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 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 _____________________
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 October 15, 1996, there were 9,033,162 shares of common stock
outstanding.
ITI TECHNOLOGIES, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX PAGE
PART I -- FINANCIAL INFORMATION
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)
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1995 1996 1995 1996
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ................................ $ 20,698 $ 24,441 $ 57,674 $ 69,869
Cost of goods sold ....................... 10,908 12,525 30,810 36,282
-------- -------- -------- --------
Gross profit ............................. 9,790 11,916 26,864 33,587
Operating expenses:
Marketing, general and administrative 3,277 4,065 9,783 11,020
Research and development ............ 1,298 1,574 3,720 4,649
Amortization of intangible assets ... 228 228 684 684
-------- -------- -------- --------
Operating income ......................... 4,987 6,049 12,677 17,234
Other income (expense):
Interest, net ....................... 56 215 (94) 535
Other, net .......................... 5 6 8 2
-------- -------- -------- --------
Income before income tax expense ......... 5,048 6,270 12,591 17,771
Income tax expense ....................... 1,893 2,336 4,709 6,629
-------- -------- -------- --------
Net income ............................... $ 3,155 $ 3,934 $ 7,882 $ 11,142
======== ======== ======== ========
Primary earnings per share ............... $ 0.34 $ 0.41 $ 0.86 $ 1.17
======== ======== ======== ========
Weighted average shares outstanding ...... 9,387 9,604 9,170 9,510
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
ITI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 31,
1995 1996
-------- --------
ASSETS: (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 9,937 $ 17,617
Accounts receivable ............................... 13,344 14,271
Inventories ....................................... 14,477 18,312
Deferred income taxes ............................. 1,839 1,839
Other current assets .............................. 1,494 1,179
-------- --------
Total current assets ............................ 41,091 53,218
Property and equipment, net ......................... 5,095 7,266
Excess of cost over net assets acquired ............. 24,058 23,563
Other intangible assets ............................. 9,833 10,471
-------- --------
Total assets .................................... $ 80,077 $ 94,518
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 4,099 $ 3,987
Accrued wages ..................................... 1,026 2,084
Income taxes payable .............................. -- 1,537
Other accrued expenses ............................ 1,100 1,344
-------- --------
Total current liabilities ....................... 6,225 8,952
Income taxes ........................................ 3,761 3,761
-------- --------
Total liabilities ............................... 9,986 12,713
-------- --------
Commitments
Stockholders' equity:
Common stock ($.01 par value; authorized 15,000
shares; issued and outstanding 8,915 shares
at December 31, 1995 and 9,032 at Sept. 30, 1996) . 89 90
Additional paid-in capital ........................ 70,603 71,174
Retained earnings (accumulated deficit) ........... (601) 10,541
-------- --------
Total stockholders' equity ...................... 70,091 81,805
-------- --------
Total liabilities and stockholders' equity ...... $ 80,077 $ 94,518
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1996
-------- --------
OPERATING ACTIVITIES:
Net income .................................... $ 7,882 $ 11,142
Adjustments to reconcile net income to cash
provided from operating activities:
Amortization of intangible assets ........... 743 855
Depreciation and amortization ............... 563 834
Provision for bad debt expense .............. 254 100
Deferred income taxes ....................... 772 --
Changes in operating assets and liabilities:
Accounts receivable ........................ (2,607) (1,027)
Inventories ................................ (1,082) (3,835)
Other current assets ....................... (922) 315
Accounts payable ........................... (1,604) (112)
Income taxes payable ....................... -- 1,537
Accrued expenses ........................... 549 1,302
-------- --------
Net cash provided from operating activities ... 4,548 11,111
-------- --------
INVESTING ACTIVITIES:
Additions to property and equipment ........... (1,689) (3,005)
Additions to other intangible assets .......... -- (998)
-------- --------
Net cash used by investing activities ......... (1,689) (4,003)
-------- --------
FINANCING ACTIVITIES:
Payments of revolving credit agreement ........ (4,500) --
Proceeds from issuance of common stock ....... 8,744 --
Proceeds from exercise of common stock options -- 572
-------- --------
Net cash provided from financing activities ... 4,244 572
-------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS ........................ 7,103 7,680
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ...................... 227 9,937
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ............................ $ 7,330 $ 17,617
======== ========
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
nine month periods ended September 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. At December 31, 1995, and continuing into 1996, the Company had an
unsecured $15.0 million bank revolving credit facility which provided
for interest calculated, at the Company's option, at LIBOR plus 1.0% or
a commercial bank's base rate and required a commitment fee of 0.25%
per annum on the unused portion of the revolving credit commitment.
During the third quarter, in consideration of its cash position, the
Company voluntarily decided to terminate this facility. No amounts were
outstanding under this facility at December 31, 1995, or at any time
during 1996.
4. Other Financial Statement Data (in thousands):
December 31, September 30,
1995 1996
-------- --------
(Unaudited)
Accounts receivable:
Accounts receivable ..................... $ 14,144 $ 15,171
Allowance for doubtful accounts ......... (800) (900)
-------- --------
Total ................................ $ 13,344 $ 14,271
======== ========
Inventories:
Raw materials ........................... $ 7,072 $ 8,274
Allowance for obsolescence .............. (1,300) (1,300)
-------- --------
5,772 6,974
Work-in-process ......................... 4,065 4,836
Finished goods .......................... 4,640 6,502
-------- --------
Total ................................ $ 14,477 $ 18,312
======== ========
Property and equipment, net:
Machinery and equipment ................. $ 5,685 $ 7,760
Furniture and fixtures .................. 2,012 2,654
Leasehold improvements .................. 433 666
-------- --------
8,130 11,080
Accumulated depreciation and amortization (3,035) (3,814)
-------- --------
Total ................................ $ 5,095 $ 7,266
======== ========
Other intangible assets:
Trademarks and trade names .............. $ 10,079 $ 10,079
Technology and patents .................. 367 1,343
All other ............................... 669 579
-------- --------
11,115 12,001
Accumulated amortization ................ (1,282) (1,530)
-------- --------
Total ................................ $ 9,833 $ 10,471
======== ========
Other accrued expenses:
Warranty ................................ $ 400 $ 400
Professional fees ....................... 495 472
All other ............................... 205 472
-------- --------
Total ................................ $ 1,100 $ 1,344
======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS:
NET SALES. Net sales increased by $3.7 million, or 18.1%, from $20.7
million for the three months ended September 30, 1995 to $24.4 million for
the three months ended September 30, 1996. Net sales increased by $12.2
million, or 21.1%, from $57.7 million for the first nine months of 1995 to
$69.9 million for the nine months ended September 30, 1996. The increase in
net sales is primarily attributable to volume increases, as prices remained
relatively stable over these periods. The $3.7 million increase in sales
volume for the third quarter is primarily attributable to increases in net
sales to the Company's ten largest customers.
GROSS PROFIT. Gross profit increased from $9.8 million for the third
quarter of 1995 to $11.9 million for the third quarter of 1996 and
increased as a percentage of net sales from 47.3% to 48.8%. Gross profit
increased from $26.9 million for the first nine months of 1995 to $33.6
million for the first nine months of 1996 and increased as a percentage of
net sales from 46.6% to 48.1%. These increases were primarily due to cost
reduction programs as well as volume-related efficiencies in all phases of
the manufacturing process.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $3.3 million for the third quarter
of 1995 to $4.1 million for the third quarter of 1996, and increased from
$9.8 million for the first nine months of 1995 to $11.0 million for the
first nine 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 increased
from 15.8% in 1995 to 16.6% in 1996 due to increased employment costs and
costs associated with introducing several new products during the quarter.
As a percentage of net sales, these expenses have decreased from 17.0% in
1995 to 15.8% in 1996 for the first nine months of the year, as fixed
expenses were spread over the increased sales volume.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased from $1.3 million for the third quarter of 1995 to $1.6 million
for the third quarter of 1996, and increased from $3.7 million for the
first nine months of 1995 to $4.6 million for the first nine months of
1996. The increases are primarily due to the Company's continued emphasis
on research and new product development. New products introduced in the
third quarter include the high-end Ultragard control panel and the long
life door/window sensor.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
was $228,000 for the third quarter of both 1995 and 1996, and $684,000 for
the first nine months of both 1995 and 1996.
NET INTEREST INCOME (EXPENSE). Net interest income improved from
$56,000 for the third quarter of 1995 to $215,000 for the third quarter of
1996. During the first nine months of 1995, net interest expense totaled
$94,000 compared to net interest income of $535,000 for the first nine
months of 1996. The reduction of interest expense is due to the payment in
full of the Company's then existing 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 $1.9 million for
the third quarter of 1995 to $2.3 million for the third quarter of 1996,
and from $4.7 million for the first nine months of 1995 to $6.6 million for
the first nine 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 Company's initial public offering in November 1994, the
Company has funded its operations primarily with cash from operations. For
the first nine months of 1996, the Company generated net cash from
operating activities of $11.1 million. Net cash from operating activities
resulted primarily from $11.1 million of net income and $1.7 million of
depreciation and amortization charges. This amount was offset by $1.8
million of net cash used by changes in operating assets and liabilities, in
support of the Company's revenue growth.
For the first nine months of 1996, net cash invested in purchases of
property and equipment was $3.0 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 nine months of 1996, the Company incurred $932,000 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 nine months of 1996, net cash provided by financing
activities of $572,000 resulted from the exercise of employee 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.
During the third quarter, in consideration of its cash position, the
Company voluntarily decided to terminate its unsecured $15.0 million bank
revolving credit facility which required 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 or at any time
during 1996.
The Company believes that cash flows from operations and current funds
held 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 fluctuations
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 exhibits are 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
September 30, 1996 or during the period from September 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: November 5, 1996 ITI TECHNOLOGIES, INC.
By /s/ Jack A. Reichert
Jack A. Reichert
Vice President of Finance
(Chief Accounting Officer)
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Per Share Data:
Net income $ 3,155 $ 3,934 $ 7,882 $11,142
======= ======= ======= =======
Net income per common and common
equivalent shares, primary $ 0.34 $ 0.41 $ 0.86 $ 1.17
======= ======= ======= =======
Net income per common and common
equivalent shares, fully diluted $ 0.33 $ 0.41 $ 0.86 $ 1.17
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES:
Primary:
Weighted average number of
common shares outstanding 8,909 8,991 8,590 8,943
Common equivalent shares:
Options 478 613 580 567
------- ------- ------- -------
9,387 9,604 9,170 9,510
======= ======= ======= =======
Fully diluted:
Weighted average number of
common shares outstanding 8,909 8,991 8,590 8,943
Common equivalent shares:
Options 516 637 595 593
------- ------- ------- -------
9,425 9,628 9,185 9,536
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,617
<SECURITIES> 0
<RECEIVABLES> 14,271
<ALLOWANCES> 900
<INVENTORY> 18,312
<CURRENT-ASSETS> 53,218
<PP&E> 7,266
<DEPRECIATION> 3,814
<TOTAL-ASSETS> 94,518
<CURRENT-LIABILITIES> 8,952
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 81,715
<TOTAL-LIABILITY-AND-EQUITY> 94,518
<SALES> 69,869
<TOTAL-REVENUES> 69,869
<CGS> 36,282
<TOTAL-COSTS> 36,282
<OTHER-EXPENSES> 16,353
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 17,771
<INCOME-TAX> 6,629
<INCOME-CONTINUING> 11,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,142
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
