UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
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 16056
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code:
(412) 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 practical date:
At May 1, 1996, 6,304,578 shares of Common Stock, no par value, of the registrant were outstanding.
Page No.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements.
Independent Accountants' Report . . . . . . . . 3
Condensed Consolidated Balance Sheets -
March 31, 1996, and June 30, 1995 . . . . . . . 4
Condensed Consolidated Statements of Earnings -
Three and nine months ended March 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of
Shareholders' Equity - Three and nine months
ended March 31, 1996. . . . . . . . . . . . . . 6
Condensed Consolidated Statements of
Cash Flows - Nine months ended March 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . 7
Notes to Condensed Consolidated
Financial Statements. . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 12
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[LOGO OF ALPERN, ROSENTHAL & COMPANY]
Certified Public Accountants
Warner Centre, Suite 400 . 332 Fifth Avenue .
Pittsburgh, Pennsylvania 15222-2413
(412) 281-2501 . Fax (412) 471-1996
Independent Accountants' Report
[LOGO OF ALPERN, ROSENTHAL & COMPANY]
Certified Public Accountants
Warner Centre, Suite 400 . 332 Fifth Avenue .
Pittsburgh, Pennsylvania 15222-2413
(412) 281-2501 . Fax (412) 471-1996
To the Board of Directors and
Shareholders of II-VI Incorporated
Saxonburg, Pennsylvania
We have reviewed the accompanying condensed consolidated balance sheet of II-VI Incorporated and Subsidiaries as of March 31, 1996, and the related condensed consolidated statements of earnings, shareholders' equity and cash flows for the three and nine month periods ended March 31,1996 and 1995. 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 sheets of II-VI Incorporated and Subsidiaries as of June 30, 1995, 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 19, 1995, 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, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Alpern, Rosenthal & Company
April 17, 1996
Members American and Pennsylvania
Institutes of Certified Public Accountants
Accounting Firms Associated, inc.
Member Firms in Principal Cities
Irving P. Rosenthal, CPA Deborah H. Wells, CPA Michael H. Levin, CPA Fred M. Rock, CPA Harvey A. Pollack, CPA Sean M. Brennan, CPA Fred J. Morelli, Jr., CPA Alexander Paul, CPA Edward F. Rockman, CPA Michael E. Forgas, CPA Emanuel V. DiNatale, CPA Joel M. Rosenthal, CPA |
PART I. - FINANCIAL INFORMATION
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000 except per share data)
March 31, 1996 June 30, 1995
______________ _____________
ASSETS
Current Assets
Cash and equivalents $ 8,233 $ 3,822
Accounts receivable
- less allowance for doubtful
accounts of $253 in March 1996
and $261 in June 1995 7,759 5,412
Inventories 5,116 4,165
Deferred income taxes 371 309
Prepaid and other current assets 426 376
______ ______
Total Current Assets 21,905 14,084
Property, Plant and Equipment, net 14,696 9,892
Goodwill, net 2,207 -
Other Assets, net 2,373 391
______ ______
$41,181 $24,367
====== ======
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 1,553 $ -
Accounts payable - trade 1,045 835
Accrued salaries, wages and bonuses 2,299 2,114
Income taxes payable 409 585
Accrued profit sharing contribution 399 278
Other current liabilities 786 1,027
Current portion of long-term debt 23 373
______ ______
Total Current Liabilities 6,514 5,212
Long Term Debt--less current portion 143 1,190
Deferred Income Taxes 1,761 967
Commitments & Contingencies
Shareholder's Equity
Preferred stock, no par value;
authorized - 5,000,000 shares;
unissued - -
Common stock, no par value;
authorized - 30,000,000 shares;
issued - 6,689,018 shares at
3/31/96 and 5,669,987 at
6/30/95 16,944 4,485
Cumulative translation adjustment 71 (17)
Retained Earnings 16,509 13,660
_______ _______
33,524 18,128
Less treasury stock, at cost -
384,440 shares at 3/31/96 and
570,623 at 6/30/95. 761 1,130
_______ _______
32,763 16,998
_______ _______
$41,181 $24,367
======= =======
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[FN]
All share data reflects the two-for-one stock split which was
effected as of the close of business September 6, 1995.
- -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 Nine Months Ended
March 31, March 31,
__________________ _________________
1996 1995 1996 1995
______ ______ ______ ______
Revenues
Net Sales:
Domestic $5,421 $4,407 $13,734 $ 9,470
International 4,233 3,248 11,595 9,016
______ ______ _______ ______
9,654 7,655 25,329 18,486
Contract research and
development 418 373 785 892
______ ______ ______ ______
10,072 8,028 26,114 19,378
______ ______ ______ ______
Costs, Expenses &
Other Income
Cost of goods sold 5,481 4,663 14,512 11,022
Contract research and
development 284 261 548 712
Internal research and
development 154 85 440 337
Selling, general and
administrative expenses 2,610 1,989 6,893 5,059
Interest and other expense
- net (83) (62) (206) (66)
______ ______ ______ ______
8,446 6,936 22,187 17,064
______ ______ ______ ______
Earnings Before Income Taxes 1,626 1,092 3,927 2,314
Income Tax Expense 417 312 1,078 629
______ ______ ______ ______
Net Earnings $1,209 $ 780 $2,849 $1,685
====== ====== ====== ======
Earnings Per Share $ 0.18 $ 0.15 $ 0.47 $ 0.32
====== ====== ====== ======
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[FN]
All share data reflects the two-for-one stock split which was
effected as of the close of business September 6, 1995.
- -See notes to condensed consolidated financial statements.
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
(000)
Common Stock Cumulative Treasury Stock
_____________ Translation Retained ________________
Shares Amount Adjustment Earnings Shares Amount Total
______ ______ __________ ________ ______ ________ _______
Balance--July 1, 1995 5,670 $ 4,485 $ (17) $ 13,660 (571) $(1,130) $16,998
Shares issued under
stock option plan 15 51 - - - - 51
Net earnings
for the quarter - - - 806 - - 806
Translation
adjustment - - 61 - - - 61
_____ _______ _______ ________ ______ ________ _______
Balance--
September 30, 1995 5,685 $ 4,536 $ 44 $ 14,466 (571) $(1,130) $17,916
Shares issued under
stock option plan 1 6 - - - - 6
Shares issued under
second offering 1,000 10,940 - - - - 10,940
Net earnings
for the quarter - - - 834 - - 834
Translation
adjustment - - 14 - - - 14
_____ _______ _______ ________ ______ ________ _______
Balance--
December 31, 1995 6,686 $15,482 $ 58 $ 15,300 (571) $(1,130) $29,710
Shares issued for
purchase of
Lightning Optical - 1,469 - - 187 369 1,838
Shares issued under
second offering - (11) - - - - (11)
Shares issued under
stock option plan 3 4 - - - - 4
Net earnings for the
quarter - - - 1,209 - - 1,209
Translation adjustment - - 13 - - - 13
_____ _______ _______ ________ ______ ________ _______
Balance--
March 31, 1996 6,689 $16,944 $ 71 $ 16,509 (384) $ (761) $32,763
===== ======= ======= ======== ====== ======== =======
All share data reflects the two-for-one stock split which was effected as of the close
of business September 6, 1995.
- -See notes to condensed consolidated financial statements.
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II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
Nine Months Ended
March 31 ,
___________________
1996 1995
_______ _______
Cash Flows from Operating Activities
Net Earnings $ 2,849 $ 1,685
Adjustments to reconcile
net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,801 1,519
Loss on sale of assets - 17
(Gain) on foreign currency
transactions (4) (19)
Deferred income taxes (16) 172
Increase (decrease) in cash
from changes in:
Accounts receivable (1,471) (1,187)
Inventories (910) (219)
Accounts payable 353 125
Accrued salaries, wages and bonuses (277) 589
Accrued profit sharing contribution 21 105
Income taxes payable (344) 125
Other operating net assets (483) 122
_______ _______
Net cash provided by
operating activities 1,519 3,034
_______ _______
Cash Flows from Investing Activities
Additions to property and equipment (5,194) (1,332)
Payment for purchase of Virgo Optics,
net of cash acquired - (2,353)
Payment for purchase of Lightning Optical,
net of cash acquired (1,989) -
Additions to other assets - (69)
_______ _______
Net cash used in investing activities (7,183) (3,754)
_______ _______
Cash Flows from Financing Activities
Net change in notes payable (519) 1,521
Proceeds from long-term borrowings - 108
Payments on long-term borrowings (396) (275)
Proceeds from sale of common stock 10,990 85
Purchase of treasury stock - (31)
_______ _______
Net cash provided by financing
activities 10,075 1,408
_______ _______
Net increase in cash and equivalents 4,411 688
Cash and Equivalents at
Beginning of period 3,822 1,734
_______ _______
Cash and Equivalents at
End of period $ 8,233 $ 2,422
======= =======
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[FN]
- -See notes to condensed consolidated financial statements.
II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The condensed consolidated financial statements for the three and nine month periods ended March 31, 1996 and 1995 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 Annual Report as filed as an exhibit to the Company's Form 10-K Annual Report dated October 3, 1995 filed with the Securities and Exchange Commission. The consolidated results of operations for the three and nine month periods ended March 31, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year.
The components of inventories are as follows:
March 31, June 30,
1996 1995
___________ _________
Raw Materials $ 2,054 $ 1,750
Work in Progress 1,342 1,348
Finished Goods 1,720 1,067
___________ _________
$ 5,116 $ 4,165
=========== =========
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Property, plant and equipment consist of the following:
March 31, June 30,
1996 1995
_________ _______
Land and land improvements $ 502 $ 307
Buildings and improvements 7,088 4,258
Machinery and equipment 21,788 17,486
_________ _______
29,378 $22,051
Less accumulated depreciation 14,682 12,159
________ _______
$14,696 $ 9,892
======== =======
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II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
On August 16, 1995, the Board of Directors declared a two- for-one split of II-VI's common stock which was distributed to shareholders of record on August 30, 1995, effective at the close of business September 6, 1995. All per share amounts included in the condensed consolidated financial statements and notes are based on the increased number of shares giving retroactive effect to the stock split, unless otherwise noted.
On October 20, 1995, a registration statement on Form S-3 covering the public offering of 1,000,000 shares was declared effective by the Securities and Exchange Commission, with the shares sold to the public at $12.00 per share.
On January 9, 1996 the Company's Japan subsidiary borrowed $761,000 from a Japanese bank. The debt is payable in equal installments over a sixteen month period. The current interest rate at March 31, 1996 is 2.125%.
On February 22, 1996 the Company acquired 100% of the outstanding capital stock of Lightning Optical Corporation. The purchase price consisted of cash and 186,183 shares of II-VI Incorporated common stock. These shares were valued at $9.875 at the time of purchase. The allocation of the purchase price was as follows:
Accounts receivable $ 1,125,000
Inventory 227,000
Property, Plant & Equipment 1,381,000
Goodwill 2,219,000
Other intangible assets 2,000,000
Other assets 48,000
___________
7,000,000
Current liabilities (2,059,000)
Long-term debt (320,000)
Other long-term liabilities (794,000)
___________
Purchase price,
net of cash acquired $ 3,827,000
===========
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The following pro forma financial information is based upon the historical financial statements of the Registrant and Lightning Optical Corporation, adjusted to give effect to the acquisition of 100% of the outstanding capital stock of Lightning Optical. This information assumes that such events occurred on the first day of the Registrant's 1995 fiscal year (July 1, 1994).
Nine Months Ended
March 31,
_________________________
1996 1995
____ ____
Revenues $ 30,125 $ 23,209
Net Earnings 3,454 1,984
Earnings Per Share 0.55 0.37
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Net earnings for the third fiscal quarter of 1996, ended March 31, 1996, were $1,209,000 ($0.18 per share) on revenues of $10,072,000. This compares to net earnings of $780,000 ($0.15 per share) on revenues of $8,028,000 in the third quarter of fiscal 1995. For the nine months ended March 31, 1996, net earnings were $2,849,000 ($0.47 per share) on revenues of $26,114,000. This compares with net earnings of $1,685,000 ($0.32 per share) on revenues of $19,378,000 for the same period last fiscal year.
The increase in the quarter's net earnings is primarily due to improved revenues in all of the Company's markets. The year-to-date increase in earnings is attributable to the acquisition of Virgo Optics on December 29, 1994, improved gross margins due to lower per unit operating costs, and increased international demand for the Company's products.
Order bookings for the third quarter were $11,288,000 compared to $8,011,000 for the same period last fiscal year, an increase of 41%. This increase is attributable to a $2.3 million DARPA R&D contract awarded during the quarter, the addition of Lightning Optical Corporation and increased activity in the domestic military market. Year-to-date order bookings increased by 44% to $29,857,000 from $20,709,000 in last fiscal year. This improvement is attributable mainly to the addition of the Virgo Optics and Lightning Optical divisions, the DARPA R&D contract, and increased demand in the international and domestic industrial market.
Manufacturing gross margin for the quarter was $4,173,000 or 43% of revenues compared to $2,992,000 or 39% of revenues for the third quarter of fiscal 1995. Manufacturing gross margin year-to- date was $10,817,000 or 43% of revenues compared to $7,464,000 or 40% of revenues in fiscal 1995. The increase in gross margin percentage for the quarter and year-to-date reflects lower per unit operating costs associated with increased volume.
Selling, General and Administrative expenses for the quarter were $2,610,000 or 26% of revenues compared to $1,989,000 or 25% of revenues for last fiscal year's third quarter. Selling, General and Administrative expenses year-to-date were $6,893,000 or 26% of revenues compared to $5,059,000 or 26% of revenues in fiscal 1995. The increase in expense for the quarter and year-to-date is attributable to higher compensation expense associated with the Company's world-wide profit driven bonus programs and expenses incurred at the Virgo Optics and Lightning Optical Divisions.
The Company's year-to-date effective income tax rate is 27%, the same as last fiscal year's first nine month period.
Cash increased during the first nine months of fiscal 1996 by $4,411,000 due primarily to $10,990,000 in net proceeds from the October public stock offering and cash generated from operations of $1,519,000 being offset by $5,194,000 in capital expenditures, the purchase of Lightning Optical Corporation, and the payoff of loans acquired as part of Lightning Optical Corporation purchase.
The capital expenditures focused on manufacturing facility expansion and process automation.
The cash generated from operations was a result of net earnings before depreciation of $4,650,000 being offset mostly by increased accounts receivable and inventory levels required by the increased sales volume.
The purchase of Lightning Optical Corporation resulted in goodwill being recorded of $2,219,000. The recoverability of this goodwill is based on the projection of future cash flows.
The current cash balance will be used for working capital needs, further capital expenditures, and possible acquisitions of complementary businesses, products or technologies.
10.01 First Amendment to the II-VI Incorporated
Amended and Restated Employees' Stock
Purchase Plan. . . . . . . . . . Filed herewith.
15.01 Accountant's acknowledgment letter dated
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May 3, 1996. . . . . . . . . . . Filed herewith.
27.01 Financial Data Schedule . . . . Filed herewith.
On March 7, 1996, the Registrant filed a Report on
Form 8-K for the event dated February 22, 1996, covering
Items 2 and 7 thereof.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly cause this report to be signed on its behalf by the undersigned thereunto duly authorized.
II-VI INCORPORATED
Registrant
May 6, 1996 By: /s/ Carl J. Johnson
Date ____________________________________
Carl J. Johnson
Chairman and Chief Executive Officer
May 6, 1996 By: /s/ James Martinelli
Date ___________________________________
James Martinelli
Treasurer & Chief Financial Officer
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10.01 First Amendment to the II-VI Incorporated
Amended and Restated Employees' Stock
Purchase Plan................................Filed herewith.
15.01 Accountant's acknowledgment letter dated
May 3, 1996..................................Filed herewith.
27.01 Financial Data Schedule......................Filed herewith.
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EXHIBIT 10.01
FIRST AMENDMENT
TO THE
II-VI INCORPORATED
AMENDED AND RESTATED
EMPLOYEE'S STOCK PURCHASE PLAN
ADOPTED AND APPROVED this 2nd day of February, 1996, but effective as of February 1, 1996.
WHEREAS, II-VI INCORPORATED (hereinafter, "II-VI")
established the II-VI INCORPORATED EMPLOYEES' STOCK PURCHASE PLAN
(hereinafter, "Plan") on January 1, 1974;
WHEREAS, the Plan was amended and restated by II-VI in October 1982 and again in October 1987;
WHEREAS, II-VI desires to further amend the Plan in certain respects;
NOW, THEREFORE, pursuant to the power reserved in Section 16 of the Plan, II-VI, intending to be legally bound, hereby amends the Plan as follows:
FIRST: Subparagraph (f) of Section 2 of the Plan is hereby
deleted and shall be replaced by the the following new subparagraph:
"(f) 'Employee' shall mean any person, including
any officer or director, who is employed by II-VI or
employed by any subsidiary corporation owned and
controlled by II-VI."
SECOND: In all other respects, the Plan is ratified, confirmed and approved.
EXHIBIT 15.01
[LOGO OF ALPERN, ROSENTHAL & COMPANY]
Certified Public Accountants
Warner Centre, Suite 400 . 332 Fifth Avenue .
Pittsburgh, Pennsylvania 15222-2413
(412) 281-2501 . Fax (412) 471-1996
To the Board of Directors and
Shareholders of II-VI Incorporated
Saxonburg, Pennsylvania
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 March 31, 1996 and 1995, as indicated in our report dated April 17, 1996; 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 March 31, 1996, is incorporated by reference in Registration Statements No. 33-19511, No. 33-38019 and No. 33-19510 on Form S-8, and No. 33-63739 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 with the meaning of Sections 7 and 11 of that Act.
Alpern Rosenthal & Company
May 3, 1996
Members American and Pennsylvania
Institutes of Certified Public Accountants
Accounting Firms Associated, inc.
Member Firms in Principal Cities
Irving P. Rosenthal, CPA Deborah H. Wells, CPA Michael H. Levin, CPA Fred M. Rock, CPA Harvey A. Pollack, CPA Sean M. Brennan, CPA Fred J. Morelli, Jr., CPA Alexander Paul, CPA Edward F. Rockman, CPA Michael E. Forgas, CPA Emanuel V. DiNatale, CPA Joel M. Rosenthal, CPA |
| ARTICLE 5 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | JUN 30 1996 |
| PERIOD START | JUL 01 1995 |
| PERIOD END | MAR 31 1996 |
| CASH | 8,233 |
| SECURITIES | 0 |
| RECEIVABLES | 8,012 |
| ALLOWANCES | 253 |
| INVENTORY | 5,116 |
| CURRENT ASSETS | 21,905 |
| PP&E | 29,378 |
| DEPRECIATION | 14,682 |
| TOTAL ASSETS | 41,181 |
| CURRENT LIABILITIES | 6,514 |
| BONDS | 143 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 16,944 |
| OTHER SE | 15,819 |
| TOTAL LIABILITY AND EQUITY | 41,181 |
| SALES | 26,114 |
| TOTAL REVENUES | 26,114 |
| CGS | 15,060 |
| TOTAL COSTS | 15,060 |
| OTHER EXPENSES | 7,127 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 0 |
| INCOME PRETAX | 3,927 |
| INCOME TAX | 1,078 |
| INCOME CONTINUING | 2,849 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 2,849 |
| EPS PRIMARY | .47 |
| EPS DILUTED | .0 |