (425)
--------- ---------
Net cash used in operating activities (3,826) (3,621)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (862) (1,534)
Acquisition of business --- (415)
--------- ---------
Net cash used in investing activities (862) (1,949)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 1,200 4,500
Stock options exercised 219 110
Purchase of treasury stock (51) ---
Payment advanced against stock option
plan note receivable (80) ---
--------- ---------
Net cash provided by financing activities 1,288 4,610
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (3,400) (960)
Cash and cash equivalents at beginning of period 3,510 1,955
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $110 $995
========= =========
See notes to consolidated financial statements.
4
Datron Systems Incorporated
Notes to Consolidated Financial Statements (Unaudited)
1. Restatement
-----------
In the third quarter of fiscal 1996, the Company learned that its
customer for an $8.8 million remote sensing satellite (RSS) image
processing facility intended for installation in the Middle East
was not able to obtain funding for the order. The Company had
booked and announced this order in July 1995 and commenced work on
it shortly thereafter. The Company's customer, who is acting as
prime contractor for a larger project that includes the RSS
facility, has not been able to obtain funding from its customer for
the image processing facility. Because the order was conditioned
upon funding, and after an extensive assessment of its likelihood
of being funded, the Company canceled the order in January 1996 for
lack of payment. Negotiations to reinstate the order are underway,
but it is not possible as of the date of this filing to predict the
outcome of those negotiations.
After a careful examination of the facts and circumstances, the
Company concluded that, because the RSS order was conditioned upon
funding that has not been obtained, its financial statements for
the second quarter ended September 30, 1995 required restatement to
remove from net sales for the quarter $1,785,000 attributable to
the order and originally included in net sales using the percentage
completion method of accounting. The information presented below
is a summary of the impact of the restatement on the unaudited
financial statements for the quarter and six-month periods ended
September 30, 1995 (in thousands, except per-share amounts):
Three Months Ended Six Months Ended
September 30, 1995 September 30, 1995
Restated As Reported Restated As Reported
--------- ----------- --------- -----------
Net sales $15,660 $17,445 $30,016 $31,801
Operating income $517 $1,373 $1,188 $2,044
Net income $327 $840 $742 $1,255
Net income per share $0.12 $0.32 $0.28 $0.47
As of September 30, 1995
Restated As Reported
-------- -----------
Current assets $35,182 $36,191
Total assets $56,208 $57,217
Current liabilities $18,502 $18,998
Total liabilities $22,513 $23,009
Stockholders' equity $33,695 $34,208
Amounts reported below in Note 4 and Note 5 as of September 30, 1995
have been restated for this matter.
5
2. 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 September 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.
3. 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.
4. Accounts Receivable
-------------------
At September 30, 1995 and March 31, 1995, accounts receivable were
as follows:
September 30, March 31,
1995 1995
------------ -----------
Billed $11,869,000 $ 7,363,000
Unbilled 8,257,000 10,495,000
----------- -----------
Subtotal 20,126,000 17,858,000
Allowance for doubtful accounts (172,000) (247,000)
----------- -----------
Total $19,954,000 $17,611,000
=========== ===========
5. Inventories
-----------
At September 30, 1995 and March 31, 1995, inventories were as
follows:
September 30, March 31,
1995 1995
------------- -----------
Raw materials $ 5,265,000 $ 4,038,000
Work-in-process 5,869,000 3,779,000
Finished goods 929,000 2,184,000
----------- -----------
Total $12,063,000 $10,001,000
=========== ===========
6
6. Property, Plant and Equipment
-----------------------------
At September 30, 1995 and March 31, 1995, property, plant and
equipment was as follows:
September 30, March 31,
1995 1995
------------ ------------
Land and buildings $ 8,443,000 $ 8,406,000
Leasehold improvements 761,000 706,000
Machinery and equipment 12,139,000 11,627,000
Furniture and office equipment 1,464,000 1,365,000
Construction-in-process 537,000 404,000
----------- -----------
Subtotal 23,344,000 22,508,000
Accumulated depreciation and
amortization (9,614,000) (8,353,000)
----------- -----------
Total $13,730,000 $14,155,000
=========== ===========
7. Long-Term Debt
--------------
On August 17, 1995, the Company increased the limit of its
revolving credit line with its bank to $26,535,000, comprised of
$18,000,000 for the issuance of letters of credit and $8,535,000
for direct working capital advances. Maturity of the credit line
was extended to December 31, 1997 and interest payable on
borrowings under the line of credit was reduced to the bank's prime
rate plus 0.50% or to LIBOR plus 1.50%, at the option of the
Company.
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:
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. 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.
Restatement
- -----------
In the third quarter of fiscal 1996, the Company learned that its
customer for an $8.8 million remote sensing satellite (RSS) image
processing facility intended for installation in the Middle East
was not able to obtain funding for the order. The Company had
booked and announced this order in July 1995 and commenced work on
it shortly thereafter. The Company's customer, who is acting as
prime contractor for a larger project that includes the RSS
facility, has not been able to obtain funding from its customer for
the image processing facility. Because the order was conditioned
upon funding, and after an extensive assessment of its likelihood
of being funded, the Company canceled the order in January 1996 for
lack of payment. Negotiations to reinstate the order are underway,
but it is not possible as of the date of this filing to predict the
outcome of those negotiations.
After a careful examination of the facts and circumstances, the
Company concluded that, because the RSS order was conditioned upon
funding that has not been obtained, its financial statements for
the second quarter ended September 30, 1995 required restatement to
remove from net sales for the quarter $1,785,000 attributable to
the order and originally included in net sales using the percentage
completion method of accounting. The discussion that follows
includes the effects of that restatement.
7
Results of Operations
- ---------------------
Net income for the second quarter of fiscal 1996 decreased 58% to
$327,000 or $0.12 per share compared with net income of $773,000 or
$0.30 per share in the second quarter of fiscal 1995. Net sales in
the second quarter of fiscal 1996 were $15,660,000, a 3% decrease
from net sales of $16,088,000 in the second quarter last fiscal
year. The decrease in sales was primarily due to lower sales of
remote sensing systems partially offset by higher sales of radio
products. The decrease in net income resulted primarily from
increased selling expenses and research and development expenses,
partially offset by higher gross profits.
Net income for the six months ended September 30, 1995 decreased
36% to $742,000 or $0.28 per share compared with net income of
$1,166,000 or $0.45 per share for the comparable period last fiscal
year. Net sales for the six months were $30,016,000, a 6% increase
from net sales of $28,220,000 for the first six months last fiscal
year. The increase in sales was primarily due to higher sales of
radio products. The decrease in net income resulted from increased
selling expenses and research and development expenses, partially
offset by higher gross profits on the higher sales.
Operating results for each business segment were as follows:
Communication Products and Services
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ----------- -----------
Net sales $7,926,000 $5,657,000 $13,004,000 $10,141,000
========== ========== =========== ===========
Gross profit $2,582,000 $1,731,000 $ 4,158,000 $ 3,480,000
========== ========== =========== ===========
Operating income $ 808,000 $ 811,000 $ 1,006,000 $ 1,071,000
========== ========== =========== ===========
Sales of Communication Products and Services in the second quarter
and in the first six months of fiscal 1996 were 40% higher and 28%
higher, respectively, than they were in the comparable periods of
fiscal 1995. Sales were higher because of a faster turn around of
new order bookings for standard radio products.
Gross profit on sales of Communication Products and Services was
32.6% in the second quarter of fiscal 1996 compared with 30.6% in
the second quarter last fiscal year. The increase in the recent
quarter was primarily due to a reclassification of certain overhead
expenses that occurred in the second quarter of fiscal 1995 and
which resulted in lower gross profits that quarter. Gross profit
for the first six months of fiscal 1996 was 32.0% of sales compared
with 34.3% of sales for the first six months of fiscal 1995. The
decrease was primarily due to a less favorable sales mix of
products and services in the recent six months and to higher
materials and overhead expenses.
Operating income from sales of Communication Products and Services
was 10.2% in the second quarter of fiscal 1996 compared with 14.3%
in the second quarter last fiscal year. The decrease resulted
primarily from higher international selling expenses and from
higher administrative expenses related to the Company's decision
not to continue pursuit of the satellite paging business.
Operating income for the first six months of fiscal 1996 was 7.7%
of sales compared with 10.6% of sales for the first six months of
fiscal 1995. The decrease was primarily due to lower gross
profits, higher international selling expenses and higher
administrative expenses.
8
Antenna and Imaging Systems
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ----------- ----------- -----------
Net sales $7,734,000 $10,431,000 $17,012,000 $18,079,000
========== =========== =========== ===========
Gross profit $2,348,000 $ 2,880,000 $ 6,132,000 $ 5,271,000
========== =========== =========== ===========
Operating income $45,000 $ 827,000 $ 900,000 $ 1,678,000
========== =========== =========== ===========
Sales of Antenna and Imaging Systems products decreased 26% in the
second quarter of fiscal 1996 compared with the second quarter of
fiscal 1995. The decrease was primarily due to lower sales of
remote sensing satellite systems. The awards of several orders for
such systems, including the RSS order described in Note 1 to the
Consolidated Financial Statements, have been delayed. It is
uncertain whether these delayed orders will be awarded and whether
the Company will receive those orders if they are awarded. Sales
in the first six months of fiscal 1996 were 5% lower than in the
first six months of fiscal 1995. The decrease was primarily due to
lower sales of remote sensing satellite systems.
Gross profit on sales of Antenna and Imaging Systems products was
30.4% in the second quarter of fiscal 1996 compared with 27.6% in
the second quarter last fiscal year. The increase was primarily
due to lower manufacturing costs associated with a more favorable
mix of profitable contracts. Gross profit for the first six months
of fiscal 1996 increased to 36.0% of sales compared with 29.2% of
sales for the first six months of fiscal 1995 for the same reason.
Operating income from sales of Antenna and Imaging Systems products
was 0.6% in the second quarter of fiscal 1996 compared with 7.9% in
the second quarter last fiscal year. The decrease resulted from
higher research and development expenses and higher international
selling expenses, partially offset by higher gross profits.
Operating income for the first six months of fiscal 1996 decreased
to 5.3% of sales compared with 9.3% of sales for the first six
months fiscal 1995 for the same reason.
Consolidated expenses were as follows:
Selling, general and administrative expenses were $3,709,000 in the
second quarter of fiscal 1996, a 26% increase compared with second
quarter of fiscal 1995 expenses of $2,934,000. The increase was
primarily due to higher selling expenses associated with the
Company's focus on international markets in both segments of its
business. Selling, general and administrative expenses for the
first six months of fiscal 1996 were $7,403,000, a 22% increase
from the first six months of fiscal 1995 expenses of $6,075,000 for
the same reason.
Research and development (R & D) expenses were $704,000 in the
second quarter of fiscal 1996 compared with $369,000 in the second
quarter last fiscal year. The 91% increase resulted from an
acceleration of development programs for Direct Broadcast Satellite
(DBS) television antennas for recreational vehicles, long-haul
trucks and commercial aviation. R & D expenses in the first six
months of fiscal 1996 were $1,699,000, a 142% increase from the
first six months of fiscal 1995 expenses of $703,000. The Company
has identified the DBS television market for the mobile user as a
potential major new market for its products. R & D expenditures
and new market development expenditures are likely to increase
during the next several quarters as the Company seeks to establish
a dominant position in that market. The Company estimates that the
increased spending will lower fiscal 1996 net income from what it
would otherwise have been without the pursuit of the DBS market by
as much as $1,300,000 or approximately $0.50 per share.
9
Order backlog at September 30 was as follows:
1995 1994
----------- -----------
Communication Products and Services $12,658,000 $14,911,000
Antenna and Imaging Systems 19,211,000 37,417,000
----------- -----------
Total $31,869,000 $52,328,000
=========== ===========
The 15% decrease in Communication Products and Services backlog at
September 30, 1995 resulted primarily from a faster turn around of
new order bookings to sales during the first six months of fiscal
1996 than for the comparable period in fiscal 1995. The 49%
decrease in Antenna and Imaging Systems backlog at September 30,
1995 was primarily due to continued customer delays in the award of
several anticipated international orders for remote sensing systems
and to a continued decline in U.S Department of Defense business.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1995, working capital was $16,680,000 compared
with $14,241,000 at March 31, 1995, an increase of $2,439,000 or
17%. Major changes affecting working capital during this period
were the following: accounts receivable increased $2,343,000 due
to strong September sales; inventories increased $2,062,000 to meet
production requirements for new radio orders and for anticipated
DBS antenna and remote sensing system orders; and accounts payable
and accrued expenses decreased $958,000. The Company borrowed
$1,200,000 in term debt from its bank during the first six months
to meet the resulting cash requirement.
Capital equipment expenditures were $862,000 during the first six
months of fiscal 1996 compared with $1,534,000 for the first six
months last fiscal year. The decrease was primarily due to lower
purchases of equipment for the Communication Products and Services
business segment.
On August 17, 1995, the Company increased the limit of its
revolving credit line with its bank to $26,535,000, comprised of an
$18,000,000 credit limit for the issuance of letters of credit and
an $8,535,000 credit limit for direct working capital advances.
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.
10
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 4. Submission of Matters to a Vote of Security Holders.
On August 15, 1995, the Company held its annual meeting of
stockholders, proxies for which were solicited pursuant to
Regulation 14 under the Act. All existing directors were re-
elected. Also, the stockhholders approved the Company's 1995 Stock
Option Plan with 1,331,008 votes cast in favor of approval and
451,660 votes cast against approval.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Fifth Amendment to Credit Agreement and Note between the
Registrant and Union Bank dated as of August 17, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
11
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 January 31, 1996 By: /s/ WILLIAM L. STEPHAN
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)