-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HAQUXki5TQpzdyLFT8sAcwxzmnL5a/7GOVwnQqjDx7D6eH+Y9Q4wSaM9z80IqGoI xTMcIaKdDmSFvX0wqhzT+A== 0000950124-95-001531.txt : 19950516 0000950124-95-001531.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950124-95-001531 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CODE ALARM INC CENTRAL INDEX KEY: 0000821509 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 382334698 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16441 FILM NUMBER: 95539823 BUSINESS ADDRESS: STREET 1: 950 E WHITCOMB CITY: MADISON HEIGHTS STATE: MI ZIP: 48071 BUSINESS PHONE: 8105839620 MAIL ADDRESS: STREET 1: 950 E WHITCOMB CITY: MADISON HEIGHTS STATE: MI ZIP: 48071 10-Q 1 FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 ---------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- ------- Commission File Number O16441 -------------- CODE-ALARM, INC. - ------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) MICHIGAN 38-2334698 - -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 950 E. WHITCOMB, MADISON HEIGHTS, MICHIGAN 48071 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (Registrant's telephone number, including area code) (810) 583-9620 -------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the Registrant's common stock, without par value, as of May 8, 1994 is 2,320,361. 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Notes to condensed consolidated financial statements: 1. These condensed consolidated interim financial statements reflect all adjustments which in the opinion of management are necessary to fairly state results for the interim period presented. Except for $1.1 million recorded in connection with the ETC litigation, all adjustments are normal and recurring. Results of operations for the interim period presented are not necessarily indicative of results to be expected for the fiscal year. 2. These financial statements include the accounts of the Company and its wholly-owned subsidiaries after eliminating significant inter-company accounts and transactions. 3. The Company's credit arrangement includes a $7.5 million revolving credit facility for working capital requirements, and a $1.0 million facility for standby or documentary letters of credit. The revolving credit facility has an expiration date of June 30, 1996 and bears interest at the bank's prime rate (9.0% at May 8, 1995), or at the Company's option, at the London Inter-bank Offered Rate ("LIBOR") plus 1.75% for maturities ranging from one to six months (7.9375 and 7.8125%, respectively, at May 8, 1995). The revolving credit facility is subject to covenants which require certain debt and cash flow ratios and minimum levels of current assets and tangible net worth, and is collateralized by substantially all the assets of the Company and its domestic subsidiaries. Total credit availability under the arrangement is subject to a formula of accounts receivable, inventories and net fixed assets. As of March 31, 1995, the Company was not in compliance with the Tangible Net Worth and Debt Ratio covenants. At the Company's request, the bank waived compliance as of March 31, 1995. EAE's credit arrangement with its commercial bank includes term loans totaling approximately $1.8 million, with interest rates ranging from 8% to 11%. Payments are due monthly, with final payments due in 1996. 3 CODE-ALARM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET UNAUDITED (In thousands)
Mar. 31, Dec. 31, ASSETS 1995 1994 ------------ ------------ Cash and cash equivalents $25 $107 Accounts receivable, net 11,408 11,530 Raw material inventories, net 7,287 7,217 Work-in-process inventories 1,688 1,552 Finished goods inventories 4,553 4,123 Refundable income taxes 237 322 Other current assets 2,174 1,229 ------- ------- Total current assets 27,372 26,080 Property and equipment, net 4,214 4,130 Goodwill, net 4,268 4,293 Other intangible assets, net 1,201 1,272 Other assets, net 2,243 2,446 ------- ------- $39,298 $38,221 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current portion of long-term liabilities $2,371 $1,443 Accounts payable 8,412 8,791 Accrued expenses 2,662 3,131 ------- ------- Total current liabilities 13,445 13,365 Long-term liabilities, net of current portion 10,340 9,511 Reserve for litigation 5,191 4,129 ------- ------- Total liabilities 28,976 27,005 ------- ------- SHAREHOLDERS' EQUITY: Common stock 12,210 12,209 Foreign currency translation adjustment 224 49 Retained earnings (2,112) (1,042) ------- ------- Total shareholders' equity 10,322 11,216 ------- ------- $39,298 $38,221 ======= =======
See accompanying notes to consolidated financial statements. 4 CODE-ALARM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS UNAUDITED (In thousands, except per share data)
Three months Ended March 31, 1995 1994 ---------------------- Net sales $17,159 $17,238 Cost of sales 11,218 10,599 ------- ------- Gross profit 5,941 6,639 Operating expenses: Sales and marketing 3,001 3,281 Engineering 703 544 General and administrative 2,145 2,099 ------- ------- 5,849 5,924 ------- ------- Income from operations 92 715 Interest expense (297) (86) Litigation expense (1,055) Other income (expense) (46) (65) ------- ------- Income before income taxes (1,306) 564 Income taxes (236) 125 ------- ------- Net income ($1,070) $439 ======= ======= Net income per common share ($0.46) $0.18 ======= ======= Weighted average common shares 2,320 2,398 ======= =======
See accompanying notes to consolidated financial statements. 5 CODE-ALARM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW UNAUDITED (In thousands)
Three months Ended March 31, 1995 1994 ------------------- Increase (decrease) in cash and cash equivalents from: Operating activities ($1,275) ($1,674) Investing activities: Capital expenditures, net (356) (103) Cash received in acquisition of EAE -- 605 Other (42) (694) Financing activities: Net borrowing (repayment) on credit facilities 1,692 2,205 Net borrowing (repayment) on long-term debt (102) (224) Purchase and retirement of common stock -- (503) Sale of stock options 1 6 Issuance of common stock for purchase of majority interest in Code Europe -- 380 Net change in cash and cash equivalents (82) (2) ----- ---- Cash and cash equivalents, beginning 107 227 ----- ---- Cash and cash equivalents, ending $25 225 ===== ==== Supplemental disclosure of cash flow information: Cash paid for interest $85 $70 Cash paid for income taxes -- $581
See accompanying notes to consolidated financial statements. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Consolidated net sales decreased $79 thousand, or 0.5 percent, in the first quarter of 1995 as compared to the first quarter of 1994. Modest increases in automotive sales offset continued erosion in contract manufacturing sales. The Company expects modest sales growth for the balance of 1995. Consolidated gross profit decreased $698 thousand, or 10.5%, in the first quarter of 1995 as compared to the first quarter of 1994. Consolidated gross profit, as a percentage of consolidated net sales, for the first quarter of 1995 was 34.6 percent, as compared to 38.5 percent for the first quarter of 1994. The Company experienced manufacturing problems with its European products during the first quarter, and as a result incurred significant operating inefficiencies. The Company has implemented margin improvement programs and expects margin improvements in the last half of 1995. Consolidated operating expenses decreased $75 thousand, or 1%, in the first quarter of 1995 as compared to the first quarter of 1994. Consolidated operating expenses, as a percentage of consolidated net sales, for the first quarter of 1995 were 34 percent, as compared to 34.4 percent for the first quarter of 1994. The decrease in consolidated operating expenses during the first quarter of 1995 is attributable to decreased sales and marketing expenses, partially offset by increases in engineering and product development costs. The Company expects continued decreases in marketing expenses and improvements in other expense categories. As a result of the foregoing, consolidated operating income declined $623 thousand, or 87.1 percent, in the first quarter of 1995 as compared to the first quarter of 1994. Interest expense increased $211 thousand in the first quarter of 1995 compared to the first quarter of 1994, reflecting higher interest rates and increased financing costs associated with the acquisition of Europe Auto Equipement and the buyout of a significant stockholder in the fourth quarter of 1994. During the first quarter of 1995, the Company recorded an additional $1.1 million in connection with the ETC litigation. See Item 1. (Legal Proceedings). Based on comments made by the court, the Company recorded $3.7 million for costs and damages resulting from this litigation as of December 31, 1994. Using a written opinion issued by the court, in which the court modified its position, the Company recomputed its exposure and recorded additional expense. The Company has an effective domestic income tax rate of 34% on current operating income. Income taxes on foreign operations are approximately 33%. The Company has reserved one third of the potential deferred tax benefit resulting from adjusting the ETC judgment against potential income tax deductibility issues. 7 As a result of the foregoing factors, the Company recorded a net loss of $1.1 million for the quarter ended March 31, 1995, or 6.2 percent of net sales, compared to a net profit of $439 thousand or 2.6% of sales in the first quarter of 1994. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated working capital was $13.9 million at March 31, 1995 compared to $12.7 million at December 31, 1994. The current ratio (current assets divided by current liabilities) was 2.0 to 1 on each of these dates. Net cash used by operating activities for the first quarter of 1994 was $1.3 million including $440 thousand of depreciation and amortization charged during the quarter. Cash consumed during the quarter reflects a decrease in net accounts payable of approximately $1.4 million and increases in other assets and inventories of $900 thousand, offset by decreases in accounts receivable and non-cash charges. As of May 8, 1995, $1,417,000 of the $7,500,000 revolving credit facility was unused and available. Additionally, $4,000,000 of amounts outstanding under the revolving line of credit were borrowed under the LIBOR option cost to the Company of 8.257 percent. $850,000 of the $1,000,000 letter of credit facility remained uncommitted as of May 8, 1995. As of May 8, 1995, the Company is expecting a final judgment in the ETC litigation. Based on a written opinion issued by the Court on April 28, 1995, the Company has increased its estimate of the judgment to $4.8 Million plus related costs. As previously disclosed, the Company has obtained a commitment from a major regional bank, and is working to finalize a definitive lending arrangement, adequate to fund current operations and a bond necessary to stay execution of the judgment pending an appeal. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Electromotive Technology Corporation ("ETC") and Directed Electronics ("Directed") v. Code Alarm, Inc., Case Number 87-CV-74022-DT, filed November 5, 1987, in the United States District Court for the Eastern District of Michigan. Directed Electronics purchased certain rights in and to United States Patent Number 4,585,569 ("the '569 Patent") and joined ETC in this patent infringement suit against Code Alarm that was commenced in 1987. A judgment as to liability has been entered against Code Alarm in 1993. In 1994, a bench trial was held as to damages, but no final ruling has been made. While no final judgment exists, Judge Avern Cohn, on April 28, 1995, issued an opinion as to damages. Based upon this opinion, the Company has revised its estimate of 8 damages, interest and costs to about $4.8 million and recorded an additional charge of $1.1 million in the first quarter of 1995. There were no material developments during the quarter ended March 31, 1995 in the remaining legal proceedings involving the Company. Reference is made to the Company's Form 10-K for the year ended December 31, 1994 for a description of material pending legal proceedings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K: (11) Statement regarding computation of per share earnings: Warrants issued to purchase common stock and shares issuable under employee stock options were excluded from the computation of weighted average number of shares outstanding (reference Part I, Item 1) since such shares were either anti-dilutive or their dilutive effect was not material. (b) The Company filed no Reports on Form 8-K filed during the quarter ended March 31, 1995. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CODE-ALARM, INC. ---------------------------- (Registrant) Date: May 13, 1995 /s/ Robert V. Wagner ---------------------------- Vice President of Finance (Chief Financial Officer) Date: May 13, 1995 /s/ David L. Etienne ---------------------------- Principal Accounting Officer 10 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------- -------- 27 Financial Data Schedule EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) CODE-ALARM, INC. FIRST QUARTER 1995 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) CODE ALARM, INC. FIRST QUARTER 1995 10Q. 0000821509 CODE-ALARM, INC. 1 U.S. DOLLARS 3-MOS DEC-31-1994 JAN-01-1995 MAR-31-1995 1 25,009 0 11,663,863 255,553 13,528,525 27,372,127 10,106,649 5,892,673 39,297,632 13,445,106 15,530,746 12,210,590 0 0 (1,888,810) 39,297,632 17,159,249 0 11,218,234 11,218,234 3,396,104 55,553 296,814 (250,681) (235,534) (15,147) 0 (1,055,000) 0 (1,070,147) .46 .46
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