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, 1996
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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
- --------------------------------- --------------------------
(State or other jurisdiction (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 November 8, 1996
Class A Common Stock - 5,202,152 shares.
Class B Common Stock - 1,136,531 shares.
1
INDEX
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PART I FINANCIAL INFORMATION Page
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ITEM 1. CONSOLIDATED STATEMENTS OF INCOME FOR 3
THE THREE MONTH AND SIX MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1996 4
AND SEPTEMBER 30, 1996 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 6
THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND
1996 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Part II OTHER INFORMATION
- ----------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 11
SECURITY HOLDERS
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,
----------------------- ------------------------
1995 1996 1995 1996
---------- ------------ ---------- -----------
Net sales and contract revenues:
Net sales $ 21,681 $ 30,819 $ 40,848 $ 59,123
Contract revenues 2,804 2,774 5,074 5,273
---------- ------------ ---------- -----------
24,485 33,593 45,922 64,396
Costs and expenses:
Cost of sales 14,450 20,199 26,635 38,405
Cost of contract revenues 1,509 1,405 2,868 2,677
Selling, general and administrative expenses 5,625 6,742 10,768 13,635
Research and development expenses 1,654 3,019 3,384 5,307
Interest expense 603 444 1,283 937
---------- ------------ ---------- -----------
23,841 31,809 44,938 60,961
---------- ------------ ---------- -----------
Income before income taxes 644 1,784 984 3,435
Income taxes 245 696 374 1,340
---------- ------------ ---------- -----------
Net income $ 399 $ 1,088 $ 610 $ 2,095
========== ============ ========== ===========
Weighted average number of shares outstanding 6,058 6,580 6,011 6,515
========== ============ =========== ===========
Net income per share of common stock $ 0.07 $ 0.17 $ 0.10 $ 0.32
========== ============ =========== ===========
See notes to consolidated financial statements.
-3-
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
MARCH 31, SEPT. 30,
1996 1996
(UNAUDITED)
------------ ------------
ASSETS
Current Assets
Cash $ 1,142 $ 1,758
Trade accounts receivable, net 24,772 24,254
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,428 3,642
Inventories:
Finished goods 3,717 3,135
Work in process 2,927 3,422
Materials and supplies 16,076 18,106
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Total inventories 22,720 24,663
Prepaid expenses 1,122 1,018
Deferred income taxes 2,516 2,516
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Total Current Assets 55,700 57,851
Property, plant and equipment
Land 2,090 2,090
Buildings and improvements 17,553 17,613
Equipment, furniture and fixtures 24,914 26,379
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44,557 46,082
Less accumulated depreciation (22,950) (24,006)
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Net property, plant and equipment 21,607 22,076
Other Assets 1,504 2,291
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Total Assets $ 78,811 $ 82,218
============ ============
See notes to consolidated financial statements.
-4-
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
MARCH 31, SEPT. 30,
1996 1996
(UNAUDITED)
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 11,519 $ 11,996
Accrued expenses 2,441 5,270
Accrued incentive programs 1,229 533
Accrued vacation 1,504 1,524
Income taxes payable 1,412 1,683
Billings in excess of costs and estimated earnings on
uncompleted contracts 5,414 4,517
Current portion of long-term debt 1,791 1,646
----------- ------------
Total current liabilities 25,310 27,169
Long-term debt - Less current portion 22,019 19,608
Deferred income taxes 497 497
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; 5,197,618 shares of
class A and 1,139,431 shares of class B issued and
outstanding at September 30, 1996 - $.10 par value 610 634
Paid-in capital 21,905 23,673
Foreign currency translation (10) 62
Retained earnings 8,480 10,575
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Total stockholders' equity 30,985 34,944
----------- ------------
Total liabilities and stockholder's equity $ 78,811 $ 82,218
=========== ============
See notes to consolidated financial statements.
-5-
ODETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1996
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OPERATING ACTIVITIES
Net income $ 610 $ 2,095
Adjustments to reconcile net income to net cash
provided by (used) in operating activities:
Depreciation and amortization 1,269 1,751
Provision for inventory reserves 304 587
Provision for losses on accounts receivable 66 73
Provision (Benefit) for deferred income taxes 11 271
Net proceeds from settlement of litigation 0 5,860
Gain on sale of assets (30) (186)
Foreign currency translation gain 5 72
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable (1,149) (1,275)
(Increase) Decrease in costs and estimated earnings
in excess of billings on uncompleted contracts (718) (214)
(Increase) Decrease in inventories and prepaid
expenses 2,125 (3,962)
(Increase) in other assets (552) (1,031)
Increase (Decrease) in accounts payable and
accrued expenses (864) 43
Increase (Decrease) in billings in excess of costs
and estimated earnings on uncompleted contracts 1,439 (897)
-------- ---------
Net cash provided by (used) in operating activities 2,516 3,187
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,214) (1,811)
Proceeds from sale of equipment 47 7
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Net cash used in investing activities (1,167) (1,804)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term
borrowings 18,219 25,600
Principal payments on line of credit, long-term
debt and capital lease obligations (19,824) (28,159)
Proceeds from sale of common stock 59 1,792
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Net cash provided by financing activities (1,546) (767)
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Increase (Decrease) in cash (197) 616
Cash at beginning of year 378 1,142
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Cash at September 30 $ 181 $ 1,758
======== =========
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, 1996 and the
consolidated results of operations for the three-month and six-month
periods ended September 30, 1995 and 1996 and its cash flows for the
six-month periods ended September 30, 1995 and 1996. 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,
1996 are not necessarily indicative of those to be expected for the
entire year.
Note 2 - Income tax expense for the three-month and six-month periods ended
- ------
September 30, 1995 and 1996 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
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(in thousands)
March 31, Sept. 30,
1996 1996
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Line of credit $10,700 $ 9,100
Mortgage note 11,040 10,617
Contracts payable 2,070 1,537
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23,810 21,254
Less current portion 1,791 1,646
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$22,019 $19,608
========== ==========
Note 4 - In November 1994 and February 1995, The Company and E-Systems, Inc.
- ------
(E-Systems), respectively filed legal actions related to E-Systems'
cancellation of purchase orders for ATL Products' DataLibrary and
DataTower products. In May 1996, the parties entered into a settlement
agreement under which, among other things, E-Systems agreed to pay the
Company $6,160,000, all claims asserted by the parties were released
and the litigation dismissed. In addition, the parties agreed to an
equitable disposition of disputed inventory and entered into a five
year service agreement for Odetics to service units that had been sold
to E-Systems at agreed upon prices. The Company does not expect to
record any material gain or loss based on the terms of the settlement
agreement.
7
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 Odetics, Inc. (the "Company") in the
second quarter of fiscal year 1997 increased approximately $9,108,000 or
37.2% 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 $9,138,000, or 42.1% and a slight
decrease in contract revenues (government products) of approximately
$30,000. Net sales and contract revenues for the six-month period of fiscal
year 1997 increased approximately $18,474,000, or 40.2%, compared to the
same period in the prior fiscal year. For the six months ended September
30, 1996 net sales were up 44.7%, and contract revenues were up 3.9%.
The growth in net sales for the second quarter and six-month period was
primarily due to an increase in sales in the Company's wholly owned
subsidiary, ATL Products, Inc. ("ATL"). ATL's sales growth resulted from
the introduction of new products and expansion of sales channels for its
product offerings. The Company's Communication Division also showed strong
growth in sales in its telecommunication products with increased sales of
its synchronization products for cellular telephone systems and
telecommunication interface products. The Company's Broadcast Division
experienced a slight decrease in revenues for the second quarter and six-
month period while Gyyr sales approximately were flat compared to the six
months ended September 30, 1995.
Cost of sales and contract revenues as a percentage of net sales and
contract revenues ("cost of sales percentage") decreased to 64.3% in the
second quarter ended September 30, 1996 from 65.2% during the same period
in the prior fiscal year. The cost of sales percentage for the six-month
period of fiscal 1997 decreased to 63.8% from 64.2% for the same period in
the prior fiscal year. This decrease primarily resulted from improved gross
margins at ATL due to improved absorption of fixed manufacturing costs on
higher sales volume and a sales mix that carried overall higher gross
profit margins. The cost of sales percentage also declined due to a
decrease in the cost of contract revenues as a result of a continued
decline in the government manufacturing cost base.
Selling, general, and administrative (SG&A) expenses increased
approximately $1,117,000 in the second quarter ended September 30, 1996,
although as a percentage of net sales and contract revenues, SG&A declined
to 20.1% compared to 23.0% in the comparable quarter in the prior fiscal
year. SG&A expenses increased $2,867,000 in the six months ended September
30, 1996, although as a percentage of net sales and contract revenues, SG&A
declined to 21.1% for the six-month period compared to 23.4% for the
comparable period in the prior fiscal year. SG&A expenses primarily
increased due to increased selling expenses to support the increased
commercial product sales primarily in the areas of commissions,
advertising, and labor and related benefits.
Research and development (R&D) expenses increased approximately $1,365,000
to 9.0% of net sales and contract revenues for the second quarter of fiscal
year 1997 compared to 6.8% for the second quarter of fiscal year 1996. R&D
expenses for the first six-months of fiscal 1997 increased approximately
$1,923,000 to 8.3% of net sales and contract revenues compared to 7.4% for
the comparable period in the prior fiscal year. The increased R&D expenses
reflect prototype material,
8
consulting, and labor and related benefits accompanying increased new
product development activities.
Interest expense declined approximately $159,000 and $346,000 for the
second quarter and six-month periods of fiscal 1997, respectively, compared
to the same periods for the prior fiscal year. These decreases were
primarily due to overall lower average line of credit borrowings.
The effective income tax rate was 39% for the six-month period of fiscal
1997 compared to a 38% tax rate for the same period of the prior year. The
increase in the effective tax rate projected for fiscal 1997 is due to a
reduction in the effect of general business tax credits on total income tax
expense.
9
Liquidity and Sources of Capital
The Company reported net income of $2,095,000 during the first six-months
of fiscal 1997 and cash flow from operating activities of $3,187,000. Cash
flow from operating activities included the receipt of net proceeds from
the settlement of the litigation with E-Systems (see Note 4 of Notes to
Consolidated Financial Statements), which was partially offset by an
increase in inventories to support increased commercial product sales,
especially in the Company's ATL Products subsidiary. 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, 1996, $7,900,000 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, 1996.
10
ODETICS, INC.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Annual Meeting of Shareholders of Odetics, Inc. held
on September 27, 1996, the following proxies were tabulated representing
4,803,897 shares of Class A Common Stock or 92% and 777,358 shares of Class
B Common Stock or 69% of the total outstanding shares voted in the
following manner:
Total Vote for Total Vote Withheld
Each Director From Each Director
-------------- -------------------
Class A
-------
Crandall Gudmundson 4,765,827 38,070
Leo Wexler 4,359,247 444,650
Class B
-------
Joel Slutzky 775,457 1,901
Jerry Muench 775,457 1,901
Ralph R. Mickelson 775,957 1,401
Stanley Molasky 775,957 1,401
Paul E. Wright 775,957 1,401
Kevin C. Daly 775,957 1,401
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed
for the three-month period ended
September 30, 1996.
ODETICS, INC.
11
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 November 14, 1996
--------------------
12
5
1,000
6-MOS
MAR-31-1997
APR-01-1996
SEP-30-1996
1,758
0
24,254
0
24,663
57,851
46,082
(24,006)
82,218
27,169
0
0
0
634
34,310
82,218
64,396
64,396
41,082
41,082
18,942
0
937
3,435
1,340
0
0
0
0
2,095
.32
.32
