-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MTPzIRU2E651qJSyMPYCZ8niEQ8aTtoBPWriIS6IZ86fQllPEt9He9Yl+p/wWfH6 rbYt8WkUhIn+aLlI/0R3ZA== 0001017062-98-000812.txt : 19980414 0001017062-98-000812.hdr.sgml : 19980414 ACCESSION NUMBER: 0001017062-98-000812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980413 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIT INSTRUMENTS INC CENTRAL INDEX KEY: 0000350067 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 250941759 STATE OF INCORPORATION: PA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10095 FILM NUMBER: 98592155 BUSINESS ADDRESS: STREET 1: 22600 SAVI RANCH PKWY CITY: YORBA LINDA STATE: CA ZIP: 92687 BUSINESS PHONE: 8148385700 MAIL ADDRESS: STREET 1: 22600 SAVI RANCH PARKWAY CITY: YORBA LINDA STATE: CA ZIP: 92887 FORMER COMPANY: FORMER CONFORMED NAME: AUTOCLAVE ENGINEERS INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR PERIOD ENDED 2/28/98 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: February 28, 1998 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: 0-10095 Unit Instruments, Inc. (Exact name of registrant as specified in its charter) California 33-0077406 (State or other jurisdiction (I.R.S. Employer of Incorporation) Identification Number) 22600 Savi Ranch Parkway, Yorba Linda, California 92887 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (714) 921-2640 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 XXX NO ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Classes Outstanding at March 31, 1998: ------- ------------------------------ Common Stock $.15 Par Value........ 3,995,118 =============================================================================== UNIT INSTRUMENTS, INC. INDEX
Page No. -------- Part I. Financial Information Condensed Consolidated Balance Sheets......................... 3-4 February 28, 1998 and May 31, 1997 Condensed Consolidated Statements of Operations............... 5 Three months and nine months ended February 28, 1998 and March 1, 1997 Condensed Consolidated Statements of Cash Flows............... 6 Nine months ended February 28, 1998 and March 1, 1997 Notes to Condensed Consolidated Financial Statements.......... 7-9 Management's Discussion and Analysis of....................... 10-15 Financial Condition and Results of Operations Part II. Other Information Item 5. Significant Events................................ 16 Item 6. Exhibits and Reports on Form 8-K.................. 16 Signatures.................................................... 17
PART I. FINANCIAL INFORMATION UNIT INSTRUMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS as of February 28, 1998 and May 31, 1997 (amounts in thousands) (unaudited)
February 28, 1998 May 31, 1997 --------------------- --------------------- ASSETS: Current Assets: Cash and cash equivalents $ 8,839 $12,203 Accounts and notes receivable 8,145 7,032 Inventories 8,809 8,700 Income taxes refundable 85 1,523 Prepaid expenses and other 409 322 Deferred taxes 1,333 1,333 ------- ------- Total current assets 27,620 31,113 Property, plant and equipment, at cost: Buildings and improvements 5,700 5,046 Machinery and equipment 13,139 14,644 ------- ------- 18,839 19,690 Accumulated depreciation and amortization 10,266 9,767 ------- ------- 8,573 9,923 Construction in progress 185 226 ------- ------- Net property, plant and equipment 8,758 10,149 Goodwill, net of accumulated amortization of $1,989 and $2,275 respectively 4,072 8,577 Other assets 1,150 1,125 ------- ------- $41,600 $50,964 ======= =======
See accompanying notes to condensed consolidated financial statements. 3 UNIT INSTRUMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS as of February 28, 1998 and May 31, 1997 (amounts in thousands) (unaudited)
February 28, 1998 May 31, 1997 --------------------------- ------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,981 $ 2,290 Accrued compensation and benefits 1,745 1,113 Current installments on term debt 1,572 1,740 Other current liabilities 2,506 2,274 ------- ------- Total current liabilities 7,804 7,417 Deferred income taxes 203 203 Other long-term liabilities and deferred credits 570 683 ------- ------- Total liabilities 8,577 8,303 Shareholders' equity: Common stock, $.15 par value; authorized shares: 599 658 12,000,000; issued shares: 3,995,118 as of February 28, 1998 and 4,384,627 as of May 31, 1997 Additional paid-in capital 21,672 23,211 Retained earnings 11,506 19,280 Foreign currency translation adjustment (754) (488) ------- ------- Total shareholders' equity 33,023 42,661 $41,600 $50,964 ======= =======
See accompanying notes to condensed consolidated financial statements. 4 UNIT INSTRUMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS February 28, 1998 and March 1, 1997 (amounts in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended ------------------------------ ---------------------------- 02/28/98 03/01/97 02/28/98 03/01/97 ---------- ---------- ---------- ---------- Net sales $ 13,294 $ 9,624 $ 42,815 $ 30,914 Operating costs and expenses: Cost of goods sold 9,787 7,499 29,616 23,796 Selling and administration 3,371 2,742 9,511 9,106 Restructuring costs 4,931 -0- 4,931 558 Research, development and engineering 1,173 862 3,498 3,064 ---------- ---------- ---------- ---------- Operating income (loss) (5,968) (1,479) (4,741) (5,610) Interest income 184 219 603 629 Interest expense (14) (15) (42) (41) Other income (expense), net 22 (48) (58) (60) ---------- ---------- ---------- ---------- Loss before income taxes (5,776) (1,323) (4,238) (5,082) Income tax benefit (700) (423) (85) (1,626) ---------- ---------- ---------- ---------- Net loss $ (5,076) $ (900) $ (4,153) $ (3,456) ========== ========== ========== ========== Loss per share: Basic and diluted $ (1.21) $ (0.21) $ (0.95) $ (0.79) ========== ========== ========== ========== Average shares used in computing loss per share: Basic and diluted 4,192,000 4,370,000 4,394,000 4,376,000 ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements. 5 UNIT INSTRUMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the Nine Months Ended February 28, 1998 and March 1, 1997 (amounts in thousands) (unaudited)
Nine Months Ended ----------------------------------------------- February 28, 1998 March 1, 1997 ---------------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(4,153) $(3,456) Adjustments to reconcile net loss to net cash provided from operating activities: Depreciation and amortization 2,174 2,341 (Gain) loss on write-off and disposal of assets 381 (1) Loss from asset impairment 4,125 -0- Changes in assets and liabilities net of effect of businesses sold and acquired: Accounts receivable (1,113) 4,673 Inventories (109) 1,912 Prepaids and other assets (150) (188) Accounts payable and accrued liabilities 555 (1,880) Income taxes 1,438 (1,854) Other liabilities (113) 60 ------- ------- Net cash flows provided from operating activities 3,035 1,607 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (819) (913) Net cash paid for acquisition of Control Systems, Inc. -0- (1,127) Proceeds from asset sales 73 16 ------- ------- Net cash used in investing activities (746) (2,024) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt -0- (254) Change in short-term borrowings, net (168) (783) Purchase of company common stock (6,042) (250) Proceeds from exercise of stock options 823 116 ------- ------- Net cash flows used in financing activities (5,387) (1,171) Effect of exchange rate changes on cash and cash equivalents (266) (116) ------- ------- Net decrease in cash and cash equivalents (3,364) (1,704) Cash and cash equivalents at beginning of year 12,203 14,572 ------- ------- Cash and cash equivalents at end of period $ 8,839 $12,868 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 62 $ 41 Net (refunds) or payments of income taxes $(1,522) $ 231
See accompanying notes to condensed consolidated financial statements. 6 UNIT INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) 1. Significant Accounting Policies The condensed consolidated financial statements included herein are based in part on estimates and include such adjustments (consisting solely of normal, recurring adjustments) which management believes are necessary for a fair presentation of the Company's financial position at February 28, 1998 and May 31, 1997, and the results of its operations for the three month and nine month periods ended February 28, 1998 and March 1, 1997. The consolidated financial statements and related notes are condensed and have been prepared in accordance with generally accepted accounting principles applicable to interim periods; consequently, they do not include all generally accepted accounting disclosures required for complete annual financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended May 31, 1997. The results of operations for the period presented are not necessarily indicative of results to be expected for the entire fiscal year. Certain prior year items have been reclassified to conform to the current year presentation. 2. Inventories Inventories at February 28, 1998 and May 31, 1997 consisted of the following:
February 28, 1998 May 31, 1997 ----------------- ------------ Raw materials $6,139 $6,701 Work in process 1,513 1,058 Finished goods 1,157 941 ------ ------ Total inventories $8,809 $8,700 ====== ======
3. Acquisition of Control Systems, Inc. The Company acquired Control Systems, Inc. ("CSI") on June 3, 1996 in exchange for $1.2 million in cash and 289,000 shares of Company stock valued at $3,977,000. CSI fabricates high purity gas isolation boxes and gas panels for semiconductor manufacturers. The acquisition has been accounted for by using the purchase method. Accordingly, the results of operations of CSI are included with those of the Company for the three month and nine month 7 periods ended on February 28, 1998 and March 1, 1997. A Current Report on Form 8-K was filed on July 1, 1996 reporting this transaction. 4. Restructuring Charges During the third quarter of the current fiscal year, the Company approved a restructuring plan which included the closure of the Rio Rancho, New Mexico manufacturing and administrative facility of CSI. In addition, the Company reduced its workforce by 35 employees at its Yorba Linda manufacturing facility because of a downturn in the semiconductor equipment market. Operations and administrative functions of the Rio Rancho facility were transferred to the Chandler, Arizona facility and the Yorba Linda, California corporate office, respectively. The intent of the restructuring was to reduce the manufacturing costs of producing high purity gas systems, limit product offerings, and to improve efficiency by centralizing certain administrative and marketing functions. The categories of costs included in the restructuring charge are as follows: Severance and other employee related costs $ 288,000 Facility closure costs 136,000 Impairment of goodwill 4,125,000 Fixed asset disposition and write-off 382,000 Total restructuring costs $4,931,000
47 employees were terminated as a result of the restructuring, including two executives of the Company, resulting in a charge of $288,000 of which $54,000 has been paid and $234,000 is recorded as a current liability. The Rio Rancho facility is no longer utilized, except for three (3) engineering employees and a sales representative who temporarily remain at the facility. Costs to close the facility and remove the leasehold improvements have been accrued in the amount of $136,000. The Company is looking for a tenant to sublease the building, or to negotiate the termination of the lease. Due to the decline in expected sales volume of high purity gas systems and the decision to curtail product offerings, management has determined, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived to Be Disposed of" ("SFAS121"), that an asset impairment exists. Management has determined that future undiscounted cash flows from this business will not equal the value of the related goodwill over its remaining life of approximately 10 years. It has been determined that the value of the high purity gas system business is not in excess of the value of the associated tangible assets based on the past and anticipated performance of the business. Therefore, the Company deems that the high purity gas system related goodwill, with a remaining unamortized carrying value of $4,125,000, is fully impaired and has written off the entire carrying amount of such goodwill. No tax deduction is allowed for this charge. 8 The fixed assets of the Rio Rancho facility that are useable were relocated to Yorba Linda or Chandler. The fixed assets that are not useable or removable have been written off in the amount of $382,000. During the first and second quarters of the prior fiscal year, the Company reduced its workforce by 109 and 22 positions, respectively, in response to the steep downturn in the semiconductor equipment market. This workforce reduction represented approximately 26% of the Company's worldwide employment. A restructuring charge of $262,000 was recorded in the first quarter and $296,000 was recorded in the second quarter for costs associated with the consolidation of certain facilities and for additional severance related expenses. 5. Significant Events On January 2, 1998 the Company entered into a Stock Repurchase Agreement with James C. Levinson and Marilyn G. Levinson ("the Levinsons"), as individuals and as general partners of the J & L Levinson Partnership, to purchase 368,475 shares of the Company's common stock at a purchase price of $12.25 per share, and to purchase 18,868 common stock options held by the Levinsons for an aggregate purchase price of $54,479. In addition, the Company entered into a similar agreement with various family members of the Levinson's to purchase approximately 44,000 shares at a purchase price of $12.25. The combined stock repurchase of approximately 412,000 shares represents 9.2% of the outstanding stock of the Company. The stock repurchases provided by these agreements were substantially completed on January 2, 1998. The Company used available cash resources of approximately $5.1 million to complete this transaction. Pursuant to the Stock Purchase Agreement dated January 2, 1998, James C. Levinson resigned from the Company' Board of Directors effective January 2, 1998. 9 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with Unit Instruments, Inc.'s condensed consolidated financial statements and related notes included herein. RESULTS OF OPERATIONS THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED MARCH 1, 1997 Net sales for the third fiscal quarter ended February 28, 1998 increased 38% to $13,294,000 from $9,624,000 for the comparable prior year period. Mass flow controller ("MFC") shipments from the U.S. were up 59% over the prior year period, while sales from the Company's facilities in Ireland, Japan and Korea were up 45%. High purity gas system sales were unchanged for the comparative period. The overall increase in sales was due to higher unit volumes and higher average selling prices. During the third quarter of the prior fiscal year, the Company's sales were starting a gradual recovery from an industry-wide decline in semiconductor equipment orders. This trend continued through the Company's second quarter of the current fiscal year. In the third fiscal quarter of the current year, order rates started to decline in the first part of quarter and this trend accelerated throughout the balance of the quarter. Therefore, while sales for the current period are substantially higher than the prior year's period, the trends in both periods were exactly opposite. Without a significant change in the trend of orders during the fourth fiscal quarter of 1998, sales will be lower in the fourth quarter compared to the comparative period in fiscal 1997. The current softness in orders for MFC's appears to be directly related to an overall downturn in the semiconductor equipment market. Gross profit margin increased to $3,507,000, or 26% of sales for the current quarter, from $2,125,000, or 22% of sales, for the third quarter of last fiscal year. The higher sales achieved for the current period allowed improved utilization of manufacturing facilities, which reduced overhead costs as a percentage of sales. Also, direct labor productivity increased because of a more favorable product mix, higher operating activity levels, and cost reduction programs. These reductions in cost were partially offset by higher material cost, as a percent of sales, attributable to increases in inventory reserves of obsolete components related to discontinued MFC models and obsolete high purity gas system components. Selling, general and administrative ("SG&A") expenses increased to $3,371,000 for the current quarter from $2,742,000 for the third quarter of the prior fiscal year. As a percentage of sales, SG&A declined to 25% from 29% in the third quarter of last fiscal year. SG&A expenses increased because of the higher sales levels for the current period, in addition to expenses for employee separation, recruitment and relocation charges, bad debt expense and legal fees. During the third quarter of the current fiscal year, the Company approved a restructuring plan which included the closure of the Rio Rancho, New Mexico manufacturing and administrative facility. Operations and administrative functions of the Rio Rancho facility have been transferred to the Chandler, Arizona facility and the Yorba Linda, California corporate office, respectively. The intent of the restructuring was to reduce the manufacturing costs of producing high purity gas systems and to 10 improve efficiency by centralizing certain administrative and marketing functions. The restructuring plan also incorporated a reduction in product offerings and a corresponding decrease in engineering and new product development activities. The categories of costs included in the restructuring charge are as follows: Severance and other employee related costs $ 288,000 Facility closure costs 136,000 Impairment of goodwill 4,125,000 Fixed asset disposition and write-off 382,000 Total restructuring costs $4,931,000
47 employees were terminated as a result of the restructuring, including two executives of the Company, resulting in a charge of $288,000 of which $54,000 has been paid and $234,000 is recorded as a current liability. The Rio Rancho facility is no longer utilized, except for a few engineering employees and a sales representative who temporarily remain at the facility. Costs to close the facility and remove the leasehold improvements have been accrued in the amount of $136,000. The Company is looking for a tenant to sublease the building, or to negotiate the termination of the lease. Due to the decline in expected sales volume of high purity gas systems and a curtailment of product offerings, management has determined, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived to Be Disposed of" ("SFAS121"), that an asset impairment exists. Management has determined that future undiscounted cash flows from the high purity gas system business will not equal the carrying value of the related goodwill over its remaining life of approximately 10 years. It has been determined that the value of the high purity gas system business is not in excess of the carrying value of the associated tangible assets based on the past and anticipated performance of the business. Therefore, the Company has determined that the high purity gas system related goodwill, with a remaining unamortized carrying value of $4,125,000, is fully impaired and has written off the entire carrying amount of such goodwill. No tax deduction is allowable for the write-off of goodwill. The fixed assets of the Rio Rancho facility that are useable were relocated to Yorba Linda or Chandler. The fixed assets that are not useable or removable have been written off in the amount of $382,000. Research, development and engineering ("RD&E") expenses increased 36% to $1,173,000 in the current quarter from $862,000 in the third quarter of the prior fiscal year. RD&E activity is primarily directed towards new product development, including the Company's proprietary Z-Bloc(TM) modular gas system. The Company believes that the continued timely development of new products and product enhancements is essential to maintaining its competitive position. Interest income decreased 16% to $184,000 in the current quarter from $219,000 in the prior year quarter due to lower cash balances, which mainly resulted from the purchase of Company stock from a former director. 11 Loss before income tax for the current quarter was $5,776,000, compared to loss before income tax of $1,323,000 for the prior year period. An income tax benefit of $700,000 was provided for the current quarter, compared to an income tax benefit of $423,000 for the comparable prior year period. The rate of tax benefit is 12% for the current period, as compared to the prior year tax benefit rate of 32%. The reduction in tax benefit rate is mainly due to the non- deductibility of the goodwill asset impairment loss recorded during the current period. Net loss for the current period is $5,076,000, or $1.21 per share, compared to a net loss of $900,000, or $0.21 per share, for the prior year period. The Company sells directly to Pacific Rim customers and sells indirectly to Pacific Rim customers through semiconductor equipment manufacturers. The Company has experienced a reduction in orders since December, 1997. This reduction may be partially due to the economic difficulties in that region, but it is not known to what extent such difficulties have contributed to the reduction in orders, if any. The Company is not able to predict the extent of this downturn, either in terms of severity or length of time that it will exist. The Company has entered into a supply agreement with the owner of a semiconductor fabrication facility ("End User") that provides for Unit to be the exclusive supplier of MFC's during build-out of Phase I. As part of this agreement, Unit has warranted its MFC's for a ten (10) year period. Unit's standard warranty period for metal seal MFC's is three (3) years, and the Company has no experience with what incremental costs could be for this extended warranty period. The Company has established a warranty reserve for this extended warranty period based on mean time between failure data that it believes to be the most appropriate criteria for estimating this future liability. As such, the Company does not believe this to be a material liability, but there can be no assurances that its methodology for the establishment of the warranty reserve will be adequate during the extended warranty period. The Company installed a new enterprise resources planning system during fiscal 1997 that integrates the Company's manufacturing, marketing and accounting systems. The Company believes it is in compliance with the year 2000 requirements. NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO NINE MONTHS ENDED MARCH 1, 1997 Sales for the nine-month period ended February 28, 1998 increased 38% to $42,815,000 from $30,914,000 for the comparable prior year period. This sales increase is primarily due to the semiconductor equipment market recovery from the industry downturn that started in mid-1996. Sales of MFC's were up 42%, while sales from the Company's facilities in Ireland, Japan and Korea were up 37%. High purity gas system sales were up 76% for the comparative period. The increase in MFC sales resulted from higher unit volumes and higher average selling prices. In June 1996, the start of the Company's 1997 fiscal year, incoming order rates started to decline and this trend continued until the end of the second fiscal quarter and then trended up during the third quarter of fiscal 1997. During the current fiscal year, order rates were stable during the first and second fiscal quarters, but then declined rapidly during the third fiscal quarter. The Company's order pattern during fiscal 1997 and fiscal 1998 closely matched activity levels in the semiconductor equipment market during those same periods. Sales of high purity gas systems have declined each quarter of the current fiscal year because of lower orders from a major customer for manifolds and lower overall industry demand. 12 Gross profit for the current period increased to $13,199,000, or 31% of sales, as compared to $7,118,000, or 23% of sales, for the comparable period last year. This improvement in gross profit margins is attributable to significantly higher sales, improved direct labor productivity, cost reduction programs and higher facility utilization. Partially offsetting these lower cost of sales, as a percent of sales, is higher material costs because of product mix and certain inventory reserves for model discontinuance and obsolete components. SG&A expenses increased to $9,511,000, or 22% of sales, in the current period from $9,106,000, or 30% of sales, in the prior year period. SG&A expenses decreased, as a percent of sales, because of higher sales volume and generally tight control over discretionary expenses. During the third quarter of the current fiscal year, the Company approved a restructuring plan which included the closure of the Rio Rancho, New Mexico manufacturing and administrative facility. Operations and administrative functions of the Rio Rancho facility have been transferred to the Chandler, Arizona facility and the Yorba Linda, California corporate office, respectively. The intent of the restructuring was to reduce the manufacturing costs of producing high purity gas systems and to improve efficiency by centralizing certain administrative and marketing functions. The restructuring plan also incorporated a reduction in product offerings and a corresponding decrease in engineering and new product development activities. The categories of costs included in the restructuring charge are as follows: Severance and other employee related costs $ 288,000 Facility closure costs 136,000 Impairment of goodwill 4,125,000 Fixed asset disposition and write-off 382,000 Total restructuring costs $4,931,000
A restructuring charge of $558,000 was recorded in the prior fiscal year for severance related expenses and costs associated with the consolidation of a service center facility. The Company's research, development and engineering expense increased 14% to $3,498,000 in the current nine-month period from $3,064,000 in the prior year period. This increase reflects continued new product development programs, in conjunction with performance enhancements for current products. The Company's Z-Bloc(TM) modular gas delivery development program is part of the product development effort. The Company believes the continued development of new products, and product enhancements, is essential to maintaining and improving its competitive position within the semiconductor equipment market. Interest income decreased moderately to $603,000 in the current period from $629,000 in the prior year period due to lower average cash balances. Interest expense was basically unchanged. Loss before income tax for the current period was $4,238,000, compared to loss before income tax of $5,082,000 for the prior year period. An income tax benefit of $85,000 was provided for the current nine month period, compared to an income tax benefit of $1,626,000 for the comparable prior year period. The rate of tax benefit is 2% for the current period, as compared to the prior year tax benefit 13 rate of 32%. The reduction in tax benefit rate is mainly due to the non- deductibility of the goodwill asset impairment loss recorded during the third fiscal quarter of the current year. Net loss for the current period is $4,153,000, or $0.95 per share, compared to a net loss of $3,456,000, or $0.79 per share, for the prior year period. FINANCIAL CONDITION Cash flow for the nine-month period ending February 28, 1998 provided by operations was $3,035,000. Net loss, plus non-cash charges of depreciation, amortization, asset write-off and impairment, provided cash of $2,527,000. Income taxes, net of accruals and refunds, provided $1,438,000 of cash flow, primarily from refunds received from carrying back the fiscal 1996 loss. Accounts receivable used $1,113,000, primarily because of higher balances caused by increased sales volume. Inventory turns for the current nine-month period improved to 4.5 from 3.8 in the prior comparable period, due to higher sales and reduced inventory balances. Capital expenditures used $819,000 of cash with approximately $500,000 of this amount for the new service center in Richmond, Virginia. The exercise of stock options provided cash flow of $823,000 for the current period. The exercise of these options was primarily related to expiration of the subject options and, as such, the Company does not anticipate that this level of option exercise will continue for the balance of the fiscal year. $6,042,000 cash was utilized to buy-back Company stock. The majority of such stock was purchased during the third quarter from a former director of the Company. Net cash used by all the Company's activities for the current nine-month period was $3,364,000. As of February 28, 1998, cash and equivalents were $8,839,000, as compared to $12,203,00 at May 31, 1997. The significant cause of the reduction in cash balances was the purchase of Company stock. The Company expects that its cash resources will be adequate to fund its anticipated near-term capital requirements. The Company has a revolving credit line with a bank which provides for an overall credit limit of $5,000,000 and expires in January, 1999. Interest is payable monthly at prime, or an Offshore Rate plus 1.5 %. The credit facility provides for the issuance of letters of credit not to exceed $5,000,000. At February 28, 1998, there were no amounts borrowed under this agreement. A $1,900,000 standby letter of credit was issued to support a loan from a Japanese bank, with a balance of $1,561,000 at February 28, 1998, from a Japanese bank to Unit Instruments Japan Inc., a subsidiary of the Company. The revolving credit agreement contains certain financial covenants with which the Company will not be in compliance as a result of the third quarter net loss. The Company anticipates receiving a waiver of the financial covenants with which it will not be in compliance as a result of the third quarter loss. However, there can be no assurance that the bank will waive compliance and, in this event, the Company would be obligated to repay the borrowing from the Japanese bank in the amount of approximately $1,600,000. The Company has classified this amount as a current liability and believes that it has adequate cash resources if it were required to repay such amount. 14 FORWARD-LOOKING STATEMENT This quarterly report on Form 10-Q contains certain forward-looking statements made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. In connection with these "safe harbor" provisions, the Company identifies important factors that could cause actual results to differ materially from those contained in any forward- looking statements made by, or on behalf of, the Company. Any such statements are qualified by reference to the following cautionary statements. The Company's businesses operate in a highly competitive market and are subject to many risks and uncertainties. Such risks and uncertainties include, but are not limited to, the Company's dependence on a few large customers, the Company's dependence on the semiconductor market, which is subject to cyclicality and periodic fluctuations in demand, current economic and financial conditions in Asia and, in particular, Korea, the magnitude and duration of the current industry downturn, the successful development and industry acceptance of new products, failure to gain MFC market share, the replacement of the Company's products with new technology, pricing pressures, the potential change in competitive conditions within the markets served by the Company, expenses for extended product warranties, industry consolidation, the failure to retain key technical and management personnel, material or adverse changes in the Company's operations or business, failure to diversify into markets other than the semiconductor equipment market, failure to reduce product costs, failure to commercialize the Z-Bloc(TM) gas distribution system and failure to accurately anticipate demand for the Company's products. Although the Company believes that the assumptions underlying the forward- looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. In addition, the business and operations of the Company are within a single industrial segment and are dependent on a few large customers. This concentration on a single market and limited customer base subjects the Company to substantial risks which increase the uncertainty inherent in such forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other person, that the objectives or plans for the Company will be achieved. 15 PART II. OTHER INFORMATION Item 5. Significant Events. (a) On January 2, 1998 the Company entered into a Stock Repurchase Agreement with James C. Levinson and Marilyn G. Levinson ("the Levinsons"), as individuals and as general partners of the J & L Levinson Partnership, to purchase 368,475 shares of the Company's common stock at a purchase price of $12.25 per share, and to purchase 18,868 common stock options held by the Levinsons for an aggregate purchase price of $54,479. In addition, the Company entered into a similar agreement with various family members of the Levinsons to purchase approximately 44,000 shares at a purchase price of $12.25. The combined stock repurchase of approximately 412,000 shares represents 9.2% of the outstanding stock of the Company. The stock repurchases provided by these agreements were substantially completed on January 2, 1998. The Company used available cash resources of approximately $5.1 million to complete this transaction. (b) Pursuant to the Stock Purchase Agreement dated January 2, 1998, James C. Levinson resigned from the Company's Board of Directors effective January 2, 1998 . Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11.1 - Computation of Earnings per Share 27 - Financial Data Schedule (for electronic filing only) (b) Reports on Form 8-K No Current Reports on Form 8-K were filed for the quarter ended February 28, 1998 16 UNIT INSTRUMENTS, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirement 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. UNIT INSTRUMENTS, INC. ---------------------- Registrant Date: April 9, 1998 /S/ Michael J. Doyle -------------------- Michael J. Doyle, President and Chief Executive Officer Date: April 9, 1998 /S/ Gary N. Patten ------------------ Gary N. Patten Chief Financial Officer 17 EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 UNIT INSTRUMENTS, INC. COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended ------------------ ------------------ 02/28/98 03/01/97 02/28/98 03/01/97 ----------- ---------- ----------- ----------- NET LOSS APPLICABLE TO COMMON STOCK HOLDERS $(5,076,000) $ (900,000) $(4,153,000) $(3,456,000) ============ =========== ============ ============ BASIC EARNINGS PER SHARE - ------------------------ Weighted average number of shares outstanding 4,192,334 4,370,325 4,394,334 4,375,794 Net loss per share $ (1.21) $ (0.21) $ (0.95) $ (0.79) ------------ ----------- ------------ ------------ EARNINGS PER SHARE ASSUMING FULL DILUTION - ----------------------------------------- Weighted average number of shares outstanding 4,192,334 4,370,325 4,394,334 4,375,794 Common share equivalents, assuming exercise of stock options and warrants -0- -0- -0- -0- ------------------ ------------------ ------------------ ------------------ Average shares used in computing earnings per share 4,192,334 4,370,325 4,394,334 4,375,794 ============ =========== ============ ============ Net loss per share $ (1.21) $ (0.21) $ (0.95) $ (0.79) ============ =========== ============ ============
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS MAY-30-1998 JUN-01-1997 FEB-28-1998 8,839 0 8,145 0 8,809 27,620 19,024 10,266 41,600 7,804 0 0 0 599 33,178 41,600 13,294 42,815 29,616 47,556 58 0 42 (4,238) (85) (4,153) 0 0 0 (4,153) (0.95) (0.95)
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