-----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, Vnc6MEk+NT6Xx6ohe2Qi8gwxLBZ6/LKNdIxghC2z87ReP7nMY7QTV6t0z/FCwKl6 rCHnincTucmvbsWjhIIAlA== 0000820318-98-000018.txt : 19981116 0000820318-98-000018.hdr.sgml : 19981116 ACCESSION NUMBER: 0000820318-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: II-VI INC CENTRAL INDEX KEY: 0000820318 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 251214948 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16195 FILM NUMBER: 98745753 BUSINESS ADDRESS: STREET 1: 375 SAXONBURG BLVD CITY: SAXONBURG STATE: PA ZIP: 16056 BUSINESS PHONE: 4123524455 MAIL ADDRESS: STREET 1: 375 SAXONBURG BLVD CITY: SAXONBURG STATE: PA ZIP: 16056 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1998 [ ] 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: 0-16195 II-VI INCORPORATED (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1214948 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 375 Saxonburg Boulevard Saxonburg, PA 16056 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 724-352-4455 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 --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: At November 6, 1998, 6,852,966 shares of Common Stock, no par value, of the registrant were outstanding. II-VI INCORPORATED AND SUBSIDIARIES ----------------------------------- INDEX ----- Page No. -------- PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements: Independent Accountants' Report. . . . . . 3 Condensed Consolidated Balance Sheets -- September 30, 1998 and June 30, 1998. . 4 Condensed Consolidated Statements of Earnings -- Three months ended September 30, 1998 and 1997 . . . . . . . 5 Condensed Consolidated Statements of Cash Flows -- Three months ended September 30, 1998 and 1997. . . . . . . . 6 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk (no significant changes since June 30, 1998) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . 12 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Shareholders of II-VI Incorporated and subsidiaries: We have reviewed the accompanying condensed consolidated balance sheet of II-VI Incorporated and subsidiaries as of September 30, 1998, and the related condensed consolidated statements of earnings and cash flows for the three-month periods ended September 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to 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 II-VI Incorporated and subsidiaries as of June 30, 1998, and the related consolidated statements of earnings, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated August 7, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 1998 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche LLP Pittsburgh, Pennsylvania October 19, 1998 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements: - ----------------------------- II-VI Incorporated and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) ($000)
September 30, June 30, 1998 1998 ------------- -------- Assets Current Assets Cash and cash equivalents $ 1,763 $ 4,160 Accounts receivable - net 10,599 11,018 Inventories 10,234 10,056 Other current assets 1,923 1,998 -------- -------- Total Current Assets 24,519 27,232 Property, Plant and Equipment, net 36,481 35,887 Other Assets 4,574 4,655 -------- -------- $ 65,574 $ 67,774 ======== ======== Liabilities and Shareholders' Equity Current Liabilities Notes payable $ 7,240 $ 5,833 Accounts payable 1,381 2,810 Accrued salaries, wages and bonuses 1,328 2,972 Accrued profit sharing contribution 74 711 Other current liabilities 1,306 1,418 Current portion of long-term debt 42 68 -------- -------- Total Current Liabilities 11,371 13,812 Long-Term Debt--less current portion 2,391 2,308 Deferred Income Taxes 1,591 1,591 Commitments & Contingencies - - Shareholders' Equity Preferred stock, no par value; authorized - 5,000,000 shares; unissued - - Common stock, no par value; authorized - 30,000,000 shares; issued - 6,846,786 shares at September 30, 1998; 6,834,786 shares at June 30, 1998 18,572 18,468 Cumulative translation adjustment 312 435 Retained earnings 32,551 31,922 -------- -------- 51,435 50,825 Less treasury stock, at cost - 431,940 shares at September 30, 1998; 384,440 shares at June 30, 1998 1,214 762 -------- -------- 50,221 50,063 -------- -------- $ 65,574 $ 67,774 ======== ========
- -See notes to condensed consolidated financial statements. II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited) ($000 except per share data)
Three Months Ended September 30, 1998 1997 -------- -------- Revenues Net sales: Domestic $ 7,665 $ 7,793 International 5,829 7,087 -------- -------- 13,494 14,880 Contract research and development 299 639 -------- -------- 13,793 15,519 Costs, Expenses & Other Expense (Income) Cost of goods sold 8,969 8,305 Contract research and development 235 471 Internal research and development 578 300 Selling, general and administrative 3,007 3,450 Other expense (income) - net 107 (17) -------- -------- 12,896 12,509 -------- -------- Earnings Before Income Taxes 897 3,010 Income Taxes 268 898 -------- -------- Net Earnings $ 629 $ 2,112 ======== ======== Basic Earnings Per Share $ 0.10 $ 0.33 ======== ======== Diluted Earnings Per Share $ 0.10 $ 0.32 ======== ========
- -See notes to condensed consolidated financial statements. II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ($000)
Three Months Ended September 30, 1998 1997 -------- -------- Cash Flows from Operating Activities Net earnings $ 629 $ 2,112 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 1,200 1,061 Loss on foreign currency transactions 33 204 Deferred income taxes - 59 Increase (decrease) in cash from changes in: Accounts receivable 447 (1,834) Inventories (128) (860) Accounts payable (1,519) (95) Other operating net assets (2,369) (1,605) -------- -------- Net cash used in operating activities (1,707) (958) -------- -------- Cash Flows from Investing Activities Additions to property, plant and equipment (1,719) (4,926) Disposals of other assets - 2 -------- -------- Net cash used in investing activities (1,719) (4,924) -------- -------- Cash Flows from Financing Activities Proceeds (payments) on short-term borrowings, net 1,397 205 Proceeds from long-term borrowings - 1,980 Payments on long-term borrowings (13) (15) Proceeds from sale of common stock 84 45 Purchase of treasury stock (452) - -------- -------- Net cash provided by financing activities 1,016 2,215 Effect of exchange rate changes on cash and cash equivalents 13 (90) -------- -------- Net decrease in cash and cash equivalents (2,397) (3,757) Cash and Cash Equivalents at Beginning of Period 4,160 10,854 -------- -------- Cash and Cash Equivalents at End of Period $ 1,763 $ 7,097 ======== ========
- -See notes to condensed consolidated financial statements. II-VI Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Note A - Basis of Presentation --------------------- The consolidated financial statements for the three month periods ended September 30, 1998 and 1997 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation for the periods presented have been included. These interim statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto contained in the Company's 1998 Annual Report to shareholders. The consolidated results of operations for the three month periods ended September 30, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. Note B - Inventories ($000) ------------------- The components of inventories are as follows: September 30, June 30, 1998 1998 ------------- -------- Raw materials $ 3,482 $ 3,220 Work in progress 3,820 3,633 Finished goods 2,932 3,203 ------------- -------- $10,234 $10,056 ============= ======== Note C - Property, Plant and Equipment ($000) ------------------------------------- Property, plant and equipment (at cost) consist of the following: September 30, June 30, 1998 1998 ------------- -------- Land and land improvements $ 1,546 $ 1,501 Buildings and improvements 17,359 16,951 Machinery and equipment 39,246 37,980 ------------- -------- 58,151 56,432 Less accumulated depreciation 21,670 20,545 ------------- -------- $36,481 $35,887 ============= ======== II-VI Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued Note D - Debt ---- On December 31, 1997, the Company entered into a $10.0 million unsecured line of credit agreement with PNC Bank which will expire December 30, 1998. The average interest rate in effect as of September 30, 1998 was 6.44%. As of September 30, 1998, the total borrowings under this line of credit was $7.0 million. The Company is subject to certain restrictive covenants under this agreement. During the three months ended September 30, 1998, the Company was not in compliance with one covenant relating to a limitation on capital expenditures. The Company received a waiver from the bank dated September 18, 1998 for this convenant violation. In September 1997, the Company secured a 237 million Yen loan with PNC Bank. Interest is at a rate equal to the lesser of the floating rate or the maximum rate as defined in the loan agreement. The floating rate is equal to the Japanese Yen Base Rate, as defined, plus 1.49% and the maximum rate is 3.74%. On September 30, 1998, the Japanese Yen Base Rate was 0.66% and the floating rate was 1.84%. Note E - Earnings Per Share ------------------ The following table sets forth the computation of earnings per share for the periods indicated: Three Months Ended September 30, (000 except per share data) 1998 1997 - ------------------------------------------------------------------- Net earnings $629 $2,112 Divided by: Weighted average shares 6,444 6,420 - ------------------------------------------------------------------- Basic earnings per share $0.10 $0.33 Net earnings $629 $2,112 Divided by: Weighted average shares 6,444 6,420 Dilutive effect of common stock equivalents 159 264 - ------------------------------------------------------------------- Diluted weighted average common shares 6,603 6,684 - ------------------------------------------------------------------- Diluted earnings per share $0.10 $0.32 - ------------------------------------------------------------------- Note F - Other Comprehensive Income -------------------------- During the quarter ended September 30, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" which requires the Company to report and disclose a measure ("comprehensive income") of all changes in equity that result from transactions and other economic events of the period other than transactions with owners. The components of comprehensive income, net of related tax, were as follows for the periods indicated ($000): Three Months Ended September 30, 1998 1997 ---- ------ Net earnings $629 $2,112 Cumulative translation adjustments, net of related tax (86) (7) ---- ------ Comprehensive income $543 $2,105 ==== ====== Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Results of Operations - --------------------- Net earnings for the first quarter of fiscal 1999 were $629,000 ($0.10 per share-diluted) on revenues of $13,793,000. This compares to net earnings of $2,112,000 ($0.32 per share-diluted) on revenues of $15,519,000 in the first quarter of fiscal 1998. Order bookings for the first quarter of fiscal 1999 were $12,812,000 compared to $16,050,000 for the same period last fiscal year, a decrease of 20%. There were no bookings for contract research and development for the first quarter of fiscal year 1999. This compares to $90,000 of contract research and development bookings for the same period last fiscal year. Excluding these long-term research and development contract bookings, manufacturing bookings decreased 20% to $12,812,000 for the quarter from $15,960,000 for the same period last year. Bookings for infrared optics and material products and bookings at the Company's VLOC subsidiary combined to account for an approximate $3,874,000 decrease while bookings of the eV PRODUCTS division increased by approximately $726,000. Revenues for the first quarter of fiscal 1999 decreased 11% to $13,793,000 compared to $15,519,000 for the same period last fiscal year. Approximately 80% of the decrease reflects lower shipments of infrared optics and material products. The remaining 20% decrease is attributable to lower shipments from the Company's VLOC subsidiary offset by an increase in eV PRODUCTS division shipments. Manufacturing gross margin for the first quarter of fiscal 1999 was $4,525,000 or 34% of revenues compared to $6,575,000 or 44% of revenues for the same period last fiscal year. The lower gross margin percentage for the quarter reflects price sensitivity in the infrared optics and materials market, higher per unit costs at the Company's VLOC subsidiary, and a higher percentage of total revenues from the eV PRODUCTS division. Internal research and development expenses for the quarter were $578,000 or 4% of revenues compared to $300,000 or 2% of revenues for the same period last year. The increased expenses for the quarter reflect internally funded projects associated with the development of new materials to improve profitability and expand product offerings, as well as continued efforts to improve material growth yields. Selling, general and administrative expenses for the first quarter of fiscal 1999 were $3,007,000 or 22% of revenues compared to $3,450,000 or 22% of revenues for last fiscal year's first quarter. The dollar decrease is attributable to decreased compensation expense associated with the Company's worldwide profit-driven bonus programs, planned discretionary cost reductions, and improved utilization of existing personnel and resources. Other expense for the first quarter of fiscal 1999 was $107,000 compared to other income of $17,000 for last fiscal year's first quarter due to foreign currency translation losses, increased interest expense, and lower investment earnings on reduced cash balances. The increased interest expense is the result of higher borrowings. The lower cash balance and related investment earnings is primarily due to increased capital spending. The Company's first quarter fiscal 1999 effective income tax rate is 30%, which is comparable to the income tax rate of last fiscal year's first quarter. Liquidity and Capital Resources - ------------------------------- Cash decreased during the first quarter of fiscal 1999 by $2,397,000 primarily due to $1,719,000 in capital expenditures, a reduction of accounts payable of $1,519,000 due to payment of amounts in the normal course of business, and payment of compensation costs relating to the Company's fiscal 1998 worldwide profit-driven bonus programs. The capital expenditures focused on the automation of manufacturing processes. The Company used $1,707,000 in cash from operations for the first quarter of fiscal 1999. The $1,829,000 in cash generated from net earnings before depreciation and amortization for the quarter was offset by a reduction of accounts payable in the normal course of business and the payment of compensation costs relating to the Company's fiscal 1998 worldwide profit-driven bonus programs. The current cash balance, as well as cash provided by operations during the remainder of fiscal year 1999 will be used for working capital needs, further capital expenditures on facilities and equipment, scheduled debt payments, and possible acquisitions of complementary businesses, products, or technologies. This Management's Discussion and Analysis contains forward looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including the statements regarding the Company's ability to fund future working capital needs, capital expenditures, scheduled debt payments and possible acquisitions and the Company's plan to address the Year 2000 issue. Actual results could differ from such statements if worldwide economic conditions change, competitive conditions intensify, technology problems emerge, and/or if suitable acquisitions of technologies or businesses cannot be consummated. There are additional risk factors that could affect the Company's business, results of operations or financial condition. Investors are encouraged to review the risk factors set forth in the Company's 1998 Form 10-K as filed with the Securities and Exchange Commission on September 23, 1998. Other Matters - ------------- The "Year 2000" issue concerns the potential exposures related to the automated generation of business and financial misinformation resulting from the use of computer programs which have been written using two digits, rather than four, to define the applicable year of business transactions. The Company has developed a formal plan to address the Year 2000 implications of its information technology and noninformation technology systems. The first phase of this plan is in process and consists of an evaluation of the systems impacted by the Year 2000 issue. Until this phase of the plan is completed, the Company cannot assess all risks related to the Year 2000 issue. Progress has been made on this phase and is expected to be completed by November 30, 1998 which is one month later than previously expected. The second phase of this plan will be an evaluation of the third parties with whom the Company has significant relations and their Year 2000 compliance. This phase is expected to be completed by December 31, 1998. The last phase of this plan will be the implementation of corrective measures deemed necessary, as identified during the first two stages of the plan. This phase is expected to be completed by June 30, 1999. To date, the Company has spent approximately $100,000 on the Year 2000 issue and believes that the remaining potential cost related to the Year 2000 issue will range between $200,000 and $300,000. Although the Company has developed and expects to execute the plan described above, due to the inherent uncertainty and complexity involved with the Year 2000 issue, there can be no assurance that the Company will address all aspects of the Year 2000 issue. A contingency plan is expected to be developed by June 30, 1999. PART II - OTHER INFORMATION --------------------------- Item 6. EXHIBITS AND REPORTS ON FORM 8-K. -------------------------------- (a) Exhibits. -------- 15.01 Accountants' awareness letter dated November 12, 1998 . . . Filed herewith. 27.01 Financial Data Schedule . . . Filed herewith. (b) Reports on Form 8-K. On July 9, 1998, the registrant filed a report on Form 8-K for the events dated July 9, 1998, covering Items 5 and 7 thereof. 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. II-VI INCORPORATED (Registrant) Date: November 12, 1998 By: /s/ Carl J. Johnson Carl J. Johnson Chairman and Chief Executive Officer Date: November 12, 1998 By: /s/ James Martinelli James Martinelli Treasurer & Chief Financial Officer EXHIBIT INDEX ------------- Exhibit No. - ----------- 15.01 Accountants' awareness letter dated November 12, 1998. . . . . . . . . .Filed herewith. 27.01 Financial Data Schedule. . . . . . .Filed herewith. EX-15 2 November 12, 1998 II-VI Incorporated 375 Saxonburg Boulevard Saxonburg, PA 16056 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 II-VI Incorporated and subsidiaries for the periods ended September 30, 1998 and 1997, as indicated in our report dated October 19, 1998; 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 included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is incorporated by reference in Registration Statement No. 33-19511, No. 33-38019, No. 33-19510, No. 33-63739, and No. 333-12737 on Form S-8 and Registration No. 333-04531 on Form 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. /s/ Deloitte & Touche LLP Pittsburgh, Pennsylvania EX-27 3
5 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 1,763 0 10,907 308 10,234 24,519 58,151 21,670 65,574 11,371 2,391 0 0 18,572 31,649 65,574 13,793 13,793 9,204 9,204 3,566 0 126 897 268 629 0 0 0 629 0.10 0.10
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