-----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, TCnxjVn3/dEML5eHnwcQP4LfwWLX9f4u99MNt0Xn8QQnmSr8Lw5n8aE6OYXRUJUq DfzCFuszjuuPtsaHsZALhQ== 0000074697-99-000008.txt : 19990318 0000074697-99-000008.hdr.sgml : 19990318 ACCESSION NUMBER: 0000074697-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTICAL COATING LABORATORY INC CENTRAL INDEX KEY: 0000074697 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 680164244 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02537 FILM NUMBER: 99567052 BUSINESS ADDRESS: STREET 1: 2789 NORTHPOINT PKWY CITY: SANTA ROSA STATE: CA ZIP: 95407 BUSINESS PHONE: 7075456440 MAIL ADDRESS: STREET 1: 2789 NORTHPOINT PARKWAY CITY: SANTA ROSA STATE: CA ZIP: 95407-7397 10-Q 1 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 January 31, 1999 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: 0-2537 OPTICAL COATING LABORATORY, INC. (Exact name of Registrant as specified in its charter) Delaware 68-0164244 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2789 Northpoint Parkway Santa Rosa, California 95407-7397 (Address of principal executive offices) (Zip code) 707-545-6440 (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 REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. TITLE OUTSTANDING ----- ----------- Common Stock, $.01 par value 12,228,204 at February 28, 1999 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- January 31, October 31, ASSETS 1999 1998 =========================================================================== (Dollars in thousands) (Unaudited) CURRENT Cash and cash equivalents $ 14,324 $ 40,880 ASSETS Accounts receivable, net of allowance for doubtful accounts of $1,797 and $1,831 39,392 38,585 Inventories 21,268 25,233 Income taxes receivable 2,511 Deferred income tax assets 5,186 9,311 Other current assets 6,015 1,822 -------- -------- Total Current Assets 88,696 115,831 OTHER Deferred income taxes 536 716 ASSETS Property, plant and equipment held for sale 531 3,183 Goodwill and other assets 23,801 4,151 PROPERTY, Land and improvements 9,116 9,116 PLANT AND Buildings and improvements 36,563 36,171 EQUIPMENT Machinery and equipment 125,376 123,261 Construction-in-progress 14,269 12,722 -------- -------- 185,324 181,270 Less accumulated depreciation (94,082) (91,565) -------- -------- Property, plant and equipment-net 91,242 89,705 -------- -------- Total Assets $204,806 $213,586 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ========================================================================== CURRENT Accounts payable $ 6,667 $ 8,423 LIABILITIES Accrued expenses 7,883 9,935 Accrued compensation expenses 6,866 10,365 Income taxes payable 252 708 Current maturities on long-term debt 5,903 6,026 Notes payable 3,612 4,483 Deferred revenue 4,504 761 -------- -------- Total Current Liabilities 35,687 40,701 NONCURRENT Accrued postretirement health LIABILITIES benefits and pension liabilities 2,269 2,241 Deferred revenue 1,050 Deferred income tax liabilities 8,399 3,528 Long-term debt 51,870 52,373 Minority interest 12,520 STOCKHOLDERS' Common stock, $.01 par value; EQUITY authorized 30,000,000 shares; issued and outstanding 12,215,000 and 12,087,000 shares 122 121 Paid-in capital 72,120 69,993 Retained earnings 33,258 31,951 Accumulated other comprehensive income 31 158 -------- -------- Stockholders' Equity 105,531 102,223 -------- -------- Total Liabilities and Stockholders' Equity $204,806 $213,586 ======== ======== The accompanying notes are an integral part of these financial statements. OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ------------------------ (Unaudited) For the three months ended January 31, 1999 and 1998 (Amounts in thousands, except per share amounts) 1999 1998 ========================================================================== REVENUES Revenues $69,851 $53,373 Cost of Sales 48,632 36,235 ------- ------- Gross Profit 21,219 17,138 COSTS AND Operating Expenses: EXPENSES Research and development 4,644 3,821 Selling and administrative 10,193 9,488 Legal settlement, net (2,960) In process research and development charges 2,906 Amortization of intangibles 217 200 ------- ------- Total Operating Expenses 15,000 13,509 ------- ------- Income from Operations 6,219 3,629 Nonoperating Income (Expense): Interest income 318 84 Interest expense (959) (808) ------- ------- EARNINGS Income Before Provision for Income Taxes and Minority Interest 5,578 2,905 Provision for income taxes 3,054 1,162 Minority interest 491 147 ------- ------- Net Income 2,033 1,596 Dividend on convertible redeemable 125 preferred stock ------- ------- Net Income Applicable to Common Stock 2,033 1,471 COMPRE- Other comprehensive income (loss): HENSIVE INCOME Foreign currency translation adjustment, net of tax (127) (942) ------- ------- Comprehensive income $ 1,906 $ 529 ======= ======= Net Income Per Share, Basic $ .17 $ .14 ======= ======= Net Income Per Share, Diluted $ .16 $ .13 ======= ======= Weighted average number of common shares used to compute basic earnings per share 12,142 10,625 ======= ======= Weighted average number of common shares used to compute diluted earnings per share 12,868 11,396 ======= ======= The accompanying notes are an integral part of these financial statements. OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) For the three months ended January 31, 1999 and 1998 (Amounts in thousands) 1999 1998 ============================================================================ OPERATIONS Cash Flow From Operations: Cash received from customers $ 53,208 $42,062 Interest received 371 51 Cash paid to suppliers and employees (40,018) (46,876) Interest paid (523) (808) Income taxes paid, net of refunds (836) (28) ------- ------- Net Cash Provided By (Used For) Operations 12,202 (5,599) ------- ------- INVESTMENTS Cash Flows From Investments: Purchase of remaining interest in Flex Products (30,035) Purchase of plant and equipment (5,055) (4,261) ------- ------ Net Cash Used For Investments (35,090) (4,261) ------- ------ FINANCING Cash Flows From Financing: Proceeds from long-term debt 47 6,774 Repayment of long-term debt (1,401) (6,564) Proceeds from notes payable 183 Proceeds from exercise of stock options 849 335 Proceeds from note to minority stockholder 800 Purchase of note from minority stockholder (2,400) (2,600) Payment of dividend on preferred stock (125) Payment of dividend on common stock (726) (636) ------- ------ Net Cash Used For Financing (3,631) (1,833) ------- ------ Effect of exchange rate changes on cash (37) (105) ------- ------ Decrease in cash and cash equivalents (26,556) (11,798) Cash and cash equivalents at beginning of period 40,880 15,217 ------- ------- Cash and cash equivalents at end of period $14,324 $ 3,419 ======= ======= OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) ----------------------------------------------------------- (Unaudited) For the three months ended January 31, 1999 and 1998 (Amounts in thousands) 1999 1998 ============================================================================ ADJUSTMENTS Reconciliation of Net Income To Cash Flows From Operations: Net income $ 2,033 $ 1,596 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 2,985 2,985 Minority interest in earnings of subsidiaries 491 147 Loss on disposal of equipment 557 210 Accrued postretirement health benefits 28 40 Other non-cash adjustments to net income 765 471 Change in: Accounts receivable (905) (3,364) Inventories 2,207 (2,004) Income taxes receivable and income taxes payable (2,454) 235 Deferred income taxes 9,158 601 Other current assets and other assets and investments (292) (1,074) Accounts payable, accrued expenses and accrued compensation expenses (7,164) (6,508) Deferred revenue 4,793 1,066 ------- ------- Total adjustments 10,169 (7,195) ------- ------- Net Cash Provided By (Used For) Operations $12,202 $(5,599) ======= ======= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: In the first quarter of 1999, the Company sold the operating assets of the Company's manufacturing subsidiary in Germany (MMG) for $4.3 million. The cash proceeds from the sale were received in February 1999, after the balance sheet date. The amount receivable from the sale is included in other current assets at January 31, 1999. In the first quarter of 1999 and 1998, the Company issued 39,914 and 39,292 shares of common stock to the OCLI 401(k)/Employee Stock Ownership Plan at fair market value to satisfy a portion of its Company contribution. The accompanying notes are an integral part of these financial statements. OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY --------------------------------------------------------- For the three months ended January 31, 1999 (Unaudited) Accumulated Commmon Stock Other -------------- Paid-In Retained Comprehensive (Amounts in thousands) Shares Amount Capital Earnings Income ============================================================================= BALANCE AT OCTOBER 31, 1998 12,087 $121 $69,993 $31,951 $ 158 Shares issued to Employee Stock Ownership Plan 40 933 Exercise of stock options including tax benefit 88 1 1,194 Foreign currency translation adjustment (127) Net Income 2,033 Dividend on common stock (726) ============================================================================= BALANCE AT JANUARY 31, 1999 12,215 $122 $72,120 $33,258 $ 31 ============================================================================= OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- Three Months Ended January 31, 1999 and 1998 (Unaudited) 1. GENERAL - ------------ OCLI designs, develops and manufactures optical products incorporating multi-layer thin film coatings which control and enhance light by altering the transmission, reflection and absorption of its various wavelengths to achieve a desired effect such as anti-reflection, anti-glare, electromagnetic shielding, electrical conductivity and abrasion resistance. OCLI markets and distributes components to original equipment manufacturers of optical and electro-optical systems and sells its GlareGuard. brand ergonomic computer display products through resellers and office retailers. OCLI's products are found in many applications including computer monitors, flat panel displays, telecommunication systems, photocopiers, fax machines, medical/analytical equipment and instruments, projection imaging systems, satellite power systems and aerospace and defense systems. The Company also manufactures precision injection molded plastic optical components that are used in a variety of applications such as inkjet printers and point of sale scanners. Through its wholly owned subsidiary, Flex Products, Inc. (Flex Products), the Company designs and manufactures optical products incorporating multi-layer and single layer thin film coatings on flexible substrates using high vacuum roll-to-roll processes. Flex Products supplies critical pigments for use in anti-counterfeiting applications, energy conserving window film for residential, commercial, and automotive applications, photoreceptor components for copiers and ChromaFlair. light interference pigments for commercial paints. The Condensed Consolidated Balance Sheet as of January 31, 1999, the Condensed Consolidated Statements of Income and Other Comprehensive Income for the three month periods ended January 31, 1999 and 1998, the Condensed Consolidated Statement of Stockholders' Equity for the three month period ended January 31, 1999 and the Condensed Consolidated Statements of Cash Flows for the three month periods ended January 31, 1999 and 1998, have been prepared by the Company without audit. In the opinion of management, all adjustments consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows at January 31, 1999 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended October 31, 1998. The results of operations for the period ended January 31, 1999 are not necessarily indicative of the operating results anticipated for the full year. 2. COMPREHENSIVE INCOME - ------------------------- In the first quarter of 1999, the Company adopted the provisions of SFAS No. 130 "Reporting Comprehensive Income," which required the Company to report, by major component and in total, all changes to equity from non owner sources. The Company's Condensed Consolidated Statements of Income has been changed to Condensed Consolidated Statements of Income and Comprehensive Income. Comprehensive income consists of foreign currency translation adjustments which are reported as a separate component of equity. Accumulated comprehensive income presented on the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Stockholders' Equity consists of cumulative foreign currency translation adjustments. 3. LEGAL SETTLEMENT - --------------------- On January 15, 1999, the Company announced that it had settled a lawsuit with Optical Corporation of America and certain of its shareholders regarding a failed merger in fiscal 1996. The Company received cash, net of related legal expenses, of $2.9 million which was recorded as a benefit in the first quarter of 1999. 4. DISPOSALS AND ACQUISITIONS - ------------------------------- In the first quarter of 1999, Glas-Trosch GmbH, a privately held glass company in Switzerland, purchased the business and operating assets (inventory, equipment, furniture, two buildings, workforce, customer lists and other related intangibles) of the Company's manufacturing subsidiary in Germany (MMG) for $4.3 million. As the Company had previously recorded an impairment loss to reduce MMG's assets to fair value on a liquidation basis, no gain or loss was recognized on the sale. The cash proceeds from the sale were received in February 1999 and, as a result, the amount receivable from the sale is included in other current assets at January 31, 1999. An office building in Germany, with a carrying value of $531,000 which was not part of the sale, is being held for sale. In connection with the sale of MMG, the Company also received $1.2 million for a three-year covenant not to compete and $600,000 for a three-year license and supply agreement that incorporates the use of the OCLI name. The $1.8 million received for those contracts is being recognized as revenue over the three-year terms of the agreements. In December 1998, the Company acquired the 40% minority interest in Flex Products held by SICPA Holding S.A. for $30 million bringing the Company's ownership in Flex Products to 100%. The transaction was recorded as a purchase in the first quarter of fiscal year 1999 based on data provided in an independent valuation. Pursuant to this transaction, the Company recorded a charge for in-process research and development of $2.9 million, goodwill of $10.1 million which will be amortized over 15 years, and identifiable intangibles of $10.1 million which will be amortized over useful lives ranging from 11 to 15 years. Goodwill and identifiable intangibles are included in other assets. In addition, the Company purchased SICPA's $2.4 million dollar working capital loan and the License and Supply Agreement between Flex Products and SICPA that runs through October 31, 2015, was modified to increase SICPA's minimum purchase requirements in association with Flex's commitment to put in place additional capacity to manufacture optically variable pigment. In February 1999, after the balance sheet date, the Company announced the acquisition of OPKOR, Inc., an optical design and manufacturing company specializing in precision polymer optic components and assemblies, for $9.0 million plus annual contingent payments based on profits of the acquired entity. Consideration consisted of $1.8 million cash and 267,285 shares of Company common stock. The acquisition will be recorded as a purchase in the second quarter of 1999. The purchase price allocation may include a component consisting of in-process research and development which would result in a charge to expense in the second quarter of 1999. 5. EARNINGS PER SHARE - ----------------------- The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three months ended January 31, 1999 and January 31, 1998: (Amounts in thousands, except per share amounts) 1999 1998 =========================================================================== BASIC EARNINGS PER SHARE: Weighted average common shares outstanding 12,142 10,625 ====== ====== Net income $2,033 $1,596 Less dividend on convertible redeemable preferred stock (125) ------ ------ Net income applicable to common stock $2,033 $1,471 ====== ====== Net income per common share, basic $ .17 $ .14 ====== ====== DILUTED EARNINGS PER SHARE: Weighted average common shares outstanding, basic 12,142 10,625 Dilutive effect of employee stock options 726 771 ------ ------ Average shares outstanding, diluted 12,868 11,396 ====== ====== Net income applicable to common stock, diluted $2,033 $1,471 ====== ====== Net income per share, diluted $ 0.16 $ 0.13 ====== ====== Preferred stock convertible into 595,000 shares of common stock in the first quarter of 1998 was not included in the calculation of diluted earnings per share as the effect of increasing the denominator by those amounts and adding back the preferred dividends would have increased diluted earnings per share. Options to purchase 45,000 shares of common stock at a weighted average price of $25.89 that were outstanding during the first quarter of 1999 were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares. The options, which expire in 2003, were still outstanding at January 31, 1999. In February 1999, the Company restructured the equity of Flex Products. As a result of this restructuring, in order to make the option holders whole under the provisions of Flex Products' option plan, the Company exchanged options for the exercise of 928,200 shares of Flex Products at a weighted average exercise price of $4.54 for options for the exercise of 324,157 shares of Company common stock at a weighted average exercise price of $12.99. The exchange was based on the ratio of the market value per share of Flex Products (based on an independent valuation) to the market value of Company common stock on the date of the equity restructuring. The per share exercise price for each converted Flex Products option was based on the ratio of the Flex Products exercise price over the market value per share of Flex Products multiplied by the market value per share of Company common stock on the date of the equity restructuring. 6. RESTRUCTURING PAYMENTS - --------------------------- In the first quarter of 1999, $306,000 of severance and termination benefits and $250,000 of exit costs were paid under a restructuring plan for which $586,000 had been accrued in fiscal 1998. Remaining accrued restructuring expenses under the plan at January 31, 1999 are $30,000. 7. LONG TERM DEBT - ------------------- The Company has certain financial covenants and restrictions under its bank credit arrangements and unsecured senior notes. In January 1999, the Company and its bank executed an amendment to the Company's credit agreement which removed the impairment loss and restructuring charges recorded in fiscal year 1998 from the Company's financial covenants. In February 1999, after the balance sheet date, the Company and the bank executed an amendment to the Company's credit agreement increasing the amount available under its revolving line of credit from $20 million to $40 million. 8. FINANCIAL DERIVATIVES AND HEDGING - -------------------------------------- The Company, from time to time, enters into derivative transactions in order to hedge foreign currency risk on existing commitments, open receivables, payables and debt instruments when the currency risk is considered material to the Company. In addition, the Company may enter into interest rate swaps or similar instruments in order to reduce interest rate risk on its debt instruments. The Company does not enter into derivatives for trading purposes. At January 31, 1998, the Company has outstanding foreign currency forward contracts for the principal and interest payments under a $3.5 million loan that is denominated in German marks and for the principal and interest payments under an intercompany note receivable denominated in British Pounds. The notional amounts, carrying amounts and fair values of the Company's derivatives position at January 31, 1999 are included in the table below: ESTIMATED FAIR NOTIONAL CARRYING VALUE OF FOREIGN (Amounts in thousands) AMOUNT AMOUNT EXCHANGE CONTRACT ============================================================================= Foreign currency forward exchange contracts: Deutsche Marks $3,865 $0 $196 British Pounds 2,948 0 163 9. INVENTORIES - ----------------------- Inventories consisted of the following: JANUARY 31, OCTOBER 31, (Amounts in thousands) 1999 1998 ======================================================================== (Unaudited) Raw materials and supplies $ 6,289 $ 7,138 Work-in-process 9,896 13,148 Finished goods 5,083 4,947 ------- ------- Total inventories $21,268 $25,233 ======= ======= ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE INFORMATION CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION INCLUDES FORWARD LOOKING STATEMENTS WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURE," "STRATEGY," OR WORDS OF SIMILAR IMPORT. VARIOUS IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS ARE IDENTIFIED BELOW. ACTUAL RESULTS MAY VARY SIGNIFICANTLY BASED ON A NUMBER OF FACTORS INCLUDING, BUT NOT LIMITED TO, PRODUCT DEVELOPMENT, COMMERCIALIZATION AND TECHNOLOGICAL DIFFICULTIES; MANUFACTURING COSTS AND YIELD ISSUES ASSOCIATED WITH INITIATING PRODUCTION AT NEW FACILITIES; THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING; CHANGING CUSTOMER REQUIREMENTS; AND THE CHANGE IN ECONOMIC CONDITIONS OF THE VARIOUS MARKETS THE COMPANY SERVES. RESULTS OF OPERATIONS REVENUE. Revenue for the first quarter of fiscal 1999 was $69.9 million, an increase of $16.5 million or 31% over revenues of $53.4 million in the first quarter of fiscal 1998. Adjusted for the effect of MMG (see DIVESTITURES, INVESTMENTS AND ACQUISITIONS below), revenue for the first quarter of fiscal 1999 would have increased $19.4 million or 38.5% over revenue of $50.4 million in the first quarter of fiscal 1998. The year-to- date 1999 revenue increase resulted from sales in the Company's telecommunications markets which increased by $12.9 million, sales by Flex Products which increased $5.5 million, office automation sales which increased $1.3 million (adjusted for the effect of MMG) and a $719,000 increase in the Company's defense and aerospace sales. These increases were offset by a decrease of $1.0 million in the Company's display markets. All of the revenue increases and decreases were primarily due to changes in volume. GROSS PROFIT. Gross profit for the first quarter of fiscal 1999 was $21.2 million, or 30.4%, of revenue compared to $17.1 million, or 32.1%, of revenue for the first quarter of fiscal 1998. Adjusted for the effect of MMG, gross profit for the first quarter of 1998 would have been $16.5 million, or 32.8% of revenue. The 1999 gross profit decrease as a percent of revenue is primarily due to the increase in telecommunications sales which have a lower gross margin than the Company average. RESEARCH AND DEVELOPMENT. Research and development expenditures in the first quarter of 1999 were $4.6 million compared to $3.8 million in the first quarter of 1998. The current year-to-date increase is primarily due to new product development and product improvement initiatives for telecommunications products. SELLING AND ADMINISTRATIVE. Selling and administrative expenses in the first quarter of fiscal 1999 were $10.2 million, an increase of $705,000, or 7%, from selling and administrative expenses of $9.5 million for the first quarter of fiscal 1998. Adjusted for the effect of MMG, selling and administrative expenses would have increased $1.5 million in the first quarter of 1999 over selling and administrative expenses of $8.7 million for the first quarter of 1998. The 1999 increase was primarily due to a $600,000 increase in selling expenses primarily for the promotion of optically variable pigment for consumer applications and increased general and administrative expenses due to profit based incentive accruals. LEGAL SETTLEMENT. In the first quarter of 1999, the Company settled a lawsuit with Optical Corporation of America (OCA) and certain of its shareholders regarding a failed merger in 1996. A benefit of $3.0 million was recorded in the first quarter of 1999 for the cash proceeds from the settlement, net of applicable legal expenses. See LITIGATION below. IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES. In the first quarter of 1999, the Company purchased the remaining interest in Flex Products held by SICPA Holding S.A. for $30 million. The transaction was recorded as a purchase in the first quarter of fiscal year 1999 based on data provided in an independent valuation. Pursuant to this transaction, the Company recorded a charge for in-process research and development of $2.9 million. See DIVESTITURES, INVESTMENTS AND ACQUISITIONS below. AMORTIZATION OF INTANGIBLES. The Company recorded amortization of intangibles of $217,000 in the first quarter of 1999 compared to $200,000 in the first quarter of 1998. Adjusted for the effect of MMG, amortization of intangibles for the first quarter of 1998 would have been $104,000. The 1999 increase is due to amortization of goodwill and identifiable intangibles in connection with the purchase of the remaining interest in Flex Products which is expected to increase amortization expense by approximately $340,000 per quarter. INCOME FROM OPERATIONS. As a result of the foregoing changes in revenue, gross profit and operating expenses, the Company's income from operations was $6.2 million for the first quarter of fiscal 1999 compared to $3.6 million for the first quarter of fiscal 1998. INTEREST INCOME AND EXPENSE. Interest income for the first quarter of fiscal 1999 was $318,000 compared to interest income of $84,000 for the first quarter of fiscal 1998. The increase in interest income is due to higher average cash balances in 1999. Interest expense, net of capitalized interest, for the first quarter of 1999 was $959,000 compared to $808,000 for the first quarter of fiscal 1998. Capitalized interest for the first quarter of 1998 was $160,000 compared to $84,000 for the first quarter of fiscal 1998. The capitalized interest increase in 1999 is primarily due to the construction of capital equipment for telecommunications manufacturing. The increase in gross interest expense is due to increased borrowings outstanding in 1999. PROVISION FOR INCOME TAXES AND MINORITY INTEREST. The effective income tax rate was 54.8% for the first quarter of 1999 compared to 40.0% for the first quarter of 1998. Adjusted for the effect of the in-process research and development charge, for which no tax benefit was recorded, the effective income tax rate for the first quarter of 1999 is 36%. The 1999 effective tax rate decrease is primarily due to the recognition of benefit from foreign sales corporations and business tax credits. Minority interest was $491,000 in the first quarter of 1999 compared to $147,000 for the first quarter of 1998. In the first quarter of 1999, minority interest was recorded up to the date of purchase of the remaining interest in Flex Products. In the first quarter of 1998, minority interest included the share of net income of Flex Products accruing to its 40% shareholder and the portion of the operating results of OCLI Asia attributable to its Japanese partner. The Company purchased the minority interest in OCLI Asia in the fourth quarter of fiscal 1998. The 1999 minority interest increase is primarily due to increased profits at Flex Products. NET INCOME APPLICABLE TO COMMON STOCK. The Company had net income applicable to common stock of $2.0 million, or $.16 per share on a diluted basis, for the first quarter of fiscal 1999 compared to $1.5 million, or $.13 per share on a diluted basis, for the first quarter of fiscal 1998. OTHER COMPREHENSIVE INCOME (LOSS). In the first quarter of 1999, the Company adopted the provisions of SFAS No. 130 "Reporting Comprehensive Income," which required the Company to report, by major component and in total, all changes to equity from non owner sources. Other comprehensive income consists of foreign currency translation adjustments which are recorded as a separate component of equity. LITIGATION On January 15, 1999, the Company announced that it had settled a lawsuit with OCA and certain of its shareholders regarding a failed merger in 1996. Pursuant to the settlement, the Company received cash, net of legal expenses of $3.0 million. In addition to the cash proceeds, the Company will receive $1 million in business transaction value through product purchase discounts or purchase of Company products over a period not to exceed three years. DIVESTITURES, INVESTMENTS AND ACQUISITIONS SALE OF MMG. In the first quarter of 1999, Glas-Trosch GmbH, a privately held glass company in Switzerland, purchased the business and operating assets (inventory, equipment, furniture, two buildings, workforce, customer lists and other related intangibles) of the Company's manufacturing subsidiary in Germany (MMG) for $4.3 million. As the Company had previously recorded an impairment loss to reduce MMG's assets to fair value on a liquidation basis, no gain or loss was recognized on the sale. The cash proceeds from the sale were received in February 1999, after the end of the quarter. The amount receivable under the sale is included in other current assets at January 31, 1999. At January 31, 1999, an office building in Germany with a carrying value of $536,000 is held for sale. In connection with the sale of MMG, the Company also received $1.2 million for a three-year covenant not to compete and $600,000 for a three-year license and supply agreement that incorporates the use of the OCLI name. The $1.8 million received for those contracts is being recognized as revenue over the three-year terms of the agreements. INVESTMENT IN FLEX PRODUCTS. In the first quarter of 1999, the Company acquired the interest in Flex Products held by SICPA Holding S.A. for $30 million bringing the Company's ownership in Flex to 100%. The transaction was recorded as a purchase in the first quarter of fiscal year 1999 based on data provided in an independent valuation. Pursuant to this transaction, the Company recorded a charge for in-process research and development of $2.9 million, goodwill of $9.7 million which will be amortized over 15 years, and identifiable intangibles (included in other assets) of $10.1 million which will be amortized over useful lives ranging from 11 to 15 years. In addition, the Company purchased SICPA's $2.4 million dollar working capital loan and the License and Supply Agreement between Flex Products and SICPA that runs through October 31, 2015, was modified to increase SICPA's minimum purchase requirements in association with Flex's commitment to put in place additional capacity to manufacture optically variable pigment. PURCHASE OF OPKOR, INC. In February 1999, after the end of the first quarter, the Company announced the acquisition of OPKOR, Inc., an optical design and manufacturing company specializing in precision polymer optic components and assemblies, for $9 million plus annual contingent payments based on profits of the acquired entity. Consideration will consist of $1.8 million in cash with the remainder to be paid in Company common stock. The acquisition will be recorded as a purchase in the second quarter of fiscal 1999. The purchase price allocation may include a component consisting of in-process research and development which would result in a charge to expense in the second quarter of 1999. FINANCIAL CONDITION In fiscal 1999, the Company's cash and short-term investments decreased by $26.6 million. $30.0 million was used to purchase the minority interest in Flex Products, $5.1 million was invested in plant and equipment, $1.4 million was used to pay down debt, $700,000 was used to pay dividends and $2.4 million was used to purchase a portion of Flex Products' working capital loan from SICPA. These expenditures were offset by $12.2 million of cash generated by operations and stockholder investments of $849,000. In the first quarter of 1999, the Company's working capital, excluding cash and short-term investments, increased $4.4 million. This increase was primarily due to decreases to accounts payable, accrued expenses and accrued compensation expenses of $7.3 million, increases to other current assets of $4.1 million and increases to accounts receivable of $800,000 offset by increases to deferred revenue of $3.7 million and decreases to inventories of $4.0 million. The decreases to accounts payable, accrued expenses and accrued compensation expenses is primarily due to payment of year end compensation accruals, funding of the Company's 401(k)/ESOP plan and payment of restructuring accruals. The increase in other current assets is primarily due to amounts receivable for the sale of operating assets of MMG. The accounts receivable increase is consistent with increased sales. The deferred revenue increase is primarily due to invoicing provisions for optically variable pigment. Approximately half of the inventory decrease results from the sale of MMG assets while the remainder results from higher sales in the first quarter of 1999. In January 1999, the Company and its bank executed an amendment to the Company's credit agreement which removed the impairment loss and restructuring charges recorded in fiscal year 1998 from the Company's financial covenants. In February 1999, after the balance sheet date, the Company and the bank executed an amendment to the Company's credit agreement increasing the amount available under its revolving line of credit from $20 million to $40 million. In the first quarter of 1999, inventories of optically variable pigment at Flex Products were reduced to help satisfy demand that exceeded manufacturing capacity for the period. Existing backlog and projected orders at Flex Products are expected to fill available capacity for optically variable products for the remainder of fiscal 1999. The Company has initiated a capacity expansion at Flex Products which is expected to come on-line in the second half of fiscal year 2000. The estimated cost of this expansion is approximately $14 million for which the Company had firm commitments outstanding of approximately $4.0 million at January 31, 1999. Management believes that the cash on hand at January 31, 1999, cash anticipated to be generated from future operations, and available funds from revolving credit arrangements will be sufficient for the Company to meet its working capital, capital expenditure, acquisition and debt service requirements and dividend payments as declared for at least the next twelve months. IMPACT OF YEAR 2000 The "Year 2000 Issue" is the result of computer programs that were written using two digits rather than four to define the applicable year. If the Company's computer programs with date-sensitive functions are not Year 2000 compliant, they may recognize a date using "00" as the Year 1900 rather than the Year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company has identified its Year 2000 risk in three categories: internal business software; internal non-financial software and imbedded chip technology; and external noncompliance by customers and suppliers. INTERNAL BUSINESS SOFTWARE. During 1997, as part of a business modernization program intended to reduce cycle time and improve profitability, the Company purchased an Enterprise Resource Planning System (ERP System) which the software vendor has indicated is Year 2000 compliant. The total estimated hardware, software and installation cost of the ERP System is $4.3 million of which $3.9 million has been spent to date. The Company is in the implementation phase for this system and other ancillary financial systems with full implementation scheduled for September 30, 1999. Based on this schedule, the Company expects to be in full compliance with its internal financial systems before the year 2000. However, if due to unforeseen circumstances, the implementation is not completed on a timely basis, the Year 2000 could have a material impact on the operations of the Company. Contingency plans have been established in a few areas where the Company feels there is some risk that the system will not be implemented before Year 2000. Those plans include adapting some of the Company's currently existing systems to be Year 2000 compliant. The cost of making those adaptations are not expected to be material and will be expensed in the period incurred. INTERNAL NON-FINANCIAL SOFTWARE AND IMBEDDED CHIP TECHNOLOGY. The Company has taken an inventory of all of its non-financial software and equipment that may be affected by the Year 2000, has identified the non-financial software and equipment that is critical to its operations and is in the process of assigning the method of determining Year 2000 compliance or noncompliance (i.e., testing vendor certification, etc.) for each item that is critical to the operation of the Company. The Company does not, at this time, have sufficient data to estimate the cost of achieving Year 2000 compliance for its non-financial systems. If the Company is unable to achieve Year 2000 compliance for its major non-financial systems, the Year 2000 could have a material impact on the operations of the Company. Since the Company is in the information-gathering phase, the Company does not currently have a contingency plan in place for its internal non-financial software and imbedded chip technology. Full Year 2000 compliance for the Company's internal non-financial software and imbedded chip technology is scheduled for September 30, 1999. EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS. The Company is in the process of identifying and contacting its critical suppliers, service providers and contractors to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. It is expected that full identification will be completed by April 30, 1999. To the extent that responses to Year 2000 readiness are unsatisfactory, the Company intends to change suppliers, service providers or contractors to those that have demonstrated Year 2000 readiness. However, the Company cannot be certain that it will be successful in finding such alternative suppliers, service providers and contractors. The Company does not currently have any formal information concerning the Year 2000 compliance status of its customers but has received indications that most of its customers are working on Year 2000 compliance. In the event that any of the Company's significant customers and suppliers do not successfully and timely achieve Year 2000 compliance, and the Company is unable to replace them with new customers or alternate suppliers, the Company's business or operations could be adversely affected. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996 Except for historical information contained in this report, matters discussed in this report are forward-looking statements that involve risks and uncertainties. Actual results may vary significantly based on a number of factors including, but not limited to, product development, commercialization and technological difficulties, manufacturing costs and yield issues associated with initiating production at new facilities, the impact of competitive products and pricing, changing customer requirements, the change in economic conditions of the various markets the Company serves and Year 2000 issues. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no significant changes in market risk since October 31, 1998. INDEPENDENT ACCOUNTANTS' REVIEW The January 31, 1999 condensed consolidated financial statements included in this filing on Form 10-Q have been reviewed by Deloitte & Touche LLP, independent accountants, in accordance with established professional standards and procedures for such a review. The report of Deloitte & Touche LLP commenting on their review follows. INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholders of Optical Coating Laboratory, Inc. Santa Rosa, California We have reviewed the accompanying condensed consolidated balance sheet of Optical Coating Laboratory, Inc. and subsidiaries as of January 31, 1999, and the related condensed consolidated statements of income and comprehensive income and of cash flows for the three-month periods ended January 31, 1999 and 1998 and the related condensed consolidated statement of stockholders' equity for the three-month period ended January 31, 1999. 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 of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit 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 such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Optical Coating Laboratory, Inc. and subsidiaries as of October 31, 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated December 22, 1998 (January 8, 1999 as to Note 5), we expressed an unqualified opinion on those consolidated financial statements based on our audit. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of October 31, 1998 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Deloitte & Touche LLP San Jose, California February 18, 1999 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no material changes in legal proceedings since those reported in Registrant's Form 10-K for the year ended October 31, 1998. ITEM 2. CHANGES IN SECURITIES No disclosure required. ITEM 3. DEFAULTS UPON SENIOR SECURITIES No disclosure required. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No disclosure required. ITEM 5. OTHER INFORMATION No disclosure required. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1. (4.0) Second Amendment, dated as of January 31, 1999 to Credit Agreement dated as of July 31, 1998 among the Registrant, Bank of America National Trust and Savings Association, as Agent, Letter of Credit Issuing Bank and The Other Financial Institutions Party Thereto. 2. (4.1) Third Amendment, dated as of February 26, 1999 to Credit Agreement dated as of July 31, 1998 among the Registrant, Bank of America National Trust and Savings Association, as Agent, Letter of Credit Issuing Bank and The Other Financial Institutions Party Thereto. 3. (15) Letter of Deloitte & Touche LLP regarding unaudited interim financial information. 4. (27) Financial Data Schedule for the three months ended January 31, 1999. Reports on Form 8-K filed for the three months ended January 31, 1999. None 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. OPTICAL COATING LABORATORY, INC. March 17, 1999 By: /s/ CRAIG B. COLLINS - ---------------- ----------------------------------------- Date Craig B. Collins, Vice President, Finance and Chief Financial Officer EX-4 2 SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Amendment"), dated as of January 31, 1999, is entered into by and among OPTICAL COATING LABORATORY, INC. (the "Company"), the several financial institutions party to the Credit Agreement (collectively, the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and the Banks (the "Agent") and as letter of credit issuing bank. RECITALS -------- A. The Company, Banks, and Agent are parties to a Credit Agreement dated as of July 31, 1998, as amended by a Waiver and First Amendment to Credit Agreement dated as of January 8, 1999, effective as of October 31, 1998 (as so amended, the "Credit Agreement") pursuant to which the Banks have extended certain credit facilities to the Company. B. The Company has requested that the Banks agree to certain amendments of the Credit Agreement. C. The Banks are willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. (a) Section 1.01 of the Credit Agreement shall be amended by amending the defined terms "Applicable Fee Percentage" and "Applicable Margin" in their entirety to read as follows: "Applicable Fee Percentage" means 0.200%, and "Applicable Margin" means 0.750% for Offshore Rate Loans and 0.000% for Base Rate Loans, in each case until two Business Days after receipt by the Agent of the Compliance Certificate delivered pursuant to subsection 7.02(b), together with the financial statements referred to in subsection 7.01(a), for the Company's fiscal quarter ending January 31, 1999; thereafter the Applicable Fee Percentage and the Applicable Margin shall mean the percentage specified below for each opposite the applicable Leverage Ratio as set forth below: Applicable Margin ----------------------- Applicable Fee Offshore Base Rate Leverage Ratio Percentage Rate Loans Loans - -------------- -------------- ---------- --------- Less than 1.50 to 1.00 0.200% 0.750% 0.000% Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00 0.250% 0.825% 0.000% Greater than or equal to 2.00 to 1.00 0.300% 1.125% 0.000% Each subsequent change in the Applicable Fee Percentage and the Applicable Margin shall take effect two Business Days after receipt by the Agent of the Compliance Certificate delivered pursuant to Section 7.02(b), together with the financial statements referred to in subsection 7.01(a) or 7.01(b), as applicable; provided, however, that if the Compliance Certificate required to be delivered pursuant to subsection 7.02(b) and the financial statements required to be delivered pursuant to subsection 7.01(a) or 7.01(b), as applicable, are not delivered when required thereunder, the Leverage Ratio shall, until two Business Days after receipt of such items, be deemed to be greater than or equal to 2.00 to 1.00. (b) Schedule 2.01 of the Credit Agreement shall be amended and restated in its entirety to read as set forth in Schedule 2.01 attached hereto. 3. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Banks as follows: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct on and as of the date hereof, except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true and correct as of such earlier date. (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person. 4. Effective Date. This Amendment will become effective as of the date first above written, or, if later, the date on which each of the following conditions precedent is satisfied: (a) The Agent has received from the Company and each of the Banks a duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Amendment. (b) The Agent has received from the Company a copy of a resolution passed by the board of directors of such corporation, certified by the Secretary or an Assistant Secretary of such corporation as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Amendment. (c) The Agent has received from the Company, (i) for the account of each Bank, an amount equal to 0.10% times the amount of the excess of (x) such Bank's Commitment after giving effect hereto, over (z) such Bank's Commitment as in effect prior to the effectiveness hereof, representing payment in full of a non-refundable amendment fee and (ii) for the account of the Agent, an arrangement fee in the amount set forth in a certain letter pertaining hereto between the Agent and the Company, which amounts the Company hereby covenants to pay to the Agent on demand. 5. Reservation of Rights. The Company acknowledges and agrees that the execution and delivery by the Agent and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to enter into amendments under the same, similar or any other circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein and in the other Loan Documents to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. This Amendment is a Loan Document. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent, and the Agent is hereby authorized to make sufficient photocopies thereof to assemble complete counterparty documents. (e) This Amendment, together with the Credit Agreement and the letter referenced in Section 4(c)(ii) hereof, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 11.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) The Company covenants to pay to or reimburse the Agent, within five Business Days after demand, for all costs and expenses (including reasonable Attorney Costs) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. OPTICAL COATING LABORATORY, INC. By: /s/ JEFFREY M. RYAN ------------------------------- Name: Jeffrey M. Ryan ------------------------------- Title: Assistant Treasurer ------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ JAMES P. JOHNSON ------------------------------- Name: James P. Johnson ------------------------------- Title: Managing Director ------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank and as a Bank By: /s/ JAMES P. JOHNSON ------------------------------- Name: James P. Johnson ------------------------------- Title: Managing Director ------------------------------- ABN AMRO BANK N.V. By: /s/ DIANNE D. BARKLEY ------------------------------- Name: Dianne D. Barkley ------------------------------- Title: Group Vice President ------------------------------- By: /s/ JEFFREY A. FRENCH ------------------------------- Name: Jeffrey A. French ------------------------------- Title: Group Vice President & Director -------------------------------- SCHEDULE 2.01 ------------- COMMITMENTS ----------- AND PRO RATA SHARES ------------------- Bank Commitment Pro Rata Share - ---- ----------- -------------- Bank of America National Trust and Savings Association $22,000,000 55% ABN AMRO Bank N.V. $18,000,000 45% ----------- ---- TOTAL $40,000,000 100% =========== ==== EX-4 3 BANK OF AMERICA BANK OF AMERICA NT8SA 555 California Street, 41st Floor San Francisco, CA 94104-1502 February 26, 1999 James P. JOHNSON Managing Director CREDIT PRODUCTS 3838 Direct Dial: (415) 622-6177 Optical Coating Laboratory, Inc FAX: (415) 622 4585 2789 Northpoint Parkway Santa Rosa, California 95407-7397 Attention: Jeffrey M. Ryan, Assistant Treasurer RE: THIRD AMENDMENT TO CREDIT AGREEMENT DATED AS OF JULY 31, 1998 AMONG OPTICAL COATING LABORATORY, INC. (THE "COMPANY"), THE FINANCIAL INSTITUTIONS PARTY THERETO (THE "BANKS"), AND BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS AGENT FOR ITSELF AND THE BANKS (THE "AGENT") AND LETTER OF CREDIT ISSUING BANK, AS AMENDED BY A WAIVER AND FIRST AMENDMENT DATED AS OF JANUARY 8, 1999, EFFECTIVE AS OF OCTOBER 31, 1998, AND BY A SECOND AMENDMENT DATED AS OF JANUARY 31, 1999 (AS SO AMENDED, THE "CREDIT AGREEMENT") Dear Jeff: Pursuant to your letter dated February 18, 1999 to the Agent, you have requested certain amendments to the Credit Agreement to permit certain debt by a Subsidiary and the Company's guaranty thereof. The Banks are willing to agree to such amendments, subject to the terms and conditions of this letter amendment agreement (this "Amendment"). The Credit Agreement shall be amended by amending and restating Schedule 8.06 ("Certain Indebtedness") and Schedule 8.09 ("Contingent Obligations") to the Credit Agreement in their entirety to read as set forth in such schedules attached hereto. The Indebtedness listed on Schedule 8.06 hereto shall be deemed to be permitted under subsection 8.06(c) of the Credit Agreement and the Contingent Obligations listed on Schedule 8.09 hereto shall be deemed to be permitted under subsection 8.09(c) of the Credit Agreement. The execution and delivery by the Majority Banks of this Amendment shall not create a course of dealing or obligate any Bank to enter into other amendments under any other circumstances in the future. Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein and in any other documents or instruments given in connection therewith to the Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement, and is a Loan Document. This Amendment shall be effective as of the date hereof upon delivery to the Agent of counterparts executed by the Company and the Majority Banks. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Capitalized terms used in this Amendment and not defined in it shall have the meanings assigned to them in the Agreement. RE: OPTICAL COATING LABORATORY, INC. February 26, 1999 Page 2 Sincerely, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ JAMES P. JOHNSON ---------------------------------------- James P. Johnson, Managing Director AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN: - -------------------------------------------- OPTICAL COATING LABORATORY, INC. By: /s/ JEFFREY M. RYAN -------------------------------------- Name: Jeffrey M. Ryan -------------------------------------- Title: Assistant Treasurer -------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, As Issuing Bank and as a Bank By: /s/ JAMES P. JOHNSON -------------------------------------- Name: James P. Johnson -------------------------------------- Title: Managing Director -------------------------------------- ABN AMRO BANK N.Y. By: /s/ GINA M. BRUSATORI -------------------------------------- Name: Gina M. Brusatori -------------------------------------- Title: GVP -------------------------------------- By: /s/ R. CLAY JAULUM -------------------------------------- Name: R. Clay Jaulum -------------------------------------- Title: SVP ------------------------------------- EX-15 4 LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15. To the Board of Directors and Stockholders of Optical Coating Laboratory, Inc. Santa Rosa, California We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Optical Coating Laboratory, Inc. and subsidiaries for the periods ended January 31, 1999 and 1998, as indicated in our report dated February 18, 1999; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is indicated in your Quarterly Report on Form 10-Q for the quarter ended January 31, 1999 is incorporated by reference in Registration Statement No. 33-41050, No. 33- 26271, No. 33-12276, No. 33-65132, No. 33-60891, No. 333-13013 and No. 333- 69157 on Forms S-8 and Registration Statement No. 33-61177 and No. 33-65319 on Forms S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP San Jose, California March 17, 1999 EX-27 5
5 3-MOS OCT-31-1998 JAN-31-1999 14,324 0 39,392 1,797 21,268 85,513 185,324 94,082 204,806 35,687 0 0 0 72,242 33,289 204,806 72,810 72,810 48,631 48,631 17,960 0 959 5,578 3,054 2,033 0 0 0 2,033 .17 .16
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