FORM 10K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 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 1-7234
NATIONAL PATENT DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
(State of Incorporation) (I.R.S. Employer
Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered:
Common Stock, $.01 Par Value American Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
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
Indicate by check mark if 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. /X/
As of March 1, 1996, the aggregate market value of the
outstanding shares of the Registrant's Common Stock, par value
$.01 per share, held by non-affiliates was approximately
$59,058,090 based on the closing price of the Common Stock on the
American Stock Exchange on March 1, 1996. None of the Class B
Capital Stock, par value $.01 per share, was held by
non-affiliates.
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Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the most recent
practicable date.
Class Outstanding at March 1, 1996
Common Stock,
par value $.01 per share 6,959,554 shares
Class B Capital Stock,
par value $.01 per share 62,500 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for
its 1996 Annual Meeting of Stockholders is incorporated by
reference into Part III hereof.
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations is hereby
amended and restated in its entirety as follows:
RESULTS OF OPERATIONS
Overview
At December 31, 1994 the Company owed $13,156,000 in Swiss
Bonds, Swiss Convertible Bonds and Dual Currency Bonds (the
Bonds) which were due in 1995 and 1996. In 1995, the Company
exchanged (see Note 11(a) to the consolidated financial
statements) or repurchased the majority of the Bonds. At
December 31, 1995 there was a total of $1,998,000 of the above
Bonds outstanding, which were fully redeemed during the first
quarter of 1996. In 1995, total long-term debt and short-term
borrowings decreased by a total of $11,457,000 from December 31,
1994, net of the effect of the deconsolidation of GTS Duratek,
Inc. (Duratek) in January 1995 (See Note 3 to the consolidated
financial statements). The reduction in the Company's long-term
debt and short-term borrowings has led to a corresponding
decrease in interest expense at the corporate level. In
addition, the Company has the potential to improve its liquidity
in 1996, as a result of the Company's Duratek, affiliate filing a
registration statement with the Securities and Exchange
Commission, in March 1996, relating to a proposed offering in
which the Company will sell 1,000,000 shares of Duratek common
stock (see Liquidity and capital resources).
In 1995, income before income taxes, discontinued operation and
extraordinary item was $5,819,000 as compared to a loss of
$10,648,000 in 1994. The improvement in operations is due to
several factors. In the first and fourth quarters of 1995, the
Company sold 1,667,000 and 500,000 shares, respectively of
Duratek common stock, resulting in the recognition of a
$3,768,000 gain. As a result of the first sale of the Duratek
common stock, the Company's ownership in Duratek fell below 50%,
and commencing in January 1995, the Company accounted for its
investment in Duratek, which totaled $4,121,000 at December 31,
1995, on the equity basis (see Note 3 to the consolidated
financial statements). In addition, the Company recorded an
unrealized gain totaling $3,183,000 on the transfer of 250,000
shares of Duratek common stock from long-term investments to
trading securities. During the third quarter of 1995, the
Company realized a $5,912,000 gain as a result of the issuance of
common stock by Interferon Sciences, Inc. (ISI), a 22% owned
affiliate, and the initial public offering by GSE Systems,
Inc.(GSES), a 26% controlled affiliate. The $5,912,000 gain was
comprised of a $3,137,000 gain realized primarily on the issuance
of 1,725,000 shares of common stock (including the over-allotment
option) at $14.00 per share by GSES in July 1995 and a $2,775,000
gain realized primarily as a result of the issuance of 12,000,000
shares of common stock by ISI at $1.20 per share in August and
September 1995. The Company also realized Investment and other
income, net of $1,129,000 in 1995 compared to a net expense of
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$1,808,000 in 1994. The improvement is due to several factors
including a foreign currency transaction loss of $1,066,000 in
1995 compared to a foreign currency transaction loss of
$2,124,000 realized in 1994, related to the Company's decision
not to hedge its Swiss denominated debt, and reduced losses
incurred on investments in 20% to 50% owned affiliates. These
improvements were partially offset by a $785,000 loss recognized
due to the permanent impairment of an available-for-sale
security. In 1995, the Company also incurred reduced interest
expense as a result of reduced long-term debt at the corporate
level. Operating profits improved for the year ended December
31, 1995 within the Optical Plastics and Physical Science
Groups, and decreased marginally within the Distribution Group
and within American Drug Company, the Company's 54% owned
subsidiary, which is not part of an operating segment. The
Optical Plastics Group, which is MXL Industries,Inc. (MXL), the
Company's injection molding and coating subsidiary, generated
increased operating profits due to both increased sales and gross
margin percentage. The Physical Science Group, which is
primarily General Physics Corporation (GP), a 51% owned
subsidiary, experienced improved operating results due to the
results of GP being included in the consolidated results of
operations for the full year(see Note 2 to the consolidated
financial statements). GP provides a wide range of training,
engineering, environmental and technical support services to
commercial nuclear and fossil power utilities, the United States
Departments of Defense and Energy, Fortune 500 companies and
other commercial and governmental customers. The Distribution
Group, which is the Five Star Group, Inc. (Five Star), the
Company's distributor of home decorating, hardware and finishing
products, had marginally reduced operating profits due to reduced
sales and the related gross margin, offset by significantly
reduced operating costs.
In 1994, the loss before income taxes, discontinued operation and
extraordinary item was $10,648,000, as compared to a loss of
$7,424,000 in 1993. The increase in the loss was due to several
factors. Investment and other income (expense), net, decreased
from $3,379,000 in 1993 to a loss of $1,808,000 in 1994. The
$5,187,000 reduction is due to a foreign currency transaction
loss of $2,124,000 realized in 1994 as compared to a net foreign
currency transaction gain of $901,000 realized in 1993, related
to the Company's decision not to hedge its Swiss denominated
debt, as well as increased losses incurred on investments in 20%
to 50% owned affiliates due to increased losses attributable to
the Company's 36% investment in ISI. The loss recognized on the
equity basis in 1994 relating to ISI was $4,409,000, compared to
$1,599,000 in 1993. In 1993, an additional $2,074,000 of ISI's
loss was included in the Company's consolidated results of
operations through September 1993, when the Company's investment
in ISI fell below 50%. The increased loss incurred in 1994 on
investments in 20% to 50% affiliates was partially offset by
gains realized on the sale of certain investments. In addition,
in 1993 the Company realized a $3,795,000 gain from the transfer
in an Exchange Offer of a portion of the Company's holdings of
shares of ISI and Duratek common stock and an additional
$1,353,000 on the issuance of common stock and common stock
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warrants by Duratek, relating to Duratek's acquisition of an
option to acquire certain technologies relating to the
vitrification of certain medical wastes. The above losses in
1994 were partially offset by increased operating profits at the
Optical Plastics and Physical Science Groups due to increased
sales and gross margin percentage and dollars within both groups.
The Optical Plastics Group experienced increased operating
profits due to both increased sales and gross margin percentage.
The Physical Science Group was comprised of GP, from September
1994, and Duratek. The Distribution Group had reduced operating
profits as a result of costs incurred to close its Long Island,
New York warehouse and consolidate its sales volume into Five
Star's New Jersey facility.
Sales
Consolidated sales from continuing operations increased from
$185,846,000 in 1993 to $204,774,000 in 1994 and decreased by
$19,749,000 to $185,025,000 in 1995. In 1995, the Company had
reduced sales within the Physical Science and Distribution
Groups, partially offset by increased sales achieved by the
Optical Plastics Group. In 1994, the Company achieved increased
sales in the Physical Science, Distribution and Optical Plastics
Groups.
The Physical Science Group's sales increased from $102,977,000 in
1993 to $118,421,000 in 1994 and decreased to $107,549,000 in
1995. The reduced sales in 1995 were due to the results of
Duratek being accounted for on the equity basis since January
1995, partially offset by the consolidation of the results of GP
since September 1994 (see Note 2 to the consolidated financial
statements). The increased sales of $15,444,000 in 1994 were the
result of consolidating the sales of GP since September 1, 1994.
Changes in sales of the Physical Science Group as a result of
changes in prices or volume of services provided were not
significant. In addition, Duratek also achieved increased sales
in 1994 as a result of work performed under a three year contract
to construct a vitrification facility for the conversion of mixed
waste into stable glass.
The Distribution Group sales increased from $74,109,000 in 1993,
to $75,551,000 in 1994 and decreased to $65,098,000 in 1995. The
reduced sales in 1995 were the result of the loss of a major
retail chain as a customer, partially mitigated by a general
increase in business among numerous independent retail stores.
In 1996, Five Star commenced selling to the major retail chain
again, but is unable at this time to predict what the sales
volume will be in the future. The increase in 1994 was due to
the continued growth of the hardware business.
The Optical Plastics Group sales increased from $7,817,000 in
1993, to $9,290,000 in 1994 and to $10,949,000 in 1995. The
improved sales in 1995 were the result of increased sales
throughout MXL's entire customer base. The increased sales in
1994 was the result of increased orders from MXL's largest
customer, due to increased worldwide demand for its product.
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Gross margin
Consolidated gross margin was $26,974,000 or 14% in 1993,
$32,559,000 or 16% in 1994 and $28,322,000 or 15% of net sales in
1995. The reduced gross margin of $4,237,000 in 1995 occurred
primarily within the Physical Science Group, and to a lesser
extent within the Distribution Group, partially offset by
increased gross margins achieved by the Optical Plastics Group.
The increased gross margin of $5,585,000 in 1994 occurred
primarily within the Optical Plastics and Physical Science
Groups.
The Physical Science Group gross margin increased from
$12,941,000, or 13% in 1993 to $16,670,000 or 14% in 1994 and
decreased to $12,368,000 or 12% in 1995. The decreased gross
margin in 1995 was due to the Company's ownership in Duratek
falling below 50% in January 1995, and the Company accounting for
Duratek on the equity basis from that time, partially offset by
GP being included in the consolidated results since September
1994. Duratek achieved a gross margin of $7,111,000 in 1994 but
zero was included in consolidated gross margin for 1995 for
Duratek, which has been accounted for on the equity method since
January 1995. The reduced gross margin percentage is the result
of historically lower gross margins earned by GP due to the
nature of its business. In both 1995 and 1994, GP has increased
its gross margin percentage through its continuing efforts to
reduce overhead costs as a percent of revenue, as well as the
achievement of higher direct labor utilization. In 1994, the
increased gross margin was attributable to both GP and Duratek.
GP realized increased gross margin due to higher revenues,
reduced overhead and higher direct labor utilization. Duratek
realized increased gross margin in 1994 as a result of increased
sales as well as higher margins achieved on both technology and
services contracts.
The Distribution Group gross margin increased from $11,718,000 or
16% in 1993 to $11,785,000 or 16% in 1994 and decreased to
$10,966,000 or 17% in 1995. In 1995, the reduced gross margin
was the result of reduced sales, partially mitigated by an
increased gross margin percentage. The increased gross margin
percentage in 1995 was the result of reduced warehousing costs
due to the successful implementation of Five Star's advanced
warehouse management system , as well as the consolidation of
Five Star's New York warehouse into the New Jersey facility. In
1994, the increased gross margin was due to increased sales. The
gross margin in 1994 was affected by increased warehousing costs
incurred as a result of the decision to close Five Star's New
York facility and to consolidate its operations into the New
Jersey facility. The increased warehousing costs in 1994 were
partially offset by increased margins achieved due to changes in
merchandising practices.
The Optical Plastics Group gross margin increased from $2,642,000
or 34% of net sales in 1993 to $3,635,000 or 39% of net sales in
1994 and to $4,336,000 or 40% of net sales in 1995. In 1995, the
increased gross margin was primarily the result of increased
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sales. In 1994, the increased gross margin was the result of
increased sales as well as an improved mix of products.
The Health Care Group gross margin was $(699,000) in 1993. The
negative gross margin in 1993 was the result of excess/idle
facility costs incurred by ISI, notwithstanding the suspension of
production, and lack of sales of ALFERONR N Injection during
1993. As a result of the Exchange Offer in 1993, through which
the Company's interest in ISI fell below 50%, ISI is currently
being accounted for on the equity basis.
Investment and other income (expense), net
Investment and other income (expense) was $3,379,000 in 1993 and
$(1,808,000) in 1994 and $1,129,000 in 1995, respectively. The
improvement in 1995 is due to several factors including a foreign
currency transaction loss of $1,066,000 in 1995 compared to a
foreign currency transaction loss of $2,124,000 realized in 1994,
related to the Company's decision not to hedge its Swiss
denominated debt, and reduced losses incurred on investments in
20% to 50% owned affiliates. These improvements were partially
offset by a $785,000 loss recognized due to the permanent
impairment of an available for sale security. In 1994, the
$5,187,000 reduction in Investment and other income (expense),
net from 1993 was due to two factors. The Company realized a
foreign currency transaction loss of $2,124,000 in 1994, as
compared to a net foreign currency transaction gain of $901,000
realized in 1993, related to the Company's decision not to hedge
its Swiss denominated debt. In addition, the Company recognized
increased losses on investments in 20% to 50% owned affiliates as
a result of the Company's share of ISI's loss, which was
$4,409,000, being included in Investment and other income
(expense), net for the year ended December 31, 1994. In 1993,
the results of ISI were consolidated with the Company for the
first nine months of the year, until the Company's ownership fell
below 50%. The results of operations for ISI have been accounted
for on the equity method since the fourth quarter of 1993, and
the Company recognized a $1,599,000 loss in 1993 related to its
equity investment in ISI. The above losses were partially offset
by increased gains realized on the sale of certain investments in
1994.
The increase in investments and advances of $9,852,000 was
principally the result of the deconsolidation of Duratek in which
the Company's investment was $4,121,000 at December 31, 1995 and
the recognition of a gain of $3,137,000 as a result of the
issuance of common stock by GSES. At December 31, 1995, the
Company's investments and advances of $21,452,000 were primarily
its investments in Duratek, ISI and GSES, which were $4,121,000,
$3,761,000 and $8,944,000, respectively.
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) increased
from $34,255,000 in 1993 to $34,301,000 in 1994 and decreased to
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$29,984,000 in 1995. In 1995, the reduced SG&A was primarily the
result of reduced SG&A of $3,985,000 within the Physical Science
Group primarily due to Duratek, which incurred SG&A of $5,926,000
in 1994, being accounted for on the equity basis since January
1995, partially offset by increased SG&A of $1,941,000 incurred
by GP largely due to the recording of an approximately $1,015,000
reserve related to potentially uncollectible revenue recorded in
years prior to 1993. In the process of reviewing the results of
a previous audit by the Defense Contract Audit Agency, GP
determined that, based upon the information then available, it
was not probable that the government would approve payment of a
rate differential related to overruns in certain cost-plus-fixed-
fee contracts which were completed prior to 1993. Since the rate
differential had been recognized as revenue over a series of
prior years, GP set up a reserve in the third quarter of 1995
against the estimated amount of the rate differential believed
likely to be noncollectible. In addition the Distribution Group
incurred reduced SG&A of $773,000 in 1995 as a result of Five
Star's reduced sales commissions paid due to reduced sales, as
well as the success of its continuing effort to consolidate and
streamline its organization. In 1994, the marginal increase was
primarily the result of increased general and administrative
expenses incurred by the Distribution Group, primarily as a
result of costs associated with the closing of Five Star's New
York warehouse and the consolidation of the New York sales and
operations into the New Jersey facility, as well as increased
depreciation and amortization expense. American Drug Company
(ADC) also incurred increased SG&A as a result of increased
consulting expenses and costs related to the opening and staffing
of the Moscow office. ADC is the Company's 54% owned subsidiary
which exports American made generic and prescription drugs and
over-the-counter healthcare products in both Russia and the
Commonwealth of Independent States. The increased general &
administrative costs at Five Star and ADC were partially
mitigated by ISI being accounted for on the equity basis since
the third quarter of 1993 and reduced costs incurred at the
corporate level.
Research and development costs
The Company's research and development activities are conducted
both internally and under various types of arrangements at
outside facilities. Research and development costs were
$2,847,000, $431,000 and $388,000 for 1993, 1994 and 1995,
respectively. In 1993, research and development costs were
primarily attributable to ISI. Due to the Exchange Offer in the
third quarter of 1993 (see Note 11(b) to the consolidated
financial statements), the Company's ownership in ISI fell below
50%, and the Company began accounting for ISI on the equity
method from that time. In 1994 and 1995, research and
development costs were incurred at the Company's Hydro Med
Sciences division relating to the Hydron polymer.
Interest expense
Interest expense aggregated $8,199,000 in 1993, $6,458,000 in
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1994 and $5,019,000 in 1995. The reduced interest expense in
1994 and the further reduction in 1995, was the result of the
Company's continuing successful effort to reduce its interest
expense at the corporate level due to reduced interest on the
Company's Swiss Debt obligations due to the Exchange Offers in
1993, 1994 and 1995 (see Note 11(a)(b)(c) to the consolidated
financial statements), as well as the Company's practice of
repurchasing Swiss Debt from time to time.
Income taxes
Income tax expense (benefit) from operations for 1993, 1994 and
1995 was $(575,000), $749,000 and $1,787,000, respectively.
In 1995, the Company recorded an income tax expense of
$1,787,000. The current income tax provision of $258,000
represents the estimated taxes payable by the Company for the
year ended December 31, 1995. The deferred income tax provision
of $1,529,000 represents the deferred taxes of GP, the Company's
51% owned subsidiary.
In 1994, the Company recorded an income tax expense of $749,000.
The current income tax provision of $283,000 represents the
estimated taxes payable by the Company for the year ended
December 31, 1994. The deferred income tax provision of $466,000
represents the deferred taxes of GP, the Company's 51% owned
subsidiary.
In 1993, the Company recorded an income tax benefit of
$1,043,000, of which $973,000 relates to Federal income taxes, in
continuing operations as a result of the income tax expense
allocated to the extraordinary gain recognized on the early
extinguishment of debt under the provisions of FASB No. 109.
As of December 31, 1995, the Company has approximately
$23,204,000 of consolidated net operating losses available for
Federal income tax purposes.
Accounting developments
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Statement 121 requires the Company to estimate the
future cash flows expected to result from the use and eventual
disposition of its property, plant and equipment and other long
lived assets, and if the sum of such cash flows is less than the
carrying amount of these assets, to recognize an impairment loss
to the extent, if any, that the carrying amount of the assets
exceeds their fair values. The Company believes that expected
future cash flows derived from these assets will be at least
equal to their carrying values, and that no impairment loss will
be indicated.
In December 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation"
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("SFAS 123"), effective for years beginning after December 15,
1995. Under SFAS 123, the Company may elect either a "fair
value" based method or the current "intrinsic value" based method
of accounting prescribed by APB No. 25, "Accounting for Stock
Issued to Employees," for its stock-based compensation
arrangements. Under the "intrinsic value" based method, the
Company will be required to disclose in the footnotes to the
consolidated financial statements net income and earnings per
share computed under the "fair value" based method. The Company
has elected to continue accounting for stock-based compensation
arrangements using the "intrinsic value" based method; therefore,
the adoption of SFAS 123 will not impact the Company's results of
operations or financial condition.
Liquidity and capital resources
At December 31, 1995, the Company had cash and cash equivalents
totaling $8,094,000. GP, SGLG, Inc. and ADC had cash and cash
equivalents of $186,000 at December 31, 1995. The minority
interests of these 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.
The Company has sufficient cash, cash equivalents and marketable
securities and borrowing availability under existing and
potential lines of credit (See Note 9(a) and (d) to the
consolidated financial statements) to satisfy its cash
requirements for its Swiss Franc denominated indebtedness due in
1996, which totaled approximately $1,998,000 at December 31,
1995, and was fully redeemed during the first quarter of 1996.
At December 31, 1995, approximately $4,000,000 was available to
the Company under MXL's and GP's credit agreements. In order for
the Company to meet its long-term cash needs, which include the
repayment of approximately $6,749,000 of 12% Subordinated
Debentures scheduled to mature in 1997, the Company must obtain
additional funds from 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. At December 31, 1995, the Company had classified
250,000 shares of Duratek stock valued at $3,563,000 as
marketable securities, as a result of the transfer from long-term
investments to trading securities. On March 20, 1996, Duratek
filed a registration statement with the Securities and Exchange
Commission relating to a proposed offering of 3,600,000 shares of
common stock, of which 2,500,000 shares (3,040,000 shares if the
underwriters' over-allotment option is exercised) will be sold by
Duratek and 1,000,000 will be sold by the Company. After the
sale of the 1,000,000 shares of Duratek common stock, the Company
will still own 1,948,000 shares of Duratek common stock. The
Company reasonably believes that it will be able to accomplish
some or all of the above transactions in order to fund the
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scheduled repayment of the Company's 12% Subordinated Debentures.
For the year ended December 31, 1995, the Company's working
capital increased by $7,126,000 to $32,949,000, reflecting the
effect of decreased current maturities of long-term debt and
short-term borrowings, partially offset by reduced current assets
related to Duratek. Consolidated cash and cash equivalents
decreased by $1,981,000 to $8,094,000 at December 31, 1995.
The decrease in cash and cash equivalents of $1,981,000 in 1995
primarily resulted from the effect of cash used by financing
activities of $8,125,000, partially offset by cash provided by
operations of $1,099,000 and investing activities of $5,045,000.
The cash provided by investing activities was primarily from
proceeds from sale of stock of a subsidiary, partially offset by
additions to property, plant and equipment. Financing activities
consisted primarily of repayments and reductions in short-term
borrowings and repayments of long-term debt, offset by proceeds
from short-term borrowings and long-term debt.
The Company is required to meet certain financial covenants
pursuant to its loan agreements, and is currently in compliance
with these covenants.
The Company's principal manufacturing facilities were constructed
subsequent to 1976 and management does not anticipate having to
replace major facilities in the near term. As of December 31,
1995, the Company has not contractually committed itself for any
other new major capital expenditures.
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Item 8. Financial Statements and Supplementary Data are hereby
amended and restated in its entirety as follows:
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF NATIONAL PATENT DEVELOPMENT
CORPORATION AND SUBSIDIARIES:
Independent Auditors' Report 39
Consolidated Balance Sheets - December 31, 1995
and 1994 40
Consolidated Statements of Operations - Years ended
December 31, 1995, 1994, and 1993 42
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1995, 1994,
and 1993 44
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994, and 1993 46
Notes to Consolidated Financial Statements 49
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data
FINANCIAL STATEMENTS OF GSE SYSTEMS, INC.:
GSE SYSTEMS, INC. AND SUBSIDIARIES:
Report of Independent Accountants *
Consolidated Balance Sheets as of December 31,
1994 and 1995 *
Consolidated Statements of Operations for the
period April 14, 1994 through December 31,
1994 and for the year ended December 31, 1995 *
_________
*Incorporated herein by reference to Exhibit 99 to the Annual
Report on Form 10-K of National Patent Development Corporation
for the year ended December 31, 1995.
Consolidated Statements of Stockholders' Equity
(Deficit) for the period April 14, 1994
through December 31, 1994 and for the year
ended December 31, 1995 *
Consolidated Statements of Cash Flows for the
period April 14, 1994 through December 31,
1994 and for the year ended December 31, 1995 *
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Notes to Consolidated Financial Statements *
SIMULATION SYSTEMS & SERVICES TECHNOLOGIES
COMPANY AND MSHI, INC.: *
Report of Independent Accountants *
Consolidated Statements of Operations for
the eight months ended August 31, 1993,
for the four months ended December 31, 1993,
and for the period January 1, 1994 through
April 13, 1994 *
Consolidated Statements of Stockholder's Equity
for the eight months ended August 31, 1993,
for the four months ended December 31, 1993
and for the period January 1, 1994 through
April 13, 1994 *
Consolidated Statements of Cash Flows for the
eight months ended August 31, 1993, for the
four months ended December 31, 1993 and for the
period January 1, 1994 though April 13, 1994 *
Notes to Consolidated Financial Statements *
GP INTERNATIONAL ENGINEERING & SIMULATION, INC.: *
Report of Independent Accountants *
Statements of Operations for the year ended December
31, 1993 and for the period January 1, 1994
through April 13, 1994 *
Statements of Stockholder's Equity (Deficit) for
the year ended December 31, 1993 and for the
period January 1, 1994 through April 13, 1994 *
__________
*Incorporated herein by reference to Exhibit 99 to the Annual
Report on Form 10-K of National Patent Development Corporation
for the year ended December 31, 1995. <PAGE>
Statements of Cash Flows for the
year ended December 31, 1993 and for the period January 1, 1994
through April 13, 1994 *
Notes to Consolidated Financial Statements *
EUROSIM AB: *
Report of Independent Accountants *
Statements of Operations for the year ended December
31, 1993 and for the period January 1, 1994
through April 13, 1994 *
Statements of Stockholder's Equity for the year ended
37
<PAGE>
December 31, 1993 and for the period January 1,
1994 through April 13, 1994 *
Statements of Cash Flows for the year ended December
31, 1993 and for the period January 1, 1994
through April 13, 1994 *
Notes to Financial Statements *
___________
*Incorporated herein by reference to Exhibit 99 to the Annual
Report on Form 10-K of National Patent Development Corporation
for the year ended December 31, 1995.
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Patent Development Corporation:
We have audited the consolidated financial statements of National
Patent Development Corporation and subsidiaries as listed in the
accompanying index. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements 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 financial
position of National Patent Development Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 28, 1996
40
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1995 1994
Assets
Current assets
Cash and cash equivalents $ 8,094 $ 10,075
Marketable securities 3,563
Accounts and other receivables (of which
$13,013 and $15,152 are from government
contracts) less allowance for doubtful
accounts of $3,066 and $2,092 39,466 52,487
Inventories 20,444 20,642
Costs and estimated earnings in excess of
billings on uncompleted contracts, of which
$1,473 and $6,897 relates to government
contracts 9,118 15,237
Prepaid expenses and other current assets 3,640 6,770
Total current assets 84,325 105,211
Investments and advances 21,452 11,600
Property, plant and equipment, at cost 33,367 37,423
Less accumulated depreciation and
amortization (24,374) (22,843)
8,993 14,580
Intangible assets, net of accumulated
amortization of $27,901 and $26,970
Goodwill 32,999 35,986
Patents, licenses and deferred charges 54 1,039
33,053 37,025
Investment in financed assets 684
Other assets 3,897 6,446
$151,720 $175,546
41
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except shares and par value per share)
December 31, 1995 1994
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 4,167 $ 14,279
Short-term borrowings 18,043 31,060
Accounts payable and accrued expenses 20,865 27,958
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,301 6,091
Total current liabilities 51,376 79,388
Long-term debt less current maturities 19,765 17,513
Minority interests 9,581 11,970
Commitments and contingencies
Common stock issued subject to
repurchase obligation 1,510
Stockholders' equity *
Preferred stock, authorized 10,000,000
shares, par value $.01 per share, none
issued
Common stock, authorized 40,000,000
shares, par value $.01 per share,
issued 6,825,723 and 6,035,190 shares
(of which 1,497 and 5,661 shares are
held in treasury) 68 60
Class B capital stock, authorized 2,800,000
shares, par value $.01 per share, issued
and outstanding 62,500 shares 1 1
Capital in excess of par value 125,419 120,038
Deficit (52,139) (53,151)
Net unrealized loss on
available-for-sale securities (1,440) (1,783)
Minimum pension liability adjustment (911)
Total stockholders' equity 70,998 65,165
$151,720 $175,546
* Stockholders' equity has been restated to reflect the effect
of the one for four reverse stock split (See Note 16 to the
consolidated financial statements).
See accompanying notes to consolidated financial
statements.
42
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31, 1995 1994 1993
Revenues
Sales $185,025 $204,774 $185,846
Investment and other income
(expense), net (including
interest income of $555,
$360 and $875) 1,129 (1,808) 3,379
186,154 202,966 189,225
Costs and expenses
Cost of goods sold 156,703 172,215 158,872
Selling, general and
administrative 29,984 34,301 34,255
Research and development 388 431 2,847
Interest 5,019 6,458 8,199
192,094 213,405 204,173
Gain on disposition of stock of
a subsidiary and an affiliate 3,768 3,795
Gain on issuance of stock by a
subsidiary and affiliates 5,912 1,353
Unrealized gain on transfer from
long-term investments to
trading securities 3,183
Minority interests (1,104) (209) 2,376
Income (loss) before income taxes,
discontinued operation
and extraordinary item 5,819 (10,648) (7,424)
Income tax expense (benefit) 1,787 749 (575)
Income (loss) before discontinued
operation and extraordinary
item 4,032 (11,397) (6,849)
Discontinued operation
Loss from discontinued operation (2,941) (2,574) (947)
Income (loss) before
extraordinary item 1,091 (13,971) (7,796)
43
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(in thousands, except shares and par value per share)
Years ended December 31, 1995 1994 1993
Extraordinary item
Extinguishment of debt,
(net of income tax) (79) 1,819
Net income (loss) $ 1,012 $(13,971) $ (5,977)
Income (loss) per share *
Income (loss) before discontinued
operation and extraordinary
item $ .60 $ (2.10) $ (1.60)
Discontinued operation (.44) (.47) (.22)
Extraordinary item (.01) .42
Net income (loss) per share $ .15 $ (2.57) $ (1.40)
See accompanying notes to consolidated financial statements.
* All periods have been restated to reflect the effect of the
one for four reverse stock split (See Note 16 to the
consolidated financial statements).
44
<PAGE>
<TABLE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1995, 1994, and 1993
(in thousands, except shares, par value per share and per share amounts)
<CAPTION>
Net
unrealized
Class B Capital in gain (loss) on Minimum Total
Common capital excess available- pension stock-
stock stock of par for-sales liability holders'
($.01 Par)($.01 Par) value Deficit securities adjustment equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 40 * $1 * $96,833 * $(33,051) $63,823
Exercise of stock options
and warrants 412 412
Net loss (5,977) (5,977)
Conversion of 12% Debentures 82 82
Issuance of stock in connection
with Swiss Bonds 7 8,713 8,720
Issuance and sale of common stock 1 377 378
Balance at December 31, 1993 48 1 106,417 (39,028) 67,438
Implementation of SFAS 115 1,157 1,157
Exercise of stock options and
warrants 99 99
Issuance of stock in connection
with Swiss Bonds 10 9,985 9,995
Transfer from common stock issued
subject to repurchase obligation 1 2,731 2,732
Conversion of 12% Debentures 35 35
Distribution of shares in a
subsidiary (152) (152)
Issuance and sale of common stock 1 771 772
Net unrealized loss on
available-for-sales securities (2,940) (2,940)
Net loss (13,971) (13,971)
</TABLE>
44
<PAGE>
<TABLE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Continued)
Years ended December 31, 1995, 1994, and 1993
(in thousands, except shares, par value per share and per share amounts)
<CAPTION>
Net
unrealized
Class B Capital in gain (loss) on Minimum Total
Common capital excess available- pension stock-
stock stock of par for-sales liability holders'
($.01 Par)($.01 Par) value Deficit securities adjustment equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 60 * 1 * 120,038 * (53,151) (1,783) 65,165
Minimum pension liability
adjustment (911) (911)
Net unrealized gain on
available-for-sales securities 343 343
Net income 1,012 1,012
Issuance of stock in connection
with Swiss Bonds 6 3,725 3,731
Issuance and sale of common stock 2 1,046 1,048
Transfer from common stock issued
subject to repurchase obligation 610 610
Balance at December 31, 1995 $ 68 $ 1 $125,419 $(52,139) $(1,440) $ (911) $70,998
* All periods have been restated to reflect the effect of the one-for-four reverse stock split (See
Note 16 to the consolidated financial statements.)
See accompanying notes to consolidated financial statements.
</TABLE>
45
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31, 1995 1994 1993
Cash flows from operations:
Net income (loss) $ 1,012 $(13,971) $ (5,977)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Provision for discontinued
operation 2,460 1,570
Depreciation and amortization 4,316 6,063 5,296
Income tax benefit allocated to
continuing operations (1,043)
Loss (gain) from extinguishment
of debt, net of income tax 79 (1,819)
Gain on disposition of stock of a
subsidiary and an affiliate (3,768) (3,795)
Gain on issuance of stock by
a subsidiary and affiates (5,912) (1,353)
Unrealized gain on transfer from
long-term investments to
trading securities (3,183)
Changes in other operating items,
net of effect of acquisitions
and disposals:
Accounts and other receivables 1,228 (3,887) 4,817
Inventories (1,687) 1,163 (381)
Costs and estimated earnings in
excess of billings on
uncompleted contracts 6,119 1,349 (2,379)
Prepaid expenses and other
current assets 2,993 (817) (44)
Accounts payable and accrued
expenses (4,768) 4,626 2,680
Billings in excess of costs and
estimated earnings on
uncompleted contracts 2,210 (1,014) 1,491
Net cash provided by (used in)
operations $ 1,099 $ (4,918) $ (2,507)
46
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Years ended December 31, 1995 1994 1993
Cash flows from investing activities:
Proceeds from sale of stock of
a subsidiary $ 7,051 $ $
Sales of certain net assets and
businesses of a subsidiary 4,470
Marketable securities 651
Additions to property, plant and
equipment, net (2,006) (4,006) (2,077)
Additions to intangible assets (388) (5,824) (303)
Reduction of (additions to)
investments and other assets 388 664 (864)
Net cash provided by (used in)
investing activities 5,045 (4,696) (2,593)
Cash flows from financing activities:
Repayments of short-term
borrowings (11,020) (5,650) (28,011)
Proceeds from short-term borrowings 5,634 15,320 20,424
Decrease in restricted cash 1,200
Proceeds from issuance of
long-term debt 5,162 3,638 10,973
Reduction of long-term debt (8,145) (4,882)
(8,515)
Proceeds from issuance of
common stock 244 188 198
Proceeds from issuance of stock
by a subsidiary 1,473
Exercise of common stock options
and warrants 99 413
Net cash (used in) provided by
financing activities (8,125) 8,713 (1,845)
Net decrease in cash
and cash equivalents (1,981) (901) (6,945)
Cash and cash equivalents at
beginning of year 10,075 10,976 17,921
Cash and cash equivalents
at end of year $ 8,094 $ 10,075 $ 10,976
47
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Years ended December 31, 1995 1994 1993
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 4,577 $ 4,147 $ 5,344
Income taxes $ 655 $ 607 $ 692
Supplemental schedule of
noncash transactions:
Reduction of debt $ 6,250 $ 9,167 $21,900
Additions to other assets
and prepaid expenses 625 100 179
Reduction of accounts payable 267
Reduction of accrued
interest payable 1,045 607
Increase in accrued pension
liability (911)
Issuances of common stock (4,535) (10,579) (8,981)
Issuance of long-term debt (2,340) (3,006)
Common stock issued subject
to repurchase obligation (4,242)
Gain on disposition of stock of a
subsidiary and an affiliate (3,795)
Gain on exchange of debt before
income tax effect (2,662)
Minimum pension liability adjustment 911
See accompanying notes to consolidated financial
statements.
48
<PAGE>
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of business and summary of significant accounting
policies
Description of business. National Patent Development Corporation
(the "Company"), is primarily a holding company, which is a legal
entity separate and distinct from its various operating
subsidiaries. The Company's operations consist of three
operating business segments: Physical Science, Distribution and
Optical Plastics. In addition, the Company owns approximately
54% of the outstanding shares of common stock of the American
Drug Company (See Note 5). The Company also has a 22% investment
in Interferon Sciences, Inc. (See Note 4), a 31% investment in
GTS Duratek, Inc. (See Note 3) and controls 26% of GSE Systems,
Inc. (See Note 6), a company in the business of software
simulation and controls. The Company's Physical Science Group,
through its 51% owned subsidiary, General Physics Corporation,
provides a wide range of services in training, engineering,
environmental and technical support services to commercial
nuclear and fossil power utilities, the United States Departments
of Defense ("DOD") and Energy (the "DOE"), Fortune 500 companies
and other commercial and governmental customers. The Company's
Distribution Group, incorporated under the name Five Star Group,
Inc. (Five Star), is engaged in the wholesale distribution of
home decorating, hardware and finishing products. The Company's
Optical Plastics Group, through its wholly owned subsidiary MXL
Industries, Inc. (MXL) manufactures molded and coated optical
products, such as shields and face masks and non-optical plastic
products.
Principles of consolidation and investments. The consolidated
financial statements include the operations of National Patent
Development Corporation and its majority-owned subsidiaries (the
Company). Investments in 20% - 50% owned companies are accounted
for on the equity basis. All significant intercompany balances
and transactions have been eliminated in consolidation.
Statements of cash flows. For purposes of the statements of cash
flows, the Company considers all highly liquid instruments with
original maturities of three months or less from purchase date to
be cash equivalents.
Marketable securities. Marketable securities at December 31,
1995 consist of U.S. corporate equity securities. The Company
adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities (Statement 115) as of January 1, 1994. Under
Statement 115, the Company classifies its marketable equity
securities as trading and available-for-sale.
Inventories. Inventories are valued at the lower of cost or
market, principally using the first-in, first-out (FIFO) method.
49
<PAGE>
Foreign currency transactions. The Company's Swiss Bonds (see
Note 11) are subject to currency fluctuations and the Company has
hedged portions of such debt from time to time, but not within
the three year period ended December 31, 1995. During the years
ended December 31, 1995, 1994, and 1993, the Company realized
foreign currency transaction gains (losses) of $(1,066,000),
$(2,124,000) and $901,000, respectively. These amounts are
included in Investment and other income (expense), net. At
December 31, 1995, the Company had not hedged its Swiss Franc
obligations. The Company's 54% owned subsidiary, the American
Drug Company (See Note 5) conducts its business primarily in U.S.
dollars.
Contract revenue and cost recognition. The Company provides
services under time-and-materials, cost-plus-fixed-fee and fixed-
price contracts. Revenue is recognized as costs are incurred and
includes estimated fees at predetermined rates. Differences
between recorded costs and estimated earnings and final billings
are recognized in the period in which they become determinable.
Costs and estimated earnings in excess of billings on uncompleted
contracts are recorded as a current asset. Billings in excess of
costs and estimated earnings on uncompleted contracts are
recorded as a current liability. Generally, contracts provide
for the billing of costs incurred and estimated earnings on a
monthly basis. Retainages, amounts subject to future negotiation
and amounts which are expected to be collected after one year are
not material for any period.
Property, plant and equipment. Property, plant and equipment are
carried at cost. Major additions and improvements are
capitalized while maintenance and repairs which do not extend the
lives of the assets are expensed currently. Gain or loss on the
disposition of property, plant and equipment is recognized in
operations when realized.
Depreciation. The Company provides for depreciation of property,
plant and equipment primarily on a straight-line basis over the
following estimated useful lives:
CLASS OF ASSETS USEFUL LIFE
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 20 years
Leasehold improvements Shorter of asset life
or term of lease
Intangible assets. The excess of cost over the fair value of net
assets of businesses acquired is recorded as goodwill and is
amortized on a straight-line basis generally over periods ranging
from 5 to 40 years. The Company capitalizes costs incurred to
obtain and maintain patents and licenses. Patent costs are
amortized over the lesser of 17 years or the remaining lives of
the patents, and license costs over the lives of the licenses.
The Company also capitalizes costs incurred to obtain long-term
debt financing. Such costs are amortized on an effective yield
basis over the terms of the related debt and such amortization is
50
<PAGE>
classified as interest expense in the Consolidated Statements of
Operations.
The periods of amortization of goodwill are evaluated at least
annually to determine whether events and circumstances warrant
revised estimates of useful lives. This evaluation considers,
among other factors, expected cash flows and profits of the
businesses to which the goodwill relates. Based upon the
periodic analysis, goodwill is written down or written off if it
appears that future profits or cash flows will be insufficient to
recover such goodwill.
Reverse stock split. As a result of a one-for-four reverse stock
split effective on October 6, 1995, all shares and per share
information have been restated.
Treasury stock. Treasury stock is recorded at cost. Reissuances
of treasury stock are valued at market value at the date of
reissuance. The cost of the treasury stock is relieved from the
treasury stock account and the difference between the cost and
market value is recorded as additional paid in capital.
Sales of stock by a subsidiary. The Company records in the
Consolidated Statements of Operations any gain or loss realized
when a subsidiary sells its shares at an offering price which
differs from the Company's carrying amount per share of such
subsidiary's stock.
Income taxes. The Company files a consolidated Federal income
tax return that includes each domestic subsidiary in which the
Company has at least 80% voting control.
Income (loss) per share. Per share data is based on the weighted
average number of shares outstanding, including Class B capital
stock, and dilutive common stock equivalents. Presentation of
fully diluted earnings per share is not required because the
effect is less than 3% or is antidilutive. The weighted average
number of shares outstanding for the years ended December 31,
1995, 1994 and 1993, was 6,637,639, 5,431,166 and 4,281,475,
respectively.
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
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
these estimates.
Concentrations of credit risk. Financial instruments that
potentially subject the Company to significant concentrations of
credit risk consist principally of cash investments and accounts
receivable. The Company places its cash investments with high
quality financial institutions and limits the amount of credit
exposure to any one institution. With respect to accounts
receivable, 33% are related to United States government
51
<PAGE>
contracts, and the remainder are dispersed among various
industries, customers and geographic regions.
2. General Physics Corporation
On August 31, 1994, General Physics Corporation, a formerly
28% owned affiliate, (GP) acquired substantially all of the
operations and assets of SGLG, Inc. (SGLG) (formerly GPS
Technologies, Inc.), a 92% owned subsidiary, and assumed certain
liabilities of SGLG, related to its business of providing
management and technical training services, and specialized
engineering consulting services, to various commercial industries
and to the United States government. However, for accounting and
financial reporting purposes, the transaction has been treated as
a reverse acquisition of GP by SGLG since, among other factors,
the Company became the beneficial owner of approximately 54% of
the outstanding shares of GP's common stock as a result of the
transaction. The assets acquired by GP also included all of the
outstanding common stock of four wholly-owned subsidiaries of
SGLG: GPS Technologies, Inc. Federal Systems Group (GPSTFSG),
which provides technical services to the U.S. Department of the
Navy and other federal government agencies; GP Environmental
Services, Inc. (GPES), which provides environmental laboratory
analytical services; and General Physics Asia Pte. Ltd., located
in Singapore, and General Physics (Malaysia) Sdn. Bhd., located
in Malaysia, which provide operations support, engineering and
technical services to power and process industries in Southeast
Asia.
The consideration paid by GP totaled approximately
$34,000,000 and consisted of (a) $10,000,000 in cash, (b)
3,500,000 shares of GP common stock, (c) GP's 6% Senior
Subordinated Debentures due 2004 in the aggregate principal
amount of $15,000,000 ($1,500,000 of which was paid into escrow),
(valued at $10,700,000 after a $4,300,000 discount), (d) warrants
to purchase an aggregate of 1,000,000 shares of GP common stock
at $6.00 per share, and (e) warrants to purchase an aggregate of
475,664 shares of GP common stock at $7.00 per share. In
addition, GP entered into a lease with SGLG of certain fixed
assets of SGLG for a period of 10 years for an aggregate rent of
$2,000,000, payable in equal quarterly installments of $50,000.
The Company did not recognize a gain or loss on this transaction.
The cash portion of the purchase price for the SGLG
operations and assets was derived from funds borrowed by GP under
a $20,000,000 revolving credit facility secured by liens on the
assets of GP, GPSTFSG, GPES and Inventory Management Corporation,
all wholly-owned subsidiaries of GP (See Note 9(d)).
Prior to the transaction, the Company directly and
indirectly owned approximately 28% of the outstanding common
stock of GP, and approximately 92% of the outstanding common
stock of SGLG. The Company currently owns directly or indirectly
approximately 51% of the outstanding common stock of GP and
approximately 92% of the outstanding common stock of SGLG.
52
<PAGE>
In December 1994, as part of the above transaction, SGLG
distributed its shares of GTS Duratek, Inc. (Duratek) common
stock, totaling 3,950,000 shares, on a pro rata basis to its
shareholders. Therefore, the Company received 3,630,538 shares
of Duratek, and the minority shareholders received the remaining
319,462 shares.
From October 3, 1991 through August 31, 1994, the Company's
investment in GP has been accounted for on the equity basis and
the Company's share of GP's income (loss) for the eight months
ended August 31, 1994 and the year ended December 31, 1993 in the
amount of $(719,000) and $316,000, respectively, after the
amortization of the underlying goodwill, was included in the
caption "Investment and other income (expense), net" appearing in
the consolidated statements of operations. The financial
position and results of operations of SGLG were included in the
consolidated accounts of the Company for the years ended December
31, 1995, 1994 and 1993.
The following information shows on a pro forma basis, the
results of operations for the Company as if the above transaction
had occurred as of January 1, 1993 (in thousands):
Year ended December 31,
1994 1993
(unaudited)
Revenues $239,416 $251,187
Loss before discontinued
operation and extraordinary item (11,238) (6,132)
Net loss (13,812) (5,260)
Loss per share before discontinued
operation and extraordinary item (.13) (.09)
Loss per share (.16) (.08)
The above pro forma information is not necessarily indicative of
the actual financial position or results of operations that would
have been achieved if the transactions had occurred as of or for
the period indicated, or of future results that may be achieved.
3. GTS Duratek, Inc.
On January 24, 1995, the Company sold 1,666,667 shares of
common stock of GTS Duratek,Inc. (Duratek) at a price of $3.00
per share to The Carlyle Group (Carlyle) in connection with a $16
million financing by Duratek with Carlyle, a Washington, D.C.
based private merchant bank. In addition, the Company granted
Carlyle an option, which was exercised in December 1995, to
purchase up to an additional 500,000 shares of the Company's
Duratek common stock over the next year at $3.75 per share. The
Company realized a gain of $3,768,000 on sales of Duratek common
stock, primarily in these two transactions.
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<PAGE>
Duratek received $16 million from Carlyle in exchange for
160,000 shares of newly issued 8% cumulative convertible
preferred stock (convertible into 5,333,333 shares of Duratek
common stock at $3.00 per share). Duratek granted Carlyle an
option to purchase up to 1,250,000 shares of newly issued
Duratek common stock from Duratek over the next four years.
As a result of the above transactions, at December 31, 1995
the Company owns approximately 2,948,000 shares of Duratek's
common stock (approximately 31% of the outstanding shares of
common stock). As a result of the Company's ownership in Duratek
falling below 50%, commencing on January 24, 1995 the Company has
accounted for its investment in Duratek on the equity basis.
In connection with the transaction, Carlyle will have the right,
through its preferred stock, to elect a majority of Duratek's
Board of Directors. Upon conversion of the preferred stock,
Carlyle would own approximately 50% of Duratek's common stock if
all of its options are exercised.
On March 20, 1996, Duratek filed a registration statement with
the Securities and Exchange Commission relating to a proposed
offering of 3,600,000 shares of common stock of which 2,500,000
shares (3,040,000 shares if the underwriters' over-allotment
option is exercised) will be sold by Duratek and 1,000,000 will
be sold by the Company.
Duratek is an integrated environmental services and technology
firm with proprietary waste processing systems applicable to
radioactive, hazardous, mixed and other wastes.
The Company's investment in Duratek of approximately $4,121,000
as of December 31, 1995, is included in Investments and advances
on the consolidated balance sheet of which $2,447,000 represents
the Company's percentage of underlying net assets and $1,674,000
represents goodwill. At December 31, 1995, the Company owned
2,948,000 shares of Duratek, of which 250,000 shares have been
classified as Marketable securities, (See Note 19). The total
shares held of 2,948,000 have a market value of $42,009,000. The
Company's share of Duratek's income included in Investment and
other income (expense), net is $31,000 in 1995.
Condensed financial information for Duratek is as follows as of
December 31, 1995 and for the year then ended (in thousands):
Current assets $28,780
Non current assets 9,880
Current liabilities 4,665
Non current liabilities 10,123
Redeemable convertible
preferred stock 14,609
Stockholders' equity 9,257
Revenues 40,418
Gross profit 8,197
Net income 60
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4. Interferon Sciences, Inc.
Interferon Sciences, Inc. (ISI) is a 22% owned affiliate of the
Company. It is engaged in the manufacture and sale of ALFERONR N
Injection, ISI's first product commercially approved by the FDA
for the treatment of recurring and refractory external genital
warts, and the research and development of other alpha interferon
based products for the treatment of viral diseases, cancers and
diseases of the immune system.
On July 12, 1993, the Company commenced an Exchange Offer for its
Swiss Franc denominated Bonds and its Dual Currency Bonds. (See
Note 11(b)). As a result of the inclusion of a portion of the
Company's shares of Common Stock of ISI as part of the
consideration in the Exchange Offer, the Company's ownership in
ISI fell below 50%, and therefore, commencing during the third
quarter of 1993, the Company accounted for the results of ISI on
the equity basis.
In 1995, the Company realized a $2,775,000 gain on issuance of
stock by this affiliate, primarily as the result of the issuance
of 12,000,000 shares of Common Stock by ISI at $1.20 per share in
August and September 1995.
The information relating to the Company's investment in ISI is as
follows (in thousands):
1995 1994
Investments and advances:
Underlying assets $ 2,837 $ 1,072
Goodwill 924 1,152
Total 3,761 2,224
Number of shares owned 7,475 6,975
Market value of share $14,016 $ 9,373
Equity in income (loss) included
in Investment and other income
(expenses), net (1,953) (4,409)
Condensed financial information for ISI is as follows as of
December 31, 1995 and 1994 and for the years then ended (in
thousands):
1995 1994
Current assets $ 8,188 $ 1,691
Non current assets 5,765 6,491
Current liabilities 1,126 2,473
Non current liabilities 2,730
Stockholders' equity 12,827 2,979
Revenues 1,296 1,166
Gross margin (1,780) (1,612)
Net loss (7,372) (12,078)
5. American Drug Company
The Company owns approximately 54% of the outstanding common
stock of American Drug Company (ADC), which was organized in
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1993, as a wholly-owned subsidiary of the Company to initiate
marketing activities for American generic pharmaceutical and
medical pharmaceuticals in Russia and the Commonwealth of
Independent States (the "CIS"). ADC's subsidiary, NPD Trading
(USA), Inc. provides consulting services to Western businesses in
Russia and Eastern Europe. ADC sells American-made generic
pharmaceutical and health care products under its own label in
Russia and the CIS.
In August 1994, pursuant to a Transfer and Distribution
Agreement, the Company distributed 46% of its interest in ADC to
the Company's shareholders. In addition, ADC issued warrants to
the Company's shareholders to purchase its stock for a period of
two years, subject to cancellation under certain circumstances.
6. GSE Systems, Inc.
In March 1994, GP and SGLG contributed assets to a newly formed,
multi party joint venture, GSE Systems, Inc. (GSES), for 10% and
35% ownership interests in the joint venture, respectively. GSES
designs, develops and delivers business and technology solutions
by applying process control, data acquisition, simulation, and
business software, systems and services to the energy, process
and manufacturing industries worldwide. On August 1, 1995, GSES
completed an initial public offering of 1,725,000 shares
(including an over-allotment option) of its common stock at $14
per share. As a result of the offering, the Company recognized a
gain on issuance of stock by an affiliate of approximately
$3,137,000 and at December 31, 1995, controls 26% of GSES.
The Company accounts for its investment in GSES on the equity
basis. The Company's investment in GSES of approximately
$8,944,000 as of December 31, 1995 is included in Investments and
advances on the consolidated balance sheet, of which $5,476,000
represents the Company's percentage of underlying net assets and
$3,468,000 represents goodwill. At December 31, 1995, the
Company controls 1,125,000 shares of GSES with a market value of
$16,172,000. The Company's share of GSES's income included in
Investment and other income (expense), net is $1,237,000 in 1995.
Condensed financial information for GSES is as follows as of
December 31, 1995 and for the year then ended (in thousands):
Current assets $41,507
Non current assets 9,853
Current liabilities 24,961
Non current liabilities 5,783
Stockholders' equity 20,616
Revenue 85,302
Gross profit 27,926
Net income 3,490
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7. Inventories
Inventories, consisting of material, labor and overhead, are
classified as follows (in thousands):
December 31, 1995 1994
Raw materials $ 580 $ 1,973
Work in process 219 462
Finished goods 19,645 15,557
Land held for resale 2,650
$ 20,444 $ 20,642
8. Property, plant and equipment
Property, plant and equipment consists of the following
(in thousands):
December 31, 1995 1994
Land $ 173 $ 173
Buildings and improvements 1,374 1,367
Machinery and equipment 11,072 16,357
Furniture and fixtures 13,878 14,650
Leasehold improvements 6,870 4,876
33,367 37,423
Accumulated depreciation and
amortization (24,374) (22,843)
$ 8,993 $ 14,580
9. Short-term borrowings
Short-term borrowings are as follows (in thousands):
December 31, 1995 1994
Line of Credit Agreement (a) $ 14,593 $12,409
Revolving Loan and Line of Credit
Arrangements (b) 920
Revolving Line of Credit
Agreement (c) 7,631
Revolving Credit Agreement (d) 3,450 10,100
$ 18,043 $ 31,060
(a) In April 1993, Five Star Group, Inc. (Five Star) and MXL
Industries, Inc. (MXL) each entered into a revolving credit and
term loan agreement (the "Five Star Loan Agreement" and "MXL Loan
Agreement"), which was amended on October 23, 1995. The Five
Star Loan Agreement provided for a $20,000,000 revolving credit
facility (the "Five Star Revolving Credit Facility") and a
$5,000,000 loan (the "Five Star Term Loan"). The Five Star
Revolving Credit Facility is a three year committed facility
which allows Five Star to borrow amounts up to 50% of Eligible
Inventory (as defined) and 80% of Eligible Receivables (as
defined) at an interest rate of 1% in excess of the prime rate.
At December 31, 1995, the interest rate was 9.5%. As of December
31, 1995, $14,593,000 was borrowed under the Five Star Revolving
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Credit Facility and Five Star had $282,000 available.
As of November 1, 1995, the Five Star Term Loan, which was
$1,667,000 on October 30, 1995, was repaid in its entirety. The
Five Star Revolving Credit Agreement is secured by all of the
assets of Five Star and 1,359,375 shares of common stock of ISI
and 1,062,500 shares of common stock of GP, which were
contributed to Five Star in connection with the forgoing
transactions.
The amended MXL Loan Agreement provides for a $1,500,000
revolving credit facility (the "MXL Revolving Credit Facility")
and a $4,500,000 term loan, which was adjusted to a balance of
$3,960,000 at November 1, 1995 (the "MXL Term Loan"). The MXL
Revolving Credit Facility is a three year committed facility
which allows MXL to borrow amounts equal to 25% of Eligible
Inventory (as defined) and 80% of Eligible Receivables (as
defined) at an interest rate of 1% in excess of the prime rate.
As of December 31, 1995, there were no borrowings under the MXL
Revolving Credit Facility and the balance of the MXL Term Loan
was $3,713,000. MXL had $822,000 available under its Revolving
Credit Facility at December 31, 1995. At December 31, 1995,
under the terms of the revolving credit agreement, approximately
$2,000,000 was available to the Company. The amended MXL Term
Loan is repayable in 16 quarterly payments of approximately
$247,500, which commenced on October 31, 1995. The MXL Term Loan
bears interest at 1.375% in excess of the prime rate, and was
9.875% at December 31, 1995. The facilities are secured by all
of the assets (other than certain equipment) of MXL and by
815,625 shares of common stock of ISI and 637,500 shares of
common stock of GP, which were contributed to MXL in connection
with the forgoing transactions.
The Five Star Revolving Credit Facility and Five Star Term Loan
and the MXL Revolving Credit Agreement and MXL Term Loan are
guaranteed by the Company. In April 1993, $4,196,000 of the
proceeds from the original term loans were used to repay the
balance of a revolving credit and term loan agreement entered
into by the Company. The amended Agreements, among other things,
limit the amount that Five Star and MXL may borrow from other
sources, the amount and nature of certain expenditures,
acquisitions and sales of assets, and the amount that Five Star
and MXL can loan or dividend to the Company. Under the terms of
the amended agreements, MXL is allowed to lend Five Star and the
Company up to an additional $750,000 and $500,000, respectively.
The agreements have several covenants, including provisions
regarding working capital, tangible net worth, leverage and cash
flow ratios.
(b) In August 1991, Eastern Electronics Manufacturing
Corporation (Eastern) assigned the outstanding balance on its
line of credit with a bank to a finance company, with whom
Eastern entered into a Security Agreement. As part of
management's plan to discontinue the operations of Eastern (See
Note 15), the balance was repaid and the facility cancelled in
1995.
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(c) On February 9, 1993, Duratek entered into a $7,000,000
Revolving Line of Credit (the Line) and a $400,000 Loans to
Facility (the Facility) for fixed asset purchases with a
commercial bank. On June 11, 1993, the Line was increased to
$7,750,000 and the Facility was increased to $750,000. In
January 1995, Duratek used proceeds from the Carlyle financing
(See Note 3) to retire amounts outstanding under the Line and as
a result of the Company's ownership in Duratek falling below 50%,
the Company currently accounts for its investment in Duratek on
the equity basis.
(d) On August 31, 1994, GP entered into a $20,000,000 secured
revolving credit agreement with a commercial bank. Borrowings
under this agreement bore interest at the prime rate. This
agreement contained certain covenants, which among other things,
limited the amount and nature of certain expenditures and
required GP to maintain certain financial ratios.
On April 7, 1995, the Company and GP entered into a new three
year $20,000,000 secured revolving credit agreement with a
commercial bank, and terminated the above credit agreement.
Borrowings under the new credit agreement bear interest at the
prime rate (8.5% at December 31, 1995) or 1.75% over LIBOR (7.43%
at December 31, 1995), 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. At December 31, 1995, under the terms of the new credit
agreement, approximately $2,000,000 was available to the Company.
At December 31, 1995, $3,450,000 was borrowed under the new
credit agreement and there were available borrowings of
$16,550,000 under the agreement.
10. Accounts payable and accrued expenses
Accounts payable and accrued expenses are comprised of the
following (in thousands):
December 31, 1995 1994
Accounts payable $ 12,833 $ 15,371
Payroll and related costs 4,130 4,098
Interest 425 1,882
Other 3,477 6,607
$ 20,865 $ 27,958
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11. Long-term debt
Long-term debt is comprised of the following (in thousands):
December 31, 1995 1994
8% Swiss Bonds, due 2000 (a) $ 2,365 $
5% Convertible Bonds due 1999 (c) 2,249 2,129
8% Swiss Bonds due 1995 (b)(d) 247 2,999
6% Convertible Swiss Bonds
due 1995 (b)(e) 494 4,036
5.75% Convertible Swiss Bonds
due 1995 (e) 104 2,014
5.625% Convertible Swiss Bonds
due 1996 (f) 538 1,716
7% Dual Currency Convertible Bonds
due 1996 (f) 615 2,391
12% Subordinated Debentures
due 1997 (g) 6,749 6,783
Term loan with banks (Note 9(a)) 3,713 5,541
Senior Subordinated Debentures (h) 827 801
Notes payable in connection with
settlement of litigation (i) 521 745
Term loan with bank (j) 5,000
Equipment lease obligations (*) 510 2,058
23,932 31,213
Less current maturities 4,167 13,700
$ 19,765 $ 17,513
(*) Secured by assets held under capital lease obligations.
(a) 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.
As a result of the Exchange Offer, the Company reduced its long-
term debt due in 1995 and 1996 by $4,824,000 and realized a loss
of $393,000 on the Exchange Offer.
(b) On June 10, 1994, the Company commenced an Exchange Offer
for up to 60% of its Swiss denominated 8% Bonds due March 1,
1995, 6% Convertible Bonds due March 7, 1995, 5.75% Convertible
Bonds due May 9, 1995, 5.625% Convertible Bonds due March 18,
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1996 and 7% Dual Currency Bonds due March 18, 1996, ("the
Bonds"). The Company offered for exchange its Common Stock with
a value of $1,000 for each $1,000 principal amount of the Bonds.
In addition, the Company offered for exchange its Common Stock
with a value of SFr. 1,000 for each SFr. 1,000 principal amount
of the Bonds. Accrued interest on the Bonds accepted for
exchange by the Company was paid in Common Stock of the Company.
The purpose of the Exchange Offer was to reduce the Company's
long-term indebtedness and related interest expense.
In July 1994, as a result of the Exchange Offer, the Company
received an aggregate of SFr. 2,569,000 principal amount of its
Swiss denominated bonds and $1,377,000 of its 7% Dual Currency
Convertible Bonds. In addition, the Company completed four
private transactions for SFr. 6,971,000 principal amount of its
Swiss denominated bonds and $159,000 of its 7% Dual Currency
Convertible Bonds.
As a result of the above transactions, the Company issued
approximately 852,000 shares of its common stock and reduced its
long-term debt by approximately $8,582,000.
(c) The Company commenced an Exchange Offer on July 12, 1993,
for any and all of the Bonds. The purpose of the Exchange Offer
was to reduce the Company's long-term indebtedness and related
interest expense.
The consideration offered by the Company for each SFr. 1,000
principal amount of the Bonds validly tendered and not withdrawn
prior to the Expiration Date (August 19, 1993) was: a) 5% U.S.
dollar denominated Convertible Bonds of the Company due August
31, 1999 (the "New 5% Bonds") in a principal amount of $130 and
convertible into 8 shares of the Company's Common Stock ("Common
Stock"), b) 14 shares of Common Stock, c) 26 shares of Common
Stock of ISI (the "ISI Common Stock"), d) 26 shares of Common
Stock of Duratek (the "Duratek Common Stock") and e) $43 in cash.
The consideration offered by the Company for each $1,000
principal amount of the Bonds validly tendered and not withdrawn
prior to the Expiration Date was: a) New 5% Bonds in a principal
amount of $200 and convertible into 12 shares of Common Stock, b)
21 shares of Common Stock, c) 39 shares of ISI Common Stock, d)
39 shares of Duratek Common Stock and e) $60 in cash.
On the Expiration Date the Company accepted the following
amounts of Old Bonds for exchange: SFr. 3,640,000 of the 6% Bonds
due March 7, 1995, SFr. 1,125,000 of the 5.75% Bonds due May 9,
1995, SFr. 2,765,000 of the 5.625% Bonds due March 18, 1996, SFr.
16,806,000 of the 8% Bonds due March 1, 1995 and $882,000 of the
7% Bonds due March 18, 1996. Under the terms of the Offer,
which included all unpaid accrued interest thereon, the Company
issued the following amounts of consideration to the exchanging
bondholders: a) 346,397 shares of Common Stock, valued at
$5,582,000, b) 667,134 shares of ISI Common Stock, valued at
$2,536,000, c) 667,134 shares of Duratek Common Stock, valued at
$2,536,000, d) $3,340,080 principal amount of New 5% Bonds which
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will be convertible into 191,959 shares of the Common Stock, and
e) $1,099,368 in cash. The Company recorded an original issue
discount on the New 5% Bonds of 10%. At December 31, 1995,
$2,309,000 of the New 5% Bonds were outstanding.
As a result of the Exchange Offer, in 1993 the Company
realized a gain of $3,795,000 from the issuance of the ISI and
Duratek Common Stock, and an extraordinary gain from the early
extinguishment of debt, before income tax effect, of $1,227,000.
(d) On December 20, 1989, as part of an Exchange offer for its
Swiss Denominated Bonds, the Company issued: (a) SFr. 51,264,000
($32,140,000) of its 8% Swiss Bonds due March 1, 1995, each in
the principal amount of SFr. 3,000, (the New Bonds) of which SFr.
285,000 are outstanding at December 31, 1995, (b) 17,088 Reset
Warrants, each of which entitled the holder to purchase 19 shares
of the Company's common stock, at a price determined by formula,
which were exercisable until March 1, 1995, (c) 17,088 Common
Stock Warrants, each of which entitled the holder to acquire
without further consideration shares of the Company's common
stock with a market value of SFr. 250, which were exercisable
until March 1, 1995, and (d) SFr. 750 in cash. During the first
quarter of 1996 all the outstanding 8% Swiss Bonds plus accrued
interest were fully redeemed for cash.
(e) On March 7, 1985, the Company issued, pursuant to a Swiss
Public Bond Issue Agreement, 6% Convertible Bonds due March 7,
1995 representing an aggregate principal amount of SFr.
60,000,000, of which SFr. 570,000 were outstanding as of December
31, 1995. In addition, on May 9, 1985, the Company issued,
pursuant to a second Swiss Public Bond Issue Agreement, 5.75%
Convertible Bonds due May 9, 1995, representing an aggregate
principal amount of SFr. 50,000,000, of which SFr. 120,000 were
outstanding as of December 31, 1995. In the first quarter of
1996, all the outstanding 6% and 5.75% Convertible Bonds, plus
accrued interest were fully redeemed for cash.
(f) On March 18, 1986,the Company issued, pursuant to a third
Swiss Public Bond Issue Agreement, 5.625% Convertible Bonds
payable in 1996, representing an aggregate principal amount of
SFr. 50,000,000, of which SFr. 620,000 are currently outstanding
at December 31, 1995. Additionally, the Company issued 7% Dual
Currency Convertible Bonds, payable in 1996, representing an
aggregate principal amount of SFr. 25,000,000, but payable at
maturity at the fixed amount of $15,000,000. The Dual Currency
Bonds were issued as part of the Company's overall financing
strategy, without any intent to either speculate in foreign
exchange or to hedge any existing foreign currency exposure. In
the first quarter of 1996, all the outstanding 5.625% Convertible
Bonds and 7% Dual Currency Bonds were fully redeemed at maturity.
In addition to the bonds exchanged (see (a), (b) and (c) above),
during 1995, 1994 and 1993 the Company repurchased a portion of
each of the Swiss Public Bond Issues as well as Dual Currency
Convertible Bonds. Extraordinary gains (losses) from the
extinguishment of the Bonds in all such transactions (net of
62
income taxes), amounted to $(79,000), zero and $1,819,000 in
1995, 1994 and 1993, respectively.
(g) During the third quarter of 1987, the Company issued
$12,500,000 of Subordinated Debentures (Debentures) which mature
in 1997. Each $100 principal amount Debenture was sold with
warrants to purchase one share of the Company's common stock at a
price of $74.00 per share. In connection with the terms of the
Debentures, the Company is subject to certain covenants which
limit the amount that may be used for the payment of dividends
and for the purchase of the Company's outstanding equity
securities (common or Class B). In September 1990, under the
terms of an Indenture, the Debentures became exchangeable for the
Company's Common Stock, for the remaining term of the Debentures,
at a price of approximately $20.00 per share. In 1995 and 1994,
zero and $35,000, respectively, of Debentures were converted into
zero and 1,761 shares, respectively, of the Company's Common
Stock. At December 31, 1995, the Debentures are convertible into
approximately 339,000 shares of the Company's Common Stock. At
December 31, 1995, the Company was precluded from paying
dividends under the terms of the Debentures.
(h)In August 1994, GP, as a result of the acquisition of
substantially all the assets of SGLG (See Note 2), issued $15
million of 6% Senior Subordinated Debentures, which have a
carrying value of $11,173,000, net of a debt discount of
$3,827,000. The debentures are unsecured and require payments of
interest only on a quarterly basis through June 30, 1999,
quarterly principal installments of $525,000 plus interest
through June 30, 2004 and the balance of $4.5 million on June 30,
2004. The debentures are subordinated to borrowings under the
line of credit agreement. At December 31, 1995, the carrying
value of the debentures held by the Company was $10,346,000,
which was eliminated in consolidation, and the remaining $827,000
of debentures were held by the minority shareholders of SGLG.
(i)In March 1987, the Company and Ryder International Corporation
(Ryder) agreed to a settlement of litigation relating to the
Company's CaridexR system. Under the terms of the settlement
agreement, the Company agreed to pay Ryder amongst other things,
$300,000 per year (in cash or common stock of the Company) for a
ten year period commencing January 15, 1988, the present value of
which is discounted at 10%, and included in long-term debt.
(j) On April 7, 1995, the Company entered into a $5,000,000 Term
Loan Agreement with a bank, of which the Company received
approximately $4,910,000 after closing fees. The interest rate
is at the bank's prime rate of interest plus 2%. At December 31,
1995, the interest rate was 10.5%. 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
certain of its Swiss denominated long-term debt due in 1995 and
1996. The Term Loan is secured by certain assets of the Company
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and requires the Company to meet certain financial covenants.
Aggregate annual maturities of long-term debt outstanding at
December 31, 1995 for each of the next five years are as follows
(in thousands):
1996 $4,167
1997 9,269
1998 2,160
1999 4,158
2000 3,646
12. Common stock issued subject to repurchase obligation
During the fourth quarter of 1993, the Company entered into
several privately negotiated agreements (the Agreements),
pursuant to which it reacquired previously outstanding Swiss
Bonds in exchange for newly issued common stock. In addition to
common stock, the Company issued to the exchanging bondholder in
each transaction a non-negotiable, non-interest bearing
promissory note (the Note) in a principal amount equal to the
market value of the common stock issued in the exchange. The
recipient in each transaction obtained the rights, exercisable
within approximately a one year period from the date of the
Agreement, to sell, retain, or return to the Company the common
stock received, in whole or in part. Net proceeds of any sales
of common stock by the recipient during the period reduces the
amount due under the Note, and sales of common stock for net
proceeds equal to or in excess of the principal amount of the
Note would cause the Note to be deemed as paid in full. Any
excess proceeds of sale of the stock over the principal amount of
the Note are retained by the stockholder.
The Company has accounted for the issuance of the common stock as
permanent equity to the extent of the proceeds of subsequent
sales of stock by the recipients, and as temporary equity for the
balance of the market value of the common stock issued. The
Notes serve as a guarantee of the amounts which may be refundable
to the recipients of the common stock under the Agreement. The
Company's maximum repurchase or refund obligation under these
Agreements as of December 31, 1994 aggregated $1,510,000. In
1995, the Company paid $900,000 and issued an additional 16,100
shares to the Noteholder, in exchange for the cancellation of the
Note. At December 31, 1995, there was no common stock issued
subject to repurchase obligation.
13. Employee benefit plans
The Company had a Defined Benefit Pension Plan (the Plan) for
employees of certain divisions and subsidiaries. Benefits were
based primarily on years of service and a fixed rate of benefits
per year of service. Contributions were intended to provide not
only for benefits attributed to service to date but also for
those expected to be earned in the future.
Effective December 31, 1991, the Plan benefits were frozen.
Accrued vested benefits will be paid to terminated participants
in the form of a lump sum distribution in cases where the accrued
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vested benefit is less than $3,500. Terminated participants can
elect a lump sum distribution if the accrued vested benefit is
greater than $3,500 but less than $7,500.
In the event that the accrued vested benefit exceeds the $7,500
payable limit as outlined in the Plan, payment will be deferred
until a terminated vested participant reaches age 65 or elects
early retirement, at age 60 or later. The pension expense
amounted to $26,000, $31,000 and $377,000, for 1995, 1994 and
1993, respectively.
The following table sets forth the funded status of the plan and
the amount recognized in the Company's Consolidated Balance
Sheets (in thousands):
December 31, 1995 1994 1993
Actuarial present value of benefit
plan obligations:
Accumulated benefit obligation (including
vested benefits of $5,365,
$4,436 and $4,838) $ (5,890)$ (4,469) $(4,917)
Projected benefit obligation for
service rendered to date $ (5,890)$ (4,469) $(4,917)
Plan assets at fair value 4,353 3,405 3,528
Projected benefit obligation in
excess of plan assets (1,537) (1,064) (1,389)
Unrecognized net loss from past
experience different
from that assumed 911 339
Minimum pension liability (911)
Accrued pension cost included in
accounts payable and accrued
expenses in the consolidated
balance sheets $(1,537) $(1,064) $(1,050)
The net periodic pension expense
is as follows:
Service cost-benefits earned $ $ $
Interest cost on projected benefit
obligations 420 360 341
Actual return on plan assets (424) (350) (414)
Net amortization and deferral
and other 30 21 450
Net periodic pension expense $ 26 $ 31 $ 377
The Company's assumptions used as of December 31, 1995, 1994, and
1993 in determining the pension cost and pension cost liability
shown above were as follows:
Percent
1995 1994 1993
Discount rate 7.25 8.25 7.5
Long-term rate of return
on assets 10.0 10.0 10.0
Financial Accounting Standards Board Statement No. 87 (FASB No.
87) requires that a company record an additional minimum pension
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liability to the extent that a company's accumulated pension
benefit obligation exceeds the fair value of pension plan assets
and accrued pension liabilities. This additional minimum pension
liability is offset by an intangible asset, not to exceed prior
service costs of the pension plan. Amounts in excess of prior
service costs are reflected as a reduction in stockholders'
equity.
Effective March 1, 1992, the Company adopted the 1992 401(K)
Savings Plan (the Savings Plan). Effective December 31, 1991,
the Plan participants would no longer accrue benefits under the
Defined Benefit Pension Plan, but became eligible to participate
in the Company's Savings Plan.
The Company's Savings Plan is available to employees who have
completed one year of service; however, past vesting service
credit was recognized for employees who participated in the
Savings Plan at the date of initial enrollment, March 1, 1992.
The Savings Plan permits pre-tax contributions to the Savings
Plan by participants pursuant to Section 401(K) of the Internal
Revenue Code of 2% to 6% of base compensation. The Company
matches 40% of the participants' eligible contributions based on
a formula set forth in the Savings Plan. Participants are fully
vested in their contributions and may withdraw such contributions
at time of employment termination, or at age 59 1/2 or earlier in
the event of financial hardship. Amounts otherwise are paid at
retirement or in the event of death or disability. Employer
contributions vest at a rate of 20% per year.
The Savings Plan is administered by a trustee appointed by the
Board of Directors of the Company and all contributions are held
by the trustee and invested at the participants' direction in
various mutual funds. The expense associated with the Savings
Plan was $223,000, $285,000 and $236,000 in 1995, 1994 and 1993,
respectively.
14. Income taxes
For U.S. Federal income tax purposes, a parent corporation with
an 80% or greater equity interest in its subsidiary may file a
consolidated tax return. Accordingly, the Company and its
greater than 80% owned subsidiaries will file a consolidated
Federal income tax return for the year ended December 31, 1995.
The subsidiaries in which the Company has an equity ownership
between 50% and 80%, are consolidated for financial reporting
purposes, but file separate U.S. Federal income tax returns for
the year ended December 31, 1995.
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The components of pretax income (loss) are as follows (in
thousands):
Years ended December 31, 1995 1994 1993
Continuing operations $ 5,819 $ (10,648) $ (7,424)
Discontinued operation (2,941) (2,574) (947)
The components of income tax expense (benefit) from continuing
operations are as follows (in thousands):
Years ended December 31, 1995 1994 1993
Current
State and local $ 221 $ 283 $ 398
Federal tax expense (benefit) 37 (973)
258 283 (575)
Deferred
State and local 206 11
Federal 1,323 455
1,529 466
$ 1,787 $ 749 $ (575)
The difference between the provision for income taxes computed at
the statutory rate and the reported amount of tax expense
attributable to consolidated earnings from continuing operations
is as follows:
December 31, 1995 1994 1993
Federal income tax rate 35.0% (35.0)% (35.0)%
State and local taxes net
of Federal benefit 4.8 2.0 3.0
Items not deductible -
primarily amortization of goodwill 14.0 6.0 5.0
Valuation allowance adjustment (22.6)
GP acquisition of SGLG 33.00
Deconsolidation of ISI 17.00
Other (.5) 1.0 2.0
Effective tax rate 30.7% 7.0% (8.0)%
The decrease in the valuation allowance in 1995 was attributable
to various adjustments that affect the 1995 income tax provision
as well as the deconsolidation of Duratek. The deconsolidation
of Duratek resulted in a decrease in deferred tax assets and a
corresponding decrease in the valuation allowance. Such
adjustment had no effect on the 1995 income tax provision.
In 1993, the Company recorded an income tax benefit of
$1,043,000, of which $973,000 relates to Federal income taxes, in
continuing operations as a result of the income tax expense
allocated to the extraordinary gain recognized on the early
extinguishment of debt under the provisions of FASB No. 109.
In 1994, the Company recorded an income tax expense of $749,000.
The current income tax provision of $283,000 reflected above,
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represents the estimated taxes payable by the Company for the
year ended December 31, 1994. The deferred income tax provision
of $466,000 represents the deferred taxes of GP, the Company's
51% owned subsidiary.
In 1995, the Company recorded an income tax expense of
$1,787,000. The current income tax provision of $258,000
reflected above, represents the estimated taxes payable by the
Company for the year ended December 31, 1995. The deferred
income tax provision of $1,529,000 represents the deferred taxes
of GP, the Company's 51% owned subsidiary.
As of December 31, 1995, the Company has approximately
$23,204,000 of net operating loss carryovers consisting of
$21,155,000 with respect to net operating losses generated from
the Company's consolidated tax return and $2,049,000 generated by
ADC as a separate tax filer for Federal income tax return
purposes. These carryovers expire in the years 2001 through
2010. In addition, the Company has approximately $2,784,000 of
available credit carryovers which expire in the years 1998
through 2003.
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
This statement requires that deferred income taxes be recorded
following the liability method of accounting and adjusted
periodically when income tax rates change.
The tax effects of temporary differences between the financial
reporting and tax bases of assets and liabilities that are
included in the net deferred tax assets are summarized as
follows:
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December 31, 1995 1994
Deferred tax assets
Accounts receivable, principally due
to allowance for doubtful accounts $ 799 $ 854
Investment in partially owned companies 3,151
Inventory 57 406
Lawsuit settlements 234 351
Accrued expenses 929 310
Litigation accrual 535
Other accrued liabilities 66 496
Net operating loss carryforwards 9,028 9,329
Investment tax credit carryforwards 2,784 2,784
Deferred tax assets 13,897 18,216
Deferred tax liabilities
Property and equipment, principally due to
differences in depreciation 1,274 1,650
Unamortized debt discount 65
Unrealized exchange gain 1,139 1,555
State taxes 115
Prepaid expenses 129 186
Unrealized marketable security gain 1,243
Investment in partially owned companies 1,918
Deferred tax liabilities 5,703 3,571
Net deferred tax assets 8,194 14,645
Less valuation allowance (8,248) (13,170)
Net deferred tax asset (liability) $ (54) $ 1,475
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The
ultimate realization of the deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which temporary differences are deductible. Management considers
income taxes paid in the past three years and future taxable
income in making this assessment. A full valuation allowance is
appropriate for the Company and its greater than 80% owned
subsidiaries included in the Company's consolidated Federal
income tax return, based on the Company's recent history of
annual net losses. As a result, effective December 31, 1995, the
Company has deferred tax assets of approximately $13,897,000,
deferred tax liabilities of $5,703,000 and a valuation allowance
of approximately $8,248,000. The net deferred tax liability of
$54,000 results from GP, which is not included in the Company's
Federal income tax return.
15. Discontinued operation
In December 1994, the Company decided to sell its Eastern
Electronics Manufacturing Corporation (Eastern) subsidiary, which
was the only company in the Electronics segment. As a result of
the decision to sell Eastern, the Company reflected Eastern as a
discontinued operation. In 1994, the Company wrote down various
assets to their estimated net realizable value and recorded a
$100,000 reserve for the cost of discontinuing Eastern, totaling
$1,570,000. Net realizable value of the segment's fixed assets
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was estimated based upon a prior appraisal and net realizable
value of the segment's inventories was estimated based upon
negotiations with a prospective purchaser in a bulk sale
transaction. Goodwill was written off as non-recoverable. The
total loss for discontinued operation recognized in 1994 was
$2,574,000, of which $1,789,000, which included an $800,000
write-down of inventories, was from operations and $785,000 was a
loss on disposal, which was comprised of: (a) a $200,000
write-down of property and equipment; (b) a $485,000 write-off of
goodwill relating to Eastern; (c) $100,000 for expected losses
through the date of disposal. In 1995,the Company recognized an
operating loss from discontinued operation of $2,941,000, of
which $2,610,000 was incurred on the sale of inventory, write-
offs of accounts receivable and sales of fixed assets. In
addition, $331,000 in operating expenses were incurred during
1995. The Company sold or otherwise liquidated substantially all
of Eastern's assets during 1995. It plans to sell its remaining
fixed assets during the first six months of 1996, and to recover
its current assets during 1996. The segment's current assets,
consisting principally of trade receivables, are stated at
estimated net realizable value based upon a review of
collectibility. The carrying amount of property and equipment
was determined based on discussions with prospective buyers.
The consolidated statements of operations have been restated for
all years presented to report the results of discontinued
operations for Eastern separately from continuing operations and
where applicable, related notes to the consolidated financial
statements exclude the amounts for discontinued operations.
Assets and liabilities of Eastern included in the consolidated
balance sheet at December 31, 1995 and 1994 were as follows (in
thousands):
1995 1994
Current assets $ 250 $ 3,284
Current liabilities 120 1,247
Property and equipment 100 1,155
16. Common Stock, stock options, warrants and other shares
reserved
(a) On September 20, 1995, the Company's stockholders and Board
of Directors approved the proposal to amend the Company's
Restated Certificate of Incorporation to effect a one-for-four
reverse stock split of its common stock. The reverse stock split
was effective on October 6, 1995 (the "Effective Date"). As of
September 20, 1995, there were 27,115,240 shares of common stock
outstanding and after the Effective Date there were approximately
6,778,810 shares of common stock outstanding.
On the Effective Date, the shares of common stock held by
stockholders of record were converted into the amount of whole
shares of new common stock equal to the number of their shares
divided by four, with any fractional shares rounded up to the
next whole share.
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The balance sheets at December 31, 1995 and 1994 and as well as
the earnings (loss) per share for the years ended December 31,
1995, 1994 and 1993 have been restated to reflect the reverse
split as if it had occurred on January 1, 1993.
(b) Under the Company's non-qualified stock option plan,
employees and certain other parties may be granted options to
purchase shares of common stock. The options may be granted at a
price not less than 85% of the fair market value of the common
stock on the date of grant and are exercisable over periods not
exceeding ten years from the date of grant. Shares of common
stock are also reserved for issuance pursuant to other
agreements, as described below. Changes in options and warrants
outstanding during 1993, 1994, and 1995, options and warrants
exercisable and shares reserved for issuance at December 31,
1993, 1994, and 1995 are as follows:
Common Stock Class B Capital Stock
Options and warrants Price Range Number Price Range Number
outstanding per share of shares per share of shares
December 31, 1992 $ 9.00 - 24.00 1,145,401 $9.00 387,500
Granted 11.50 - 16.50 4,500
Exercised 9.00 - 20.60 (43,782)
Terminated 9.00 - 22.50 (11,760)
December 31, 1993 9.00 - 24.00 1,094,359 9.00 387,500
Granted
Exercised 9.00 (10,774)
Terminated 9.00 - 18.00 (6,570)
December 31, 1994 9.00 - 24.00 1,077,015 9.00 387,500
Granted 8.375- 8.50 451,239 8.50 125,000
Exercised
Terminated 9.00 - 20.50 (651,182)
December 31, 1995 8.375- 24.00 877,072 8.50 -9.00 512,500
Options and warrants
exercisable
December 31, 1993 9.00 - 24.00 1,079,420 9.00 387,500
December 31, 1994 9.00 - 24.00 1,072,228 9.00 387,500
December 31, 1995 8.375- 24.00 770,685 8.50 -9.00 512,500
Shares reserved for
issuance
December 31, 1993 2,846,865 387,500
December 31, 1994 3,339,368 387,500
December 31, 1995 2,106,665 512,500
At December 31, 1995, 1994, and 1993, options outstanding included 629,334,
504,334 and 504,334 shares for two officers who are principal shareholders
of the Company.
Class B Capital stock aggregating 512,500, 387,500 and 387,500 shares
at December 31, 1995, 1994, and 1993 were reserved for issuance to
these same two officers.
The holders of common stock are entitled to one vote per share
and the holders of Class B capital stock are entitled to ten
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votes per share on all matters without distinction between
classes, except when approval of a majority of each class is
required by statute. The Class B capital stock is convertible at
any time, at the option of the holders of such stock, into shares
of common stock on a share-for-share basis. Common shares
reserved for issuance at December 31, 1995, 1994, and 1993
include 512,500, 387,500 and 387,500 shares, respectively in
connection with Class B shares.
At December 31, 1995, 1994, and 1993, shares reserved for
issuance were primarily related to shares reserved for options,
warrants and the conversion of long-term debt.
17. Business segments
The operations of the Company consist of the following business
segments:
Physical Science Group - products and services for the power
industry, as well as for governmental agencies and industry in
general; Distribution Group - wholesale distribution of home
decorating, hardware and finishing products; Optical Plastics
Group - the manufacture and distribution of coated and molded
plastic products; Health Care Group - interferon research and
production.
As a result of the Exchange Offer, (See Note 11(c)), ISI is
currently accounted for on the equity basis. Therefore, its
operating activities are reflected in the Health Care Group only
through the completion of the Exchange Offer in 1993 (See Note 4).
The following tables set forth the revenues and operating results
attributable to each line of business and include a
reconciliation of the groups' revenues to consolidated revenues
and operating results to consolidated income (loss) from
operations before income taxes, discontinued operation and
extraordinary item for the periods presented (in thousands):
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Years ended December 31, 1995 1994 1993
Revenues
Physical Science $111,804 $119,341 $103,152
Distribution 66,229 76,746 74,974
Optical Plastics 11,103 9,426 7,952
Health Care 1,533
Other 1,579 2,649 989
190,715 208,162 188,600
Investment and other
income (expense), net (4,561) (5,196) 625
Total revenues $186,154 $202,966 $189,225
Operating results
Physical Science $ 5,883 $ 5,053 $ 500
Distribution 1,374 1,484 1,948
Optical Plastics 2,661 2,227 1,378
Health Care (4,431)
Other (principally American
Drug Company) (1,575) (1,854) (587)
Total operating profit (loss) 8,343 6,910
(1,192)
Interest expense (5,019) (6,458) (8,199)
Indirect administrative
expenses (at the holding
company level), net of gains or
losses from dispositions of
investments, minority interests,
foreign currency exchange
gains or losses, and other
revenue 2,495 (11,100) 1,967
Income (loss) from operations
before income taxes,
discontinued operation
and extraordinary item $ 5,819 $ (10,648) $ (7,424)
Operating profits represent gross revenues less operating
expenses. In computing operating profits, none of the following
items have been added or deducted; general corporate expenses at
the holding company level, foreign currency transaction gains and
losses, investment income and interest expense. General
corporate expenses at the holding company level, which are
primarily salaries, occupancy costs, professional fees and costs
associated with being a publicly traded company, totaled
approximately $6,173,000, $6,177,000 and $6,595,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
For the years ended December 31, 1995, 1994 and 1993, sales to
the United States government and its agencies represented
approximately 31%, 23% and 17%, respectively, of sales.
Additional information relating to the Company's business
segments is as follows (in thousands):
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December 31, 1995 1994 1993
Identifiable assets
Physical Science $ 82,022 $104 572 $ 74,551
Distribution 44,400 42,879 34,255
Optical Plastics 12,267 11,552 7,129
Corporate and other 12,681 12,104 44,121
Assets relating to
discontinued operation 350 4,439 6,001
$151,720 $175,546 $166,057
Years ended December 31, 1995 1994 1993
Additions to property,
plant, and equipment, net
Physical Science $ 1,555 $ 2,599 $ 1,360
Distribution 352 1,336 557
Optical Plastics 565 189 41
Corporate and other 39 62 89
Discontinued operation, net (505) (180) 30
$ 2,006 $ 4,006 $ 2,077
Years ended December 31, 1995 1994 1993
Depreciation and amortization
Physical Science $ 1,785 $ 3,523 $ 2,193
Distribution 1,069 1,000 710
Optical Plastics 788 839 876
Health Care 552
Corporate and other 674 503 800
Discontinued operation 198 165
$ 4,316 $ 6,063 $ 5,296
Identifiable assets by industry segment are those assets that are
used in the Company's operations in each segment. Corporate and
other assets are principally cash and cash equivalents,
marketable securities and unallocated intangibles.
18. Fair value of financial instruments
The carrying value of financial instruments including cash,
short-term investments, accounts receivable, accounts payable and
short-term borrowings approximate estimated market values because
of short maturities and interest rates that approximate current
rates.
The carrying values of investments, other than those accounted
for on the equity basis, approximate fair values based upon
quoted market prices. The investments for which there is no
quoted market price are not significant.
The estimated fair value for the Company's major long-term debt
components are as follows (in thousands):
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December 31, 1995 December 31, 1994
Carrying Estimated Carrying Estimated
amount fair value amount fair value
8% Swiss Bonds due 2000 $2,365 $1,987 $ $
Swiss Bonds 1,383 1,176 10,765 9,537
5% Convertible Bonds 2,249 2,092 2,129 1,980
7% Dual Currency
Convertible Bonds 615 553 2,391 1,769
12% Subordinated
Debentures 6,749 4,859 6,783 3,052
Other long-term debt 10,571 10,57 1 9,145 9,145
Limitations. Fair value estimates are made at a specific point
in time, based on relevant market information and information
about the financial instrument. These estimates are subjective
in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
19. Accounting for certain investments in debt and equity
Securities
As of January 1, 1994 the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). The
Company's marketable securities consist of corporate equity
securities which are included in both Marketable securities,
which are expected to be sold within one year, and Investments
and advances on the consolidated balance sheet Under SFAS No.
115, the Company classifies these equity securities as either
trading or available-for-sale and records the securities at their
fair value. Trading securities are held principally for the
purpose of selling them in the near term. Unrealized holding
gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses on available-for-sale
securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost
basis for the security. In 1995, the Company recognized a
permanent impairment in one of its available-for-sale securities
as a result of receipt of a tender offer at a price below the
Company's carrying cost, and recorded a loss of $785,000 to
adjust the carrying amount to the tender offer price, which loss
is included in Investment and other income (expense), net.
Realized gains and losses for securities classified as
available-for-sale are included in earnings and are derived using
the specific identification method for determining the cost of
securities sold.
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Marketable securities at December 31, 1995 consists of
250,000 shares of Duratek common stock, which were transferred
from long-term investments available-for-sale to trading
securities during 1995 resulting in the recognition of a
$3,183,000 gain on the transfer, representing the excess of the
quoted market value of such shares on the date of transfer over
the Company's carrying amount. At December 31, 1995, the Company
was permitted to sell approximately 295,000 shares of Common
Stock of Duratek pursuant to Rule 144 of the Securities Act of
1933. At December 31, 1995, the Company had determined to sell
promptly 250,000 shares of its Duratek Common Stock in 1996
pursuant to Rule 144, and therefore, classified such securities
in the trading category.
The gross unrealized holding losses and fair value for
available-for-sale securities were as follows (in thousands):
Gross
Unrealized
Cost Holding Losses Fair Value
Available-for-sale:
Equity Securities
December 31, 1995 $2,210 $(1,440) $ 770
December 31, 1994 9,186 (1,783) 7,403
The gains and losses realized on available-for-sale
securities sold were as follows (in thousands):
Sales Realized
Cost Proceeds gain (loss)
December 31, 1994:
Realized loss $1,850 $1,514 $ (336)
Realized gain 461 1,260 799
Net realized
gain $2,311 $2,774 $ 463
The Company did not realize any gains or losses on available-for-
sale securities for the year ended December 31, 1995.
20. Recent accounting developments
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Statement 121 requires the Company to estimate the
future cash flows expected to result from the use and eventual
disposition of its property, plant and equipment and other long
lived assets, and if the sum of such cash flows is less than the
carrying amount of these assets, to recognize an impairment loss
to the extent, if any, that the carrying amount of the assets
exceeds their fair values. The Company believes that expected
future cash flows derived from these assets will be at least
equal to their carrying values, and that no impairment loss will
be indicated.
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In December 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), effective for years beginning after December 15,
1995. Under SFAS 123, the Company may elect either a "fair
value" based method or the current "intrinsic value" based method
of accounting prescribed by APB No. 25, "Accounting for Stock
Issued to Employees," for its stock-based compensation
arrangements. Under the "intrinsic value" based method, the
Company will be required to disclose in the footnotes to the
consolidated financial statements net income and earnings per
share computed under the "fair value" based method. The Company
has elected to continue accounting for stock-based compensation
arrangements using the "intrinsic value" based method; therefore,
the adoption of SFAS 123 will not impact the Company's results of
operations or financial condition.
21. Commitments and contingencies
(a) The Company has several noncancellable leases which cover
real property, machinery and equipment and certain manufacturing
facilities. Such leases expire at various dates with, in some
cases, options to extend their terms.
Minimum rentals under long-term operating leases are as follows
(in thousands):
Real Machinery &
property equipment Total
1996 $ 3,941 $ 1,026 $ 4,967
1997 3,451 877 4,328
1998 2,746 852 3,598
1999 2,267 851 3,118
2000 2,217 237 2,454
After 2000 2,981 49 3,030
Total $17,603 $3,892 $21,495
Several of the leases contain provisions for rent escalation
based primarily on increases in real estate taxes and operating
costs incurred by the lessor. Rent expense for real and personal
property was approximately $5,598,000, $8,115,000 and $7,792,000
for 1995, 1994 and 1993, respectively.
(b) In February 1986, Duratek completed its initial public
offering of common stock. In connection with Duratek's public
offering, the Company issued to certain officers of Duratek and
the Company 358,609 options for the purchase of Duratek common
stock owned by the Company at a price equal to the greater of (a)
$1.75 per share or (b) the net book value per share of Duratek's
common stock as of the end of the most recently completed fiscal
quarter which ends not less than 60 days before the date of
exercise of such option. In 1991, an additional 270,000 options
for the purchase of Duratek common stock owned by the Company at
a price of $1.90 per share were issued to certain employees and
officers of the Company. Through December 31, 1995, 44,600
options under the plan were exercised, 57,500 were cancelled, and
at December 31, 1995, 465,750 options are currently exercisable.
At December 31, 1995, the Company owned approximately 31% of
Duratek (See Note 3).
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(c) The Company is party to several lawsuits and claims
incidental to its business, including claims regarding
environmental matters, one of which is in the early stages of
investigation. It is not possible at the present time to
estimate the ultimate legal and financial liability, if any, of
the Company in respect to such litigation and claims; however,
management believes that the ultimate liability, if any, will not
have a material adverse effect on the Company's consolidated
financial statements.
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.
NATIONAL PATENT DEVELOPMENT
CORPORATION
BY: Scott N. Greenberg
Vice President and Chief
Financial Officer
Dated: May 10, 1996
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