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 March 31, 1996
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 May 10, 1996:
Common Stock 7,324,284 shares
Class B Capital 62,500 shares
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Qualification Relating to Financial Information 10
Part II. Other Information 11
Signatures 12
2
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PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1996 1995
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 6,988 $ 8,094
Marketable securities 4,063 3,563
Accounts and other receivables 44,551 39,466
Inventories 22,460 20,444
Costs and estimated earnings
in excess of billings on
uncompleted contracts 9,230 9,118
Prepaid expenses and other
current assets 3,638 3,640
Total current assets 90,930 84,325
Investments and advances 21,773 21,452
Property, plant and equipment, at cost 34,437 33,367
Less accumulated depreciation (25,066) (24,374)
9,371 8,993
Intangible assets, net of amortization 32,435 33,053
Other assets 3,859 3,897
$158,368 $151,720
* The Consolidated Condensed Balance Sheet as of December 31,
1995 has been summarized from the Company's audited Consolidated
Balance Sheet as of that date.
See accompanying notes to the consolidated condensed financial
statements.
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
March 31, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt
and notes payable $ 2,036 4,167
Short-term borrowings 20,167 18,043
Accounts payable and accrued expenses 23,726 20,865
Billings in excess of costs and
estimated earnings on
uncompleted contracts 8,734 8,301
Total current liabilities 54,663 51,376
Long-term debt less current maturities 19,129 19,765
Minority interests and other 9,711 9,581
Stockholders' equity
Common stock 72 68
Class B capital stock 1 1
Capital in excess of par value 129,259 125,419
Deficit (52,056) (52,139)
Net unrealized loss on available-
for-sale securities (1,500) (1,440)
Minimum pension liability adjustment (911) (911)
Total stockholders' equity 74,865 70,998
$158,368 $151,720
*The Consolidated Condensed Balance Sheet as of December 31, 1995 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months
ended March 31,
1996 1995
Revenues
Sales $ 48,156 $ 46,552
Investment and other income
(expense), net 1,745 (134)
49,901 46,418
Costs and expenses
Costs of goods sold 41,064 39,282
Selling, general & administrative 6,911 7,162
Interest 1,001 998
48,976 47,442
Gain on sale of stock of a subsidiary 2,567
Minority interests (325) (300)
Income before income taxes,
discontinued operation and
extraordinary item 600 1,243
Income tax expense (517) (297)
Income before discontinued
operation and extraordinary item 83 946
Discontinued operation
Loss from discontinued operation (727)
Income before extraordinary item 83 219
Extraordinary item
Extinguishment of debt,
net of income tax 228
Net income $ 83 $ 447
Income per share
Income before discontinued
operation and extraordinary item $ .01 $ .15
Discontinued operation (.12)
Extraordinary item .04
Net income per share $ .01 $ .07
Dividends per share none none
See accompanying notes to the consolidated condensed financial statements.
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
1996 1995
Cash flows from operations:
Net income $ 83 $ 447
Adjustments to reconcile net
income to net cash
provided by (used for)
operating activities:
Provision for discontinued operation 700
Depreciation and amortization 1,469 2,319
Gains from early extinguishment
of debt (228)
Gain on sale of stock of a
subsidiary (2,567)
Unrealized gain on trading securities (500)
Changes in other operating items (3,865) (2,236)
Net cash used for operations (2,813) (1,565)
Cash flows from investing activities:
Proceeds from sale of stock
of a subsidiary 5,000
Additions to property, plant
& equipment (1,070) (1,809)
Additions to intangible assets (159) (427)
Reduction in investments and
other assets, net 22 291
Net cash (used for) provided by
investing activities (1,207) 3,055
Cash flows from financing activities:
Net proceeds from short-term borrowings 2,124 1,947
Proceeds from issuance of
long-term debt 400
Reduction of long-term debt (2,143) (4,503)
Proceeds from issuance of common stock 2,533
Net cash provided by (used for)
financing activities 2,914 (2,556)
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
1996 1995
Net decrease in cash and cash
equivalents $ (1,106) $ (1,066)
Cash and cash equivalents at the
beginning of the periods 8,094 10,075
Cash and cash equivalents at the end
of the periods $ 6,988 $ 9,009
Supplemental disclosures of cash
flow information:
Cash paid during the periods for:
Interest $ 1,122 $ 1,137
Income taxes $ 155 $ 328
See accompanying notes to the consolidated condensed financial statements.
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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):
March 31, December 31,
1996 1995
Raw materials $ 786 $ 580
Work in process 212 219
Finished goods 21,462 19,645
$ 22,460 $ 20,444
2. Long-term debt
Long-term debt consists of the following (in thousands):
March 31, December 31,
1996 1995
8% Swiss bonds due 2000 $ 1,772 $ 2,365
Swiss convertible bonds 1,751
5% convertible bonds due 1999 2,249 2,249
8% Swiss Bonds due 1995 247
12% Subordinated debentures 6,742 6,749
Term loans with banks 8,465 8,713
Other 1,937 1,858
21,165 23,932
Less current maturities 2,036 4,167
$ 19,129 $ 19,765
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had income before income taxes, discontinued
operation and extraordinary item of $600,000 for the quarter
ended March 31, 1996 compared to income of $1,243,000 for the
quarter ended March 31, 1995. The reduced 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 that transaction, the Company's ownership fell below
50% and commencing in January 1995, the Company accounted for its
investment in Duratek on the equity basis.
The gain recognized on the sale of the Duratek stock in the
first quarter of 1995 was partially offset by a net foreign
currency transaction loss of $(1,069,000) for the first quarter
of 1995. The Company realized a foreign currency transaction
gain of $80,000 in the first quarter of 1996. The Company had
improved operating results within the Physical Science Group and
Distribution Group partially offset by reduced operating profits
within the Optical Plastics Group and at the Company's Hydro Med
Sciences (HMS) division.
Sales
For the quarter ended March 31, 1996, consolidated sales
increased by $1,604,000 to $48,156,000 from the $46,552,000 in
the corresponding quarter of 1995. The increased sales were the
result of increased sales within the Distribution Group and
Physical Science Group, partially offset by reduced sales within
the Optical Plastics Group and by HMS. The increased sales
within the Physical Science Group were the result of General
Physics Corporation's (GP) expansion of managerial and technical
training services in manufacturing and process industries,
partially offset by reduced activity at commercial nuclear power
utilities and U.S. Department of Energy facilities. The
increased sales within the Distribution Group, which is comprised
of the Five Star Group, Inc. (Five Star), were the result of
sales generated by a major retail chain, which was not a customer
of Five Star during the first nine months of 1995. The reduced
sales within the Optical Plastic Group were due to a slowdown by
MXL Industries, Inc.'s major customer as a result of the
customer's decision to reduce its inventory level. The reduced
sales within HMS were due to the timing of sales to two
customers.
Gross margin
Consolidated gross margin of $7,092,000, or 15%, for the
quarter ended March 31, 1996, decreased by $178,000 compared to
the consolidated gross margin of $7,270,000, or 16%, for the
9
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quarter ended March 31, 1995. The decreased gross margin in 1996
was principally the result of decreased gross margin achieved by
the Optical Plastics Group and by HMS as a result of reduced
sales levels, partially offset by increased gross margin
generated by Five Star due to increased sales.
Selling, general and administrative expenses
For the three months ended March 31, 1996, selling, general and
administrative (SG&A) expenses were $6,911,000 compared to the
$7,162,000 incurred in the first quarter of 1995. The decrease
in SG&A for the first quarter of 1996 was the result of the
efforts by Five Star during 1995 to consolidate and streamline
its organization.
Investment and other income (expense), net
Investment and other income (expense), net of $1,745,000 for
the quarter ended March 31, 1996, improved by $1,879,000 as
compared to $(134,000) for the first quarter of 1995. The change
was principally due to the effect of the following factors: (i)
$75,000 of income earned in the quarter ended March 31, 1996, on
the share of equity income from its 20% to 50% owned
subsidiaries, compared to a loss of $(275,000) recognized in the
quarter ended March 31, 1995; (ii) a foreign currency transaction
gain of $80,000 for the quarter ended March 31, 1996, compared to
a loss of $(1,069,000) incurred in the first quarter of 1995;
(iii) a $500,000 unrealized gain on trading securities, due to
the increase in their market value at March 31, 1996.
Income tax expense
The income tax expense of $517,000 for the quarter ended March
31, 1996, primarily relates to GP, which is not included in the
Company's consolidated Federal income tax return.
10
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents
totaling $6,988,000. GP, SGLG and American Drug Company had cash
and, cash equivalents of $264,000 at March 31, 1996. 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 purposes of
the parent.
In April 1996, the Company sold 1,000,000 shares of Duratek
common stock, and realized net proceeds of $17,700,000. The
Company currently owns approximately 1,846,000 shares of Duratek
common stock. During the first quarter of 1996, the Company
completed a private placement of its common stock, totaling
approximately $2,300,000. The Company used the proceeds from
this transaction to retire long-term debt, which was currently
due. As a result of the above transaction, 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 the repayment of
approximately $6,742,000 of 12% Subordinated Debentures scheduled
to mature in 1997. In addition to its ability to issue equity
securities, the Company believes that it has sufficient
marketable long-term investments, the ability to obtain
additional funds from its operating subsidiaries and the
potential to enter into new credit arrangements in order to fund
its working capital requirements.
11
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 1996
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 for a fair statement of the results for the interim
periods. The results for the 1996 interim period are not
necessarily indicative of results to be expected for the entire
year.
12
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
none
B. Reports
none
12
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
March 31, 1996
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: May 14, 1996 Jerome I. Feldman
President &
Chief Executive Officer
DATE: May 14, 1996 Scott N. Greenberg
Vice President,
Chief Financial Officer
13
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