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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996.
Commission file number 0-10605
ODETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2588496
(State of or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1515 South Manchester Avenue, Anaheim, CA 92802
(Address of Principal Executive Offices) (Zip Code)
(714) 774-5000
(Registrant's Telephone Number, Including Area Code)
Securities Registered pursuant to Section 12(b) of the Act:
None
Securities Registered pursuant to Section 12(g) of the Act:
Title of Each Class
Class A Common Stock, $.10 par value
Class B Common Stock, $.10 par value
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
filing requirements for the past 90 days.
YES X NO
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The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 19, 1996 was approximately $22,750,000.
Check mark indicates that disclosure of delinquent filers 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 [_].
As of June 20, 1996, there were 5,111,472 shares of registrant's Class A
Common Stock and 1,139,431 shares of registrant's Class B Common Stock
outstanding.
The following documents are incorporated by reference into this report:
Part III incorporates by reference information from the proxy statement of
the registrant for the annual meeting of stockholders to be held on September
27, 1996.
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The exhibit index to this report appears at page 37 of 42 consecutively
numbered pages.
PART I
ITEM 1. BUSINESS.
COMPANY BACKGROUND
Odetics (the "Company") was founded in 1969 to supply digital recorders
for use in the U.S. space program. The Company pioneered new designs and
standards for digital magnetic tape recorders offering enhanced performance in
the adverse environments attendant to space flight, high reliability and long
product life. In the 1970s, the Company broadened its information automation
product line to include time-lapse VCRs for commercial and industrial security
and surveillance applications. Through the Company's GYYR Division, it is a
leading supplier of time-lapse videotape cassette recorders, digital image
processing modules and related products used in security and surveillance
systems.
In the early 1980s, the Company set out to develop the technical expertise
to apply automation to new commercial applications. As part of its initial
development efforts, the Company built ODEX, a prototype six-legged walking
robot now part of the Smithsonian Institution's permanent collection of
historically significant technology. The Company established the Broadcast
Division which pioneered the use of large-library cart machines in broadcast
television stations and satellite uplink operations. The Broadcast Division is
a leading supplier of broadcast automation control systems in the U.S.
The success of the Company's cart machines led the Company to pursue new
applications for information automation technologies, and in 1990, the Company
teamed with E-Systems, Inc. ("E-Systems") to develop and provide a 19mm
automated tape cartridge handling subsystem for E-Systems' EMASS mainframe
computer tape library for the U.S. Government. In 1991, in a strategic move to
expand its business into new and potentially larger markets, the Company
introduced an automated tape handling subsystem for integration into tape
libraries designed for mid-range computers and client/server networks employing
IBM 3480 and similar industry-standard tape cartridges. In January 1993, the
Company formed a separate subsidiary, ATL Products Inc., ("ATL") to pursue the
market for automated tape-libraries.
The Company is a leading supplier of systems and subsystems to automate
the collection, storage, distribution and management of information. The
Company's business strategy is to focus on selected markets in which the Company
may bring to bear its expertise in electromechanical design, real-time software
control and highly reliable system implementations to produce superior products
with a sustainable competitive advantage, and to capture major market shares.
The Company's data storage products manage the vast amounts of data on computer
systems, automate television and cable station operations, record video
surveillance, store information gathered in space exploration and archive movies
for video on demand systems.
2
ATL PRODUCTS, INC.
ATL Products, Inc. is a leading supplier of automated tape libraries to
the midrange and client/server computing marketplaces. The markets for these
products began emerging in the early 1990's as a result of the shift of
computing investments from the mainframe proprietary system environment to the
midrange (and, later, client/server) open system environment. The growth of
these markets is driven by two principal factors; the rapid increase in the
amount of data in midrange and client/server computing environments (which ATL
has referred to as The Data Storm in its marketing literature), and the shift of
business-critical applications from a mainframe to a client/server environment
(which the industry has referred to as downsizing).
ATL has invested in product development, production capability, industry
partnerships, and distribution channels appropriate to this market. It has
focused upon serving the market for users whose data is understood to be
business critical. At the present time ATL's production is more than 1,000
libraries per year. Approximately 75% of ATL's sales are made through a broad
set of Value Added Resellers (VAR's) who have direct contractual relationships
with ATL. The remaining sales are to OEM's who private-label ATL's Products.
ATL entered into a partnership with Digital Equipment Corporation
("Digital") in 1993 and undertook an ambitious development activity to automate
the use of Digital Linear Tape (DLT(TM)), a proprietary Digital tape format
which was, at that time, beginning to emerge as a cost-effective tape solution
for open system applications. As a result of that partnership, ATL brought the
first DLT(TM) Library to market in 1994. ATL currently has stable products and
strong customer relationships and commands the leading market share of DLT(TM)
libraries which represent the fastest growing segment of the market. According
to Freeman Associates, a leading analyst in the data storage market, ATL
Products had a 55% share of the DLT(TM) library market in 1995.
ATL's current product line consists of two families of systems referred to
as the Midrange Library (MRL) family and the Small Library Products (SLP)
family. The MRL family of products was originally designed in 1990 and 1991 for
the 3480-class (3480, 3490, and potentially 3590 and NCTP) of tape systems and
was extended, as a result of the alliance with Digital Equipment Corporation in
1993 to the DLT(TM) tape systems. The SLP family of products was designed in
1993 and 1994 for the DLT(TM) tape system. The MRL family of products is sold
primarily to the midrange and data-intensive server market, while the SLP
product family is sold primarily to the horizontal client/server market for use
in the server segment.
ATL has invested significant resources and engineering effort in the
development of relationships with software Integrated System Vendors (ISV's) in
the open systems storage management area. This program is called the 1/STOP
program and has led to the native support of ATL's libraries by more than 40 of
the leading ISV's representing over 90% of the Unix and NT storage management
market.
A key element in the ATL business strategy is the supply of product
support throughout the product life cycle. Anticipated useful installed life is
in excess of five years and may range up to twenty years. The MRL product
family requires modest installation support and has a six-month preventative
maintenance interval. The SLP product family requires minimal installation
support and has twelve-month preventative maintenance intervals.
ATL began to establish an installed base during 1993. Between 1993 and
1995, the installed base has grown at a CAGR of over 140%. The 1,000th
installation was made late in 1995. ATL is second only to StorageTek in the
number of installed libraries for high performance linear tape technologies;
IBM, with an installed base of approximately 500 libraries is in third place.
At the present time, approximately 70% of the installed base are DLT(TM)
libraries. This ratio is expected to increase to over 80% by the end of the
year since the vast majority of the shipments expected in 1996 are DLT(TM)
libraries.
Sales, Marketing and Principal Customers
ATL's market strategy has been to emphasize management of business
critical data and "Total Cost of Ownership" both to motivate the introduction of
automated tape libraries into the midrange and client/server computing markets
and to differentiate ATL from its competition.
3
From 1990 through the third quarter of fiscal 1995, ATL manufactured
certain automation subsystems utilizing 19mm technology exclusively for E-
Systems. In the third quarter of fiscal 1995, the Company announced that its
contractual relationship with E-Systems was deteriorating and it would incur
charges related to the loss of E-Systems business. On November 15, 1994, the
Company initiated an action against E-Systems alleging breach of contract.
On May 22, 1996, the Company announced that it and ATL Products settled
all pending litigation with E-Systems, Inc. and EMASS, Inc. See "Legal
Proceedings" for further discussion.
Manufacturing and Materials
The manufacture of the MRL and SLP product families occurs on two
continuous unit flow assembly lines. Subassembly work is subcontracted to
outside vendors to the maximum extent practicable. ATL maintains ownership of
proprietary tooling necessary for the manufacture of its products. The MRL and
SLP families are both based upon architectures which have been adapted to
provide a range of products. The MRL architecture was designed for production
rates of two-hundred to six-hundred units per year. The SLP architecture was
designed for production rates of one thousand to four-thousand units per year.
ATL purchases numerous parts and fabricated components for its automation
subsystems. Such parts and components are available from a number of
fabricators in Southern California.
BROADCAST DIVISION
The Broadcast Division's large-library cart machines automate the storage
and televising of commercials, news spots and other television programming
recorded on videotape cassettes. Cart machines increase labor efficiency by
automatically performing tape insertion and other filing tasks previously
performed manually or by machines with limited capacity and utility. Management
believes that enhanced operational efficiencies are a principal factor
underlying the increased automation of broadcast television stations and
satellite uplink operations.
The Broadcast Division' earliest commercial success in the manufacture of
cart machines was with the TCS 2000 followed by the TCS 90. The recent market
trend toward smaller cart machines, coupled with digital hard disk drive
recording devices was led by Odetics with the introduction of highly integrated
cacheing systems employing Odetics' newest cart machine, the TCS 45. The TCS 45
can be coupled with hard drive recorders available from several recognized
suppliers to the broadcast community. Odetics now offers several automated
video management control systems that include software to form powerful
integrated systems. Among these, the MicroSpot(TM) and the SpotBank(TM) do not
utilize cart machines.
Multi channel presentation systems, which integrate the complete line of
Odetics hardware with commonly available broadcast quality program player
devices, are quickly becoming the core business of Odetics Broadcast Division.
Sales, Marketing and Principal Customers
The Broadcast Division sells directly to broadcast television stations,
satellite uplink operations, and other broadcast television and cable television
system operators. Sales and marketing management is located at the Company's
principal facilities in Anaheim, California, with a dedicated field sales force
of four persons operating in four U.S. sales regions. European sales and
marketing activities are conducted and managed by Odetics Europe, Ltd., a wholly
owned subsidiary of the Company. Asia sales and marketing activities are
conducted by Odetics Asia Pacific Pte Ltd., a wholly owned subsidiary of the
Company located in Singapore. Additional representative organizations are
utilized to promote the Broadcast Division's products in various other foreign
markets.
Customers include major television networks such as the British
Broadcasting Corporation, Canadian Broadcasting Corporation, CNBC/FNN, Euronews,
INA (French Cultural Video Archive), International Television News (ITN), NBC,
the PBS Network, Group W Satellite Communications (for the Arts & Entertainment
Network and Discovery Channel) and over 100 independent and network-affiliated
television stations. The Broadcast Division has systems installed in over 30
countries.
4
Manufacturing and Materials
The Broadcast Division maintains a dedicated manufacturing area located
within the Company's Anaheim, California facilities. The Company's SpotBank(TM)
and MicroSpot(TM) products are manufactured at its Austin, Texas facility. The
Broadcast Division's products are manufactured primarily on a lot
assembly/module build basis. At the Anaheim facility, the Broadcast Division and
Gyyr Division share common infrastructure support in the areas of production and
inventory control, purchasing, quality assurance and manufacturing engineering.
A single management structure oversees these operations.
The Broadcast Division purchases cabinets and other fabricated parts and
components. The Broadcast Division purchases standard broadcast-quality VCRs
from Sony Corporation, Panasonic and several other sources along with video
servers from Tektronix and ASC for installation in the Company's automated video
management systems.
GYYR DIVISION
Time-lapse VCRs are employed extensively in area monitoring by banks,
convenience stores, retailers and other businesses. Time-lapse VCRs are
frequently installed at automated teller machine ("ATM") and retail computerized
payment machine locations to record pictures of individuals making transactions
while simultaneously recording transaction information in an effort to deter and
address incidents of theft and other crimes at these locations. Customer
demand for more sophisticated capabilities, such as computer-interfaces to
record transaction information simultaneously with video images, electronic
processors to record multiple cameras on one VCR and digital image processing
and enhancement, also have contributed to recent growth of the market for the
Gyyr Division's products. Management believes that many of the same market
forces at work in the U.S. exist in certain foreign markets as well and that,
generally, the international markets are growing as fast as in the U. S. During
fiscal 1996, the GYYR Division introduced a new line of Time Lapse VCR's and a
new high performance FasTrans product family for communicating video and control
signals over telephone and newer broadband communication channels.
Sales, Marketing and Principal Customers
The Gyyr Division markets and sells its products directly to its private-
label OEM accounts. The Gyyr Division personnel located at the Company's
principal facilities also oversee a network of approximately 2,500 security
equipment dealers and distributors throughout the United States and Canada who
sell the Gyyr Division's products to end users. The Gyyr Division utilizes
foreign representatives in South America, Mexico and Asia and employs a network
of European sales and marketing representatives. Odetics Europe, Ltd. assists
the Gyyr Division in its sales and marketing activities in European markets.
The Gyyr Division also utilizes Odetics Asia Pacific Pte Ltd. to assist in sales
to the Asian markets. The Gyyr Division's principal customers include major
security equipment companies such as Diebold, Inc., ADT Security Systems, Inc.,
Honeywell, Inc., Mosler, Inc. and other OEMs.
Manufacturing and Materials
The Gyyr Division maintains a dedicated manufacturing area located within
the Company's principal facilities. The Gyyr Division primarily uses continuous
unit-flow assembly lines. The Broadcast Division and Gyyr Division share common
infrastructure support in the areas of production and inventory control,
purchasing, quality assurance and manufacturing engineering. A single
management structure oversees these operations.
The Gyyr Division purchases VCRs modified to the Company's specifications
exclusively through Nissei Sangyo America, the U.S. distribution affiliate of
Hitachi, Ltd., into which the Company incorporates certain value-added features.
The Company is vulnerable to changes in Hitachi, Ltd.'s basic VCR model, which
might necessitate changes in the design or manufacturing of the Gyyr Division's
products. There are numerous other suppliers of VCRs suitable for use in the
Gyyr Division's products, although certain changes in product design or
5
manufacturing methods may be required to accommodate such VCRs, and the Gyyr
Division could experience temporary delays or interruptions in supply while such
changes are incorporated or a new supplier is procured.
COMMUNICATIONS DIVISION
The Communications Division was formerly known as the ISD and IDD
Divisions. Up until this year most of the Division revenues came from sales of
Space Digital Data Recorders. During this fiscal year approximately 40% of the
revenues were derived from telecommunication related sales.
The telecommunications business unit supplies products that synchronize
telecommunication and computer systems and products that provide an interface
between the public (WAN) network and private (LAN) networks.
Odetics telecom synchronization products are sold for new applications in
cellular telephone systems and the new PCS networks being implemented throughout
the world. Principal customers are LGIC of Korea, and Hughes Network Systems.
The synchronization products are based on leading edge G.P.S. technologies. Most
product applications are in the latest CDMA networks.
Odetics telecom interface products are sold to local exchange carriers,
interexchange carriers and local area network switch manufacturers. The product
offerings fall into two categories - interface boards and stand alone systems.
The interface boards are ATM and SONET based, and are sold primarily to other
telecom equipment manufacturers. The stand alone products are used as
converters, multiplexer, and network termination devices
The space business unit manufactures digital data recorders that are used
in manned and unmanned space vehicles to store data gathered by onboard sensors
prior to transmission of the data to ground receiving stations. Such recorders
are employed in satellite programs for space research, earth resource and
environmental observation and weather monitoring, as well as global surveillance
and classified government programs. These recorders were originally developed
for the U.S. space program and serve as a computer mass-memory system for on-
board computers used in the U.S. Space Shuttle program. At least five of
Odetics' recorders have flown on each Space Shuttle mission. The Company's
space-qualified recorders also are utilized in satellites operated or built for
the space agencies of Canada, France, Germany and Japan, as well as the European
Space Agency. Other representative projects using Odetics' data recorders are
the French SPOT imaging satellite and the U.S. Landsat, Galileo, Magellan, and
Hubble Space Telescope projects.
Sales, Marketing and Principal Customers
The Communications Division conducts its selling and marketing activities
worldwide directly from the Company's principal facilities.
During the fiscal year ended March 31, 1996 approximately 60% of the
Communications Division's sales were derived from contracts with domestic or
foreign governmental agencies and prime government contractors.
Manufacturing and Materials
The Communications Division production capabilities fall into two
categories: commercial and space.
The telecom business unit manufactures to best commercial practices. The
group anticipates becoming ISO certified before the end of FY 97. Most of the
manufacturing operations are final assembly and test. Board assembly and some
preliminary fabrication processes are outsourced.
6
The space production is designed for low-volume, program-managed
manufacture, often with nonrecurring engineering for individual customer needs.
Because of these unique requirements, the space business unit has extensive
machining and electronic assembly capabilities in order to manage cost,
schedule, and quality levels to the unusual and exacting needs of its customers.
ODETICS CUSTOMER SERVICE DIVISION
The Odetics Customer Service ("OCS") Division provides third-party on-site
computer maintenance services as well as maintenance and support services for
the ATL Product Division's automation subsystems. The market for third-party
on-site computer maintenance services includes certain U.S. Government
installations and commercial businesses with large-scale automated or electronic
document storage and retrieval systems. The OCS Division's principal customers
include the U.S. Department of Defense, FMC Corporation, General Dynamics
Corporation and Northrop Corporation.
CUSTOMER SUPPORT AND SERVICES
The Company provides competitive warranty service for each of its product
lines, as well as follow-on service and support for which the Company typically
charges separately. The Company also offers separate software maintenance
agreements to its customers. Management views customer support services as a
critical competitive factor as well as a revenue source. The Company maintains
its own service groups and trains its customers, representatives and
distributors in the performance of user-level maintenance. Modular product
designs with recommended spare packages are used wherever feasible to minimize
mean time to repair.
BACKLOG
The Company's backlog of unfulfilled firm orders was approximately
$24,100,000 at March 31, 1996 and approximately $21,600,000 at March 31, 1995.
Approximately 72% of the Company's backlog at March 31, 1995 was recognized as
revenues in fiscal 1996 and approximately 87% of the Company's backlog at March
31, 1996 is expected to be recognized as revenues in fiscal 1997. Foreign orders
in the aggregate accounted for approximately 49% of the Company's backlog at the
end of fiscal 1996, as compared to approximately 59% at the end of the prior
fiscal year. Pursuant to the customary terms of the Company's agreements with
government contractors and other customers, orders generally may be cancelled or
rescheduled by the customer. Lead times for the release of purchase orders
depend upon the scheduling and forecasting practices of the Company's individual
customers, which also can affect the timing of the conversion of the Company's
backlog into revenues. For these reasons, among others, the Company's backlog at
a particular date may not be indicative of its future revenues.
PRODUCT DEVELOPMENT
The Company's business requires substantial ongoing research and
development expenditures and other product development activities. For fiscal
years 1994, 1995, and 1996, the Company incurred approximately $7,300,000,
$9,300,000 and $7,000,000, respectively, of Company-sponsored research and
development costs and expenses, including reimbursable research and development
expenses of the Company allowed in the Company's negotiated General and
Administrative Rates on cost contracts with the U.S. Government. In addition to
the foregoing expenditures, the Company also conducts customer-sponsored product
development, principally for the U.S. Government, under long-term contracts.
The Company typically retains the right to utilize resulting technological
developments for its commercial markets. Customer-sponsored product development
expenditures totalled approximately $400,000, $900,000 and $0 during fiscal
years 1994, 1995, and 1996, respectively.
7
The Company expects to continue to pursue significant product development
programs and incur significant research and development expenditures in all of
its principal product lines and services. These programs are directed toward
developing new products for advanced automated libraries as well as the
processing and distribution of digital images.
COMPETITION
The Company competes in each of its targeted markets against other
companies, many of which have substantially greater financial, technical,
marketing and customer service resources than the Company. The principal
competitive factors in the markets in which the Company participates are product
quality and performance, price, reliability, upgradeability, service and
technical support.
In the mid-range automated tape library market, ATL currently competes
directly with Exabyte, IBM, Hewlett Packard, and Storage Technology.
Competition, which had been limited until mid-1995 has increased significantly
as the DLT(TM) technology has become an accepted standard in much of the
midrange and client/server computer markets. ATL believes that the limited
nature of the competition along with a proactive channel management strategy has
preserved a high end-user perceived value for ATL's products over the last three
years. Management believes that ATL's primary competitive advantages in these
markets are its expandable architecture, industry-standard interfaces, base
of system-level software support, along with the proven reliability and quality
of its products.
In the Broadcast Division's markets, the Company competes directly with
Sony, Panasonic and Avid. Sony and Panasonic are large, international suppliers
of extensive professional-quality products, including cart machines, for the
broadcast television market. Avid competes in the area of disk based video
server products - principally against the Broadcast Division's SpotBank
products. The Broadcast Division's products compete primarily on the basis of
product features, including their capacity to accommodate broadcast-quality VCRs
from all manufacturers, which is unique among product offerings in this market.
The Gyyr Division's principal competitors for time-lapse VCRs are
Panasonic, Toshiba, Sanyo and Sony all of which have far greater name
recognition, marketing and other resources than the Company. Numerous other
companies, including Japanese and other offshore vendors of VCRs, also offer
competitive products. Management believes that the Gyyr Division's products
compete primarily on the basis of their value-added features, including those
relating to digital image processing.
In the Communications Division's space tape recorder market, Odetics
competes with General Electric Corporation, Lockheed Corporation, and
Schlumberger, S.A. An additional competitive factor in this market is space
flight experience; however, with the advent of solid state recorders the Company
may face new competitors. Management believes that the use of Odetics'
recorders on a number of U.S. and foreign space programs, including Landsat,
SPOT, Galileo, Magellan and the Hubble Space Telescope, provides the Company
with a competitive advantage for follow-on procurements.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
It is the Company's policy to obtain appropriate proprietary rights
protection for any potentially significant new technology acquired or developed
by the Company. The Company currently holds a number of U.S. and foreign
patents and trademarks. The patents will expire at various dates through 2012.
The Company also has pending several U.S. and foreign patent applications
relating to certain of its products; however, there can be no assurance that any
patents will be granted pursuant to these applications.
In addition to patent laws, the Company relies on copyright and trade
secret laws to protect its proprietary rights. The Company attempts to protect
its trade secrets and other proprietary information through agreements with
customers and suppliers, proprietary information agreements with the Company's
Associates (as hereinafter defined) and consultants and other similar measures.
There can be no assurance, however, that the Company will be successful in
protecting its proprietary rights.
8
While management believes its patents, patent applications, software and
other proprietary know-how have value, changing technology makes the Company's
future success dependent principally upon its Associates' technical competence
and creative skills for continuing innovation.
ASSOCIATES
The Company refers to its employees as Associates. As of June 10, 1996,
the Company employed 515 Associates, including 103 Associates in general
management, administration and finance; 66 Associates in sales and marketing;
123 Associates in product development; 172 Associates in operations,
manufacturing and quality; and 51 Associates in customer service. None of the
Company's Associates is represented by a labor union and the Company has not
experienced a work stoppage.
GOVERNMENT REGULATION
The Company's manufacturing operations are subject to various federal,
state and local laws, including those restricting the discharge of materials
into the environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of its operations because of such
regulations. The Company continually expends funds to assure that its
facilities are in compliance with applicable environmental regulations.
However, such expenditures have not been significant in the past and no
significant future expenditures are expected.
From time to time, a portion of the Company's work relating to the
Odetics' digital data recorders may constitute classified U.S. government
information or may be used in classified programs of the U.S. Government. For
this purpose, the Company and necessary Associates possess relevant security
clearances. The Company's affected facilities and operations are subject to
security regulations of the U.S. Government. Management believes the Company is
in full compliance with these regulations.
ITEM 2. PROPERTIES.
The Company's headquarters and principal operations are located in
Anaheim, California. In 1984, the Company purchased and renovated a three-
building complex containing approximately 250,000 sq. ft. situated on
approximately 14.1 acres adjacent to the Interstate 5 freeway one block from
Disneyland. These Company-owned facilities house the Company's corporate and
administrative offices (approximately 43,000 dedicated square feet), as well as
the Broadcast and Gyyr Divisions, (approximately 87,000 dedicated square feet),
the Communications Division (approximately 67,000 dedicated square feet), OCS
Division (approximately 15,000 dedicated square feet) and ATL (approximately
50,000 dedicated square feet). Additionally, the Communications Division leases
approximately 4,500 sq. ft. of space in a manufacturing facility located on 0.62
acre in El Paso, Texas. The Broadcast Division leases approximately 5,000
square feet in Austin, Texas to manufacture certain product families. Odetics
Europe, Ltd.'s offices are located in leased space near London, England.
Odetics Asia Pacific Pte. Ltd. offices are located in leased space in
Singapore. The Company estimates that the aggregate productive capacity square
feet of its facilities is approximately 200,000.
The Company currently is operating a single shift in its manufacturing and
assembly facilities and it believes that its facilities are adequate for its
current needs and for possible future growth. However, the Company may elect to
expand or relocate its offices and facilities in the future.
9
ITEM 3. LEGAL PROCEEDINGS.
On May 22, 1996, the Company announced that it and ATL Products settled
all pending litigation with E-Systems, Inc. and EMASS, Inc. (collectively, "E-
Systems").
The settlement was effected pursuant to a written Settlement Agreement and
General Release between the parties, under which E-Systems paid the Company
approximately $6.1 million, including an amount designated as a royalty payment
on library systems sold by E-Systems which the Company alleged infringed on its
patented technology. See "Management's Discussion of Financial Condition and
Results of Operations." For its part, the Company agreed for a period of five
years to provide spare parts and certain other customer support services for the
installed base of DataTowers that the Company previously sold to E-Systems. The
parts and services generally will be provided in accordance with Odetics'
general terms and conditions, less a specified discount. The Company also has
agreed to refurbish nine ACL 2640 units in E-Systems' possession and to pay to
E-Systems any profits (net of refurbishment and sales costs) realized by the
Company from the sale of the refurbished units and to deliver to E-Systems
certain inventories of parts and supplies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
At March 31, 1996, the Company's Class A Common Stock and Class B Common
Stock are traded on the Nasdaq National Market under the symbols "ODETA" and
"ODETB," respectively. Prior to January 4, 1994, the Company's Class A Common
Stock and Class B Common Stock were traded on the American Stock Exchange
("AMEX") under the symbols "OA" and "OB," respectively. The following table
sets forth for the fiscal periods indicated the high and low sale prices for the
Class A Common Stock and Class B Common Stock as reported by the Nasdaq:
Class A Common Stock Class B Common Stock
-------------------- --------------------
High Low High Low
------- ------- ------- -------
Fiscal Year Ended March 31, 1995
1st Quarter........................ $10-5/8 $7-3/4 $10-1/2 $ 8
2nd Quarter........................ 10 7 9-1/2 7
3rd Quarter........................ 7-3/4 5-1/4 7-1/4 5-7/8
4th Quarter........................ 6-5/8 3-3/4 6-3/4 4
Fiscal Year Ended March 31, 1996
1st Quarter........................ $ 5-1/2 $ 4 $ 5-3/4 $ 4-3/4
2nd Quarter........................ 6-7/8 4-1/2 6-1/2 5
3rd Quarter........................ 10 6-1/2 10-1/4 6-1/2
4th Quarter........................ 10-1/8 6-3/4 10 6-3/8
As of June 20, 1996, the Company had 752 holders of record of Class A
Common Stock and 217 holders of record of Class B Common Stock according to
information furnished by the Company's transfer agent.
Pursuant to the terms of the Company's Loan and Security Agreement with
its banks, the Company is restricted in declaring cash dividends on its Common
Stock in an amount not to exceed in any fiscal year 10% of the Company's
consolidated net income for the prior fiscal year. The Company paid no cash
dividends on its Common Stock during fiscal 1995 and 1996 and has no current
plans to pay such dividends in the foreseeable future. The Company currently
intends to retain any earnings for working capital and general corporate
purposes.
11
ITEM 6. SELECTED FINANCIAL DATA.
CONSOLIDATED STATEMENT OF INCOME (LOSS) DATA (in thousands, except earnings per
share data):
1992 1993 1994 1995 1996
-------- ------- ------- --------- --------
Net sales................................. $40,346 $48,487 $66,063 $74,465 $ 94,466
Contract revenues......................... 29,918 20,825 18,099 13,280 10,161
------- ------- ------- ------- --------
Total net sales and contract revenues..... 70,264 69,312 84,162 87,745 104,627
Cost of sales............................. 27,671 33,668 44,281 51,148 63,398
Cost of contract revenues................. 19,994 13,967 11,114 6,633 4,374
Selling, general and administrative
expenses................................ 14,627 14,169 17,162 20,899 23,678
Research and development expenses......... 5,621 5,187 7,268 9,309 6,973
Nonrecurring charge....................... - - - 4,809 -
Interest expense.......................... 2,275 2,125 1,772 1,925 2,247
------- ------- ------- ------- --------
Income (loss) before income taxes......... 76 196 2,565 (6,978) 3,957
Income tax expense (benefit).............. (13) 55 743 (2,300) 1,504
------- ------- ------- ------- --------
Net income (loss)......................... $ 89 $ 141 $ 1,822 $(4,678) $ 2,453
======= ======= ======= ======= ========
Net income (loss) per common share........ $ .02 $ .03 $ .34 $ (.80) $ .40
======= ======= ======= ======= ========
Weighted average number
of common shares........................ 4,466 4,529 5,326 5,872 6,179
CONSOLIDATED BALANCE SHEET DATA
(in thousands):
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
Working capital........................... $23,429 $23,636 $29,062 $32,733 $ 30,390
Total assets.............................. 58,589 55,124 65,928 72,358 78,811
Long-term debt
(less current portion).................. 26,216 24,413 16,723 25,757 22,019
Retained earnings......................... 8,743 8,884 10,706 6,027 8,480
Stockholders' equity...................... 18,723 19,213 31,239 27,736 30,985
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Odetics, Inc. (the "Company") specializes in the design and manufacture of
systems and subsystems to automate the collection, storage, distribution and
management of information.
The Company is organized into divisions each having primary responsibility
for product development, manufacturing and marketing of one or more of the
Company's principal product lines or services. The Company has four distinct
manufacturing operations each tailored to the requirements of its principal
product divisions.
The following table sets forth certain income statement data as a percentage
of net sales and contract revenues for the periods indicated and is intended to
be read in conjunction with management's discussion and analysis of operations:
Year Ended March 31
-------------------------------
1994 1995 1996
------ ------ ------
Net sales..................................... 78.5% 84.9% 90.2%
Contract Revenues............................. 21.5 15.1 9.8
------ ------ ------
100.0 100.0 100.0
Cost of sales and contract revenues........... 65.8 65.8 64.8
------ ------ ------
Gross profit margin........................... 34.2 34.2 35.2
------ ------ ------
Expenses:
Selling, general and administrative
expenses................................... 20.4 23.8 22.6
Research and development expenses.......... 8.6 10.6 6.7
Nonrecurring charge........................ - 5.5 -
Interest expense........................... 2.1 2.2 2.1
------ ------ ------
Total expenses................................ 31.1 42.1 31.4
------ ------ ------
Income (loss) before income taxes............. 3.1 (7.9) 3.8
Income taxes (benefit)........................ 0.9 (2.6) 1.5
------ ------ ------
Net income (loss)............................. 2.2% (5.3)% 2.3%
====== ====== ======
Net Sales and Contract Revenues
Net sales and contract revenues for fiscal 1996 increased approximately
$16,882,000, or 19.2%, compared to fiscal 1995. The components of this overall
increase consisted of a $20,001,000, or 26.9%, increase in net sales (commercial
products) and a $3,119,000, or 23.5% decrease in contract revenues (government
products).
The increase in commercial product sales during fiscal 1996 resulted from
sales growth in all divisions involved in commercial product sales. This net
sales growth was led by increased sales in the Company's Broadcast Division.
The Broadcast Division's sales growth reflected an increase in shipments of its
SpotBank(TM), Cache Machine(TM), and TCS 45(TM) system is along with revenues of
upgrades to previously sold systems. The Company's wholly-owned subsidiary,
ATL Products, Inc. ("ATL") also experienced strong growth in sales for the
fiscal year 1996 compared to fiscal 1995. ATL's sales growth resulted from an
increase in sales of its ACL4/52 and ACL2640 product lines in both the
domestic and European markets through Odetics Europe, Ltd., a wholly owned
subsidiary of the Company. ATL's sales still showed strong growth compared to
the prior fiscal year despite
13
the loss of E-Systems as a major customer. For fiscal 1995, E-Systems accounted
for 36% of ATL's sales revenue. ATL 's sales to customers other than E-Systems
increased 140% in fiscal 1996 compared to fiscal 1995.
The increase in commercial product sales during fiscal 1995 compared to
fiscal 1994 was primarily due to sales growth in the Company's Gyyr Division
("Gyyr") which led all divisional product sales increases compared to the prior
fiscal year. The growth was primarily due to increased market penetration into
the North American and European markets. The Company also showed strong growth
in revenues at ATL and the Company's Odetics Customer Service (OCS) Division
which provides support and spare parts for ATL's products. This growth was due
to increased unit shipments of its ACL2640 product utilizing DLT technology
developed under a long-term agreement with Digital Equipment Corp.
Government contract revenues declined in fiscal 1996 and 1995 compared to
fiscal 1995 and fiscal 1994, respectively, due to changes in government spending
patterns and a transition by the Company from certain government markets to
commercial activities.
Cost of Sales and Contract Revenues
Cost of sales and contract revenues as a percentage of net sales and contract
revenues (the "cost of sales percentage") for fiscal 1996 declined to 64.8%
compared to 65.8% for fiscal 1995. This decrease primarily resulted from
improved gross profits 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, and an overall commercial products sales mix that favored new
and add-on feature products with higher gross profits. 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 and
profits due to completion of some long term contracts.
The cost of sales percentage for fiscal 1995 and fiscal 1994 held constant at
65.8% due to a number of offsetting factors. During fiscal 1995 the cost of
sales percentage increased for commercial products due to a product mix that
favored a higher material content which included a higher material cost in the
Gyyr products caused by the deteriorating dollar/yen relationship. This
increased material cost was partially offset by improved absorption of fixed
manufacturing costs from increased net sales volume. The cost of sales
percentage for contract revenues decreased due to a decline in the government
manufacturing cost base and increased profits due to completion of certain long
term contracts.
Selling, General and Administrative Expenses
Selling, general, and administrative (SG&A) expenses increased approximately
$2,779,000, or 13.3%, in fiscal 1996 compared to the prior fiscal year, although
as a percentage of net sales and contract revenues, SG&A declined to 22.6%
compared to 23.8% in fiscal 1995. SG&A expenses primarily increased due to
professional fees related to the E-Systems litigation and increased expenses
related to expanding foreign operations in Odetics, Europe, Ltd., and Odetics,
Asia Pacific, Pte., Ltd. a wholly-owned subsidiary.
SG&A expenses increased approximately $3,737,000, or 21.8%, in fiscal 1995
compared to the prior fiscal year primarily due to higher costs related to the
Company's foreign sales operations. Fiscal 1995 reflects the first full year of
operations of Odetics Asia Pacific Pte Ltd., established to support Asian sales
and marketing activities. The Company also incurred increased costs to
introduce and support Gyyr and ATL sales in the European market through Odetics
Europe, Ltd.
Research and Development Expenses
Research and development (R&D) expenses decreased approximately $2,336,000 to
6.6% of net sales and contract revenues for fiscal 1996 compared to 10.6% for
fiscal 1995. 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.
R&D increased approximately $2,041,000, or 28.1%, in fiscal 1995 compared to
the fiscal 1994. The Company experienced increased R&D expenses across all of
its divisions in fiscal 1995 principally for prototype material, consulting, and
labor and related benefits accompanying increased new product development
activities.
14
Nonrecurring Charge
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, a major customer. The charge consisted of a $3,716,000 write-down of
inventories and accounts receivables to net realizable value, severance costs of
$420,000 for staffing reductions due to the loss of the E-Systems business and
$257,000 of aggregate charges for purchases, cancellation, legal fees and other
costs relating to the dispute. In the fourth quarter of fiscal 1995, the Company
undertook further measures aimed at cost cutting, staffing reductions and other
restructuring activities which contributed to additional special charges of
approximately $416,000 in the quarter. Cash outlays for severance and other
charges related to the E-Systems dispute were largely satisfied in fiscal 1995.
Interest Expense
Interest expense increased approximately $322,000 in fiscal 1996 compared to
fiscal 1995 and $153,000 in fiscal 1995 compared to fiscal 1994. These
increases were primarily due to overall higher average outstanding line of
credit borrowings and increased cost of borrowings.
Income Taxes
The effective income tax rate was 38% in fiscal 1996 compared to an income
tax benefit of 33% in fiscal 1995 and a 29% income tax rate in fiscal 1994.
Recognition of general business credits reduced effective tax rates below the
statutory rates. The increase in the effective tax rate for fiscal 1996 is due
to a reduction in the effect of general business tax credits on total income tax
expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net income of $2,453,000 for the fiscal year ended 1996
adjusted for non-cash charges of depreciation and amortization and a net
reduction in operating assets and liabilities, contributed to $6,760,000 of net
cash provided by operating activities during the year. 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 provided for borrowings generally at or below
the banks prime rate. Borrowings are available for general working capital
purposes, and at March 31, 1996, $6,000,000 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.
Subsequent to March 31, 1996, the Company settled its litigation with E-Systems
(see Legal Proceedings) and was paid by E-Systems $6,160,000. The Company does
not have any material commitments for capital expenditures as of March 31, 1996.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
15
Report of Independent Auditors
Stockholders and Board of Directors
Odetics, Inc.
We have audited the accompanying consolidated balance sheets of Odetics, Inc. as
of March 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended March 31, 1996. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Odetics, Inc. at March 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
May 24, 1996
16
Odetics, Inc.
Consolidated Balance Sheets
MARCH 31
1995 1996
----------------------
(In thousands)
ASSETS
Current assets:
Cash $ 378 $ 1,142
Trade accounts receivable, net of
allowance for doubtful accounts of 17,813 24,772
$954,000 in 1995 and $988,000 in 1996
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,136 3,428
(Note 2)
Inventories:
Finished goods 2,690 3,717
Work in process 2,702 2,927
Materials and supplies 20,075 16,076
Prepaid expenses and other 1,533 1,122
Deferred income taxes 2,683 2,516
----------------------
Total current assets 51,010 55,700
Property, plant and equipment:
Land 2,090 2,090
Buildings and improvements 16,948 17,553
Equipment 21,878 23,964
Furniture and fixtures 849 950
Allowances for depreciation (21,056) (22,950)
----------------------
20,709 21,607
Other assets 639 1,504
----------------------
Total assets $ 72,358 $ 78,811
======================
17
Odetics, Inc.
Consolidated Balance Sheets (continued)
MARCH 31
1995 1996
---------------------
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 8,155 $11,519
Accrued expenses 3,324 2,441
Accrued incentive programs 369 1,229
Accrued vacation 1,178 1,504
Income taxes payable - 1,412
Billings in excess of costs and
estimated earnings on uncompleted 3,955 5,414
contracts (Note 2)
Current portion of long-term debt (Note 3) 1,296 1,791
---------------------
Total current liabilities 18,277 25,310
Long-term debt, less current portion (Note 3) 25,757 22,019
Deferred income taxes (Note 5) 588 497
Commitments and contingencies (Notes 3 and 8)
Stockholders' equity (Notes 6 and 7):
Preferred stock:
Authorized shares - 2,000,000
Issued and outstanding none
Common stock, $.10 par value:
Authorized shares - 10,000,000 of
Class A and 2,600,000 of Class B
Issued and outstanding shares - none
4,935,359 of Class A and 1,160,931
of Class B at March 31, 1996 595 610
Paid-in capital 21,067 21,905
Foreign currency translation 46 (10)
Retained earnings 6,028 8,480
---------------------
Total stockholders' equity 27,736 30,985
---------------------
Total liabilities and stockholders equity $72,358 $78,811
=====================
See accompanying notes.
18
Odetics, Inc.
Consolidated Statements of Operations
YEAR ENDED MARCH 31
1994 1995 1996
-----------------------------------------
(In thousands, except per share data)
Net sales and contract revenues:
Net sales $66,063 $74,465 $ 94,466
Contract revenues 18,099 13,280 10,161
-----------------------------------------
84,162 87,745 104,627
Costs and expenses:
Cost of sales 44,281 51,148 63,398
Cost of contract revenues 11,114 6,633 4,374
Selling, general and administrative
expenses 17,162 20,899 23,678
Research and development expenses 7,268 9,309 6,973
Nonrecurring charge (Note 4) - 4,809 -
Interest expense 1,772 1,925 2,247
-----------------------------------------
81,597 94,723 100,670
-----------------------------------------
Income (loss) before income taxes 2,565 (6,978) 3,957
Income taxes (benefit) (Note 5) 743 (2,300) 1,504
-----------------------------------------
Net income (loss) $ 1,822 $(4,678) $ 2,453
=========================================
Net income (loss) per share of common
stock $ .34 $ (.80) $ .40
=========================================
See accompanying notes.
19
Odetics, Inc.
Consolidated Statements of Stockholders' Equity
COMMON STOCK
---------------------------------------
SHARES OUTSTANDING
-----------------------------
CLASS A CLASS B FOREIGN
COMMON COMMON PAID-IN CURRENCY RETAINED
STOCK STOCK AMOUNT CAPITAL TRANSLATION EARNINGS TOTAL
------------------------------------------------------------------------------------------------------
(In thousands)
Balance at March 31, 1993 3,320 1,204 $452 $ 9,908 $(31) $ 8,884 $19,213
Issuances of common stock
(Notes 6 and 7) 78 26 11 707 - - 718
October 1993 issuance of
common stock (net of
offering costs of $1,217) 1,150 - 115 9,307 - - 9,422
Conversion of Class B
common stock 37 (37) - - - -
Foreign currency
translation adjustments - - - - 64 - 64
Net income - - - 1,822 1,822
------------------------------------------------------------------------------------------------------
Balance at March 31, 1994 4,585 1,193 578 19,922 33 10,706 31,239
Issuances of common stock
(Notes 6 and 7) 170 17 1,145 - 1,162
Conversion of Class B
common stock 32 (32) - - - - -
Foreign currency
translation adjustments - - - - 13 - 13
Net loss - - - - - (4,678) (4,678)
------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 4,787 1,161 595 21,067 46 6,028 27,736
Issuances of common stock
(Notes 6 and 7) 148 - 15 837 - - 852
Foreign currency
translation adjustments - - - - (56) - (56)
Net income - - - - - 2,453 2,453
------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 4,935 1,161 $610 $21,904 $(10) $ 8,481 $30,985
======================================================================================================
See accompanying notes.
20
Odetics, Inc.
Consolidated Statements of Cash Flows
YEAR ENDED MARCH 31
1994 1995 1996
-----------------------------------
(In thousands)
OPERATING ACTIVITIES
Net income (loss) $ 1,822 $ (4,678) $ 2,453
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 2,634 2,442 2,694
Provision for losses on accounts
receivable (125) 827 170
Provision for deferred income taxes (92) (2,337) 76
(Gain) loss on sale of equipment 1 (37) (28)
Changes in operating assets and
liabilities (Note 10) (5,104) (2,606) 1,395
-----------------------------------
Net cash provided by (used in)
operating activities (864) (6,389) 6,760
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (1,940) (3,670) (3,536)
Proceeds from sale of equipment 9 73 74
-----------------------------------
Net cash used in investing activities (1,931) (3,597) (3,462)
FINANCING ACTIVITIES
Proceeds from line of credit and
long-term borrowings 18,093 40,263 36,152
Principal payments on line of credit,
long-term debt, and capital lease
obligations (25,736) (31,222) (39,395)
Net proceeds from common stock offering 9,422 - -
Proceeds from issuance of common stock 672 1,151 709
-----------------------------------
Net cash provided by (used in)
financing activities 2,451 10,192 (2,534)
-----------------------------------
Increase (decrease) in cash (344) 206 764
Cash at beginning of year 516 172 378
-----------------------------------
Cash at end of year $ 172 $ 378 $ 1,142
===================================
See accompanying notes.
21
Odetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its active subsidiaries Odetics Europe, Ltd., Odetics Asia Pacific Pte Ltd. and
ATL Products, Inc. During fiscal 1990, the Company incorporated Odetics Europe,
Ltd. to develop European commercial sales. During fiscal 1993, the ATL Division
was incorporated as ATL Products, Inc. During fiscal 1995, the Company
incorporated Odetics Asia Pacific Pte Ltd. to develop commercial sales for the
Asian Market. All significant intercompany accounts and transactions are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Significant estimates made in
preparing the consolidated financial statements include the allowances for
doubtful accounts and deferred tax assets, inventory reserves and costs to
complete long-term contracts.
REVENUE RECOGNITION
Contract revenues and earnings on long-term cost-reimbursement and fixed-price
contracts of the CompanyOs Communication Division are recognized on the
percentage-of-completion method of accounting as costs are incurred (cost-to-
cost basis). Contract revenues include costs incurred plus a portion of
estimated fees or profits based on the relationship of costs incurred to total
estimated costs. Any anticipated losses on contracts are charged to earnings
when identified. Certain contracts contain incentive and/or penalty provisions
which provide for increased or decreased revenues based upon performance in
relation to established targets. Incentive fees are recorded when earned and
penalty provisions are recorded when incurred, as long as the amounts can
reasonably be determined.
For all other divisions, sales and related cost of sales are recognized on the
date of shipment or, if required, upon acceptance by the customer.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term investments with
maturities of less than ninety days.
22
Odetics, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INVESTMENTS
Fair values of cash and cash equivalents, and the current portion of long-term
debt approximate the carrying value because of the short period of time to
maturity. The fair value of long-term debt approximates its carrying value
because the portion of fixed rates of interest approximate current market rates
and the remaining portion has variable rates of interest.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
LONG-LIVED ASSETS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of (SFAS No. 121), in March 1995. In
accordance with SFAS No. 121, long-lived assets and certain intangibles held and
used by the Company will be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability test is to be performed at the lowest level at
which undiscounted net cash flows can be directly attributable to long-lived
assets. SFAS No. 121 is effective for fiscal years beginning after December 15,
1995. The Company plans to adopt SFAS No. 121 in fiscal 1997 and has determined
that there will be no material effect on the Company's financial statements upon
adoption.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Buildings are depreciated
using the straight-line method over their estimated useful lives up to a period
of forty years. Equipment, furniture and fixtures, including assets recorded
under capital lease obligations, are depreciated principally by the declining
balance method over their estimated useful lives ranging from four to eight
years.
23
Odetics, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENDITURES
Software development costs incurred subsequent to determination of technical
feasibility are capitalized. Amortization of capitalized software costs is
provided on a product-by-product basis at the greater of the amount computed
using (a) the ratio of current gross revenues for the product to the total of
current and anticipated future gross revenues or (b) the straight-line method
over the remaining estimated economic life of the product. Amortization begins
when product is available for general release to customers. Generally, an
original estimated economic life of two years is assigned to capitalized
software development costs.
During fiscal 1994, 1995 and 1996, software development costs were amortized to
cost of sales totaling $293,000, $42,000 and $212,000, respectively. The net
unamortized balances of $456,000 and $1,105,000 are classified in other assets
at March 31, 1995 and 1996, respectively.
All other research and development expenditures are charged to research and
development expense in the period incurred.
FOREIGN CURRENCY TRANSLATION
The balance sheet accounts of Odetics Europe, Ltd. are translated at the current
year-end exchange rate and income statement items are translated at the average
exchange rate for the year. Resulting translation adjustments are made directly
to a separate component of stockholders' equity. Gains and losses resulting
from transactions of the Company and its subsidiaries which are made in
currencies different from their own are immaterial and are included in income as
they occur.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between
financial statement and tax basis of assets and liabilities based on enacted tax
laws and rates applicable to the period in which differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to amounts which are more likely than not to be
realized. The provision for income taxes is the taxes payable or refundable for
the period plus or minus the change during the period in deferred income tax
assets and liabilities.
24
Odetics, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share were computed using the weighted average number of
Class A and Class B common shares outstanding during the periods. Dilutive
employee stock options (Note 7) were considered in earnings per share
computations for 1994 and 1996. The weighted average number of common shares
and common equivalent shares used in the calculation of earnings per share was
approximately 5,326,000, 5,872,000 and 6,179,000 in 1994, 1995 and 1996,
respectively.
STOCK OPTION PLANS
The Company follows Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), and related Interpretations in accounting
for its associate stock options. Under APB 25, because the exercise price of
the Company's associate stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company follows the practice of recording amounts received upon the exercise
of options by crediting common stock and additional capital. The Company
realizes an income tax benefit from the exercise or early disposition of certain
stock options. This benefit results in a decrease in current income taxes
payable and an increase in additional capital.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
25
Odetics, Inc.
Notes to Consolidated Financial Statements
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs incurred, estimated earnings and billings on uncompleted long-term
contracts are as follows:
MARCH 31
1995 1996
----------------------
(In thousands)
Costs incurred on uncompleted $55,577 $12,622
contracts
Estimated earnings 6,613 721
----------------------
62,190 13,343
Less billings to date 63,009 15,329
----------------------
$ (819) $(1,986)
======================
Included in accompanying balance
sheets:
Costs and estimated earnings in
excess of billings on uncompleted
contracts $ 3,136 $ 3,428
Billings in excess of costs and
estimated earnings on uncompleted
contracts (3,955) (5,414)
----------------------
$ (819) $(1,986)
======================
Costs and estimated earnings in excess of billings at March 31, 1995 and 1996
include $1,199,000 and $557,000, respectively, that were not billable as certain
milestone objectives specified in the contracts had not been attained.
Substantially all costs and estimated earnings in excess of billings at March
31, 1996 are expected to be billed and collected during the year ending March
31, 1997.
26
Odetics, Inc.
Notes to Consolidated Financial Statements
3. LONG-TERM DEBT
Long-term debt consisted of the following:
MARCH 31
1995 1996
--------------------
(In thousands)
Note payable, collateralized by deed
of trust on land and buildings with
a net book value of approximately
$15,000,000, payable in monthly
installments through the year 2004,
including interest at 9.36%. $11,829 $11,040
Secured revolving credit agreement
under which the Company may borrow
up to $17,000,000 with interest at
the prime rate (9% as of March 31,
1996). The agreement expires on
August 31, 1997. 14,100 10,700
Note payable, collateralized by
equipment, payable in monthly
installments through March 1999,
including interest at 9.0% - 1,369
Note payable, collateralized by
equipment, payable in monthly
installments through November 13,
1997 including interest at 6.95%. 784 497
Notes payable, primarily
collateralized by equipment,
payable in monthly installments
through September 1996, including
interest from 7.0% to 7.3%. 340 204
--------------------
27,053 23,810
Less current portion 1,296 1,791
--------------------
$25,757 $22,019
====================
27
Odetics, Inc.
Notes to Consolidated Financial Statements
3. LONG-TERM DEBT (CONTINUED)
The revolving credit agreement is collateralized by substantially all of the
Company's assets, excluding property and plant. Under the terms of the
agreement, the Company is required to comply with certain covenants, maintain
certain debt to net worth ratios, current ratios and minimum net worth
requirements.
Included within the borrowing limits of the agreement, the Company has available
approximately $4,000,000 in letters of credit and approximately $300,000 has
been reserved for standby letters of credit at March 31, 1996.
The annual maturities of long-term debt for the five years ending March 31, 2001
and thereafter are as follows:
(In thousands)
1997 $ 1,791
1998 12,297
1999 1,543
2000 1,146
2001 1,261
Thereafter 5,772
----------------
$23,810
================
Future minimum lease commitments under noncancelable operating leases are not
material at March 31, 1996. Rent expense for all operating leases amounted to
approximately $484,000, $766,000 and $562,000 for 1994, 1995 and 1996,
respectively.
4. NONRECURRING CHARGES
In December 1994, the Company recorded a nonrecurring charge of $4,393,000
related to downsizing and restructuring in response to a deterioration in the
Company's contractual relationship with E-Systems, Inc., a major customer of ATL
Products, Inc. (see Note 8). The charge consisted of a $3,716,000 write-down of
inventories and accounts receivable to net realizable value and $677,000 of
severance costs and other charges associated with the E-Systems dispute. The
Company's restructuring plan also called for the implementation of an early
retirement incentive program effective for the period January 1, 1995 through
March 31, 1995 which resulted in a nonrecurring charge of $416,000 during the
fourth quarter of fiscal 1995. Approximately 100 associates, primarily in
operations, manufacturing, general management and administrative functions,
received severance pay based on the number of years of service plus early
retirees received HMO coverage for one year. Approximately $283,000 and
$133,000 of the severance charges were paid in fiscal 1995 and 1996,
respectively.
28
Odetics, Inc.
Notes to Consolidated Financial Statements
5. INCOME TAXES
The reconciliation of the income tax provision (benefit) to taxes computed at
U.S. federal statutory rates is as follows:
YEAR ENDED MARCH 31
1994 1995 1996
------------------------------
(In thousands)
Income tax (benefit) at statutory
rates $ 897 $(2,442) $1,385
State income taxes, net of federal
tax benefit 145 27 310
Recognition of general business and
other credits (250) - -
Decrease of valuation allowance
associated with federal deferred
tax assets (92) - (326)
Foreign losses recorded without
benefit - - 80
Other 43 115 55
------------------------------
$ 743 $(2,300) $1,504
==============================
United States and foreign income (loss) before income taxes are as follows:
YEAR ENDED MARCH 31
1994 1995 1996
------------------------------
(In thousands)
Pretax income (loss):
Domestic $2,455 $(7,383) $2,194
Foreign 110 405 1,763
------------------------------
$2,565 $(6,978) $3,957
==============================
29
Odetics, Inc.
Notes to Consolidated Financial Statements
5. INCOME TAXES (CONTINUED)
Significant components of the provision (benefit) for income taxes are as
follows:
YEAR ENDED MARCH 31
1994 1995 1996
-----------------------------
(In thousands)
Current:
Federal $ 804 $ (139) $ 293
State 242 40 476
Tax benefit from stock option
exercises (86) (24) (31)
Research and development credits
utilized (250) - -
Foreign 39 136 659
-----------------------------
749 13 1,397
Deferred:
Federal (59) (2,337) 194
State (33) - (118)
-----------------------------
Total deferred (92) (2,337) 76
Charge in lieu:
Credit to additional paid-in
capital attributable to stock
option exercises 86 24 31
-----------------------------
$ 743 $(2,300) $1,504
=============================
30
Odetics, Inc.
Notes to Consolidated Financial Statements
5. INCOME TAXES (CONTINUED)
The components of deferred tax liabilities and assets are as follows:
1995 1996
---------------------
(In thousands)
Deferred tax assets:
Inventory reserves $ 2,441 $ 1,915
Deferred compensation and other
payroll accruals 1,691 1,904
General business tax credit
carryforwards 1,188 1,035
Alternative minimum tax credit
carryforwards 800 883
Bad debt reserve 467 397
Other, net 230 377
---------------------
Total deferred tax assets 6,817 6,511
Valuation allowance for deferred tax
assets (1,749) (1,450)
---------------------
Net deferred tax assets 5,068 5,061
---------------------
Deferred tax liabilities:
Tax over book depreciation 2,465 2,557
Capitalized interest and taxes 471 455
Other, net 37 30
---------------------
Total deferred tax liabilities 2,973 3,042
---------------------
Net deferred tax assets $ 2,095 $ 2,019
=====================
At March 31, 1996, the Company had approximately $1,035,000 in research and
development credit carryforwards, and $883,000 of alternative minimum tax credit
carryforwards for federal income tax purposes. For financial reporting
purposes, a valuation allowance of $1,450,000 has been recorded to offset the
deferred tax asset related to these credits. Any future benefits recognized
from the reduction of the valuation allowance will result in a reduction of
income tax expense. These credit carryforwards expire at various dates
beginning in 1999.
6. ASSOCIATE INCENTIVE PROGRAMS
Under the terms of a Profit Sharing Plan, the Company contributes to a trust
fund such amounts as are determined annually by the Board of Directors. No
contributions were made in 1994, 1995 or 1996.
31
Odetics, Inc.
Notes to Consolidated Financial Statements
6. ASSOCIATE INCENTIVE PROGRAMS (CONTINUED)
In May 1990, the Company adopted a 401(k) Plan as an amendment and replacement
of the former Associate Stock Purchase Plan that was an additional feature of
the Profit Sharing Plan. Under the 401(k) Plan, eligible associates voluntarily
contribute to the plan up to 15% of their salary through payroll deductions.
The Company matches 50% of contributions up to a stated limit. Under the
provisions of the 401(k) Plan, associates have four investment choices, one of
which is the purchase of Odetics, Class A common stock at market price. Company
matching contributions were approximately $192,000, $376,000 and $1,389,000 in
1994, 1995 and 1996, respectively.
Effective April 1, 1987, the Company established a noncontributory Associate
Stock Ownership Plan (ASOP) for all associates with more than six months of
eligible service. The ASOP provides that Company contributions, which are
determined annually by the Board of Directors, may be in the form of cash or
shares of Company stock. No contributions were made in 1995. The Company
contributions to the ASOP were approximately $375,000 and $430,000 in 1994 and
1996, respectively. Shares distributed through the ASOP Plan were included in
total outstanding shares used in the earnings per share calculation.
7. STOCK OPTION AND DEFERRED COMPENSATION PLANS
The Company has adopted an Associate Stock Option Plan which provides that
options for shares of the Company's unissued Class A common stock may be granted
to directors and associates of the Company. Options granted enable the option
holder to purchase one share of Class A common stock at prices which are equal
to or greater than the fair market value of the shares at the date of grant.
Options for shares have been granted at prices ranging from $4.25 to $9.00 for
one share of Class A common stock. Options expire ten years after date of grant
or 90 days after termination of employment and vest ratably at 33% or 25% on
each of the first three or four anniversaries of the grant date, respectively,
depending on the date of grant. Options for shares of both the Company's
unissued Class A and Class B common stock had been granted to directors and
associates of the Company and such options expired in 1994.
YEAR ENDED MARCH 31
1994 1995 1996
------------------------------------------
(In thousands, except per share data)
Options outstanding at beginning of
year 544 655 610
Granted 209 12 397
Exercised (89) (40) (70)
Canceled (9) (17) (248)
------------------------------------------
Options outstanding at end of year 655 610 689
==========================================
32
Odetics, Inc.
Notes to Consolidated Financial Statements
7. STOCK OPTION AND DEFERRED COMPENSATION PLANS (CONTINUED)
YEAR ENDED MARCH 31
1994 1995 1996
-------------------------------------------------
(In thousands, except per share data)
Options exercisable at March 31 285 357 288
Options available for grant at March 31 82 437 520
Option price range for exercised
shares:
Class A common stock $4.38 to 6.63 $4.38 to 6.13 $4.25 to 6.625
Class A and Class B common stock 11.50 - -
During 1986, the Company adopted an Executive Deferral Plan under which certain
executives may defer a portion of their annual compensation. All deferred
amounts earn interest, generally with no guaranteed rate of return.
Compensation charged to operations and deferred under the plan totaled $370,000,
$364,000 and $302,000 for 1994, 1995 and 1996, respectively.
8. LITIGATION
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.
33
Odetics, Inc.
Notes to Consolidated Financial Statements
9. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in one industry segment whereby it focuses on information
automation through its design, development, manufacturing and marketing of
subsystems and other products for specialized information automation
applications. The Company's principal products include magnetic tape cartridge
and cassette handling subsystems for Automated Tape Library (ATL) systems used
in computer mass data storage applications; large-library cart machines used in
broadcast and cable television station operations; time-lapse VCRs and related
products used in commercial and industrial closed circuit television security
and surveillance applications; and space-qualified digital data recorders used
in manned and unmanned space vehicles.
The Company manufactures and sells its products to commercial customers in
diversified industries as well as to prime government contractors under long-
term contracts. The percentage of the Company's total net sales and contract
revenues contributed by direct and indirect sales to the U.S. and foreign
governments were approximately 27%, 19% and 10% during 1994, 1995 and 1996,
respectively.
The Company performs periodic credit evaluations of its customer's financial
condition and generally does not require collateral. Credit losses have been
within management's expectations and within amounts provided through the
allowances for doubtful accounts. At March 31, 1995 and 1996, accounts
receivable from governmental agencies and prime government contractors were
approximately $1,923,000 and $970,000, respectively.
34
Odetics, Inc.
Notes to Consolidated Financial Statements
9. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)
Information concerning the Company's operations by geographic segment is as
follows:
YEAR ENDED MARCH 31
1994 1995 1996
----------------------------------
Sales to unaffiliated customers:
United States (a) $79,861 $ 79,950 $ 87,007
Europe - Odetics Europe, Ltd. 4,301 5,627 14,553
Asia Pacific - Odetics Asia
Pacific Pte Ltd. - 4,170 3,067
----------------------------------
$84,162 $ 87,745 $104,627
==================================
Sales between geographic areas
(based on invoiced prices):
United States $ 4,669 $ 10,452 $ 9,563
Europe - - -
Asia Pacific - - -
Intercompany eliminations (4,669) (10,452) (9,563)
----------------------------------
$ - $ - $ -
==================================
Income (loss) before taxes:
United States $ 2,782 $ (7,019) $ 2,744
Europe 110 29 1,998
Asia Pacific - 377 (235)
Intercompany eliminations (327) (365) (550)
----------------------------------
$ 2,565 $ (6,978) $ 3,957
==================================
Assets:
United States $67,179 $ 76,620 $ 78,543
Europe 1,896 3,367 5,002
Asia Pacific - 1,934 740
Intercompany eliminations (3,147) (9,563) (5,474)
----------------------------------
$65,928 $ 72,358 $ 78,811
==================================
(a) Export sales from the United States to all unaffiliated foreign customers
(which excludes sales to and by Odetics Europe, Ltd. and Odetics Asia
Pacific Pte Ltd.) were approximately $10,000,000, $10,000,000 and
$13,000,000 during 1994, 1995 and 1996, respectively. These sales were
principally made to customers in Europe and the Pacific Rim.
35
Odetics, Inc.
Notes to Consolidated Financial Statements
10. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED MARCH 31
1994 1995 1996
--------------------------------
(In thousands)
Net cash used in changes in
operating assets and liabilities:
Increase in accounts receivable $(5,268) $ (435) $(7,129)
Decrease in net costs and
estimated earnings in excess of
billings 986 2,064 1,167
(Increase) decrease in
inventories (5,647) (3,102) 2,747
(Increase) decrease in prepaids
and other assets 22 (1,109) (556)
Increase (decrease) in accounts
payable and accrued expenses 4,803 (24) 5,166
--------------------------------
Net cash used in changes in
operating assets and liabilities $(5,104) $(2,606) $ 1,395
================================
Cash paid during the year:
Interest $ 1,937 $ 2,006 $ 2,415
Income taxes paid (refunded) 891 292 (133)
Noncash transactions during the year:
Issuances of common stock to
satisfy associate incentive
program obligation $ 46 $ 140 $ 143
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
In accordance with paragraph (3) of General Instruction G of Form 10-K
(Information to be Incorporated by Reference), Items 10, 11, 12 and 13 are
incorporated herein by reference from the Company's definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A prior to the expiration of 120 days after March 31, 1996, the close of the
Company's most recent fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
--------------------
The following financial statements of the Company are included in Part II,
Item 8, which information is incorporated herein by reference:
Page
----
Report of Independent Auditors 16
Consolidated Balance Sheets -
March 31, 1995 and 1996 17
Consolidated Statements of Operations -
Years ended March 31, 1994, 1995 and 1996 19
Consolidated Statements of Stockholders' Equity -
Years ended March 31, 1994, 1995 and 1996 20
Consolidated Statements of Cash Flows -
Years ended March 31, 1994, 1995 and 1996 21
Notes to Consolidated Financial Statements 22
2. Financial Statement Schedule
----------------------------
The following schedule supporting the financial statements of the Company is included herein:
Page
----
Schedule II - Valuation and Qualifying Accounts 36
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) Reports on Form 8-K
-------------------
None.
(c) Exhibits
--------
37
The following exhibits are filed as part of this report on Form 10-K or are
incorporated herein by reference:
3.1 Certificate of Incorporation of the Company filed as Exhibit 19.2
to the September 30, 1987 Form 10-Q and incorporated herein by
reference.
3.2 Bylaws of the Company, as amended, filed as Exhibit 4.2 to Form S-
1 filed July 6, 1993 and incorporated herein by reference.
4.1 See Exhibit 3.1.
4.2 See Exhibit 3.2.
4.3 Specimen of Class A Common Stock and Class B Common Stock
certificates filed as Exhibit 4.3 to Amendment No. 1 filed
September 30, 1993 to Form S-1 filed July 6, 1993 and incorporated
herein by reference.
10.1 1981 Incentive Stock Option Plan and form of Stock Option
Agreement, filed as Exhibit 4.1 to the Company's Form S-8 filed
June 27, 1985 (No. 2-98656) (the "1985 Form S-8") and incorporated
herein by reference.
10.2 1982 Nonstatutory Stock Option and Stock Appreciation Rights Plan
and forms of Nonstatutory Stock Option and Stock Appreciation
Rights Agreement, filed as Exhibit 4.2 to the 1985 Form S-8 and
incorporated herein by reference.
10.3 1992 Incentive Stock Option Plan and forms of Incentive Stock
Option Agreement and Non-Statutory Stock Option Agreement filed as
Exhibit 4.1, 4.2 and 4.3, respectively, to the Company's Form S-8
filed March 10, 1993 (Reg. No. 33-59274) and incorporated herein
by reference.
10.4 Profit Sharing Plan and Trust, filed as Exhibit 4.3 to Amendment
No. 2 to the 1985 Form S-8 filed May 5, 1988 (Reg No. 2-98656) and
incorporated herein by reference.
10.5 Form of Executive Deferral Plan between the Company and certain
employees of the Company, filed as Exhibit 10.4 to the 1988 Form
10-K and incorporated herein by reference.
10.6 Second Amended and Restated Loan Agreement between Bank of the
West and the Company entered into as of September 30, 1992, filed
as Exhibit 10.6 to Form S-1 filed July 6, 1993 and incorporated
herein by reference.
10.7 Loan and Security Agreement between ATL Products, Inc. and Bank of
the West entered into as of February 26, 1993, filed as Exhibit
10.6 to Form S-1 filed July 6, 1993 and incorporated herein by
reference.
10.8 Modification Agreement regarding the agreements referenced in
Exhibits 10.6 and 10.7, as modified by the First Amendments to
Modification Agreement from Bank of the West dated as of February
26, 1993 and August 9, 1993 filed as Exhibit 10.6 to Form S-1
filed July 6, 1993 and incorporated herein by reference.
10.9.1 Form of Indemnity Agreement entered into by the Company, and
certain officers and directors, filed as Exhibit 19.4 to the
September 30, 1988 Form 10-Q and incorporated herein by reference.
10.9.2 Schedule of officers and directors covered by Indemnity Agreement
filed as Exhibit 10.9.2 to Amendment No. 1 filed September 30,
1993 to Form S-1 filed July 6, 1993 and incorporated herein by
reference.
10.10 Amendment Nos. 3 and 4 to the Profit Sharing Plan and Trust, filed
as Exhibits 4.3.1 and 4.3.2 respectively, to Amendment No. 3 to
the 1983 Form S-8 (Reg. No. 2-86220) filed June 13, 1990 and
incorporated herein by reference.
10.11 Lease between the Company and Roths Properties entered into as of
November 1, 1990 filed as Exhibit 10.11 to Form S-1 filed July 6,
1993 and incorporated herein by reference.
10.12 Promissory Note in the original principal amount of $15,000,000
payable to The Northwestern Mutual Life Insurance Company ("NMLI")
dated October 31, 1989 and related Deed of Trust, Security
Agreement and Financing Statement between Odetics, Inc. and NMLI
dated October 31, 1989 filed as Exhibit 10.12 to Form S-1 filed
July 6, 1993 and incorporated herein by reference.
21 Subsidiaries of the Registrant filed as Exhibit 22 to Amendment
No. 1 filed September 30, 1993 to Form S-1 filed July 6, 1993 and
incorporated herein by reference.
23 Consent of Independent Auditors.
- -------------------------------
39
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.
ODETICS, INC.
June 27, 1996 By /s/ JOEL SLUTZKY
--------------------------------------------------
Joel Slutzky, Chief Executive Officer
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 Capacity Date
--------- -------- ----
/s/ JOEL SLUTZKY Chief Executive Officer, and June 27, 1996
- ----------------------------- Director
Joel Slutzky
/s/ GREGORY A. MINER Vice President and June 27, 1996
- ----------------------------- Chief Financial Officer
Gregory A. Miner
/s/ CRANDALL GUDMUNDSON President and June 27, 1996
- ----------------------------- Director
Crandall Gudmundson
/s/ JERRY MUENCH Vice President and June 27, 1996
- ----------------------------- Director
Jerry Muench
/s/ KEVIN C. DALY President, ATL and June 27, 1996
- ----------------------------- Director
Kevin C. Daly
/s/ GARY SMITH Vice President and Controller June 27, 1996
- ----------------------------- (Principal Accounting Officer)
Gary Smith
/s/ RALPH R. MICKELSON Director June 27, 1996
- -----------------------------
Ralph R. Mickelson
/s/ STANLEY MOLASKY Director June 27, 1996
- -----------------------------
Stanley Molasky
/s/ LEO WEXLER Director June 27, 1996
- -----------------------------
Leo Wexler
/s/ PAUL WRIGHT Director June 27, 1996
- -----------------------------
Paul Wright
40
Schedule II - Valuation and Qualifying Accounts
Odetics, Inc.
- -----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to
Beginning of Costs and Other Accounts - Deductions - Balance at End
Description Period Expenses Describe Describe of Period
- -----------------------------------------------------------------------------------------------------------------
Year ended March 31, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts $ 490,000 $ (125,000) $ - $ (28,000) (1) $ 337,000
Reserve for inventory
obsolescence - - - - -
-----------------------------------------------------------------------------------
Total $ 490,000 $ (125,000) $ - $ (28,000) $ 337,000
===================================================================================
Year ended March 31, 1995:
Deducted from asset
accounts:
Allowance for doubtful
accounts $ 337,000 $ 827,000 $ - (210,000) (1) $ 954,000
Reserve for inventory
obsolescence - 3,118,000 - - 3,118,000
------------------------------------------------------------------------------------
Total $ 337,000 $3,945,000 $ - $(210,000) $4,072,000
====================================================================================
Year ended March 31, 1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts $ 954,000 $ 170,000 $ - $(136,000) (1) $ 988,000
Reserve for inventory
obsolescence 3,118,000 513,000 - - 3,631,000
------------------------------------------------------------------------------------
Total $4,072,000 $ 683,000 $ - $(136,000) $4,619,000
====================================================================================
(1) Uncollectible accounts written off, net of recoveries.
41
INDEX TO EXHIBITS
-----------------
Sequential
Exhibit No. Page No.
- ----------- ----------
3.1 Certificate of Incorporation of the
Company filed as Exhibit 19.2 to the
9/30/87 Form 10-Q and incorporated
herein by reference.
3.2 Bylaws of the Company filed as Exhibit
19.3 to the 9/30/87 Form 10-Q and
incorporated herein by reference.
4.1 See Exhibit 3.1
4.2 See Exhibit 3.2
10.1 1981 Incentive Stock Option Plan and
form of Stock Option Agreement, filed
as Exhibit 4.1 to the Company's Form
S-8 filed June 27, 1985 (No. 2-98656)
(the "1985 Form S-8") and incorporated
herein by reference.
10.2 1982 Nonstatutory Stock Option and
Stock Appreciation rights Plan and form
of Nonstatutory Stock Option and Stock
Appreciation Rights Agreement, filed as
Exhibit 4.2 to the 1985 Form S-8 and
incorporated herein by reference.
10.3 Profit Sharing Plan and Trust, filed as
Exhibit 4.3 to Amendment No. 2 to the
1985 Form S-8 filed May 5, 1988 (Reg
No. 2-98656) and incorporated herein by
reference.
10.4 Form of Executive Deferral Plan between
the Company and certain employees of
the Company, filed as Exhibit 10.4 to
the 1988 Form 10-K and incorporated
herein by reference.
10.5 Amended and Restated Loan Agreement
between Bank of the West and the
Company entered into as of September
30, 1991, filed as Exhibit 19.1 to
9/30/91 Form 10-Q and incorporated
herein by reference.
10.7.1 Form of Indemnity Agreement entered
into by the Company, and certain
Officers and Directors, filed as
Exhibit 19.4 to the 9/30/88 From 10-Q
and incorporated herein by reference.
10.7.2 Schedule of Officers and Directors
covered by Indemnity Agreement included
as Exhibit 10.7.1
10.8 Amendment Nos. 3 and 4 to the Profit
Sharing Plan and Trust, filed as
Exhibits 4.3.1 and 4.3.2 respectively,
to Amendment No. 3 to the 1985 (Reg.
No. 2-86220) Form S-8 filed June 13,
1990 and incorporated herein by
reference.
10.9 1992 Incentive Stock Plan and forms of
Incentive Stock Option Agreement and
Non-Statutory Stock Option Agreement
filed as Exhibit 4.1, 4.2 and 4.3,
respectively, to Company's Form S-8
filed March 10, 1993 (Reg. No.
33-59274) and incorporated herein by
reference.
21 Subsidiaries of the Registrant filed as Exhibit 22 to Amendment
No. 1 filed September 30, 1993 to Form S-1 filed July 6, 1993 and
incorporated herein by reference.
23 Consent of Independent Auditors.
42