Datron Posts Loss, Faces U.S. Audit on Naval Contract
Datron Systems Inc. reported a $277,000 loss for its fiscal second quarter and disclosed that it’s the target of a federal government audit that could cost the company nearly $3 million.
Datron, which makes satellite antennas and other communications products, said it was subpoenaed in connection with a Defense Department audit of a $9.6-million contract under which Datron made antennas for Navy ships.
The Defense Contract Audit Agency (DCAA) contended that Datron failed to provide certain information to the government when it negotiated the contract in 1988, and it recommended that Datron be required to refund $2.7 million. Thomas V. Baker, Datron’s chief financial officer, declined to comment on the information that was allegedly withheld. He said Datron Systems delivered the last of the antennas in 1989.
Datron asserted that the DCAA report was “erroneous” and that it “intends to challenge the report and its conclusions vigorously.” It said the dispute would involve “extensive administrative proceedings,” and that Datron “does not expect early resolution of this matter.”
Nonetheless, Wall Street quickly signaled its displeasure. On the day the announcement was made last week, Datron’s stock plunged $1.75 a share, or 30%, to $4 a share in over-the-counter trading. By Monday’s close, it stood at $4.25 a share.
The day after Datron disclosed its financial results and the government audit, Datron said it planned to buy back up to 250,000, or about 10%, of its common shares through open-market purchases. Such a move could bolster the stock’s price.
Datron had other problems in the three months ended Sept. 30. The company said its loss in the period compared with a year-earlier profit of $1.02 million, and came despite a 49% surge in sales to $15.8 million from $10.6 million.
The loss stemmed from a $1.5-million pretax charge that Datron incurred for estimated losses on another contract. That contract called for Datron to make “threat emitter systems,” which train pilots to avoid enemy radar, for Ford Aerospace Co. However, Ford canceled the contract last month because Datron did not deliver the products on time, Baker said.
Datron said it was late because a subcontractor did not provide enough components, and that it has sued the subcontractor, which Baker declined to identify.
For the first half of its fiscal year, Datron lost $107,000, compared with a $1.89-million profit a year earlier. Its six-month sales rose 14%, to $24.2 million from $21.2 million.
Datron had enjoyed steadily rising earnings in recent years, but it has struggled in its current fiscal year.
In the first quarter that ended June 30, its profit plunged 80% from a year earlier, to $170,000 from $866,000, because of lower profit margins on some contracts and an unexpected drop in shipments of its high-frequency radio products.
