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
December 31, 1995
For the quarterly period ended__________________________________________________
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________________ to ______________________
0-10605
Commission file number__________________________________________________________
ODETICS, INC.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 95-2588496
_____________________________________________ _________________________
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1515 SOUTH MANCHESTER AVE., ANAHEIM, CA 92802
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(714) 774-5000
____________________________________________________
(Registrant's telephone number, including area code)
________________________________________________________________________________
(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 report(s), 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 February 09, 1996
Class A Common Stock - 4,928,149 shares.
Class B Common Stock - 1,161,031 shares.
1
INDEX
-----
PART I FINANCIAL INFORMATION PAGE
- ------------------------------- ----
ITEM 1. CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS AND
THE NINE MONTHS ENDED DECEMBER 31, 1994 AND
1995 (UNAUDITED) 3
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1995
AND DECEMBER 31, 1995 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED DECEMBER 31, 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 12
SIGNATURES 13
2
PART 1 FINANCIAL INFORMATION
ODETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- ------------------
1994 1995 1994 1995
------- ------- ------- -------
Net sales and contract revenues:
Net sales $19,901 $24,356 $57,296 $65,204
Contract revenues 3,051 3,038 10,811 8,112
------- ------- ------- -------
$22,952 $27,394 $68,107 $73,316
Costs and expenses:
Cost of sales 13,375 16,684 38,517 43,319
Cost of contract revenues 1,563 1,364 5,177 4,232
Selling, general and administrative expenses 5,308 6,073 15,603 16,841
Research and development expenses 2,643 1,573 7,039 4,957
Nonrecurring charge 4,393 0 4,393 0
Interest expense 545 552 1,471 1,835
------- ------- ------- -------
27,827 26,246 72,200 71,184
------- ------- ------- -------
Income (loss) before income taxes (4,875) 1,148 (4,093) 2,132
Income taxes (benefit) (1,617) 423 (1,351) 797
------- ------- ------- -------
Net Income (loss) $(3,258) $ 725 $(2,742) $ 1,335
======= ======= ======= =======
Weighted average number of common shares outstanding 5,960 6,309 5,969 6,099
======= ======= ======= =======
Net income (loss) per share of common stock $ (0.55) $ 0.11 $ (0.46) $ 0.22
======= ======= ======= =======
See notes to consolidated financial statements.
-3-
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, Dec. 31,
1995 1995
ASSETS (unaudited)
--------- -----------
Current assets
Cash $ 378 $ 1,583
Trade accounts receivable 17,813 20,647
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,136 4,305
Inventories:
Finished goods 2,690 3,123
Work in process 2,702 1,374
Materials and supplies 20,075 18,622
--------- -----------
Total inventories 25,467 23,119
--------- -----------
Prepaid expenses and other 1,533 1,217
Deferred income taxes 2,683 1,886
--------- -----------
Total current assets 51,010 52,757
Property, plant and equipment:
Land 2,090 2,090
Buildings and improvements 16,948 17,737
Equipment, furniture and fixtures 22,727 24,071
--------- -----------
41,765 43,898
Less accumulated depreciation (21,056) (22,822)
--------- -----------
Net property, plant and equipment 20,709 21,076
Other assets 639 1,206
--------- -----------
Total assets $ 72,358 $ 75,039
========= ===========
See notes to consolidated financial statements.
-4-
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, Dec. 31,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
----------- -----------
Current liabilities
Trade accounts payable $ 8,155 $ 9,657
Accrued expenses 3,693 3,032
Accrued vacation 1,178 1,437
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,955 5,222
Current portion of long-term debt 1,296 1,459
----------- -----------
Total current liabilities 18,277 20,807
Long-term debt-less current portion 25,757 24,226
Deferred income taxes 588 586
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; 4,887,857 shares of
class A and 1,161,031 shares of
class B issued and outstanding at
December 31, 1995 - $.10 par value 595 605
Paid-in capital 21,067 21,427
Foreign currency translation 46 25
Retained earnings 6,028 7,363
----------- -----------
Total stockholders' equity 27,736 29,420
----------- -----------
Total liabilities and stockholders' equity $72,358 $75,039
=========== ===========
See notes to consolidated financial statements.
-5-
ODETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
December 31,
-----------------------
1994 1995
---------- ----------
OPERATING ACTIVITIES
Net income (loss) $ (2,742) $ 1,335
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,762 2,026
Provision for inventory reserves 4,737 946
Provision for losses on accounts receivable 752 99
Provision for deferred income taxes (1,645) 795
Foreign currency translation gain (loss) 8 (21)
(Gain) on sale of equipment 0 (30)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (609) (2,933)
(Increase) Decrease in costs and estimated earnings
in excess of billings on uncompleted contracts 390 (1,169)
(Increase) Decrease in inventories and prepaid
expenses (8,858) 1,718
(Increase) in other assets (268) (719)
Increase in accounts payable and
accrued expenses 501 1,100
Increase (Decrease) in billings in excess of cost
and estimated earnings on uncompleted
contracts (331) 1,267
---------- ----------
Net cash provided by (used in) operating activities (6,303) 4,414
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,831) (2,258)
Proceeds from sale of equipment 0 47
---------- ----------
Net cash used in investing activities (1,831) (2,211)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 20,411 27,360
Principal payments on line of credit, long-term
debt and capital lease obligations (12,541) (28,728)
Proceeds from sale of common stock 546 370
---------- ----------
Net cash provided by (used in) financing activities 8,416 (998)
---------- ----------
Increase in cash 282 1,205
Cash at beginning of year 172 378
---------- ----------
Cash at December 31 $ 454 $ 1,583
========== ==========
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 December 31, 1995 and its
results of operations for the three-month and nine-month periods ended
December 31, 1994, and 1995 and its cash flows for the nine-month
periods ended December 31, 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 nine-month period ended December 31, 1995 are not necessarily
indicative of those to be expected for the entire year.
Note 2- Income tax expense for three-month and nine-month periods ended
- ------ December 31, 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, December 31,
1995 1995
------------ ------------
Line of credit $14,100 $12,000
Mortgage note 11,829 11,246
Contracts payable 1,124 2,439
------------ ------------
27,053 25,685
Less current portion 1,296 1,459
------------ ------------
$25,757 $24,226
============ ============
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
Company's suit claims breach of contract for the return and
cancellation of a purchase order for ATL
7
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.
The Company has two pending actions against Storage Technology Corporation and
certain other defendants alleging that certain products manufactured by Storage
Technology infringe the Company's patented technology. The first action was
filed by the Company in June 1995 and the second action was filed by the Company
in December 1995, both in the United States District Court for the Eastern
District of Virginia. In the first action, Storage Technology asserted
counterclaims against the Company and the ATL Products Division for alleged
infringement of three patents of Storage Technology. The first action was tried
in January 1996 and resulted in judgement finding that Odetics' patent was not
invalid, but Storage Technology did not infringe the three claims asserted.
Management intends to appeal this judgement as being incorrect as a matter of
law. Storage Technology's counterclaims against Odetics were dismissed or
resolved between the parties without findings of infringement or monetary
liability. In the second action, Storage Technology has not yet provided its
answer to the complaint. No prediction can be made as to the likely outcome of
the second action or the appeal in the first action, but management believes
that the outcomes of both actions are not likely to have material adverse
effects 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 third quarter of fiscal year 1996
increased approximately $4,442,000, or 19.4%, compared to the third quarter of
the prior fiscal year. The components of this overall increase consisted of an
increase in net sales (commercial products) of approximately $4,455,000, or
22.4%, while contract revenues were essentially flat with a decrease of
approximately $13,000. Net sales and contract revenues for the nine month
period of fiscal year 1996 increased approximately $5,209,000, or 7.6%,
compared to the same period in the prior fiscal year. For the nine month
period of fiscal year 1996 net sales were up 13.8%, and contract revenues were
down 25.0%.
The growth in net sales for the third quarter and nine 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 revenues of its TCS45(TM)
system. The Company's wholly owned subsidiary, ATL Products, Inc. ("ATL")
experienced strong growth in revenues for the third quarter of fiscal 1996
compared to the same period in the prior fiscal year. ATL's sales growth
resulted from an increase in sales of its ACL 4/52 and ACL 2640 product lines
in both the Domestic and European markets through Odetics Europe, Ltd., a
wholly owned subsidiary of the Company.
ATL revenues for the nine month period showed only a slight increase
compared to the same period in the prior year because of the loss of E-Systems
as a major customer. In the nine months ended December 31, 1994, E-Systems
accounted for 42% of ATL's sales revenue. ATL sales to customers other than
E-Systems increased 74% in the nine months ended December 31, 1995 compared to
the previous year's period.
Government product revenues decreased for the nine month period compared to
the same period in the prior fiscal year primarily due to the slowdown in
government spending and the Company's transition away from certain government
markets.
Cost of sales as a percentage of net sales for the third quarter of fiscal
1996 increased to 68.5% from 67.2% when compared to the comparable quarter in
the prior fiscal year mainly due to the Company's Broadcast Division's systems
sales including a higher amount of third-party subsystem content sold at lower
margins. For the nine months ended December 31, 1995 the cost of sales
percentage declined to 66.4% from 67.2% for the comparable period in the prior
fiscal year. This decrease reflected improving gross profits at ATL and
increased sales of Broadcast products at improved gross profit levels compared
to fiscal 1995 levels.
Contract revenues and cost of contract revenues reflect the Company's
progress in completing a number of long-term cost plus and fixed price
contracts. The recognition of cost of contract revenues relative to contract
revenues varies based upon the timing of contractual completions and
9
cost allocations during any identified period of time. For the third quarter
cost of contract revenues as a percentage of contract revenue was 44.9%
compared to 51.2% for the comparable period in the prior year. For the nine
months ended December 31, 1995 cost of contract revenues as a percentage of
contract revenue was 52.2% compared to 47.9% for the nine month period of the
prior fiscal year.
Selling, general and administrative (SG&A) expenses for the third quarter of
fiscal 1996 increased approximately $765,000 as compared to the same period
for the prior fiscal year, though as a percentage of net sales and contract
revenues, SG&A declined to 22.2% compared to 23.1% in the comparable quarter
in the prior fiscal year. SG&A expenses increased approximately $1,238,000 to
23.0% of net sales and contract revenues for the nine months of fiscal 1996
compared to the 22.9% for the comparable period in the prior fiscal year. SG&A
expenses increased for the third quarter and nine month period compared to the
same periods in the prior fiscal year primarily due to professional fees
related to the E-Systems litigation.
Research & development (R&D) expenses decreased approximately $1,070,000 to
5.7% of net sales and contract revenues for the third quarter of fiscal year
1996 compared to 11.5% for the third quarter of fiscal 1995. R&D expenses for
the first nine months of fiscal 1996 decreased approximately $2,082,000 to
6.8% of net sales and contract revenues compared to 10.3% 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 implemented during the second half of fiscal 1995 and
completion of certain major R&D programs in the fourth quarter of fiscal 1995.
In the third quarter of fiscal 1995, the Company recorded a non-recurring
charge of $4,393,000 for loss reserves related to downsizing and restructuring
in response to a deterioration in the Company's contractual relationship with
E-Systems as noted above and in note 4 to the consolidated financial
statements. This charge consisted of a write-down of inventories and accounts
receivables to net realizable value, severance costs for staffing reductions
due to the loss of the E-Systems business and aggregate charges for purchase
cancellations, legal fees and other costs relating to the dispute.
Interest expense increased approximately $7,000 and $364,000 for the third
quarter and nine month periods of fiscal 1996, respectively, compared to the
same periods for the prior fiscal year. These increases were primarily due to
higher average outstanding line of credit borrowings and increased interest
costs.
The effective income tax rate was 37% for the six month period of fiscal 1996
compared to a 33% tax benefit 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.
10
Liquidity and Sources of Capital
The Company reported net income of $1,335,000 during the first nine months of
fiscal 1996 and cash flow provided by operating activities of $4,414,000. The
cash flow provided by operating activities was primarily used for the purchase
of fixed assets and payments for the reduction of long term borrowings. 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 December 31, 1995, $5,000,000 was
available for borrowing under the line. The Company anticipates that net cash
flow provided by 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 December 31, 1995.
11
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
December 31, 1995.
12
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: February 13, 1996
-----------------
13
5
1,000
9-MOS
MAR-31-1996
OCT-01-1995
DEC-31-1995
1,583
0
20,647
0
23,119
52,757
43,898
(22,822)
75,039
20,807
0
605
0
0
28,815
75,039
73,316
73,316
47,551
47,551
21,798
0
1,835
2,132
797
0
0
0
0
1,335
.22
.22
