FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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OR
[_] 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 0-10605
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ODETICS, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2588496
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 SOUTH MANCHESTER AVE., ANAHEIM, CA 92802
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 774-5000
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(Registrant's telephone number, including area code)
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(Former name, former address and former 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.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock outstanding as of November 08, 1995
Class A Common Stock - 4,923,999 shares.
Class B Common Stock - 1,161,031 shares.
1
INDEX
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Page
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PART I FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTH AND THE
SIX MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED) 3
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1995 AND
SEPTEMBER 30, 1995 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
2
PART 1 FINANCIAL INFORMATION
ODETICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
----------------------- ------------------
1994 1995 1994 1995
------- ------- ------- -------
Net sales and contract revenues:
Net sales $19,426 $21,681 $37,395 $40,848
Contract revenues 3,244 2,804 7,760 5,074
------- ------- ------ -------
22,670 24,485 45,155 45,922
Costs and expenses:
Cost of sales 12,828 14,450 25,143 26,635
Cost of contract revenues 1,583 1,509 3,613 2,868
Selling, general and administrative expenses 5,384 5,625 10,295 10,768
Research and development expenses 2,309 1,654 4,396 3,384
Interest expense 489 603 926 1,283
------- ------- ------ -------
22,593 23,841 44,373 44,938
------- ------- ------ -------
Income before income taxes 77 644 782 984
Income taxes 26 245 266 374
------- ------- ------ -------
Net Income $ 51 $ 399 $ 516 $ 610
======= ======= ====== =======
Weighted average number of common shares outstanding 6,014 6,058 5,987 6,011
======= ======= ====== =======
Net income per share of common stock $ 0.01 $ 0.07 $ 0.09 $ 0.10
======= ======= ====== =======
See notes to consolidated financial statements.
-3-
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, Sept. 30,
1995 1995
(unaudited)
--------- ----------
ASSETS
Current assets
Cash $ 378 $ 181
Trade accounts receivable 17,813 18,896
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,136 3,854
Inventories:
Finished goods 2,690 2,893
Work in process 2,702 1,905
Materials and supplies 20,075 18,606
-------- --------
Total inventories 25,467 23,404
Prepaid expenses and other 1,533 1,541
Deferred income taxes 2,683 2,309
-------- --------
Total current assets 51,010 50,185
Property, plant and equipment:
Land 2,090 2,090
Buildings and improvements 16,948 17,345
Equipment, furniture and fixtures 22,727 23,419
-------- --------
41,765 42,854
Less accumulated depreciation (21,056) (22,155)
-------- --------
Net property, plant and equipment 20,709 20,699
Other assets 639 1,126
-------- --------
Total assets $ 72,358 $ 72,010
======== ========
See notes to consolidated financial statements.
-4-
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, Sept. 30,
1995 1995
(unaudited)
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 8,155 $ 8,126
Accrued expenses 3,693 2,704
Accrued vacation 1,178 1,332
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,955 5,394
Current portion of long-term debt 1,296 1,539
------- -------
Total current liabilities 18,277 19,095
Long-term debt - less current portion 25,757 23,909
Deferred income taxes 588 599
Stockholders' equity
Preferred stock, authorized 2,000,000 shares;
none issued - -
Common stock, authorized 10,000,000
shares of class A and 2,600,000 shares
of class B; 4,831,925 shares of
class A and 1,161,031 shares of
class B issued and outstanding at
September 30, 1995 - $.10 par value 595 599
Paid-in capital 21,067 21,119
Foreign currency translation 46 51
Retained earnings 6,028 6,638
------- -------
Total stockholders' equity 27,736 28,407
------- -------
Total liabilities and stockholders' equity $72,358 $72,010
======= =======
See notes to consolidated financial statements.
-5-
ODETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
September 30,
------------------
1994 1995
------- -------
Operating activities
Net income $ 516 $ 610
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,127 1,269
Provision for inventory reserves 831 304
Provision for losses on accounts receivable 84 66
Provision for deferred income taxes 141 11
Foreign currency translation gain 5 5
(Gain) on sale of equipment 0 (30)
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable 46 (1,149)
(Increase) Decrease in costs and estimated earnings
in excess of billings on uncompleted contracts 86 (718)
(Increase) Decrease in inventories and prepaid
expenses (5,289) 2,125
(Increase) in other assets (330) (552)
(Decrease) in accounts payable and
accrued expenses (2,026) (864)
Increase (Decrease) in billings in excess of cost
and estimated earnings on uncompleted
contracts (742) 1,439
------- -------
Net cash provided by (used in) operating activities (5,551) 2,516
Investing activities
Purchases of property, plant, and equipment (1,334) (1,214)
Proceeds from sale of equipment 0 47
------- -------
Net cash used in investing activities (1,334) (1,167)
Financing activities
Proceeds from revolving line of credit and
long-term borrowings 11,870 18,219
Principal payments on line of credit, long-term
debt and capital lease obligations (5,305) (19,824)
Proceeds from sale of common stock 383 59
------- -------
Net cash provided by (used in) financing activities 6,948 (1,546)
------- -------
Increase (decrease) in cash 63 (197)
Cash at beginning of year 172 378
------- -------
Cash at September 30 $ 235 $ 181
======= =======
See notes to consolidated financial statements.
-6-
ODETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - In the opinion of management, the accompanying unaudited consolidated
- ------ financial statements contain all adjustments consisting of normal
recurring accruals necessary to present fairly the Company's
consolidated financial position as of September 30, 1995 and it's
results of operations for the three-month and six-month periods ended
September 30, 1994, and 1995 and it's cash flows for the six-month
periods ended September 30, 1994 and 1995. Certain information and
footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The results of operations for
the six-month period ended September 30, 1995 are not necessarily
indicative of those to be expected for the entire year.
Note 2 - Income tax expense for three-month and the six-month periods ended
- ------ September 30, 1994 and 1995 have been provided at the estimated
annualized effective tax rates based on the estimated income tax
liability or asset and change in deferred taxes for their respective
fiscal years. Deferred taxes result primarily from temporary
differences in the reporting of income for financial statement and
income tax purposes. These differences relate principally to the use of
accelerated cost recovery depreciation methods for tax purposes,
capitalization of interest and taxes for tax purposes, capitalization
of computer software costs for financial statement purposes, deferred
compensation, other payroll accruals, and reserves for inventory and
accounts receivable for financial statement purposes and general
business tax credit and alternative minimum tax credit carryforwards
for tax purposes.
Note 3 - Long-term Debt
- ------
(in thousands)
March 31, September 30,
1995 1995
--------- -------------
Line of credit $14,100 $11,300
Mortgage note 11,829 11,444
Contracts payable 1,124 2,704
------- -------
27,053 25,448
Less current portion 1,296 1,539
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$25,757 $23,909
======= =======
During April 1995, the Company secured borrowings of $1,750,000
collateralized by equipment, payable in monthly installments through
March 1999, including interest at 8.99%. In the second quarter of
fiscal 1996, the Company violated certain of the financial covenants in
its line of credit agreement with its primary banks. The Company
received a waiver of those covenants as of September 30, 1995 and
anticipates an amendment to the financial covenants in the line of
credit agreement during the third quarter of fiscal 1996.
Note 4 - On November 15, 1994, the Company filed suit in the Superior Court of
- ------ Los Angeles, California ("California Action"), against E-Systems, Inc.
for breach of contract due to
7
cancellation of all remaining purchase orders for ATL Products'
DataLibrary and DataTower products under an agreement which extended
until 1996. Additionally, the Company's suit claims breach of contract
for the return and cancellation of a purchase order for ATL Products'
ACL 5480 and ACL 2640 products. Shortly prior to the filing of the
suit, E-Systems had notified the Company of its cancellation of all
purchase orders under the above mentioned agreements due to alleged
product reliability problems.
On February 2, 1995, E-Systems filed a countersuit in the District
Court of Dallas, Texas ("Texas Action"), against the Company for breach
of good faith and fair dealing whereby it is alleged that the Company
did not provide reliable "commercial" products--ATL Products'
DataLibrary Systems and DataTower Systems. The Company believes the
claims of the countersuit from E-Systems are without merit and will be
vigorously defended.
On May 15, 1995, E-Systems filed a cross-complaint in the California
Action ("California Cross-Complaint"). Although somewhat differently
phrased than the Texas Action, the California Cross-Complaint appears
to seek recovery for the same claims as made by E-Systems in the Texas
Action. The California Cross-Complaint is stated in two counts, one
pertaining to DataLibraries and one pertaining to DataTowers. The
Company believes the claims of the California Cross-Complaint are
without merit and will be vigorously defended.
Both the initial suit and countersuit are in preliminary discovery and
other pretrial investigation proceedings and will proceed concurrently
in the California Court. The ultimate outcome of the litigation cannot
presently be determined. Accordingly, no provision for any losses or
recovery that may occur from the ultimate resolution of the litigation
has been made in the accompanying financial statements.
In June 1995, the Company filed suit against Storage Technology
Corporation ("Storage Technology") and certain other defendants in
United States Federal Court for the Eastern District of Virginia,
Alexandria Division, alleging that certain products manufactured and
sold by Storage Technology infringe on the Company's patented
technology. The Company seeks injunctive relief against further
infringement and monetary damages according to proof, which are subject
to trebling under certain circumstances. In its answer to the Company's
complaint in this action, Storage Technology has asserted counterclaims
against the Company and the ATL Products Division for alleged
infringement of certain patented technology of Storage Technology. The
matter is scheduled for trial on January 22, 1996. Management intends
to vigorously prosecute the Company's claim and defend against Storage
Technology's counterclaims. No prediction can be made as to the likely
outcome of this matter, but management believes that the outcome of the
suit is not likely to have a material adverse effect on the Company's
business or financial condition.
8
ODETICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales and contract revenues for the second quarter of fiscal year 1996
increased approximately $1,815,000, or 8.0%, compared to the second quarter
of the prior fiscal year. The components of this overall increase consisted
of an increase in net sales (commercial products) of approximately
$2,255,000, or 11.6%, which was partially offset by a decrease in contract
revenues (government products) of approximately $440,000, or 13.6%. Net
sales and contract revenues for the six month period of fiscal year 1996
increased approximately $767,000, or 1.7%, compared to the same period in
the prior fiscal year. For the six month period of fiscal year 1996 net
sales were up 9.2%, and contract revenues were down 34.6%.
The growth in net sales for the second quarter and six month period was
primarily due to increased sales in the Company's Broadcast Division. The
Broadcast Division's sales growth reflected an increase in shipments of its
SpotBank/TM/ and the Cache Machine/TM/ along with initial revenues of its
new TCS45/TM/ system. The Communication Division also showed strong growth
in its synchronization product line with sales of its recently developed
cellular synchronization system sold into the Korean telecom market. The
Company's wholly owned subsidiary, ATL Products, Inc ("ATL") experienced a
decrease in revenues compared to the same period in the prior fiscal year.
This decrease was due to the absence this year of a major customer,
E-Systems, which comprised approximately 13% of Odetics' total net sales
and contract revenues for the second quarter and six month periods of
fiscal 1995. ATL showed strong growth in its' product lines utilizing DLT,
which helped partially offset the overall decrease in ATL revenues.
Government product revenues decreased primarily due to the slowdown in
government spending and the Company's transition away from certain
government markets.
Cost of sales and contract revenues as a percentage of net sales and
contract revenues ("cost of sales percentage") increased to 65.2% from
63.6% during the same period in the prior fiscal year. The cost of sales
percentage for the six month period of fiscal 1996 increased to 64.2% from
63.7% for the same period in the prior fiscal year. This increase was a
result of a sales mix favoring increased commercial product sales which
generally carry a higher cost of sales percentage and a decline in
government sales which traditionally carry a lower cost of sales
percentage.
Selling, general and administrative (SG&A) expenses increased approximately
$241,000, though as a percentage of net sales and contract revenues, SG&A
declined to 23.0% compared to 23.7% in the comparable quarter in the prior
fiscal year. SG&A expenses increased approximately $473,000 to 23.4% of net
sales and contract revenues for the six months of fiscal 1996 compared to
the 22.8% for the comparable period in the prior fiscal year. SG&A expenses
increased for the second quarter and six month period compared to the same
periods in the prior fiscal year primarily due to professional fees related
to the E-Systems litigation.
9
Research & development (R&D) expenses decreased approximately $655,000 to
6.8% of net sales and contract revenues for the second quarter of fiscal
year 1996 compared to 10.2% for the second quarter of fiscal 1995. R&D
expenses for the first six months of fiscal 1996 decreased approximately
$1,012,000 to 7.4% of net sales and contract revenues compared to 9.7% for
the comparable period in the prior fiscal year. The decrease in R&D
expenses as a percentage of net sales and contract revenues reflected the
effect of certain cost-cutting measures taken during the second half of
fiscal 1995 and completion of certain major R&D programs in the fourth
quarter of fiscal 1995.
Interest expense increased approximately $114,000 and $357,000 for the
second quarter and six month periods of fiscal 1996, respectively, compared
to the same periods for the prior fiscal year. This increase was primarily
due to increased line of credit borrowings and increased interest costs.
The effective income tax rate was 38% for the six month period of fiscal
1996 compared to a 34% tax rate for the same period in the prior fiscal
year. The increase in the effective tax rate projected for fiscal 1996 is
due to a reduction in the effect of general business tax credits on total
income tax expense.
Liquidity and Sources of Capital
The Company reported net income of $610,000 during the first six months of
fiscal 1996 and cash flow from operating activities of $2,516,000. This was
primarily due to a decrease in inventories and prepaid expenses of
$2,125,000. The Company has a $17,000,000 bank line of credit providing for
borrowings generally at or below the bank's prime rate. Borrowings are
available for general working capital purposes, and at September 30, 1995,
$5,700,000 was available for borrowing under the line. The Company
anticipates that net cash flow from operating activities in conjunction
with its bank credit arrangements will be sufficient to execute its
operating plans and meet its obligations on a timely basis. The Company
does not have any material commitments for capital expenditures as of
September 30, 1995.
10
ODETICS, INC.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed
for the three-month period ended
September 30, 1995.
11
ODETICS, INC.
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.
ODETICS, INC.
(Registrant)
By /s/ Gregory A. Miner
------------------------------
Gregory A. Miner
Vice President,
Chief Financial Officer
By /s/ Gary Smith
------------------------------
Gary Smith
Vice President, Controller
(Principal Accounting Officer)
Date August 14, 1995
------------------
12
5
1,000
3-MOS 6-MOS
MAR-31-1996 MAR-31-1996
JUL-01-1995 APR-01-1995
SEP-30-1995 SEP-30-1995
0 181
0 0
0 18,896
0 0
0 23,404
0 50,185
0 42,854
0 (22,155)
0 72,010
0 19,095
0 0
0 599
0 0
0 0
0 27,808
0 72,010
0 45,922
0 45,922
0 29,503
0 29,503
0 14,152
0 0
0 1,283
0 984
0 374
0 610
0 0
0 0
0 0
0 610
0 .10
0 .10
