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, 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 July 31, 1997, there were 8,382,762 shares of common stock
outstanding.
<PAGE>
ITI TECHNOLOGIES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
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INDEX PAGE
PART I -- FINANCIAL INFORMATION
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Item 1 -- Financial Statements 3
Item 2 -- Management's Discussion and Analysis 12
of Financial Condition and Results
of Operations
PART II OTHER INFORMATION
Item 5 -- Other Information 16
Item 6 -- Exhibits and Reports on Form 8-K 16
Signatures 18
</TABLE>
<PAGE>
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 June 30, 1997, and the related
consolidated statement of operations for the three month and six month periods
then ended and the consolidated statement of cash flows for the six-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 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 it has been derived.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
July 28, 1997
<PAGE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
(UNAUDITED)
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Net sales $ 23,319 $ 25,403 $ 45,428 $ 49,143
Cost of goods sold 12,316 13,511 23,757 25,727
Inventory purchase accounting adjustment 725 725
-------- -------- -------- --------
Gross profit 11,003 11,167 21,671 22,691
Operating expenses:
Marketing, general end administrative 3,549 4,764 6,955 8,706
Research and development 1,515 1,834 3,075 3,482
Purchased in-process research
and development costs 5,200 5,200
Amortization of intangible assets 228 296 456 524
-------- -------- -------- --------
Operating income (loss) 5,711 (927) 11,185 4,779
Other income (expense):
Interest, net 190 127 320 391
Other, net (17) (5) (4) (24)
-------- -------- -------- --------
Income (loss) before income tax expense 5,884 (805) 11,501 5,146
Income tax expense 2,215 1,616 4,293 3,823
-------- -------- -------- --------
Net income (loss) $ 3,669 $ (2,421) $ 7,208 $ 1,323
======== ======== ======== ========
Primary earnings (loss) per share $ 0.39 $ (0.29) $ 0.76 $ 0.15
======== ======== ======== ========
Weighted average shares outstanding 9,498 8,334 9,463 8,665
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------- --------
(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 13,352 $ 212
Accounts receivable 14,593 15,019
Inventories 16,627 19,355
Deferred income taxes 1,384 1,362
Other current assets 2,147 2,386
-------- --------
Total current assets 48,103 38,334
Property and equipment 7,647 9,508
Excess of cost over net assets acquired 23,398 28,736
Other intangible assets 10,646 18,135
Notes receivable, net of current portion 1,275
-------- --------
Total assets $ 89,794 $ 95,988
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,981 $ 3,715
Accrued wages 1,586 2,088
Other accrued expenses 1,489 2,352
-------- --------
Total current liabilities 6,056 8,155
Borrowings under revolving credit agreement 1,875
Income taxes 4,412 6,524
-------- --------
Total liabilities 10,468 16,554
-------- --------
Commitments
Stockholders' equity:
Common stock ($0.01 par value; authorized 30,000
shares; issued 9,036, outstanding 8,414 shares at
December 31, 1996 and issued 9,067, outstanding
8,355 shares at June 30, 1997) 90 91
Additional paid-in capital 72,411 72,590
Retained earnings 14,491 15,814
Treasury stock, at cost (622 shares at December 31, 1996
and 712 shares at June 3O, 1997) (7,666) (9,061)
-------- --------
Total stockholders' equity 79,326 79,434
-------- --------
Total liabilities and stockholders' equity $ 89,794 $ 95,988
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX
MONTHS ENDED
JUNE 30,
1996 1997
-------- --------
(UNAUDITED)
OPERATING ACTIVITIES:
Net income $ 7,208 $ 1,323
Adjustments to reconcile net income to cash
provided from operating activities:
Amortization of intangible assets 608 569
Depreciation and amortization 523 792
Provision for bad debt expense 100
Inventory purchase accounting adjustment 725
Purchased in-process research and development costs 5,200
Changes in operating assets and liabilities:
Accounts receivable (1,308) 1,751
Inventories (2,989) (122)
Other current assets 131 (971)
Accounts payable (705) (23)
Income taxes payable 1,560
Accrued expenses 678 788
-------- --------
Net cash provided by operating activities 5,806 10,032
-------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (2,319) (1,463)
Additions to other intangible assets (673) (947)
Issuance of notes receivable (946)
Acquisitions of businesses, net of cash acquired (20,476)
-------- --------
Net cash used in investing activities (2,992) (23,832)
-------- --------
FINANCING ACTIVITIES:
Proceeds from revolving credit agreement 5,375
Payment of revolving credit agreement (3,500)
Proceeds from exercise of common stock options 179 180
Payments for treasury stock (1,395)
-------- --------
Net cash provided by financing activities 179 660
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,993 (13,140)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 9,937 13,352
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 12,930 $ 212
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated statements of operations for the three month
and six month periods ended June 30, 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 consolidated 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.
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.
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 $0.41 or $0.02
higher, and would have remained unchanged at $(0.29) in the second
quarter of 1996 and 1997, respectively. Basic EPS would have been
$0.81, or $0.05 higher, and $0.16, or $0.01 higher, for the six months
ended June 30, 1996 and 1997, respectively. 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.
2. ACQUISITIONS
On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX-CADDI Controls, Inc. ("CADDX") for $19.0 million in cash (the
"Acquisition"). In conjunction with the Acquisition, the Company also
purchased from the majority shareholder of CADDX the manufacturing
facility leased by CADDX for $530,000. Immediately following the
Acquisition, the corporate name was changed to CADDX Controls, Inc.
CADDX, located in Gladewater, Texas, designs, manufactures and markets
hardwire electronic security systems in the United States and certain
international locations.
<PAGE>
2. ACQUISITIONS (CONTINUED)
The Acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of CADDX have
been included in these financial statements from the effective date,
April 30, 1997. The Acquisition cost has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values
at the Acquisition date, including $4.0 million to net current assets,
$1.2 million to property and equipment, $1.25 million to customer
lists, principally related to CADDX customers outside the United
States, $2.1 million to net long-term deferred tax liabilities, $3.75
million to trade names, and $5.2 million to technology under
development, leaving a $5.7 million excess of cash paid over net assets
acquired. The values assigned to the various identifiable intangible
assets were determined based on anticipated discounted after-tax cash
flows for the period estimated to encompass the remaining life of the
technology existing at the Acquisition date and the expected life cycle
of the next generation of technology under development at the
Acquisition date. Depreciation periods for property and equipment and
amortization periods for trade names and the excess of cash paid over
net assets acquired are consistent with ITI's existing policies. The
customer list will be amortized over 15 years.
At the time of the Acquisition, CADDX had under development technology
related to the NX-8 security system. It is not currently clear whether
any of this technology will be commercially acceptable or whether it
will function correctly. The development of the NX-8 requires several
design and engineering innovations, including the creation of special
telecom and power interfaces that would be acceptable under any
country's regulations anywhere in the world, the development of
software to drive these interfaces and a buss structure to allow high
speed transmissions over long lines without loss of signal, all within
the specified physical space and cost structure contemplated. It is not
certain that these design innovations can be accomplished, and failure
to achieve any one of these innovations will cause the NX-8 project to
fail. As a result, in May 1997, the Company made a $5.2 million
non-recurring charge to operations for the value assigned to NX-8
technology in process at the time of the Acquisition. Also, subsequent
to the Acquisition, the Company included in cost of goods sold in the
quarter ended June 30, 1997, a $725,000 non-recurring purchase
accounting adjustment which resulted from the sale of inventory which
had been written up to reflect estimated selling price less the sum of
estimated costs of completion and sale at the time of the Acquisition.
<PAGE>
2. ACQUISITIONS (CONTINUED)
The following are unaudited pro forma consolidated results of
operations for the six month periods ended June 30, 1996 and 1997, as
if the Acquisition had occurred as of the beginning of each period. The
unaudited pro forma consolidated results of operations have been
adjusted to eliminate the effect of the $5.2 million non-recurring
charge to operations for the value assigned to the in-process NX-8
technology and the $725,000 non-recurring purchase accounting
adjustment which resulted from the sale of the purchased inventory. The
pro forma information also includes adjustments for additional
depreciation and amortization, the reduction of compensation expense
for a non-active majority shareholder, the reduction of interest
income, additional interest expense due to the reduction of cash used
for the Acquisition and the impact on the tax provision due to these
adjustments. The unaudited pro forma consolidated results of operations
do not purport to represent what the Company's results of operations
could actually have been if the Acquisition had, in fact, occurred on
that date.
Pro Forma
Six Months Ended
June 30,
--------
1996 1997
---- ----
(Unaudited)
Net sales, in thousands $54,536 $55,083
Net income, in thousands 7,880 7,436
Primary earnings per share $0.83 $0.86
On May 22, 1997, the Company also completed the cash purchase of the
Regency product line and dealer program from the Silent Knight Division
of Willknight, Inc., located in Minneapolis, Minnesota, for $1.8
million. In the event sales of Regency products over the 36 month
period ending May 2000 exceed certain levels, then a contingent payment
of up to $800,000 will be made. This product line allows the Company to
offer an established product that integrates intrusion protection, fire
protection and access control. The Regency dealer program consists of
over 100 Regency dealers throughout North America. The purchase price
was allocated to the estimated fair value of the assets acquired,
primarily to customer lists, which is being amortized over its expected
useful life of 10 years.
<PAGE>
3. LITIGATION
On August 17, 1995, the Company commenced an action for patent
infringement against Pittway Corporation and its subsidiary, Ademco
Distributions, Inc., in the United States District Court for the
District of Minnesota. The Company intends to vigorously protect its
patented technology from infringement. Costs associated with this
action are being capitalized as a patent asset associated with the
related technology. As of June 30, 1997, the Company has capitalized
$2.1 million of costs related to this lawsuit.
4. CREDIT FACILITY
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 payment of annual 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.
<PAGE>
5. OTHER FINANCIAL STATEMENT DATA (IN THOUSANDS):
December 31, June 30,
1996 1997
-------- --------
(UNAUDITED)
Accounts receivable:
Accounts receivable $ 15,493 $ 16,054
Allowance for doubtful accounts (900) (1,035)
-------- --------
Total $ 14,593 $ 15,019
======== ========
Inventories:
Raw materials $ 7,358 $ 8,667
Allowance for obsolescence (1,400) (1,545)
-------- --------
5,958 7,122
Work-in-process 3,519 5,271
Finished goods 7,150 6,962
-------- --------
Total $ 16,627 $ 19,355
======== ========
Property and equipment, net:
Machinery and equipment $ 8,178 $ 9,288
Furniture and fixtures 2,949 3,410
Building and improvements 668 1,688
-------- --------
11,795 14,386
Accumulated depreciation and amortization (4,148) (4,878)
-------- --------
Total $ 7,647 $ 9,508
======== ========
Other intangible assets:
Trademarks and trade names $ 10,079 $ 13,829
Technology and patents 1,591 2,514
Customer list 3,007
Other 590 614
-------- --------
12,260 19,964
Accumulated amortization (1,614) (1,829)
-------- --------
Total $ 10,646 $ 18,135
======== ========
Other accrued expenses:
Warranty $ 400 $ 550
Professional fees 416 437
Other 673 1,365
-------- --------
Total $ 1,489 $ 2,352
======== ========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL:
On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX-CADDI Controls, Inc. ("CADDX") for $19.0 million in cash (the
"Acquisition"). In conjunction with the Acquisition, the Company also
purchased from the majority shareholder of CADDX the manufacturing facility
leased by CADDX for $530,000. Immediately following the Acquisition , the
corporate name was changed to CADDX Controls, Inc. CADDX, located in
Gladewater, Texas, designs, manufactures and markets hardwire electronic
security systems.
The Acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of CADDX have been
included in the financial statements from the effective date, April 30,
1997. The Acquisition cost has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the Acquisition
date, including $4.0 million to net current assets, $1.2 million to
property and equipment, $1.25 million to customer lists, principally
related to CADDX customers outside the United States, $2.1 million to net
long-term deferred tax liabilities, $3.75 million to trade names, and $5.2
million to technology under development, leaving a $5.7 million excess of
cash paid over net assets acquired. The values assigned to the various
identifiable intangible assets were determined based on anticipated
discounted after-tax cash flows for the period estimated to encompass the
remaining life of the technology existing at the Acquisition date and the
expected life cycle of the next generation of technology under development
at the Acquisition date.
At the time of the Acquisition, CADDX had under development technology
related to the NX-8 security system. It is not currently clear whether any
of this technology will be commercially acceptable or whether it will
function correctly. The development of the NX-8 requires several design and
engineering innovations, including the creation of special telecom and
power interfaces that would be acceptable under any country's regulations
anywhere in the world, the development of software to drive these
interfaces and a buss structure to allow high speed transmissions over long
lines without loss of signal, all within the specified physical space and
cost structure contemplated. It is not certain that these design
innovations can be accomplished, and failure to achieve any one of these
innovations will cause the NX-8 project to fail. As a result, in May 1997,
the Company made a $5.2 million non-recurring charge to operations for the
value assigned to NX-8 technology in process at the time of the
Acquisition. Also, subsequent to the Acquisition, the Company included in
cost of goods sold in the quarter ended June 30, 1997, a $725,000
non-recurring purchase accounting adjustment which resulted from the sale
of inventory which had been written up to reflect estimated selling price
less the sum of estimated costs of completion and sale at the time of the
Acquisition.
<PAGE>
On May 22, 1997, the Company also completed the cash purchase of the
Regency product line and dealer program from the Silent Knight Division of
Willknight, Inc., located in Minneapolis, Minnesota, for $1.8 million. In
the event sales of Regency products over the 36 month period ending May
2000 exceed certain levels, then a contingent payment of up to $800,000
will be made. This product line allows the Company to offer an established
product that integrates intrusion protection, fire protection and access
control. The Regency dealer program consists of over 100 Regency dealers
throughout North America. The purchase price was allocated to the estimated
fair value of the assets acquired, primarily to customer lists.
RESULTS OF OPERATIONS:
NET SALES. Net sales increased by $2.1 million, or 8.9%, from $23.3
million for the three months ended June 30, 1996, to $25.4 million for the
three months ended June 30, 1997. Net sales increased by $3.7 million, or
8.2%, from $45.4 million for the six months ended June 30, 1996, to $49.1
million for the six months ended June 30, 1997. The increase in sales is
primarily attributable to volume increases, as prices remained relatively
stable over these periods.
Second quarter 1997 net sales include the results of the CADDX
acquisition for May and June and the Regency product line for June.
Excluding the effect of the acquisitions and sales to the Company's largest
customer's branch operations, sales to all other customers increased 13.1%
from the second quarter of 1996. Sales to the Company's largest customer's
branch operations declined from 40.7% of total sales in the second quarter
of 1996 to 26.7% of total sales in the second quarter of 1997 and are
expected to continue to decline in both dollar and percentage terms through
the remainder of 1997.
GROSS PROFIT. Gross profit increased from $11.0 million for the second
quarter of 1996 to $11.2 million for the second quarter of 1997, but
decreased as a percentage of net sales from 47.2% to 44.0%. A substantial
portion of the decrease is the result of a $725,000 non-recurring purchase
accounting adjustment which resulted from the write-up of CADDX inventory
at the acquisition date to reflect estimated selling price less the sum of
estimated costs of completing and sale. Gross profits for the second
quarter of 1997, excluding the $725,000 non-recurring purchase accounting
charge, were 46.8% compared to 47.2% in the second quarter in 1996. The
decrease in gross profit percentage is due to lower gross margins for CADDX
sales that are going through distributors rather than directly to dealers.
Gross profit increased from $21.7 million for the first six months of 1996
to $22.7 million for the first six months of 1997. These increases were
primarily due to increased sales volume.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $3.5 million for the second quarter
of 1996 to $4.8 million for the second quarter of 1997, and increased from
$7.0 million for the first six months of 1996 to $8.7 million for the first
six months of 1997. The dollar increase in expenses is primarily due to the
addition of the CADDX subsidiary. As a percentage of net sales, marketing,
general and administrative expenses for the second quarter increased from
15.2% in 1996 to 18.8% in
<PAGE>
1997, and for the first six months of the year from 15.3% in 1996 to 17.7%
in 1997, due to increased employment costs in the sales and marketing
areas, costs associated with new product introductions and a $300,000
charge for anticipated costs associated with a change in our distribution
arrangements in Australia.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses
increased $319,000 to $1.8 million for the second quarter of 1997, and
increased $407,000 to $3.5 million for the first six months of 1997. The
increase was primarily due to the Company's continued emphasis on research
and new product development. New products introduced in 1997 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, the Company
has launched 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. The Company anticipates that it will continue this
high level of development activity through the remainder of 1997.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT COST. During the second
quarter in conjunction with the Acquisition, the Company made a $5.2
million non-recurring charge to operations for value assigned at the
Acquisition date to purchased technology under development.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition-related
intangible assets increased from $228,000 for the second quarter of 1996 to
$296,000 for the second quarter of 1997, and from $456,000 for the first
six months of 1996 to $524,000 for the first six months of 1997. The
increase is attributable to the Company's second quarter acquisitions.
Amortization of these intangible assets is expected to increase to $352,000
in the third and fourth quarters as a full quarter of the
acquisition-related amortization is reflected.
NET INTEREST INCOME. Net interest income decreased from $190,000 for
the second quarter of 1996 to $127,000 for the second quarter of 1997 as a
result of the acquisitions for the second quarter utilizing the Company's
available cash. During the first six months of 1996, net interest income
totaled $320,000 compared to $391,000 for the first six months of 1997,
which was due primarily to an increase in cash available for placement in
high quality, short-term investments prior to the acquisitions.
INCOME TAX EXPENSE. Income tax expense decreased from $2.2 million for
the second quarter of 1996 to $1.6 million for the second quarter of 1997,
and from $4.3 million for the first six months of 1996 to $3.8 million for
the first six months 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. Additionally, the 1997 effective tax rate was impacted by the
non-deductibility for income tax purposes of the $5.2 million non-recurring
charge for purchased technology under development.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily with cash from
operations. For the first six months of 1997, the Company generated net
cash from operating activities of $10.0 million. Net cash provided by
operating activities resulted primarily from $7.0 million in net income
excluding non-cash acquisition-related adjustments, $1.4 million in
depreciation and amortization charges, and $1.4 million from changes in
operating assets and liabilities, principally accounts receivable and
accrued expenses.
During 1997, the Company invested $20.5 million in acquisitions of
businesses, net of cash acquired. Additionally, the Company made purchases
of property and equipment totaling $1.5 million. 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 six months of 1997, net cash provided by financing
activities was $660,000. This was the result of credit agreement
borrowings, net of payments, totaling $1,875,000 and proceeds from the
exercising of stock options of $180,000, less the purchase of 90,000
additional shares of the Company's common stock for $1,395,000.
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, 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 payment of annual 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.
<PAGE>
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 regarding computation of per share
earnings.
15. Letter regarding unaudited interim financial
information.
27. Financial data schedule.
(b) The following Current Reports on Form 8-K were filed by the
Company during the quarter ended June 30, 1997, or during the
period from June 30, 1997, to the date of this Quarterly
Report on Form 10-Q:
(i) A Current Report on Form 8-K was filed by the Company
on April 17, 1997, to report the information
contained in the Company's press release dated April
7, 1997, regarding the agreement entered into by the
Company to acquire CADDX-CADDI Controls, Inc., a
Gladewater, Texas, based designer and manufacturer of
advanced hardwire electronic security systems.
(ii) A Current Report on Form 8-K was filed by the Company
on May 15, 1997, to report that effective April 30,
1997, the Company acquired from four individual
shareholders all of the common stock of CADDX-CADDI
Controls, Inc., a Gladewater, Texas, based designer
and manufacturer of advanced hardwire electronic
security systems. The financial statements and pro
forma financial information required by Item 7 of the
Current Report on Form 8-K were not filed, however,
in accordance with Item 7(a)(4) and Item 7(b)(2) of
the Current Report on Form 8-K, it was reported that
such financial statements and pro forma financial
information would be filed on or before July 14,
1997.
<PAGE>
(iii) A Current Report on Form 8-K was filed by the Company
on June 2, 1997, to report the acquisition of the
Regency Product Line and Dealer Program from the
Silent Knight Division of Willknight, Inc. of Maple
Grove, Minnesota.
(iv) An Amendment No. 1 to Current Report was filed by the
Company on Form 8-K/A-1 on July 14, 1997, to amend
the Current Report on Form 8-K filed on May 15, 1997,
for the purpose of filing the financial statements
and pro forma financial information required by Item
7 of the Current Report on Form 8-K with respect to
the acquisition by the Company of CADDX-CADDI
Controls, Inc.
<PAGE>
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 14, 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)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Per Share Data:
Net income $ 3,669 $(2,421) $ 7,208 $ 1,323
======= ======= ======= =======
Net income per common and common
equivalent shares, primary $ 0.39 $ (0.29) $ 0.76 $ 0.15
======= ======= ======= =======
Net income per common and common
equivalent shares, fully diluted $ 0.38 $ (0.29) $ 0.76 $ 0.15
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES:
Primary:
Weighted average number of
common shares outstanding 8,924 8,334 8,919 8,354
Common equivalent shares:
Options 574 544 311
------- ------- ------- -------
9,498 8,334 9,463 8,665
======= ======= ======= =======
Fully diluted:
Weighted average number of
common shares outstanding 8,924 8,334 8,919 8,354
Common equivalent shares:
Options 627 571 326
------- ------- ------- -------
9,551 8,334 9,490 8,680
======= ======= ======= =======
</TABLE>
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, No. 333-08945 and No. 333-23751)
We are aware that our report dated July 28, 1997, on our review of interim
financial information of ITI Technologies, Inc. for the period ended June 30,
1997, and included in the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 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
August 14, 1997
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 212
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<COMMON> 91
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<TOTAL-LIABILITY-AND-EQUITY> 95,988
<SALES> 49,143
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