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