SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarter ended March 28, 1998
Commission File Number 23103
APPLIED FILMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1311581
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9586 I-25 Frontage Rd., Longmont, Colorado 80504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 774-3200
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 ___
3,476,437 shares of Common Stock were outstanding as of April 30, 1998.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements: 3
Consolidated Balance Sheets at June 28, 1997 and 3
March 28, 1998
Consolidated Statements of Operations for the Three and 4
Nine Months Ended March 29, 1997 and March 28, 1998
Consolidated Statements of Cash Flows for the Nine Months 5
Ended March 29, 1997, and March 28, 1998
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 14
2
<PAGE>
APPLIED FILMS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
June 28, 1997 March 28, 1998
------------- --------------
ASSETS (unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents .......................... $ 297 $ 332
Accounts Receivable, net
Coated glass and other ........................... 6,316 7,187
Income earned, not yet billed .................... 145 2,022
Inventories, net ................................... 6,160 10,251
Prepaid expenses and other ......................... 423 805
Note receivable from officers ...................... 5 2
Deferred tax asset, net ............................ 250 633
-------- --------
Total current assets ............................. 13,596 21,232
-------- --------
Property, Plant and Equipment:
Land ............................................... 733 733
Building ........................................... 2,747 2,747
Machinery and equipment ............................ 11,587 16,139
Office furniture and equipment ..................... 452 485
Leasehold improvements ............................. 425 901
Construction-in-progress ........................... 1,209 800
-------- --------
17,153 21,805
Accumulated depreciation ........................... (9,330) (10,725)
-------- --------
7,823 11,080
Investment in affiliate .............................. 122 157
Deferred tax asset, net of current portion ........... -- 93
-------- --------
122 250
Total Assets ..................................... $ 21,541 $ 32,562
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ............................. $ 3,802 $ 7,931
Accrued expenses ................................... 1,272 2,851
Income received but not yet earned ................. 1,500 --
Income taxes payable ............................... 352 662
Current portion of long-term debt .................. 1,136 1,062
-------- --------
Total current liabilities ....................... 8,062 12,506
-------- --------
Non-Current Liabilities:
Long-term debt, net of current portion ............. 6,448 5,073
Deferred gain, net of current portion .............. -- 770
Deferred tax liability, net of current portion ..... 291 --
-------- --------
Total liabilities ................................ 14,801 18,349
-------- --------
Stockholders' Equity:
Common stock, no par value, 10,000,000
shares authorized, 3,476,437 shares
issued and outstanding ........................... $ 4,245 $ 9,450
Less common shares held by affiliate ............... (26) (26)
Deferred compensation .............................. (31) (13)
Retained earnings .................................. 2,552 4,802
-------- --------
Total stockholders' equity ....................... 6,740 14,213
-------- --------
Total liabilities & stockholders' equity ............. $ 21,541 $ 32,562
======== ========
</TABLE>
3
<PAGE>
APPLIED FILMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
Three Months Ended Nine Months Ended
-------------------- ---------------------
March 29, March 28, March 29, March 28,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net Sales ......................... $ 9,935 $ 15,312 $ 24,020 $ 39,736
Cost of Goods Sold ................ 7,768 12,356 19,596 31,745
-------- -------- -------- --------
Gross Profit ...................... 2,167 2,956 4,424 7,991
Selling, General and Administrative 923 1,336 2,108 3,431
Research and Development Expenses . 181 324 489 941
-------- -------- -------- --------
Income from Operations ............ 1,063 1,296 1,827 3,619
Other Income (Expense):
Gain (loss) of foreign currency
exchange ......................... 11 69 58 102
Interest Expense .................. (191) (103) (642) (360)
Other Income (Expense) ............ (1) 17 (6) 36
-------- -------- -------- --------
Income before income taxes ........ 882 1,279 1,237 3,397
Income Tax Provision .............. 240 435 337 1,148
-------- -------- -------- --------
Net Income ........................ $ 642 $ 844 $ 900 $ 2,249
======== ======== ======== ========
Primary and Fully Diluted
Net Income Per Share ............. $ 0.23 $ 0.23 $ 0.32 $ 0.68
======== ======== ======== ========
Weighted Average Common Shares
Outstanding ...................... 2,853 3,695 2,853 3,302
======== ======== ======== ========
</TABLE>
4
<PAGE>
APPLIED FILMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
Nine Months Ended Nine Months Ended
March 29, 1997 March 28, 1998
-------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income ..................................... $ 900 $ 2,249
Depreciation and Amortization .................. 1,104 1,283
Amortization of Deferred Compensation .......... 46 18
Loss (gain) on disposals of property,
plant and equipment .......................... 6 (4)
Undistributed earnings of affiliate ............ 2 (35)
Changes in --
Accounts receivable (net) ...................... (1,543) (2,749)
Inventories .................................... 622 (4,091)
Prepaid expenses and other ..................... 186 (382)
Accounts Payable ............................... 894 4,129
Income received not yet earned ................. 1,020 (1,500)
Accrued expenses ............................... 668 1,524
Income taxes payable ........................... 190 310
Deferred income taxes, net ..................... -- ($ 767)
Net cash flows from operating activities ......... 4,095 (15)
-------- --------
Cash Flows From Investing Activities
Purchase of Building Improvements ................ (15) --
Purchase of Machinery and Equipment .............. (238) (4,444)
Reimbursement of equipment costs ................. 16 --
Purchase of Office Furniture & Equipment ......... (34) (35)
Purchase of Leasehold Improvements ............... (4) (477)
Costs incurred for Construction in Progress ...... (76) 409
Proceeds from Sale of Equipment .................. 60 4
Proceeds from Sale of Purchase Option for
Longmont Facility .............................. -- 834
Cash received from note receivable from officer .. 18 4
Net cash flows from investing activities ......... (273) (3,705)
-------- --------
Cash Flows from Financing Activities
Proceeds from Long Term Debt ..................... 4,943 9,791
Repayment of Long Term Debt ...................... (8,838) (11,241)
Cash received from public stock offering ......... -- 5,205
Net cash flows from financing activities ......... (3,895) 3,755
-------- --------
Net Increase (Decrease) in Cash .................. (73) 35
Cash and Cash Equivalents, beginning of period ... 260 297
Cash and Cash Equivalents, end of period ......... $ 187 $ 332
======== ========
Supplemental cash flow information
Cash paid for interest, net of amounts capitalized $ 481 $ 626
======== ========
Cash paid (received) for income taxes net of
amounts refunded ................................ $ 117 $ 1,603
======== ========
</TABLE>
5
<PAGE>
APPLIED FILMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Company Organization and Operations
Applied Films Corporation, (the "Company"), was originally incorporated in
1992 as a Michigan corporation. In June 1995, the Company reincorporated in
Colorado. The Company's principal line of business is the manufacture and sale
of thin film coated glass for use in flat panel and liquid crystal displays.
Recently, the Company has begun selling its thin film coating equipment to flat
panel display and other manufacturers. The Company experiences risks common to
technology companies, including highly competitive and evolving markets for its
products.
The Company was formed in May 1992 as the result of a merger between
Applied Films, Inc. ("AFI") and a wholly owned subsidiary of Donnelly
Corporation ("Donnelly"), Donnelly Coated Corporation ("DCC"). On November 26,
1997, Donnelly sold all its shares of Applied Films stock during the Company's
initial public offering.
(2) Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the Company's
wholly owned subsidiary, DAF Export Corporation, which is treated as a Foreign
Sales Corporation ("FSC") for federal income tax purposes. The accounts of the
subsidiary have been consolidated with the accounts of the Company in the
accompanying financial statements. All intercompany accounts and transactions
have been eliminated in the consolidation.
Unaudited Financial Information
The accompanying interim financial information as of March 28, 1998 and for
the quarters ended March 29, 1997 and March 28, 1998 is unaudited. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) have been included that are necessary to a fair statement of the
results of those interim periods presented. The results of operations for the
quarter or the nine months ended March 28, 1998 are not necessarily indicative
of the results to be expected for the entire year.
Fiscal Year
The Company has adopted a fiscal year ending on the Saturday nearest June 30,
which will result in fiscal years composed of 52 or 53 weeks. Fiscal years 1997
and 1998 include 52 weeks.
6
<PAGE>
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories at June 28, 1997, and March 28, 1998 consist of the
following:
<TABLE>
June 28, March 28,
1997 1998
<S> <C> <C>
Raw materials, net................................ $3,840,000 $6,944,000
Work-in-process................................... 9,000 22,000
Materials for manufacturing systems............... 158,000 1,248,000
Finished Goods.................................... 2,153,000 2,037,000
---------- -----------
$6,160,000 $10,251,000
========== ===========
</TABLE>
Net Income Per Share
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding for each period. Common
equivalent shares include stock options to purchase the Company's common stock.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common and common equivalent shares issued during the twelve months immediately
preceding the Company's initial public offering filing date have been included
in the calculation of common and common equivalent shares using the treasury
stock method and the anticipated public offering price as if they were
outstanding for all periods.
New Accounting Pronouncements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards 128 (SFAS 128") entitled, "Earnings per Share."
SFAS 128 is effective for fiscal years ending after December 15, 1997; early
adoption is not permitted. SFAS 128 replaces primary and fully diluted earnings
per share with basic and diluted earnings per share, respectively. Under SFAS
128, net income (loss) per share for the periods reported would be as follows:
<TABLE>
Three months ended Three months ended Nine months ended Nine months ended
March 29, 1997 March 28, 1998 March 29, 1997 March 28, 1998
<S> <C> <C> <C> <C>
Basic...... $0.23 $0.24 $0.32 $0.72
Diluted.... 0.23 0.23 0.32 0.68
</TABLE>
7
<PAGE>
(3) Sales by Geographic Region
The breakdown of total sales by geographic region is as follows:
<TABLE>
Fiscal Year Ended Nine Months Ended
June 28, 1997 March 28, 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
Asia (other than Japan) . . . . . . . . . . . . $19,534,000 $23,588,000
Japan . . . . . . . . . . . . . . . . . . . . . 6,611,000 5,732,000
United States . . . . . . . . . . . . . . . . . 5,997,000 10,439,000
Europe and Other. . . . . . . . . . . . . . . . 2,941,000 1,755,000
------------ ------------
Gross sales . . . . . . . . . . . . . . . . . . 35,083,000 41,514,000
Less: sales returns and allowances. . . . . . . (1,033,000) (1,778,000)
----------- -----------
Net sales . . . . . . . . . . . . . . . . . . . $34,050,000 $39,736,000
=========== ===========
</TABLE>
(4) Other Information
On January 30, 1998 the Company entered into a new lease with a third party
lessor for its new production facility in Longmont, Colorado. The Company
received $834,000 representing the amount of fair market value in excess of the
purchase option price.
On March 27, 1998, the Company amended its $11.5 million credit facility
with a commercial bank. The credit facility originally included a $3 million
term loan and $8.5 million line of credit. The amendment converted the term loan
into the line of credit and increased the total line of credit to $11.5 million.
In addition, a Eurodollar interest rate option was added to the credit facility.
8
<PAGE>
APPLIED FILMS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in this report.
This report contains certain forward-looking statements (within the meaning of
the Private Securities Litigation Reform Act of 1995) that involve substantial
risks and uncertainties, including those described below, the effect of changing
worldwide economic conditions, such as those in Asia, the effect of overall
market conditions, product demand and market acceptance risk, risks associated
with dependencies on suppliers, the impact of competitive products and pricing,
technological and product development risks, and other risk factors. When used
herein, the terms "believe," "anticipate," "intend," "goal," "expect," and
similar expressions may identify forward-looking statements. The Company's
actual results, performance or achievements may differ materially from those
expressed or implied by such forward- looking statements.
OVERVIEW
The Company's sales historically have been derived primarily from the sale
of thin film coated glass to manufacturers of liquid crystal displays (LCDs).
Most of the Company's LCD manufacturing customers are located in Asia. Sales to
international customers represented approximately 84% of the Company's total
gross sales and 83% of thin film coated glass sales in the third quarter of
fiscal 1998. The Company expects international sales will continue to represent
a significant portion of its net sales. During fiscal 1997, the Company began
selling thin film coating (PVD) equipment to flat panel display ("FPD") and
other manufacturers, which sales totaled $2.8 million for fiscal year ended
1997.
Sales and related costs of coated glass sales are recognized when products
are shipped. Historically, sales have varied substantially from quarter to
quarter, and the Company expects such variations to continue. Because a
significant portion of the Company's overhead is fixed in the short term, the
Company's gross profit and results of operations may be adversely affected by
unexpected fluctuations in sales. The Company is typically able to ship its thin
film coated glass within 30 days of receipt of the order and, therefore, does
not customarily have a significant long-term backlog of coated glass.
Historically, the Company has experienced significant price pressure from time
to time in its thin film coated glass business. While prices have been somewhat
more stable recently, the Company expects continued downward pressure on its
selling prices in the future, which will require continuing improvements in
manufacturing efficiencies and cost reductions.
The Company sells most of its thin film coated glass to foreign customers
in U.S. dollars except for sales to certain Japanese customers which are in yen.
Gross sales in yen were approximately $4.4 million, for fiscal 1997 and $4.5
million for the first nine months of fiscal 1998. The Company does not currently
engage in international currency hedging transactions to mitigate its foreign
exchange exposure, however, the Company does purchase raw glass from Japan which
partially offsets foreign currency risks on thin film coated glass sales. The
Company's purchases of raw material denominated in yen were approximately $4.6
million in fiscal 1997 and $5.8 million in the first nine months of fiscal 1998.
At March 28, 1998, accounts receivable denominated in yen were approximately
$836,000 or approximately 9% of total accounts
9
<PAGE>
receivable. At March 28, 1998, accounts payable denominated in yen were
approximately $1.6 million, or 21% of total accounts payable. The Company is
generally paid by its customers for its yen denominated sales within
approximately 15 to 30 days of the date of sale.
Net sales of thin film coating equipment are recognized on the
percentage-of-completion method, measured by the percentage of the total costs
incurred and applied to date in relation to the estimated total costs to be
incurred for each contract. The lead time for the sale of thin film coating
equipment is generally six to twelve months. The Company expects to achieve
higher gross profit margins for coating equipment sales compared to the sale of
thin film coated glass. To date, the Company has priced its coating equipment in
U.S. dollars.
Sales during the third quarter of fiscal 1998 were not significantly
affected by economic conditions in Southeast Asia; however, certain plasma
display manufacturers in Japan and Korea have announced plans to delay, by up to
a year, commercialization of plasma displays which may impact their capital
equipment purchases and sale of equipment by the Company. The Company continues
to monitor and evaluate such conditions and their potential impact on the
Company's business including, but not limited to, any future impact on capital
equipment expenditures by Asian customers and resulting impact on the Company's
thin film coating equipment sales.
Third quarter results reflected continued strong demand and sales within
the Company's core thin film coated glass business. In addition, sales of thin
film coating equipment recognized during the third quarter of fiscal 1998
increased substantially over the comparable quarter of fiscal 1997. Sales of
thin film coated glass were derived primarily from demand by LCD manufacturers
for low information content displays used in applications such as games,
watches, calculators, cell phones etc. The Company believes the demand for its
thin film coated glass products is driven by the worldwide demand for products
utilizing flat panel displays. The end products utilizing flat panel displays
continue to proliferate. Short-term demand can fluctuate, however, and the
Company is closely monitoring market conditions for their potential impact on
demand for sales of the Company's thin film coated glass. Recognition of sales
of thin film coating equipment included sales to LCD and electrochromic
manufacturers. Coating equipment backlog at the end of the third quarter of
fiscal 1998 was $4.3 million compared to $9.4 million for the second quarter of
fiscal 1998.
The Company has initiated operation of a new thin film coated glass
production coating line at its new facility in Longmont (Weld County), Colorado.
The implementation of STN glass production is expected to continue for the next
several quarters. In addition, the Company is in the process of relocating its
remaining production operations from its existing Boulder facilities to the new
facility in Longmont. As previously disclosed, the Company expects this
relocation will negatively impact thin film coated glass sales and operating
results of the Company. The relocation is expected to be completed during
calendar 1998.
10
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 28, 1998 Compared with Three Months Ended March 29,
1997
Net Sales. Net sales increased 54.1% to $15.3 million in the third quarter
of fiscal 1998 from $9.9 million in the third quarter of fiscal 1997. This
increase reflected a strong market demand for thin film coated glass and growth
in the Company's thin film equipment business. Thin film coated glass net sales
increased by 21.5% from the third quarter of fiscal 1997 to the third quarter of
fiscal 1998. Thin film equipment net sales increased by $3.6 million from the
third quarter of fiscal 1997 to the third quarter of fiscal 1998.
Gross Profit. Gross profit increased to $3.0 million in the third quarter
of fiscal 1998 from $2.2 million in the third quarter of fiscal 1997. As a
percentage of net sales, gross profit decreased to 19.3% in the third quarter of
fiscal 1998 from 21.8% in the third quarter of fiscal 1997. Thin film coated
glass profit margins were reduced due to start up costs of the new thin film
production coating line including additional labor, material and training costs
as well as costs associated with operating multiple production facilities. The
Company expects gross profit margins to be negatively impacted over the next
several quarters as the Company continues to relocate its production facilities.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.3 million in the third quarter of fiscal 1998 from
$923,000 in the third quarter of fiscal 1997 due primarily to additional salary
and sales commission expenses. As a percentage of net sales, selling, general
and administrative costs were 8.7% for the third quarter of fiscal 1998 compared
to 9.3% for the third quarter of fiscal 1997.
Research and Development. Research and development expenses increased to
$324,000 in the third quarter of fiscal 1998 from $181,000 in the third quarter
of fiscal 1997. The increase was primarily attributable to additional staffing
and related expenses focused on advanced development projects. As a percentage
of net sales, research and development expenses increased slightly to 2.1% in
the third quarter of fiscal 1998 from 1.8% in the third quarter of fiscal 1997.
The Company expects research and development expenditures for the current fiscal
year to exceed the prior year's expenditures.
Interest Income (Expense). Net interest expense decreased to $103,000 in
the third quarter of fiscal 1998 from $191,000 in the third quarter of fiscal
1997. Total borrowings were $6.1 million as of March 28, 1998 compared to $6.0
million on March 29, 1997. Average debt levels were less in the third quarter of
fiscal 1998 versus the same period of fiscal 1997. In addition, the Company did
not incur the Donnelly debt guarantee fee during the third quarter of fiscal
1998, which it had incurred during the same period in fiscal 1997.
Other Income (Expense). Other income increased by $76,000 in the third
quarter of fiscal 1998 over the third quarter of fiscal 1997, due primarily to
gains on foreign currency exchange.
Income Tax Provision. The Company's income tax provision was $435,000 in
the third quarter of fiscal 1998 compared to $240,000 in the third quarter of
fiscal 1997. The effective tax rate for 1998 is expected to be approximately 34%
versus 27% for fiscal 1997. The Company benefited in fiscal 1997 from the use of
net operating loss carryforwards. These benefits were not available for fiscal
1998.
11
<PAGE>
Nine Months Ended March 28, 1998 Compared with Nine Months Ended March 29, 1997
Net Sales. Net sales increased 65.4% to $39.7 million in the first nine
months of fiscal 1998 from $24.0 million in the first nine months of fiscal
1997. This reflected both strong market demand for thin film coated glass and
growth in the Company's thin film equipment business. Thin film coated glass net
sales increased by 34.0% from the first nine months of fiscal 1997 to the first
nine months of fiscal 1998. Thin film equipment net sales increased by $8.3
million from the first nine months of fiscal 1997 to the first nine months of
fiscal 1998. Sales of thin film coating equipment commenced during the first
quarter of fiscal 1997.
Gross Profit. Gross profit increased to $8.0 million in the first nine
months of fiscal 1998 from $4.4 million in the first nine months of fiscal 1997.
As a percentage of net sales, gross profit increased to 20.1% in the first nine
months of fiscal 1998 from 18.4% in the first nine months of fiscal 1997. This
improvement was due to higher gross profit margins for the thin film coating
equipment business, offset partially by reduced gross profit margins on thin
film coated glass. Thin film coated glass profit margins were reduced due to
start up costs of the new thin film production coating line including additional
labor, material and training costs as well as costs associated with operating
multiple production facilities. The Company expects gross profit margins to be
negatively impacted over the next several quarters as the Company continues to
relocate its production facilities.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $3.4 million in the first nine months of fiscal 1998 from
$2.1 million in the first nine months of fiscal 1997 due primarily to additional
salaries, sales commissions, recruiting and other expenses. As a percentage of
sales, selling, general and administrative costs were 8.6% for the first nine
months of fiscal 1998 compared to 8.8% for the comparable period of fiscal 1997.
Research and Development. Research and development expenses increased to
$941,000 in the first nine months of fiscal 1998 from $489,000 in the first nine
months of fiscal 1997. The increase was primarily attributable to increased
staffing and related expenses focused on advanced development projects. As a
percentage of net sales, research and development expenses increased slightly to
2.4% in the first nine months of fiscal 1998 from 2.0% in the first nine months
of fiscal 1997. The Company expects research and development expenditures for
the current fiscal year to continue to exceed the prior year's expenditures.
Interest Income (Expense). Net interest expense decreased to $360,000 in
the first nine months of fiscal 1998 from $642,000 in the first nine months of
fiscal 1997. Total borrowings were $6.1 million as of March 28, 1998 compared to
$6.0 million on March 29, 1997. Average debt levels for the first nine months of
fiscal 1998 were less than average borrowings for the comparable period of
fiscal 1997.
Other Income (Expense). Other income increased by $86,000 in the first nine
months of fiscal 1998 compared to the first nine months of fiscal 1997 due
primarily to gains on foreign currency exchange.
Income Tax Provision. The Company's income tax provision was $1.1 million
for the first nine months of fiscal 1998 compared to $337,000 for the first nine
months of fiscal 1997. The effective tax rate for 1998 is expected to be
approximately 34% versus 27% for fiscal year 1997. The Company benefited in
fiscal 1997 from the use of net operating loss carryforwards. These benefits
were not available for fiscal 1998.
12
<PAGE>
Liquidity and Capital Resources
The Company has primarily funded its operations with cash generated from
operations and with borrowings. Cash provided by operating activities for the
first nine months of fiscal 1998 were ($15,000) compared to $4.1 million for the
corresponding period in fiscal 1997 due primarily to increases in inventory and
accounts receivable offset partially by increases in accounts payable. In
November and December, 1997, the Company received net proceeds of $5.2 million
in connection with its initial public offering. The proceeds were used to pay
down long-term debt and for working capital. As of March 28, 1998, the Company
had cash and cash equivalents of approximately $332,000 and working capital of
$8.7 million. As of March 28, 1998, accounts receivable were approximately $9.2
million.
The Company has an $11.5 million credit facility with a commercial bank
which expires June 30, 2000 which originally included a $3.0 million term loan
and an $8.5 million line of credit. On March 27, 1998 the credit facility was
amended to convert the term loan and increase the line of credit to $11.5
million. As of March 28, 1998, the Company had approximately $5.8 million
outstanding on its credit facility.
Capital expenditures for the nine months ended March 28, 1998 were $4.5
million, compared to $351,000 for the nine months ended March 29, 1997. The
Company has begun operation of its new thin film production coating line and is
continuing to prepare its new facility to accommodate the move of the operations
from Boulder to Longmont, Colorado. Capital expenditures for the current year
are now expected to be approximately $5 million. The Company is currently
negotiating the sale of its existing production facility in Boulder.
The Company believes that its working capital and capital resource needs
will continue to be met primarily by operations, and supplemented by the
existing credit facility.
Recent Financial Accounting Standards Board Statement
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards 128 ("SFAS 128"), "Earnings Per Share." SFAS 128
is effective for fiscal years ending after December 15, 1997; early adoption is
not permitted. SFAS 128 replaces primary and fully diluted EPS with basic and
diluted earnings per share, respectively. Under SFAS 128, net income (loss) per
share for the periods presented would be as follows:
<TABLE>
Three Months Ended Nine Months Ended
March 29, March 28, March 29, March 28,
1997 1998 1997 1998
----------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Basic $0.23 $0.24 $0.32 $0.72
Diluted 0.23 0.23 0.32 0.68
</TABLE>
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit No. Description
27 Financial Data Schedule (EDGAR filing only)
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
APPLIED FILMS CORPORATION
/s/ Thomas T. Edman
Date: 5/12/98 Thomas T. Edman
President and Chief Executive Officer
/s/ Thomas D. Schmidt
Date: 5/12/98 Thomas D. Schmidt
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements and is qualified in its entirety
reference to such form 10-Q quarterly report.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
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0
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