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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, 1996
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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: 016441
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CODE-ALARM, INC.
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(Exact name of registrant as specified in its charter)
MICHIGAN
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(State or other jurisdiction of
incorporation or Organization)
38-2334698
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(I.R.S. Employer
Identification No.)
950 EAST 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 14, 1996 is 2,320,361.
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INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. - Financial Information 3
Consolidated Condensed Balance Sheets -
As of March 31, 1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Operations (Unaudited) -
First Quarter Ended March 31, 1996 and March 31, 1995 4
Consolidated Condensed Statements of Cash Flows (Unaudited) -
First Quarter Ended March 31, 1996 and March 31, 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II. - Other Information 8
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CODE-ALARM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
ASSETS (Unaudited)
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<S> <C> <C>
Cash and cash equivalents $ 11 $ 416
Accounts receivable (less allowance for
doubtful accounts of $470,000 and
$667,000, respectively) 11,620 10,592
Inventories 13,154 14,811
Refundable income taxes 992 825
Deferred income taxes 485 560
Other 1,273 1,338
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Total current assets 27,535 28,542
Property and equipment, net of accumulated depreciation 4,208 4,500
Excess of cost over net assets acquired, net 4,551 4,574
Other intangibles, net 765 816
Deferred income taxes 1,193 1,566
Other assets 2,387 2,045
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Total assets $40,639 $42,043
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LIABILITIES & SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 3,486 $ 3,921
Accounts payable 10,630 12,362
Accrued expenses 2,114 1,832
Income tax payable 43 46
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Total current liabilities 16,273 18,161
Long term debt 9,998 9,545
Reserve for litigation 5,806 5,839
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Total liabilities 32,077 33,545
Shareholders' equity:
Common stock 12,210 12,210
Foreign currency translation adjustment 69 54
(Accumulated deficit) (3,717) (3,766)
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Total shareholders' equity 8,562 8,498
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Total liabilities and shareholders' equity $40,639 $42,043
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
First Quarter Ended March 31
1996 1995
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<S> <C> <C>
Net sales $16,596 $17,159
Cost of sales 10,674 11,218
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Gross profit 5,922 5,941
Operating expenses:
Sales and marketing 2,504 3,001
Engineering 856 703
General and administrative 2,037 2,145
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5,397 5,849
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Income from operations 525 92
Other income (expense):
Interest expense (418) (297)
Litigation expense (1,055)
Other expense (2) (46)
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Income (loss) before income taxes 105 (1,306)
Income taxes (benefits) 56 (236)
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Net income (loss) $ 49 $(1,070)
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Net income (loss) per common share $ 0.02 $ (0.46)
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Weighted average number of common shares outstanding 2,320 2,320
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
First Quarter Ended March 31
1996 1995
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Cash flows from operating activities $ (440) $ (1,412)
Cash flows from investing activities:
Capital expenditures (87) (427)
Payments for intangible assets (33)
Cash flows from financing activities:
Net repayments of long-term debt (521) 212
Net borrowings on credit facility 676 1,544
Issuance of stock options 1
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Net change in cash and cash equivalents (405) (82)
Cash and cash equivalents, beginning of period 416 107
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Cash and cash equivalents, end of period $ 11 $ 25
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SUPPLEMEMTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest $ 237 $ 85
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Income taxes $ 0 $ 0
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See accompanying notes to consolidated condensed financial statements.
5
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CODE-ALARM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The consolidated condensed interim financial statements reflect all
adjustments which in the opinion of management are necessary to
fairly state results for the interim periods presented. Except for the
$1.1 million recorded in connection with the patent infringement suit
in the first quarter of 1995, all adjustments are of a normal and
recurring nature. Results of operations for the interim periods
presented are not necessarily indicative of results to be expected for
the fiscal year.
2) The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
3) Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
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<S> <C> <C>
Raw materials $ 6,020 $ 7,089
Work in process 195 135
Finished goods 6,939 7,587
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$ 13,154 $ 14,811
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</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations:
Code-Alarm's consolidated net sales decreased $563,000, or 3.3%, in the
first quarter of 1996 as compared to the first quarter of 1995. The decline in
sales was due primarily to the elimination of several product lines and
softness in the European market following a general strike in France, offset by
an increase in sales to North American original equipment manufacturers.
Consolidated gross profit decreased $19,000, or 0.3%, in the first
quarter of 1996 as compared to the first quarter of 1995. Consolidated gross
profit, as a percentage of consolidated net sales for the first quarter of
1996 was 35.7%, as compared to 34.6% for the same quarter in 1995. The
increased gross margin percentage was due to productivity improvements and cost
containment programs.
Consolidated operating expenses decreased $452,000, or 7.7%, in the
first quarter of 1996 as compared to the first quarter of 1995. Consolidated
operating expenses, as a percentage of consolidated net sales, for the first
quarter of 1996 were 32.5%, as compared to 34.1% for the first quarter of 1995.
The decrease in operating expenses were also due to the company's continued
emphasis on cost control, and to a lesser extent the lower sales volume.
As a result of the foregoing, consolidated operating income improved
$433,000, or almost five fold, in the first quarter of 1996 as compared to the
first quarter of 1995.
Interest expense increased $121,000, or 40.7%, in the first quarter of
1996 compared to the first quarter of 1995. The increase was due to additional
borrowings and higher average interest rates for the 1996 quarter.
During the first quarter of 1995, the Company recorded $1.1 million in
additional charges in connection with the patent infringement suit. No such
accrual was necessary in the first quarter of 1996.
The Company had an effective income tax rate of 53% for the first
quarter 1996. The high rate was due to nondeductible expenses and foreign
losses.
As a result of the above, the Company recorded a net profit of $49,000
for the quarter ended March 31, 1996, or .3% of net sales, as compared to a net
loss of $1.1 million, or 6.2% of net sales, in the first quarter of 1995.
Liquidity and Capital Resources
The Company's consolidated working capital was $11.3 million at March
31, 1996, as compared to $10.4 million at December 31, 1995. The current ratio
(current) assets divided by current liabilities) was 1.7 to 1 on March 31, 1996,
as compared to 1.6 to 1 at December 31, 1995.
Net cash used in operating activities for the first quarter ended
March 31, 1996, was $440,000. Capital expenditures for the quarter were not
significant.
As of May 7, 1996, $1.3 million of the $13.8 million revolving credit
facility was unused and available. In March 1996, the credit agreement was
amended to provide an additional $750,000 under the revolving credit facilities
through May 31, 1996. As of March 31, 1996, the Company was in compliance with
all loan covenants, as amended.
7
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Directed Electronics, Inc. v. Code Alarm, Inc., Rand Mueller, and
Peter J. Stouffer, Civil Action No. 96-659 B AJB filed on April 15, 1996, in the
United States District Court for the Southern District of California, by
Directed Electronics, Inc. ("Directed"), seeking damage arising from an
alleged anti-trust, unfair competition, interference with prospective economic
advantage, and malicious prosecution activities related to the assertion, by
the Company, of United States patents 5,049,867 and 4,740,775 against Directed.
An answer has not as yet been filed and the Company's liability, if any, cannot
be determined at this time.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The documents filed as a part of this report:
(11) Shares issuable under employee stock options were excluded
from the computation of weighted average number of shares
outstanding since such shares were either anti-dilutive or
their dilutive effect was not material.
(27) Financial Data Schedules.
(b) There were no reports on Form 8-K filed during the quarter
ended March 31, 1996.
8
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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 14, 1996 /s/ Rand W. Mueller
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Rand W. Mueller
President
Date: May 14, 1996 /s/ Robert V. Wagner
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Robert V. Wagner
Vice President of Finance
(Chief Financial Officer)
(Principal Accounting Officer)
9
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Exhibit Index
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<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 12,090
<ALLOWANCES> 470
<INVENTORY> 13,154
<CURRENT-ASSETS> 27,535
<PP&E> 11,350
<DEPRECIATION> 7,142
<TOTAL-ASSETS> 40,639
<CURRENT-LIABILITIES> 16,273
<BONDS> 9,998
0
0
<COMMON> 12,210
<OTHER-SE> (3,717)
<TOTAL-LIABILITY-AND-EQUITY> 40,639
<SALES> 16,597
<TOTAL-REVENUES> 16,597
<CGS> 10,674
<TOTAL-COSTS> 10,674
<OTHER-EXPENSES> 5,397
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 105
<INCOME-TAX> 56
<INCOME-CONTINUING> 49
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
