UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 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: 1-7234
NATIONAL PATENT DEVELOPMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1926739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 826-8500
(Registrant's telephone number, including area code)
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
Number of shares outstanding of each of issuer's classes of common stock as of
August 11, 1995:
Common Stock 26,953,957 shares
Class B Capital 250,000 shares
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
June 30, 1995 and December 31, 1994 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended June 30,
1995 and 1994 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Qualification Relating to Financial Information 12
Part II. Other Information 13
Signatures 14
PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
1995 1994
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 11,810 $ 10,075
Accounts and other receivables 44,663 52,487
Inventories 19,488 20,642
Costs and estimated earnings in excess
of billings on uncompleted contracts 11,137 15,237
Prepaid expenses and other current
assets 4,509 6,770
Total current assets 91,607 105,211
Investments and advances 15,418 11,600
Property, plant and equipment, at cost 32,159 37,423
Less accumulated depreciation (20,978) (22,843)
11,181 14,580
Intangible assets, net of amortization 33,175 37,025
Investment in financed assets 684
Other assets 4,080 6,446
$155,461 $175,546
* The Consolidated Condensed Balance Sheet as of December 31, 1994 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
June 30, December 31,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt
and notes payable $ 6,926 $ 14,279
Short-term borrowings 25,759 31,060
Accounts payable and accrued expenses 21,943 27,958
Billings in excess of costs and
estimated earnings on uncompleted
contracts 6,018 6,091
Total current liabilities 60,646 79,388
Long-term debt less current maturities 17,355 17,513
Minority interests and other 9,419 11,970
Common stock issued subject to
repurchase obligation 1,522 1,510
Stockholders' equity
Common stock 267 241
Class B capital stock 2 2
Capital in excess of par value 122,576 119,856
Deficit (54,246) (53,151)
Net unrealized loss on
available-for-sale securities (2,080) (1,783)
Total stockholders' equity 66,519 65,165
$155,461 $175,546
* The Consolidated Condensed Balance Sheet as of December 31, 1994 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months Six months
ended June 30,
1995 1994 1995 1994
Revenues
Sales $ 48,416 $ 51,430 $ 94,968 $ 95,960
Investment and other
income (expense), net 812 (1,258) 678 (2,010)
49,228 50,172 95,646 93,950
Costs and expenses
Cost of goods sold 40,584 41,916 79,866 78,434
Selling, general & administrative 7,387 9,034 14,549 16,899
Interest 1,435 1,418 2,433 2,900
49,406 52,368 96,848 98,233
Minority interests (204) (36) (504) (104)
Gain on sale of stock of a subsidiary 2,567
Gain on issuance of stock
by a subsidiary 229 229
Income (loss) before income taxes,
discontinued operation
and extraordinary item (382) (2,003) 861 (4,158)
Income tax expense (528) (52) (825) (118)
Income (loss) before discontinued
operation and extraordinary item (910) (2,055 36 (4,276)
Discontinued operation
Loss from discontinued operation (412) (288) (1,139) (527)
Loss before extraordinary item (1,322) (2,343) (1,103) (4,803)
Extraordinary item
Extinguishment of debt (220) 8
Net loss $(1,542) $(2,343) $(1,095) $(4,803)
Loss per share
Loss before discontinued operation
and extraordinary item $ (.03) $ (.10) $ $ (.22)
Discontinued operation (.02) (.02) (.04) (.03)
Extraordinary item (.01)
Net loss per share $ (.06) $ (.12) $ (.04) $ (.25)
Dividends per share none none none none
See accompanying notes to the consolidated condensed financial statements.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six months
ended June 30,
1995 1994
Cash flows from operations:
Net loss $(1,095) $(4,803)
Adjustments to reconcile net income
to net cash used for operating activities:
Provision for discontinued operation 1,100
Depreciation and amortization 2,573 2,152
Gains from early extinguishment of debt (8)
Gain on sale of stock of a subsidiary (2,567)
Changes in other operating items 277 (7,634)
Net cash provided by (used for) operations 280 (10,285)
Cash flows from investing activities:
Proceeds from sale of stock of a subsidiary 5,000
Additions to property, plant & equipment (1,803) (1,734)
Additions to intangible assets, net (679) (239)
Reduction of (additions to) investments
and other assets, net (172) 2,332
Net cash provided by investing activities 2,346 359
Cash flows from financing activities:
Net proceeds from short-term borrowings 2,330 8,085
Proceeds from issuance of long-term debt 4,910 3,163
Reduction of long-term debt (8,131) (2,011)
Exercise of common stock options and warrants 100
Proceeds from issuance of common stock 88
Net cash (used for) provided by
financing activities (891) 9,425
Net increase (decrease) in cash and
cash equivalents 1,735 (501)
Cash and cash equivalents at the beginning
of the periods 10,075 10,976
Cash and cash equivalents at the end
of the periods $11,810 $10,475
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Six months
ended June 30,
1995 1994
Supplemental disclosures of
cash flow information:
Cash paid during the periods for:
Interest $ 2,589 $ 2,135
Income taxes $ 479 $ 261
See accompanying notes to the consolidated condensed financial statements.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Inventories
Inventories are valued at the lower of cost or market, principally using
the first-in, first-out (FIFO) method. Inventories consisting of material,
labor, and overhead are classified as follows (in thousands):
June 30, December 31,
1995 1994
Raw materials $ 1,539 $ 1,973
Work in process 465 462
Finished goods 17,484 15,557
Land held for resale 2,650
$19,488 $20,642
2. Long-term debt
Long-term debt consists of the following (in thousands):
June 30, December 31,
1995 1994
8% Swiss bonds $ 113 $ 2,999
8% Swiss bonds due 2000 2,340
Swiss convertible bonds 2,014 10,157
New 5% convertible bonds 2,129 2,129
12% Subordinated debentures 6,783 6,783
Other 10,902 9,145
24,281 31,213
Less current maturities 6,926 13,700
$17,355 $17,513
On June 28, 1995, the Company's Exchange Offer for certain issues of its
outstanding indebtedness expired. The Company accepted for exchange Swiss
Francs ("SFr.") 1,299,000 of its 8% Swiss Bonds due March 1, 1995, SFr.
1,120,000 of its Convertible Swiss Bonds due March 7, 1995, SFr. 945,000 of
its 5.75% Convertible Bonds due May 9, 1995, SFr. 795,000 of its 5.625%
Convertible Bonds due March 18, 1996, and $1,212,000 of its 7% Dual Currency
Bonds due March 18, 1996. In exchange for the forgoing bonds, the Company
issued, an aggregate of SFr. 3,604,000 of new 8% Swiss Bonds, due June 28,
2000 (the "New 8% Bonds") and paid $2,873,000 in cash. The New 8% Bonds were
valued at $ 2,340,000(after an original issue discount of 25%). The principal
and interest on the New 8% Bonds are payable either in cash or in shares of
common stock of the Company, at the option of the Company.
The Company reduced its long-term debt due in 1995 and 1996 by $4,824,000 and
realized a loss of $220,000 on the Exchange Offer.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Term loan
On April 7, 1995, the Company entered into a $5,000,000 Term Loan
Agreement, of which the Company received approximately $4,900,000 after
closing fees. The Term Loan is payable in sixteen consecutive quarterly
installments, commencing on June 30, 1996. The first fifteen installments
will be $250,000 and the last installment shall be $1,250,000. The Company
has used a portion of the proceeds in July 1995 to repay and refinance its
Swiss denominated long-term debt due in 1995 and 1996. The Term Loan is
secured by certain assets of the Company and requires the Company to meet
certain financial covenants.
4. Revolving agreement
On April 7, 1995, General Physics Corporation (GP), the Company's 51%
owned subsidiary, entered into a new $20,000,000 secured revolving credit
agreement with a commercial bank, and terminated its previous credit
agreement. Borrowings under the new credit agreement bear interest at the
prime rate or at a rate which is 1.75% over LIBOR, whichever rate is elected
by GP. The new credit agreement is secured by the accounts receivable of GP
and certain of its subsidiaries, and contains certain covenants which, among
other things, limit the amount and nature of certain expenditures by GP, and
requires GP to maintain certain financial ratios.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company incurred income (loss) before income taxes, discontinued
operation and extraordinary item of $(382,000) and $861,000 for the quarter
and six months ended June 30, 1995, as compared with a loss of $(2,003,000)
and ($4,158,000) for the corresponding periods of 1994. The improvement in
the Company's results before discontinued operation and extraordinary item is
due to several factors. The improved operating results were primarily the
result of the $2,567,000 gain recognized by the Company on the sale of
1,666,667 shares of the Company's GTS Duratek, Inc. (Duratek) common stock in
January 1995. As a result of the transaction, the Company's ownership fell
below 50% and commencing in January 1995, the Company has accounted for its
investment in Duratek on the equity basis. Included in investment and other
income(expense), net for the quarter and six months ended June 30, 1995, is
$78,000 and $(991,000), respectively, of foreign currency transaction gains
(losses), compared to losses of $(1,115,000) and $(2,012,000) for the
corresponding periods of 1994. The Physical Science Group achieved increased
operating profits in 1995. In addition, for the quarter and six months ended
June 30, 1995, the Company also achieved reduced interest expense at the
corporate level, as a result of reduced long-term debt.
Foreign currency valuation fluctuations may adversely affect the results of
operations and financial condition of the Company. At June 30, 1995, the
Company had not hedged its Swiss franc obligations. If the value of the Swiss
franc to the U.S. dollar increases, the Company will recognize transaction
losses on its Swiss franc obligations. On June 30, 1995, the value of the
Swiss franc to the U.S. dollar was approximately 1.1485 to 1. There can be no
assurance that the Company will be able to swap or hedge obligations
denominated in foreign currencies at prices acceptable to the Company or at
all. The Company will continue to review this policy on a continuing basis.
At June 30, 1995, the Company had approximately SFr. 4,698,000 of Swiss
denominated debt outstanding, of which approximately SFr. 4,298,000 represents
principal amount outstanding and approximately SFr. 400,000 represents
interest accrued thereon.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Sales
For the quarter ended June 30, 1995, consolidated sales decreased by
$3,014,000 to $48,416,000 from the $51,430,000 recorded in the corresponding
quarter of 1994. For the six months ended June 30, 1995, consolidated sales
decreased by $992,000 to $94,968,000 from $95,960,000 recorded for the six
months ended June 30, 1994. The decreased sales during the periods were the
result of reduced sales in the Distribution Group, partially offset by
increased sales within the Physical Science and Optical Plastics Group. The
decreased sales within the Distribution Group was the result of the loss of a
significant customer. The increased sales within the Physical Science Group
were the result of consolidating the sales of General Physics Corporation (GP)
since September 1994, partially offset by Duratek being accounted for on the
equity basis since January 1995.
Gross margin
Consolidated gross margin of $7,832,000, or 16%, for the quarter ended June
30, 1995, decreased by $1,682,000 when compared to the consolidated gross
margin of $9,514,000, or 18%, for the quarter ended June 30, 1994. For the
six months ended June 30, 1995, consolidated gross margin of $15,102,000 or
16% of consolidated sales decreased by $2,424,000 when compared to $17,526,000
or 18% of consolidated sales earned in the six months ended June 30, 1994.
The decreased gross margin in 1995 was principally the result of decreased
gross margin achieved by the Distribution and Physical Science Groups. The
decreased gross margin within the Physical Science Group is primarily due to
the Company's ownership in Duratek falling below 50% in January 1995, and the
Company accounting for the results of Duratek on the equity basis from that
time, partially offset by GP being included in the consolidated results since
September 1994. The reduced gross margin percentage is the result of
continued pressure from customers within certain areas of GP's business to
reduce costs. The reduced gross margin in the Distribution Group was the
result of reduced sales.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative expenses
For the quarter and six months ended June 30, 1995, selling, general and
administrative expenses (SG&A) of $7,387,000 and $14,549,000 were $1,647,000
and $2,350,000 lower than the $9,034,000 and $16,899,000 of SG&A expenses
incurred during the quarter and six months ended June 30, 1994. The decrease
in SG&A for the quarter and six months ended June 30, 1995, was principally
the result of Duratek being accounted for on the equity method since January
1995.
Interest expense
For the quarter and six months ended June 30, 1995, interest expense was
$1,435,000 and $2,433,000, compared to $1,418,000 and $2,900,000 for the
second quarter and six months ended June 30, 1994. The decreased interest
expense for the six months ended June 30, 1995, was the result of reduced
long-term debt.
Investment and other income (expense), net
Investment and other income (expense), net of $812,000 and $678,000 for the
quarter and six months ended June 30, 1995 increased by $2,070,000 and
$2,688,000, respectively, as compared to $(1,258,000) and $(2,010,000) for the
corresponding periods of 1994. The change was principally due to two factors;
$78,000 and $(991,000) of foreign currency transaction gains (losses)
recognized during the quarter and six months ended June 30, 1995, compared to
losses of $(1,115,000) and $(2,012,000) for the corresponding periods of 1994,
and a loss of $312,000 and $595,000 realized in the quarter and six months
ended June 30, 1995, respectively, on the share of losses of 20% to 50% owned
affiliates, compared to $1,050,000 and $1,820,000 losses realized in the
quarter and six months ended June 30, 1994, respectively, primarily due to the
results of Interferon Sciences, Inc. (ISI) being accounted for on the equity
basis. For the quarter and six months ended June 30, 1995, the Company's
share of ISI's loss was $320,000 and $655,000, as compared to $900,000 and
$1,620,000, for the corresponding periods of 1994. In addition, the Company
achieved increased investment income in 1995 due to increased cash balances
and higher short-term interest rates.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had cash and cash equivalents totaling
$11,810,000. A liability of approximately $2,873,000, which was included in
"Accounts payable and accrued expenses" on the Consolidated Condensed Balance
Sheet, relating to the Exchange Offer (See Note 2 to the Consolidated
Condensed Financial Statements) was paid in July 1995. GP, SGLG and American
Drug Company had cash and, cash equivalents of $1,818,000 at March 31, 1995.
The minority interests of these two companies are owned by the general public,
and therefore the assets of these subsidiaries have been dedicated to the
operations of these companies and may not be readily available for the general
corporate purpose of the parent. MXL Industries, Inc., a 100% owned
subsidiary, had cash and cash equivalents totaling $1,061,000, which was not
available to the Company due to restrictions within MXL's line of credit
agreement. In addition, GP under its revolving credit agreement (See Note 4
to the Consolidated Condensed Financial Statements) can loan up to $2,000,000
to the Company at the prime rate of interest.
The Company has sufficient cash, cash equivalents and marketable
securities, and borrowing availability under existing and potential lines of
credit to satisfy its cash requirements for its Swiss Franc denominated
indebtedness due in 1995 and 1996, which totaled approximately $713,000 and
$1,415,000, respectively at June 30, 1995. In order for the Company to meet
its long-term cash needs, which include the repayment of approximately
$6,783,000 of 12% Subordinated debentures scheduled to mature in 1997, the
Company must obtain additional funds from among various sources. The Company
has historically reduced its long-term debt through the issuance of equity
securities in exchange for long-term debt. In addition to its ability to
issue equity securities, the Company believes that it has sufficient
marketable long-term investments, as well as the ability to obtain additional
funds from its operating subsidiaries and the potential to enter into new
credit arrangements. The Company reasonably believes that it will be able to
accomplish some or all of the above transactions in order to fund the
scheduled repayment of the Company's 12% Subordinated debentures in 1997.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
June 30, 1995
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under
generally accepted accounting principles because certain note information
included in the Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods. The results for the 1995
interim period are not necessarily indicative of results to be expected for
the entire year.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
(i) Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the period ended June
30, 1995.
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
June 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
DATE: August 11, 1995 BY: Scott N. Greenberg
Vice President and
Chief Financial Officer
DATE: August 11, 1995 BY: Jerome I. Feldman
President and Chief
Executive Officer
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