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 September 30, 1996
[ ] 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
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(Exact name of registrant as specified in its charter)
Delaware 95-2582922
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(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer Identification No.)
304 Enterprise Street, 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 October 25, 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)
Sept 30, March 31
1996 1996
-------- --------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $306 $1,393
Accounts receivable, net 18,475 15,017
Inventories 15,291 15,808
Deferred income taxes 2,602 2,602
Prepaid expenses and other current assets 774 2,478
-------- --------
Total current assets 37,448 37,298
Property, plant and equipment, net 12,739 13,835
Goodwill, net 5,953 6,056
Investment 1,113 890
Other assets 336 380
-------- --------
Total assets $57,589 $58,459
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,078 $8,490
Accrued expenses 3,373 5,405
Customer advances 4,099 3,693
Income taxes payable 361 240
Current portion of restructuring reserve 1,059 1,428
-------- --------
Total current liabilities 16,970 19,256
Long-term debt 6,600 5,200
Restructuring reserve 631 1,063
Deferred income taxes 1,069 1,069
-------- --------
Total liabilities 25,270 26,588
-------- --------
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 10,645 10,568
Retained earnings 24,333 24,149
Treasury stock, at cost; 436,745 and 459,745
shares in September and March, respectively (2,446) (2,633)
Stock option plan and stock purchase plan notes rec (244) (244)
-------- --------
Total stockholders' equity 32,319 31,871
-------- --------
Total liabilities and stockholders' equity $57,589 $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 Six Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- -------- --------- --------
Net sales $14,620 $15,660 $27,077 $30,016
Cost of sales 10,711 10,730 19,712 19,726
--------- -------- --------- --------
Gross profit 3,909 4,930 7,365 10,290
Selling, general and admin. 2,991 3,709 5,722 7,403
Research and development 482 704 1,040 1,699
--------- -------- -------- ---------
Operating income 436 517 603 1,188
Interest expense (177) (21) (297) (36)
Interest income 0 6 3 19
--------- ------- -------- --------
Income before income taxes 259 502 309 1,171
Income taxes 104 175 125 429
-------- -------- ------- --------
Net income $155 $327 $184 $742
========= ======== ========= ========
Net income per share $0.06 $0.12 $0.07 $0.28
========= ======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding 2,681 2,663 2,687 2,656
========= ======== ======== ========
See notes to consolidated financial statements.
3
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
September 30,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $184 $742
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,429 1,445
Restructuring (801) (195)
Changes in operating assets and liabilities:
Accounts receivable (3,458) (2,343)
Inventories 517 (2,062)
Prepaid expenses and other assets 1,712 158
Accounts payable and accrued expenses (2,444) (958)
Customer advances 406 (295)
Income taxes payable 121 (340)
Other liabilities --- 22
--------- ---------
Net cash used in operating activities (2,334) (3,826)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (194) (862)
Purchase of investment (223) ---
--------- ---------
Net cash used in investing activities (417) (862)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 1,400 1,200
Stock options exercised 264 219
Purchase of treasury stock --- (51)
Payment advanced against stock option
plan note receivable --- (80)
--------- ---------
Net cash provided by financing activities 1,664 1,288
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (1,087) (3,400)
Cash and cash equivalents at beginning of period 1,393 3,510
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $306 $110
========= =========
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, 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 September
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
----------------
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
-------------------
At September 30, 1996 and March 31, 1996, accounts receivable
were as follows:
September 30, March 31,
1996 1996
------------ ------------
Billed $11,503,000 $ 6,858,000
Unbilled 7,118,000 8,406,000
---------- -----------
Subtotal 18,621,000 15,264,000
Allowance for doubtful
accounts (146,000) (247,000)
---------- -----------
Total $18,475,000 $15,017,000
=========== ===========
4. Inventories
At September 30, 1996 and March 31, 1996, inventories were as
follows:
September 30, March 31,
1996 1996
------------- ----------
Raw materials $ 8,563,000 $ 7,487,000
Work-in-process 4,570,000 5,231,000
Finished goods 2,158,000 3,090,000
----------- -----------
Total $15,291,000 $15,808,000
=========== ===========
5
5. Property, Plant and Equipment
-----------------------------
At September 30, 1996 and March 31, 1996, property, plant and
equipment was as follows:
September 30, March 31,
1996 1996
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Land and buildings $ 8,496,000 $ 8,479,000
Machinery and equipment 13,971,000 13,658,000
Furniture and office
equipment 1,452,000 1,462,000
Leasehold improvements 809,000 910,000
Construction-in-process 45,000 183,000
----------- -----------
Subtotal 24,773,000 24,692,000
Accumulated depreciation and
amortization (12,034,000) (10,857,000)
----------- -----------
Total $12,739,000 $13,835,000
=========== ===========
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, 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. This segment also sells remote
sensing satellite earth stations. In fiscal 1996, this segment
introduced the DBS-3000, 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 second quarter of fiscal 1997 was $155,000, or
$0.06 per share, compared with net income of $327,000, or $0.12
per share, in the second quarter of fiscal 1996. Net sales in
the second quarter of fiscal 1997 were $14,620,000, a 7% decrease
from second quarter net sales last fiscal year of $15,660,000.
The decrease in sales was primarily due to lower sales of radio
products and military antennas, partially offset by sales of new
direct broadcast satellite (DBS) antenna products. The decrease
in net income resulted from lower gross profits on the lower
sales, partially offset by lower selling, administrative and
research and development expenses.
6
Net income for the six months ended September 30, 1996 was
$184,000, or $0.07 per share, compared with net income of
$742,000, or $0.28 per share, for the comparable period last
fiscal year. Net sales for the six months were $27,077,000, a
10% decrease from net sales of $30,016,000 for the first six
months last fiscal year. The decrease in sales wa primarily due
to lower sales of radio products, military antennas and remote
sensing systems, partially offset by sales of new DBS antenna
products. The decrease in net income resulted from lower gross
profits on the lower sales, partially offset by lower selling,
administrative and research and development expenses.
Operating results for each business segment were as follows:
Communication Products and Services
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net sales $5,243,000 $7,926,000 $9,316,000 $13,004,000
========== ========== ========== ===========
Gross profit $1,416,000 $2,582,000 $2,778,000 $ 4,158,000
========== ========== ========== ===========
Operating income $ 222,000 $ 808,000 $ 777,000 $ 1,006,000
========== ========== ========== ===========
Sales of Communication Products and Services in the second
quarter and in the first six months of fiscal 1997 were 34% lower
and 28% lower, respectively, than they were in the comparable
periods of fiscal 1996. The decrease in sales was due to low
order bookings for radio products during the two previous
quarters. Order bookings improved in the second quarter of
fiscal 1997, but there can be no assurances that the improvement
will continue in the third quarter.
Gross profit percentage on sales of Communication Products and
Services was 27.0% in the second quarter of fiscal 1997 compared
with 32.6% in the second quarter last fiscal year. The decrease
in the recent quarter was primarily due to higher labor and
materials costs and to a less favorable product mix. Gross
profit for the first six months of fiscal 1997 was 29.8% of sales
compared with 32.0% of sales for the first six months of fiscal
1996 for the same reason.
Operating income percentage on sales of Communication Products
and Services was 4.2% in the second quarter of fiscal 1997
compared with 10.2% in the second quarter last fiscal year. The
decrease resulted primarily from lower gross profits, partially
offset by lower selling and administrative expenses. Operating
income for the first six months of fiscal 1997 was 8.3% of sales
compared with 7.7% of sales for the first six months of fiscal
1996. The increase was primarily due to lower selling and
administrative expenses, partially offset by lower gross profits.
Antenna and Imaging Systems
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
Net sales $9,377,000 $7,734,000 $17,761,000 $17,012,000
========== ========== =========== ===========
Gross profit $2,493,000 $2,348,000 $ 4,587,000 $ 6,132,000
========== ========== =========== ===========
Operating income $ 556,000 $ 45,000 $ 560,000 $ 900,000
========== ========== =========== ===========
Sales of Antenna and Imaging Systems products increased 21% in
the second quarter of fiscal 1997 compared with the second
quarter of fiscal 1996. The increase was primarily due to sales
of new DBS antenna products, partially offset by lower sales of
military antennas. Sales in the first six months of fiscal 1997
were 4% higher than in the first six months of fiscal 1996. The
increase was primarily due to sales of new DBS antenna products,
partially offset by lower sales of military antennas and remote sensing
systems.
7
Gross profit percentage on sales of Antenna and Imaging Systems
products was 26.6% in the second quarter of fiscal 1996 compared
with 30.4% in the second quarter last fiscal year. The decrease was
primarily due to higher materials costs associated with start-up
quantities of DBS antenna products and to higher manufacturing costs
associated with a less favorable product mix. Gross profit for the first
six months of fiscal 1997 was 25.8% of sales compared with 36.0% of sales
for the first six months of fiscal 1996 for the same reason.
Operating income percentage on sales of Antenna and Imaging Systems products
was 5.9% in the second quarter of fiscal 1997 compared with 0.6% in the
second quarter last fiscal year. The increase resulted from lower selling,
research and development and administrative expenses, partially offset by
lower gross profits. Operating income for the first six months of fiscal
1997 was 3.2% of sales compared with 5.3% of sales for the first six months
of fiscal 1996. The decrease was primarily due to lower gross profits,
partially offset by lower research and development, selling and
administrative expenses.
Consolidated expenses were as follows:
Selling, general and administrative expenses were $2,991,000 in
the second quarter of fiscal 1997, a 19% decrease compared with
second quarter of fiscal 1996 expenses of $3,709,000. The
decrease was due to lower selling and administrative expenses at
both business segments. Selling, general and administrative
expenses for the first six months of fiscal 1997 were $5,722,000,
a 23% decrease compared with first six months of fiscal
1996 expenses of $7,403,000 for the same reason. Cost reductions
related to the Company's fourth quarter of fiscal 1996
consolidation and restructuring as well as spending reductions in
the first six months of fiscal 1997 at both business segments
were responsible for most of the decrease.
Research and development (R&D) expenses were $482,000 in the
second quarter of fiscal 1997 compared with $704,000 in the
second quarter last fiscal year. The 32% decrease was due to
significantly lower spending on development programs for mobile
DBS antenna products and from the absence of spending on programs
to develop remote sensing services for the agricultural
community. R&D expenses in the first six months of fiscal 1997
were $1,040,000, a 39% decrease compared with first six months of
fiscal 1996 expenses of $1,699,000 for the same reason. In
fiscal 1996, the Company significantly increased R&D spending to
develop DBS antenna products. Several of those products are now
in production and although development of new DBS products and
enhancements to existing products are ongoing, the level of R&D
spending in fiscal 1997 is expected to be lower than it was in
fiscal 1996.
Order backlog at September 30 was as follows:
1996 1995
----------- -----------
Communication Products and Services $ 4,519,000 $12,658,000
Antenna and Imaging Systems 18,589,000 19,211,000
----------- -----------
Total $23,108,000 $31,869,000
=========== ===========
The 64% decrease in Communication Products and Services backlog
at September 30, 1996 was due to continued low order bookings.
Although bookings in this business segment showed improvement
during the second quarter of fiscal 1997 compared with the three
previous quarters, there can be no assurances they will continue
to improve.
8
The 3% decrease in Antenna and Imaging Systems backlog at
September 30, 1996 was primarily due to lower order bookings for
remote sensing systems, partially offset by orders for new DBS
antenna products. Although the Company expected orders for
remote sensing systems during the first six months of fiscal 1997
would be lower than they were for the comparable period in fiscal
1996, it expected higher orders and sales for the new DBS-3000
during this period. The Company believes orders for the DBS-3000
will improve with better dealer selection and training, and that
changes being implemented within its distribution system will
improve both DBS order bookings and sales by fiscal year end;
however, there can be no assurances that the changes will have
that effect.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1996, working capital was $20,478,000 compared with
$18,042,000 at March 31, 1996, an increase of $2,436,000 or 14%. Major
changes affecting working capital during this period were the following:
accounts receivable increased $3,458,000 primarily due to shipments of radio
products in September; inventories decreased $517,000 as declining radio
products inventories were partially offset by increases in materials for
DBS products; accounts payable and accrued expenses decreased $2,444,000;
and prepaid expenses and other current assets decreased $1,712,000
primarily due to collection of an income tax refund. The Company's cash
position at September 30, 1996 was $306,000 compared with $1,393,000 at
March 31, 1996, a decrease of 78%. At September 30, 1996, the Company had
borrowed $6,600,000 in term debt from its bank to meet operating cash
requirements. These borrowings represented a 27% increase in term debt
from the $5,200,000 of borrowings at March 31, 1996.
Capital equipment expenditures were $194,000 during the first six months of
fiscal 1997 compared with $862,000 in the first six months last fiscal year.
The decrease was primarily due to lower purchases of equipment for the
Antenna and Imaging Systems business segment.
At September 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.
9
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
Pursuant to a business loan agreement with a bank, the Company must comply
with certain financial covenants. The agreement also prohibits the Company
from declaration or payment of dividends or other distributions on the
Company's stock, except under certain conditions specified in the agreement.
The Company is in compliance with both requirements.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 14, 1996, 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.
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.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
DATRON SYSTEMS INCORPORATED
Date: October 28, 1996 By: WILLIAM L. STEPHAN
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)