UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended March 31, 1995
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: 1-7234
NATIONAL PATENT DEVELOPMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1926739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 826-8500
(Registrant's telephone number, including area code)
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
Number of shares outstanding of each of issuer's classes of
common stock as of May 10, 1995:
Common Stock 26,812,321 shares
Class B Capital 250,000 shares
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 1995 and December 31, 1994 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Qualification Relating to Financial Information 11
Part II. Other Information 12
Signatures 13
PART I. FINANCIAL INFORMATION
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1995 1994
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 9,009 $ 10,075
Accounts and other receivables 41,163 52,487
Inventories 24,619 20,642
Costs and estimated earnings
in excess of billings on
uncompleted contracts 12,931 15,237
Prepaid expenses and other
current assets 6,154 6,770
Total current assets 93,876 105,211
Investments and advances 15,470 11,600
Property, plant and equipment, at cost 31,544 37,423
Less accumulated depreciation (20,173) (22,843)
11,371 14,580
Intangible assets, net of amortization 33,293 37,025
Investment in financed assets 85 684
Other assets 3,338 6,446
$157,433 $175,546
* The Consolidated Condensed Balance Sheet as of December 31,
1994 has been summarized from the Company's audited Consolidated
Balance Sheet as of that date.
See accompanying notes to the consolidated condensed financial
statements.
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NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
March 31, December 31,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt
and notes payable $ 11,011 $ 14,279
Short-term borrowings 25,376 31,060
Accounts payable and accrued expenses 26,193 27,958
Billings in excess of costs and
estimated earnings on
uncompleted contracts 4,175 6,091
Total current liabilities 66,755 79,388
Long-term debt less current maturities 11,706 17,513
Minority interests and other 9,426 11,970
Common stock issued subject to
repurchase obligation 1,522 1,510
Stockholders' equity
Common stock 266 241
Class B capital stock 2 2
Capital in excess of par value 122,387 119,856
Deficit (52,704) (53,151)
Net unrealized loss on available-
for-sale securities (1,927) (1,783)
Total stockholders' equity 68,024 65,165
$157,433 $175,546
* The Consolidated Condensed Balance Sheet as of December 31,
1994 has been summarized from the Company's audited Consolidated
Balance sheet as of that date.
See accompanying notes to the consolidated condensed financial
statements.
2
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months
ended March 31,
1995 1994
Revenues
Sales $ 46,552 $ 44,530
Investment and other income
(expense), net (134) (752)
46,418 43,778
Costs and expenses
Costs of goods sold 39,282 36,518
Selling, general & administrative 7,162 7,865
Interest 998 1,482
47,442 45,865
Gain on sale of stock of a subsidiary 2,567
Minority interests (300) (68)
Income (loss) before income taxes,
discontinued operation and
extraordinary item 1,243 (2,155)
Income tax expense (297) (66)
Income (loss) before discontinued
operation and extraordinary item 946 (2,221)
Discontinued operation
Loss from discontinued operation (727) (239)
Income (loss) before extraordinary item 219 (2,460)
Extraordinary item
Early extinguishment of debt,
net of income tax 228
Net income (loss) $ 447 $ (2,460)
Income (loss) per share
Income (loss) before discontinued
operation and extraordinary item $ .04 $ (.11)
Discontinued operation (.03) (.02)
Extraordinary item .01
Net income (loss) per share $ .02 $ (.13)
Dividends per share none none
See accompanying notes to the consolidated condensed financial
statements.
3
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
1995 1994
Cash flows from operations:
Net income (loss) $ 447 $ (2,460)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities:
Provision for discontinued operation 700
Depreciation and amortization 2,319 1,248
Gains from early extinguishment
of debt (228)
Gain on sale of stock of a
subsidiary (2,567)
Changes in other operating items (2,236) (5,680)
Net cash used for operations (1,565) (6,892)
Cash flows from investing activities:
Proceeds from sale of stock
of a subsidiary 5,000
Additions to property, plant
& equipment (1,809) (1,382)
Additions to intangible assets (427)
Reduction in (additions to)
investments and other assets, net 291 1,685
Net cash provided by (used for)
investing activities 3,055 303
Cash flows from financing activities:
Net proceeds from short-term borrowings 1,947 5,147
Proceeds from issuance of
long-term debt 924
Reduction of long-term debt (4,503) (778)
Proceeds from issuance of common stock 88
Exercise of common stock options
and warrants 80
Net cash provided by (used for)
financing activities (2,556) 5,461
4
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
1995 1994
Net decrease in cash and cash
equivalents $ (1,066) $ (1,128)
Cash and cash equivalents at the
beginning of the periods 10,075 10,976
Cash and cash equivalents at the end
of the periods 9,009 9,848
Supplemental disclosures of cash
flow information:
Cash paid during the periods for:
Interest $ 1,137 $ 919
Income taxes $ 328 $ 143
See accompanying notes to the consolidated condensed financial
statements.
5
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Inventories
Inventories are valued at the lower of cost or market,
principally using the first-in, first-out (FIFO) method.
Inventories consisting of material, labor, and overhead are
classified as follows (in thousands):
March 31, December 31,
1995 1994
Raw materials $ 1,763 $ 1,973
Work in process 534 462
Finished goods 19,709 15,557
Land held for resale 2,613 2,650
$ 24,619 $ 20,642
2. Long-term debt
Long-term debt consists of the following (in thousands):
March 31, December 31,
1995 1994
8% Swiss bonds $ 1,385 $ 2,999
Swiss convertible bonds 5,763 10,157
New 5% convertible bonds 2,129 2,129
12% Subordinated debentures 6,783 6,783
Other 6,657 9,145
22,717 31,213
Less current maturities 11,011 13,700
11,706 $ 17,513
6
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Subsequent event
On April 7, 1995, the Company entered into a $5,000,000 Term
Loan Agreement, of which the Company received $4,900,000 after
closing fees. The Term Loan is payable in sixteen consecutive
quarterly installments, commencing on June 30, 1996. The first
fifteen installments will be $250,000 and the last installment
shall be $1,250,000. The Company will use the proceeds to repay
and refinance its Swiss denominated long-term debt due in 1995
and 1996. The Term Loan is secured by certain assets of the
Company and requires the Company to meet certain financial
covenants.
In addition, General Physics Corporation (GP), the Company's
51% owned subsidiary entered into a new $20,000,000 secured
revolving credit agreement with a commercial bank, and terminated
its previous credit agreement. Borrowings under the new credit
agreement bear interest at the prime rate or at a rate which is
1.75% over LIBOR, whichever rate is elected by GP. The new
credit agreement is secured by the accounts receivable of GP and
certain of its subsidiaries, and contains certain covenants
which, among other things, limit the amount and nature of certain
expenditures by GP, and requires GP to maintain certain financial
ratios.
7
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had income (loss) before income taxes,
discontinued operation and extraordinary item of $1,243,000 for
the quarter ended March 31, 1995 compared to a loss of
$(2,155,000) for the quarter ended March 31, 1994. The improved
operating results were primarily the result of the $2,567,000
gain recognized by the Company on the sale of 1,666,667 shares of
the Company's GTS Duratek, Inc. (Duratek) common stock in January
1995. As a result of the transaction, the Company's ownership
fell below 50% and commencing in January 1995, the Company will
account for its investment in Duratek on the equity basis. In
addition, the Company had reduced interest expense due to a
reduction in long-term debt, as well as improved operating
results at the Company's Hydro Med Sciences division.
During the first quarter of 1995, the Company realized net
foreign currency transaction losses of $(1,069,000), as compared
to a loss of $(897,000) for the first quarter of 1994. This was
a result of the weakness of the U.S. dollar relative to the Swiss
Franc and the Company's decision not to hedge its Swiss currency
obligations. At March 31, 1995, there was an aggregate of SFr.
6,849,000 of Swiss denominated indebtedness outstanding, of which
SFr. 5,749,000 represents principal amount outstanding and
approximately SFr. 1,100,000 represents interest accrued thereon.
Foreign currency valuation fluctuations may adversely affect the
results of operations and financial condition of the Company. In
order to protect itself against currency valuation fluctuations,
the Company has at times swapped or hedged a portion of its
obligations denominated in Swiss Francs. At March 31, 1995, the
Company had not hedged its Swiss Franc obligations. If the value
of the Swiss Franc to the U.S. dollar increases, the Company will
recognize transaction losses on its Swiss Franc obligations. On
March 31, 1995, the value of the Swiss Franc to the U.S. dollar
was 1.133 to 1. There can be no assurance that the Company will
be able to swap or hedge obligations denominated in foreign
currencies at prices acceptable to the Company or at all. The
Company will continue to review this policy on a continuing
basis.
Sales
For the quarter ended March 31, 1995, consolidated sales
increased by $2,022,000 to $46,552,000 from the $44,530,000 in
the corresponding quarter of 1994. The increased sales were the
result of increased sales within the Distribution and Physical
Science Groups. The increased sales within the Physical Science
8
Group were the result of consolidating the sales of General
Physics Corporation (GP) since September 1994, partially offset
by Duratek being accounted for on the equity basis since January
1995.
Gross margin
Consolidated gross margin of $7,270,000, or 16%, for the
quarter ended March 31, 1995, decreased by $742,000 compared to
the consolidated gross margin of $8,012,000, or 18%, for the
quarter ended March 31, 1994. The decreased gross margin in 1995
was principally the result of decreased gross margin achieved by
the Physical Science Group primarily due to the Company's
ownership in Duratek falling below 50% in January 1995, and the
Company accounting for the results of Duratek on the equity basis
from that time, partially offset by increased gross margin
achieved by GP as a result of GP being included in the
consolidated results since September 1994.
Selling, general and administrative expenses
For the three months ended March 31, 1995, selling, general
and administrative (SG&A) expenses were $7,162,000 compared to
the $7,865,000 incurred in the first quarter of 1994. The
decrease in SG&A for the first quarter of 1995 was the result of
Duratek being accounted for on the equity method since January
1995.
Interest expense
For the three months ended March 31, 1995, interest expense
was $998,000 compared to $1,482,000 for the three months ended
March 31, 1994. The decreased interest expense for the quarter
was the result of reduced long-term debt.
Investment and other income (expense), net
Investment and other income (expense), net of $(134,000) for
the quarter ended March 31, 1995, improved by $618,000 as
compared to $(752,000) for the first quarter of 1994. The
reduced expense was principally due to the effect of the
following factors; a loss of $(275,000) realized in the quarter
ended March 31, 1995, on the share of losses of 20% to 50% owned
subsidiaries, compared to a loss of $(770,000) recognized in the
quarter ended March 31, 1994, partially offset by $(1,069,000)
and $(897,000) of foreign currency transaction losses, for the
quarters ended March 31, 1995 and 1994, respectively. For the
quarter ended March 31, 1995 and 1994, the Company's share of
ISI's loss was $(335,000) and $(845,000). In addition, the
Company achieved increased investment income in 1995 due to
increased cash balances and higher short-term interest rates.
9
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Company had cash and cash equivalents
totaling $9,009,000. GP, SGLG and American Drug Company had cash
and, cash equivalents of $271,000 at March 31, 1995. The
minority interests of these two companies are owned by the
general public, and therefore the assets of these subsidiaries
have been dedicated to the operations of these companies and may
not be readily available for the general corporate purpose of the
parent. In addition, MXL Industries, Inc. had cash and cash
equivalents totaling $641,000, which was not available to the
Company due to restrictions within MXL's line of credit
agreement.
The Company has sufficient cash, cash equivalents and
marketable securities, and borrowing availability under existing
and potential lines of credit to satisfy its cash requirements
for its Swiss Franc denominated indebtedness due in 1995, which
totaled approximately $3,816,000 at March 31, 1995. The Company
had not yet paid approximately $2,874,000 of such indebtedness
which was due in March 1995. In order for the Company to meet
its long-term cash needs, which include the repayment of
approximately $3,332,000 of Dual Currency and Swiss Franc
denominated indebtedness scheduled to mature in 1996, the Company
must obtain additional funds from among various sources. The
Company has historically reduced its long-term debt through the
issuance of equity securities in exchange for long-term debt. In
addition to its ability to issue equity securities, the Company
believes that it has sufficient marketable long-term investments,
as well as the ability to obtain additional funds from its
operating subsidiaries and the potential to enter into new credit
arrangements. The Company reasonably believes that it will be
able to accomplish some or all of the above transactions in
order to fund the scheduled repayment of the Company's long-term
Swiss debt in 1996.
10
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 1995
The financial information included herein is unaudited. In
addition, the financial information does not include all
disclosures required under generally accepted accounting
principles because certain note information included in the
Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for the interim
periods. The results for the 1995 interim period are not
necessarily indicative of results to be expected for the entire
year.
11
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.ii Amended By-Laws of the Registrant.
10. Credit Agreement dated April 7, 1995 among
the Registrant, General Physics Corporation,
Inventory Management Corporation, GP
Environmental Services, Inc. and GPS
Technologies, Inc. Federal Systems Group and
NatWest Bank, N.A.
b. Reports
none
12
NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
March 31, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed in
its behalf by the undersigned thereunto duly authorized.
NATIONAL PATENT DEVELOPMENT
CORPORATION
DATE: May 12, 1995 BY: Jerome I. Feldman
President and Chief
Executive Officer
DATE: May 12, 1995 BY: Scott N. Greenberg
Vice President,
Chief Financial Officer
13