<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] 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 001-14210
LUMEN TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-3868804
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
Suite B-302
555 Theodore Fremd Avenue 10580
Rye, New York _______________
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Registrant's telephone number, including area code: (914) 967-9400
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE.
COMMON SHARES, PAR VALUE $.01--20,572,784 SHARES AS OF MAY 14, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
LUMEN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,348 $ 762
Trade receivables, net 25,562 10,214
Inventories 30,087 9,534
Investment in and net receivable from discontinued operations 51,567
Other current assets 3,941 6,094
------------------ --------------------
Total current assets 60,938 78,171
Property and equipment, net 37,987 13,763
Goodwill, net 43,296 12,138
Intangible assets, net 1,208 1,225
Equity in and notes receivable from affiliated companies 8,773
Other assets 5,789 5,619
------------------ --------------------
Total assets $149,218 $119,689
=================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt and current maturities of long term debt $ 20,709 $ 25,458
Accounts payable 13,644 4,891
Other accrued expenses 27,325 13,485
------------------ --------------------
Total current liabilities 61,678 43,834
Long-term debt 28,500 31,349
Non-recourse long-term debt 8,508
Convertible subordinated notes 14,731 23,742
Other 7,664 8,307
------------------ --------------------
Total liabilities 121,081 107,232
------------------ --------------------
Mandatorily redeemable preferred stock 9,294
Minority interests 35
Stockholders' equity:
Common stock - par value $.01; 50,000 shares 205 88
authorized; 20,469 and 8,815 shares issued
Additional paid-in capital 68,311 28,743
Treasury stock - 2 shares, at cost (17)
Accumulated deficit (40,414) (25,651)
------------------ --------------------
Total stockholders' equity 28,102 3,163
------------------ --------------------
Total liabilities and stockholders' equity $149,218 $119,689
================== ====================
</TABLE>
(See accompanying notes to condensed financial statements.)
2
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LUMEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------------------------
1998 1997
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<S> <C> <C>
REVENUES:
Net sales $ 28,715 $ 10,963
COSTS AND EXPENSES:
Cost of sales 19,078 6,506
Selling, general and administrative 6,683 2,564
Merger and spinoff related nonrecurring, non-cash charges 16,704
Interest expense 1,195 803
Other (income) expense 20 (431)
-------------- --------------
Total costs and expenses 43,680 9,442
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Income (loss) from continuing operations before taxes (14,965) 1,521
Provision for (benefit from) income taxes (923) 483
Minority interests 35
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Income (loss) from continuing operations (14,077) 1,038
Loss from discontinued operations (686) (413)
-------------- --------------
Net income (loss) $(14,763) $ 625
============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 11,533 8,755
Diluted 11,981 8,780
BASIC EARNINGS (LOSS) PER SHARE:
From continuing operations $ (1.22) $ 0.12
From discontinued operations (0.06) (0.05)
-------------- --------------
$ (1.28) $ 0.07
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DILUTED EARNINGS (LOSS) PER SHARE:
From continuing operations $ (1.22) $ 0.12
From discontinued operations (0.06) (0.05)
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$ (1.28) $ 0.07
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</TABLE>
(See accompanying notes to condensed financial statements.)
3
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LUMEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended March 31,
---------------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net cash used by continuing operations $ (4,293) $ (171)
Net cash used by discontinued operations (554)
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Net cash used by operating activities $ (4,293) $ (725)
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Cash flows from investing activities:
Cash expended on acquisitions, net of cash received 301 (878)
Capital expenditures (431) (340)
Net cash used by discontinued operations (17) (47)
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Net cash used by investing activities $ (147) $ (1,265)
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Cash flows from financing activities:
Proceeds from (payments on) revolving credit line (4,470) 2,145
Proceeds fromon (payments on) long term obligations (5,284) (618)
Proceeds from (payments on) short term obligations (2,102)
Proceeds from issuances of common stock 116
Purchases of treasury stock (234)
Net cash provided by discontinued operations 16,766 601
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Net cash provided by financing activities $ 5,026 $ 1,894
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Net increase (decrease ) in cash $ 586 $ (96)
Cash and cash equivalents at beginning of period 762 2,164
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Cash and cash equivalents at end of period $ 1,348 $ 2,068
============== ============
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Non cash investing and financing activities:
In March 1998, the Company completed the ILC Merger and Spinoff (as defined in
Note 1). In connection with these transactions, certain assets and liabilities
of the Company were assigned to Bolle pursuant to the Contribution Agreement
(as defined in Note 1). In addition, the Company contributed approximately $17
million of intercompany receivables to its investment in Bolle prior to the
Spinoff.
The Company cancelled its Series A Mandatorily Redeemable Preferred Stock of
$9.3 million in exchange for the settlement of a portion of the intercompany
receivables from Bolle described above.
(See accompanying notes to condensed financial statements.)
4
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LUMEN TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
On March 11, 1998, Lumen Technologies, Inc. (the "Company") distributed its
subsidiary, Bolle Inc. ("Bolle"), to its stockholders via a spinoff (the
"Spinoff"). In the Spinoff, Company stockholders received one share of Bolle
common stock for every three shares of Company common stock. In conjunction
with the Spinoff, the Company and Bolle entered into a Management Services
Agreement and a Bill of Sale and Assignment Agreement (the "Contribution
Agreement"). The Management Services Agreement provides management services to
Bolle for an agreed fee. In accordance with the Contribution Agreement, (i) the
Company assigned to Bolle all of the Company's assets other than the assets
related to the ORC Technologies, Inc. ("ORC") Business (as defined in the
Contribution Agreement) and certain other specific assets retained by the
Company, and (ii) Bolle assumed all of the Company's liabilities prior to
the Spinoff other than those related to the ORC Business and certain specific
liabilities.
On March 12, 1998, the Company (through its wholly-owned subsidiary, BILC
Acquisition Corp.) completed its merger with ILC Technology, Inc. (the "ILC
Merger"). Under the terms of the agreement, ILC shareholders received 2.2042
shares of company Common Stock for each share of ILC common stock outstanding.
Immediately prior to and in conjunction with the ILC Merger, the Company
changed its name to Lumen Technologies, Inc. and effected a one-for-two reverse
stock split. The effect of the one-for-two reverse split has been retroactively
presented in these financial statements.
The accompanying unaudited condensed financial statements reflect (i) the
continuing operations of ORC and ILC; (ii) Bolle net assets as of December 31,
1997 as "Investment in and net receivables from discontinued operations" and
Bolle's results of operations as discontinued for all periods presented; (iii)
the ILC Merger; and, (iv) the disposition of certain assets and liabilities
pursuant to the Contribution Agreement.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles, Regulation S-X and
the instructions for Form 10-Q. These statements contain all adjustments,
consisting only of normal recurring adjustments, except for adjustments made in
connection with the Spinoff and ILC Merger described in Notes 3 and 4, which in
the opinion of management are necessary to fairly present the consolidated
financial position of the Company as of March 31, 1998 and its results of
operations for the three months ended March 31, 1998 and 1997 and its cash
flows for the three months ended March 31, 1998 and 1997. The results of
operations of the interim periods presented are not necessarily indicative of
the results to be expected for the full fiscal year. The consolidated balance
sheet as of December 31, 1997 reflects the investment in discontinued
operations. These condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
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NOTE 2 - DISCONTINUED OPERATIONS
As described in Note 1, on March 11, 1998 the Company completed the Spinoff.
Accordingly the results of operations of Bolle have been included in
discontinued operations for the quarter ended March 31, 1997 and for the period
from January 1, 1998 until the Spinoff.
Summarized information on the combined discontinued operations follows:
<TABLE>
<CAPTION>
(in thousands) Quarter ended March 31,
----------------------------
1998 1997
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<S> <C> <C>
Net sales $ 6,705 $ 5,058
Loss from discontinued operations before taxes $ (949) $ (605)
Income tax benefit (370) (192)
Preferred stock dividend 107
----------------------------
Loss from discontinued operations $ (686) $ (413)
----------------------------
</TABLE>
NOTE 3- ILC MERGER
As described in Note 1, on March 12, 1998 the Company completed the ILC Merger
in a transaction accounted for as a purchase. To effect the ILC Merger, the
Company acquired all of the shares of ILC in exchange for 10.9 million shares
of Company common stock. Total consideration including $10.2 million of merger
related expenses was $67.5 million. A summary of the preliminary allocation of
purchase price is as follows:
(in thousands)
Current assets $ 23,836
Property and equipment 25,873
Goodwill and intangibles 35,209
Other assets 95
Current liabilities (12,902)
Long term liabilities (4,568)
----------
$ 67,543
----------
The Company determined that net book value approximated fair value for current
assets, other assets, current liabilities and other liabilities, except for
certain adjustments to inventories and trade receivables. Reserves of $3.2
million were established as part of purchase accounting for integration and
other expenses. Land and buildings were revalued based on independent
appraisals resulting in a step up of $4.3 million. For all other property,
plant and equipment, book value was assumed to approximate fair value.
Based on work carried out to date by an independent appraisal firm and
management's estimates, in process research and development costs acquired
approximated $7.0 million. See Note 4.
6
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The remainder of the excess of purchase price over book value of $28.2 (after
the purchased in process research and development charge of $7.0 million) was
allocated to goodwill which is being amortized over 40 years.
NOTE 4 - MERGER AND SPINOFF RELATED NONRECURRING, NON-CASH CHARGES
The Company's merger and spinoff related nonrecurring, non-cash charges of
$16.7 million during the quarter ended March 31, 1998 include the following:
(i) a $9.7 million nonrecurring, non-cash compensation charge relating to
stock options. In connection with the ILC Merger and Spinoff, the
Company stock option grants outstanding at March 11, 1998 were changed
into separate Company and Bolle stock option grants in order to
maintain the option holders' economic position equivalent to that
immediately prior to the ILC Merger and Spinoff, in each of the
separate companies. The changes to the option grants resulted in a
nonrecurring, non-cash compensation charge equal to the excess of fair
market value over the exercise price of the new grants of $9.7 million
with a corresponding credit being recorded to additional paid in
capital. The charge is reflected in the Company's financial statements
for the quarter ended March 31, 1998; and,
(ii) a $7.0 million write-off of in process research and development costs
("R&D") acquired in connection with the ILC Merger. Purchased in
process R&D includes the value of products in the development stage
which at the date of acquisition are not considered to have reached
technological feasibility. In accordance with Financial Accounting
Standards Board Interpretation No. 4, purchased in process R&D is
required to be expensed by the acquirer. Accordingly $7.0 million of
the purchase price of ILC was expensed during the first quarter ended
March 31, 1998.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
During the quarter ended March 31, 1998 and the year ended December 31, 1997,
the Company completed a number of transactions which significantly affect the
comparability of the actual results for the quarter ended March 31, 1998 with
the quarter ended March 31, 1997. In March 1998, the Company completed the
acquisition of ILC Technology, Inc ("ILC") (the "ILC Merger"). As of January 1,
1998 the Company increased its effective common stock ownership of Voltarc
Technologies, Inc. ("Voltarc") to 50%. Accordingly, the Company has
consolidated Voltarc for the quarter ended March 31, 1998.
On March 11, 1998 the Company completed the spinoff of Bolle Inc. to its
shareholders (the "Spinoff" of "Bolle"). Accordingly the results of operations
of Bolle have been included in discontinued operations for the periods
presented.
In connection with the ILC Merger and Spinoff, the Company stock option grants
outstanding at March 11, 1998 were changed into separate Company and Bolle
stock option grants in order to maintain the option holders' economic position
equivalent to that immediately prior to the Merger and Spinoff, in each of the
separate companies. The changes to the options grants resulted in a
nonrecurring, non-cash compensation charge equal to the excess of fair market
value over the exercise price of the new grants of $9.7 million with a
corresponding credit being recorded to additional paid in capital. The charge
is reflected in the Company's financial statements for the quarter ended March
31, 1998.
In connection with the ILC Merger, based upon work carried out by an
independent appraisal firm and management estimates, the Company believes it
acquired approximately $7.0 million of in-process research and development.
Accounting conventions require in process research and development to be
expensed when acquired, which resulted in a non-cash charge of $7.0 million in
the quarter ended March 31, 1998.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1998 compared to the quarter ended
March 31, 1997 increased $17.8 million due to strong internal growth and the
inclusion of acquired subsidiaries, ILC, Voltarc and Wolfram.
Gross margin of 34% in 1998 compared to 41% in 1997 reflects the addition of
lower gross margin products from acquired subsidiaries.
Selling, general and administrative expenses for the quarter ended March 31,
1998 of $6.7 million versus $2.6 million for the quarter ended March 31, 1997
reflect primarily the acquisitions described above.
Interest expense for the quarter ended March 31, 1998 of $1.2 million increased
from $0.8 million for the first quarter of 1997. The difference was entirely
due to higher debt outstanding
8
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during the three months ended March 31, 1998. The debt increase primarily
related to the acquisition debt related to the Company's Wolfram and Voltarc
transactions, combined with additional debt included with the consolidation of
the acquired entities.
The Company's effective tax rate of 6% for the quarter ended March 31, 1998
reflects the Company's effective annual tax rate of 37% offset by two items in
the nonrecurring, non-cash charge which result in permanent tax differences to
the Company: (i) the Bolle portion of the stock compensation charge, and (ii)
the in process R&D charge. This compares to effective tax rate of 32% for the
quarter ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 31, 1998, the Company used cash from operating
activities of continuing operations of $4.3 million primarily due to increases
in receivables and inventories and the payment of $3.8 million of transaction
expenses related to the ILC Merger. Depreciation and amortization totaled $0.7
for the first quarter of 1998. In investing activities, Company paid $0.8
million in cash for the acquisition of the additional ownership in Wolfram. The
Company borrowed $7.0 million to finance the above activities and to repay
ILC's debt outstanding of $5.8 million at the time of Merger.
On March 11, 1998, in conjunction with the ILC Merger and Spinoff, the Company
and its subsidiaries entered into a Second Amended and Restated Credit
Agreement (the "New Credit Agreement"). The New Credit Agreement provides for a
$40 million revolving credit facility, which includes a letter of credit
subfacility of $5 million, and a $30 million term facility. During the quarter
ended March 31, 1998, the Company's average interest rate related to average
debt outstanding was 6.8%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Approximately $6.6 million of the Company's assets as of March 31, 1998 were
denominated in British Pound Sterling. The Company may from time to time enter
into forward or option contracts to hedge the related foreign exchange risks.
The Company does not enter into market risk sensitive transactions for trading
or speculative purposes.
The Company's indebtedness is sensitive to changes in interest rates. Interest
rates are reset to market rates every 30-60 days.
9
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
27 Financial Data Schedule (for electronic filing only), filed
electronically herewith.
(B) REPORTS ON FORM 8-K:
A Current Report on Forms 8-K were filed during the quarter for which this
Form 10-Q is filed.
<TABLE>
<CAPTION>
REPORT: ITEMS REPORTED/ DATE OF REPORT
FINANCIAL STATEMENTS FILED:
<S> <C> <C>
Form 8-K Reported under Item 2 the merger of ILC Technology, Inc. in March 11, 1998
and with a wholly owned subsidiary of the Registrant and the
spinoff of the Registrants's interest in Bolle Inc.; and,
reporting under Item 5 certain other corporate actions,
including (without limitation) a one-for-two reverse stock
split under Item 5 of the spinoff by the Registrant.
</TABLE>
10
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUMEN TECHNOLOGIES, INC.
/s/ Martin E. Franklin
Date: May 14, 1998 By: ________________________________
Martin E. Franklin
Chairman
/s/ Ian G.H. Ashken
Date: May 14, 1998 By: ________________________________
Ian G.H. Ashken
Chief Financial Officer
11
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EXHIBIT INDEX
The following Exhibits are filed herewith or incorporated by reference:
Number
27 Financial Data Schedule (for electronic filing
only), filed electronically herewith.
12
<TABLE> <S> <C>
<PAGE>
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<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,348
<SECURITIES> 0
<RECEIVABLES> 25,562
<ALLOWANCES> 0
<INVENTORY> 30,087
<CURRENT-ASSETS> 60,938
<PP&E> 37,987
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<TOTAL-ASSETS> 149,218
<CURRENT-LIABILITIES> 61,678
<BONDS> 14,731
0
0
<COMMON> 205
<OTHER-SE> 27,897
<TOTAL-LIABILITY-AND-EQUITY> 149,218
<SALES> 28,715
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<INCOME-TAX> (923)
<INCOME-CONTINUING> (14,077)
<DISCONTINUED> (686)
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</TABLE>
