<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
AND EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996.
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
--- ---
The number of shares outstanding of the registrants common stock, without
par value, as of November 11, 1996 is 2,320,861.
<PAGE> 2
INDEX
Page No.
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Part I. - Financial Information
Consolidated Condensed Balance Sheets -
As of September 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Operations (Unaudited) -
Three months ended September 30, 1996 and 1995, and nine months
ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. - Other Information 9
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CODE-ALARM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
1996 December 31,
ASSETS (Unaudited) 1995
- ------ ----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 711 $ 416
Accounts receivable (less allowance for 9,623 10,592
doubtful accounts of $572,000 and
$667,000, respectively)
Inventories 12,454 14,811
Refundable income taxes 765 825
Deferred income taxes 493 560
Other 1,403 1,338
------- -------
Total current assets 25,449 28,542
Property and equipment, net of accumulated depreciation 3,575 4,500
Excess of cost over net assets acquired, net 4,452 4,574
Other intangibles, net 626 816
Deferred income taxes 1,521 1,566
Other assets 1,893 2,045
------- -------
Total assets $37,516 $42,043
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Current portion of long-term debt $ 3,426 $ 3,921
Accounts payable 8,076 12,362
Accrued expenses 2,245 1,832
Income tax payable 107 46
------- -------
Total current liabilities 13,854 18,161
Long-term debt 9,224 9,545
Reserve for litigation 5,928 5,839
------- -------
Total liabilities 29,006 33,545
------- -------
Shareholders' equity:
Common stock 12,213 12,210
Foreign currency translation adjustment 3 54
Accumulated deficit (3,706) (3,766)
------- -------
Total shareholders' equity 8,510 8,498
------- -------
Total liabilities and shareholders' equity $37,516 $42,043
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $15,282 $18,756 $47,094 $54,825
Cost of sales 9,218 11,838 29,333 35,284
------- ------- ------- -------
Gross profit 6,064 6,918 17,761 19,541
Operating expenses:
Sales and marketing 2,695 3,039 7,782 8,845
Engineering 629 872 2,055 2,317
General and administrative 2,313 2,011 6,625 6,307
------- ------- ------- -------
5,637 5,922 16,462 17,469
------- ------- ------- -------
Income from operations 427 996 1,299 2,072
Other income (expense):
Interest expense (400) (326) (1,205) (956)
Litigation expense (1,825)
Other income (expense) 13 (21) 10 (86)
------- ------- ------- -------
Income (loss) before taxes 40 649 104 (795)
Income tax (benefit) (2) 219 44 (60)
------- ------- ------- -------
Net income (loss) $ 42 $ 430 $ 60 $ (735)
======= ======= ======= =======
Net income (loss) per common share $ 0.02 $ 0.19 $ 0.03 $ (0.32)
======= ======= ======= =======
Weighted average number of common
shares outstanding 2,321 2,320 2,321 2,320
======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
CODE-ALARM, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities $ 1,303 $ (406)
Cash flows from investing activities:
Capital expenditures (158) (806)
Payments for intangible assets (36) (37)
Cash flows from financing activities:
Repayments of long-term debt (2,507) (3,359)
Net borrowings from line of credit 1,691 4,761
Proceeds from exercise of stock options 2 1
------- -------
Net change in cash and cash equivalents 295 154
Cash and cash equivalents, beginning of period 416 107
------- -------
Cash and cash equivalents, end of period $ 711 $ 261
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine month period for:
Interest $ 608 $ 814
======= =======
Income taxes $ - $ 150
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements
5
<PAGE> 6
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 $1.8
million charge recorded in connection with the patent infringement suit
for the nine month period ended September 30, 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>
September 30, 1996 December 31,
(Unaudited) 1995
----------- ------------
<S> <C> <C>
Raw materials $ 5,567 $ 7,089
Work in process 463 135
Finished goods 6,424 7,587
------- -------
$12,454 $14,811
======= =======
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations:
- ----------------------
Code-Alarm's consolidated net sales decreased $7,731,000, or 14.1%, for
the first nine months of 1996 as compared to the first nine months of 1995.
The decline in sales was noted primarily in Europe as the current softness in
this market continues and unprofitable product lines sold last year were
dropped. North American sales were down 5% due to the Company's decision to
discontinue sales of "do-it-yourself" and mechanical and vehicle locator
security products to mass merchandisers and independent dealers, and the phase
out of contract manufacturing business. This was partially offset by 20%
growth in original equipment manufacturer (OEM) sales.
Consolidated gross profit decreased $1,780,000, or 9.1%, for the first
nine months of 1996 as compared to the first nine months of 1995. Consolidated
gross profit, as a percentage of consolidated net sales for the first nine
months of 1996 was 37.7%, as compared to 35.6% for the same period in 1995.
The increased gross margin percentage was due to new product introduction in
Europe, and to lesser extent improved productivity and product mix in North
America.
Consolidated operating expenses decreased $1,007,000, or 5.8%, in the
first nine months of 1996 as compared to the first nine months of 1995.
Consolidated operating expenses, as a percentage of consolidated net sales for
the first nine months of 1996 were 35.0%, as compared to 31.9% for the same
period in 1995. The decrease in consolidated operating expenses was
attributable to the Company's continued emphasis on cost management and OEM
sales. However, higher legal and professional fees were incurred in asserting
the Company's patent rights and as defendant in patent infringement suits.
As a result of the foregoing, consolidated operating income decreased
$773,000 in the first nine months of 1996 as compared to the first nine months
of 1995.
Interest expense increased $249,000, or 26.0%, in the first nine months of
1996 compared to the first nine months of 1995. The increase was due to
additional bank commitments and higher average interest rates for the 1996
period.
During the first nine months of 1995, the Company recorded $1.8 million in
additional charges in connection with the patent infringement suit involving a
shock sensing device. No such accrual was necessary for the first nine months
of 1996.
The Company's high tax rate for the year to date period was due to
nondeductible items. The third quarter tax benefit was the result of
adjustments to previous estimates for tax refunds.
As a result of the above, the Company recorded a net profit of $60,000 for
the nine months ended September 30, 1996, as compared to a net loss of
$735,000 for the comparable period in 1995.
Liquidity and Capital Resources:
- --------------------------------
The Company's consolidated working capital was $11.6 million at
September 30, 1996, as compared to $10.4 million at December 31, 1995. The
current ratio (current assets divided by current liabilities) was 1.8 to 1 at
September 30, 1996, as compared to 1.6 to 1 at December 31, 1995.
Net cash provided by operating activities for the nine months ended
September 30, 1996, was $1,303,000. Capital expenditures for the same period
were $158,000.
7
<PAGE> 8
Liquidity and Capital Resources (continued):
- --------------------------------------------
On June 28, 1996, the Company entered into a new two year loan agreement
with NBD Bank ("Bank") which amended and restated the prior loan agreement with
the Bank. The new agreement provides for a $1.3 million term loan due May 23,
1997, a $1.65 million term loan due May 23, 1999, and a $14.25 million
revolving credit facility. Borrowings under the term loans bear interest at
prime rate plus 1/4% - 1/2%, and under the revolving credit facility at prime
rate plus 1%, or at the Company's option, LIBOR plus 2.25% - 2.5% for
borrowings under the term loans, and LIBOR plus 1.5% - 3.5% under the revolving
credit facility. Collateral and loan covenants are substantially the same as
prior loan agreement. As of September 30, 1996, the Company was in compliance
with all loan covenants. As of November 8, 1996, $2.5 million of the
revolving credit facility was unused and available.
8
<PAGE> 9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Parasol Group, Ltd. v. Code-Alarm, Inc., Case No. 95-4713-RSWL
(MC) was filed on December 15, 1994, in the Superior Court for the
County of Los Angeles, California. The plaintiff sought approximately
$200,000 in damages for consulting services alleged to have been
rendered. This case was settled on June 17, 1996 and has been
dismissed.
The Magnadyne Corporation v. Code-Alarm, Inc., Case No. 96-60011
was filed on January 17, 1996, in the United States District Court for
the Eastern District of Michigan, Southern Division seeking damages
for alleged patent infringement. This case was settled on May 31,
1996 and has been dismissed.
Code-Alarm, Inc. v. The Magnadyne Corporation, Barry Carren,
Do-It Yourself Security and James Corporation, Civil Action
No. 1-95-CV-00541 (CRR) was filed on March 21, 1995 in the United
States District Court for the District of Columbia seeking damages for
alleged patent infringement. This case was settled on May 31, 1996
and has been dismissed.
Code-Alarm, Inc. v. Sherwood, Inc., Inkel U.S.A. and Alfred J.
Menozzi, Civil Action No. 95-4797 AWT was filed July 20, 1995 in the
United States District Court for the Central District of California
sitting in Los Angeles, California seeking damages for alleged patent
infringement. This case was settled on July 30, 1996 and has been
dismissed.
Tadiran Electronic Industries, Inc. v. Code-Alarm, Inc., Civil
Action No. 96-CIV-05591 was filed on July 25, 1996 in the United
States District Court for the Southern District of New York claiming
damages of approximately $500,000 from an alleged breach of contract
by the Company. The Company has filed a counterclaim alleging breach
of the same contract by Tadiran. The case is in the early stages of
discovery and liability, if any, cannot be determined at this time.
Intercept Security Corporation ("Intercept") v. Code-Alarm, Inc.
and Rand Mueller, Civil Action No. 95-40239 was filed on July 19, 1995
in the United States District Court for the Eastern District of
Michigan, Southern Division claiming damages from allegedly defective
home security equipment of the Company. Intercept has put forth
expert testimony supporting damages in excess of two million dollars.
The Company's expert places the amount of damages, if any, at less
than $40,000. Summary judgment motions have been filed by each side
and hearing on these motions is scheduled to occur in January of 1997.
The Company intends to defend this action vigorously. The Company's
insurance carrier has provided Rand Mueller with legal defense in this
matter.
Directed Electronics, Inc. v. Code-Alarm, Inc., Rand Mueller and
Peter J. Stouffer, Case No. 96-659 B AJB was filed on April 15, 1996
in the United States District Court for the Southern District of
California alleging violations of anti-trust laws, unfair competition,
malicious prosecution and interference with prospective economic
advantage due to the assertion of various patents by the Company
against Directed Electronics. In November of 1996, the court held
that it had no personal jurisdiction over Peter J. Stouffer and
Peter J. Stouffer was dismissed from the case. The case is in the
early stages of discovery and liability, if any, cannot be determined
at this time.
9
<PAGE> 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The documents filed as a part of this report:
(3.1) Restated Articles of Incorporation of the
Company, incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-18, as amended,
Registration No. 33-16991C ("Form S-18").
(3.2) Bylaws of the Company, as amended, incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K for the
year ended December 31, 1990 ("1990 Form 10-K").
(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 September 30, 1996.
10
<PAGE> 11
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.
----------------
(Registrant)
Date: November 12, 1996 /s/ Rand W. Mueller
----------------- -------------------------
Rand W. Mueller
President
Date: November 12, 1996 /s/ Robert V. Wagner
----------------- -------------------------
Robert V. Wagner
Vice President of Finance
(Chief Financial Officer)
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
3.1 Restated Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-18, as amended,
Registration No. 33-16991C ("Form S-18").
3.2 Bylaws of the Company, as amended, incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K for the
year ended December 31, 1990 ("1990 Form 10-K")
27* Financial Data Schedule. 13
*attached as an Exhibit hereto.
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 711
<SECURITIES> 0
<RECEIVABLES> 10,195
<ALLOWANCES> 572
<INVENTORY> 12,454
<CURRENT-ASSETS> 25,449
<PP&E> 11,208
<DEPRECIATION> 7,633
<TOTAL-ASSETS> 37,516
<CURRENT-LIABILITIES> 13,854
<BONDS> 9,224
0
0
<COMMON> 12,213
<OTHER-SE> (3,703)
<TOTAL-LIABILITY-AND-EQUITY> 37,516
<SALES> 15,282
<TOTAL-REVENUES> 15,282
<CGS> 9,218
<TOTAL-COSTS> 9,218
<OTHER-EXPENSES> 5,637
<LOSS-PROVISION> 102
<INTEREST-EXPENSE> 400
<INCOME-PRETAX> 40
<INCOME-TAX> (2)
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
