-----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, E8Ru+5ontaqeYxwx8aiwm28ZJot6Z2vCY3fjIQbJ3inUe6T2Sx3o8/1ndG9Hm5lV sETScw0OQEns2IRTs/9I7Q== 0000820318-00-000011.txt : 20000215 0000820318-00-000011.hdr.sgml : 20000215 ACCESSION NUMBER: 0000820318-00-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 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: 541978 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 December 31, 1999 [ ] 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 (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 375 Saxonburg Boulevard 16056 Saxonburg, PA (Zip Code) (Address of principal executive offices) 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 February 4, 2000, 6,369,606 shares of Common Stock, no par value, of the registrant were outstanding. 1 II-VI INCORPORATED AND SUBSIDIARIES ----------------------------------- INDEX ----- Page No. -------- PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets -- December 31, 1999 and June 30, 1999. . . . . . . . . 3 Condensed Consolidated Statements of Earnings -- Three and six months ended December 31, 1999 and 1998. . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows - Six months ended December 31, 1999 and 1998 . . . . . 6 Notes to Condensed Consolidated Financial Statements . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk (no significant changes since June 30, 1999) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. . . . . . . . .13 2 PART 1 - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS: -------------------- II-VI Incorporated and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) ($000) December 31, June 30, Assets 1999 1999 ------------ -------- Current Assets Cash and cash equivalents $ 5,883 $ 5,558 Accounts receivable - net 12,273 13,070 Inventories 11,200 9,096 Other current assets 1,861 1,289 ------- ------- Total Current Assets 31,217 29,013 Property, Plant and Equipment, net 37,168 36,955 Other Assets 7,569 4,875 ------- ------- $75,954 $70,843 ======= ======= Liabilities and Shareholders' Equity Current Liabilities Notes payable $ 5,000 $ 4,082 Accounts payable 2,381 1,934 Accrued salaries, wages and bonuses 2,569 2,836 Income taxes payable 567 367 Accrued profit sharing contribution 360 580 Other current liabilities 946 1,581 Current portion of long-term debt 43 43 ------- ------- Total Current Liabilities 11,866 11,423 Long-Term Debt--less current portion 2,882 2,549 Other Liabilities, primarily deferred income taxes 2,747 2,378 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 - 6,892,546 shares at December 31, 1999; 6,875,766 shares at June 30, 1999 18,877 18,746 Accumulated other comprehensive income 698 272 Retained earnings 40,794 37,385 ------- ------- 60,369 56,403 Less treasury stock, at cost - - 534,440 shares at December 31, 1999 and June 30, 1999 1,910 1,910 ------- ------- 58,459 54,493 ------- ------- $75,954 $70,843 ======= ======= - -See notes to condensed consolidated financial statements. 3 II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited) ($000 except per share data) Three Months Ended December 31, 1999 1998 Revenues -------- -------- Net sales: Domestic $ 8,256 $ 8,059 International 8,397 6,752 -------- -------- 16,653 14,811 Contract research and development 221 399 -------- -------- 16,874 15,210 -------- -------- Costs, Expenses & Other Income Cost of goods sold 9,476 9,077 Contract research and development 168 305 Internal research and development 602 574 Selling, general and administrative 4,208 3,436 Interest expense 94 154 Other income - net (59) (261) -------- -------- 14,489 13,285 -------- -------- Earnings Before Income Taxes 2,385 1,925 Income Taxes 715 623 -------- -------- Net Earnings $ 1,670 $ 1,302 ======== ======== Basic Earnings Per Share $ 0.26 $ 0.21 ======== ======== Diluted Earnings Per Share $ 0.26 $ 0.20 ======== ======== - -See notes to condensed consolidated financial statements. 4 II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited) ($000 except per share data) Six Months Ended December 31, 1999 1998 Revenues -------- -------- Net sales: Domestic $ 16,792 $ 15,724 International 15,983 12,581 -------- -------- 32,775 28,305 Contract research and development 297 698 -------- -------- 33,072 29,003 -------- -------- Costs, Expenses & Other Income Cost of goods sold 18,704 18,046 Contract research and development 226 540 Internal research and development 1,225 1,152 Selling, general and administrative 8,014 6,443 Interest expense 179 280 Other income - net (131) (280) -------- -------- 28,217 26,181 -------- -------- Earnings Before Income Taxes 4,855 2,822 Income Taxes 1,446 891 -------- -------- Net Earnings $ 3,409 $ 1,931 ======== ======== Basic Earnings Per Share $ 0.54 $ 0.30 ======== ======== Diluted Earnings Per Share $ 0.52 $ 0.30 ======== ======== - -See notes to condensed consolidated financial statements. 5 II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ($000) Six Months Ended December 31, 1999 1998 -------- -------- Cash Flows from Operating Activities Net earnings $3,409 $1,931 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,790 2,421 Gain on foreign currency transactions (104) (574) Net loss on disposal or writedown of property, plant and equipment - 200 Deferred income taxes (4) - Increase (decrease) in cash from changes in: Accounts receivable 210 1,415 Inventories (1,912) 805 Accounts payable 366 (1,676) Other operating net assets (743) (1,594) -------- -------- Net cash provided by operating activities 4,012 2,928 -------- -------- Cash Flows from Investing Activities Additions to property, plant and equipment (2,841) (2,955) Investments in unconsolidated businesses (2,888) - Disposals (additions) of other assets 750 (600) -------- -------- Net cash used in investing activities (4,979) (3,555) -------- -------- Cash Flows from Financing Activities Proceeds on short-term borrowings, net 909 1,337 Payments on long-term borrowings (25) (26) Proceeds from sale of common stock 71 105 Purchases of treasury stock - (1,148) -------- -------- Net cash provided by financing activities 955 268 Effect of exchange rate changes on cash and cash equivalents 337 358 -------- -------- Net increase (decrease) in cash and cash equivalents 325 (1) Cash and Cash Equivalents at Beginning of Period 5,558 4,160 -------- -------- Cash and Cash Equivalents at End of Period $5,883 $4,159 ======== ======== - -See notes to condensed consolidated financial statements. 6 II-VI Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Note A - Basis of Presentation --------------------- The consolidated financial statements for the three and six month periods ended December 31, 1999 and 1998 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 1999 Annual Report to shareholders. The consolidated results of operations for the three and six month periods ended December 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications were made to the prior period financial statements in order for them to be in conformity with current period presentation. Note B - Inventories ($000) ------------------- The components of inventories are as follows: December 31, June 30, 1999 1999 ------------ -------- Raw materials $ 2,689 $ 3,014 Work in progress 5,098 3,731 Finished goods 3,413 2,351 ------------ -------- $ 11,200 $ 9,096 ============ ======== Note C - Property, Plant and Equipment ($000) ------------------------------------- Property, plant and equipment (at cost) consist of the following: December 31, June 30, 1999 1999 ------------ -------- Land and land improvements $ 1,525 $ 1,501 Buildings and improvements 20,090 19,559 Machinery and equipment 42,954 40,758 ------------ -------- 64,569 61,818 Less accumulated depreciation 27,401 24,863 ------------ -------- $37,168 $36,955 ============ ======== 7 II-VI Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued Note D - Debt ---- On March 26, 1999, the Company entered into a $15.0 million unsecured line of credit agreement with PNC Bank that expires on March 25, 2000. This line of credit may be extended upon the mutual agreement of the Company and PNC Bank for an additional two years. The average interest rate in effect as of December 31, 1999 was 6.90%. As of December 31, 1999, the total borrowings under this line of credit were $5.0 million. The Company is subject to certain restrictive covenants under this agreement. Note E - Earnings Per Share ------------------ The following table sets forth the computation of earnings per share for the periods indicated: Three Months Ended Six Months Ended December 31, December 31, (000 except per share data) 1999 1998 1999 1998 - ------------------------------------------------------------- Net earnings $1,670 $1,302 $3,409 $1,931 Divided by: Weighted average shares 6,353 6,338 6,350 6,391 - ------------------------------------------------------------- Basic earnings per share $0.26 $0.21 $0.54 $0.30 - ------------------------------------------------------------- Net earnings $1,670 $1,302 $3,409 $1,931 Divided by: Weighted average shares 6,353 6,338 6,350 6,391 Dilutive effect of common stock equivalents 192 122 176 139 - ------------------------------------------------------------- Diluted weighted average common shares 6,545 6,460 6,526 6,530 - ------------------------------------------------------------- Diluted earnings per share $0.26 $0.20 $0.52 $0.30 - ------------------------------------------------------------- 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 shareholders' equity that result from transactions and other economic events of the period other than transactions with owners. Accumulated other comprehensive income on the condensed consolidated balance sheets consists of unrealized gains on investments and foreign currency translation adjustments. The components of comprehensive income were as follows for the periods indicated ($000): 8 II-VI Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued Three Months Ended Six Months Ended December 31, December 31, 1999 1998 1999 1998 - ------------------------------------------------------------- Net earnings $1,670 $1,302 $3,409 $1,931 Change in unrealized (loss) (128) - 557 - gain on investment Foreign currency translation adjustments (104) (376) (131) (499) - ------------------------------------------------------------- Comprehensive income $1,438 $926 $3,835 $1,432 - ------------------------------------------------------------- Note G - Segment Reporting ----------------- Effective in fiscal 1999, the Company adopted Statement of Financial Accounting standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS No. 131), which requires the use of the 'management approach' model for segment reporting. The Company has two reportable segments: Optical Components, which is an aggregation of the Company's infrared optics and material products business and the Company's VLOC subsidiary under the guidelines of SFAS No. 131, and Radiation Detectors. The accounting policies of the segments are the same as those of the Company. Substantially all of the Company's corporate expenses are allocated to the segments. The Company evaluates segment performance based upon reported segment profit or loss from operations. Inter-segment sales and transfers are insignificant. The following table summarizes selected financial information of the Company's operations by segment ($000's): Three Months Ended December 31, 1999 -------------------------------------- Optical Radiation Components Detectors Totals - ---------------------------------------------------------------- Net revenues $15,668 $1,206 $16,874 Income (loss) from operations 2,953 (533) 2,420 Interest expense - - 94 Other income, net - - (59) Earnings before income taxes - - 2,385 Segment assets 67,543 8,411 75,954 Three Months Ended December 31, 1998 -------------------------------------- Optical Radiation Components Detectors Totals - ---------------------------------------------------------------- Net revenues $13,883 $1,327 $15,210 Income (loss) from operations 2,180 (362) 1,818 Interest expense - - 154 Other income, net - - (261) Earnings before income taxes - - 1,925 Segment assets 58,736 8,642 67,378 9 Six Months Ended December 31, 1999 -------------------------------------- Optical Radiation Components Detectors Totals - ---------------------------------------------------------------- Net revenues $30,509 $2,563 $33,072 Income (loss) from operations 5,808 (905) 4,903 Interest expense - - 179 Other income, net - - (131) Earnings before income taxes - - 4,855 Segment assets 67,543 8,411 75,954 Six Months Ended December 31, 1998 -------------------------------------- Optical Radiation Components Detectors Totals - ---------------------------------------------------------------- Net revenues $26,382 $2,621 $29,003 Income (loss) from operations 3,470 (648) 2,822 Interest expense - - 280 Other income, net - - (280) Earnings before income taxes - - 2,822 Segment assets 58,736 8,642 67,378 Note H - Investment in Laser Power Corporation ------------------------------------- On September 21, 1999, the Company purchased 1,250,000 shares of Laser Power Corporation common stock for a total purchase price of approximately $2.8 million. Based on information available to the Company, this purchase represents approximately 14.5% of the outstanding common stock of Laser Power Corporation. Laser Power Corporation is a competitor of the Company which produces infrared and CO2 laser optics. This investment is being accounted for under the cost method of accounting. This investment is included in "Other Assets" in the accompanying condensed consolidated balance sheet as of December 31, 1999. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Net earnings for the second quarter of fiscal 2000 were $1,670,000 ($0.26 per share-diluted) on revenues of $16,874,000. This compares to net earnings of $1,302,000 ($0.20 per share- diluted) on revenues of $15,210,000 in the second quarter of fiscal 1999. For the six months ended December 31, 1999, net earnings were $3,409,000 ($0.52 per share-diluted) on revenues of $33,072,000. This compares with net earnings of $1,931,000 ($0.30 per share-diluted) on revenues of $29,003,000 for the same period last fiscal year. Order bookings for the second quarter of fiscal 2000 were $20,024,000 compared to $16,492,000 for the same period last fiscal year, an increase of 21%. Bookings for contract research and development for the second quarter of fiscal year 2000 were $448,000 compared to $241,000 for the same period last fiscal year. Excluding these long-term research and development contract bookings, manufacturing bookings increased 20%. For the quarter, bookings for laser optics and component products increased approximately 20% and bookings for the eV PRODUCTS division increased over 75%. Order bookings for the six months ended December 31, 1999 were $36,856,000 compared to $29,304,000 for the same period last fiscal year, an increase of 26%. Bookings for contract research and development for the six months ended December 31, 1999 were $448,000 compared to $241,000 for the same period last fiscal year. Excluding these long-term research and development contract bookings, manufacturing bookings increased 25%. For the year-to-date, bookings for laser optics and component products increased approximately 25% and bookings for the eV PRODUCTS division increased approximately 15%. Revenues for the second quarter of fiscal 2000 increased 11% to $16,874,000 compared to $15,210,000 for the same period last fiscal year. For the six months ended December 31, 1999, revenues increased 14% to $33,072,000 from $29,003,000 for the same period last fiscal year. For the quarter, revenues from laser optics and products increased by approximately 15% while revenues from the eV PRODUCTS division decreased by approximately 10%. For the year-to-date, revenues from laser optics and products increased by approximately 15% while revenues from the eV PRODUCTS division were consistent with the prior period. Manufacturing gross margin for the second quarter of fiscal 2000 was $7,177,000 or 43% of revenues compared to $5,734,000 or 39% of revenues for the same period last fiscal year. For the six months ended December 31, 1999, manufacturing gross margin was $14,071,000 or 43% of revenues compared to $10,259,000 or 36% of revenues for the same period last fiscal year. The higher gross margin percentage for the quarter and year-to-date reflects productivity gains and cost control programs, lower per unit cost associated with higher production volume for laser optics and component products and a strengthened Japanese Yen. Company-funded internal research and development expenses for the second quarter of fiscal 2000 were $602,000 or 4% of revenues compared to $574,000 or 4% of revenues for the same period last fiscal year. For the six months ended December 31, 1999, internal research and development expenses were $1,225,000 or 4% of revenues compared to $1,152,000 or 4% of revenues for the same period last fiscal year. The increased expenses for the quarter and year-to-date reflect projects associated with nuclear radiation detector development and infrared optics and materials development. Selling, general and administrative expenses for the second quarter of fiscal 2000 were $4,208,000 or 25% of revenues compared to $3,436,000 or 23% of revenues for the same period last fiscal year. For the six months ended December 31, 1999, selling, general and administrative expenses were $8,014,000 or 24% of revenues compared to $6,443,000 or 22% of revenues for the same period last fiscal year. The quarter and year-to-date dollar and percentage increases are attributable to increased compensation expense associated with the Company's worldwide profit-driven bonus programs and increased professional service expenses. Interest expense for the second quarter of fiscal 2000 was $94,000 compared to $154,000 for the same period last fiscal year. For the six months ended December 31, 1999, interest expense was $179,000 compared to $280,000 for the same 11 period last fiscal year. The quarter and year-to-date decreases in interest expense are the direct result of decreased average borrowings. For fiscal 2000, the Company's year-to-date effective income tax rate is 30% compared to an effective income tax rate of 32% for the same period last fiscal year. The decrease in the effective income tax rate is partially attributable to a change in the level of profit generated by the Company's foreign subsidiaries. Liquidity and Capital Resources - ------------------------------- Cash increased during the first six months of fiscal 2000 by $325,000 primarily due to net earnings before depreciation and amortization of $6,199,000 and borrowings on the Company's line of credit. These items were offset by an increase in inventory, payment of compensation costs relating to the Company's fiscal 1999 worldwide profit-driven bonus programs, capital expenditures and the purchase of 1,250,000 shares of Laser Power Corporation common stock. The Company generated $4,012,000 in cash from operations during the first six months of fiscal 2000. The Company believes internally generated funds, existing cash reserves and available borrowing capacity will be sufficient to fund its working capital needs, capital expenditures and scheduled debt payments for fiscal 2000. 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 and scheduled debt payments and the Company's plan to address the Year 2000 issue. Forward-looking statements are also identified by words such as "expects," "anticipates," "intends," "plans," "projects" or similar expressions. Actual results could materially differ from such statements if worldwide economic conditions change, competitive conditions intensify, and/or technology problems emerge. 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 1999 Form 10-K as filed with the Securities and Exchange Commission on September 28, 1999. Other Matters - ------------- The Company experienced no material problems with its information and non-information systems, or those of its vendors, customers or financial institutions, as a result of the date change to the Year 2000. The Company continues to monitor for unexpected issues that could possibly still develop. The year 2000 problem has many aspects and potential consequences, some of which are not reasonably foreseeable, and there can be no assurance that unforeseen consequences will not arise. To date, the Company has spent approximately $170,000 on the Year 2000 issue and believes that the remaining potential cost related to the Year 2000 issue will be insignificant. 12 PART II - OTHER INFORMATION --------------------------- Item 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ --------------------------------- (a) Exhibits. 27.01 Financial Data Schedule Filed herewith. (b) Reports on Form 8-K. None. 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. II-VI INCORPORATED (Registrant) Date: February 14, 2000 By: /s/ Carl J. Johnson Carl J. Johnson Chairman and Chief Executive Officer Date: February 14, 2000 By: /s/ James Martinelli James Martinelli Treasurer & Chief Financial Officer 14 EXHIBIT INDEX ------------- Exhibit No. - ----------- 27.01 Financial Data Schedule . . . . . . . .Filed herewith. 15 EX-27 2
5 1,000 3-MOS 6-MOS JUN-30-2000 JUN-30-2000 OCT-01-1999 JUL-01-1999 DEC-31-1999 DEC-31-1999 5,883 5,883 0 0 12,765 12,765 492 492 11,200 11,200 31,217 31,217 64,569 64,569 27,401 27,401 75,954 75,954 11,866 11,866 2,882 2,882 0 0 0 0 18,877 18,877 39,582 39,582 75,954 75,954 16,874 33,072 16,874 33,072 9,644 18,930 9,644 18,930 4,751 9,108 0 0 94 179 2,385 4,855 715 1,446 1,670 3,409 0 0 0 0 0 0 1,670 3,409 0.26 0.54 0.26 0.52
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