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, 1997
-------------------------------------------------
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 April 15, 1997, there were 8,324,062 shares of common stock
outstanding.
ITI TECHNOLOGIES, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX PAGE
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements 3
Item 2 -- Management's Discussion and Analysis 9
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
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ITI Technologies, Inc.
We have reviewed the accompanying consolidated balance sheet of ITI
Technologies, Inc. and Subsidiaries as of March 31, 1997, and the related
consolidated statements of operations and cash flows for the three-month period
then ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying 1997 consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet of ITI Technologies, Inc. and Subsidiaries as of
December 31, 1996, and the related consolidated statements of operations, cash
flows and stockholders' equity for the year then ended (not presented herein);
and in our report dated February 18, 1997, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated financial statements is fairly stated, in
all material respects, in relation to the consolidated financial statements from
which is has been derived.
\s\ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 30, 1997
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE
MONTHS ENDED
MARCH 31
-------------------------
1996 1997
-------- --------
(UNAUDITED)
Net sales ...................................... $ 22,109 $ 23,740
Cost of goods sold ............................. 11,441 12,216
-------- --------
Gross profit ................................... 10,668 11,524
Operating expenses:
Marketing, general and administrative 3,406 3,942
Research and Development ............ 1,560 1,648
Amortization of intangible assets ... 228 228
-------- --------
Operating income ............................... 5,474 5,706
Other income (expense):
Interest, net ....................... 129 264
Other, net .......................... 14 (19)
-------- --------
Income before income tax expense ............... 5,617 5,951
Income tax expense ............................. 2,078 2,207
-------- --------
Net income ..................................... $ 3,539 $ 3,744
======== ========
Primary earnings per share ..................... $ 0.38 $ 0.43
======== ========
Weighted average shares outstanding ............ 9,428 8,662
======== ========
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, MARCH 31,
1996 1997
-------- --------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 13,352 $ 19,476
Accounts receivable ........................................... 14,593 12,866
Inventories ................................................... 16,627 17,226
Deferred income taxes ......................................... 1,384 1,384
Other current assets .......................................... 2,147 1,890
-------- --------
Total current assets ...................................... 48,103 52,842
Property and equipment .......................................... 7,647 7,755
Excess of cost over net assets acquired ......................... 23,398 23,233
Other intangible assets ......................................... 10,646 10,831
Notes receivable, net of current portion ........................ 834
-------- --------
Total assets .............................................. $ 89,794 $ 95,495
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 2,981 $ 4,068
Accrued wages ................................................. 1,586 1,582
Income taxes payable .......................................... 2,194
Other accrued expenses ........................................ 1,489 1,564
-------- --------
Total current liabilities ................................. 6,056 9,408
Income taxes .................................................... 4,412 4,412
-------- --------
Total liabilities ......................................... 10,468 13,820
-------- --------
Commitments
Stockholders' equity:
Common stock ($0.01 par value; authorized 15,000 shares; issued
9,036, outstanding 8,414 shares at December 31, 1996 and issued
9,036, outstanding 8,324 shares at March 31, 1997) ............ 90 90
Additional paid-in capital .................................... 72,411 72,411
Retained earnings ............................................. 14,491 18,235
Treasury stock, at cost (622 shares at December 31, 1996
and 712 shares at March 31, 1997) ............................. (7,666) (9,061)
-------- --------
Total stockholders' equity ................................ 79,326 81,675
-------- --------
Total liabilities and stockholders' equity ................ $ 89,794 $ 95,495
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE
MONTHS ENDED
MARCH 31,
--------------------------
1996 1997
-------- --------
(UNAUDITED)
OPERATING ACTIVITIES:
Net income ........................................ $ 3,539 $ 3,744
Adjustments to reconcile net income to cash
provided from operating activities:
Amortization of intangible assets ................ 343 250
Depreciation and amortization .................... 248 356
Provision for bad debt expense ................... 100
Changes in operating assets and liabilities:
Accounts receivable ............................. (1,358) 1,727
Inventories ..................................... (2,471) (599)
Other current assets ............................ 210 257
Notes receivable, net of current portion ........ (834)
Accounts payable ................................ 42 1,087
Income taxes payable ............................ 1,821 2,194
Accrued expenses ................................ 423 71
-------- --------
Net cash provided by operating activities ......... 2,897 8,253
-------- --------
INVESTING ACTIVITIES:
Additions to property and equipment ............... (791) (464)
Additions to other intangible assets .............. (228) (270)
-------- --------
Net cash used in investing activities ............. (1,019) (734)
-------- --------
FINANCING ACTIVITIES:
Proceeds from exercise of common stock options .... 3
Payments for treasury STOCK ....................... (1,395)
-------- --------
Net cash provided by (used in) financing activities 3 (1,395)
-------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS ............................. 1,881 6,124
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ........................... 9,937 13,352
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ................................. $ 11,818 $ 19,476
======== ========
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
months ended March 31, 1997 and 1996, 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, 1996, 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, 1996. Coopers & Lybrand L.L.P., the Company's
independent accountants, have performed a limited review of the interim
financial information included herein. Their report on such review
accompanies this filing.
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. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, a new standard for earnings per share (EPS)
calculations. Statement No. 128 requires presentation of "basic"
instead of "primary" and "diluted" instead of "fully diluted" EPS.
Basic EPS includes only actual weighted average common shares
outstanding during the period. Basic EPS would have been $0.02 higher
in the first quarter of 1996 and 1997. There is no significant
difference between the Company's diluted and fully diluted EPS. The new
standard must be adopted in the fourth quarter of 1997.
4. Subsequent Events
On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX-CADDI Controls, Inc.(CADDX), for $19.0 million in cash. CADDX,
located in Gladewater, Texas, designs, manufactures and markets
hardwire electronic security systems.
Also on April 30, 1997, the Company entered into an unsecured $15.0
million bank revolving credit facility. The facility provides for
interest calculated, at the Company's option, at LIBOR plus 1.0% or a
commercial bank's base rate less 1.25%. In addition, the facility
requires a commitment fee of 0.1% per annum on the unused portion of
the facility. The agreement allows for dividends equal to 25% of the
Company's net income for the immediately preceding fiscal year and
requires the maintenance of specified ratios and minimum net worth.
5. Other Financial Statement Data (in thousands):
December 31, March 31,
1996 1997
-------- --------
(UNAUDITED)
Accounts receivable:
Accounts receivable .................... $ 15,493 $ 13,766
Allowance for doubtful accounts ........ (900) (900)
-------- --------
Total ................................ $ 14,593 $ 12,866
======== ========
Inventories:
Raw materials .......................... $ 7,358 $ 8,410
Allowance for obsolescence ............. (1,400) (1,400)
-------- --------
5,958 7,010
Work-in-process ........................ 3,519 3,423
Finished goods ......................... 7,150 6,793
-------- --------
Total ................................ $ 16,627 $ 17,226
======== ========
Property and equipment, net:
Machinery and equipment ................ $ 8,178 $ 8,238
Furniture and fixtures ................. 2,949 3,035
Leasehold improvements ................. 668 940
-------- --------
11,795 12,213
Accumulated depreciation and amortization (4,148) (4,458)
-------- --------
Total ................................ $ 7,647 $ 7,755
======== ========
Other intangible assets:
Trademarks and trade names ............. $ 10,079 $ 10,079
Technology and patents ................. 1,591 1,851
All other .............................. 590 600
-------- --------
12,260 12,530
Accumulated amortization ................ (1,614) (1,699)
-------- --------
Total ................................ $ 10,646 $ 10,831
======== ========
Other accrued expenses:
Warranty ............................... $ 400 $ 400
Professional fees ...................... 416 381
All other .............................. 673 783
-------- --------
Total ................................ $ 1,489 $ 1,564
======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
NET SALES. Net sales increased by $1.6 million, or 7.4%, from
$22.1 million for the three months ended March 31, 1996, to $23.7
million for the three months ended March 31, 1997. The increase in
sales for the first quarter is primarily attributable to increases in
net sales to the Company's largest customers and is due to volume
increases, as prices remained relatively stable over these periods.
Sales to ADT Security Systems, Inc., excluding sales to the ADT dealer
program, were $10.1 million or 42.5% of sales for the quarter.
GROSS PROFIT. Gross profit increased from $10.7 million for
the first quarter of 1996 to $11.5 million for the first quarter of
1997 and increased as a percentage of net sales from 48.3% to 48.5%.
These increases were primarily due to increased sales volume.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing,
general and administrative expenses increased from $3.4 million for the
first quarter of 1996 to $3.9 million for the first quarter of 1997. As
a percentage of net sales, marketing, general and administrative
expenses for the quarter increased from 15.4% in 1996 to 16.6% in 1997
due to increased employment costs in the sales and marketing areas and
costs associated with new product introductions.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development
expenses increased $88,000 to $1.6 million for the first quarter of
1997. The increase was primarily due to the Company's continued
emphasis on research and new product development. New products
introduced in the first quarter include the Quick Bridge family, a
group of wireless receivers equipped with interfaces that add on to
other manufactures' hardwired panels, thus broadening the market
opportunities for ITI Learn Mode sensors. Additionally, in the second
quarter of 1997, the Company plans to launch its Simon security system,
an entry-level wireless system aimed at those in the industry looking
for a low-cost wireless solution for mass marketing programs.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition
related intangible assets was $228,000 for the first quarter of both
1996 and 1997.
NET INTEREST INCOME. Net interest income improved from
$129,000 for the first quarter of 1996 to $264,000 for the first
quarter of 1997 due primarily to an increase in cash available for
placement in high quality, short-term investments.
INCOME TAX EXPENSE. Income tax expense increased from $2.1
million for the first quarter of 1996 to $2.2 million for the first
quarter of 1997. The Company's effective tax rate for these periods
varies from the federal statutory rate primarily due to state income
taxes, net of federal benefit, and the non-deductibility for income tax
purposes of the amortization of excess of cost over net assets
acquired.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily with cash from
operations. For the first three months of 1997, the Company generated
net cash from operating activities of $8.3 million. Net cash provided
by operating activities resulted primarily from net income,
depreciation and amortization charges, and changes in operating assets
and liabilities. In addition, cash was used to fund the Company's
dealer financing program which was established to finance equipment
sales to the Company's independent dealer network.
For the first three months of 1997, net cash invested in
purchases of property and equipment was $464,000. For the year ended
December 31, 1997, the Company expects that purchases of property and
equipment will be approximately $3.0 million
For the first three months of 1997, net cash used in financing
activities of $1.4 million was the result of the purchase of additional
shares of the Company's common stock.
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.
On April 30, 1997, subsequent to the balance sheet date, the
Company purchased all of the outstanding stock of CADDX-CADDI Controls,
Inc.(CADDX), for $19.0 million in cash. CADDX, located in Gladewater,
Texas, designs, manufactures and markets hardwire electronic security
systems with approximately $17.0 million of revenue in fiscal 1996,
with 40% of such revenues coming from sales outside of North America.
The Company believes the acquisition will provide additional
opportunities and distribution channels into the North American and
international markets.
On April 30, 1997, the Company entered into an unsecured $15.0
million bank revolving credit facility. The facility provides for
interest calculated, at the Company's option, at LIBOR plus 1.0% or the
commercial bank's base rate less 1.25%. In addition, the facility
requires a commitment fee of 0.1% per annum on the unused portion of
the facility. The agreement allows for dividends equal to 25% of the
Company's net income for the immediately preceding fiscal year and
requires the maintenance of specified financial ratios and minimum net
worth.
The Company believes that cash flows from operations and funds
available through the Company's credit facility will be adequate to
fund its working capital and capital expenditure requirements at least
through the end of 1997.
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.
15. Letter re unaudited interim financial information.
27. Financial data schedule.
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 1997 or during the period from March 31, 1997 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: May 8, 1997 ITI TECHNOLOGIES, INC.
By /s/ Jack A. Reichert
Jack A. Reichert
Vice President of Finance
(Chief Accounting Officer)
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE
MONTHS ENDED
MARCH 31,
-------------------------------
1996 1997
---- ----
(UNAUDITED)
Per Share Data:
Net income $ 3,539 $ 3,744
============ ============
Net income per common and common
equivalent shares, primary $ 0.38 $ 0.43
============ ============
Net income per common and common
equivalent shares, fully diluted $ 0.38 $ 0.43
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES:
Primary:
Weighted average number of
common shares outstanding 8,915 8,376
Common equivalent shares:
Options 513 286
------------ ------------
9,428 8,662
============ ============
Fully diluted:
Weighted average number of
common shares outstanding 8,915 8,376
Common equivalent shares:
Options 513 286
------------ ------------
9,428 8,662
============ ============
EXHIBIT 15 - LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 10549
RE: ITI Technologies, Inc. Registration Statements on Form S-8
(Registrations No. 33-89826, No. 333-08943 and No. 333-08945)
We are aware that our report dated April 30, 1997, on our review of interim
financial information of ITI Technologies, Inc. for the period ended March 31,
1997, and included in the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1997, is incorporated by reference in these registration
statements. Pursuant to Rule 436 (c) under the Securities Act of 1933, this
report should not be considered a part of the registration statements prepared
or certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
May 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 19,476
<SECURITIES> 0
<RECEIVABLES> 12,866
<ALLOWANCES> 900
<INVENTORY> 17,226
<CURRENT-ASSETS> 52,842
<PP&E> 7,755
<DEPRECIATION> 4,458
<TOTAL-ASSETS> 95,495
<CURRENT-LIABILITIES> 9,408
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 81,585
<TOTAL-LIABILITY-AND-EQUITY> 95,495
<SALES> 23,740
<TOTAL-REVENUES> 23,740
<CGS> 12,216
<TOTAL-COSTS> 12,216
<OTHER-EXPENSES> 5,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,951
<INCOME-TAX> 2,207
<INCOME-CONTINUING> 3,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,744
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
