-----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, DnpK0aXYMXBkIfDqh7TOFP8t7nPnWaWKebf8b+bX2IZ/H2ukPDzxMCUS7EH/iCnH k8QbtHn0CDCnBo4GsNbsKA== 0000950150-98-001797.txt : 19981118 0000950150-98-001797.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950150-98-001797 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALIGN RITE INTERNATIONAL INC CENTRAL INDEX KEY: 0000945122 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 954528353 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26240 FILM NUMBER: 98751060 BUSINESS ADDRESS: STREET 1: 2428 ONTARIO ST CITY: BURBANK STATE: CA ZIP: 91504 BUSINESS PHONE: 8188437720 MAIL ADDRESS: STREET 1: 2428 ONTARIO ST CITY: BURBANK STATE: CA ZIP: 91504 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 1 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 _________ September 30, 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 0-26240 ALIGN-RITE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) California 95-4528353 (State or other jurisdiction of (I.R.S. Employer in corporation or organization) Identification No.) 2428 Ontario St. Burbank, CA. 91504 (Address of principal executive offices) (Zip Code) (818) 843-7220 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 20, 1998 Common Stock, $.01 par value 4,483,997 Shares - -------------------------------------------------------------------------------- 2 ALIGN-RITE INTERNATIONAL, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Balance Sheets at September 30,1998 and March 31, 1998............... 3 Consolidated Statements of Operations for the Three and Six Months ended September 30,1998 and 1997........................................................ 4 Consolidated Statements of Comprehensive Income for the Three and Six Months ended September 30, 1998 and 1997................................................. 5 Consolidated Statements of Cash Flows for the Six Months ended September 30, 1998 and 1997....................................................... 6 Notes to Consolidated Financial Statements........................................ 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition .............................................................. 8 PART II. FINANCIAL INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................................. 11 Signatures........................................................................ 12 Statement Regarding Computation of Earnings Per Share............................. 13
2 3 Part I. Financial Information Item 1. Financial Statements Align-Rite International, Inc. Consolidated Balance Sheets Unaudited (000's omitted)
At Sept. 30, At March 31, 1998 1998 ------------ ------------ Assets Current assets: Cash and cash equivalents............................................................ $ 4,163 $5,523 Accounts receivable, net............................................................. 7,643 7,395 Inventories, primarily raw materials................................................. 3,108 2,783 Prepaid and other current assets..................................................... 2,896 835 -------- ------- Total current assets........................................................... 17,810 16,536 Property and equipment, net............................................................. 47,441 33,575 Other assets......................................................................... 1,960 1,047 -------- ------- Total assets................................................................... $ 67,211 $ 51,158 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Trade accounts payable............................................................... $ 5,031 $ 4,371 Equipment Payables................................................................... 5,748 1,201 Accrued expenses and other.............................................................. 2,798 2,927 Taxes payable........................................................................... 2,432 1,402 -------- ------- Total current liabilities...................................................... 16,009 9,901 Long-Term Debt.......................................................................... 6,200 - Deferred taxes.......................................................................... 2,792 2,792 Other liabilities....................................................................... 646 699 Shareholders' equity: Common stock: Authorized - 35,000 shares $.01 par value; Issued and Outstanding 4,484 and 4,464 shares, respectively................................................................. 45 45 Additional paid-in capital.............................................................. 18,751 18,589 Retained earnings....................................................................... 22,390 18,794 Accumulated other comprehensive income ................................................. 378 338 -------- ------- Total shareholders' equity..................................................... 41,564 37,766 -------- ------- Total liabilities and shareholders' equity.................................. $ 67,211 $ 51,158 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 Align-Rite International, Inc. Consolidated Statements of Operations For the Three and Six Months Ended September 30, (Unaudited - 000's omitted, except per share data)
Three Months Six Months Ended Ended 1998 1997 1998 1997 ---- ---- ---- ---- Net sales .............................. $ 13,993 $ 11,424 $ 27,683 $ 22,040 Cost of sales .......................... 8,633 7,131 17,184 13,618 -------- -------- -------- -------- Gross profit ...................... 5,360 4,293 10,499 8,422 Selling, general and administrative .... 2,240 1,829 4,343 3,523 Research and development ............... 215 103 417 214 -------- -------- -------- -------- Income from operations ............. 2,905 2,361 5,739 4,685 Other income ........................... 11 -- 11 -- Interest income (expense), net ......... (9) 29 27 45 -------- -------- -------- -------- Income before provision for income taxes 2,907 2,390 5,777 4,730 Provision for income taxes ............. 1,096 899 2,181 1,791 -------- -------- -------- -------- Net income ............................. $ 1,811 $ 1,491 $ 3,596 $ 2,939 ======== ======== ======== ======== Per share information: Basic earnings per share ............. $ .40 $ .34 $ .80 $ .66 Shares used in per share computation . 4,480 4,432 4,473 4,438 Diluted earnings per share ........... $ .37 $ .31 $ .74 $ .61 Shares used in per share computation . 4,862 4,872 4,869 4,853
The accompanying notes are an integral part of these consolidated financial statements. 4 5 Align-Rite International, Inc. Consolidated Statements of Comprehensive Income For the Three and Six Months Ended September 30, (Unaudited - 000's omitted)
Three Months Six Months Ended Ended 1998 1997 1998 1997 ---- ---- ---- ---- Net income ................................ $ 1,811 $ 1,491 $ 3,596 $ 2,939 Other comprehensive income: Foreign currency translation adjustments 15 (337) 40 (342) ------- ------- ------- ------- Comprehensive income ...................... $ 1,826 $ 1,154 $ 3,636 $ 2,597 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 5 6 Align-Rite International, Inc. Consolidated Statements of Cash Flows For the Six Months Ended September 30, (Unaudited - 000's omitted)
1998 1997 ---- ---- Cash flows from operating activities: Net income:..................................................................... $ 3,596 $ 2,939 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................ 2,810 1,830 Bad debt expense......................................................... - 31 Compensation related to stock options granted............................ 55 55 Changes in assets and liabilities: Accounts receivable, net................................................ (241) (811) Inventories.............................................................. (322) (573) Prepaids and other assets............................................... (3,045) 227 Trade accounts payable..................................................... (544) (560) Equipment payables..................................................... 5,748 1,201 Accrued expenses and other liabilities.................................... 858 2,748 --------- -------- Net cash provided by operating activities.............................. 8,915 7,087 --------- -------- Cash flows from investing activities Purchase of property and equipment..................................... (16,574) (4,680) Payments for business acquisition, net of cash received................ -- (2,467) --------- -------- Net cash used in investing activities.............................. (16,574) (7,147) --------- -------- Cash flows from financing activities: Proceeds from line of credit........................................... 6,200 -- Stock options exercised................................................ 86 31 --------- -------- Net cash provided by financing activities.......................... 6,286 31 --------- -------- Effect of exchange rate on cash................................................. 13 (104) Net decrease in cash............................................................ (1,360) (133) --------- -------- Cash and cash equivalents, beginning of year.................................... 5,523 6,734 --------- -------- Cash and cash equivalents, end of year.......................................... $ 4,163 $ 6,601 ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 6 7 Align-Rite International, Inc. Notes to Consolidated Financial Statements For the Three and Six Months Ended September 30, 1998 (Unaudited) Item 1 - Business and Basis of Consolidation The consolidated financial statements include the accounts of Align-Rite International, Inc. ("ARII"), a California corporation, incorporated on April 27, 1995, and its wholly-owned subsidiaries, Align-Rite International Limited ("ARI"), Align-Rite Corporation ("ARC"), Align-Rite Limited ("ARL"), Align-Rite BV ("ARBV"), and Align-Rite GmbH ("ARGMBH"). ARII and its subsidiaries are collectively referred to as the "Company". All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation. In the opinion of management, the accompanying consolidated balance sheets and related interim consolidated statements of operations and cash flows include all adjustments (consisting only of normal recurring items) considered necessary for their fair presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. The consolidated results of operations for the three and six months ended September 30, 1998 are not necessarily indicative of results to be expected for the year ended March 31, 1999. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of March 31, 1998 and 1997 and for the three years in the period ended March 31, 1998 as filed on Form 10K. Certain items shown in the prior financial statements have been reclassified to conform with the presentation of the current period. Effective April 1,1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," and accordingly has included separate statements of comprehensive income following the Company's Consolidated Statements of Operations. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by or distributions to, shareholders. The balance of accumulated other comprehensive income at September 30,1998 and March 31,1998 consists of accumulated foreign currency translation adjustments. The principal activity of ARII, ARI and ARBV is that of holding companies into which their respective subsidiaries are consolidated. ARC, ARL and ARGMBH manufacture and market quality photomasks in the United States and Europe. Photomasks, which are precision photographic quartz or glass plates, contain microscopic images of integrated circuits. These are used primarily by semiconductor manufacturers as master images to transfer circuit patterns onto silicon wafers during the fabrication of integrated circuits. The Company maintains a policy and practice of restricting ARC from paying dividends or making certain other distributions in order to minimize tax consequences resulting from its current corporate structure. Item 2. Management's Discussions and Analysis of Results of Operations and Financial Condition. 7 8 Net sales for the three and six months ended September 30, 1998, increased 22% to $13,993,000 and 26% to $27,683,000 respectively, compared to $11,424,000 and $22,040,000 in the same periods in the prior fiscal year. The increase in net sales is attributable to increased unit demand for photomasks from new and pre-existing customers. The Company's continues to experience strong competitive conditions including product-pricing pressures in most sectors of the photomask market. Average selling prices have declined slightly with the increase in sales stemming from increased capacity utilization and units shipped. While the Company experienced strong growth during the three and six months ended September 30, 1998, early in the Company's third quarter which ends December 31, 1998, the Company has experienced a softening in demand from certain European customers. If such demand trends were to continue throughout the remainder of the third quarter, the growth rate in net sales for the third and fourth quarters would not be as high as in the first two quarters. Gross profit as a percentage of net sales for the three months ended September 30, 1998 increased to 38.3%, compared to 37.6% in the same period in the prior year. The increase in gross margin is primarily attributable to improved capacity utilization and the integration of other manufacturing efficiencies. These gains in gross margins were net of a 53% increase in depreciation expense due to recent installations of equipment and the prior year acquisition of the photomask business unit of TEMIC, which increased the Company's asset base. Depreciation expense for the quarter increased to $1,442,000, compared to $943,000 in the same period in the prior fiscal year. Gross margins for the six months ended September 30, 1998 decreased slightly to 37.9%, compared to 38.2% in the same period in the prior fiscal year. The slight decrease is attributable to higher depreciation costs, as discussed above. As the Company continues to invest in capital equipment to keep pace with anticipated increases in demand, the Company expects its gross profit to fluctuate slightly based on the timing of equipment purchases and related increases in depreciation expense. Selling, general and administrative expenses include salaries of sales personnel marketing expense, general and administrative expense and product distribution expense. Selling, general and administration expenses for the three months ended September 30, 1998 increased 22% to $2,240,000, compared with $1,829,000, in the same period in the prior fiscal year. Selling general and administrative expenses as a percentage of net sales remained consistent at 16.0% for both periods. The overall increase in selling, general and administrative expenses is attributable to higher sales levels and the Company's purchase of the photomask business unit of TEMIC, which has a ratio of selling, general and administrative expenses to net sales comparable to that of the Company. The Company believes selling, general and administrative, as a percentage of sales will remain consistent between 15% - 16%. Research and development ("R&D") expense is comprised primarily of personnel costs, material consumption, depreciation and engineering costs. The Company spent $215,000 for the quarter ended September 30, 1998, compared to $103,000 in the related prior period. For the six months ended September 30, 1998, the Company spent $417,000, compared to $214,000 in the related prior period. The Company believes it will continue to spend between 1% - 2% of sales on R&D related projects. The Company anticipates that R&D expense will continue to increase in absolute terms in the future reflecting its strategy of advancing their technology. 8 9 Interest income (expense), net for the quarter ended September 30, 1998 was effected by the Company's $6.2 million draw-down on its available line of credit. Interest expense associated with this draw-down was $39,000 for the quarter. For the three and six months ended September 30, 1998 and 1997, the Company provided for Federal and State income taxes at an estimated combined effective rate of approximately 38 percent. This is in-line with the prior year and management's expectations. Liquidity and Capital Resources The Company's cash and cash equivalents were $4,163,000 at September 30, 1998. Net cash provided by operating activities amounted to $8,915,000 for the six months ended September 30, 1998, compared to $7,087,000 for the same period in the prior year. Additions to operating cash flows for the six months ended September 30, 1998 reflect higher net income, increased non-cash charges related to depreciation and amortization expenses and an increase in equipment payables primarily related to fixed assets purchased that had not been paid as of September 30, 1998. These additions to operating cash flows were partially offset by an increase in prepaids and other assets primarily due to deposits associated with fixed asset purchases. For the six months ended September 30, 1998, cash used in investing activities totaled $16,574,000 compared to $7,147,000 in the related prior year period. The Company's investing activities during the six months ended September 30, 1998 primarily related to purchases of equipment and facility renovations, which will support new process development and further enhance the Company's capabilities for higher end products. Included in the investing activities for the six months ended September 30, 1997 was the purchase of the photomask business unit of TEMIC for a purchase price of $2,467,000. In June 1998, the Company increased its combined lines of credit from $10 million to $20 million. These lines of credit will allow the Company to borrow at an interest rate of 1.25% above LIBOR. As of September 30, 1998, the Company had drawn $6,200,000 on these lines of credit with $13,800,000 still available. The Company anticipates further borrowings on these lines during the fourth quarter of fiscal year 1999, to fund additional capital equipment purchases. Management believes that funds generated from operations together with its cash and cash equivalents may not be sufficient to meet the Company's normal operating requirements for the next 12 months. If these funds prove to be insufficient, or if new opportunities require the Company to supplement its financial resources, the Company may use established credit lines or pursue other sources of financing; however, there can be no assurance other sources of financing will be available at commercially viable terms, if at all. Year 2000 Compliance. The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software 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, operate equipment, and engage in similar normal business activities. The Company is in the process of assessing and modifying its computer software systems to ensure that they are Year 2000 compliant. The Company is currently developing a plan that would include initiating formal communications with all of its significant vendors, and large customers to determine the extent to which the Company is vulnerable to Year 2000 issues. 9 10 The total cost of these Year 2000 compliance activities, estimated at less than $500,000, has not been and is not expected to have a material effect on the financial position, results of operations and cash flows of the Company. The Company will utilize both internal and external resources for Year 2000 Issues. However, if the modifications are not made, or are not completely timely, the Year 2000 Issue could have a material adverse impact on the financial position, results of operations, and cash flows of the Company. Further, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. Foreign Operations and Inflation Foreign operations are subject to certain risks inherent to conducting business abroad, including price and currency exchange controls, fluctuation in the relative value of currencies and restrictive governmental actions. Changes in the relative value of currencies occur from time to time and may, in certain instances, have a material adverse effect on the Company's financial position, results of operations. The Company does not hedge foreign currency risks, and the effects of these risks are difficult to predict. The risks associated with foreign operations have not, to date, had a material adverse effect on the Company's results of operations and cash flows. There can, however, be no assurance that such risks will not have a material adverse effect on the Company's financial position liquidity and results of operations and cash flows in the future. The effects of inflation are experienced by the Company through increases in cost of labor, services and raw materials. In general, these costs have been anticipated by periodic increases in the prices of its products. The Company does not believe, however, that inflation has had a material effect on its results of operations in the past. There can be no assurance that the Company's results will not be materially affected by inflation in the future. Recently Issued Accounting Standards In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131, which requires companies to adopt its provisions for the fiscal years beginning after December 15, 1997, requires publicly held companies to report financial and other information about key revenue producing segments of the entity for which such information is available and is utilized by the chief operation decision makers. The impact on the Company of adopting SFAS No. 131 has not been determined. 10 11 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. In addition to historical information, this report includes certain forward-looking statements regarding events and financial and industry trends which may affect the Company's future operating results and financial position. Such statements include, but are not limited to, statements as to: (i) the Company's belief regarding the continuation of the increased demand for photomasks; (ii) dramatically further erode gross margins; (iii) the Company's belief that selling, general and administrative costs as a percentage of sales should remain consistent; (iv) the Company's belief regarding the adequacy of its reserve for bad debts; (v) the Company's belief regarding Year 2000 compliance and (vi) the sufficiency of funds to meet the Company's normal operating requirements over the next 12 months. Such statements represent the Company's reasonable judgment concerning the future and are subject to risks and uncertainties that could cause the Company's actual operating results and financial position to differ materially. Such risks and uncertainties include but are not limited to: adverse economic conditions in the Company's markets which could adversely affect the level of demand for the Company's products, failure of the Company to anticipate, respond to or utilize changing technologies used in production of photomasks; greater than anticipated levels of competition and competitive pricing, manufacturing difficulties or capacity limitations; shortage of raw materials; delays in delivery of recently purchased manufacturing equipment to the Company; greater than anticipated capital investment requirements; and currency fluctuations or changes in political conditions with respect to the Company's foreign operations. 11 12 Part II. Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 6. Exhibits and Reports of Form 8-K (a) Exhibits 11.1 Statement regarding computation of Net Income per common share. 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 1998. 12 13 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. Date: November 13, 1998 Align-Rite International, Inc. /s/ JAMES MAC DONALD - ---------------------------------- James Mac Donald Chairman of the Board, President & Chief Executive Director /s/ PETAR KATURICH - ---------------------------------- Petar Katurich Vice President of Finance, Chief Financial Officer & Secretary 13 EX-11.1 2 COMPUTATION OF NET INCOME PER COMMON SHARE 1 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE ALIGN-RITE INTERNATIONAL, INC. The following table provides a reconciliation of the numerator and denominators of the basic and diluted per-share computations for the three and six months ended September 30, 1998 and 1997:
INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ For the Three Months Ended September 30, 1998: Basic EPS..................................................... $1,811,000 4,480,000 $0.40 Effective of dilutive securities: Stock Options............................................. -- 382,000 ---------- --------- Diluted EPS................................................... $1,811,000 4,862,000 $0.37 ========== ========= For the Three Months Ended September 30, 1997: Basic EPS..................................................... $1,491,000 4,432,000 $0.34 Effective of dilutive securities: Stock Options............................................. -- 440,000 ---------- --------- Diluted EPS................................................... $1,491,000 4,872,000 $0.31 ========== ========= For the Three Months Ended September 30, 1998: Basic EPS..................................................... $3,596,000 4,473,000 $0.80 Effective of dilutive securities: Stock Options............................................. -- 396,000 ---------- --------- Diluted EPS................................................... $3,596,000 4,869,000 $0.74 ========== ========= For the Three Months Ended September 30, 1997: Basic EPS..................................................... $2,939,000 4,438,000 $0.66 Effective of dilutive securities: Stock Options............................................. -- 415,000 ---------- --------- Diluted EPS................................................... $2,939,000 4,853,000 $0.61 ========== =========
14 EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS MAR-31-1998 APR-01-1998 SEP-30-1998 4,163 0 7,643 0 3,108 17,810 47,441 2,810 67,211 16,009 0 0 0 45 41,519 67,211 27,683 27,683 17,184 10,499 4,760 0 38 5,777 2,181 3,596 0 0 0 3,596 0.80 0.74 FOR THE PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
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