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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-7445
DATRON SYSTEMS INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 95-2582922
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
304 Enterprise St., Escondido, California 92029-1297
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(Address of principal executive offices) (zip code)
(619) 747-3734
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(Registrant's telephone number, including area code)
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(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, 1996, the Registrant had only one class of common
stock, par value $0.01, of which there were 2,627,192 shares outstanding.
1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, March 31
1996 1996
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $449 $1,393
Accounts receivable, net 14,083 15,017
Inventories 16,289 15,808
Deferred income taxes 2,602 2,602
Prepaid expenses and other current assets 1,933 2,478
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Total current assets 35,356 37,298
Property, plant and equipment, net 13,282 13,835
Goodwill, net 6,004 6,056
Investment 1,113 890
Other assets 360 380
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Total assets $56,115 $58,459
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,706 $8,490
Accrued expenses 3,566 5,405
Customer advances 2,011 3,693
Income taxes payable 253 240
Current portion of restructuring reserve 1,248 1,428
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Total current liabilities 14,784 19,256
Long-term debt 7,400 5,200
Restructuring reserve 706 1,063
Deferred income taxes 1,069 1,069
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Total liabilities 23,959 26,588
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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 10,637 10,568
Retained earnings 24,178 24,149
Treasury stock, at cost; 436,745 and 459,745
shares in June and March, respectively (2,446) (2,633)
Stock option plan and stock purchase plan
notes receivable (244) (244)
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Total stockholders' equity 32,156 31,871
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Total liabilities and stockholders' equity $56,115 $58,459
================
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,
1996 1995
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Net sales $12,457 $14,356
Cost of sales 9,001 8,996
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Gross profit 3,456 5,360
Selling, general and admin. 2,731 3,694
Research and development 558 995
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Operating income 167 671
Interest expense (120) (15)
Interest income 3 13
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Income before income taxes 50 669
Income taxes 21 254
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Net income $29 $415
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Net income per share $0.01 $0.16
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Weighted average number of
common and common equivalent
shares outstanding 2,694 2,648
==================
See notes to consolidated financial statements.
3
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended
June 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $29 $415
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 734 713
Restructuring (537) (95)
Changes in operating assets and liabilities:
Accounts receivable 934 (4,033)
Inventories (481) 653
Prepaid expenses and other assets 547 101
Accounts payable and accrued expenses (2,623) (3,097)
Customer advances (1,682) 184
Income taxes payable 13 (450)
Other liabilities --- 28
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Net cash used in operating activities (3,066) (5,581)
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (111) (516)
Purchase of investment (223) ---
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Net cash used in investing activities (334) (516)
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 2,200 3,400
Stock options exercised 256 212
Purchase of treasury stock --- (51)
Payment advanced against stock option
plan note receivable --- (80)
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Net cash provided by financing activities 2,456 3,481
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DECREASE IN CASH AND CASH EQUIVALENTS (944) (2,616)
Cash and cash equivalents at beginning of period 1,393 3,510
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $449 $894
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See notes to consolidated financial statements.
4
Datron Systems Incorporated
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
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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, 1996.
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, 1996 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, 1996 has been derived from audited financial
statements.
2. Income per Share
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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 plans.
3. Accounts Receivable
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At June 30, 1996 and March 31, 1996, accounts receivable were as follows:
June 30, March 31,
1996 1996
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Billed $ 6,272,000 $ 6,858,000
Unbilled 7,946,000 8,406,000
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Subtotal 14,218,000 15,264,000
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Allowance for doubtful accounts (135,000) (247,000)
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Total $14,083,000 $15,017,000
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4. Inventories
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At June 30, 1996 and March 31, 1996, inventories were as follows:
June 30, March 31,
1996 1996
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Raw materials $ 8,711,000 $ 7,487,000
Work-in-process 4,478,000 5,231,000
Finished goods 3,100,000 3,090,000
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Total $16,289,000 $15,808,000
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5
5. Property, Plant and Equipment
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At June 30, 1996 and March 31, 1996, property, plant and equipment was as
follows:
June 30, March 31,
1996 1996
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Land and buildings $ 8,490,000 $ 8,479,000
Machinery and equipment 13,907,000 13,658,000
Furniture and office equipment 1,399,000 1,462,000
Leasehold improvements 806,000 910,000
Construction-in-process 96,000 183,000
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Subtotal 24,698,000 24,692,000
Accumulated depreciation and
amortization (11,416,000) (10,857,000)
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Total $13,282,000 $13,835,000
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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, and Antenna and Imaging Systems. The
Communication Products and Services business segment designs,
manufactures and distributes high frequency and very high frequency
radios and accessories for worldwide military and civilian purposes. The
Antenna and Imaging Systems business segment designs and manufactures
specialized satellite communication systems, subsystems and antennas that
are sold worldwide to commercial and governmental customers, including
the U.S. Department of Defense (DoD). This segment also sells remote
sensing satellite earth stations, sales of which represented 29% and 26%
of this segment's sales in fiscal 1996 and 1995, respectively. In fiscal
1996, this segment introduced the DBS-3000 TM, a mobile satellite
television reception system for recreational vehicles and long-haul
trucks. This system is the Company's first consumer product.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements.
Actual results could differ materially. Reference is hereby made to the
statement of Investment Considerations contained in Part I, Item 1 of the
Company's Form 10-K, which is available from the Company upon request.
Results of Operations
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Net income for the first quarter of fiscal 1997 was $29,000, or $0.01 per
share, compared with net income of $415,000, or $0.16 per share, in the
first quarter of fiscal 1996. Net sales in the first quarter of fiscal
1997 were $12,457,000, a 13% decrease from first quarter sales last
fiscal year of $14,356,000. The decrease in sales and net income was
primarily due to lower sales of radio products and remote sensing
systems, partially offset by sales of the new DBS-3000.
Operating results for each business segment were as follows:
6
Communication Products and Services
Three Months Ended
June 30,
1996 1995
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Net sales $4,073,000 $5,078,000
Gross profit $1,362,000 $1,576,000
Operating income $ 555,000 $ 198,000
Sales of Communication Products and Services decreased 20% in the first
quarter of fiscal 1997 compared with the first quarter of fiscal 1996.
The decrease in sales resulted from recent low order bookings of radio
products.
Gross profit percentage on sales of Communication Products and Services
was 33.4% in the first quarter of fiscal 1997 compared with 31.0% in the
first quarter last fiscal year. The increase was primarily due to lower
overhead expenses in the recent quarter.
Operating income percentage from sales of Communication Products and
Services was 13.6% in the first quarter of fiscal 1997 compared with 3.9%
in the first quarter last fiscal year. The increase resulted from higher
gross profits and from reductions in selling and administrative expenses.
Antenna and Imaging Systems
Three Months Ended
June 30,
1996 1995
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Net sales $8,384,000 $9,278,000
Gross profit $2,094,000 $3,784,000
Operating income $ 4,000 $ 855,000
Sales of Antenna and Imaging Systems products decreased 10% in the first
quarter of fiscal 1997 compared with the first quarter of fiscal 1996.
The decrease was primarily due to lower sales of remote sensing systems,
partially offset by sales of the new DBS-3000.
Gross profit percentage on sales of Antenna and Imaging Systems products
was 25.0% in the first quarter of fiscal 1997 compared with 40.8% in the
first quarter last fiscal year. The decrease was primarily due to higher
manufacturing costs associated with a less favorable product mix and to
higher materials costs related to initial production of the DBS-3000.
Operating income percentage from sales of Antenna and Imaging Systems
products was 0.0% in the first quarter of fiscal 1997 compared with 9.2%
in the first quarter last fiscal year. The decrease resulted from lower
gross profits, partially offset by lower selling and administrative
expenses.
7
Consolidated expenses were as follows:
Selling, general and administrative expenses were $2,731,000 in the first
quarter of fiscal 1997, a 26% decrease compared with first quarter of
fiscal 1996 expenses of $3,694,000. The decrease was due to lower
selling and administrative expenses at both business segments. Cost
reductions related to the Company's fourth quarter of fiscal 1996
consolidation and restructuring as well as spending reductions in the
first quarter at both segments were responsible for most of the decrease.
Research and development expenses were $558,000 in the first quarter of
fiscal 1997 compared with $995,000 in the first quarter last fiscal year.
The 44% decrease was due to significantly lower spending on development
programs for mobile direct broadcast satellite (DBS) television products,
some of which are now in production, and from the absence of spending on
programs to develop remote sensing services for the agricultural
community.
Order backlog at June 30 was as follows:
1996 1995
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Communication Products and Services $ 2,576,000 $ 5,877,000
Antenna and Imaging Systems 22,690,000 22,466,000
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Total $25,266,000 $28,343,000
The 56% decrease in Communication Products and Services backlog at June
30, 1996 compared with June 30, 1995 was due to continued low order
bookings. Although bookings in this business segment have been low
during the last six months and although there can be no assurances that
bookings will improve, recent customer inquiries suggest that order
bookings may improve in the second quarter. The 1% increase in Antenna
and Imaging Systems backlog at June 30, 1996 compared with June 30, 1995
resulted primarily from orders for DBS television products, partially
offset by lower orders for remote sensing systems.
Liquidity and Capital Resources
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At June 30, 1996, working capital was $20,572,000 compared with
$18,042,000 at March 31, 1996, an increase of $2,530,000 or 14%. Major
changes affecting working capital during this period were the following:
accounts receivable decreased $934,000 primarily due to low sales during
the quarter; inventories increased $481,000 to meet production
requirements for new DBS television reception system products; accounts
payable and accrued expenses decreased $2,623,000; and customer advances
decreased $1,682,000. The Company's cash position at June 30, 1996 was
$449,000 compared with $1,393,000 at March 31, 1996, a decrease of 68%.
At June 30, 1996, the Company had borrowed $7,400,000 in term debt from
its bank to meet operating cash requirements. These borrowings
represented a 42% increase in term debt from the $5,200,000 of borrowings
at March 31, 1996.
Capital equipment expenditures were $111,000 during the first three
months of fiscal 1997 compared with $516,000 in the first three months
last fiscal year. The decrease was primarily due to lower purchases of
equipment for the Antenna and Imaging Systems business segment.
At June 30, 1996, the Company had a $19,500,000 committed revolving line
of credit with its bank, of which up to $12,000,000 may be used for the
issuance of letters of credit and up to $10,500,000 may be used for
direct working capital advances provided that total credit extended does
not exceed $19,500,000. The Company believes that its existing working
capital, anticipated future cash flows from operations and available
credit with its bank are sufficient to finance 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 July 30, 1996 By:WILLIAM L. STEPHAN
Vice President and Chief Financial Officer
(Principal Financial and Accounting
Officer)