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 June 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
Commission file number 0-24900
ITI Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1340453
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2266 North Second Street, North St. Paul, MN 55109
(Address of principal executive offices)
(Zip Code)
(612) 777-2690
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 _____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of July 24, 1996, there were 8,949,812 shares of common stock
outstanding.
ITI TECHNOLOGIES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1996
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 -- Financial Statements 3
Item 2 -- Management's Discussion and Analysis 8
of Financial Condition and Results
of Operations
PART II OTHER INFORMATION
Item 5 -- Other Information 11
Item 6 -- Exhibits and Reports on Form 8-K 11
Signatures 12
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1995 1996 1995 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ................................................ $ 19,054 $ 23,319 $ 36,976 $ 45,428
Cost of goods sold ....................................... 10,174 12,316 19,902 23,757
-------- -------- -------- --------
Gross profit ............................................. 8,880 11,003 17,074 21,671
Operating expenses:
Marketing, general and administrative ............... 3,275 3,549 6,506 6,955
Research and development ............................ 1,193 1,515 2,422 3,075
Amortization of intangible assets ................... 228 228 456 456
-------- -------- -------- --------
Operating income ......................................... 4,184 5,711 7,690 11,185
Other income (expense):
Interest, net ....................................... (70) 190 (150) 320
Other, net .......................................... 5 (17) 3 (4)
-------- -------- -------- --------
Income before income tax expense ......................... 4,119 5,884 7,543 11,501
Income tax expense ....................................... 1,524 2,215 2,816 4,293
-------- -------- -------- --------
Net income................................................ $ 2,595 $ 3,669 $ 4,727 $ 7,208
======== ======== ======== ========
Primary earnings per share ............................... $ 0.29 $ 0.39 $ 0.52 $ 0.76
======== ======== ======== ========
Weighted average shares outstanding ...................... 9,077 9,498 9,062 9,463
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, June 30,
1995 1996
-------- --------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 9,937 $ 12,930
Accounts receivable 13,344 14,552
Inventories 14,477 17,466
Deferred income taxes 1,839 1,839
Other current assets 1,494 1,363
-------- --------
Total current assets 41,091 48,150
Property and equipment, net 5,095 6,891
Excess of cost over net assets acquired 24,058 23,728
Other intangible assets 9,833 10,228
-------- --------
Total assets $ 80,077 $ 88,997
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,099 $ 3,394
Accrued wages 1,026 1,285
Income taxes payable -- 1,560
Other accrued expenses 1,100 1,519
-------- --------
Total current liabilities 6,225 7,758
Income taxes 3,761 3,761
-------- --------
Total liabilities 9,986 11,519
-------- --------
Commitments
Stockholders' equity:
Common stock ($.01 par value; authorized 15,000
shares; issued and outstanding 8,915 shares
at December 31, 1995 and 8,949 at June 30, 1996) 89 89
Additional paid-in capital 70,603 70,782
Retained earnings (accumulated deficit) (601) 6,607
-------- --------
Total stockholders' equity 70,091 77,478
-------- --------
Total liabilities and stockholders' equity $ 80,077 $ 88,997
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX
MONTHS ENDED
JUNE 30,
1995 1996
-------- --------
OPERATING ACTIVITIES:
Net income $ 4,727 $ 7,208
Adjustments to reconcile net income to cash
provided from operating activities:
Amortization of intangible assets 494 608
Depreciation and amortization 364 523
Provision for bad debt expense 150 100
Deferred income taxes 772 --
Changes in operating assets and liabilities:
Accounts receivable (810) (1,308)
Inventories (3,105) (2,989)
Other current assets (1,156) 131
Accounts payable (1,963) (705)
Income taxes payable -- 1,560
Accrued expenses 1,280 678
-------- --------
Net cash provided from operating activities 753 5,806
-------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (1,279) (2,319)
Additions to other intangible assets -- (673)
-------- --------
Net cash used by investing activities (1,279) (2,992)
-------- --------
FINANCING ACTIVITIES:
Payments of revolving credit agreement (1,000) --
Proceeds from issuance of common stock 7,106 --
Proceeds from exercise of common stock options -- 179
-------- --------
Net cash provided by financing activities 6,106 179
-------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 5,580 2,993
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 227 9,937
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 5,807 $ 12,930
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited consolidated statements of operations for the three and
six month periods ended June 30, 1996 and 1995, reflect, in the opinion
of management of ITI Technologies, Inc. (the "Company"), all
adjustments necessary for a fair statement of the results of operations
for the interim periods. The results of operations for any interim
period are not necessarily indicative of results for the full year. The
consolidated balance sheet data as of December 31, 1995 were derived
from audited consolidated financial statements but do not include all
disclosures required by generally accepted accounting principles. The
unaudited consolidated financial statements should be read in
conjunction with the financial statements and notes thereto
incorporated in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
2. The unaudited consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
3. Other Financial Statement Data (in thousands):
December 31, June 30,
1995 1996
-------- --------
(Unaudited)
Accounts receivable:
Accounts receivable $ 14,144 $ 15,452
Allowance for doubtful accounts (800) (900)
-------- --------
Total $ 13,344 $ 14,552
======== ========
Inventories:
Raw materials $ 7,072 $ 8,202
Allowance for obsolescence (1,300) (1,443)
-------- --------
5,772 6,759
Work-in-process 4,065 4,588
Finished goods 4,640 6,119
-------- --------
Total $ 14,477 $ 17,466
======== ========
Property and equipment, net:
Machinery and equipment $ 5,685 $ 7,328
Furniture and fixtures 2,012 2,425
Leasehold improvements 433 664
-------- --------
8,130 10,417
Accumulated depreciation and amortization (3,035) (3,526)
-------- --------
Total $ 5,095 $ 6,891
========= =========
Other intangible assets:
Trademarks and trade names $ 10,079 $ 10,079
Technology and patents 367 1,019
All other 669 577
-------- --------
11,115 11,675
Accumulated amortization (1,282) (1,447)
-------- --------
Total $ 9,833 $ 10,228
======== ========
Other accrued expenses:
Warranty $ 400 $ 400
Professional fees 495 469
All other 205 650
-------- --------
Total $ 1,100 $ 1,519
======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
NET SALES. Net sales increased by $4.3 million, or 22.4%, from $19.1 million for
the three months ended June 30, 1995 to $23.3 million for the three months ended
June 30, 1996. Net sales increased by $8.5 million, or 22.9%, from $36.9 million
to $45.4 million for the six months ended June 30, 1996. The increase in net
sales is primarily attributable to volume increases, as prices remained
relatively stable over these periods. The $4.3 million increase in sales volume
for the second quarter is primarily attributable to increases in net sales to
the Company's ten largest customers.
GROSS PROFIT. Gross profit increased from $8.9 million for the second quarter of
1995 to $11.0 million for the second quarter of 1996 and increased as a
percentage of net sales from 46.6% to 47.2%. Gross profit increased from $17.1
million for the first six months of 1995 to $21.7 million for the first six
months of 1996 and increased as a percentage of net sales from 46.2% to 47.7%.
These increases were primarily due to cost reduction programs as well as "volume
related" efficiencies in all phases of the manufacturing process. Gross margin
for the second quarter of 1996 was unfavorably impacted by the shipment of
demonstration systems for the ADT/Radio Shack Residential Security Program with
little associated revenue.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $3.3 million for the second quarter of
1995 to $3.5 million for the second quarter of 1996, and increased from $6.5
million for the first six months of 1995 to $7.0 million for the first six
months of 1996. The dollar increases for both periods are primarily due to
increased employment costs. As a percentage of net sales, marketing, general and
administrative expenses for the quarter decreased from 17.2% in 1995 to 15.2% in
1996 and from 17.6% in 1995 to 15.3% in 1996 for the first six months of the
year, as fixed expenses were spread over the increased sales volume.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased
from $1.2 million for the second quarter of 1995 to $1.5 million for the second
quarter of 1996, and increased from $2.4 million for the first six months of
1995 to $3.1 million for the first six months of 1996. The increases are
primarily due to the Company's continued emphasis on research and new product
development.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets was
$228,000 for the second quarter of both 1995 and 1996, and $456,000 for the
first six months of both 1995 and 1996. This charge represents the amortization
of the excess of cost over net assets acquired and trademarks and trade names
recorded at the time of the acquisition of Interactive Technologies, Inc. by the
Company on May 11, 1992 (the "Acquisition"). Amortization of all other
intangible assets is included in cost of goods sold or operating expenses.
NET INTEREST INCOME (EXPENSE). Net interest income or expense improved from
$70,000 net interest expense for the second quarter of 1995 to $190,000 net
interest income for the second quarter of 1996. During the first six months of
1995, net interest expense totaled $150,000 compared to net interest income of
$320,000 for the first six months of 1996. The reduction of interest expense is
due to the payment in full of the Company's revolving credit facility in 1995.
Interest income is the result of investing unused cash in high quality short
term investments.
INCOME TAX EXPENSE. Income tax expense increased from $1.5 million for the
second quarter of 1995 to $2.2 million for the second quarter of 1996, and from
$2.8 million for the first six months of 1995 to $4.3 million for the first six
months of 1996. The Company's effective tax rates for these periods vary from
the federal statutory rate primarily due to state income taxes and the
non-deductibility for income tax purposes of the amortization of excess of cost
over net assets acquired.
LIQUIDITY AND CAPITAL RESOURCES
Since the Acquisition in May 1992, the Company has funded its operations
primarily with cash from operations and, prior to the Company's initial public
offering, from the Company's revolving credit facility. The Company generated
net cash from operating activities of $5.8 million for the first six months of
1996. Net cash from operating activities resulted primarily from $7.2 million of
net income and $1.1 million of depreciation and amortization charges. This
amount was partially offset by $2.6 million of net cash used by changes in
operating assets and liabilities, primarily due to an increase in accounts
receivable and inventories in support of the Company's revenue growth.
For the first six months of 1996, net cash invested in purchases of property and
equipment was $2.3 million. For the year ended December 31, 1996, the Company
expects that purchases of property and equipment will be approximately $3.5
million.
For the first six months of 1996, the Company incurred $637,000 of costs in its
action for patent infringement against Pittway Corporation and its subsidiary,
Ademco Distributions, Inc. Costs of this action are being capitalized as a
patent asset associated with the related technology.
For the first six months of 1996, net cash provided by financing activities was
$179,000 resulting from the exercise of common stock options.
A substantial amount of the Company's working capital is invested in accounts
receivable and inventories. The Company periodically reviews accounts receivable
for noncollectibility and inventories for obsolescence and establishes
allowances it believes are appropriate. In addition, the Company periodically
assesses the recoverability of intangible assets based on undiscounted cash
flows.
The Company has an unsecured $15.0 million bank revolving credit facility which
provides for interest calculated, at the Company's option, at LIBOR plus 1.0% or
a commercial bank's base rate and requires a commitment fee of 0.25% per annum
on the unused portion of the revolving credit commitment. No amounts were
outstanding under this facility at December 31, 1995 and June 30, 1996. At June
30, 1996, the Company was in compliance with all financial covenants. This
facility expires December 31, 1997.
The Company believes that cash flows from operations and funds available under
its revolving credit facility will be adequate to fund its working capital and
capital expenditure requirements at least through the end of 1996.
EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS
The Company believes that inflation and foreign currency have not had a
significant effect on its operations.
PART II - OTHER INFORMATION
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is filed as part of this Quarterly Report on Form
10-Q:
11. Statement re computation of per share earnings.
27. Financial data schedule.
(b) No Current Reports on Form 8-K were filed during the quarter ended June
30, 1996 or during the period from June 30, 1996 to the date of this
Quarterly Report on Form 10-Q.
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.
Dated: August 2, 1996 ITI TECHNOLOGIES, INC.
By /s/ Jack A. Reichert
------------------------------
Jack A. Reichert
Vice President of Finance
(Chief Accounting Officer)
EXHIBIT 11 - STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
--------------- ---------------
1995 1996 1995 1996
------ ------ ------ ------
Per Share Data:
Net income $2,595 $3,669 $4,727 $7,208
====== ====== ====== ======
Net income per common and common
equivalent shares, primary $ 0.29 $ 0.39 $ 0.52 $ 0.76
====== ====== ====== ======
Net income per common and common
equivalent shares, fully diluted $ 0.29 $ 0.38 $ 0.52 $ 0.76
====== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES:
Primary:
Weighted average number of
common shares outstanding 8,478 8,924 8,431 8,919
Common equivalent shares:
Options 599 574 631 544
------ ------ ------ ------
9,077 9,498 9,062 9,463
====== ====== ====== ======
Fully diluted:
Weighted average number of
common shares outstanding 8,478 8,924 8,431 8,919
Common equivalent shares:
Options 599 627 631 571
------ ------ ------ ------
9,077 9,551 9,062 9,490
====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 12,930
<SECURITIES> 0
<RECEIVABLES> 14,552
<ALLOWANCES> 900
<INVENTORY> 17,466
<CURRENT-ASSETS> 48,150
<PP&E> 6,891
<DEPRECIATION> 3,526
<TOTAL-ASSETS> 88,997
<CURRENT-LIABILITIES> 7,758
<BONDS> 0
89
0
<COMMON> 0
<OTHER-SE> 77,389
<TOTAL-LIABILITY-AND-EQUITY> 88,997
<SALES> 45,428
<TOTAL-REVENUES> 45,428
<CGS> 23,757
<TOTAL-COSTS> 23,757
<OTHER-EXPENSES> 10,486
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 11,501
<INCOME-TAX> 4,293
<INCOME-CONTINUING> 7,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,208
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>
