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, 1998
[ ] 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
----------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
304 Enterprise Street, Escondido, California 92029-1297
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(760) 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 24, 1998, the Registrant had only one class of common
stock, par value $0.01, of which there were 2,685,932 shares
outstanding.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, March 31,
1998 1998
(Unaudited)
-------- --------
ASSETS
Current assets:
Cash $710 $634
Accounts receivable, net 17,680 15,487
Inventories 13,231 14,048
Deferred income taxes 3,502 3,502
Prepaid expenses and other current assets 1,676 848
-------- --------
Total current assets 36,799 34,519
Property, plant and equipment, net 10,363 10,864
Goodwill, net 5,595 5,646
Other assets 156 255
-------- --------
Total assets $52,913 $51,284
======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,230 $8,745
Accrued expenses 4,143 3,932
Customer advances 3,077 965
Income taxes payable 315 203
Current portion of restructuring reserve 124 320
Current portion of long-term debt 6,300 --
-------- --------
Total current liabilities 21,189 14,165
Long-term debt -- 5,600
Deferred income taxes 1,914 1,914
-------- --------
Total liabilities 23,103 21,679
-------- --------
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, 3,076,711 and 3,070,063
shares issued in June and March, respectively 31 31
Additional paid-in capital 10,712 10,670
Retained earnings 21,417 21,254
Treasury stock, at cost; 390,779 shares in
June and March (2,106) (2,106)
Stock option plan and stock purchase plan
notes receivable (244) (244)
-------- --------
Total stockholders' equity 29,810 29,605
-------- --------
Total liabilities and stockholders' equity $52,913 $51,284
======= =========
See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per-share amounts)
Three Months Ended
June 30,
1998 1997
------- ----------
Net sales $15,289 $10,341
Cost of sales 11,211 7,986
-------- ---------
Gross profit 4,078 2,355
Selling, general and admin. 3,232 2,748
Research and development 450 389
--------- --------
Operating income (loss) 396 (782)
Interest expense (121) (118)
Other expense -- (6)
-------- ---------
Income (loss) before income taxes 275 (906)
Income taxes (benefit) 112 (358)
-------- ---------
Net income (loss) $163 ($548)
======== =========
Earnings (loss) per common share--basic $0.06 ($0.21)
======= ==========
Weighted average number of
common shares outstanding 2,682 2,664
======= ==========
Earnings (loss) per common
share--assuming dilution $0.06 ($0.21)
======= ==========
Weighted average number of
common and common equivalent
shares outstanding 2,682 2,664
======= ==========
See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended
June 30,
1998 1997
-------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $163 ($548)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 640 693
Restructuring (196) (244)
Changes in operating assets and liabilities:
Accounts receivable (2,193) 8,400
Inventories 817 (458)
Prepaid expenses and other assets (733) (321)
Accounts payable and accrued expenses (1,304) (3,870)
Customer advances 2,112 1,311
Income taxes payable 112 ---
--------- ---------
Net cash provided by (used in) operating activities (582) 4,963
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (84) (279)
--------- ---------
Net cash used in investing activities (84) (279)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in long-term debt 700 (5,000)
Stock options exercised --- 34
Issuance of common stock 42 ---
--------- ---------
Net cash provided by (used in) financing activities 742 (4,966)
--------- ---------
INCREASE (DECREASE) IN CASH 76 (282)
Cash at beginning of period 634 1,072
--------- ---------
CASH AT END OF PERIOD $710 $790
========= =========
See notes to consolidated financial statements.
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, 1998.
In the opinion of the Company's management, 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, 1998
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, 1998 has been derived
from audited financial statements.
2. Earnings (Loss) per Share
-------------------------
Effective for the three-month period ended December 31, 1997, the
Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." This statement provides simplified
standards for the computation and presentation of earnings per share
("EPS"), making EPS comparable to international standards. SFAS No.
128 requires dual presentation on the face of the income statement of
"Basic" and "Diluted" EPS by entities with complex capital structures,
replacing "Primary" and "Fully Diluted" EPS illustrated under
Accounting Principles Board Opinion No. 15, "Earnings Per Share."
Basic EPS excludes dilution from common stock equivalents and is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects potential dilution from common stock equivalents,
similar to Fully Diluted EPS, but uses only the average stock price
during the period as part of the computation.
Shares used in computing earnings (loss) per common share -- assuming
dilution include the weighted average of common stock outstanding plus
equivalent shares issuable under the Company's stock option plans,
when such amounts are dilutive. Options to purchase 290,000 shares of
common stock at prices ranging from $8.08 - $15.73 were not included
in the computation of diluted EPS at June 30, 1998 because the effect
of such options would be anti-dilutive. Such options expire at
various dates from February 20, 1999 to March 22, 2008.
3. Accounts Receivable
-------------------
At June 30, 1998 and March 31, 1998, accounts receivable were as
follows:
June 30, March 31,
1998 1998
----------- -----------
Billed $13,220,000 $ 8,676,000
Unbilled 4,765,000 7,001,000
----------- -----------
Subtotal 17,985,000 15,677,000
Allowance for doubtful
accounts (305,000) (190,000)
----------- -----------
Total $17,680,000 $15,487,000
=========== ===========
4. Inventories
-----------
At June 30, 1998 and March 31, 1998, inventories were as follows:
June 30, March 31,
1998 1998
---------- ---------
Raw materials $ 7,595,000 $7,830,000
Work-in-process 3,445,000 4,067,000
Finished goods 2,191,000 2,151,000
----------- ----------
Total $13,231,000 $14,048,000
=========== ===========
Inventories are presented net of allowances for obsolescence of
$1,733,000 and $1,656,000 at June 30, 1998 and March 31, 1998,
respectively.
5. Property, Plant and Equipment
-----------------------------
At June 30,1998 and March 31,1998, property,plant and equipment was as
follows:
June 30, March 31,
1998 1998
------------ -------------
Land and buildings $ 8,557,000 $ 8,557,000
Machinery and equipment 15,333,000 15,201,000
Furniture and office equipment 1,505,000 1,506,000
Leasehold improvements 817,000 821,000
Construction-in-process 252,000 299,000
----------- -------------
Subtotal 26,464,000 26,384,000
----------- -------------
Accumulated depreciation and
amortization (16,101,000) ( 15,520,000)
------------ -------------
Total $ 10,363,000 $ 10,864,000
============ =============
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Datron Systems Incorporated and its wholly owned subsidiaries (the
"Company") report operations in two business segments: Antenna and
Imaging Systems, and Communication Products and Services. 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 to worldwide commercial,
scientific and military organizations. Another additional market for
this segment is mobile direct broadcast satellite ("DBS") television
reception systems for recreational vehicles, boats and large business
jets. 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.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. A variety of
factors could cause the Company's actual results to differ from the
anticipated results expressed in such forward-looking statements.
These include, among others, uncertainties stemming from the
dependence of the Company on foreign sales and on large orders from a
relatively small number of customers, risks relating to the decline in
the Company's traditional defense business and the Company's efforts
to develop and market consumer products, lack of timely development or
customer acceptance of new products, and the impact of competition.
Investors are referred to the Company's periodic reports under the
Securities Exchange Act of 1934, including without limitation, the
Investment Considerations set forth in the Company's Annual Report on
Form 10-K.
Results of Operations
Net income for the first quarter of fiscal 1999 was $163,000, or $0.06
per share, compared with a net loss of $548,000, or $0.21 per share,
in the first quarter of fiscal 1998. Net sales in the first quarter
of fiscal 1999 were $15,289,000, a 48% increase from first quarter
sales last fiscal year of $10,341,000. The increase in sales was
primarily due to higher sales of radio products, remote sensing
systems and DBS antenna products. Net income in the recent quarter
was primarily due to higher gross profits on the higher sales.
Operating results for each business segment were as follows:
Antenna and Imaging Systems
Three Months Ended
June 30,
1998 1997
----------- ----------
Net sales $10,027,000 $7,219,000
Gross profit $ 2,355,000 $1,359,000
Operating income (loss) $ 350,000 ($342,000)
Sales of Antenna and Imaging Systems products increased 39% in the
first quarter of fiscal 1999 compared with the first quarter of fiscal
1998. The increase was primarily due to higher sales of remote
sensing systems and DBS antenna products.
Gross profit percentage on sales of Antenna and Imaging Systems
products was 23.5% in the first quarter of fiscal 1999 compared with
18.8% in the first quarter last fiscal year. The increase was
primarily due to lower overhead expenses.
Operating income percentage from sales of Antenna and Imaging Systems
products was 3.5% in the first quarter of fiscal 1999 compared with an
operating loss of 4.7% in the first quarter last fiscal year. The
improvement resulted primarily from higher gross profits, partially
offset by higher administrative expenses.
Communication Products and Services
Three Months Ended
June 30,
1998 1997
---------- ---------
Net sales $5,262,000 $3,122,000
Gross profit $1,723,000 $996,000
Operating income (loss) $369,000 ($87,000)
Sales of Communication Products and Services increased 69% in the
first quarter of fiscal 1999 compared with the first quarter of fiscal
1998. The increase in sales was primarily due to a faster turn around
of orders in backlog at the end of the previous quarter.
Gross profit percentage on sales of Communication Products and
Services was 32.7% in the first quarter of fiscal 1999 compared with
31.9% in the first quarter last fiscal year. The increase was
primarily due to efficiencies resulting from the higher level of sales
in the recent quarter.
Operating income percentage from sales of Communication Products and
Services was 7.0% in the first quarter of fiscal 1999 compared with an
operating loss of 2.8% in the first quarter last fiscal year. The
improvement resulted primarily from higher gross profits on the higher
sales, partially offset by higher operating expenses.
Consolidated expenses were as follows:
Selling, general and administrative expenses were $3,232,000 in the
first quarter of fiscal 1999, an 18% increase compared with first
quarter of fiscal 1998 expenses of $2,748,000. The increase resulted
from higher administrative and selling expenses at both business
segments.
Research and development expenses were $450,000 in the first quarter
of fiscal 1999 compared with $389,000 in the first quarter last fiscal
year. The 16% increase was due to expansion of development programs
for radio products and tracking antennas.
Order backlog at June 30 was as follows:
1998 1997
----------- -----------
Antenna and Imaging Systems $24,021,000 $25,906,000
Communication Products
and Services 3,523,000 4,793,000
----------- -----------
Total $27,544,000 $30,699,000
=========== ============
The 7% decrease in Antenna and Imaging Systems backlog at June 30,
1998 compared with June 30, 1997 resulted primarily from lower order
bookings for military antennas and higher sales in all product lines
during the recent quarter.
The 26% decrease in Communication Products and Services backlog at
June 30, 1998 compared with June 30, 1997 was primarily due to higher
sales during the recent quarter.
Liquidity and Capital Resources
At June 30, 1998, working capital was $15,610,000 compared with
$20,354,000 at March 31, 1998, a decrease of $4,744,000 or 23%. Major
changes affecting working capital during this period were the
following: accounts receivable increased $2,193,000 and inventories
decreased $817,000 primarily due to higher sales; accounts payable and
accrued expenses decreased $1,304,000; and customer advances increased
$2,112,000. Additionally, borrowings on the Company's line of credit
with its bank in the amount of $6,300,000 were reclassified as current
from long-term because the Company's credit agreement with its bank is
scheduled to expire in less than one year. The Company's cash
position at June 30, 1998 was $710,000 compared with $634,000 at March
31, 1998, an increase of 12%. At June 30, 1998, the Company had
borrowed $6,300,000 in term debt from its bank to meet operating cash
requirements. Those borrowings represent a 13% increase in term debt
from the $5,600,000 of borrowings at March 31, 1998.
Capital equipment expenditures were $84,000 during the first three
months of fiscal 1999 compared with $279,000 in the first three months
last fiscal year. Although the Company anticipates expenditures for
capital equipment will be higher in fiscal 1999 than they were in
fiscal 1998, there were no material commitments for capital
expenditures at June 30, 1998.
At June 30, 1998, the Company had a $19,500,000 revolving line of
credit with its bank, of which up to $15,000,000 may be used for the
issuance of letters of credit and up to $9,500,000 may be used for
direct working capital advances provided that total credit extended
does not exceed $19,500,000. The letter of credit facility expires on
June 30, 1999 and the working capital facility expires on April 30,
1999. In April 1998, the Company amended its revolving line of credit
with its bank. Under the amended agreement, effective July 31, 1998,
the Company will have a committed revolving line of credit in the
amount of $15,500,000, of which up to $15,000,000 may be used for the
issuance of letters of credit and up to $5,500,000 may be used for
direct working capital advances. Total credit extended may not exceed
$15,500,000. The Company believes its existing working capital,
anticipated future cash flows from operations, available credit with
its bank and other financing alternatives available to the Company are
sufficient to finance presently planned capital and working capital
requirements through the end of fiscal 1999. Certain business
opportunities could arise that would require working capital and
credit availability for the issuance of letters of credit in amounts
that exceed current credit limits with its bank. The Company believes
there are alternative sources of financing available that would
provide the necessary credit in that event; however, there can be no
assurance the Company will be able to obtain such financing.
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.
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 28, 1998 By: /s/ William L. Stephan
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)