UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission File
Ended March 31, 1999 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 of Incorporation) (I.R.S. Employer Ident. No.)
3030 Enterprise Court, Vista, California 92083-8347
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (760) 734-5454
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
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(Title of Class)
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. Yes X No __.
Indicate by check mark if disclosure of delinquent
filings pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-
K. ( X )
The aggregate market value of the voting stock (which
consists solely of shares of Common Stock) held by non-
affiliates of the registrant as of June 18, 1999 was
$18.3 million, based on the closing price on that date
on the Nasdaq Stock Market.
The number of shares outstanding of each of the
registrant's classes of common stock as of June 18, 1999
was: Common Stock, par value $0.01 -- 2,693,753
shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of registrant's Annual Proxy
Statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, in
connection with the Annual Meeting of Stockholders
of the registrant to be held August 9, 1999 are
incorporated by reference into Part III of this
report.
2. Registrant's Annual Report of its Employee Stock
Purchase Plan for the fiscal year ended March 31,
1999 is incorporated by reference into Exhibit
99.1.
3. Items contained in the above-referenced documents
that are not specifically incorporated by reference
are not included in this report.
DATRON SYSTEMS INCORPORATED
FORM 10-K
FISCAL YEAR 1999
TABLE OF CONTENTS
PART I 1
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II 9
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 9
PART III 10
Item 10. Directors and Executive Officers of
the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 10
Item 13. Certain Relationships and Related
Transactions 10
PART IV 11
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 11
1
PART I
Item 1. Business.
Company Overview
Datron Systems Incorporated and its wholly owned
subsidiaries (the "Company") provide specialized
satellite communication products and systems and high
quality radio communication products to worldwide
commercial and governmental markets and to several
United States Government customers, including the
Department of Defense ("DoD"). The Company was founded
in 1969 and became an independent publicly held
corporation in 1985.
The Company operates its business through two
subsidiaries. In October 1985, the Company acquired its
wholly owned subsidiary, Datron World Communications
Inc., formerly known as Trans World Communications, Inc.
("DWC"). DWC conducts the Company's Communication
Products business. In June 1990, the Company acquired
its wholly owned subsidiary, Datron/Transco Inc.,
formerly known as Transco Communications Inc. ("D/T").
D/T conducts the Company's Antenna and Imaging Systems
business. In September 1993, the Company formed a
wholly owned subsidiary, Datron Telecommunications
International Inc., to provide private international
telecommunication systems. Datron Telecommunications
was merged into DWC on March 31, 1995. The Company
discontinued its private international
telecommunications business in fiscal 1996.
In March 1996, D/T consolidated its image processing
division in San Jose, California, which was acquired in
August 1994, with its remote sensing earth station
business in Simi Valley, California. In connection with
that consolidation, the Company recorded a restructuring
charge of $1,421,000 ($855,000, or $0.32 per share,
after taxes).
Investment Considerations
This report contains certain forward-looking statements
that may be used in evaluating the opportunities and
risks associated with future Company performance.
However, actual results could differ materially from
those described in the forward-looking statements due
to, among other things, the following factors:
Dependence on Sales to Foreign Customers; Worldwide
Economic Downturns and Currency Devaluations
Sales to foreign customers accounted for 55%, 55% and
49% of consolidated sales in fiscal 1999, 1998 and 1997,
respectively. Sales of Communication Products have been
even more highly concentrated with foreign customers:
93%, 88% and 94% in fiscal 1999, 1998 and 1997,
respectively. Sales to foreign customers often involve
risk because of political and economic uncertainties in
many foreign countries, which can result in funding
delays or inability of those customers to obtain
financing for anticipated purchases of Company products.
As a result, it is often more difficult to predict order
bookings from foreign customers than it is from domestic
customers. In addition, foreign political unrest, war,
economic downturns and currency devaluations could have
a significant negative impact on future Company sales
and income.
Reliance on Large Orders from a Small Number of Customers
A substantial percentage of sales may be heavily
concentrated with a small number of customers. Within
the Communication Products business segment, the same
single customer accounted for 7%, 24% and 30% of that
segment's sales in fiscal 1999, 1998 and 1997,
respectively. Although sales in the Antenna and Imaging
Systems business segment have not been so heavily
concentrated with one customer, it is common for a small
number of customers to each account for approximately 5%
to 15% of that segment's sales each year. Because it is
unusual to receive large orders from the same customer
in successive years, it is necessary to find new
customers each year to replace the previous year's
sales. There can be no assurance that the Company will
be able to do so in the future. In addition, reliance
on large orders can result in financial performance
varying widely from quarter-to-quarter, and also carries
contract cancellation risk that can more adversely
affect Company performance than it would if the Company
depended on small orders from a large number of
customers.
2
Timely Development and Customer Acceptance of New Products
The Company's products are subject to obsolescence. To
prevent this from occurring, the Company has an ongoing
new product development program to keep the technologies
employed in its products current and to introduce new
products that meet changing market requirements. Lack
of timely development of new technologies and new
products, or lack of acceptance of new products by the
Company's customers could have a negative impact on
future sales and income.
U.S. Government Export Restrictions
Some of the Company's products are subject to export
licensing approval by agencies of the U.S. Government.
U.S. security concerns as well as foreign political
instability or unrest can affect the licensing process.
Although the requirement to obtain export licenses has
not prevented any sales of Company products to date, it
has on occasion delayed shipments of some products and
in some cases has placed the Company at a competitive
disadvantage. There can be no assurances that future
shipments may not likewise be delayed or that U.S.
security concerns may result in the denial of export
licenses or the loss of sales opportunities for some
Company products.
Fixed Price Development Contracts
The Company often accepts fixed-price contracts that
require custom engineering, custom software or the
development of new features and capabilities. Such
contracts usually include the sale of standard products
and components, but not always. Although engineering
cost estimates are prepared as a basis for quoting such
contracts, there can be no assurance the Company will be
able to develop the required features, capabilities or
software within established cost budgets. Should
development costs exceed established budgets, the result
could have a material adverse effect on earnings.
Consumer Products and Markets
In November 1995, the Company introduced its first
consumer product, a mobile direct broadcast satellite
("DBS") television reception system for recreational
vehicles and buses. This product represents a departure
from the Company's historical business that has focused
on large contracts, relatively small numbers of
deliverables and customers that are primarily government
agencies or large corporations. Several additional DBS
antenna products have subsequently been introduced,
including a marine product line and antenna systems for
large business jets and commercial jets. A production
line has been established to meet expected demand for
these products. In fiscal 1997, the Company determined
its method of using exclusive national distributors to
sell these products was not effective, and spent the
latter part of that year unwinding the distribution
agreements, clearing the distribution pipeline and
establishing a factory direct to dealer distribution
system. The Company does not have previous experience
in building or selling a consumer product. Although it
believes it can produce DBS products in required
quantities, there can be no assurance it will be able to
do so. Also, although the Company's new methods of
distribution for its DBS products have improved sales,
there can be no assurance they will continue to do so or
that consumer demand for its DBS products will be as
large as the Company anticipates.
3
Competitors
The Company has competitors for all the products it
offers. The level of competition varies by product line
and ranges from many competitors for its radio products
to a few competitors for its tracking antenna products.
New competition has recently emerged for its mobile DBS
products. The Company could be adversely affected by
competitors' development of new or different products
that may provide or be perceived as providing greater
value than the Company's products. The Company may or
may not be successful in developing competing products.
Many of the Company's competitors and potential
competitors have substantially greater resources than
the Company and may be more successful in developing,
producing and marketing their products. In such case,
the Company may experience substantial competition,
which could have a material adverse effect on the
Company's business.
Declining Sales for the U.S. Department of Defense
In fiscal 1993, the Company restructured its operations
in response to declining DoD spending. Sales for the
DoD have declined from $31.9 million in fiscal 1993 to
$11.8 million in fiscal 1999, primarily due to
completion of long-term DoD contracts that have not been
replaced with new orders. There can be no assurance
that new DoD orders will be received or that the orders
received will be sufficient to meet the Company's sales
objectives.
General
The Company operates in two business segments: Antenna
and Imaging Systems, which are supplied by D/T, and
Communication Products, which are supplied by DWC.
Antenna and Imaging Systems
This segment designs and manufactures satellite
communication terminals, telemetry tracking and control
systems, servo control products and high-quality
microwave antennas. Its major products are remote
sensing satellite earth stations and image processing
software for worldwide scientific, military and
commercial customers, tracking antennas and systems for
U.S. and foreign governmental agencies and commercial
satellite service providers, and mobile satellite
television reception systems for recreational vehicles,
buses, boats and large business jets.
Descriptions of the major product areas follow:
Satellite Communication ("SATCOM") Terminals. The
Company is a supplier of satellite communication antenna
systems and subsystems used to receive defense-related
data and data transmitted through satellites of other
government and commercial organizations. The
stabilizing and automatic tracking capabilities of its
antenna systems make them particularly well suited for
use on ships, motor vehicles and other mobile platforms.
Over the past two decades, the Company has been a prime
contractor and a subcontractor for shipboard SATCOM
antenna systems used by the U.S. Navy. More recently,
the Company has been developing airborne SATCOM antenna
systems for the U.S. Air Force.
Telemetry Tracking and Control ("TT&C") Systems. TT&C
systems monitor and control vehicles such as satellites,
missiles and aircraft. They receive radio telemetry
signals containing vehicle status information, engage in
automatic tracking of the vehicle so contact is
maintained and transmit command signals so vehicle
control can be established and maintained.
Servo Control Products. The Company's involvement with
SATCOM and TT&C markets has required a high capability
in radio frequency electronics, antenna engineering,
servo controls and large precision mechanical systems.
The Company has developed a line of pedestals and
rotators, servo power amplifiers and positioning control
units that are often used as building blocks for
specific customer requirements.
4
Microwave Products. The Company designs and
manufactures broad bandwidth microwave antennas for the
aerospace industry that are used on high performance
aircraft, missiles and space launch vehicles.
Remote Sensing Satellite ("RSS") Systems. The RSS
systems market is a subset of the broader earth
observation market. It involves using several types of
satellites containing optical and radar sensors in
conjunction with specific earth acquisition and data
processing equipment to produce images. The images are
in the form of hard copy and/or digital data that allow
the user to study changes on the earth's surface or
environment. Applications include locating minerals,
updating maps, forecasting weather, monitoring crops,
studying the environment, monitoring earth resources and
gathering economic or military intelligence.
The Company entered the commercial RSS market in fiscal
1994 and in fiscal 1995 acquired International Imaging
Systems, Inc. ("I2S"), a privately-held company in
Milpitas, California, to provide complete RSS systems
for the international marketplace. I2S's expertise was
in the fields of digital image processing and
photogrammetry. The Company now offers its customers
complete RSS earth stations, including image processing
capability. In fiscal 1999, RSS sales accounted for 41%
of the sales of the Antenna and Imaging Systems segment
compared with 33% of its sales in fiscal 1998.
Mobile DBS Television Systems. The Company introduced
its first DBS antenna product in fiscal 1996. That
product allows a recreational vehicle owner to receive
DBS television from a parked vehicle at the touch of a
button by automatically locating the satellite. During
fiscal 1997, the Company introduced several additional
DBS antenna products including systems for boats at
anchor, boats underway, and RVs and buses on the open
road. Also during fiscal 1997, the Company was first to
demonstrate live DBS television on a commercial
airliner, and in fiscal 1998, was first to obtain
Federal Aviation Administration certification of an
airborne DBS system designed for large business jets.
Customers and Marketing
Sales of Antenna and Imaging Systems' products have
historically been concentrated with the DoD, which
accounted for 28% of this segment's fiscal 1999 sales
and 31% of its fiscal 1998 sales. Marketing and sales
activities for its DoD customers and other non-defense
governmental agencies are conducted by internal sales
and engineering personnel. Most customers for the RSS
systems business are foreign government space and
communications agencies. Marketing and sales activities
for those products are conducted through independent
sales representatives in Europe, South America and Asia.
Introduction of mobile DBS television systems required
the establishment of new distribution methods to sell
these consumer products. The Company's initial approach
of using exclusive national distributors was not
effective and the Company is now selling its DBS
products direct to dealers and original equipment
manufacturers, as well as through select distributors
and agents. Company employees provide sales and
marketing support and installation training for the
dealers.
Manufacturing, Assembly and Sources of Supply
Products for the Company's Antenna and Imaging Systems
segment are designed, manufactured and assembled at
facilities in Simi Valley, California. The Company
purchases certain components and subsystems from
subcontractors and vendors. Some of these items are
standard off-the-shelf components and others are
fabricated to Company specifications. The Company also
fabricates electronic assemblies from purchased
electronic components and circuit boards. A production
line for DBS antenna products was established in fiscal
1996 and expanded in fiscal 1997.
5
The Company is rarely dependent on a single source of
supply for materials, parts or components. However,
once a subcontractor is selected to provide components
built to Company specifications, the Company is often
dependent on that subcontractor. Failure of the
subcontractor to perform could jeopardize the ability of
the Company to meet its required delivery schedules.
Communication Products
This business segment designs, manufactures and
distributes high frequency ("HF") radios and accessories
for over-the-horizon radio communications and very high
frequency ("VHF") radios and accessories for line-of-
sight communications. The Company's HF radios operate
in the frequency range of 1.6 to 30 megahertz, where
radio waves generated from the transmitter reflect off
the ionosphere back to the point of receipt on earth.
The Company's VHF radio products, which operate in the
frequency range of 30 to 88 megahertz, provide users
high-quality transmission for line-of-sight
communications.
In addition to its standard radios, the Company offers
frequency hopping and encryption options to its VHF
product line and automatic link establishment options to
its HF product line. Frequency hopping is a technique
that prevents interruption or interception of radio
signals by changing, at very high speeds, the frequency
at which they are transmitted. This technology utilizes
advanced synchronized mechanisms that ensure all radios
in a network are synchronized and frequency hop at the
same time. Automatic link establishment, when used in
HF radio equipment, automatically determines the best
available frequencies on which to communicate.
The Company offers a wide range of accessory products to
complement the HF and VHF product lines. These
accessory products include antennas and antenna tuners,
power sources, amplifiers, remote control systems,
modems, data communications equipment and audio
accessories.
A substantial percentage of sales of Communication
Products are often concentrated with a small number of
customers. In fiscal 1999, an African customer
accounted for 20% of this segment's sales. In fiscal
1998, two Asian customers accounted for 24% and 10% of
this segment's sales and a South American customer
accounted for 12% of its sales. And, in fiscal 1997,
the same two Asian customers accounted for 30% and 24%
of this segment's sales. Because it is unusual to
receive large orders from the same customer in
successive years, it is often necessary to find new
customers each year to replace the previous year's
sales. To minimize the impact fluctuating sales may
have on the Company's operations, temporary employees
are used when practical.
Customers and Marketing
Sales to foreign customers accounted for 93% of this
segment's fiscal 1999 sales and 88% of the segment's
fiscal 1998 sales. Most of its international customers
are agencies of foreign governments that perform civil
defense, paramilitary and military operations, and
foreign governmental agencies that perform civilian
tasks unrelated to military operations, such as civil
aviation agencies, drug interdiction agencies, embassies
and disaster relief organizations. Domestic customers
are primarily various agencies of the United States
Government, including the Drug Enforcement
Administration and Department of State.
The Company's products are sold in over 80 countries by
a network of independent sales and service
representatives, most of whom are non exclusive sales
agents of the Company. These representatives provide
both pre-sale and post-sale support. Many of them
operate service facilities that offer both warranty and
long-term maintenance of the Company's products. Sales
are denominated in U.S. Dollars.
In addition to direct sales, the Company sometimes sells
its radio products to international suppliers of
complementary equipment. It also sometimes licenses the
local manufacturing of its products to customers in
certain countries. The latter practice is usually
followed where local regulations discourage the
importation of complete units.
6
Manufacturing, Assembly and Sources of Supply
Communication products are designed and manufactured at
facilities in Vista, California. Company engineers work
closely with manufacturing and marketing personnel to
improve existing designs and to introduce new products
that meet the ever changing demands of the marketplace.
A new family of tactical VHF radios was introduced in
fiscal 1998 and a new family of handheld radios was
introduced in fiscal 1997. The Company purchases
certain electronic components, circuit boards and
fabricated metal parts, and painting and silk screening
services. Other than when it licenses overseas
manufacturing for a particular local market, the Company
performs most other manufacturing functions necessary
for the production of its products.
The Company is rarely dependent on any single source of
supply for the manufacture of its communication
products. Although only one supplier may be used for
certain parts, the Company believes that multiple
sources are usually available.
Backlog
Order backlog at March 31 was as follows:
1999 1998
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Antenna and Imaging Systems $20,484,000 $19,949,000
Communication Products 2,211,000 5,494,000
----------- -----------
Total $22,695,000 $25,443,000
=========== ===========
The 3% increase in Antenna and Imaging Systems backlog
at March 31, 1999 compared with March 31, 1998 was
primarily due to higher bookings of remote sensing
systems and DBS antenna products, partially offset by
lower bookings of antennas for the DoD and other
governmental agencies. Additional orders for remote
sensing systems and antennas in the amount of $6 million
were received in April 1999 after the close of fiscal
1999.
The 60% decrease in Communication Products backlog at
March 31, 1999 compared with March 31, 1998 was due to
lower order bookings in fiscal 1999. Worldwide economic
instability was responsible for the delay of several
anticipated orders. Future results of operations may be
adversely affected if those delayed orders are further
delayed or canceled or if procurements the Company has
identified as promising opportunities are canceled.
Competition
The Company competes in each of its business segments
with several companies. Depending on the specific
product, these companies may be similar in size to the
Company or may be large diversified companies which at
times may also be customers of the Company. The Company
believes its major competitive advantages are the
quality of its products, their cost effective designs,
timeliness of delivery, ease of use and easy
serviceability.
Patents, Trademarks, Copyrights and Licenses
The Company has applied for several patents related to
its DBS products. However, the Company believes that
patents are not a significant factor in the Company's
business and that the success of the Company depends
primarily on the technical competence and managerial and
marketing ability of the Company's personnel.
7
DATRON(R) and design, TRANSWORLD(R), I2S(R), PRI2SM(R), OPEN
2000(R), DBS-2000(R), DBS-3000(R), DBS-4000(R) and VI2STA(R) are
registered trademarks of the Company. DBS-2100(TM), DBS-
2400(TM), CruiseTV(TM) and We Cover the Global Spectrum(TM) are
trademarks of the Company by application for
registration with the U.S. Patent and Trademark Office.
The Company has obtained licenses for the VHF frequency
hopping technology and for the automatic link
establishment technology used in the Company's VHF and
HF radio products, respectively.
Employees
The Company employed approximately 331 employees at the
end of fiscal 1999 compared with approximately 319
employees at the end of fiscal 1998. The 4% increase in
employment during fiscal 1999 was necessitated by the 8%
increase in sales for fiscal 1999.
None of the Company's employees are covered by a
collective bargaining agreement and the Company
considers its employee relations to be good.
Financial Information
Additional financial information concerning segment,
geographic and major customers is included in Note 9 of
the Notes to Consolidated Financial Statements. See
Part II, Item 8.
Item 2. Properties.
DWC leases approximately 70,000 square feet of office,
engineering and manufacturing space in Vista,
California. The lease commenced on March 26, 1999 and
expires on April 30, 2009 and contains a renewal option
of five years. DWC and the Company's corporate
headquarters operate from that facility. The Company
relocated from Escondido, California to Vista,
California in April 1999.
D/T owns through a subsidiary, Datron Resources Inc., a
110,000 square foot office, engineering and
manufacturing building located on a nine-acre site in
Simi Valley, California. D/T conducts operations from
that facility.
Information with respect to obligations for lease
rentals is included in Note 8 of the Notes to
Consolidated Financial Statements. See Part II, Item 8.
The Company considers its properties to be suitable and
adequate for its present needs. The facilities in Vista
and Simi Valley are being fully utilized.
Item 3. Legal Proceedings.
The Company is not involved in any litigation that is
expected to have a material effect on the Company's
business or consolidated financial position.
In August 1992, Trans World Communications, Inc. ("Trans
World"), a wholly owned subsidiary of the Company and
which was renamed Datron World Communications Inc. on
March 31, 1995, was named as defendant in a lawsuit
filed by ATACS Corporation ("ATACS") and AIRTACS
Corporation ("AIRTACS") relating to a contract to
provide radio communication shelters. ATACS and AIRTACS
contend that Trans World entered into an agreement to
team with them on the contract and then wrongfully
failed to use them as subcontractors. They seek damages
in excess of $2,000,000. In rulings on May 28, 1997 and
September 3, 1997, the court found Trans World in breach
of a teaming agreement and awarded ATACS and AIRTACS one
dollar ($1.00) in damages. On September 8, 1998, the
appeal court affirmed the district court's decision
except as to the award of nominal damages, and remanded
the matter to the district court for further hearing on
damages. The Company believes that final resolution of
this matter will not materially affect the consolidated
financial position of the Company or its results of
operations.
8
Item 4. Submission of Matters to a Vote of Security
Holders.
None.
Executive Officers of the Registrant
David A. Derby, 57, has been President and Chief
Executive Officer of the Company since May 1982, and
Chairman of the Board since April 1998.
William L. Stephan, 53, has been Vice President, Chief
Financial Officer and Treasurer of the Company since
November 1993.
Executive officers are elected by and serve at the
discretion of the Board of Directors. There are no
family relationships among directors or executive
officers of the Company.
9
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.
Information required by Item 5 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Common Stock
Activity" on the inside back cover of the Annual Report,
that portion of which is attached hereto as Exhibit 13.
Item 6. Selected Financial Data.
Information required by Item 6 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Datron Systems
Incorporated Selected Financial Data" on the inside
front cover of the Annual Report, that portion of which
is attached hereto as Exhibit 13.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Information required by Item 7 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and
Results of Operations" on pages 6 through 11 of the
Annual Report, that portion of which is attached hereto
as Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.
The Company does not currently use derivative financial
instruments for speculative purposes that expose the
Company to market risk. The Company is exposed to cash
flow and fair value risk due to changes in interest
rates with respect to its long-term debt. Information
with respect to this item is set forth in Note 5 of the
Notes to Consolidated Financial Statements and is
incorporated herein by reference to that note. See Item
8 below.
Item 8. Financial Statements and Supplementary Data.
Information required by Item 8 of Form 10-K is
incorporated herein by reference from the consolidated
financial statements of the Company at March 31, 1999
and 1998 and for each of the three years in the period
ended March 31, 1999 and the Independent Auditors'
Report appearing on pages 12 through 24 of the Annual
Report, that portion of which is attached hereto as
Exhibit 13.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
During the two most recent fiscal years ended March 31,
1999, there has not been a change in accountants or a
reported disagreement with accountants on any matter of
accounting principles or practices or financial
statement disclosure.
10
PART III
Item 10. Directors and Executive Officers of the
Registrant.
Information required by Item 10 of Form 10-K with
respect to directors is incorporated herein by reference
from the information contained in the section captioned
"Nomination and Election of Directors" in the Company's
Notice of Annual Meeting of Stockholders to be Held
Monday, August 9, 1999 at 11:00 A.M. and Proxy Statement
("Proxy Statement"), a copy of which is to be filed as
Exhibit 22 within 120 days of the end of the
Registrant's fiscal year.
Information required by Item 10 of Form 10-K with
respect to executive officers is set forth in Part I of
this report under the section captioned "Executive
Officers of the Registrant," pursuant to instruction 3
to paragraph (b) of Item 401 of Regulation S-K.
Item 11. Executive Compensation.
Information required by Item 11 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Executive
Compensation" in the Proxy Statement, a copy of which is
to be filed as Exhibit 22 within 120 days of the end of
the Registrant's fiscal year.
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
Information required by Item 12 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Security Ownership
of Certain Beneficial Owners and Management" in the
Proxy Statement, a copy of which is to be filed as
Exhibit 22 within 120 days of the end of the
Registrant's fiscal year.
Item 13. Certain Relationships and Related
Transactions.
Information required by Item 13 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Executive
Compensation" in the Proxy Statement, a copy of which is
to be filed as Exhibit 22 within 120 days of the end of
the Registrant's fiscal year.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a) The following documents are filed as part of this
report:
Page in 1999
Annual Report
(1)Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and 1998 12
Consolidated Statements of Operations for the Years
Ended March 31, 1999, 1998 and 1997 13
Consolidated Statements of Stockholders' Equity
for the Years Ended March 31, 1999, 1998 and 1997 14
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1999, 1998 and 1997 15
Notes to Consolidated Financial Statements 16-23
Independent Auditors' Report 24
(2)Financial Statement Schedules:
Page
Independent Auditors' Report on Financial Statement
Schedule S-1
Schedule II. Valuation and Qualifying Accounts S-2
All other schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable,
and therefore have been omitted.
(b) No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
(c) Exhibits. The following exhibits are filed as
part of this report:
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation.(1)
3.2 Bylaws.(1)
4.15 Stockholder Rights Agreement dated August 21, 1990.(6)
4.16 First Amendment to Stockholder Rights Agreement dated as
of October 29, 1993.(7)
12
10.5 1988 Key Employee Stock Purchase Plan.(2)
10.8 Employment Agreement between the Registrant and David A.
Derby.(3)
10.31 Lease of Trans World Communications, Inc. facilities at
298, 302 and 304 Enterprise Street, Escondido,
California.(4)
10.36 Amended and Restated 1985 Stock Option Plan.(5)
10.37 First Amendment to Trans World Communications, Inc. Lease
Agreement dated January 15, 1993.(8)
10.46 1995 Stock Option Plan.(9)
10.47 Second Amendment to Trans World Communications, Inc.
Lease Agreement dated February 8, 1995.(9)
10.48 Agreement and Plan of Merger between Datron
Telecommunications International Inc. and Trans World
Communications, Inc. dated as of March 14, 1995.(9)
10.53 Datron Systems Incorporated Supplemental Executive Profit
Sharing Plan (Effective as of April 1, 1994).(10)
10.54 Third Amendment to Trans World Communications, Inc. Lease
Agreement dated May 1, 1995.(10)
10.58 Datron Systems Incorporated Employee Stock Purchase Plan
(Adopted Effective July 1, 1997).(11)
10.59 Amended and Restated Credit Agreement and Note between
the Registrant and Union Bank of California dated
August 8, 1997.(12)
10.60 Waiver and First Amendment to Amended and Restated Credit
Agreement and Note between Registrant and Union Bank of
California dated February 10, 1998.(13)
10.61 Datron World Communications Inc. Lease Agreement dated as
of February 13, 1998.(13)
10.62 Fourth Amendment to Trans World Communications, Inc.
Lease Agreement dated March 1, 1998.(13)
10.64 Waiver and Second Amendment to Amended and Restated
Credit Agreement and Note between Registrant and Union
Bank of California dated April 30, 1998.(13)
10.65 Loan Agreement between Datron Resources Inc. and Jackson
National Life Insurance Company dated August 7,
1998.(14)
10.66 Datron Systems Incorporated Profit Sharing and Savings
Plan (Amended and Restated as of April 1, 1998).(14)
10.67 Credit Agreement between Datron World Communications
Inc., Datron/Transco Inc. and Comerica Bank-California
dated March 24, 1999.
13
10.68 Borrower Agreement between Datron/Transco Inc. and
Comerica Bank-California dated March 24, 1999.
10.69 Guaranty of Datron Systems Incorporated of the
indebtedness of Datron World Communications Inc. and
Datron/Transco Inc. to Comerica Bank- California dated
March 24, 1999.
10.70 Severance Agreement between the Registrant and William L.
Stephan.
13 Certain portions of Registrant's Annual Report to
Stockholders for the fiscal year ended March 31, 1999
containing information required by Part I and Part II
of this report.
21 Subsidiaries.
22 Proxy Statement, Notice of Annual Meeting of Stockholders
to be Held Monday, August 9, 1999 at 11:00 A.M. and
Form of Proxy (to be deemed filed only to the extent
required by the instructions to exhibits for reports on
Form 10-K) to be filed within 120 days of the end of
the Registrant's fiscal year.
23 Independent Auditors' Consent - Deloitte and Touche.
24 Power of Attorney (on signature page 16).
27 Financial Data Schedule for the Twelve Months Ended
March 31, 1999.
99.1 Annual Report of the Datron Systems Incorporated Employee
Stock Purchase Plan.
- --------------
(1) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registration
Statement on Form 8-B of the Registrant on November
13, 1987.
(2) Incorporated by this reference to the Registration
Statement on Form S-8 of the Registrant filed March
22, 1988.
(3) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1988.
(4) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1989.
(5) Incorporated by this reference to the Registration
Statement on Form S-8 of the Registrant filed April
16, 1993.
(6) Incorporated by this reference to Exhibit I to the
Registrant's Registration Statement on Form 8-A
filed November 5, 1990.
(7) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993.
(8) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1994.
14
(9) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.
(10) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1996.
(11) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1997.
(12) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
(13) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1998.
(14) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
Supplemental Information
Copies of the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held August 9, 1999
and copies of the form of proxy to be used for such
Annual Meeting will be furnished to the Securities and
Exchange Commission prior to the time they will be
distributed to Stockholders.
15
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 24, 1999 DATRON SYSTEMS INCORPORATED
By: /s/ David A. Derby
Chairman of the Board,
President, Chief Executive
Officer and Director
16
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below appoints David A. Derby
and William L. Stephan, jointly and severally, as his
true and lawful attorney-in-fact, each with full power
of substitution and re-substitution, for him and in his
name, place and stead, in any and all capacities, to
sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting
unto said attorneys-in-fact, jointly and severally, full
power and authority to do and perform each and every act
and thing requisite and necessary to be done in
connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-
fact, jointly and severally, or their or his substitute
or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Signature Title Date
- --------------------- ---------------------------- ------------
Chairman of the Board,
President, Chief Executive
By:/s/ David A. Derby Officer and Director
David A. Derby (Principal Executive Officer) June 24, 1999
Vice President, Chief Financial
By:/s/ William L. Stephan Officer (Principal Financial
William L. Stephan and Accounting Officer) June 24, 1999
By:/s/ Kent P. Ainsworth Director June 21, 1999
Kent P. Ainsworth
By:/s/ Michael F. Bigham Director June 14, 1999
Michael F. Bigham
By:/s/ Adrian C. Cassidy Director June 14, 1999
Adrian C. Cassidy
By:/s/ William A. Preston Director June 17, 1999
William A. Preston
By: Director June __, 1999
Peter F. Scott
By:/s/ Robert D. Sherer Director June 14, 1999
Robert D. Sherer
S-1
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT
SCHEDULE
Board of Directors
Datron Systems Incorporated
Vista, California
We have audited the consolidated financial statements of
Datron Systems Incorporated (the "Company") as of March
31, 1999 and 1998, and for each of the three years in
the period ended March 31, 1999, and have issued our
report thereon dated May 12, 1999; such financial
statements and report are included in your 1999 Annual
Report to Stockholders and are incorporated herein by
reference. Our audits also included the financial
statement schedule of the Company listed in Item
14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion based on our
audits. In our opinion, such financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as whole,
presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Diego, California
May 12, 1999
S-2
DATRON SYSTEMS INCORPORATED
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
Balance at Balance at
Beginning End
Description of Year Additions Write-offs of Year
- ----------------------- ---------- --------- ---------- ----------
Year ended March 31, 1997
- -------------------------
Allowance for doubtful
accounts $247,000 $136,000 $157,000 $226,000
Allowance for inventory
obsolescence 709,000 735,000 94,000 1,350,000
Allowance for warranties 1,015,000 632,000 940,000 707,000
---------- ---------- ---------- ----------
$1,971,000 $1,503,000 $1,191,000 $2,283,000
========== ========== ========== ==========
Year ended March 31, 1998
- -------------------------
Allowance for doubtful
accounts $226,000 $166,000 $202,000 $190,000
Allowance for inventory
obsolescence 1,350,000 477,000 171,000 1,656,000
Allowance for warranties 707,000 829,000 603,000 933,000
---------- ---------- -------- ----------
$2,283,000 $1,472,000 $976,000 $2,779,000
========== ========== ======== ==========
Year ended March 31, 1999
- -------------------------
Allowance for doubtful
accounts $190,000 $63,000 $66,000 $187,000
Allowance for inventory
obsolescence 1,656,000 432,000 708,000 1,380,000
Allowance for warranties 933,000 810,000 890,000 853,000
---------- ---------- ---------- ----------
$2,779,000 $1,305,000 $1,664,000 $2,420,000
========== ========== ========== ==========