<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 September 30, 2000
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
32000 AURORA ROAD, SOLON, OHIO 44139
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
440 / 519-0500
-------------------------------------------------------------------------------
(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 22,207,355 shares of the Registrant's Common Stock, $.001 par value
per share, outstanding as of October 20, 2000.
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
ADVANCED LIGHTING TECHNOLOGIES, INC.
PAGE
NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 2000 and June 30, 2000 ...........................................2
Condensed Consolidated Statements of Operations --
Three months ended September 30, 2000 and 1999 ................................3
Condensed Statement of Consolidated Shareholders' Equity --
Three months ended September 30, 2000..........................................4
Condensed Consolidated Statements of Cash Flows --
Three months ended September 30, 2000 and 1999.................................5
Notes to Condensed Consolidated Financial Statements...............................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................24
PART II OTHER INFORMATION
Item 5. Other Information.....................................................................25
Item 6. Exhibits and Reports on Form 8-K......................................................25
SIGNATURES..............................................................................................28
EXHIBIT INDEX...........................................................................................29
</TABLE>
<PAGE> 3
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,058 $ 3,890
Trade receivables, less allowances of $1,197 and $1,129 33,992 31,983
Inventories:
Finished goods 25,298 26,532
Raw materials and work-in-process 21,209 21,930
--------- ---------
46,507 48,462
Prepaid expenses 2,380 1,881
--------- ---------
Total current assets 85,937 86,216
Property, plant and equipment:
Land and buildings 44,092 44,187
Production machinery and equipment 64,909 62,323
Other equipment 4,542 5,077
Furniture and fixtures 21,000 20,893
--------- ---------
134,543 132,480
Less accumulated depreciation 25,401 23,317
--------- ---------
109,142 109,163
Receivables from related parties 2,749 3,755
Investments in affiliates 14,246 14,251
Other assets 7,246 7,037
Intangible assets 31,561 31,791
Excess of cost over net assets of businesses acquired, net 51,822 52,262
--------- ---------
$ 302,703 $ 304,475
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 6,443 $ 7,097
Accounts payable 17,539 20,389
Payables to related parties 1,062 2,639
Employee-related liabilities 3,775 3,913
Accrued income and other taxes 907 1,436
Other accrued expenses 7,531 10,793
--------- ---------
Total current liabilities 37,257 46,267
Long-term debt 144,231 158,110
Minority interest 320 316
Preferred stock, $.001 par value, per share; 1,000 shares authorized;
761 Series A convertible redeemable shares issued and outstanding at
September 30, 2000 (redemption value -- $22,176 at September 30, 2000) 17,609 16,999
Shareholders' equity
Common stock, $.001 par value, 80,000 shares authorized, 22,204 shares issued
and outstanding as of September 30, 2000
and 20,482 shares issued and outstanding as of June 30, 2000 22 20
Paid-in-capital 218,367 195,786
Accumulated other comprehensive income (loss) (4,036) (2,659)
Loan receivable from officer (9,710) (9,528)
Retained earnings (deficit) (101,357) (100,836)
--------- ---------
103,286 82,783
--------- ---------
$ 302,703 $ 304,475
========= =========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 4
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share dollar amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales $ 52,864 $ 56,180
Costs and expenses:
Cost of sales 31,889 34,844
Marketing and selling 10,070 10,175
Research and development 3,491 3,495
General and administrative 3,707 4,035
Amortization of intangible assets 703 675
-------- --------
Income from operations 3,004 2,956
Other income (expense):
Interest expense (3,764) (3,790)
Interest income 224 220
Income from equity investments 39 50
-------- --------
Loss before income taxes and minority interest (497) (564)
Income taxes 20 218
-------- --------
Loss before minority interest (517) (782)
Minority interest in income of consolidated subsidiary (4) -
-------- --------
Net loss $ (521) $ (782)
======== ========
Loss per share -- basic and diluted $ (.05) $ (.04)
======== ========
Weighted average shares outstanding:
Basic and diluted 20,955 20,284
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 5
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2000
(in thousands)
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK PAID-IN COMPREHENSIVE
------------------------ INCOME
STOCK SHARES PAR VALUE CAPITAL (LOSS)
----- ------ --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 2000 $ 16,999 20,482 $ 20 $ 195,786
Net loss - - - $ (521)
Net proceeds from public
offering of common shares - 1,700 2 22,898 -
Preferred shares accretion 610 - - (610) -
Interest on loan to officer - - - - -
Stock options exercised - 12 - 124 -
Stock purchases
by employees - 4 - 50 -
Stock issued pursuant to
employee benefit plan - 6 - 119 -
Other comprehensive
income (loss):
Foreign currency
translation adjustment - - - - (1,377)
--------
Other comprehensive
income (loss) (1.377)
-------- ------ ---- --------- ---------
Comprehensive
income (loss) $ (1,898)
=========
BALANCE AT
SEPTEMBER 30, 2000 $ 17,609 22,204 $ 22 $ 218,367
======== ====== ==== =========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED LOAN
OTHER RECEIVABLE RETAINED
COMPREHENSIVE FROM EARNINGS
INCOME (LOSS) OFFICER (DEFICIT) TOTAL
------------- ------- --------- -----
<S> <C> <C> <C> <C>
Balance at July 1, 2000 $ (2,659) $ (9,528) $ (100,836) $ 99,782
Net loss - - (521) (521)
Net proceeds from public
offering of common shares - - - 22,900
Preferred shares accretion - - - -
Interest on loan to officer - (182) - (182)
Stock options exercised - - - 124
Stock purchases
by employees - - - 50
Stock issued pursuant to
employee benefit plan - - - 119
Other comprehensive
income (loss):
Foreign currency
translation adjustment - - - -
Other comprehensive
income (loss) (1,377) (1,377)
--------- --------- ---------- ---------
Comprehensive
income (loss)
BALANCE AT
SEPTEMBER 30, 2000 $ (4,036) $ (9,710) $ (101,357) $ 120,895
========= ========= ========== =========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 6
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (521) $ (782)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,085 1,849
Amortization 703 675
Provision for doubtful accounts 69 24
Income from equity investments (39) (50)
Changes in operating assets and liabilities:
Trade receivables (2,023) (4,324)
Inventories 1,956 (324)
Prepaids and other assets 253 (784)
Accounts payable and accrued expenses (8,341) (1,439)
Payments related to special charge accruals (16) (792)
Other (1,486) 978
------------- -------------
Net cash used in operating activities (7,360) (4,969)
INVESTING ACTIVITIES
Capital expenditures (2,489) (1,440)
Sale of short-term investments - 350
------------- -------------
Net cash used in investing activities (2,489) (1,090)
FINANCING ACTIVITIES
Proceeds from revolving credit facility 55,971 48,379
Payments of revolving credit facility (68,072) (40,716)
Proceeds from long-term debt 60 -
Payments of long-term debt and capital leases (2,135) (1,320)
Net proceeds from public offering 22,900 -
Issuance of common stock 293 145
------------- -------------
Net cash provided by financing activities 9,017 6,488
------------- -------------
Increase (decrease) in cash and cash equivalents (832) 429
Cash and cash equivalents, beginning of period 3,890 3,830
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,058 $ 4,259
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 6,054 $ 5,854
Income taxes paid 112 -
Capitalized interest 76 16
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 7
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
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 and systems. The Company also
develops, manufactures and markets passive optical telecommunications devices,
components and equipment based on the optical coating technologies of its
wholly-owned subsidiary, Deposition Sciences, Inc.
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, the financial statements
include all material adjustments necessary for a fair presentation, consisting
of normal recurring accruals. 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, 2000. Operating results for the three
months ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the full-year ending June 30, 2001.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from those estimates.
New Accounting Standard
The Company adopted Statement of Financial Accounting Standards ("FAS") No. 133
"Accounting for Derivative Instruments and Hedging Activities" as of July 1,
2000. FAS 133 requires that all derivatives, such as interest rate exchange
agreements (swaps), be recognized on the balance sheet at fair value. The
Company had no derivatives as at July 1, 2000, and therefore, no resulting
transition adjustments.
Financial Statement Presentation Changes
Certain amounts for prior periods have been reclassified to conform to the
current period reporting presentation.
6
<PAGE> 8
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
C. COMPREHENSIVE INCOME (LOSS)
For the three months ended September 30, 2000 and 1999, the Company's
comprehensive loss was $(1,898) and $(434), respectively.
D. BANK CREDIT FACILITY AND SENIOR NOTES
The Company maintains a Bank Credit Facility with a $40,000 revolving credit
loan and $20,000 term loan provided by several financial institutions. The
revolving credit loan has a three-year term expiring in May 2002. Interest rates
on revolving credit loans outstanding are based, at the Company's option, on
LIBOR plus 2.25% or the agent bank's prime rate. Availability of borrowings is
determined by the Company's eligible accounts receivable and inventories. The
term loan has a five-year term expiring in May 2004. The Company pays monthly
principal payments that total $3,576 annually, with the unpaid balance due at
maturity. Interest rates on the term loan are based, at the Company's option, on
LIBOR plus 2.75% or the agent bank's prime rate.
The Bank Credit Facility contains certain affirmative and negative covenants
customary for this type of agreement, prohibits cash dividends, and includes
financial covenants with respect to the coverage of certain fixed charges. The
principal security for the revolving credit loan is substantially all of the
personal property of the Company and each of its North American and United
Kingdom subsidiaries. The term loan is secured by substantially all of the
Company's machinery and equipment and is cross-collateralized and secured with
the revolving credit loan.
On March 13, 1998, the Company sold $100,000 of Senior Notes due March 15, 2008,
resulting in net proceeds of approximately $96,150. During August 2000, the
Company completed an exchange offer to existing noteholders, which resulted in
reducing the interest rate on the Senior Notes to 8.0% from 8.5%. The notes are
redeemable at the Company's option, in whole or in part, on or after March 15,
2003 at certain preset redemption prices. In addition, at any time prior to
March 15, 2001, the Company may redeem up to 35% of the aggregate principal
amount of the Notes at 108% of par with the proceeds of one or more public
equity offerings. Interest on the Senior Notes is payable semiannually on March
15 and September 15 of each year. There are no sinking fund requirements.
The Notes Indenture contains covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined therein) to
incur indebtedness, pay dividends, prepay subordinated indebtedness, repurchase
capital stock, make investments, create liens, engage in transactions with
stockholders and affiliates, sell assets and, with respect to the Company,
engage in mergers and consolidations.
7
<PAGE> 9
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
E. GENERAL ELECTRIC COMPANY INVESTMENT
In October 1999, General Electric Company ("GE") completed an investment in the
Company of $20,554. In exchange for the investment, GE received 761,250 shares
of the Company's newly-created Series A Preferred Stock convertible at any time
into 3,045,000 shares of Company Common Stock (subject to adjustment). GE also
received a Warrant (the "Initial Warrant") to purchase an additional 1,000,000
shares of Company Common Stock (subject to adjustment), which is immediately
exercisable at $.01 per share. GE also holds 430,887 shares of Company Common
Stock which it has held since the Company's initial public offering in 1995. The
Series A Stock, Common Stock issuable on exercise of the Initial Warrant, and
the Common Stock held by GE represent (after giving effect to the shares issued
on exercise of the Initial Warrant) approximately 17.1% of the voting power and
equity ownership of the Company at September 30, 2000. The proceeds of the
transaction were applied principally to the reduction of short-term liabilities
and outstanding amounts under the Company's Bank Credit Facility.
The Series A Stock has a liquidation preference of $27 per share, plus an amount
equal to 8% per annum compounded annually from the date of issuance to the date
of payment. The Company is required to redeem any shares of Series A Stock which
have not been converted or retired on September 30, 2010. In addition, GE may,
by notice, require the Company to redeem the outstanding Series A Stock, within
one year following either September 30, 2004, or the occurrence of certain
corporate events.
If the Company fails to maintain certain financial ratios over certain
measurement periods, GE will have the right to acquire a combination of
subscription rights to additional shares and proxies with respect to shares
voted by certain officers of the Company, giving GE the ability to obtain the
majority of the voting power of the Company. The first measurement period was
the six months ended December 31, 1999. Thereafter, the measurement periods are
the six months ending on the last day of each successive fiscal quarter until
September 30, 2010 (excluding the six month periods ended on June 30, 2000 and
September 30, 2000).
The basis for GE's additional rights will be the failure of the Company to
maintain a 2.0 to 1.0 ratio of EBITDA to Interest Expense over the applicable
measurement periods. Under the terms of the transaction, EBITDA consists of net
earnings, plus interest expense, plus depreciation and amortization, plus income
taxes, less extraordinary gains and gains from asset sales plus extraordinary
losses and losses from asset sales. Interest Expense consists of interest
expense (net of interest income) calculated in accordance with generally
accepted accounting principles, but excludes amortization of deferred financing
costs up to a maximum of $125 in any fiscal quarter.
8
<PAGE> 10
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
E. GENERAL ELECTRIC COMPANY INVESTMENT (CONTINUED)
A measurement period for which the Company fails to maintain the required ratio
is referred to as an "Occurrence," however, if the Company maintains a 2.0 to
1.0 ratio in the three fiscal quarters immediately prior to a failure, a "Second
Occurrence" or "Third Occurrence," as the case may be, would not be effective.
The "First Occurrence" was effective in the six-month measurement period ended
December 31, 1999. The ratio for the six months ended September 30, 2000, was
1.87 to 1.0 (1.71 to 1.0 for the quarter ended September 30, 2000 and 2.04 to
1.0 for the quarter ended June 30, 2000). As noted above, the six months ended
September 30, 2000 is excluded as a measurement period.
A Second Occurrence would: (i) give GE the ability to vote the number of shares
currently voted by the Chief Executive Officer ("CEO") of the Company,
approximately 3.9 million shares, (ii) give GE the option to purchase shares
from the CEO and the President of the Company which, together with the shares
owned by GE, would represent 25% of the voting power of the Company, and (iii)
require the Company to grant GE an additional warrant to purchase shares, at the
then current market price, approximating 2,325,867 shares at September 30, 2000.
The ability to vote the shares, purchase shares or obtain the warrant would be
dependent upon compliance with antitrust laws. GE is not required to purchase
additional shares of the Company. If GE obtains approval and obtains in excess
of 35% of the voting power of the Company, the terms of the Indenture relating
to the Company's Senior Notes would require that the Company offer to repurchase
the $100,000 principal amount of outstanding Senior Notes due 2008 at a price of
101% of the principal amount thereof, plus accrued interest, and the Company's
banks will have the ability to demand payment of the Bank Credit Facility. Upon
a Third Occurrence, GE would have the right to vote shares currently voted by
the President and be granted a warrant to purchase (at the then current market
price) additional shares of Common Stock sufficient in number to give GE 50%
plus one vote of the voting power of the Company.
9
<PAGE> 11
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
F. ISSUANCE OF COMMON STOCK
On August 31, 2000, the Company completed a public offering of 1,700,000 shares
of its common stock at a price of $15.00 per share under a $300,000 shelf
registration filed with the Securities and Exchange Commission which became
effective in July 2000.
The public offering reduced the amount available for the issuance of various
debt and equity securities under the shelf registration statement to
approximately $274,500. The Company used the net proceeds from the public
offering of approximately $22,900 to repay revolving credit loan borrowings. The
Company intends to subsequently borrow under its revolving credit loan facility
to fund capital improvements, including optical coating production equipment,
filter testing and measurement equipment and production facilities, and on
research and development in its telecommunications business unit at Deposition
Sciences, Inc.
In addition to the $300,000 shelf registration discussed above, in July 2000 a
$100,000 shelf registration became effective under which the Company may from
time-to-time issue various debt and equity securities to acquire assets,
businesses or securities. The Company has no outstanding securities issued under
this registration statement.
G. RELATED PARTY TRANSACTION
Pursuant to a loan agreement dated October 8, 1998, between the Company and its
Chairman and Chief Executive Officer (the "CEO"), the Company loaned $9,000 to
its CEO for a one-year term at an interest rate of 8%. The loan was made
following approval by the Company's Board of Directors. The proceeds of the loan
were used by the Company's CEO to reduce the principal balance outstanding of a
margin account loan, which is secured by 2,053,070 shares of the Company's
Common Stock owned by the CEO and a related entity. In connection with the loan,
the Company's Board of Directors asked for and received the CEO's agreement to
extend the term of his employment agreement to December 31, 2003. The loan
agreement prohibits the CEO from encumbering his shares of the Company's Common
Stock in any manner except pursuant to the existing agreements governing the
CEO's margin account, without the consent of the Company's Board of Directors.
The CEO has paid accrued interest of $720 on the loan through October 6, 1999.
The principal on the loan was due on October 6, 1999. On January 25, 2000, the
Board agreed that the CEO would not be required to repay the loan until October
6, 2000. The term of the loan has been extended by the Board to October 6, 2001.
The directors have informed the CEO that the Company may require immediate
payment of the loan if the Company requires the payment to prevent an
unacceptable strain on cash resources.
10
<PAGE> 12
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
H. EARNINGS PER SHARE
Earnings (loss) per share is computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
------------- ------------
Income available to common shareholders:
<S> <C> <C>
Net income (loss) $ (521) $ (782)
Less: Preferred shares accretion (610) -
------------- ------------
Net income (loss) attributable to common shareholders $ (1,131) $ (782)
============= ============
Weighted average shares -- Basic:
Outstanding at beginning of period 20,482 20,278
Issued pursuant to public offering 462 -
Issued for exercise of stock options 7 -
Issued pursuant to employee stock purchase plan 1 3
Issued pursuant to 401(k) plan 3 3
------------- ------------
Basic weighted average shares 20,955 20,284
============= ============
Weighted average shares -- Diluted:
Basic from above 20,955 20,284
Effect of stock options and warrant - -
------------- ------------
Diluted weighted average shares 20,955 20,284
============= ============
Earnings (loss) per share -- Basic $ (.05) $ (.04)
============= ============
Earnings (loss) per share -- Diluted $ (.05) $ (.04)
============= ============
</TABLE>
The diluted weighted average shares calculation excludes the antidilutive effect
of outstanding stock options and warrants which totaled 1,647 shares for the
three months ended September 30, 2000 and 5 shares for the three months ended
September 30, 1999.
11
<PAGE> 13
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
I. CONTINGENCY
In April and May 1999, three class action suits were filed in the United States
District Court, Northern District of Ohio, by certain alleged shareholders of
the Company on behalf of themselves and purported classes consisting of Company
shareholders, other than the defendants and their affiliates, who purchased
stock during the period from December 30, 1997 through September 30, 1998 or
various portions thereof. A First Amended Class Action Complaint, consolidating
the three lawsuits, was filed on September 30, 1999, and the action is now
pending before a single judge. The named defendants in the case - styled In re
Advanced Lighting Technologies, Inc. Securities Litigation, Master File No.
1:99CV836, pending before the United States District Court, Northern District of
Ohio - are the Company and its Chairman and Chief Executive Officer (CEO).
The First Amended Class Action Complaint alleges generally that certain
disclosures attributed to the Company contained misstatements and omissions
alleged to be violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5, including claims for "fraud on the market" arising from alleged
misrepresentations and omissions with respect to the Company's financial
performance and prospects and alleged violations of generally accepted
accounting principles by, among other things, improperly recognizing revenue and
improper inventory accounting. The Complaint seeks certification of the
purported class, unspecified compensatory and punitive damages, pre- and
post-judgment interest and attorneys' fees and costs.
The Company and the CEO believe that these claims lack merit. The Company and
its CEO filed a Motion to Dismiss the Complaint, which was denied. The case will
now proceed. The Company and the CEO intend to continue to vigorously defend
against these actions.
12
<PAGE> 14
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 that involve
risks and uncertainties, including the Company's financing plans, trends
affecting the Company's financial condition or results of operations, continued
growth of the metal halide lighting market, the Company's operating strategy and
growth strategy, potential acquisitions or joint ventures by the Company, the
declaration and payment of dividends, litigation affecting the Company, the
timely development and market acceptance of new products, the possibility that
any success at Deposition Sciences, Inc.(an ADLT subsidiary) will not be
reflected in the value of the ADLT common stock, the ability to provide adequate
incentives to retain and attract key employees, the impact of competitive
products and pricing, and other risks which are detailed in the Company's Form
10-K for the fiscal year ended June 30, 2000, in particular, see "Risk Factors."
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. The
Company's actual results may differ materially from those indicated by such
forward-looking statements based on the factors outlined above.
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.
GENERAL
The Company designs, manufactures and markets metal halide lighting products,
including materials, systems and components. 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. The Company also develops, manufactures and
markets passive optical telecommunications devices, components and equipment
based on the optical coating technologies of its wholly-owned subsidiary,
Deposition Sciences, Inc. ("DSI"). Systems, components and materials revenue is
recognized when products are shipped, and deposition 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 $43,286 on research and development, representing 7.4% of aggregate
net sales from continuing operations over that period. Such expenditures have
enabled the Company to develop new applications for metal halide lighting,
improve the quality of its materials, and introduce new specialized products,
such as the Uni-Form(R) pulse start products. Uni-Form(R) pulse start products
are a new generation of metal halide components and systems which permit (a)
increased light output with lower power utilization, (b) faster starting, (c) a
quicker restart of lamps which have been recently turned off, and (d) better
color uniformity.
13
<PAGE> 15
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. In January 1998, the Company acquired Ruud Lighting, Inc.
and DSI. These acquisitions enabled the Company to complete the assembly of the
necessary operations to take a leadership role in the development, manufacturing
and marketing of new and better systems in the growing metal halide lighting
industry.
RECENT DEVELOPMENTS
Issuance of Common Stock
On August 31, 2000, the Company completed a public offering of 1,700,000 shares
of its common stock at a price of $15.00 per share under a $300,000 shelf
registration filed with the Securities and Exchange Commission which became
effective in July 2000.
The public offering reduced the amount available for the issuance of various
debt and equity securities under the shelf registration statement to
approximately $274,500. The Company used the net proceeds from the public
offering of approximately $22,900 to repay revolving credit loan borrowings. The
Company intends to subsequently borrow under its revolving credit loan facility
to fund capital improvements, including optical coating production equipment,
filter testing and measurement equipment and production facilities, and on
research and development in its telecommunications business unit at Deposition
Sciences, Inc.
In addition to the $300,000 shelf registration discussed above, in July 2000 a
$100,000 shelf registration became effective under which the Company may from
time-to-time issue various debt and equity securities to acquire assets,
businesses or securities. The Company has no outstanding securities issued under
this registration statement.
Telecommunications Business Unit
In February 2000, the Company announced the creation of its Fiber Optic
Telecommunications Business Unit, which develops and manufactures passive
optical telecommunications devices and components based on its optical coating
technology. The telecommunications operations are located in Santa Rosa,
California, at the DSI business campus. The Telecommunications Unit exploits the
proprietary coating equipment, advanced thin film technologies, and measurement
capabilities developed by DSI over the last fourteen years for a wide variety of
demanding products in both military and commercial applications.
Prior to the formation of the telecommunications unit the development and
coating of telecommunications products was performed by DSI's R&D Engineering
unit. With the formation of the telecommunications unit, two employees were
transferred from the R&D Engineering unit to the telecommunications unit with
additional engineering and sales personnel
14
<PAGE> 16
being hired for the unit. Also, DSI assigned thin film coating machines from
other areas of the company as well as purchasing and constructing additional
equipment to be used in the telecommunication business.
A portion of the in-process research and development which was acquired when the
Company acquired DSI was for research and development projects directed at
telecommunications applications (the "Fiber Optics Project"). These projects
involved the development of processes for the application of optical coatings to
products for telecommunications applications. At the time of the acquisition the
future importance of these technologies and optical products to
telecommunications infrastructure was not clear. (For more information, see
"Update on In-Process Research and Development.")
The Fiber Optics Project was directed at development of (i) optical coatings
that reduce insertion losses in fiber optic communications systems, including
wavelength division multiplexing (WDM) and dense wavelength division
multiplexing (DWDM) systems; (ii) collimating micro-optics for use in WDM and
DWDM systems; (iii) filter elements for use in WDM systems; (iv) secondary
filter elements for use in DWDM systems; (v) narrow bandpass filter elements for
use in the multiplex/demultiplex function of DWDM systems. WDM and DWDM are
technologies that allow multiple wavelengths of light to be simultaneously
transmitted through a single fiber optic cable. The first four projects have
resulted in commercial products, and sales of these products reached $1,453 in
fiscal 2000, an increase of 46% over the $993 recognized in fiscal 1999.
Telecommunication product sales for the first quarter of fiscal 2001
approximated $533, up 60% from $334 in the first quarter of fiscal 2000.
Although the Company has not yet completed development of its MicroDyn(R)
technology for production of narrow bandpass filter elements, the Company
believes that it will develop commercial narrow bandpass filter products which
take advantage of the Company's patented MicroDyn(R) sputtering technology.
While the Company does apply optical coatings to elements supplied by its
customers, an increasing portion of its business is the supply of entire
assemblies and components. The Company expects that this trend to forward
integration will continue and accelerate. The Company has existing manufacturing
capacity to support sales of up to $10,000 per year of existing products. If
narrow bandpass DWDM filter elements are successfully developed, following
additional capital investments, the Company anticipates achieving additional
manufacturing capability and revenue for these products. The Company believes
that it can increase its production capacity for its telecommuncations products
beyond existing levels with additional capital expenditures, on which this
growing business depends.
DSI believes that the current demand exceeds supply for these thin film coating
products for the telecommunications industry. The principal competitors for the
Company's products are certain large OEMs, such as JDS Uniphase Corporation,
Corning Incorporated, Nortel Networks Corporation, and Lucent Technologies,
Inc., which have significant internal capability to manufacture thin film filter
products, and a variety of smaller companies which specialize in optical
coatings, such as Precision Optics Corp., Inc., Barr Associates, Inc., Iridian
Spectral Technologies, Ltd., Thin Film Technologies, Inc., and Evaporated
Coatings, Inc. The Company also believes that these large OEMs also represent
substantial opportunities for sales of its products.
15
<PAGE> 17
The Company believes that the competitive environment for its products is based
primarily on technical performance, delivery and service, rather than price. The
Company believes that DSI's fourteen year history of high volume, efficient
production of high quality optical components provides it with significant
advantages in this regard. Furthermore, the Company believes that its core
competencies in optical coating and coating equipment development and
manufacture, its experienced workforce and its ability to develop
telecommunications solutions, backed by the required measurement technology,
will permit it to continue to compete successfully in this product area.
The Company recognizes that the successful, full-scale development of its
telecommunications business unit requires a level of focus and resources that
the Company may not be able to provide while this unit resides within a
subsidiary of the Company. In pursuit of maximizing shareholder value, the
Company is exploring several strategic alternatives that would enable the
telecommunications business unit to pursue an aggressive, focused strategy with
sufficient assets and cash to compete in this market.
No final decisions have been made about the future courses of action to be
pursued. However, the Company is actively pursuing the engagement of one or more
investment banking firms to assist in identifying and implementing the best
strategic alternative for the telecommunications unit.
UPDATE ON IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the January 1998 purchase of DSI, the Company allocated
$18,220 of the $24,100 purchase price to in-process research and development
projects. This allocation represented the estimated fair value based on
risk-adjusted cash flows related to the incomplete research and development
projects. At the date of acquisition, the development of these projects had not
yet reached technological feasibility and had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date. DSI's
in-process research and development value was comprised of five primary research
and development programs, which were in-process at the time of the acquisition.
The MicroDyn/Automation Project was intended to improve the coating process of
optical thin-films to both rigid and flexible surfaces so that the process can
be used in a wider array of applications. The Plastics (Acrylic) Coating Project
was designed to produce a method for applying thin-film coatings to plastics or
other similar materials that cannot withstand the heat generated during the
standard coating process. The goal of the Deposition Material Development
Project was to develop new thin-film materials that can be used in coatings and
to improve existing coating materials. The Lighting-Focused Projects were
intended to develop improvements to existing lighting technologies by using
coatings to improve efficiency and increase the longevity of lamp life;
including ultra-violet blockers, color enhancement/correction and lumen
maintenance. The Fiber Optic Project was intended to improve telecommunications
by providing optical thin-film coatings that are used in conjunction with
optical fibers to increase the transmission capacity of the fiber. The two
segments of the original Fiber Optic Project, directed at the development of
filters to reduce insertion loss in fiber optic communication systems and
filters for wavelength division multiplexing (WDM), have reached commercial
16
<PAGE> 18
feasibility. The third segment of the project, which is an expansion of the
original project, related to the development of filters for dense wavelength
division multiplexing (DWDM) has not achieved technical and commercial
feasibility as of September 30, 2000.
Certain projects within the in-process research and development programs, if
successful, will not be fully complete for two to three years after attaining
technical feasibility. Annual Company expenditures to complete these projects
included $800 in fiscal 1998, $1,800 in fiscal 1999, and $2,100 in fiscal 2000.
Future expenditures related to the projects originally envisioned for fiscal
years 2001, 2002 and thereafter are estimated at $1,300 ($725 expended through
September 30, 2000), $400 and $200, respectively. These estimates are subject to
change, given the uncertainties of the development process, and no assurance can
be given that deviations from these estimates will not occur. Additionally, even
if successfully completed, these projects will require maintenance research and
development after they have reached a state of technological and commercial
feasibility. In addition to usage of DSI's internal cash flows, the Company will
provide a substantial amount of funding to complete and expand upon the DSI
programs.
Management believes the Company has a reasonable chance of successfully
completing each of the major research and development programs, except for the
Plastics (Acrylic) Coating Project which was abandoned in light of DSI's focus
on the telecommunications business. However, there is substantial risk
associated with the completion of the active projects and there is no steadfast
assurance that each will meet with either technological or commercial success.
The delay or outright failure of the DSI programs may materially impact the
Company's financial condition.
As of September 30, 2000 the focus of the Company's efforts was on the
MicroDyn/Automation Project (estimated at 56% complete) and the other two active
programs, Deposition Material Development and Lighting-Focused, were estimated
as 89% and 98% complete, respectively. The original Fiber Optics Project related
to telecommunications was substantially completed as of September 30, 2000.
However, because of the growth of the telecommunications market and the rate of
advancement in telecommunications products, the Company has focused its efforts
to the production process (MicroDyn/Automation Project) and the development of
additional telecommunications products and the expenditures related thereto will
be greater than described above. See also "Telecommunications Business Unit."
17
<PAGE> 19
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 Operations for the indicated
periods:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales 100% 100%
Costs and expenses:
Cost of sales 60.3 62.0
Marketing and selling 19.1 18.1
Research and development 6.6 6.2
General and administrative 7.0 7.2
Amortization of intangible assets 1.3 1.2
------------ ------------
Income from operations 5.7 5.3
Other income (expense):
Interest expense (7.1) (6.8)
Interest income 0.4 0.4
Income from equity investments 0.1 0.1
------------ ------------
Loss before income taxes and minority interest (0.9) (1.0)
Income taxes 0.1 0.4
------------ ------------
Loss before minority interest (1.0) (1.4)
Minority interest in income of consolidated subsidiary - -
------------ ------------
Net loss (1.0%) (1.4%)
============ ============
</TABLE>
Factors which have affected the results of operations for the first quarter of
fiscal 2001 as compared to the first quarter of fiscal 2000 are discussed below.
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1999
Net sales. Net sales decreased 5.9% to $52,864 in the first quarter of fiscal
2001 from $56,180 in the first quarter of fiscal 2000. Sales of Uni-Form(R)
pulse start products increased 59% compared to the same quarter a year ago.
Sales of APL materials, a key indicator of industry trends, grew 20% over the
same quarter a year ago. Geographically, these sales of materials were up 9% in
the U.S. and up 33% outside the U.S. These gains were offset by the continued
managed decline of non-metal halide sales of 9% and the changes in the foreign
currency exchange rates from a year ago which negatively impacted sales in
Europe and Australia. Due to the strong dollar, the reported sales for these
operations were reduced by approximately $843 from what these sales would have
been at the year earlier exchange rate.
18
<PAGE> 20
DSI's telecommunication product sales for the first quarter of fiscal 2001 were
$533, up 60% from $334 in the first quarter of fiscal 2000. However, sales of
DSI's non-telecom products were down 44% due to the Company's transitioning of
its emphasis to the telecommunications market.
Sales outside the U.S. decreased 12%, which the Company primarily attributes to
the foreign currency exchange and managed decline of non-metal halide product
sales noted above.
Pricing in the metal halide lighting business is competitive, and prices for the
Company's products have remained flat or declined slightly. The introduction of
new products has helped to stabilize the Company's product pricing.
Cost of Sales. Cost of sales decreased 8.5% to $31,889 in the first quarter of
fiscal 2001 from $34,844 in the first quarter of fiscal 2000. The decrease was
primarily attributable to decreased unit volume. As a percentage of net sales,
cost of sales decreased to 60.3% in the first quarter of fiscal 2001 from 62.0%
in the first quarter of fiscal 2000.
Marketing and Selling Expenses. Marketing and selling expenses decreased 1.0% to
$10,070 in the first quarter of fiscal 2001 from $10,175 in the first quarter of
fiscal 2000. Marketing and selling expenses, as a percentage of net sales,
increased to 19.1% in the first quarter of fiscal 2001 as compared to 18.1% in
the first quarter of fiscal 2000.
Research and Development Expenses. Research and development expenses of $3,491
in the first quarter of fiscal 2001 remained relatively unchanged as compared to
the amount in the first quarter of fiscal 2000 of $3,495. Research and
development expenses are incurred related to: (i) expansion of the line of
Uni-Form(R) pulse start lamps (with improved energy efficiency, quicker starting
and restarting and a more compact arc source, which improves the light and
reduces material costs) intended to replace many first generation metal halide
lamps in industrial and commercial applications; (ii) development and testing of
electronic power supply systems; (iii) development of new materials for the
world's major lighting manufacturers; and, (iv) research and development efforts
aimed at improving the coating process of optical thin-films to broaden the
applications, developing new thin-film materials, and using coatings to develop
improvements to lighting and telecommunications technologies. As a percentage of
net sales, research and development expenses increased to 6.6% in the first
quarter of fiscal 2001 from 6.2% in the first quarter of fiscal 2000.
General and Administrative Expenses. General and administrative expenses
decreased 8.1% to $3,707 in the first quarter of fiscal 2001 from $4,035 in the
first quarter of fiscal 2000. As a percentage of net sales, general and
administrative expenses declined slightly to 7.0% in the first quarter of fiscal
2001 from 7.2% in the first quarter of fiscal 2000.
Amortization of Intangible Assets. Amortization expense increased slightly to
$703 in the first quarter of fiscal 2001 from $675 in the first quarter of
fiscal 2000. Amortization expense relates primarily to the amortization of
goodwill and other intangible assets related to the January 1998 acquisitions of
Ruud Lighting, Inc. and Deposition Sciences, Inc.
19
<PAGE> 21
Income from Operations. As a result of the items noted above, income from
operations in the first quarter of fiscal 2001 increased to $3,004 from $2,956
in the first quarter of fiscal 2000. As a percentage of net sales, income from
operations increased to 5.7% in the first quarter of fiscal 2001 from 5.3% in
the first quarter of fiscal 2000.
Interest Expense. Interest expense decreased slightly to $3,764 in the first
quarter of fiscal 2001 from $3,790 in the first quarter of fiscal 2000. Both the
average debt outstanding and the weighted average interest rates remained
relatively comparable during the quarters.
Interest Income. Interest income increased slightly to $224 in the first quarter
of fiscal 2001 from $220 in the first quarter of fiscal 2000.
Income (Loss) from Equity Investments. The income from equity investments in the
first quarter of both fiscal 2001 of $39 and fiscal 2000 of $50 represent
earnings from the Company's investment in Fiberstars, Inc., a marketer and
distributor of fiber optic lighting products.
Loss before Income Taxes and Minority Interest. The Company incurred a loss
before income taxes of $497 during the first quarter of fiscal 2001 as compared
to a loss before income taxes of $564 during the first quarter of fiscal 2000.
Income Taxes. Income tax expense was $20 for the first quarter of fiscal 2001 as
compared to income tax expense of $218 in the first quarter of fiscal 2000. The
income tax expense in the first quarters of fiscal 2001 and 2000 related
primarily to certain of the Company's foreign operations.
At June 30, 2000, the Company had net operating loss carryforwards of $77,205
available to reduce future United States federal taxable income, which expire in
varying amounts from 2008 to 2020.
The Company also has research and development credit carryforwards for tax
purposes of approximately $3,196, which expire in varying amounts from 2008 to
2015. Additionally, in conjunction with the Alternative Minimum Tax ("AMT")
rules, the Company had available AMT credit carryforwards for tax purposes of
approximately $259, which may be used indefinitely to reduce regular federal
income taxes.
Also at June 30, 2000, the Company had foreign net operating loss carryforwards
for tax purposes totaling $3,693 that expire in varying amounts from 2001 to
2006 and $9,303 that have no expiration dates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financial requirements are for market development
activities, research and development efforts, acquisitions and strategic
investments, 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 credit facilities and the sale of stock and
debt under two shelf registration statements for $300,000 and $100,000.
20
<PAGE> 22
Cash decreased $832 during the first quarter of fiscal 2001. Uses of cash
consisted of $7,360 used in operating activities and $2,489 used in investing
activities. These uses of cash were offset by net financing activities of
$9,017.
Net cash used in operating activities. Net cash used in operating activities
totaled $7,360 during the first quarter of fiscal 2001 as compared to $4,969 in
the first quarter of fiscal 2000. The decrease in accounts payable and accrued
expenses of $8,341 was the cause of this usage. This decrease was primarily a
result of a plan to bring payables to suppliers more current and a result of the
semi-annual interest payment related to the Company's Senior Notes. In spite of
this usage of cash in the first quarter, the Company intends to manage its cash
resources to generate positive cash flow from operating activities for the full
fiscal year 2001 and beyond.
Net cash used in investment activities. During the first quarter of fiscal 2000,
investing activities used $2,489, which was entirely related to capital
expenditures. Capital expenditures in fiscal 2001 related primarily to
additional machinery and equipment to improve production processes, which should
result in increased productivity and capacity in the production of lighting and
telecommunications products.
The Company has modified its future growth and capital expansion plans to be in
line with fiscal 2000. Specifically, the Company will limit its capital
expenditures for the next twelve months, except for its telecommunications
business. Under its $300,000 shelf registration, in September 2000, the Company
sold 1,700,000 shares of common stock for $15.00 per share to fund the future
expansion of its telecommunications business unit over the next twelve to
eighteen months. The net proceeds from the stock offering of approximately
$23,000 were used to repay outstanding indebtedness under the Bank Credit
Facility. The Company expects to use $23,000 of borrowings under the Bank Credit
Facility for expenditures on capital improvements, including optical coating
production equipment, filter testing and measuring testing and measuring
equipment and production facilities, and on research and development, in the
telecommunications business.
As a result of the Company's fiscal 1999 decision to terminate joint venture
equipment contracts, approximately $6,500 of new production equipment was made
available for installation at the Company's lamp manufacturing facilities. The
Company has transferred approximately $2,000 of this equipment to its
recently-acquired manufacturing facility in Chennai (Madras) India, leaving
approximately $4,500 of equipment available for future manufacturing
requirements. The Company estimates its maintenance level for capital
expenditures in the lighting business will approximate $6,000 to $8,000 over the
next twelve months. Future capital expenditures (excluding the
telecommunications business) beyond this level will be discretionary, as the
Company presently has sufficient operating capacities to support several years
of sales growth at its historical rates.
Net cash provided by financing activities. During the first quarter of fiscal
2001, net financing activities provided cash of $9,017, which included $22,900
of net proceeds from an offering of 1,700,000 shares of the Company's common
stock and net repayments of debt of $14,176.
21
<PAGE> 23
On March 13, 1998, the Company sold $100,000 of 8% Senior Notes due March 15,
2008, resulting in net proceeds of $96,150. Approximately $76,300 of the net
proceeds of the Senior Notes were used to repay amounts outstanding under the
Company's former bank credit facility, thereby lengthening the average term of
the Company's debt, most of which had been incurred to finance the acquisitions
of Ruud Lighting, Inc. and Deposition Sciences, Inc. From September 1998 until
August 2000, interest on these notes was calculated at 8.5%. During August 2000,
the Company completed a registered exchange offer to existing noteholders, which
resulted in reducing the interest rate on the Senior Notes to 8.0% from 8.5%.
Pursuant to a loan agreement dated October 8, 1998, between the Company and its
Chairman and Chief Executive Officer (the "CEO"), the Company loaned $9,000 to
its CEO for a one-year term at an interest rate of 8%. The loan was made
following approval by the Company's Board of Directors. The proceeds of the loan
were used by the Company's CEO to reduce the principal balance outstanding of a
margin account loan, which is secured by 2,053,070 shares of the Company's
Common Stock owned by the CEO and a related entity. In connection with the loan,
the Company's Board of Directors asked for and received the CEO's agreement to
extend the term of his employment agreement to December 31, 2003. The loan
agreement prohibits the CEO from encumbering his shares of the Company's Common
Stock in any manner except pursuant to the existing agreements governing the
CEO's margin account, without the consent of the Company's Board of Directors.
The CEO has paid accrued interest of $720 on the loan through October 6, 1999.
The principal on the loan was due on October 6, 1999. On January 25, 2000, the
Board agreed that the CEO would not be required to repay the loan until October
6, 2000. The term of the loan has now been extended by the Board to October 6,
2001. The directors have informed the CEO that the Company may require immediate
payment of the loan if the Company requires the payment to prevent an
unacceptable strain on cash resources.
Ability to advance future operations. The Company has begun to implement, and
will continue to implement, changes in its operations and investment activities
intended to reduce the use of its cash resources to a level at or below the cash
flow generated by its operations and investments.
The Company's working capital (current assets less current liabilities) at
September 30, 2000 was $48,680 resulting in a working capital ratio of current
assets to current liabilities of 2.3 to 1.0, as compared to $40,004 or 1.9 to
1.0 at June 30, 2000. As of September 30, 2000, the Company had $3,058 in cash
and cash equivalents.
The interest-bearing obligations of the Company totaled $150,674 as of September
30, 2000, and consisted of: $26,461 of borrowings under the Bank Credit
Facility; $100,000 of 8% Senior Notes; mortgages of $15,962; a promissory note
of $2,461; obligations of a foreign subsidiary of $5,239; and, capital leases of
$551.
22
<PAGE> 24
The Company maintains a Bank Credit Facility with a $40,000 revolving credit
loan and $20,000 term loan provided by several financial institutions. The
revolving credit loan has a three-year term expiring in May 2002. Interest rates
on revolving credit loans outstanding are based, at the Company's option, on
LIBOR plus 2.25% or the agent bank's prime rate. Availability of borrowings is
determined by the Company's eligible accounts receivable and inventories. The
term loan has a five-year term expiring in May 2004. The Company pays monthly
principal payments that total $3,576 annually, with the unpaid balance due at
maturity. Interest rates on the term loan are based, at the Company's option, on
LIBOR plus 2.75% or the agent bank's prime rate.
The Bank Credit Facility contains certain affirmative and negative covenants
customary for this type of agreement, prohibits cash dividends, and includes
financial covenants with respect to the coverage of certain fixed charges. The
principal security for the revolving credit loan is substantially all of the
personal property of the Company and each of its North American and United
Kingdom subsidiaries. The term loan is secured by substantially all of the
Company's machinery and equipment and is cross-collateralized and secured with
the revolving credit loan.
As discussed above, the Company is actively pursuing the engagement of one or
more investment banking firms to assist in identifying and implementing the best
strategic alternative for the telecommunications business unit.
On August 31, 2000, the Company completed a public offering of 1,700,000 shares
of its common stock at a price of $15.00 per share under a $300,000 shelf
registration filed with the Securities and Exchange Commission which became
effective in July 2000.
The public offering reduced the amount available for the issuance of various
debt and equity securities under the shelf registration statement to
approximately $274,500. The Company used the net proceeds from the public
offering of approximately $22,900 to repay revolving credit loan borrowings. The
Company intends to subsequently borrow under its revolving credit loan facility
to fund capital improvements, including optical coating production equipment,
filter testing and measurement equipment and production facilities, and on
research and development in its telecommunications business unit at Deposition
Sciences, Inc.
In addition to the $300,000 shelf registration discussed above, in July 2000 a
$100,000 shelf registration became effective under which the Company may from
time-to-time issue various debt and equity securities to acquire assets,
businesses or securities. The Company has no outstanding securities issued under
this registration statement.
The Company believes that the available cash, cash flow from operations, along
with the availability under its existing Bank Credit Facility, will enable the
Company to fund its operations for at least the next 12 months. Beyond this
time, the Company believes a return to profitability and positive cash flow from
operations, and the growth in the popularity and applications for metal halide
products and systems should enable the Company to access additional capital
resources, as needed.
23
<PAGE> 25
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards ("FAS") No. 133
"Accounting for Derivative Instruments and Hedging Activities" as of July 1,
2000. FAS 133 requires that all derivatives, such as interest rate exchange
agreements (swaps), be recognized on the balance sheet at fair value. The
Company had no derivatives as at July 1, 2000, and therefore, no resulting
transition adjustments.
FOREIGN CURRENCY
Approximately 27% of the Company's net sales in fiscal 2000 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. The Company
currently does not hedge its foreign currency exposure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended September 30, 2000, there have been no material
changes in the reported market risks presented in the Company's Annual Report on
Form 10-K for the year ended June 30, 2000.
24
<PAGE> 26
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 5. OTHER EVENTS
On October 30, 2000, the Company ("ADLT") announced the Board of Directors'
approval to increasing the number of Deposition Sciences, Inc. ("DSI")
authorized shares of common stock from 850 shares to 100 million shares and
approval of a DSI stock incentive plan containing both options and the ability
for employees to purchase DSI common stock. ADLT's press release, dated October
30, 2000, relating to these actions is attached hereto as Exhibit 99.1.
On November 6, 2000, ADLT announced DSI's success in producing 200 GHz and 100
GHz DWDM Filters, plans for leasing additional plant facilities and a production
goal for DWDM filters of more than 1,000,000 units annualized by the end of the
year 2001. ADLT's press release, dated November 6, 2000, relating to these
matters is attached hereto as Exhibit 99.2.
Also on November 6, 2000, ADLT announced its results of operations for the first
quarter of fiscal 2001 ended September 30, 2000. ADLT's press release, dated
November 6, 2000, relating to the results of its operations is attached hereto
as Exhibit 99.3.
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>
3.1 Second Amended and Restated Articles of Incorporation filed
September 26, 1995 (1)
3.2 Certificate of Adoption of Third Amendment to Second Amended
and Restated Articles of Incorporation filed October 6, 1999 (2)
3.3 Certificate of Adoption of Fourth Amendment to Second Amended
and Restated Articles of Incorporation filed March 16, 2000 (3)
3.4 Code of Regulations (4)
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
10.1 Sixth Amendment Agreement by and among Advanced Lighting
Technologies, Inc. and certain of its subsidiaries and PNC Bank,
National Association, as agent for certain other banks dated as
of July 1, 2000, and amending the Credit Agreement by and among
the same parties dated as of May 21, 1999
</TABLE>
25
<PAGE> 27
(a) Exhibits (continued)
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NUMBER/
EXHIBIT INCORPORATED
NUMBER TITLE BY REFERENCE
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<S> <C> <C>
10.2 Amendment to Contingent Warrant Agreement dated as of
August 31, 2000 by and among Advanced Lighting Technologies, Inc.,
General Electric Company, Wayne R. Hellman, individually and as
voting trustee under Voting Trust Agreement dated October 10, 1995,
Hellman Ltd. and Alan J. Ruud, individually and as voting trustee
under Voting Trust Agreement dated January 2, 1998
10.3 Agency Agreement dated August 31, 2000 among Advanced Lighting
Technologies, Inc., Raymond James & Associates, Inc. and
Sanders Morris Harris Inc. (5)
12 Statement Re: Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
99.1 Press Release of Advanced Lighting Technologies, Inc. dated
October 30, 2000
99.2 Press Release of Advanced Lighting Technologies, Inc. dated
November 6, 2000
99.3 Press Release of Advanced Lighting Technologies, Inc. dated
November 6, 2000
--------------------------------
</TABLE>
(1) 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.
(2) Incorporated by reference to Exhibit of same number in Company's Quarterly
Report on Form 10-Q/A for the Quarterly Period ended September 30, 1999
filed January 14, 2000.
(3) Incorporated by reference to Exhibit of same number in Company's Annual
Report on Form 10-K for the Annual Period ended June 30, 2000 filed
September 27, 2000.
(4) Incorporated by reference to Exhibit 3.2 in Company's Registration
Statement on Form S-1, Registration No. 33-97902, effective December 11,
1995.
(5) Incorporated by reference to Exhibit 1.1 in Company's Current Report on
Form 8-K filed September 1, 2000.
26
<PAGE> 28
(b) Reports on Form 8-K.
During the quarter ended September 30, 2000, the Company filed three Reports on
Form 8-K.
On August 10, 2000, the Company filed a Current Report dated August 9, 2000,
reporting under Item 5 an announcement of the Company's revised outlook for the
fourth quarter and fiscal year operating results.
On September 1, 2000, the Company filed a Current Report dated August 31, 2000,
reporting under Item 5 the incorporation of exhibits into the Registration
Statement on Form S-3 (File No. 333-58613) filed by the Company, and announcing
the offer of up to 1,700,000 shares of the Company's common stock on a best
efforts basis, pursuant to an agency agreement dated August 31, 2000 among the
Company, Raymond James & Associates, Inc. and Sanders Morris Harris Inc.
On September 15, 2000, the Company filed a Current Report dated September 12,
2000, reporting under Item 5 the receipt, by the Company's Deposition Sciences,
Inc. ("DSI") subsidiary, of recent orders from Lucent Technologies
Microelectronics Group for DSI's IsoSphere(TM) Ball Lenses, and reporting the
Company's results of operations for the fiscal fourth quarter and year ended
June 30, 2000.
27
<PAGE> 29
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.
ADVANCED LIGHTING TECHNOLOGIES, INC.
Date: November 14, 2000 By: /s/ Wayne R. Hellman
-----------------------------
Wayne R. Hellman
Chief Executive Officer
Date: November 14, 2000 By: /s/ Steven C. Potts
----------------------------------
Steven C. Potts
Chief Financial Officer
28
<PAGE> 30
EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
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<S> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation filed
September 26, 1995 (1)
3.2 Certificate of Adoption of Third Amendment to Second Amended
and Restated Articles of Incorporation filed October 6, 1999 (2)
3.3 Certificate of Adoption of Fourth Amendment to Second Amended
and Restated Articles of Incorporation filed March 16, 2000 (3)
3.4 Code of Regulations (4)
4.2 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
10.1 Sixth Amendment Agreement by and among Advanced Lighting
Technologies, Inc. and certain of its subsidiaries and PNC Bank,
National Association, as agent for certain other banks dated as of
July 1, 2000, and amending the Credit Agreement by and among
the same parties dated as of May 21, 1999
10.2 Amendment to Contingent Warrant Agreement dated as of
August 31, 2000 by and among Advanced Lighting Technologies, Inc.,
General Electric Company, Wayne R. Hellman, individually and as
voting trustee under Voting Trust Agreement dated October 10, 1995,
Hellman Ltd. and Alan J. Ruud, individually and as voting trustee
under Voting Trust Agreement dated January 2, 1998
10.3 Agency Agreement dated August 31, 2000 among Advanced Lighting
Technologies, Inc., Raymond James & Associates, Inc. and
Sanders Morris Harris Inc. (5)
12 Statement Re: Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
99.1 Press Release of Advanced Lighting Technologies, Inc. dated
October 30, 2000
99.2 Press Release of Advanced Lighting Technologies, Inc. dated
November 6, 2000
99.3 Press Release of Advanced Lighting Technologies, Inc. dated
November 6, 2000
</TABLE>
--------------------------------
(1) 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.
29
<PAGE> 31
(2) Incorporated by reference to Exhibit of same number in Company's Quarterly
Report on Form 10-Q/A for the Quarterly Period ended September 30, 1999
filed January 14, 2000.
(3) Incorporated by reference to Exhibit of same number in Company's Annual
Report on Form 10-K for the Annual Period ended June 30, 2000 filed
September 27, 2000.
(4) Incorporated by reference to Exhibit 3.2 in Company's Registration
Statement on Form S-1, Registration No. 33-97902, effective December 11,
1995.
(5) Incorporated by reference to Exhibit 1.1 in Company's Current Report on
Form 8-K filed September 1, 2000.
30
