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 June 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
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Commission file number 0-10605
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ODETICS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-2588496
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1515 SOUTH MANCHESTER AVE., ANAHEIM, CA 92802
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(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 addressed 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 August 07, 1995
Class A Common Stock - 4,810,641 shares.
Class B Common Stock - 1,161,031 shares.
1
INDEX
PART I FINANCIAL INFORMATION Page
ITEM 1. CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED JUNE 30, 1994 AND
1995 (UNAUDITED) 3
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1995
AND JUNE 30, 1995 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED JUNE 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 I
ITEM 1 FINANCIAL INFORMATION
ODETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
-------------------
1994 1995
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Net sales and contract revenues:
Net sales $17,968 $19,167
Contract revenues 4,517 2,270
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22,485 21,437
Costs and expenses:
Cost of sales 12,315 12,185
Cost of contract revenues 2,030 1,359
Selling, general and administrative expenses 4,911 5,143
Research and development expenses 2,087 1,730
Interest expense 437 680
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21,780 21,097
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Income before income taxes 705 340
Income taxes 240 129
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Net Income $ 465 $ 211
======= =======
Weighted average number of shares outstanding 5,961 5,965
======= =======
Net income per share of common stock $ 0.08 $ 0.04
======= =======
See notes to consolidated financial statements.
3
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, June 30,
1995 1995
(unaudited)
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ASSETS
Current Assets
Cash .............................................. $ 378 $ 329
Trade accounts receivable ......................... 17,813 18,909
Costs and estimated earnings in excess
of billings on uncompleted contracts ......... 3,136 3,492
Inventories:
Finished goods ............................... 2,690 2,635
Work in process .............................. 2,702 1,801
Materials and supplies ....................... 20,075 19,464
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Total inventories ............................ 25,467 23,900
Prepaid expenses and other ........................ 1,533 1,533
Deferred income taxes ............................. 2,683 2,554
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Total Current Assets ................................... 51,010 50,717
Property, plant and equipment
Land .............................................. 2,090 2,090
Buildings and improvements ........................ 16,948 16,997
Equipment, furniture and fixtures ................. 22,727 22,911
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41,765 41,998
Less accumulated depreciation ..................... -21,056 -21,614
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Net property, plant and equipment ................. 20,709 20,384
Other Assets ........................................... 639 870
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Total Assets ........................................... $72,358 $71,971
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See notes to consolidated financial statements.
4
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS (cont'd)
(in thousands)
March 31, June 30,
1995 1995
(unaudited)
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable ........................ $ 8,155 $ 7,271
Accrued expenses .............................. 3,693 2,373
Accrued vacation .............................. 1,178 1,362
Billings in excess of costs and estimated
earnings on uncompleted contracts ....... 3,955 4,380
Current portion of long-term debt ............. 1,296 1,222
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Total current liabilities .......................... 18,277 16,608
Long-term debt - Less current portion .............. 25,757 26,812
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; 4,803,988
shares of class A and 1,161,031 shares
of class B issued and outstanding at
June 30, 1995 - $.10 par value .............. 595 596
Paid-in capital ................................. 21,067 21,067
Foreign currency translation .................... 46 50
Retained earnings ............................... 6,028 6,239
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Total stockholders' equity ......................... 27,736 27,952
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Total liabilities and stockholders' equity ......... $ 72,358 $ 71,971
=========== ===========
See notes to consolidated financial statements.
5
ODETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
June 30,
--------------------
1994 1995
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Operating activities
Net income ............................................ $ 465 $ 211
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ..................... 538 563
Provision for inventory reserves .................. 543 152
Provision for losses on accounts receivable ....... 0 43
Provision for deferred income taxes ............... 240 11
Foreign currency translation gain ................. 4 4
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable ...... 946 (1,139)
(Increase) in costs and estimated earnings
in excess of billings on uncompleted contr ... (40) (356)
(Increase) Decrease in inventories and prepaid
expenses ..................................... (2,520) 1,544
(Increase) in other assets ...................... (264) (236)
(Decrease) in accounts payable and
accrued expenses ............................. (2,401) (2,020)
Increase (Decrease) in billings in excess of cost
and estimated earnings on uncompleted
contracts ..................................... (876) 425
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Net cash used in operating activities ................... (3,365) (798)
Investing activities
Purchases of property, plant, and equipment ........... (769) (233)
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Net cash used in investing activities ................... (769) (233)
Financing activities
Proceeds from revolving line of credit and
long-term borrowings ................................ 5,730 10,750
Principal payments on line of credit, long-term
debt and capital lease obligations .................. (1,875) (9,769)
Proceeds from sale of common stock .................... 374 1
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Net cash provided by financing activities ............... 4,229 982
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Increase (decrease) in cash ............................. 95 (49)
Cash at beginning of year ............................ 172 378
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Cash at June 30 ......................................... $ 267 $ 329
======== ========
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 June
30, 1995 and the consolidated results of operations and cash
flows for the three-month periods ended June 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
three-month period ended June 30, 1995 are not necessarily
indicative of those to be expected for the entire year.
Note 2 - Income tax expense for the three-month periods ended June 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, June 30,
1995 1995
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Line of credit $14,100 $13,800
Mortgage note 11,829 11,637
Contracts payable 1,124 2,597
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27,053 28,034
Less current portion 1,296 1,222
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$25,757 $26,812
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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%.
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 cancellation of all
remaining purchase orders for ATL Products' DataLibrary and
DataTower products under an agreement which extended until 1996.
Additionally, the
7
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.
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 first quarter of fiscal year
1996 decreased approximately $1,048,000, or 4.7% compared to the first
quarter of the prior fiscal year. The components of this overall
reduction consisted of a decrease in contract revenues (government
products) of approximately $2,247,000, or 49.8%, which was partially
offset by an increase in net sales (commercial products) of
approximately $1,199,000, or 6.7%.
The 6.7% growth in commercial net sales 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 CacheMachine(TM) along with initial revenue shipments of its new
Prophet(TM) system. 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
12% of Odetics' total first quarter net sales and contract revenues for
the first quarter of fiscal 1995. 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 declined from 63.8% for the first quarter of fiscal
1995 to 63.2% as a result of a sales mix favoring products with lower
product cost of sales in the current year first quarter.
Selling, general and administrative (SG&A) expenses increased
approximately $232,000 to 24.0% of net sales and contract revenues for
the first quarter of fiscal 1996 compared to 21.8% for the comparable
quarter in fiscal year 1995. SG&A expenses increased for the first
quarter compared to the same period in the prior fiscal year due to
increased expenses related to expanding foreign operations in Odetics,
Europe Ltd., and Odetics, Asia Pacific, Pte., and increased selling
expenses for commissions and advertising related to increased commercial
product sales and the timing of the Company's attendance at certain
trade shows.
Research and development (R&D) expenses decreased approximately $357,000
to 8.1% of net sales and contract revenues for the first quarter of
fiscal year 1996 compared to 9.3% for the first quarter of 1995. 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.
9
Interest expense increased approximately $243,000 for the first quarter
of fiscal 1996 compared to the same period during the prior fiscal year
primarily due to increased line of credit borrowing and increased cost
of borrowings.
The effective income tax rate was 38% for the first quarter of fiscal
1996 compared to a 34% tax rate for the same period of the prior 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
Although the Company reported net income of $211,000 during the first
quarter of fiscal 1995, it used $798,000 of cash to support its
operating activities. Product deliveries late in the first quarter
contributed to an increase in accounts receivable of $1,139,000 at June
30, 1995, which constrained cash flows from operating activities. The
Company also used operating cash flows to reduce accounts payable and
other accrued liability balances. 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 June 30, 1995, $3,200,000 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 June 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 June 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
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Gregory A. Miner
Vice President, Chief Financial Officer
By /s/ Gary Smith
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Gary Smith
Vice President, Controller
(Principal Accounting Officer)
Date August 14, 1995
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12
5
3-MOS
MAR-31-1996
APR-01-1995
JUN-30-1995
329,000
0
18,909,000
0
23,900,000
50,717,000
41,998,000
(21,614,000)
71,971,000
16,608,000
0
596,000
0
0
27,356,000
71,971,000
21,437,000
21,437,000
13,544,000
13,544,000
6,873,000
43,000
680,000
340,000
129,000
211,000
0
0
0
211,000
.04
.04
