<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 7, 1998
------------
ADVANCED LIGHTING TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 0-27202 34-1803229
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
32000 Aurora Road, Solon, Ohio 44139
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 440 / 519-0500
--------------------------
2307 East Aurora Road, Suite One, Twinsburg, Ohio
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 5. OTHER EVENTS.
The attached financial statements of Advanced Lighting Technologies, Inc. (the
"Company") give effect to the treatment of Microsun Technologies, Inc. as a
discontinued operation and update the following previously-filed financial
statements:
1. The Company's Audited Consolidated Financial Statements for the
year ended June 30, 1997, filed with the Company's Annual Report on
Form 10-K.
In addition, this filing presents the following with respect to the Company:
1. Unaudited Pro Forma Financial Information;
2. Selected Financial Data; and
3. Management's Discussion and Analysis of Financial Condition and
Results of Operations for periods ending March 31, 1998 and 1997 and
June 30, 1997, 1996 and 1995.
This information has been redacted from a preliminary prospectus contained in
the Registration Statement on Form S-4, filed July 7, 1998, relating to the
registration of an offer to exchange 8% Senior Notes due 2008 of the Company for
outstanding 8% Senior Notes due 2008 of the Company. Reference is also made to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, filed on May 15, 1998 (the "Third Quarter 1998 10-Q").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
10.1 Amendment No. 2 dated as of May 13, 1998 to Credit Agreement
dated as of January 2, 1998 among the Company, certain financial
institutions named therein and National City Bank, as
Administrative Agent.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
1
<PAGE> 3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADVANCED LIGHTING TECHNOLOGIES, INC.
Audited Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets as of June 30, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995........................... F-4
Statements of Consolidated Shareholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995............... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995........................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 4
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Advanced Lighting Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Lighting Technologies, Inc. as of June 30, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows, for each
of the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Advanced Lighting Technologies, Inc. as of June 30, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
September 25, 1997, except earnings per share
amounts and Notes J, O and U as to which
the date is March 30, 1998
F-2
<PAGE> 5
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,198 $ 1,682
Short-term investments.................................... 4,075 --
Trade receivables, less allowances of $315 and $287....... 28,916 13,736
Receivables from related parties.......................... 346 98
Inventories:
Finished goods......................................... 21,143 10,344
Raw materials and work-in-progress..................... 7,982 2,363
-------- --------
29,125 12,707
Prepaid expenses.......................................... 1,363 526
Deferred taxes............................................ 2,566 3,517
-------- --------
Total current assets........................................ 70,589 32,266
Property, plant and equipment:
Land and buildings........................................ 6,143 2,304
Machinery and equipment................................... 32,712 17,298
Furniture and fixtures.................................... 7,704 2,994
-------- --------
46,559 22,596
Less accumulated depreciation............................. 8,558 6,359
-------- --------
38,001 16,237
Deferred taxes.............................................. 535 231
Receivables from related parties............................ 1,209 913
Investments in affiliates................................... 7,565 638
Other assets................................................ 8,954 2,447
Excess of cost over net assets of businesses acquired,
net....................................................... 7,985 3,565
-------- --------
$134,838 $ 56,297
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt..... $ 3,731 $ 972
Accounts payable.......................................... 15,773 8,790
Payables to related parties............................... 699 434
Employee-related liabilities.............................. 2,674 1,859
Accrued income and other taxes............................ 1,689 263
Other accrued expenses.................................... 3,643 2,607
-------- --------
Total current liabilities................................... 28,209 14,925
Long-term debt.............................................. 35,908 11,034
Other liabilities........................................... 463 161
Deferred taxes.............................................. 4,226 3,583
Shareholders' equity
Common stock.............................................. 13 11
Paid-in-capital........................................... 59,087 26,755
Retained earnings (deficit)............................... 6,932 (172)
-------- --------
66,032 26,594
-------- --------
$134,838 $ 56,297
======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 6
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1996 1995
-------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DOLLAR AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $85,645 $ 54,636 $40,767
Costs and expenses:
Cost of sales............................................. 45,703 29,164 21,899
Marketing and selling..................................... 15,165 8,656 6,381
Research and development.................................. 5,097 2,894 1,673
General and administrative................................ 7,133 6,152 5,452
Fiber optic joint venture formation costs................. 286 -- --
Settlement of claims...................................... 771 2,732 --
Amortization of intangible assets......................... 397 90 55
Restructuring............................................. -- -- (121)
------- -------- -------
Income from operations...................................... 11,093 4,948 5,428
Other income (expense):
Interest expense.......................................... (1,513) (1,548) (2,107)
Interest income........................................... 845 232 33
------- -------- -------
Income from continuing operations before income taxes and
extraordinary charge...................................... 10,425 3,632 3,354
Income taxes................................................ 2,869 965 212
------- -------- -------
Income from continuing operations before extraordinary
charge.................................................... 7,556 2,667 3,142
Loss from discontinued operations, net of income tax
benefits.................................................. (452) (150) --
------- -------- -------
Income before extraordinary charge.......................... 7,104 2,517 3,142
Extraordinary charge from early extinguishment of debt, net
of income tax benefits.................................... -- (135) (253)
------- -------- -------
NET INCOME.................................................. $ 7,104 $ 2,382 $ 2,889
======= ======== =======
Earnings (loss) per share - Basic:
Income from continuing operations......................... $ .57 $ .14 $ .11
Loss from discontinued operations......................... (.03) (.02) --
Extraordinary charge...................................... -- (.01) (.04)
------- -------- -------
EARNINGS PER SHARE - BASIC.................................. $ .54 $ .11 $ .07
======= ======== =======
Earnings (loss) per share - Diluted:
Income from continuing operations......................... $ .55 $ .14 $ .10
Loss from discontinued operations......................... (.03) (.02) --
Extraordinary charge...................................... -- (.01) (.03)
------- -------- -------
EARNINGS PER SHARE - DILUTED................................ $ .52 $ .11 $ .07
======= ======== =======
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 7
ADVANCED LIGHTING TECHNOLOGIES, INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ------ ------- -------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1994....................... $ 2,175 $ 359 $ -- $(1,369) $ 1,165
Net income.................................... -- -- -- 2,889 2,889
Redemption of preferred stock................. (2,125) -- -- (663) (2,788)
Change in value of warrants................... -- -- -- (2,302) (2,302)
Capitalization of subsidiary.................. -- 1 -- -- 1
------- ----- ------- ------- -------
BALANCE AT JUNE 30, 1995...................... 50 360 -- (1,445) (1,035)
Net income.................................... -- -- -- 2,382 2,382
Activities prior to initial public offering of
stock:
Purchases of common stock................... -- 147 -- -- 147
Redemption of preferred and common stock.... (50) (252) -- (1,109) (1,411)
Stock options exercised..................... -- 10 -- -- 10
Exchange of subsidiary companies stock for
parent company stock..................... -- (259) 259 -- --
Noncash claim settlement.................... -- -- 2,732 -- 2,732
Activities subsequent to initial public
offering of stock:
Net proceeds from initial public offering of
2,900,000 shares......................... -- 3 23,927 -- 23,930
Issuance of common stock in exchange for
warrants and other consideration......... -- 1 (1,350) -- (1,349)
Exchange of subsidiary company stock for
parent company stock..................... -- -- 313 -- 313
Issuance of shares in connection with
purchase of business..................... -- 1 874 -- 875
------- ----- ------- ------- -------
BALANCE AT JUNE 30, 1996...................... -- 11 26,755 (172) 26,594
Net income.................................... -- -- -- 7,104 7,104
Net proceeds from public offering of 2,452,050
shares...................................... -- 2 30,089 -- 30,091
Stock options exercised....................... -- -- 706 -- 706
Issuance of shares in connection with
purchases of businesses..................... -- -- 1,537 -- 1,537
------- ----- ------- ------- -------
BALANCE AT JUNE 30, 1997...................... $ -- $ 13 $59,087 $ 6,932 $66,032
======= ===== ======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 8
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 7,104 $ 2,382 $ 2,889
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 2,579 1,638 1,399
Provision for doubtful accounts......................... 28 43 32
Deferred income taxes................................... 419 695 (959)
Noncash claim settlement................................ -- 2,732 --
Extraordinary charge.................................... -- 135 253
Restructuring........................................... -- -- 286
Changes in operating assets and liabilities (excluding
the effects of purchased businesses):
Trade receivables..................................... (10,890) (4,057) (2,338)
Inventories........................................... (12,174) (4,128) (986)
Prepaid expenses and other assets..................... (2,995) (3,032) (412)
Accounts payable and accrued expenses................. 10,373 4,930 4,369
Other liabilities..................................... 1,373 (12) (69)
-------- -------- --------
Net cash (used in) provided by operating
activities.......................................... (4,183) 1,326 4,464
INVESTING ACTIVITIES
Capital expenditures...................................... (16,015) (5,050) (1,530)
Purchase of short-term investments, net................... (4,075) -- --
Purchases of businesses................................... (14,960) (3,075) --
Investments in affiliates................................. (2,827) -- --
Use of net proceeds from public offering:
Capital expenditures.................................... (2,080) -- --
Investments in affiliates............................... (4,101) -- --
-------- -------- --------
Net cash used in investing activities............... (44,058) (8,125) (1,530)
FINANCING ACTIVITIES
Proceeds from revolving credit facility................... 92,001 10,580 24,630
Payments of revolving credit facility..................... (60,822) (8,192) (24,088)
Proceeds from long-term debt.............................. 16,775 22,362 1,726
Payments of long-term debt and capital leases............. (8,159) (19,453) (4,776)
Issuance of common stock.................................. 706 157 --
Redemption of common stock................................ -- (311) --
Borrowings for preferred stock redemption and dividends... -- -- 2,788
Redemption of preferred stock and dividends............... -- (1,100) (2,788)
Other..................................................... -- -- (59)
Net proceeds from public offering......................... 30,091 23,930 --
Use of net proceeds from public offering:
Payment of long-term debt............................... -- (3,350) --
Payment of revolving credit facility.................... (16,800) (4,429) --
Redemption of warrants.................................. -- (6,199) --
Payment of trade payables............................... (3,035) (4,447) --
Payment of note......................................... -- (1,541) --
Other................................................... -- (556) --
-------- -------- --------
Net cash provided by (used in) financing
activities.......................................... 50,757 7,451 (2,567)
-------- -------- --------
Increase in cash and cash equivalents....................... 2,516 652 367
Cash and cash equivalents, beginning of year................ 1,682 1,030 663
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 4,198 $ 1,682 $ 1,030
======== ======== ========
Supplemental Cash Flow Information:
Interest paid............................................. $ 1,375 $ 1,112 $ 1,688
Capitalized interest...................................... 455 98 9
Income taxes paid......................................... 81 375 280
Noncash transactions:
Equipment acquired through capital leases............... 1,683 149 145
Stock issued for purchases of businesses................ 1,537 1,188 --
Detail of acquisitions:
Assets acquired......................................... $ 23,033 $ 9,904 $ --
Liabilities assumed..................................... 6,142 5,546 --
Stock issued............................................ 1,537 1,188 --
-------- -------- --------
Cash paid............................................... 15,354 3,170 --
Less cash acquired.................................... 394 95 --
-------- -------- --------
Net cash paid for acquisitions.......................... $ 14,960 $ 3,075 $ --
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 9
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A. ORGANIZATION
Advanced Lighting Technologies, Inc. (the "Company") is an
innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including materials, system components, systems, and production
equipment.
The Company was formed on May 19, 1995 for the purpose of acquiring
ownership, primarily by merger (the "Combination"), of 17 affiliated operating
corporations that were previously under common ownership and management (the
"Predecessors"), each one of which is engaged in an aspect of the metal halide
lighting business. More specifically, the Combination was principally effected
through a series of nonmonetary mergers or stock exchanges in which the
shareholders of the former companies received shares of the Company. The
Combination has been accounted for as a reorganization of entities under common
control. Historical financial statements of each of the Predecessors for periods
prior to the Combination have been combined. Certain adjustments have been
recorded primarily to eliminate intercompany transactions that would have been
required had the Company been a consolidated entity during such periods.
B. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, after elimination of all significant
intercompany accounts and transactions and related revenues and expenses.
Investments in 50% or less owned companies and joint ventures over which the
Company has the ability to exercise significant influence are accounted for
under the equity method. All other investments and investments of less than 20%
are accounted for under the cost method.
Accounting Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect amounts reported in the
consolidated financial statements and notes. Actual results could differ from
those estimates.
Translation of Foreign Currency
The functional currency of consolidated subsidiaries outside of the United
States is the local currency. All assets and liabilities of foreign subsidiaries
are translated into United States dollars at year-end exchange rates while
revenues and expenses are translated at weighted-average exchange rates in
effect during the year. The resulting translation adjustments were not
significant in all years presented.
Cash Equivalents
The Company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Short-Term Investments
Short-term investments are recorded at fair market value, which
approximates cost.
F-7
<PAGE> 10
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risks consist primarily of temporary cash and cash equivalents,
short-term investments and trade receivables. The Company invests its excess
cash primarily in a high quality institutional money-market portfolio and high
quality securities and limits the amount of credit exposure to any one financial
institution.
The Company provides credit in the normal course of business, primarily
from major manufacturers and distributors in the lighting industry and,
generally, collateral or other security is not required. The Company conducts
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses which, when realized, have been within the range of
management's expectations. Credit risk on trade receivables is minimized as a
result of the large and diverse nature of the Company's worldwide customer base.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost of
self-constructed assets includes related materials, labor, overhead and
interest. Repair and maintenance costs are expensed as incurred.
Depreciation is computed for financial reporting purposes by the
straight-line method based on the estimated useful lives of the assets, both
those owned and under capital lease, as follows: buildings, 15 to 30 years;
machinery and equipment, 5 to 25 years; furniture and fixtures, 5 to 15 years;
and, leasehold improvements, the lease periods.
Intangible Assets
Intangible assets are amortized using the straight-line method over the
following lives:
<TABLE>
<S> <C>
Excess of cost over net assets acquired................... 15 -- 25 years
Patents, trademarks and tradenames........................ 3 -- 17 years
Other intangibles......................................... 7 -- 15 years
</TABLE>
The Company examines the carrying value of its intangible assets when
indicators of impairment are present. When the undiscounted cash flows are not
sufficient to recover the assets' carrying amount, an impairment loss would be
charged to expense in the period identified. No such event has been identified.
Accumulated amortization was $720 and $314 at June 30, 1997 and 1996,
respectively.
Revenue Recognition
Revenues from the sale of metal halide materials, system components (lamps,
power supplies, system controls, fiber optic cable) and systems are recognized
when products are shipped and production equipment revenues are recognized under
the percentage of completion method.
Advertising Expense
External costs incurred in providing media advertising and promoting
products are expensed the first time the advertising or promotion takes place.
Research and Development
Research and development costs, primarily the development of new products
and modifications of existing products, are charged to expense as incurred.
F-8
<PAGE> 11
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Stock Compensation Arrangements
The Company accounts for its stock compensation arrangements under the
provisions of APB Opinion No. 25 "Accounting for Stock Issued to Employees." The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting and Disclosure of Stock-Based
Compensation." These provisions require the Company to disclose pro forma net
income as if compensation expense related to grants of stock options were
recognized based on fair value accounting rules.
Financial Statement Presentation Changes
Certain amounts for prior years have been reclassified to conform to the
current year reporting presentation.
C. ACQUISITIONS
During fiscal 1997 and 1996, the Company completed the following business
combinations, all of which were accounted for by the purchase method and,
accordingly, results of operations for the acquired businesses have been
included in the consolidated statement of income from their respective dates of
acquisition. Assets acquired and liabilities assumed have been recorded at fair
value based on best estimates available. Pro forma financial information is not
presented because the impact is not significant to the results of operations.
On June 2, 1997, the Company purchased for approximately $8,500, the system
component manufacturing and operating assets of W. J. Parry & Co. (Nottingham)
Ltd. ("Parry"), a manufacturer and marketer of magnetic power supplies for high
intensity discharge lighting systems. The purchase price resulted in an excess
of cost over net assets acquired of $1,121, which is being amortized over 25
years.
On February 11, 1997, the Company acquired the outstanding shares of
Ballastronix, Inc., a company focused on designing, manufacturing and marketing
of electromagnetic power supplies for metal halide lighting systems. The
purchase price consisted of $5,511 in cash and 38,024 shares of the Company's
Common Stock (valued at $562). The purchase price resulted in an excess of cost
over net assets acquired of $2,018 which is being amortized over 25 years.
On January 31, 1997, the Company completed the purchase of certain assets
of Web Design Associates, Inc., a company engaged in consumer product design and
development for approximately $600 in cash. The purchase price resulted in an
excess of cost over net assets acquired of $526, which is being amortized over
15 years.
During December 1996, the Company acquired all the assets (and assumed
certain liabilities) of Cable Lite Corporation in exchange for 50,000 shares of
the Company's Common Stock (valued at $975), with up to an additional 50,000
shares of Common Stock contingently issuable if the per share market price of
the Company's stock is less than $30.00 during the month of June 1998. The
purchase price resulted in an excess of cost over net assets acquired of $1,073,
which is being amortized over 25 years. Advanced Cable Lite Corporation designs,
manufactures and sells fiber optic and fiber optic lighting systems.
On June 28, 1996, the Company acquired the net assets of Venture Lighting
Australia Pty Ltd ("VLA"), a leading lamp marketing organization in Australia,
for $100 and 76,923 shares of the Company's Common Stock (valued at $875). VLA
has been the exclusive agent for the Company's products in Australia since 1987.
The purchase resulted in an excess of cost over net assets acquired of $1,698,
which is being amortized over 20 years.
On March 25, 1996, the Company acquired the net assets of Spectro Electric,
Inc., ("Spectro") for $1,636 and 34,783 shares of the Company's Common Stock
(valued at $500). Spectro (renamed Advanced Lighting Technologies, Canada, Inc.)
distributes the Company's products in the Canadian market and has facilities in
Toronto, Vancouver, Calgary and Montreal. The purchase resulted in an excess of
cost over net assets acquired of $72, which is being amortized over 20 years.
F-9
<PAGE> 12
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
On February 5, 1996, the Company acquired the net assets of Current
Industries, Inc. ("Current") of Oceanside, New York for $1,689. Current designs,
manufacturers and markets specialized electrical and electromagnetic lighting
control systems used in metal halide and other high intensity discharge lighting
systems. The purchase resulted in an excess of cost over net assets acquired of
$1,456, which is being amortized over 25 years.
On July 1, 1995, and February 9, 1996 the Company acquired all of the
outstanding common stock of Venture Lighting-UK ("VLI-UK"), for 50,000 shares of
the Company's Common Stock (valued at $313). VLI-UK was the exclusive
distributor of the Company's products in the United Kingdom. The purchase
resulted in an excess of cost over net assets acquired of $675, which is being
amortized over 20 years.
D. INVESTMENT IN JOINT VENTURE
On April 2, 1997, the Company invested approximately $3,800 of cash in
exchange for a 30% interest in Koto Luminous Co., Ltd. ("Koto"), the Company's
sole agent in Japan. Subsequent to the date of investment, Koto, a marketer and
distributor of metal halide lamps, began doing business under the name Venture
Lighting Japan. Using the proceeds of the investment and an additional
investment by an affiliate, Venture Lighting Japan will equip and operate a
metal halide lamp manufacturing facility in Japan, which is expected to be
operational in October 1997. The Company accounts for this investment under the
cost method.
E. CONSUMER PRODUCT ADVERTISING COSTS
In connection with the Company's metal halide lamp systems for the
residential and consumer markets, beginning with the sale of portable lamps in
March 1997, the Company implemented a direct marketing program which resulted in
$398 of advertising and promotion costs, which have been included in the loss
from discontinued operations during the fourth quarter of fiscal 1997.
F. FIBER OPTICS JOINT VENTURE FORMATION COSTS
On May 6, 1997, the Company entered into a joint development agreement with
Rohm and Haas Company ("Rohm and Haas"), for the development of advanced fiber
optic cable systems using metal halide lamps. The Company is presently
negotiating with Rohm and Haas to form a joint venture focused on the
manufacture and sale of fiber optic cable and illuminators and fiber optic
lighting systems. No assurance can be given that the negotiations will be
successfully completed, that the joint venture will be formed or that the joint
venture, if formed, will successfully develop or commercialize products. If the
expected joint venture is formed, the Company will contribute $5,000 cash, its
subsidiary, Advanced Cable Lite Corporation, and other fiber optic system
assets. In connection with this proposed joint venture, the Company incurred
$286 of formation and development costs which were charged to operations during
the fourth quarter of fiscal 1997.
G. FINANCING ARRANGEMENTS
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------
1997 1996
------ ------
<S> <C> <C>
Multioption credit facility................................. $ 711 $ 790
Trade facility.............................................. 253 --
Revolving line of credit.................................... 1,391 --
------ ------
2,355 790
Current portion of long-term debt........................... 1,376 182
------ ------
$3,731 $ 972
====== ======
</TABLE>
F-10
<PAGE> 13
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In June 1996, the Company on behalf of a foreign subsidiary, entered into a
multioption credit facility with a foreign bank that provides a short-term
credit line of $1,200 and is collateralized with certain operating assets
($3,128 at June 30, 1997) and a $750 standby letter of credit. Amounts borrowed
and related interest are payable quarterly. The foreign bank also provides a
trade facility which allows the foreign subsidiary to issue documentary letters
of credit for imports and term-trade finance for importing its inventory. The
interest rate of this facility varies, depending upon the denomination of the
currency advanced. The weighted average interest rate on the multioption credit
facility was 9.33% and 7.89% during fiscal 1997 and fiscal 1996. The weighted
average interest rate of the trade facility was 7.58% during fiscal 1997.
A newly-acquired foreign subsidiary of the Company entered into a revolving
line of credit agreement with a bank, prior to acquisition, to finance its
working capital needs. This facility allows the subsidiary to borrow an amount
that approximates $2,900. The agreement matured at June 30, 1997, but the bank
agreed to extend the borrowing on a month-to-month basis. The bank has the right
to cancel any unutilized portion available under the agreement at any time.
Advances under the facility bear interest at the bank's prime rate plus 0.5% per
annum. During fiscal 1997, the weighted average interest rate incurred on the
revolving loan facility was 5.25%.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
------- --------
<S> <C> <C>
Revolving credit and security agreements.................... $24,754 $ 9,924
Term note................................................... 8,000 --
Mortgage notes payable...................................... 2,499 985
Obligations under capital leases............................ 1,598 195
Other....................................................... 433 112
------- --------
37,284 11,216
Less current portion...................................... 1,376 182
------- --------
$35,908 $ 11,034
======= ========
</TABLE>
In July 1997, the Company repaid approximately $33,000 of amounts then
outstanding under the Revolving Credit and Security Agreements, as amended, and
a portion of the Term Note using proceeds from a Common Stock offering completed
in July 1997. Excluding the July 1997 amounts repaid, the aggregate maturities
of long-term debt (including capital lease obligations) for the five fiscal
years subsequent to June 30, 1997, were as follows: 1998 -- $1,376;
1999 -- $713; 2000 -- $1,115; 2001 -- $689; and 2002 -- $502.
In March 1996, the Company entered into a three-year domestic Revolving
Credit and Security Agreement (the "Loan Agreement") with a bank. The Loan
Agreement permits working capital advances to the Company in aggregate amounts
equal to the lesser of: (i) $25,000 less the current outstanding amount of the
advances under the Capex Facility (defined below) (the "Maximum Revolving Loan
Amount") or (ii) an amount based on eligible receivables and inventory (the
"Working Capital Facility"). The unpaid principal balance of the Working Capital
Facility (together with accrued interest thereon) is payable in March 1999.
Advances under the Working Capital Facility bear interest at the option of the
Company at a rate per annum (the "Working Capital Interest Rate") equal to: (i)
the higher of (a) the prime rate minus 0.5% or (b) the Federal Funds Rate; or
(ii) the average LIBOR plus 2.5%. Under the terms of the Loan Agreement, the
bank may make advances in excess of the applicable percentages of eligible
receivables and inventory, provided that, if such excess amounts remain
outstanding for five or more days in any calendar month, all outstanding
advances bear interest at the Working Capital Interest Rate plus 0.5% for such
month. At June 30, 1997, the interest rate of the Working Capital Facility was
8.00%.
The Company is able to obtain advances under the Loan Agreement up to
$5,000 to permit the Company to finance permitted capital expenditures (the
"Capex Facility"), which bear interest at a rate per annum equal to the
F-11
<PAGE> 14
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
higher of (a) the prime rate plus 0.5% or (b) the Federal Funds Rate plus 1.0%.
The unpaid principal balance of the Capex Facility (together with accrued
interest thereon) is payable in March 1999. The bank has also agreed to issue
letters of credit in an amount of up to $5,000, at anytime, provided the
outstanding letters of credit and working capital advances do not exceed the
Maximum Revolving Loan Amount. At June 30, 1997 no amounts were outstanding
under the Capex Facility, and $4,234 was available through letters of credit.
In July 1996, a foreign subsidiary of the Company entered into a similar
Revolving Credit and Security Agreement with a foreign affiliate of the bank
(the "Foreign Loan Agreement"). Pursuant to the Foreign Loan Agreement, the bank
has agreed to extend working capital advances in the aggregate amount equal to
the lesser of (i) the United States dollar equivalent of approximately $3,000 in
the local currency (Canadian dollars) or (ii) an amount based on eligible
receivables and inventory. All amounts advanced under the Foreign Loan Agreement
reduce, by the United States dollar value of outstanding amounts, the Maximum
Revolving Loan Amount available to the Company under the Loan Agreement. The
unpaid principal balance of the Foreign Loan Agreement (together with accrued
interest thereon) is payable in March 1999. Advances under the Foreign Loan
Agreement bear interest at the rate per annum set at a formula intended to
approximate that of the Loan Agreement.
The provisions of the Loan Agreement contain certain restrictive covenants
concerning the incurrence of indebtedness and liens, capital expenditures,
investments, guarantees of the indebtedness of others, providing loans to
others, the sale of assets, and prohibit the payment of dividends. In addition,
the Company must maintain certain working capital, leverage, cash flow, debt,
and tangible net worth ratios.
In February 1997, the Company borrowed $8,400, for its acquisition of
Parry, under a twenty-six month term note from the same bank that provided the
Revolving Credit and Security Agreement. Interest accrues on the note at a rate
equal to the higher of the prime rate or 0.5% over the Federal Funds Rate (rate
approximated 8.5% at June 30, 1997). The Company pays monthly principal
installments of $100 plus accrued interest for the first 25 months of the loan
term with a final payment of $5,900 plus accrued interest due March 24, 1999.
The Company leases certain equipment under agreements which are classified
as capital leases. The lease agreements have varying terms and the leased
assets, with a net carrying value of $1,819 at June 30, 1997, are included in
the consolidated balance sheet as machinery and equipment.
Mortgages payable consisted of six separate notes at various rates of
interest, ranging from 7.5% to 9.75%, and at June 30, 1997 were collateralized
by land and buildings with a net carrying value of $4,405.
During fiscal 1996, the company recorded an extraordinary loss of $135 (net
of applicable income tax benefits of $91) for the write-off of deferred
financing costs related to the early extinguishment of debt. In October 1994,
the Company refinanced certain of its borrowings, which resulted in an
extraordinary loss on the early extinguishment of debt of $253 (net of
applicable income tax benefits of $168).
The fair value of debt, based on market rates and maturity dates,
approximates carrying value. Debt issuance costs, classified with other assets,
are being amortized over the terms of the related debt.
H. SHAREHOLDERS' EQUITY
Shareholders' Equity
The Company's authorized capital stock consists of 80 million shares of
Common Stock having a par value of $.001 per share and 1 million shares of
preferred stock having a par value of $.001 per share. At June 30, 1997 and
1996, there were 13,435,394 and 10,844,659 shares of Common Stock issued and
outstanding, respectively, and no shares of preferred stock were issued and
outstanding.
On July 1, 1997, the Company issued 3,000,000 shares of its Common Stock in
a public offering at $24.75 a share. Net proceeds, after offering costs,
amounted to approximately $70,530, of which $33,000 was used to pay
F-12
<PAGE> 15
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
down existing bank debt and $2,835 was used for the purchase of 630,111 shares
of the common stock of Fiberstars, Inc., increasing the Company's ownership to
19.6% of Fiberstars. The remainder of the net proceeds will be used for capital
expenditures and general corporate purposes, including investments in joint
ventures.
On July 16, 1996, the Company issued 2,452,000 shares of its Common Stock
in a public offering at $13.50 a share. Net proceeds, after offering costs,
amounted to $30,091.
On December 12, 1995, the Company completed an initial public offering and
issued 2,900,000 shares of its Common Stock. Prior to the initial public
offering, shares of the Predecessors were exchanged for 7,281,849 shares of
Common Stock of the Company; and 535,887 shares were issued to a warrant holder
in exchange for the warrants. During 1996, the Company issued 126,923 shares of
Common Stock in connection with certain acquisitions, and at June 30, 1997,
34,783 shares of Common Stock were issuable in connection with an acquisition.
The common stock authorized, issued and outstanding as of June 30, 1995
represents the aggregate of the Predecessors' common stocks. The shares
authorized, issued and outstanding of the individual issues of common stock of
the Predecessors are not presented as the information is not meaningful. At June
30, 1995, the Company had 892,500 preferred shares outstanding (without par
value). In August 1995, the Company redeemed such preferred shares for $1,012.
Employee Stock Options
The Company's 1995 Incentive Award Plan provides for granting of "A" and
"B" incentive stock options to purchase common stock of the Company. The "A"
options become exercisable over one-to-five years from the date of grant
depending on the Company's operating performance. The "B" options become
exercisable at the rate of 25% after one year, 35% after two years, and 40%
after three years. All "A" and "B" options have been granted at market value on
the date of grant and expire ten years from the date of grant. At June 30, 1997,
the Company had 949,339 shares reserved for future issuance upon exercise of
stock options granted under the Incentive Award Plan.
Information related to stock options at June 30 under the Incentive Award
Plan follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- ------ ------- ------
<S> <C> <C> <C> <C>
Outstanding, beginning of year......................... 791,850 $12.33 -- --
Granted................................................ 228,150 19.73 814,350 $12.26
Exercised.............................................. (50,661) 10.32 -- --
Forfeited.............................................. (55,125) 10.63 (22,500) 10.00
------- -------
Outstanding, end of year............................... 914,214 14.38 791,850 12.33
======= =======
Weighted-average fair value of options granted during
the year............................................. $ 6.62 -- $ 3.77 --
</TABLE>
F-13
<PAGE> 16
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table summarizes additional information concerning
outstanding and exercisable options at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------------------------------ ------- --------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
$10.00 to 16.00........................... 439,827 8.9 years $10.09 59,377 $10.05
16.00 to 23.00........................... 474,387 9.3 years 18.36 61,800 17.00
------- -------
914,214 121,177 13.60
======= =======
</TABLE>
If the Company had elected to report compensation expense for the Incentive
Award Plan based on the fair value at the grant dates for all awards consistent
with the methodology prescribed by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", net income and earnings per
share would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1997 1996
------ ------
<S> <C> <C>
Net income as reported.............................. $7,104 $2,382
Pro forma........................................... 6,540 2,208
Diluted earnings per share as reported.............. $ .52 $ .11
Pro forma .48 .09
</TABLE>
The fair values of the stock options used to calculate the pro forma net
income and pro forma earnings per share were estimated using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in fiscal 1997 and 1996, respectively: expected volatility of 30% and
25%, risk-free interest rates of 6.41% and 6.06%, and expected lives of 4 years
in both periods with no dividend yield.
I. REDEEMABLE STOCK PURCHASE WARRANTS
Warrants issued in connection with a financing entered into during 1994
were redeemed in December 1995 for $3,000 plus 5.0% of the Company's then
existing common stock. Warrants issued in connection with a financing entered
into during 1990 were redeemed by the Company for $3,199 in March 1996.
J. INCOME TAXES
Income before income taxes and extraordinary charges were attributable to
the following sources:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
United States...................................... $ 9,548 $3,291 $3,354
Foreign............................................ 877 341 --
------- ------ ------
Total.............................................. $10,425 $3,632 $3,354
======= ====== ======
</TABLE>
The provision for income taxes is computed using the liability method and
is based on applicable federal and state statutory rates adjusted for permanent
differences between financial and taxable income.
F-14
<PAGE> 17
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Income taxes from continuing operations have been provided as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................... $1,545 $ (83) $ 776
State and local....................................... 550 281 160
Foreign............................................... 355 72 --
------ ------ ------
2,450 270 936
Deferred:
Federal............................................... 313 485 (538)
State and local....................................... 149 167 (186)
Foreign............................................... (43) 43 --
------ ------ ------
419 695 (724)
------ ------ ------
Income taxes from continuing operations............... $2,869 $ 965 $ 212
====== ====== ======
</TABLE>
The income tax provision for periods prior to the Combination has been
calculated as if the Company filed a consolidated tax return.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets and
liabilities at June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,536 $2,882
AMT carryforward.......................................... 262 208
Payroll-related and other accrued expenses................ 768 630
Other..................................................... 535 304
------- ------
3,101 4,024
Deferred tax liabilities:
Depreciation.............................................. 2,989 3,380
Other..................................................... 1,238 203
------- ------
4,227 3,583
------- ------
Net deferred tax assets (liabilities) before valuation
allowance................................................. (1,126) 441
Valuation allowance......................................... -- (276)
------- ------
Net deferred tax assets (liabilities)....................... $(1,126) $ 165
======= ======
</TABLE>
F-15
<PAGE> 18
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory rate.............................................. 35.0% 35.0% 35.0%
State and local income taxes net of federal benefit......... 3.6 9.2 1.0
Net operating loss carryforwards............................ (2.8) (56.4) (31.0)
Adjustment of deferred tax liabilities...................... (10.9) -- --
Nondeductible settlement of a claim......................... -- 30.9 --
Other....................................................... 2.6 7.8 1.3
----- ----- -----
Effective tax rate.......................................... 27.5% 26.5% 6.3%
===== ===== =====
</TABLE>
Income taxes paid (net of refunds) pertaining to both continuing and
discontinued operations were $81 in 1997, $375 in 1996 and $280 in 1995.
At June 30, 1997, the Company had United States net operating loss
carryforwards ("NOLs") for tax purposes of approximately $4,500 to offset future
taxable income. These NOLs expire in the fiscal years 2006 through 2011.
Alternative minimum tax paid through June 30, 1997 of $262 is available as a
credit with an unlimited carryforward period.
K. EMPLOYEE BENEFITS
The Company has defined contribution elective savings and retirement plans
that cover substantially all full-time employees in its domestic and foreign
subsidiaries. The Company matches the contributions of participating employees
on the basis of the percentages specified in the respective plans, ranging from
1% to 2% of eligible employee earnings. Contributions charged to income for the
defined contribution plans were $373 in fiscal 1997 and $250 in each of fiscal
1996 and fiscal 1995.
L. SETTLEMENT OF A CLAIM
On March 1, 1996, a former common shareholder of a Predecessor asserted a
claim in the United States District Court for the Northern District of Ohio
against the Chief Executive Officer and a director of the Company, and the
Executive Vice President and a director of the Company, and subsequently, a
claim against the Company. The claim alleged that certain misrepresentations
and/or omissions were made to the former common shareholder in connection with:
(i) the Company's purchase of his equity interest effected by a merger of a
Predecessor into the Company, as to which the former common shareholder waived
his statutory appraisal rights and (ii) the purchase by the Chief Executive
Officer of the former common shareholder's beneficial interest in a trust
controlled by the Chief Executive Officer. The former common shareholder alleged
that the misrepresentations and/or omissions caused direct damages which
exceeded $900. The suit also claimed punitive damages in an undetermined amount
believed by the former common shareholder to exceed $2,700. On August 23, 1996,
another former common shareholder filed similar claims against the Chief
Executive Officer and Executive Vice President and the Company seeking direct
damages of $400 and punitive damages of $1,200. The Chief Executive Officer, the
Executive Vice President and the Company denied all of the allegations and
vigorously defended against the claims.
On November 29, 1996, the Company, the Chief Executive Officer and the
Executive Vice President reached an out-of-court settlement of both former
common shareholders' claims. The charge of $771 represents the settlement of
$475 plus legal and other directly-related costs, net of insurance recoveries.
F-16
<PAGE> 19
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. NONCASH SETTLEMENT OF CLAIM
On October 27, 1995, several former preferred shareholders of the Company's
lamp manufacturing subsidiary, whose shares were redeemed in August 1995 (prior
to the Combination), asserted a claim against certain officers of the Company.
On November 15, 1995, such officers entered into a settlement agreement with the
former preferred shareholders, whereby such officers and certain other
shareholders transferred, from their personal holdings, an aggregate of 273,185
shares of the Company's common stock to the former preferred shareholders. Since
the settlement resulted in a transfer of personal shares held by such officers,
there was no dilution of the ownership interest of shareholders of the Company.
The settlement was recorded as a noncash expense and paid-in-capital of the
Company.
N. RESTRUCTURING CHARGES
In June 1994, one of the Company's subsidiaries provided for the costs,
principally inventory and equipment write-downs, to exit its nonlamp product
line. During 1995, the disposition plan was revised resulting in a reduction of
$121 in the estimated costs to exit the nonlamp product line. During 1996, the
assets of the nonlamp product line were sold to an affiliate of the Company for
an amount equal to the carrying amount of such assets as of June 30, 1995. As of
June 30, 1996 and 1997, the Company has an 8.5% note from the affiliate for $220
related to the sale of the assets of the nonlamp product line which is recorded
as a long-term receivable from related parties in the consolidated balance
sheet.
F-17
<PAGE> 20
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
O. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (FAS) No. 128, "Earnings per Share." FAS No.
128 replaced the previously reported primary and fully-diluted earnings per
share with basic earnings per share and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options. Diluted earnings per share is very similar to the previously
reported fully-diluted earnings per share. The Company adopted FAS No. 128 in
the second quarter of 1998. Prior year amounts have been restated to comply with
FAS No. 128.
Basic and dilutive earnings per share is computed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income available to common shareholders:
Income from continuing operations......................... $ 7,556 $ 2,667 $ 3,142
Less: Preferred stock dividends (1)....................... -- -- 58
Increase in warrants' value (2)........................ -- 1,350 2,302
------- ------- -------
Income from continuing operations attributable to common
shareholders........................................... $ 7,556 $ 1,317 $ 782
======= ======= =======
Net income................................................ $ 7,104 $ 2,382 $ 2,889
Less: Preferred stock dividends (1)....................... -- -- 58
Increase in warrants' value (2)........................ -- 1,350 2,302
------- ------- -------
Net income attributable to common shareholders............ $ 7,104 $ 1,032 $ 529
======= ======= =======
Weighted average shares:
Basic:
Outstanding at beginning of period..................... 10,844 7,282 7,282
Issued pursuant to public offering..................... 2,327 1,601 --
Issued upon conversion of warrant...................... -- 296 --
Issued in acquisitions................................. 41 -- --
Issued for exercise of stock options................... 22 -- --
Issued during the period in exchange of subsidiary
stock................................................. -- 20 --
Issuable in connection with an acquisition............. 35 8 --
------- ------- -------
Basic weighted average shares........................ 13,269 9,207 7,282
======= ======= =======
Diluted:
Basic from above....................................... 13,269 9,207 7,282
Effect of options...................................... 289 272 536
------- ------- -------
Diluted weighted average shares...................... 13,558 9,479 7,818
======= ======= =======
Earnings (loss) per share:
Basic:
Income from continuing operations...................... $ .57 $ .14 $ .11
Loss from discontinued operations...................... (.03) (.02) --
Extraordinary charge................................... -- (.01) (.04)
------- ------- -------
Earnings per share--Basic.............................. $ .54 $ .11 $ .07
======= ======= =======
Diluted:
Income from continuing operations...................... $ .55 $ .14 $ .10
Loss from discontinued operations...................... (.03) (.02) --
Extraordinary charge................................... -- (.01) (.03)
------- ------- -------
Earnings per share--Diluted............................ $ .52 $ .11 $ .07
======= ======= =======
</TABLE>
- ---------------
(1) The preferred stock dividends represent cumulative dividends in arrears. No
dividends were declared on the preferred stock in any of the years
presented. The cumulative dividends in arrears were paid to the preferred
shareholders when the related preferred shares were redeemed in October
1994.
(2) The warrants were redeemed in fiscal 1996.
F-18
<PAGE> 21
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
P. RELATED PARTY TRANSACTIONS
Prior to the initial public offering, management fees paid by the Company
to an affiliate were $764 in fiscal 1996 and $831 in fiscal 1995.
During January 1996, the Company entered into a six-year Aircraft Operating
Agreement ("Agreement") with an unrelated company to charter an airplane for
service into locations which are not adequately served by commercial carriers.
The unrelated company leases the airplane from an affiliate of the Company owned
by certain officers of the Company. These officers have guaranteed the repayment
of $1.7 million of indebtedness incurred by the affiliate to purchase the
airplane. The Company's minimum annual commitments under the Agreement are $261.
Fees paid by the Company under this agreement were $554 in fiscal 1997 and
$244 in fiscal 1996.
The Company paid a director of the Company $79 during fiscal 1997 and $100
in fiscal years 1996 and 1995 for consulting services.
The Company sold lamps, lamp components, and lamp production equipment to
an overseas company aggregating $3,853 in fiscal 1997, $2,363 in fiscal 1996 and
$650 in fiscal 1995. An executive officer and director of the overseas company
became a Director of the Company in January 1996.
Q. COMMITMENTS
The Company leases buildings and certain equipment under noncancelable
operating lease agreements. Total rent expense was $1,478 in 1997, $893 in 1996
and $613 in 1995. Future minimum lease commitments, as of June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
YEAR:
-----
<S> <C>
1998.................................................... $1,645
1999.................................................... 1,495
2000.................................................... 1,293
2001.................................................... 1,169
2002.................................................... 785
Thereafter.............................................. 687
------
Minimum lease
payments $7,074
======
</TABLE>
Estimated costs to complete construction in progress at June 30, 1997 were
$3,593.
F-19
<PAGE> 22
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL 1997
------------------------------------------
JUN 30(a) MAR 31 DEC 31(d) SEP 30
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales...................................... $25,354 $22,034 $19,948 $18,309
Gross profit................................... 11,997 10,232 9,330 8,383
Income from operations......................... 3,596 3,202 1,874 2,421
Income from continuing operations before
extraordinary charge......................... 2,812 1,970 1,212 1,562
Loss from discontinued operations, net of
income tax benefits.......................... (211) (88) (61) (92)
Net income..................................... $ 2,601 $ 1,882 $ 1,151 $ 1,470
======= ======= ======= =======
Earnings per share--Basic...................... $ .19 $ .14 $ .09 $ .11
======= ======= ======= =======
Earnings per share--Diluted.................... $ .19 $ .14 $ .08 $ .11
======= ======= ======= =======
Price Range of Common Stock:
High......................................... $26.500 $27.250 $25.250 $19.875
Low.......................................... $19.000 $22.000 $16.375 $13.125
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL 1996
------------------------------------------
JUN 30 (b) MAR 31 DEC 31(d) SEP 30
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales...................................... $17,341 $13,786 $12,037 $11,472
Gross profit (b)............................... 8,133 6,382 5,615 5,342
Income (loss) from operations (b).............. 2,265 1,923 (851) 1,611
Income (loss) from continuing operations before
extraordinary charge......................... 1,627 1,516 (1,400) 924
Loss from discontinued operations, net of
income tax benefits.......................... (68) (29) (53) --
Income (loss) before extraordinary charge...... 1,559 1,487 (1,453) 924
Net income..................................... $ 1,559 $ 1,455 $(1,556) $ 924
======= ======= ======= =======
Basic earnings (loss) per share:
Before extraordinary charge.................. $ .14 $ .14 $ (.35) $ .13
Extraordinary charge......................... -- (.00) (.01) --
------- ------- ------- -------
Basic earnings (loss) per share................ $ .14 $ .14 $ (.36) $ .13
======= ======= ======= =======
Diluted earnings (loss) per share:
Before extraordinary charge.................. $ .14 $ .14 $ (.33) $ .12
Extraordinary charge......................... -- (.00) (.01) --
------- ------- ------- -------
Diluted earnings (loss) per share.............. $ .14 $ .14 $ (.34) $ .12
======= ======= ======= =======
Price Range of Common Stock:
High...................................... $18.125 $14.375 $10.188 (c)
Low....................................... $12.625 $ 8.500 $10.000 (c)
</TABLE>
- ---------------
(a) Fourth Quarter 1997 -- Net income was increased by $1,000 for a change in
accounting estimate related to income taxes.
(b) Fourth Quarter 1996 -- Capitalization of overhead variances increased gross
profit and income from operations by approximately $300.
(c) Second Quarter 1996 -- The Company completed its initial public offering on
December 12, 1995.
(d) See Notes L and M regarding claims settlements.
F-20
<PAGE> 23
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
S. INDUSTRY SEGMENT AND GEOGRAPHIC FINANCIAL AREA INFORMATION
The Company operates in a single industry, on a global basis: the design,
manufacture and sales of metal halide lighting products including materials,
components, systems and production equipment.
Information concerning the Company's operations in different geographic
areas at June 30, 1997 and for the year then ended follows:
<TABLE>
<CAPTION>
NORTH UNITED OTHER
AMERICA KINGDOM FOREIGN ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers........ $ 74,095 $ 5,786 $5,764 $ -- $ 85,645
Transfers between geographic areas......... 3,424 -- -- (3,424) --
-------- ------- ------ -------- --------
Net sales.................................. $ 77,519 $ 5,786 $5,764 $ (3,424) $ 85,645
======== ======= ====== ======== ========
Operating profit........................... $ 10,811 $ 347 $ 270 $ (335) $ 11,093
Identifiable assets........................ 130,363 14,937 4,895 (15,357) 134,838
</TABLE>
- ---------------
The information presented above may not be indicative of the results of
operations if the geographic areas were independent organizations. Transfers
between geographic areas and other geographic transactions are made at
established transfer prices. Operating profit by geographic segment is net sales
less operating costs, excluding interest and income taxes. Net sales generated
by the foreign operations or identifiable assets of foreign operations were less
than 10% of related consolidated totals for fiscal 1996 and 1995.
Export sales from the Company's United States operations, which did not
exceed 10% of consolidated sales to any individual country, amounted to $16,696,
$12,129 and $6,442 in fiscal 1997, 1996 and 1995, respectively.
In fiscal 1997 and fiscal 1995 no single customer accounted for 10% or more
of the Company's net sales, while approximately $5,689, or 10%, of fiscal 1996
net sales were made to one customer.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Reporting Disaggregated Information
about a Business Enterprise". The statement requires a "management" approach to
reporting financial and descriptive information about a Company's operating
segments. The Company must adopt this statement in the first quarter of fiscal
1999. Management is currently studying the potential effect of adopting this
statement.
T. SUBSEQUENT EVENTS
In July 1997, the Company issued 3,000,000 shares of its Common Stock in a
public offering. A portion of the net proceeds from this offering were used to
repay substantially all amounts outstanding under its Revolving Credit and
Security Agreement and its $8,400 term note. The early extinguishment of this
debt will result in an extraordinary charge against the first quarter fiscal
1998 earnings of approximately $500 net of applicable estimated income tax
benefits.
In September 1997, the Company announced the signing of a letter of intent
to acquire Ruud Lighting, Inc. for $35,500 and 3 million shares of the Company's
Common Stock. The Company intends to complete this acquisition through a
combination of available cash from its July 1997 offering and additional bank
financing.
U. DISCONTINUED OPERATIONS, SPIN-OFF OF MICROSUN BUSINESS
In March 1998, the Company approved a plan to distribute to its
shareholders all of the ownership of Microsun Technologies, Inc., a wholly-owned
subsidiary responsible for development, design, assembly, marketing and
distribution of metal halide portable fixtures for residential and hospitality
uses, in a spin-off
F-21
<PAGE> 24
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
transaction which is expected to be tax-free. The Company believes the spin-off
will enable the Company and MicroSun to devote the resources necessary to
develop their individual core strategies in pursuit of their unique growth
objectives.
Summary operating information for MicroSun for the years ended June 30,
1997 and 1996, is presented below for informational purposes only and does not
necessarily reflect what the results of operations would have been had MicroSun
operated as a stand-alone entity.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
---------------
1997 1996
------ -----
<S> <C> <C>
Sales....................................................... $ 845 $ --
Costs and expenses.......................................... 1,469 205
------ -----
Loss before income taxes.................................... 624 205
Income tax benefit.......................................... 172 55
------ -----
Net loss.................................................... $ (452) $(150)
====== =====
</TABLE>
The estimated date of disposition extends to December 31, 1998 pending the
determination of the spin-off as tax-free. As a result of the Board of
Directors' approval to spin-off the MicroSun business, the consolidated
financial statements of ADLT have been adjusted and restated to reflect the
results of operations of MicroSun as a discontinued operation in accordance with
generally accepted accounting principles.
F-22
<PAGE> 25
UNAUDITED PRO FORMA FINANCIAL DATA
The accompanying unaudited pro forma condensed combined financial data for
the Company are presented for illustrative purposes only.
The unaudited pro forma condensed combined statements of operations for the
year ended June 30, 1997, and the nine months ended March 31, 1998, give effect
to the acquisition of Ruud Lighting, Inc. ("Ruud Lighting") and the issuance of
the Company's 8% Senior Notes due 2008 (the "Notes") as if the Ruud Lighting
acquisition and the issuance of the Notes had occurred on July 1, 1996. The
unaudited pro forma condensed combined statement of operations for the year
ended June 30, 1997 includes amounts derived from the audited consolidated
statement of operations of the Company and the unaudited statement of operations
of Ruud Lighting for the year ended June 30, 1997 and pro forma adjustments to
reflect the Ruud Lighting acquisition and the issuance of the Notes. The
unaudited pro forma condensed combined statement of operations for the nine
months ended March 31, 1998 includes the unaudited condensed consolidated
statement of operations of the Company for the nine months ended March 31, 1998
and the unaudited statement of operations of Ruud Lighting for the six months
ended December 31, 1997 and pro forma adjustments to reflect the Ruud Lighting
acquisition and the issuance of the Notes.
The pro forma results are not necessarily indicative of the results of
operations of the Company had the Ruud Lighting acquisition and the issuance of
the Notes taken place at the beginning of the respective periods or of future
results of the combined companies. The allocation of the purchase price is
preliminary. Final amounts could differ from those reflected in the pro forma
condensed statements of operations, and such differences could be significant.
Upon final determination, the purchase price will be allocated to the assets and
liabilities acquired based on fair value as of the date of the acquisition.
2
<PAGE> 26
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------
HISTORICAL PRO FORMA
------------------------- -----------------------
COMPANY RUUD LIGHTING ADJUSTMENTS COMBINED
-------- ------------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................................... $110,891 $ 37,142 $ (981)a $147,052
Costs and expenses:
Cost of sales............................. 66,241 25,492 (981)a 90,265
(487)b
Marketing and selling..................... 16,854 3,497 20,351
Research and development.................. 6,069 1,057 7,126
General and administrative................ 7,307 3,914 (281)b 10,940
Fiber optic joint venture formation
costs.................................. 212 212
Purchased in-process research and
development............................ 18,220 18,220
Special charges........................... 15,700 15,700
Amortization of intangible assets......... 930 737 c 1,667
-------- -------- -------- --------
Income (loss) from operations............... (20,642) 3,182 31 (17,429)
Other income (expense):
Interest expense.......................... (1,649) (335) (4,501)d (6,485)
Interest income........................... 1,079 1,079
Loss from equity investment............... (2) (2)
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes....................... (21,214) 2,847 (4,470) (22,837)
Income taxes................................ 918 -- (1,792)e 268
1,142 f
-------- -------- -------- --------
Income (loss) from continuing operations.... $(22,132) $ 2,847 $ (3,820) $(23,105)
======== ======== ======== ========
Loss per share -- basic and diluted:
Loss from continuing operations........... $ (1.26) $ (1.32)
======== ========
Shares used for computing per share amounts
Basic and diluted:........................ 17,540 17,540
======== ========
</TABLE>
- ---------------
Pro forma adjustments were made to reflect the following:
a. Elimination of Company sales to Ruud Lighting.
b. Decrease in depreciation expense relating to Ruud Lighting's property, plant
and equipment based on estimated fair values over estimated useful lives.
c. Amortization of intangibles, such as tradename and customer service
infrastructure, and excess of cost over net assets of businesses acquired
("goodwill") related to the Ruud Lighting acquisition on a straight-line
method over 40 years.
d. Adjustments to interest expense resulting from the following:
<TABLE>
<S> <C>
Elimination of interest expense relating to the Company's
existing bank debt, excluding mortgage debt, assumed to be
paid in full with the proceeds of the offering of the
Notes....................................................... $ 1,762
Interest charges on the debt resulting from the issuance of
the Notes................................................... (6,000)
Amortization of estimated debt issuance costs of $3,500 over
the ten year life of the Notes.............................. (263)
-------
Net increase in interest expense.................. $(4,501)
=======
</TABLE>
e. Reduction of income taxes relating to the pro forma adjustments.
f. Income tax provision on Ruud Lighting's income before income taxes not
included in the historical condensed combined statement of income as Ruud
Lighting was a Subchapter S corporation.
3
<PAGE> 27
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1997
--------------------------------------------------
HISTORICAL PRO FORMA
------------------------ -----------------------
COMPANY RUUD LIGHTING ADJUSTMENTS COMBINED
-------- ------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................................ $ 85,645 $ 68,547 $ (649)a $ 153,543
Costs and expenses:
Cost of sales.................................. 45,703 46,235 (649)a 90,431
(858)b
Marketing and selling.......................... 15,165 6,802 21,967
Research and development....................... 5,097 1,893 6,990
General and administrative..................... 7,133 6,098 (482)b 12,749
Settlement of claims........................... 771 771
Fiber optic joint venture formation costs...... 286 286
Amortization of intangible assets.............. 397 1,474c 1,871
-------- -------- ------- ---------
Income from operations........................... 11,093 7,519 (134) 18,478
Other income (expense):
Interest expense............................... (1,513) (1,086) (6,021)d (8,620)
Interest income................................ 845 845
-------- -------- ------- ---------
Income from continuing operations before income
taxes.......................................... 10,425 6,433 (6,155) 10,703
Income taxes..................................... 2,869 -- (2,468)e 2,981
2,580f
-------- -------- ------- ---------
Income from continuing operations................ $ 7,556 $ 6,433 $(6,267) $ 7,722
======== ======== ======= =========
Earnings per share -- basic:
Income from continuing operations.............. $ .57 $ .58
======== =========
Earnings per share -- diluted:
Income from continuing operations.............. $ .55 $ .57
======== =========
Shares used for computing per share amounts:
Basic....................................... 13,269 16,269
======== =========
Diluted..................................... 13,558 16,558
======== =========
</TABLE>
- ---------------
Pro forma adjustments were made to reflect the following:
a. Elimination of Company sales to Ruud Lighting.
b. Decrease in depreciation expense relating to Ruud Lighting's property, plant
and equipment based on estimated fair values over estimated useful lives.
c. Amortization of goodwill and other intangible assets, such as tradename and
customer service infrastructure, related to the Ruud Lighting acquisition on
a straight-line method over 40 years.
d. Adjustments to interest expense resulting from the following:
<TABLE>
<S> <C>
Elimination of interest expense relating to the Company's
existing bank debt, excluding mortgage debt, assumed to be
paid in full with the proceeds of the offering of the
Notes....................................................... $ 2,329
Interest charges on the debt resulting from the issuance of
the Notes................................................... (8,000)
Amortization of estimated debt issuance costs of $3,500 over
the ten year life of the Notes.............................. (350)
-------
Net increase in interest expense.................. $(6,021)
=======
</TABLE>
e. Reduction of income taxes relating to the pro forma adjustments.
f. Income tax provision on Ruud Lighting's income before income taxes not
included in the historical condensed combined statement of income as Ruud
Lighting was a Subchapter S corporation.
4
<PAGE> 28
SELECTED FINANCIAL DATA
The following table contains certain selected consolidated and combined
financial data and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto of the Company included elsewhere herein and the
Condensed Consolidated Financial Statements and Notes thereto of the Company
included in the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 ("Third Quarter 1998 10-Q"). The balance sheet data as of June
30, 1997 and 1996 and the income statement data for each of the fiscal years
ended June 30, 1997, 1996 and 1995 are derived from the audited Consolidated
Financial Statements of the Company included herein. The balance sheet data as
of June 30, 1995, 1994 and 1993 and the operating statement data for the fiscal
years ended June 30, 1994 and 1993 are derived from the audited Combined
Financial Statements of the Company's Predecessor companies. The balance sheet
data as of March 31, 1998 and the operating statement data for the nine months
ended March 31, 1998 and 1997 have been derived from the Unaudited Condensed
Consolidated Financial Statements of the Company, which have been prepared by
management on the same basis as the audited Consolidated Financial Statements of
the Company and, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) which the Company considers necessary
for a fair presentation of the results for such periods. The selected financial
data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere herein and in the Third
Quarter 1998 10-Q.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Net sales............................ $110,891 $ 60,291 $ 85,645 $ 54,636 $ 40,767 $ 30,938 $ 25,455
Costs and expenses:
Cost of sales...................... 66,241 32,299 45,703 29,164 21,899 17,253 17,033
Marketing and selling.............. 16,854 10,299 15,165 8,656 6,381 4,472 2,648
Research and development........... 6,069 3,851 5,097 2,894 1,673 1,006 1,166
General and administrative......... 7,307 5,378 7,133 6,152 5,452 3,928 2,852
Settlement of claims............... -- 771(1) 771(1) 2,732(2) -- -- --
Fiber optic joint venture
formation costs.................. 212 -- 286 -- -- -- --
Purchased in-process research
and development ................. 18,220(3) -- -- -- -- -- --
Special charges ................... 15,700(3) -- -- -- -- -- --
Amortization of intangible
assets........................... 930 195 397 90 55 55 55
Restructuring...................... -- -- -- -- (121) 852 7,152
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations........ (20,642) 7,498 11,093 4,948 5,428 3,372 (5,451)
Other income (expense):
Interest expense................. (1,649) (749) (1,513) (1,548) (2,107) (2,113) (901)
Interest income.................. 1,079 610 845 232 33 18 18
Loss from equity investment...... (2) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes and
extraordinary items................ (21,214) 7,359 10,425 3,632 3,354 1,277 (6,334)
Income taxes......................... 918 2,616 2,869 965 212 71 48
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before extraordinary
items.............................. (22,132) 4,743 7,556 2,667 3,142 1,206 (6,382)
Loss from discontinued operations,
net of income tax benefits......... (7,292) (241) (452) (150) -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
items.............................. (29,424) 4,502 7,104 2,517 3,142 1,206 (6,382)
Extraordinary items, net of applicable
income tax ........................ (604)(4) -- -- (135)(5) (253)(6) -- 11,368(7)
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $(30,028) $ 4,502 $ 7,104 $ 2,382 $ 2,889 $ 1,206 $ 4,986
======== ======== ======== ======== ======== ======== ========
</TABLE>
5
<PAGE> 29
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per share -- Basic:
Income from continuing
operations..................... $ (1.26) $ .36 $ .57 $ .14 $ .11 $ .14 $ (1.03)
Loss from discontinued
operations..................... (.42) (.02) (.03) (.02) -- -- --
Extraordinary items.............. (.03) -- -- (.01) (.04) -- 1.56
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) per
share -- Basic................. $ (1.71) $ .34 $ .54 $ .11 $ .07 $ .14 $ .53
======== ======== ======== ======== ======== ======== ========
Shares used for computing
per share amounts -- Basic....... 17,540 13,205 13,269 9,207 7,282 7,282 7,282
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share -- Diluted:
Income from continuing
operations..................... $ (1.26) $ .35 $ .55 $ .14 $ .10 $ .13 $ (.96)
Loss from discontinued
operations..................... (.42) (.02) (.03) (.02) -- -- --
Extraordinary items.............. (.03) -- -- (.01) (.03) -- 1.45
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) per share --
Diluted........................ (1.71) .33 $ .52 .11 .07 .13 .49
======== ======== ======== ======== ======== ======== ========
Shares used for computing
per share amounts -- Diluted..... 17,540 13,503 13,558 9,479 7,818 7,818 7,818
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization........ $ 3,335 $ 1,829 $ 2,579 $ 1,638 $ 1,399 $ 1,467 $ 1,280
EBITDA............................... (17,307) 9,327 13,672 6,586 6,827 4,839 (4,171)
Ratio of EBITDA to interest
expense............................ -- 12.5x 9.0x 4.3x 3.2x 2.3x --
Ratio of earnings to fixed
charges............................ -- 6.3x 5.1x 2.1x 1.7x 1.5x --
Capital expenditures................. $ 21,565 $ 11,589 $ 18,095 $ 5,050 $ 1,530 $ 1,043 $ 900
Cash flow from (used in)
operations......................... (18,063) (6,534) (4,183) 1,326 4,464 1,403 2,691
Cash flow from (used in) investing
activities......................... (83,129) (29,436) (44,058) (8,125) (1,530) (1,043) (900)
Cash flow from (used in) financing
activities......................... 127,615 40,496 50,757 7,451 (2,567) (792) (1,011)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30,
MARCH 31, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments... $ 34,696 $ 8,273 $ 1,682 $ 1,030 $ 663 $ 1,095
Working capital (deficit)........................... 87,646 42,380 17,341 (870) (25) 853
Total assets........................................ 308,699 134,838 56,297 29,402 23,454 23,001
Total long-term debt................................ 117,520 35,908 11,034 8,853 7,821 10,246
Total shareholders' equity (deficit)................ 148,778 66,032 26,594 (1,035) 1,165 (320)
</TABLE>
- ---------------
(1) On March 1, 1996, a former shareholder of a Predecessor of the Company,
asserted a claim against certain officers and directors of the Company, and
subsequently against the Company, seeking $3,600 in damages relating to the
redemption of his Predecessor shares prior to the formation of the Company.
On August 23, 1996, another former shareholder of the Predecessor filed a
similar claim against the Company and such officers and directors seeking
damages of $1,600. On November 29, 1996, the Company and such officers and
directors entered into a settlement of both claims for an aggregate amount
of $475. The pretax charge of $771 in fiscal 1997 represents the $475
settlement plus legal and other directly-related costs, net of insurance
recoveries.
(2) On October 27, 1995, several former Venture shareholders, whose shares were
redeemed in August 1995 (prior to the Combination), asserted a claim against
certain officers of the Company. On November 15, 1995, such officers entered
into a settlement agreement. Since the settlement resulted in a transfer of
personal shares held by such officers, there was no dilution of the
ownership interests of other shareholders of the Company. The settlement was
recorded as a noncash expense and an increase in paid-in capital of the
Company in December 1995.
6
<PAGE> 30
(3) The nine months ended March 31, 1998, include special charges related to the
purchase price allocation for Deposition Sciences Inc. ("DSI") of $18,220
for purchased in-process research and development. The special charges also
include $18,500 principally relating to the rationalization of the Company's
global power supply operations (a) the discontinuance of certain power
supply products at the Company's power supply facilities, (b) the write-down
of certain intangible and fixed assets and (c) charges related to the
consolidation and rationalization cost of distribution activities and
facilities, the write-down of assets in connection with the implementation
of new information systems and a reassessment of investments. The amounts
are classified in the March 31, 1998 statement of operations as: cost of
sales-$2,800; purchased in-process research and development-$18,220; and,
special charges-$15,700.
(4) In the nine months ended March 31, 1998, the Company incurred an
extraordinary loss on the early extinguishment of debt of $604.
(5) In fiscal 1996, the Company incurred an extraordinary loss on the early
extinguishment of debt of $135. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(6) In fiscal 1995, the Company incurred an extraordinary loss on the early
extinguishment of debt of $253. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(7) Upon emergence of Venture from Chapter 11 reorganization, the Company
recognized an extraordinary gain in fiscal 1993 from the early
extinguishment of certain indebtedness.
(8) EBITDA is provided because it is a measure commonly used to evaluate a
company's ability to service its indebtedness. EBITDA is presented to
enhance the understanding of the Company's operating results and is not
intended to represent cash flows or results of operations in accordance with
GAAP for the periods indicated. EBITDA is not a measurement under GAAP and
is not necessarily comparable with similarly titled measures of other
companies. Net cash flows from operating, investing and financing activities
as determined using GAAP are also presented in Other Financial Data. In the
nine months ended March 31, 1998, EBITDA was inadequate to cover interest
expense by $18,956. In fiscal 1993, EBITDA was inadequate to cover interest
expense by $5,072.
(9) For purposes of calculating the unaudited ratio of earnings to fixed
charges, earnings consist of income (loss) from continuing operations before
provision for income taxes plus fixed charges. Fixed charges consist of
interest charges and amortization of debt issuance cost, whether expensed or
capitalized, and that portion of rental expense that is representative of
interest. In the nine months ended March 31, 1998, earnings were inadequate
to cover fixed charge requirements by $21,894. In fiscal 1993, earnings were
inadequate to cover fixed charge requirements by $6,346. After giving effect
to the transactions described under "Unaudited Pro Forma Financial Data,"
earnings for the nine months ended March 31, 1998, would be inadequate to
cover fixed charge requirements by $23,517. The pro forma ratio of earnings
to fixed charges, after giving effect to the transactions described under
"Unaudited Pro Forma Financial Data," would be 2.1x for the year ended June
30, 1997.
7
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein
and in the Third Quarter 1998 10-Q.
GENERAL
The Company designs, manufactures and markets metal halide lighting
products, including materials, systems and components and production equipment.
Metal halide lighting is currently used primarily in commercial and industrial
applications such as factories and warehouses, outdoor site and landscape
lighting, sports facilities and large retail spaces such as superstores. Systems
and components and materials revenue is recognized when products are shipped,
and production equipment revenue is recognized under the percentage of
completion method.
Consistent with the Company's strategy for new product introductions, the
Company invests substantial resources in research and development to engineer
materials and system components to be included in customers' specialized
lighting systems. Over the last three fiscal years, the Company has spent an
aggregate of $9.7 million on research and development, representing 5.3% of
aggregate net sales from continuing operations over that period. During the nine
months ended March 31, 1998, the Company spent $6.1 million on research and
development, representing 5.5% of net sales for that period. Such expenditures
have enabled the Company to introduce new specialized products, develop new
applications for metal halide lighting and improve the quality of its materials.
The Company has spent additional amounts for manufacturing process and
efficiency enhancements, which were charged to cost of goods sold when incurred.
The Company expects to continue to make substantial expenditures on research and
development to enhance its position as the leading innovator in the metal halide
lighting industry.
The Company also has invested substantial resources in acquisitions and
strategic investments. Since December 31, 1997, the Company has acquired Ruud
Lighting and Deposition Sciences, Inc. ("DSI") and increased its equity
investment in Fiberstars. From February 11, 1997 to February 25, 1998, the
Company's investment in notable acquisitions and strategic investments
aggregated approximately 3.6 million shares of Common Stock and approximately
$74.7 million in cash, plus certain additional contingent amounts and shares.
See "-- Liquidity and Capital Resources" below.
SPIN-OFF OF MICROSUN BUSINESS
In March 1998, the Company approved a plan to distribute to its
shareholders all of the ownership of Microsun Technologies, Inc. ("MicroSun"),
the subsidiary primarily responsible for development, design, assembly and
marketing of metal halide portable fixtures for residential and hospitality
uses, in a spin-off transaction which is expected to be tax-free. The Company
believes the creation of two separate companies will enable the Company and
MicroSun to devote the resources necessary to develop their core strategies in
pursuit of their growth objectives.
Summary operating information for MicroSun for the three month and nine
month periods ended March 31, 1998 and 1997, is presented below for
informational purposes only and does not necessarily reflect what the results of
operations would have been had MicroSun operated as a stand-alone entity.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
---------------- ----------------
1998 1997 1998 1997
------- ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales........................................... $ 1,610 $ 300 $ 2,764 $ 485
Costs and expenses.............................. 2,765 437 4,761 861
------- ----- ------- -----
Loss before income taxes........................ (1,155) (137) (1,997) (376)
Income tax benefit.............................. (416) (49) (719) (135)
------- ----- ------- -----
Net loss........................................ $ (739) $ (88) $(1,278) $(241)
======= ===== ======= =====
</TABLE>
8
<PAGE> 32
Operating losses through the intended date of the spin-off follow:
<TABLE>
<CAPTION>
BEFORE
INCOME INCOME
TAXES TAXES NET
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating losses for the nine months ended March 31,
1998.................................................. $ 1,997 $ 719 $1,278
Estimated operating losses from April 1, 1998 to
December 31, 1998..................................... 9,100 3,086 6,014
------- ------ ------
Operating losses through spin-off....................... $11,097 $3,805 $7,292
======= ====== ======
</TABLE>
The estimated date of disposition extends to December 31, 1998 pending the
determination of the spin-off as tax-free. As a result of the Board of
Directors' approval to spin-off the MicroSun business, the consolidated
financial statements of the Company have been adjusted and restated to reflect
the results of operations of MicroSun as a discontinued operation in accordance
with generally accepted accounting principles.
FISCAL THIRD QUARTER 1998 CHARGES
During the three months ended March 31, 1998, the Company recorded special
charges related to the purchase price allocation for DSI and an assessment of
the Company's global power supply operations.
The Company completed the acquisition of DSI in January 1998. The special
charges include $18.2 million for purchased in-process research and development,
determined by an independent valuation, relating to the DSI acquisition.
The special charges also include $18.5 million principally relating to the
rationalization of the Company's global power supply operations. With the
January 1998 acquisition of Ruud Lighting, the Company accelerated the
rationalization of its existing power supply manufacturing operations and
distribution activities in order to capitalize on new opportunities not
previously available. This assessment resulted in (a) the discontinuance of
certain power supply products at the Company's power supply facilities, (b) the
write-down of certain intangible and fixed assets and (c) a $2.8 million
write-down of inventory which is classified in cost of sales.
In addition, the charges cover the consolidation and rationalization cost
of distribution activities and facilities, the write-down of assets in
connection with the implementation of new information systems and a reassessment
of investments resulting from a change in expansion strategy arising from the
Ruud Lighting acquisition.
The special charges were determined in accordance with formal plans
developed by the Company's management using the best information available to it
at the time and, subsequently, approved by the Company's Board of Directors. The
amounts the Company may ultimately incur may change as the plans are executed.
Actions required by the plans are expected to be completed by June 30,
1999. Cash outlays to complete the balance of the Company's initiative to
rationalize the Company's global power supply operations are estimated to be
approximately $1.3 million.
After an income tax benefit of $4.7 million, these special charges reduced
net income by $32.1 million, or $1.61 diluted earnings per share for the three
months ended March 31, 1998.
See the Notes to Condensed Consolidated Financial Statements for the three
months and nine months ended March 31, 1998 and 1997, included in the Third
Quarter 1998 10-Q.
9
<PAGE> 33
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain items
in the Company's Condensed Consolidated Statements of Income for the indicated
period:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
MARCH 31, JUNE 30,
------------- ---------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of sales...................................... 59.7 53.6 53.4 53.4 53.7
Marketing and selling.............................. 15.2 17.1 17.7 15.8 15.7
Research and development........................... 5.5 6.4 6.0 5.3 4.1
General and administrative......................... 6.6 8.9 8.3 11.2 13.4
Fiber optic joint venture formation cost........... .2 -- .3 -- --
Purchased in-process R & D......................... 16.4 -- -- -- --
Special charges.................................... 14.2 -- -- -- --
Settlement of claim................................ -- 1.3 .9 5.0 --
Amortization of intangible assets.................. .8 .3 .4 .2 .1
Restructuring...................................... -- -- -- -- (.3)
----- ----- ----- ----- -----
Income (loss) from operations........................ (18.6) 12.4 13.0 9.1 13.3
Other income (expense):
Interest expense................................... (1.5) (1.2) (1.8) (2.8) (5.2)
Interest income.................................... 1.0 1.0 1.0 .4 .1
Loss from equity investment........................ -- -- -- -- --
----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes and extraordinary charge.............. (19.1) 12.2 12.2 6.7 8.2
Income taxes......................................... .8 4.3 3.4 1.8 .5
----- ----- ----- ----- -----
Income (loss) from continuing operations before
extraordinary charge............................... (19.9) 7.9 8.8 4.9 7.7
Loss from discontinued operations, net of income tax
benefits........................................... (6.6) (.4) (.5) (.3) --
----- ----- ----- ----- -----
Income (loss) before extraordinary charge............ (26.5) 7.5 8.3 4.6 7.7
Extraordinary charge, net of income tax benefits..... (.6) -- -- (.2) (.6)
----- ----- ----- ----- -----
Net income (loss).................................... (27.1)% 7.5% 8.3% 4.4% 7.1%
===== ===== ===== ===== =====
</TABLE>
- ---------------
The Company's revenues are driven by sales in the lighting market overall,
the penetration of metal halide lighting systems in new commercial and
industrial construction activities and the level of replacement sales serving
the installed base of metal halide fixtures and systems. The primary components
of the cost of sales are purchased materials, fixed and variable manufacturing
overhead (including depreciation of plant, property and equipment) and labor
production costs. Purchased materials include quartz used in lamp production as
well as packaging materials. Marketing and selling and general and
administrative expenses include costs related to developing, advertising,
marketing and selling the Company's products, as well as infrastructure costs
for management and systems.
NINE MONTHS ENDED MARCH 31, 1998 ("FIRST NINE MONTHS OF FISCAL 1998") COMPARED
WITH NINE MONTHS ENDED MARCH 31, 1997 ("FIRST NINE MONTHS OF FISCAL 1997")
Net sales. Net sales increased 83.9% to $110.9 million for the first nine
months of fiscal 1998 from $60.3 million for the first nine months of fiscal
1997. The increase in system components, materials, and systems ($46.4 million)
was primarily attributable to increased unit volume, including a $22.0 million
increase from the Company's power supply subsidiaries acquired in the second
half of fiscal 1997 and a $14.9 million increase from the Company's Ruud
Lighting subsidiary, which was acquired on January 2, 1998. The increase in
equipment sales ($4.2 million) resulted from an increase in equipment
contracts-in-progress, as compared with
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<PAGE> 34
the number of contracts-in-progress during the first nine months of fiscal 1997,
due in part to the acquisition of Deposition Sciences, Inc. in January 1998.
Cost of Sales. Cost of sales increased 105.1% to $66.2 million in the
first nine months of fiscal 1998 from $32.3 million in the first nine months of
fiscal 1997. As a percentage of net sales, cost of sales increased to 59.7% in
the first nine months of fiscal 1998 from 53.6% in the first nine months of
fiscal 1997. Cost of sales included a $2.8 million write-down of inventory
related to the rationalization of the Company's global power supply operations
and the elimination of certain nonfocus product lines. After excluding this
write-down, cost of sales increased 96.4% to $63.4 million, or 57.2% of net
sales. The increase was primarily attributable to increased unit volume, but
also reflects a change in the product mix, whereby lower-margin power supply
products represented a larger component of total sales in fiscal 1998.
Marketing and Selling Expenses. Marketing and selling expenses increased
63.7% to $16.9 million in the first nine months of fiscal 1998 from $10.3
million in the first nine months of fiscal 1997. Marketing and selling expenses,
as a percentage of net sales, decreased to 15.2% in the first nine months of
fiscal 1998 from 17.1% in the first nine months of fiscal 1997. This decrease as
a percentage of net sales reflects the leveraging of certain fixed marketing and
selling expenses as sales levels increase and relatively lower marketing
expenses associated with the sale of power supplies.
Research and Development Expenses. Research and development expenses
increased 57.6% to $6.1 million in the first nine months of fiscal 1998 from
$3.9 million in the first nine months of fiscal 1997. This increase arose from
increased spending for the: (i) expansion of the line of new lamps intended to
replace many first generation metal halide lamps in industrial and commercial
applications; (ii) development and testing of electronic power supply systems;
and, (iii) development of new materials for the world's major lighting
manufacturers. As a percentage of net sales, research and development expenses
decreased to 5.5% in the first nine months of fiscal 1998 from 6.4% in the first
nine months of fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased 35.9% to $7.3 million in the first nine months of fiscal 1998 from
$5.4 million in the first nine months of fiscal 1997. As a percentage of net
sales, general and administrative expenses decreased to 6.6% in the first nine
months of fiscal 1998 from 8.9% in the first nine months of fiscal 1997. The
decrease as a percentage of net sales primarily reflects a spending growth rate
considerably lower than sales increases through the leveraging of fixed costs as
sales levels increase.
Fiber Optic Joint Venture Formation Costs. On May 6, 1997, the Company
entered into a joint development agreement with Rohm and Haas Company ("Rohm and
Haas") for the development of advanced fiber optic cable systems using metal
halide lamps. On December 31, 1997, the Company and Rohm and Haas completed a
series of agreements that resulted in the formation of Unison Fiber Optics
Lighting Systems LLC ("Unison"), a joint venture that focuses on the manufacture
and sale of fiber optic lighting systems to the worldwide lighting market. In
connection with this joint venture, the Company incurred $212,000 of formation
and development costs which were charged to operations during the first quarter
of fiscal 1998.
Purchased In-Process Research & Development. In connection with its
acquisition of Deposition Sciences, Inc. in January 1998, the Company acquired
in-process research and development valued at $18.2 million. In accordance with
generally accepted accounting principles, the entire amount has been recorded as
an expense in the third quarter of fiscal 1998.
Special Charges. During the third quarter of fiscal 1998, the Company
recorded special charges related to the rationalization of the Company's global
power supply businesses. Additionally, the special charges, which total $18.5
million (including the $2.8 million write-down of inventory discussed above),
cover the elimination of certain nonfocus product lines, the consolidation and
rationalization cost of distribution activities and facilities, the write-down
of assets in connection with the implementation of new information systems and a
reassessment of investments.
Settlement of Claim. During the second quarter of fiscal 1997, the Company
paid $475,000 in an out-of-court settlement of a claim brought by certain former
common shareholders of a predecessor of the Company.
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<PAGE> 35
The charge of $771,000 ($.06 per share) represents the $475,000 settlement plus
legal and other directly-related costs, net of anticipated insurance recoveries.
Income (Loss) from Operations. As a result of the aforementioned factors,
during the first nine months of fiscal 1998, the Company incurred a loss from
operations of $20.6 million, as compared to income from operations of $7.5
million during the first nine months of fiscal 1997. Excluding the fiber optic
joint venture formation costs, total special charges, purchased in-process R&D,
and the settlement of claim, income from operations increased 97.0% to $16.3
million, or 14.7% of net sales, from $8.3 million, or 13.7% of net sales in the
first nine months of fiscal 1997.
Interest Expense. Interest expense increased to $1.6 million during the
first nine months of fiscal 1998 as compared to $749,000 in the first nine
months of fiscal 1997. This increase resulted primarily from the higher average
debt outstanding during the first nine months of fiscal 1998 as compared to the
first nine months of fiscal 1997.
Interest Income. Interest income increased to $1 million during the first
nine months of fiscal 1998 as compared to $610,000 in the first nine months of
fiscal 1997. This increase is attributable to higher average cash equivalents
and short-term investments during the first nine months of fiscal 1998 as
compared to the first nine months of fiscal 1997.
Income (Loss) from Continuing Operations before Income Taxes and
Extraordinary Charge. As a result of the aforementioned factors, during the
first nine months of fiscal 1998, the Company incurred a loss from continuing
operations before income taxes and extraordinary charge of $21.2 million, as
compared to income from continuing operations before income taxes and
extraordinary charge of $7.4 million during the first nine months of fiscal
1997. Excluding the fiber optic joint venture formation costs, total special
charges, purchased in-process R&D, and the settlement of claim, income from
continuing operations before income taxes and extraordinary charge increased
93.3% to $15.7 million or 14.2% of net sales, from $8.1 million, or 13.5% of net
sales in the first nine months of fiscal 1997.
Income Taxes. The Company recorded income tax expense of $918,000 for the
first nine months of fiscal 1998, as compared to $2.6 million in the first nine
months of fiscal 1997. The income tax expense for the first nine months of
fiscal 1998 was reduced by a tax benefit of $4.7 million related to the
tax-deductible portion of the special charges. Without this reduction, the
income tax expense would have been $5.6 million resulting in an effective tax
rate of 36% on income from continuing operations, which is comparable to the tax
rate of 36% incurred in fiscal 1997.
Loss from Discontinued Operations. In March 1998, the Company approved a
plan to distribute to its shareholders all of the ownership of MicroSun, the
subsidiary primarily responsible for development, design, assembly and marketing
of metal halide portable fixtures for residential and hospitality uses, in a
spin-off transaction which is expected to be tax-free. The Company believes the
creation of two separate companies will enable the Company and MicroSun to
devote the resources necessary to develop their core strategies in pursuit of
their growth objectives. The loss from discontinued operations of $7.3 million
represents the total of MicroSun's loss from operations in the first nine months
of fiscal 1998 and estimated operating losses through the intended date of the
spin-off.
Extraordinary Charge. The Company recorded a $604,000 extraordinary charge
(net of applicable income taxes of $311,000) during the third quarter of fiscal
1998, representing costs associated with the early extinguishment of debt.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net Sales. Net sales increased 56.8% to $85.6 million for the fiscal year
ended June 30, 1997 from $54.6 million for the fiscal year ended June 30, 1996.
This increase consisted of a $22.6 million increase in system components, a $6.3
million increase in production equipment, a $700,000 increase in systems, and a
$1.4 million increase in materials. The increase in systems components is
primarily the result of increased unit sales of the Company's core businesses
and the addition, during fiscal 1997, of the Company's newly-acquired power
supply businesses. The increase in systems and materials sales arose primarily
from increased unit volume, while
12
<PAGE> 36
the increase in equipment sales was attributable to an increase in the number of
equipment contracts in-progress for the sale of production equipment, as
compared with the contracts in-progress during fiscal 1996.
Cost of Sales. Cost of sales increased 56.7% to $45.7 million in fiscal
1997 from $29.2 million in fiscal 1996, relatively consistent with the increase
in net sales. As a percentage of net sales, cost of sales was 53.4% for both
fiscal 1997 and 1996.
Marketing and Selling Expenses. Marketing and selling expense increased
75.2% to $15.2 million for fiscal 1997, compared with $8.7 million for fiscal
1996. Marketing and selling expense, as a percentage of net sales, increased to
17.7% during fiscal 1997, from 15.8% during fiscal 1996. The increase as a
percentage of net sales primarily reflects increased spending to develop new
domestic and foreign market opportunities.
Research and Development Expenses. Research and development expenses
increased 76.1% to $5.1 million in fiscal 1997 from $2.9 million in fiscal 1996.
As a percentage of net sales, research and development expenses increased to
6.0% in fiscal 1997 from 5.3% in fiscal 1996. The increased spending in this
vital area reflected the Company's continued emphasis on the development of
additional commercial and industrial products, the introduction of new lamp
types and metal halide systems development.
General and Administrative Expenses. General and administrative expenses
increased 15.9% to $7.1 million in fiscal 1997 from $6.2 million in fiscal 1996.
As a percentage of net sales, general and administrative expenses decreased to
8.3% in fiscal 1997 from 11.2% in fiscal 1996. The decrease primarily reflects a
spending growth rate considerably lower than sales increases, achieved through
the leveraging of fixed costs as sales levels increase.
Settlement of Claims. During fiscal 1997, the Company paid $475,000 in an
out-of-court settlement of a claim brought by certain former common shareholders
of a predecessor of the Company. The charge of $771,000 ($0.06 per share)
represents the $475,000 settlement plus legal and other directly-related costs,
net of anticipated insurance recoveries.
During fiscal 1996, a settlement agreement was entered into by certain
principal shareholders of the Company with former holders of preferred stock of
a subsidiary of the Company (the "Settlement"). Since the Settlement resulted in
a transfer of personal shares held by such shareholders, there was no dilution
of the ownership interest of the remaining shareholders of the Company. The
Settlement was recorded as a noncash expense in fiscal 1996 and an increase to
the Company's paid-in capital. This Settlement resulted in a noncash charge of
$2.7 million.
Fiber Optic Joint Venture Formation Costs. In May 1997, the Company
entered into a joint development agreement with Rohm and Haas, for the
development of advanced fiber optic cable systems using metal halide lamps. The
Company negotiated with Rohm and Haas to form the Unison joint venture focused
on the manufacture and sale of fiber optic cable and illuminators and fiber
optic lighting systems. In connection with this proposed joint venture, the
Company incurred $286,000 of formation and preoperating costs which was charged
to operations during fiscal 1997.
Income from Operations. Income from operations during fiscal 1997
increased to $11.1 million from $4.9 million during fiscal 1996. As discussed
above, excluding the nonrecurring charges for the settlements noted above,
income from operations for fiscal 1997 would have increased to $11.9 million, a
54.5% increase over the income from operations of $7.7 million that would have
been reported for fiscal 1996. As a percentage of net sales, income from
operations before the nonrecurring charges would have decreased to 13.9% in
fiscal 1997 from 14.1% in fiscal 1996.
Interest Income. Interest income increased to $845,000 in fiscal 1997, as
compared to $232,000 in fiscal 1996. This increase is attributable to the
short-term investments and cash equivalents arising from the availability of the
net proceeds of the Common Stock offering completed during July 1996.
Income Taxes. Income tax expense increased to $2.9 million for fiscal 1997
from $1.0 million during the preceding year. The increase was caused by
increased profitability in fiscal 1997 and by the utilization of lesser amounts
of net operating loss carryforwards ("NOLs") in 1997, compared with the
utilization of NOLs in fiscal
13
<PAGE> 37
1996. At June 30, 1997, the Company had United States NOLs for tax purposes of
approximately $4.5 million to offset future taxable income. These NOLs expire in
the fiscal years 2006 through 2011.
Extraordinary Charge. The Company did not record an extraordinary charge
in 1997 compared with a $135,000 extraordinary charge (net of applicable income
tax benefits of $91,000) recorded in fiscal 1996, representing costs associated
with the early extinguishment of debt.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net Sales. Net sales increased 34.0% to $54.6 million for fiscal 1996 from
$40.8 million for fiscal 1995. This increase consisted of a $12.3 million
increase in system component sales, a $1.2 million increase in materials sales,
and the remainder from increased production equipment sales. The increase in
system component and materials sales arose primarily from increased unit volume
in all major lamp sales channels and material categories and increased sales of
new products.
Cost of Sales. Cost of sales increased 33.2% to $29.2 million for fiscal
1996 from $21.9 million for fiscal 1995. As a percentage of net sales, cost of
sales decreased to 53.4% for fiscal 1996 from 53.7% for fiscal 1995. This slight
decrease was primarily the result of improved margins on system components and
materials sales, which were somewhat offset by transitional costs of operational
integration associated with the acquisition of Current Industries.
Marketing and Selling. Marketing and selling expenses increased 35.7% for
fiscal 1996 to $8.7 million from $6.4 million for fiscal 1995. As a percentage
of net sales, marketing and selling expenses remained relatively constant at
15.8% in fiscal 1996 compared to 15.7% in fiscal 1995.
General and Administrative Expenses. General and administrative expenses
increased 12.8% to $6.2 million for fiscal 1996 from $5.5 million for fiscal
1995. As a percentage of net sales, the expenses decreased to 11.2% in fiscal
1996 from 13.4% in fiscal 1995, primarily as a result of fixed costs leveraged
against increased sales.
Research and Development Expense. Research and development expenses
increased 73.0% to $2.9 million for fiscal 1996 from $1.7 million for fiscal
1995. As a percentage of net sales, research and development expenses increased
to 5.3% for fiscal 1996 from 4.1% for fiscal 1995. These increases arose from
increased spending for the: (i) expansion of the line of new lamps intended to
replace many first generation metal halide lamps in industrial and commercial
applications; (ii) development and testing of electronic power supply systems
and (iii) development of new materials for the world's major lighting
manufacturers.
Noncash Settlement of Claim and Restructuring Credit. As mentioned above,
fiscal 1996 results include a noncash settlement expense of $2.7 million. In
fiscal 1995, the Company recorded a $121,000 credit to operating expenses. This
credit resulted from a revision of the Company's plan of disposition for exiting
a product line unrelated to lighting. There was no such credit in fiscal 1996.
Income from Operations. As a result of the factors discussed above,
including the effects of the noncash charge for the Settlement and the
restructuring credit, income from operations decreased 8.8% to $4.9 million in
fiscal 1996 from $5.4 million in fiscal 1995. As a percentage of net sales,
income from operations decreased to 9.1% in fiscal 1996 from 13.3% in fiscal
1995. Excluding the noncash charge for the Settlement during fiscal 1996 and the
restructuring credit recognized in fiscal 1995, income from operations for
fiscal 1996 would have increased to $7.7 million from $5.3 million in fiscal
1995. As a percentage of net sales, income from operations would have increased
to 14.1% in fiscal 1996 from 13.0% in fiscal 1995.
Interest Expense, Net. Interest expense decreased 26.5% to $1.5 million
for fiscal 1996 from $2.1 million for fiscal 1995. This decrease resulted from
lower average debt outstanding, lower noncash amortization of debt issuance
costs and higher interest income for fiscal 1996 as compared to the average debt
outstanding, noncash amortization of debt issuance costs and interest income for
fiscal 1995.
Interest Income. Interest income increased to $232,000 during fiscal 1996
as compared to $33,000 for fiscal 1995. This increase is the result of deposits
of available proceeds from the Company's initial public offering of Common Stock
in fiscal 1996.
14
<PAGE> 38
Income Taxes. Income tax expense for fiscal 1996 increased by $753,000
from fiscal 1995 primarily due to higher state and local income taxes and an
increase in deferred tax expense attributable to accelerated depreciation for
tax purposes.
Extraordinary Item. The Company recorded a $135,000 extraordinary charge
(net of applicable income taxes of $91,000) during fiscal 1996, representing
costs associated with the early extinguishment of debt using a portion of the
net proceeds from its initial public offering. In fiscal 1995, the Company
recorded a $253,000 extraordinary charge (net of applicable income taxes of
$168,000), which also represented costs associated with the early extinguishment
of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for developing
manufacturing equipment, market development activities, research and development
efforts, investments in business acquisitions, joint ventures and working
capital. These requirements have been, and the Company expects they will
continue to be, financed through a combination of cash flow from operations,
borrowings under various credit facilities and the sale of Common Stock
(including the remaining proceeds from the July 1996 and the July 1997 public
offerings of Common Stock currently invested in short-term instruments and cash
equivalents).
During July 1997, the Company received net proceeds of $69.3 million from
the sale of three million shares of Common Stock in a public offering, of which
$33.0 million was used to reduce debt outstanding under the Company's domestic
Revolving Credit and Security Agreement and Term Note (the "Loan Agreement")
(subsequently terminated and replaced by the Company's $85.0 million Credit
Facility (the "Credit Facility")). Approximately $8.5 million of such borrowings
had been incurred to fund the Parry acquisition in June 1997, and approximately
$5.5 million had been incurred in February 1997 to finance the cash portion of
the Ballastronix acquisition. Of the remaining net proceeds, $14.5 million was
used for capital expenditures, primarily production equipment and leasehold
improvements, $4.8 million was used to purchase 29.0% of Fiberstars, a company
specializing in the marketing and distribution of fiber optic lighting products,
$2.0 million was contributed to Unison, the Company's joint venture with Rohm
and Haas and $11.2 million was used for working capital purposes.
The Company's working capital (current assets less current liabilities) at
March 31, 1998 was $87.6 million, resulting in a working capital ratio of
current assets to current liabilities of 3.4 to 1.0, as compared to $42.4
million or 2.5 to 1.0 at June 30, 1997. As of March 31, 1998, the Company had
approximately $34.7 million in cash and cash equivalents and short-term
investments and had no working capital advances outstanding under the Loan
Agreement.
On January 2, 1998, the Company replaced the Loan Agreement and other
borrowings in North America with the Credit Facility. Proceeds from this
facility were used to finance the $35.5 million cash portion of the Ruud
Lighting acquisition and the $14.5 million cash portion of the DSI acquisition.
Proceeds were also used to repay $19.2 million of existing and outstanding North
American bank borrowings of the Company, Ruud Lighting and DSI. As a growth
company, the Company may need to amend or replace the Credit Facility prior to
its maturity on December 31, 2000.
The early extinguishment of debt under the Loan Agreement resulted in a
noncash write-off of deferred financing costs and an extraordinary charge of
$604,000, net of applicable income tax benefits of $311,000, in the quarter
ending March 31, 1998.
On March 13, 1998, the Company sold $100 million of its 8% Senior Notes due
2008 (the "Notes"), resulting in net proceeds of $96.2 million. Approximately
$76.3 million of the net proceeds of the Notes were used to repay amounts
outstanding under the Bank Credit Facility, thereby lengthening the term of the
Company's debt, most of which had been incurred to finance the acquisitions of
Ruud Lighting and DSI.
Net cash used in operating activities during fiscal 1997 totaled $4.2
million. Uses of operating cash flow include: (i) an approximately $9.0 million
increase in accounts receivable related to equipment contracts and (ii) an
increase in inventories to support higher sales levels, offset partially by an
increase in accounts payable and accrued expenses resulting from higher levels
of business activity. Net cash used in operating activities during the nine
months ended March 31, 1998 amounted to $18.1 million, primarily as a result of
higher accounts receivable
15
<PAGE> 39
arising from increased sales, an increase in inventory levels to support higher
sales service levels, an increase in prepaids and other assets, and a reduction
in accounts payable.
Capital expenditures, primarily for production equipment and leasehold
improvements, totaled $18.1 million in fiscal 1997. For the nine months ended
March 31, 1998, the Company invested approximately $21.6 million in capital
expenditures as compared with $11.6 million for the first nine months of fiscal
1997. Over the next twelve months the Company intends to spend approximately $20
million on capital expenditures, primarily production equipment, and $14.4
million on the expansion and upgrading of distribution, training center,
lighting demonstration and office facilities at the Company's world
headquarters.
On March 11, 1998, the Company purchased its existing Solon, Ohio facility
for a purchase price of $7.8 million, including the assumption by a single
purpose subsidiary of an existing mortgage in the amount of approximately $4.8
million. The Company expects to invest an additional amount of approximately
$8.9 million at the facility.
The Company believes that the successful completion of the July 1997 stock
offering and the Notes offering has strengthened its financial position and
enhanced its ability to obtain additional financing. In addition, the Company
believes that the acquisition of Ruud Lighting will favorably impact its cash
flow from operations, as Ruud Lighting has historically achieved significant
positive cash flows from its operations.
The Company believes that the combination of its anticipated cash flows
from Ruud Lighting's operations, available cash, current borrowing facilities
and strengthened financial position will be sufficient for the Company to fund
its operations for at least the next 12 months. In addition, it is the Company's
intention to avail itself of appropriate financing alternatives to ensure that
growth opportunities, including those arising from acquisitions and additional
investments in existing relationships, are realized. If the Company engages in
significant acquisition or strategic investment activity in the near to medium
term, it may need to obtain additional capital. In this regard, the Indenture
relating to the Notes will allow the Company to incur substantial additional
amounts of Indebtedness.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
statement requires a "management" approach to reporting financial and
descriptive information about a Company's operating segments. The Company must
adopt this statement in the first quarter of fiscal 1999. Management is
currently studying the potential effect of adopting this statement.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 provides authoritative guidance on accounting for and
financial reporting of start-up costs and organization costs. The Company is
required to adopt the SOP on July 1, 1999 (though earlier application is
encouraged) and, upon adoption, expense all previously capitalized start-up
costs and organization costs as a cumulative effect of a change in accounting
principle. Management is reviewing its capitalization policies and determining
the impact that the adoption of this SOP is expected to have on its consolidated
results of operations and financial position.
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company and purchased software
which is run on in-house computer networks. The Company has initiated a review
and assessment of all hardware and software to determine whether it will
function properly in the year 2000. To date, those vendors which have been
contacted have indicated that their hardware or software is or will be year 2000
compliant in time frames that meet the Company's requirements. The Company
presently believes that costs associated with the compliance efforts will not
have a significant impact on the Company's ongoing results of operations
although there can be no assurance in this regard. The Company also has
initiated communications with its significant suppliers regarding the year 2000
issue. However, there can be no assurance that the systems
16
<PAGE> 40
of such suppliers, or of customers, will be year 2000 compliant. The failure of
suppliers and customers to timely modify their systems to be year 2000 compliant
could have a significant impact on the Company's results of operations and its
ability to make payments on the New Notes.
FOREIGN CURRENCY
Approximately 17% of the Company's net sales in fiscal 1997, on a pro forma
basis for the Ruud Lighting acquisition, were denominated in currencies other
than U.S. dollars, principally Pounds Sterling, Australian dollars and Canadian
dollars. A weakening of such currencies versus the U.S. dollar could have a
material adverse effect on the Company and its ability to make payments on the
New Notes. The Company currently does not hedge its foreign currency exposure.
17
<PAGE> 41
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 hereunto duly authorized.
Date: July 7, 1998 ADVANCED LIGHTING
TECHNOLOGIES, INC.
By /s/ Wayne R. Hellman
-----------------------
Wayne R. Hellman
Chief Executive Officer
18
<PAGE> 42
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Amendment No. 2 dated as of May 13, 1998 to Credit Agreement
dated as of January 2, 1998 among the Company, certain
financial institutions named therein and National City Bank,
as Administrative Agent.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
<PAGE> 1
Exhibit 10.1
================================================================================
================================================================================
ADVANCED LIGHTING TECHNOLOGIES, INC.
AS THE BORROWER
AND
THE FINANCIAL INSTITUTIONS NAMED HEREIN
AS LENDERS
AND
NATIONAL CITY BANK
AS ADMINISTRATIVE AGENT
---------------------
AMENDMENT NO. 2
DATED AS OF
MAY 13, 1998
TO
CREDIT AGREEMENT
DATED AS OF
JANUARY 2, 1998
---------------------
================================================================================
================================================================================
<PAGE> 2
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of May 13, 1998
("THIS AMENDMENT"), among:
(i) ADVANCED LIGHTING TECHNOLOGIES, INC., an Ohio corporation
(herein, together with its successors and assigns, the "BORROWER");
(ii) the financial institutions listed on the signature pages
hereof (the "LENDERS"); and
(iii) NATIONAL CITY BANK, a national banking association, as
Administrative Agent (the "ADMINISTRATIVE AGENT") for the Lenders under
the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, and the Administrative
Agent entered into the Credit Agreement, dated as of January 2, 1998, as amended
by Amendment No. 1 thereto, dated as of February 26, 1998 (as so amended, the
"CREDIT AGREEMENT"; with the terms defined therein, or the definitions of which
are incorporated therein, being used herein as so defined).
(2) The Borrower has requested the Lenders and the Administrative Agent
to modify certain of the provisions of the Credit Agreement, and the Lenders and
the Administrative Agent are willing to so modify the provisions of the Credit
Agreement, all as more fully set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS.
1.1. DEFINITIONS. Effective on the Effective Date (as hereinafter
defined), the following defined terms contained in section 1.1 of the Credit
Agreement are amended and restated to read in their entirety as follows:
"EBIT" shall mean, for any period, the sum of the amounts for
such period of (i) Consolidated Net Income, (ii) if such period
includes the fiscal quarter ended March 31, 1998, the noncash losses
and noncash charges taken during such quarter in the aggregate amount
of $35,020,000, (iii) provisions for taxes based on income, and (iv)
Total Interest Expense, all as determined for the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP; PROVIDED
THAT, notwithstanding anything to the contrary contained herein, the
Borrower's EBIT for any Testing Period shall (x) include the
appropriate financial items for any person or business unit which has
been acquired by the Borrower on a going concern basis, for any portion
of such Testing Period prior to the date of acquisition, and (y)
exclude the appropriate financial items for any person or business unit
which has been disposed of by the Borrower, for the portion of such
Testing Period prior to the date of disposition.
"EBITDA" shall mean, for any period, (A) the sum of the
amounts for such period of (i) EBIT, and (ii) depreciation and
amortization, less (B) gains on sales of assets (excluding sales in the
ordinary course of business) and extraordinary gains, all as determined
for the Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP; PROVIDED THAT, notwithstanding anything to the
contrary contained herein, the Borrower's EBITDA for any Testing Period
shall (x) include the appropriate financial items for any person or
business unit which has been acquired by the Borrower on a going
concern basis, for any portion of such Testing Period prior to the date
of acquisition, and (y) exclude the appropriate financial items for any
person or business unit which
<PAGE> 3
has been disposed of by the Borrower, for the portion of such Testing
Period prior to the date of disposition.
"INTEREST COVERAGE RATIO" shall mean, for any Testing Period,
the ratio of (i) the sum of EBIT and amortization, to (ii) Total
Interest Expense, in each case on a consolidated basis for the Borrower
and its Subsidiaries for such Testing Period in accordance with GAAP;
PROVIDED THAT, notwithstanding anything to the contrary contained
herein, the calculation of the Borrower's Interest Coverage Ratio for
any Testing Period shall (x) include the appropriate financial items
for any person or business unit which has been acquired by the Borrower
on a going concern basis, for any portion of such Testing Period prior
to the date of acquisition, and (y) exclude the appropriate financial
items for any person or business unit which has been disposed of by the
Borrower, for the portion of such Testing Period prior to the date of
disposition.
1.2. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Effective on the
Effective Date, the dollar amount $100,800,000 which appears in section 9.11 of
the Credit Agreement is changed to $78,000,000.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
2.1. AUTHORIZATION, VALIDITY AND BINDING EFFECT. This Amendment has
been duly authorized by all necessary corporate action on the part of the
Borrower, has been duly executed and delivered by a duly authorized officer or
officers of the Borrower, and constitutes the valid and binding agreement of the
Borrower, enforceable against the Borrower in accordance with its terms.
2.2. REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The
representations and warranties of the Borrower contained in the Credit
Agreement, as amended hereby, are true and correct on and as of the date hereof
as though made on and as of the date hereof, except to the extent that such
representations and warranties expressly relate to a specified date, in which
case such representations and warranties are hereby reaffirmed as true and
correct when made.
2.3. NO EVENT OF DEFAULT, ETC. No condition or event has occurred or
exists which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
2.4. COMPLIANCE. The Borrower is in full compliance with all covenants
and agreements contained in the Credit Agreement, as amended hereby.
SECTION 3. EFFECTIVENESS.
This Amendment shall become effective on and as of the date (the
"EFFECTIVE DATE"), on or before May 31, 1998, on which the following conditions
are satisfied:
(a) this Amendment shall have been executed by the Borrower
and the Administrative Agent, and counterparts hereof as so executed
shall have been delivered to the Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have
been executed by the Credit Parties named therein, and counterparts
hereof as so executed shall have been delivered to the Administrative
Agent; and
2
<PAGE> 4
(c) the Administrative Agent shall have been notified by all
of the Lenders that such Lenders have executed this Amendment (which
notification may be by facsimile or other written confirmation of such
execution).
The Administrative Agent shall notify the Borrower and each Lender in writing
of the effectiveness hereof.
SECTION 4. RATIFICATIONS.
The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
SECTION 5. MISCELLANEOUS.
5.1. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the Borrower, each Lender and the Administrative Agent
and their respective permitted successors and assigns.
5.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Amendment shall survive the execution and delivery
of this Amendment, and no investigation by the Administrative Agent or any
Lender or any subsequent Loan or issuance of a Letter of Credit shall affect the
representations and warranties or the right of the Administrative Agent or any
Lender to rely upon them.
5.3. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and
all other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
5.4. EXPENSES. As provided in the Credit Agreement, but without
limiting any terms or provisions thereof, the Borrower agrees to pay on demand
all costs and expenses incurred by the Administrative Agent in connection with
the preparation, negotiation, and execution of this Amendment, including without
limitation the costs and fees of the Administrative Agent's special legal
counsel, regardless of whether this Amendment becomes effective in accordance
with the terms hereof, and all costs and expenses incurred by the Administrative
Agent or any Lender in connection with the enforcement or preservation of any
rights under the Credit Agreement, as amended hereby.
5.5. SEVERABILITY. Any term or provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.6. APPLICABLE LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Ohio.
5.7. HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.8. ENTIRE AGREEMENT. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and
<PAGE> 5
delivered in connection with this Amendment embody the final, entire agreement
among the parties hereto with respect to the subject matter hereof and supersede
any and all prior commitments, agreements, representations and understandings,
whether written or oral, relating to the matters covered by this Amendment, and
may not be contradicted or varied by evidence of prior, contemporaneous or
subsequent oral agreements or discussions of the parties hereto. There are no
oral agreements among the parties hereto relating to the subject matter hereof
or any other subject matter relating to the Credit Agreement.
5.9. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
<PAGE> 6
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
as of the date first above written.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/
-----------------------------------------
Chief Financial Officer & Treasurer
NATIONAL CITY BANK,
individually and as Administrative Agent
By: /s/
-----------------------------------------
Senior Vice President
NBD BANK
By: /s/
-----------------------------------------
First Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/
-----------------------------------------
Vice President
NATIONAL BANK OF CANADA,
a Canadian Chartered Bank,
Cleveland Representative Office
By: /s/
-----------------------------------------
Vice President
5
<PAGE> 7
ACKNOWLEDGMENT AND CONSENT
For the avoidance of doubt, and without limitation of the intent and
effect of sections 6 and 10 of the Subsidiary Guaranty (as such term is defined
in the Credit Agreement referred to in the Amendment No. 2 to Credit Agreement
(the "AMENDMENT"), to which this Acknowledgment and Consent is appended), each
of the undersigned hereby unconditionally and irrevocably (i) acknowledges
receipt of a copy of the Credit Agreement and the Amendment, and (ii) consents
to all of the terms and provisions of the Credit Agreement as amended by the
Amendment.
Capitalized terms which are used herein without definition shall have
the respective meanings ascribed thereto in the Credit Agreement referred to
herein. This Acknowledgment and Consent is for the benefit of the Lenders and
the Administrative Agent, any other person who is a third party beneficiary of
the Subsidiary Guaranty, and their respective successors and assigns. No term or
provision of this Acknowledgment and Consent may be modified or otherwise
changed without the prior written consent of the Administrative Agent, given as
provided in the Credit Agreement. This Acknowledgment and Consent shall be
binding upon the successors and assigns of each of the undersigned. This
Acknowledgment and Consent may be executed by any of the undersigned in separate
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and
delivered this Acknowledgment and Consent as of the date of the Amendment
referred to herein.
<TABLE>
<S> <C>
APL ENGINEERED MATERIALS, INC. LIGHTING RESOURCES INTERNATIONAL, INC.
VENTURE LIGHTING INTERNATIONAL, INC. BALLASTRONIX (DELAWARE), INC.
SPECIALTY DISCHARGE LIGHTING, INC. ADVANCED LIGHTING SYSTEMS, INC.
METAL HALIDE TECHNOLOGIES, INC.
THE LIGHT SOURCE, INC.
ENERGY-WISE LIGHTING, INC. By: /s/
HID DIRECT, INC. -----------------------------------
BRIGHT IDEAS ADVERTISING AND DESIGN, INC. Louis S. Fisi, Secretary,
METAL HALIDE CONTROLS, INC. on behalf of each of the above corporations
a/k/a Current Industries, Inc.
HID RECYCLING, INC.
MICROSUN TECHNOLOGIES, INC.
ENERGY EFFICIENT PRODUCTS, INC. RUUD LIGHTING, INC.
BIO LIGHT, INC.
ADLT SERVICES, INC.
ADVANCED ACQUISITIONS, INC. By: /s/
-----------------------------------
Alan J. Ruud, President
By: /s/
-----------------------------------------
Nicholas R. Sucic, Vice President,
on behalf of each of the above corporations
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-34642) pertaining to the Amended and Restated Advanced Lighting
Technologies, Inc. 1995 Incentive Award Plan, in the Registration Statement
(Form S-8 No. 333-22159) pertaining to the Advanced Lighting Technologies, Inc.
Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No.
333-45689) pertaining to the Amended and Restated Advanced Lighting
Technologies, Inc. 1998 Incentive Award Plan, and in the Registration Statement
(Form S-8 No. 333-45695) pertaining to the Advanced Lighting Technologies, Inc.
1997 Billion Dollar Market Capitalization Incentive Award Plan of our report
dated September 25, 1997 (except earnings per share amounts and Notes J, O, and
U, as to which the date is March 30, 1998), with respect to the consolidated
financial statements of Advanced Lighting Technologies, Inc. for the year ended
June 30, 1997 included in its Current Report on Form 8-K dated July 7, 1998 as
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 6, 1998
