<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
or
________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ------------------------
Commission File Number: 0-27202
ADVANCED LIGHTING TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-1803229
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2307 EAST AURORA ROAD, SUITE ONE, TWINSBURG, OHIO 44087
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
330 / 963-6680
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- ------
There were 20,089,244 shares of the Registrant's Common Stock, $.001 par value
per share, outstanding as of February 9, 1998.
<PAGE> 2
INDEX
ADVANCED LIGHTING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- December 31, 1997
and June 30, 1997.................................................. 2
Condensed Consolidated Statements of Income -- Three
months and six months ended December 31, 1997 and
December 31, 1996 ................................................. 3
Condensed Statement of Consolidated Shareholders'
Equity -- Six months ended December 31, 1997 ...................... 4
Condensed Consolidated Statements of Cash Flows -- Six
months ended December 31, 1997 and December 31, 1996 .............. 5
Notes to Condensed Consolidated Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ........................ 16
Item 5. Other Information........................................................... 16
Item 6. Exhibits and Reports on Form 8-K ........................................... 17
SIGNATURES.................................................................................... 18
EXHIBIT INDEX................................................................................. 19
</TABLE>
<PAGE> 3
ADVANCED LIGHTING TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
December 31, June 30,
1997 1997
------------ --------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,508 $ 4,198
Short-term investments 4,075 4,075
Trade receivables, less allowances of $312 and $315 30,248 28,916
Receivables from related parties 1,136 346
Inventories:
Finished goods 25,076 21,143
Raw material and work-in-process 10,082 7,982
-------- --------
35,158 29,125
Prepaid expenses 2,113 1,363
Deferred taxes 1,852 2,566
-------- --------
Total current assets 91,090 70,589
Property, plant and equipment:
Land and buildings 6,668 6,143
Machinery and equipment 40,149 32,712
Furniture and fixtures 10,791 7,704
-------- --------
57,608 46,559
Less accumulated depreciation 9,915 8,558
-------- --------
47,693 38,001
Deferred taxes 535 535
Receivables from related parties 2,021 1,209
Investments in affiliates 17,242 7,565
Other assets 13,095 8,954
Excess of cost over net assets of business acquired, net 6,670 7,895
-------- --------
$178,346 $134,838
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 3,576 $ 3,731
Accounts payable 11,585 15,773
Payables to related parties 652 699
Employee-related liabilities 1,977 2,674
Accrued income and other taxes 2,767 1,689
Other accrued expenses 4,379 3,643
-------- --------
Total current liabilities 24,936 28,209
Long-term debt 7,401 35,908
Other liabilities 462 463
Deferred taxes 4,380 4,226
Shareholders' equity
Common stock 16 13
Paid-in-capital 128,936 59,087
Retained earnings 12,215 6,932
-------- --------
141,167 66,032
-------- --------
$178,346 $134,838
======== ========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 4
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share dollar amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 32,729 $ 20,107 $ 62,971 $ 38,442
Costs and expenses:
Cost of sales 18,760 10,696 36,306 20,597
Marketing and selling 4,915 3,581 9,331 6,642
Research and development 2,078 1,468 3,672 2,744
General and administrative 2,065 1,765 4,351 3,538
Consumer product advertising 602 -- 871 --
Fiber optic joint venture formation costs -- -- 212 --
Settlement of claim -- 771 -- 771
Amortization of intangible assets 217 47 436 94
-------- -------- -------- --------
Income from operations 4,092 1,779 7,792 4,056
Other income (expense):
Interest expense (6) (163) (343) (357)
Interest income 278 111 805 329
-------- -------- -------- --------
Income before income taxes 4,364 1,727 8,254 4,028
Income taxes 1,571 576 2,971 1,407
-------- -------- -------- --------
Net income $ 2,793 $ 1,151 $ 5,283 $ 2,621
======== ======== ======== ========
Earnings per share
Basic $ 0.17 $ 0.09 $ 0.32 $ 0.20
======== ======== ======== ========
Diluted $ 0.17 $ 0.08 $ 0.32 $ 0.20
======== ======== ======== ========
Weighted average shares outstanding
Basic 16,506 13,345 16,378 13,089
======== ======== ======== ========
Diluted 16,778 13,650 16,702 13,344
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 5
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
COMMON STOCK
---------------------------- PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
------------- ------------- ------------ ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1997 13,435 $ 13 $ 59,087 $ 6,932 $ 66,032
Net income - - - 5,283 5,283
Net proceeds from public offering
of common shares 3,000 3 69,317 - 69,320
Stock options exercised 43 - 532 - 532
------------- ------------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1997 16,478 $ 16 $128,936 $ 12,215 $141,167
============= ============= ============ ============ =============
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 6
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,283 $ 2,621
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,876 1,159
Deferred income taxes 868 995
Changes in operating assets and liabilities:
Trade receivables (2,344) (5,620)
Inventories (6,335) (3,228)
Prepaids and other assets (2,862) (1,585)
Accounts payable and accrued expenses (2,718) (615)
Other -- (58)
-------- --------
Net cash used in operating activities (6,232) (6,331)
INVESTING ACTIVITIES
Capital expenditures (2,481) (6,105)
Purchase of short-term investments -- (19,611)
Sale of short-term investments -- 5,941
Purchases of businesses -- (44)
Investments in affiliates (3,252) (519)
Use of net proceeds from public offering:
Capital expenditures (8,329) --
Investment in joint venture with Rohm & Haas Company (2,000)
Acquisition of minority interest in Fiberstars, Inc. (2,835) --
-------- --------
Net cash used in investing activities (18,897) (20,338)
FINANCING ACTIVITIES
Proceeds from revolving credit facility 35,010 47,144
Payments of revolving credit facility (35,485) (33,832)
Proceeds from long-term debt 3,165 4,279
Payments of long-term debt and capital leases (2,103) (3,633)
Issuance of common stock 532 306
Net proceeds from public offering 69,320 30,091
Useof net proceeds from public offering (excluding $9,696 used for working
capital purposes for the six months ended December 31, 1997):
Payment of long-term debt (7,400) --
Payment of revolving credit facility (25,600) (13,700)
-------- --------
Net cash provided by financing activities 37,439 30,655
-------- --------
Increase in cash and cash equivalents 12,310 3,986
Cash and cash equivalents, beginning of period 4,198 1,682
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,508 $ 5,668
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 587 $ 328
Income taxes paid 1,077 45
Capitalized interest 416 108
Noncash transactions:
Equipment acquired through capital leases 376 1,004
Stock issued for purchases of businesses -- 975
Detail of acquisition:
Assets acquired -- $ 1,231
Liabilities assumed -- 201
Stock issued -- 975
-------- --------
Cash paid -- 55
Less cash acquired -- 11
-------- --------
Net cash paid for acquisition -- $ 44
======== ========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 7
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
(Dollar amounts in thousands)
A. ORGANIZATION
Advanced Lighting Technologies, Inc. (the "Company" or "ADLT") is an
innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including materials, system components, systems, and production
equipment.
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended June 30, 1997. Operating results for the three months or
six months ended December 31, 1997 are not necessarily indicative of the results
that may be expected for the full-year ending June 30, 1998.
The preparation of 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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 128, "Earnings per Share," which
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been restated to conform to the Statement 128
requirements.
C. CONSUMER PRODUCT ADVERTISING COSTS
In March 1997, the Company began to market its MicroSun(TM) metal halide lamp
systems for the residential and consumer markets. To promote MicroSun(TM)
products, the Company implemented a direct marketing test program which resulted
in $602 of advertising and promotion costs being charged to operations during
the three months ended December 31, 1997, and $871 of such costs being charged
to operations during the six months ended December 31, 1997.
6
<PAGE> 8
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1997
(Dollar amounts in thousands)
D. FIBER OPTICS JOINT VENTURE FORMATION COSTS
On December 31, 1997, the Company and Rohm and Haas Company 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
consideration for a 50% interest in Unison, the Company contributed its
subsidiary, Advanced Cable Lite Corporation, $2,000 in cash, other fiber optic
lighting system assets and is obligated to contribute an additional $3,000 in
cash under a note due January 1, 2000. The Company will account for its
investment in Unison under the equity method.
The transaction had the following noncash impact of increasing (decreasing) the
Company's December 31, 1997 condensed consolidated balance sheet:
<TABLE>
<S> <C>
Investments in affiliates $ 4,592
Working capital, net (505)
Property, plant and equipment, net (53)
Other assets (51)
Excess of cost over net assets of businesses acquired, net (983)
Long-term debt 3,000
</TABLE>
E. ISSUANCE OF COMMON STOCK
In July 1997, the Company issued three million shares of its Common Stock in a
public offering, resulting in net proceeds of $69,320. Approximately $33,000 of
the net proceeds from this offering were used to repay substantially all amounts
outstanding under its Revolving Credit and Security Agreement and its Term Note
(the "Loan Agreement"). Of the remaining net proceeds, $8,329 was used for
capital expenditures, primarily production equipment and leasehold improvements,
$2,835 was used to purchase 19.6% of Fiberstars, Inc., a company specializing in
the marketing and distribution of fiber optic lighting products, $2,000 was
contributed to Unison Fiber Optics Lighting Systems LLC, the Company's joint
venture with Rohm and Haas Company, and $9,696 was used for working capital
purposes for the six months ended December 31, 1997.
F. ACQUISITIONS SUBSEQUENT TO DECEMBER 31, 1997
On January 2, 1998, the Company acquired all of the outstanding capital stock
(the "Stock") of Ruud Lighting, Inc. ("Ruud"), located in Racine, Wisconsin.
Ruud manufactures and directly markets high-intensity discharge ("HID") lighting
systems, with a strong focus on metal halide installations, for commercial,
industrial, outdoor, and related lighting applications.
The Stock was acquired from the five shareholders of Ruud in a
privately-negotiated purchase transaction. The purchase price for the Stock
consisted of three million shares of the Company's Common Stock and
approximately $35,500 in cash. The shares were newly-issued from available
7
<PAGE> 9
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1997
(Dollar amounts in thousands)
F. ACQUISITIONS SUBSEQUENT TO DECEMBER 31, 1997 (CONTINUED)
authorized but unissued shares of the Company. The cash portion of the purchase
price was financed using a portion of the proceeds of the Company's $85,000
revolving credit facility (see Note G for a description of the new facility).
The Company also assumed approximately $14,400 of Ruud's debt obligations as of
the closing date. The acquisition will be accounted for by the purchase method.
On January 28, 1998, the Company completed the acquisition of Deposition
Sciences, Inc.("DSI"), of Santa Rosa, California. DSI is the leader in the
development of sophisticated thin film deposition systems (equipment) and
coatings for lighting applications, with particular emphasis on coatings for
metal halide lighting systems.
The stock of DSI was acquired in a privately-negotiated merger transaction. The
purchase price consisted of 600,000 shares of the Company's Common Stock and
approximately $14,500 in cash. The shares were newly-issued from available
authorized but unissued shares of the Company. The cash portion of the purchase
price was financed using a portion of the proceeds of the Company's $85,000
revolving credit facility. The Company also assumed approximately $1,200 of
DSI's debt obligations as of the closing date. This transaction will be
accounted for by the purchase method.
G. FINANCING ARRANGEMENTS SUBSEQUENT TO DECEMBER 31, 1997
On January 2, 1998, the Company replaced its existing Loan Agreement and other
borrowings in North America with an $85,000 revolving credit facility provided
by several North American financial institutions. Proceeds from this facility
were partially used to finance the $35,500 cash portion of the Ruud acquisition
and the $14,500 cash portion of the DSI acquisition (see Note F for a
description of these acquisitions). Proceeds were also used to repay $19,200 of
existing and outstanding North American bank borrowings of ADLT, Ruud and DSI.
The facility has a three-year term expiring in December 2000, extendable
annually for a three-year term. Interest rates on loans outstanding are based,
at the Company's option, on LIBOR or the agent bank's prime rate. The interest
rates based on LIBOR may range between LIBOR plus .625% and LIBOR plus 1.75%.
The Company is also obligated to pay commitment fees of between .20% and .375%
on the unused portion of the facility. The facility contains certain affirmative
and negative covenants customary for this type of agreement, prohibits cash
dividends, and includes financial covenants with respect to interest coverage,
cash flow and tangible net worth. The principal security for the facility is
substantially all of the personal property of the Company and each of its North
American subsidiaries and a pledge of stock of each of the Company's principal
subsidiaries.
The early extinguishment of debt under the Loan Agreement resulted in a noncash
write-off of deferred financing costs and an extraordinary charge (estimated to
amount to $650, net of applicable income tax benefits) in the quarter ending
March 31, 1998.
8
<PAGE> 10
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1997
(Dollar amounts in thousands)
H. ADDITIONAL INVESTMENT IN FIBERSTARS, INC. SUBSEQUENT TO DECEMBER 31, 1997
During July 1997, the Company purchased an equity interest in Fiberstars, Inc.,
a marketer and distributor of fiber optic lighting products. At December 31,
1997, the Company owned approximately 669,000 common shares, or 19.6% of total
Fiberstars shares outstanding. On February 11, 1998, the Company increased its
equity ownership to approximately 1,023,000 common shares, or 29% of total
outstanding shares. Accordingly, the Company will change its method of carrying
the investment to equity from cost in the quarter ending March 31, 1998, as
required under generally accepted accounting principles.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(Dollar amounts in thousands)
This report on Form 10-Q may contain forward-looking statements. For this
purpose, any statement contained herein that is not a statement of historical
fact may be deemed to be a forward-looking statement. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. There are a
number of factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements. Such factors
are detailed in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 filed with the Securities and Exchange Commission.
The following is management's discussion and analysis of certain significant
factors which have affected the results of operations and should be read in
conjunction with the accompanying unaudited Condensed Consolidated Financial
Statements and notes thereto.
RESULTS OF OPERATIONS - SELECTED ITEMS AS A PERCENTAGE OF NET SALES
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
periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ..................................... 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of sales .............................. 57.3 53.2 57.7 53.6
Marketing and selling ...................... 15.0 17.8 14.8 17.3
Research and development ................... 6.4 7.3 5.8 7.1
General and administrative.................. 6.3 8.8 6.9 9.2
Consumer product advertising ............... 1.8 -- 1.4 --
Fiber optic joint venture formation cost ... -- -- 0.3 --
Settlement of claim -- 3.9 -- 2.0
Amortization of intangible assets........... 0.7 0.2 0.7 0.2
----- ----- ----- -----
Income from operations......................... 12.5 8.8 12.4 10.6
Other income (expenses):
Interest expense ........................... (0.0) (0.8) (0.6) (0.9)
Interest income ............................ 0.8 0.6 1.3 0.8
----- ----- ----- -----
Income before income taxes .................... 13.3 8.6 13.1 10.5
Income taxes .................................. 4.8 2.9 4.7 3.7
----- ----- ----- -----
NET INCOME 8.5 5.7 8.4 6.8
===== ===== ===== =====
</TABLE>
Factors which have affected the results of operations and net income for the
second quarter of fiscal 1998 as compared to the second quarter of fiscal 1997
and the comparison of the first six months of fiscal years 1998 and 1997 are
discussed below.
10
<PAGE> 12
QUARTER ENDED DECEMBER 31, 1997 COMPARED WITH QUARTER ENDED DECEMBER 31, 1996
Net sales. Net sales increased 62.8% to $32,729 for the second quarter of
fiscal 1998 from $20,107 for the second quarter of fiscal 1997. The increase in
system components, materials, and systems ($12,468) was primarily attributable
to increased unit volume, including a $8,880 increase from the Company's power
supply subsidiaries acquired in the second half of fiscal 1997. The increase in
equipment sales ($154) resulted from an increase in equipment
contracts-in-progress, as compared with the number of contracts-in-progress
during the second quarter of fiscal 1997.
Cost of Sales. Cost of sales increased 75.4% to $18,760 in the second quarter of
fiscal 1998 from $10,696 in the second quarter of fiscal 1997. As a percentage
of net sales, cost of sales increased to 57.3% in the second quarter of fiscal
1998 from 53.2% in the second quarter of fiscal 1997. This increase was
primarily attributable to a change in the product mix, whereby lower-margin
power supplies products represented a larger component of total sales in fiscal
1998.
Marketing and Selling Expenses. Marketing and selling expenses increased 37.3%
to $4,915 in the second quarter of fiscal 1998 from $3,581 in the second quarter
of fiscal 1997. Marketing and selling expenses, as a percentage of net sales,
decreased to 15.0% in the second quarter of fiscal 1998 from 17.8% in the second
quarter of fiscal 1997. This decrease 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
41.6% to $2,078 in the second quarter of fiscal 1998 from $1,468 in the second
quarter 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 6.4% in the second quarter
of fiscal 1998 from 7.3% in the second quarter of fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased 17.0% to $2,065 in the second quarter of fiscal 1998 from $1,765 in
the second quarter of fiscal 1997. As a percentage of net sales, general and
administrative expenses decreased to 6.3% in the second quarter of fiscal 1998
from 8.8% in the second quarter 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.
Consumer Product Advertising Costs. In March 1997, the Company began to market
its MicroSun(TM) metal halide lamp systems for the residential and consumer
markets. To promote MicroSun(TM) products, the Company implemented a direct
marketing test program which resulted in $602 of advertising and promotion costs
being charged to operations during the quarter ended December 31, 1997.
Settlement of Claim. During the second quarter of fiscal 1997, the Company paid
$475 in an out-of-court settlement of a claim brought by certain former common
shareholders of a predecessor of the Company. The charge of $771 ($.06 per
share) in the second quarter of fiscal 1997 represents the $475 settlement plus
legal and other directly-related costs, net of anticipated insurance recoveries.
Income from Operations. As a result of the aforementioned factors, during the
second quarter of fiscal 1998, income from operations increased 130.0% to $4,092
from $1,779 during the second
11
<PAGE> 13
quarter of fiscal 1997. As a percentage of net sales, income from operations
increased to 12.5% in the second quarter of fiscal 1998 as compared to 8.8% in
the second quarter of fiscal 1997.
Interest Expense. Interest expense decreased to $6 during the second quarter
of fiscal 1998 as compared to $163 for the second quarter of fiscal 1997. This
decrease resulted from lower average debt outstanding during the second quarter
of fiscal 1998 as compared to the second quarter of fiscal 1997.
Interest Income. Interest income increased to $278 during the second quarter of
fiscal 1998 as compared to $111 in the second quarter of fiscal 1997. This
increase is attributable to higher average cash equivalents and short-term
investments during the second quarter of fiscal 1998 as compared to the second
quarter of fiscal 1997.
Income Taxes. Income tax expense increased to $1,571 in the second quarter of
fiscal 1998, from $576 for the comparable period of the preceding year. The
increase was primarily due to the increase in income from operations and an
increase in the effective tax rates to 36% for the second quarter of fiscal 1998
as compared with 33% during the second quarter of fiscal 1997. The lower
effective tax rate in fiscal 1997 resulted primarily from the reversal of
valuation allowances related to the utilization of net operating loss
carryforwards.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1996
Net sales. Net sales increased 63.8% to $62,971 for the first half of fiscal
1998 from $38,442 for the first half of fiscal 1997. The increase in system
components, materials, and systems ($22,881) was primarily attributable to
increased unit volume, including a $16,394 increase from the Company's power
supply subsidiaries acquired in the second half of fiscal 1997. The increase in
equipment sales ($1,648) resulted from an increase in equipment
contracts-in-progress, as compared with the number of contracts-in-progress
during the first half of fiscal 1997.
Cost of Sales. Cost of sales increased 76.3% to $36,306 in the first half of
fiscal 1998 from $20,597 in the first half of fiscal 1997. As a percentage of
net sales, cost of sales increased to 57.7% in the first half of fiscal 1998
from 53.6% in the first half of fiscal 1997. This increase was primarily
attributable to a change in the product mix, whereby lower-margin power supplies
products represented a larger component of total sales in fiscal 1998.
Marketing and Selling Expenses. Marketing and selling expenses increased 40.5%
to $9,331 in the first half of fiscal 1998 from $6,642 in the first half of
fiscal 1997. Marketing and selling expenses, as a percentage of net sales,
decreased to 14.8% in the first half of fiscal 1998 from 17.3% in the first half
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
33.8% to $3,672 in the first half of fiscal 1998 from $2,744 in the first half
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 5.8% in the first half of
fiscal 1998 from 7.1% in the first half of fiscal 1997.
12
<PAGE> 14
General and Administrative Expenses. General and administrative expenses
increased 23.0% to $4,351 in the first half of fiscal 1998 from $3,538 in the
first half of fiscal 1997. As a percentage of net sales, general and
administrative expenses decreased to 6.9% in the first half of fiscal 1998 from
9.2% in the first half 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.
Consumer Product Advertising Costs. In March 1997, the Company began to market
its MicroSun(TM) metal halide lamp systems for the residential and consumer
markets. To promote MicroSun(TM) products, the Company implemented a direct
marketing test program which resulted in $871 of advertising and promotion costs
being charged to operations during the six months ended December 31, 1997.
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 of formation and development
costs which were charged to operations during the first half of fiscal 1998.
Income from Operations. As a result of the aforementioned factors, during the
first half of fiscal 1998 income from operations increased 92.1% to $7,792 from
$4,056 during the first half of fiscal 1997. As a percentage of net sales,
income from operations increased to 12.4% in the first half of fiscal 1998 as
compared to 10.6% in the first half of fiscal 1997.
Interest Expense. Interest expense of $343 during the first half of fiscal 1998
was comparable with the $357 for the first half of fiscal 1997.
Interest Income. Interest income increased to $805 during the first half of
fiscal 1998 as compared to $329 in the first half of fiscal 1997. This increase
is attributable to higher average cash equivalents and short-term investments
during the first half of fiscal 1998 as compared to the first half of fiscal
1997.
Income Taxes. Income tax expense increased to $2,971 in the first half of
fiscal 1998, from $1,407 for the comparable period of the preceding year. The
increase was primarily due to the increase in income from operations and an
increase in the effective tax rates to 36% for the first half of fiscal 1998 as
compared with 35% during the first half of fiscal 1997. The lower effective tax
rate in fiscal 1997 resulted primarily from the reversal of valuation
allowances related to the utilization of net operating loss carryforwards.
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 July 1997 issuances of common stock currently
invested in short-term instruments and cash equivalents).
13
<PAGE> 15
During July 1997, the Company received $74,250 of proceeds from the sale of
three million shares of its common stock in connection with a public offering.
Underwriting fees amounted to $3,720 and additional costs associated with the
public offering, primarily for legal, accounting, consulting and printing fees,
amounted to $1,210. The net proceeds were $69,320, of which $33,000 was used to
reduce debt outstanding under the Company's domestic Revolving Credit and
Security Agreement and its Term Note (the "Loan Agreement"). Of the remaining
net proceeds, $8,329 was used for capital expenditures, primarily production
equipment and leasehold improvements, $2,835 was used to purchase a 19.6%
interest in Fiberstars, Inc., a company specializing in the marketing and
distribution of fiber optic lighting products, $2,000 was contributed to Unison
Fiber Optics Lighting Systems LLC, the Company's joint venture with Rohm and
Haas Company, and $9,696 was used for working capital purposes for the six
months ended December 31, 1997.
The Company's working capital (current assets less current liabilities) at
December 31, 1997 was $66,154, resulting in a working capital ratio of current
assets to current liabilities of 3.7 to 1.0, as compared to $42,380 or 2.5 to
1.0 at June 30, 1997. As of December 31, 1997, the Company had approximately
$20,600 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 its existing Loan Agreement and other
borrowings in North America with an $85,000 revolving credit facility provided
by several North American financial institutions. Proceeds from this facility
were also used to finance the $35,500 cash portion of the Ruud Lighting,
Inc.("Ruud") acquisition and the $14,500 cash portion of the Deposition
Sciences, Inc.("DSI") acquisition (see Note F to the condensed consolidated
financial statements for a description of these acquisitions). Proceeds were
also used to repay $19,200 of existing and outstanding North American bank
borrowings of ADLT, Ruud and DSI.
The early extinguishment of debt under the Loan Agreement resulted in a noncash
write-off of deferred financing costs and an extraordinary charge (estimated to
amount to $650, net of applicable income tax benefits) in the quarter ending
March 31, 1998.
Net cash used in operating activities during the six months ended December 31,
1997 amounted to $6,232, primarily as a result of higher accounts receivable
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.
For the six months ended December 31, 1997, the Company invested approximately
$10,800 in capital expenditures as compared with $6,100 for the six months ended
December 31, 1996. Over the next twelve months the Company intends to spend
approximately $18,000 on capital expenditures, primarily production equipment.
The Company believes that the successful completion of the July 1997 offering
has strengthened its financial position and enhanced its ability to obtain
additional financing. In addition, the Company believes that the acquisition of
Ruud will favorably impact its cash flow from operations, as Ruud has
historically achieved significant positive cash flows from its operations. The
Company believes that the combination of its anticipated cash flows from Ruud'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, arising from acquisitions and additional investments in existing
relationships, are realized.
14
<PAGE> 16
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.
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 confirm that 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.
15
<PAGE> 17
PART II. OTHER INFORMATION
Except as noted below, the items in Part II are inapplicable or, if applicable,
would be answered in the negative. These items have been omitted and no other
reference is made thereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of shareholders was held on November 12, 1997. The following
sets forth the actions considered and the results of the voting with respect to
each action:
<TABLE>
<CAPTION>
Abstained/
Broker
For Against Nonvotes
---------- --------- ----------
<S> <C> <C> <C>
1. Nominees for director for the term
expiring in 2000 -- All elected
Louis S. Fisi 12,495,794 450,710 -0-
Francis H. Beam 12,498,424 448,080 -0-
2. Ratify and approve 1997 Billion Dollar Market
Capitalization Incentive Award Plan -- Passed 10,824,707 1,288,862 832,935
3. Ratify and approve 1997 Employee Stock
Purchase Plan -- Passed 12,023,562 108,450 814,492
4. Ratify appointment of Ernst & Young LLP
-- Passed 12,935,386 2,977 8,141
</TABLE>
ITEM 5. OTHER INFORMATION
On January 28, 1998, the Company completed the acquisition of Deposition
Sciences, Inc.("DSI"), of Santa Rosa, California. DSI is the leader in the
development of sophisticated thin film deposition systems (equipment) and
coatings for lighting applications, with particular emphasis on coatings for
metal halide lighting systems.
The stock of DSI was acquired in a privately-negotiated merger transaction. The
purchase price consisted of 600,000 shares of the Company's Common Stock and
approximately $14,500 in cash. The shares were newly-issued from available
authorized but unissued shares of the Company. The cash portion of the purchase
price was financed using a portion of the proceeds of the Company's $85,000
revolving credit facility (see Note G to the condensed consolidated financial
statements for a description of the new facility). The Company also assumed
approximately $1,200 of DSI's debt obligations as of the closing date. The
transaction will be accounted for as a purchase.
16
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NUMBER/
EXHIBIT INCORPORATED
NUMBER TITLE BY REFERENCE
- -------- ----- ------------
<S> <C> <C>
2.1 Stock Purchase Agreement among Advanced Lighting Technologies,
Inc., Ruud Lighting, Inc. and Alan J. Ruud, Theodore O. Sokoly,
Donald Wandler, Christopher A. Ruud and Cynthia A. Johnson,
Dated December 19, 1997. *
3.1 Second Amended and Restated Articles of Incorporation (as
amended to February 12, 1997); Second Amendment to Second
Amended and Restated Articles of Incorporation. **
3.2 Code of Regulations. ***
11 Statement Re: Computation of Earnings Per Share 20
27 Financial Data Schedule 21
</TABLE>
- -------------
* Incorporated by reference to Exhibit of same number in Company's Current
Report on Form 8-K dated January 2, 1998.
** Incorporated by reference to Exhibit of same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended December 31,
1996.
*** Incorporated by reference to Company's Registration Statement on
Form S-1, Registration No. 33-97902, effective December 11, 1995.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter ended December 31,
1997.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 12, 1998 ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ Wayne R. Hellman
----------------------
Wayne R. Hellman
Chief Executive Officer
By: /s/ Nicholas R. Sucic
------------------------
Nicholas R. Sucic
Chief Financial Officer
18
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
- ------ ----------------------- --------
<S> <C> <C>
2.1 Stock Purchase Agreement among Advanced Lighting Technologies,
Inc., Ruud Lighting, Inc. and Alan J. Ruud, Theodore O. Sokoly,
Donald Wandler, Christopher A. Ruud and Cynthia A. Johnson,
Dated December 19, 1997. *
3.1 Second Amended and Restated Articles of Incorporation (as
amended to February 12, 1997); Second Amendment to Second
Amended and Restated Articles of Incorporation. **
3.2 Code of Regulations. ***
11 Statement Re: Computation of Earnings Per Share 20
27 Financial Data Schedule 21
</TABLE>
- -------------
* Incorporated by reference to Exhibit of same number in Company's Current
Report on Form 8-K dated January 2, 1998.
** Incorporated by reference to Exhibit of same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended December 31,
1996.
*** Incorporated by reference to Company's Registration Statement on
Form S-1, Registration No. 33-97902, effective December 11, 1995.
19
<PAGE> 1
Exhibit 11
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-----------------------------------------------------------------
1997 1996
------------------------------ ----------------------------------
Shares Amount EPS Shares Amount EPS
------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS $2,793 $1,151
====== ======
Weighted average number of common shares:
Shares deemed outstanding at beginning of period 16,457 13,297
Weighted average shares issued in acquisition -- 5
Weighted average shares issued for exercise of
stock options 14 8
Weighted average shares issuable 35 35
------ ------
Weighted average number of common shares (basic): 16,506 13,345
Weighted average common share equivalents 272 305
------ ------
Weighted average number of common
and common equivalent shares (diluted) 16,778 13,650
====== ======
EARNINGS PER SHARE - BASIC $0.17 $0.09
===== =====
EARNINGS PER SHARE - DILUTED $0.17 $0.08
===== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------------------------------------------
1997 1996
------------------------------ ----------------------------------
Shares Amount EPS Shares Amount EPS
------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS $5,283 $2,621
====== ======
Weighted average number of common shares:
Shares deemed outstanding at beginning of period 13,435 10,845
Weighted average shares issued pursuant to
public offering 2,886 2,203
Weighted average shares issued in acquisition -- 2
Weighted average shares issued for exercise of
stock options 22 4
Weighted average shares issuable 35 35
------ ------
Weighted average number common share (basic): 16,378 13,089
Weighted average common share equivalents 324 255
------ ------
Weighted average number of common
and common equivalent shares (diluted) 16,702 13,344
====== ======
EARNINGS PER SHARE - BASIC $0.32 $0.20
===== =====
EARNINGS PER SHARE - DILUTED $0.32 $0.20
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Advanced
Lighting Technologies, Inc. condensed Consolidated Financial Statements for the
six months ended December 31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,508
<SECURITIES> 4,075
<RECEIVABLES> 33,717
<ALLOWANCES> 312
<INVENTORY> 35,158
<CURRENT-ASSETS> 91,090
<PP&E> 57,608
<DEPRECIATION> 9,915
<TOTAL-ASSETS> 178,346
<CURRENT-LIABILITIES> 24,936
<BONDS> 7,401
0
0
<COMMON> 16
<OTHER-SE> 141,151
<TOTAL-LIABILITY-AND-EQUITY> 178,346
<SALES> 62,971
<TOTAL-REVENUES> 62,971
<CGS> 36,306
<TOTAL-COSTS> 53,660
<OTHER-EXPENSES> 1,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> 8,254
<INCOME-TAX> 2,971
<INCOME-CONTINUING> 5,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,283
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
