<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 MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER:
000-23461
---------------
SPECTRA-PHYSICS LASERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 77-0264342
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1335 TERRA BELLA AVENUE, MOUNTAIN VIEW, CALIFORNIA, 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
650-961-2550
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR
IF CHANGED SINCE LAST REPORT)
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 [ ]
The number of shares outstanding of the Registrant's common stock, par
value $0.01 per share, at March 31, 2000 was 16,558,164 shares.
================================================================================
<PAGE> 2
SPECTRA-PHYSICS LASERS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I Financial information
Item 1. Financial statements and supplementary data:
(a) Consolidated Balance Sheet at March 31, 2000 and December 31, 3
1999
(b) Consolidated Statement of Operations for the three months ended
March 31, 2000 and 1999 4
(c) Consolidated Statement of Cash Flows for the three months ended
March 31, 2000 and 1999 5
(d) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II Other Information 19
Signatures 22
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SPECTRA-PHYSICS LASERS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (SEE NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,345 $ 23,278
Accounts receivable 36,731 38,246
Inventories 30,405 26,582
Deferred tax assets 9,657 9,657
Prepaid expenses and other current assets 5,505 5,906
--------- ---------
Total current assets 106,643 103,669
--------- ---------
Property, plant and equipment, net 42,950 42,015
Intangible assets, net 1,712 1,794
Other assets 3,229 4,800
--------- ---------
Total assets $ 154,534 $ 152,278
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,318 $ 10,015
Borrowings under credit facilities 12,878 13,655
Accrued and other current liabilities 20,812 22,053
--------- ---------
Total current liabilities 43,008 45,723
Long-term liabilities 1,117 1,093
Commitments and contingencies
Stockholders' equity:
Common stock 166 162
Additional paid-in capital 102,134 98,320
Retained earnings 10,130 9,428
Accumulated other comprehensive income (loss) (2,021) (2,448)
--------- ---------
Total stockholders' equity 110,409 105,462
--------- ---------
Total liabilities and stockholders' equity $ 154,534 $ 152,278
========= =========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
SPECTRA-PHYSICS LASERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales .................................. $ 37,268 $ 31,081
Cost of products sold ...................... 22,633 21,160
-------- --------
Gross margin ......................... 14,635 9,921
-------- --------
Operating expenses:
Research and development ............... 5,499 4,151
Selling, general and administrative .... 8,397 8,510
Restructuring .......................... -- 468
-------- --------
Total operating expenses ............. 13,896 13,129
-------- --------
Operating income (loss) .............. 739 (3,208)
-------- --------
Other income (expense):
Interest income ........................ 238 218
Foreign currency gain (loss) ........... 155 (43)
-------- --------
Total other income ................... 393 175
-------- --------
Income (loss) before income taxes .... 1,132 (3,033)
Income tax expense (benefit) ............... 430 (1,153)
-------- --------
Net income (loss) .................... $ 702 $ (1,880)
======== ========
Net income (loss) per share:
Basic .................................. $ 0.04 $ (0.12)
Diluted ................................ $ 0.04 $ (0.12)
Shares used in computing net
income (loss) per share:
Basic .................................. 16,464 16,168
Diluted ................................ 17,354 16,168
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
SPECTRA-PHYSICS LASERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .............................................. $ 702 $ (1,880)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization ................................ 1,828 1,576
Changes in operating assets and liabilities:
Accounts receivable ........................................ 3,133 8,163
Inventories ................................................ (3,823) (3,346)
Prepaid expenses and other current assets .................. 400 (2,520)
Accounts payable ........................................... (697) (1,591)
Accrued and other current liabilities ...................... (373) (4,665)
-------- --------
Total cash provided by (used in) operating activities .... 1,170 (4,263)
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment ..................... (2,711) (2,310)
Other .......................................................... (147) (114)
-------- --------
Total cash used in investing activities .................. (2,858) (2,424)
-------- --------
FINANCING ACTIVITIES
Net borrowings (payments) under credit facilities .............. (777) (1,641)
Net proceeds from issuance of common stock ..................... 3,818 --
-------- --------
Total cash provided by (used in) financing activities .... 3,041 (1,641)
-------- --------
Effect of changes in foreign currency exchange rates ........... (286) (504)
-------- --------
Increase (decrease) in cash and cash equivalents ..... 1,067 (8,832)
Cash and cash equivalents at beginning of year ................. 23,278 34,620
-------- --------
Cash and cash equivalents at end of period ..................... $ 24,345 $ 25,788
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
SPECTRA-PHYSICS LASERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Spectra-Physics Lasers, Inc. (the "Company") designs, develops,
manufactures and distributes lasers, laser systems and optics for the
industrial, original equipment manufacturer ("OEM"), and research and
development markets.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
The Company's fiscal year ends on December 31. The Company's fiscal
quarters end on the Friday of the thirteenth week of the quarter. For
presentation purposes, the financial statements reflect the calendar month-end
date.
2. RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur at completion of installation and/or upon
customer acceptance. SAB 101 requires that companies conform their revenue
recognition practices to the requirements therein in the second quarter of
calendar 2000 through recording a cumulative net of tax effect of the change in
accounting. The Company has not yet completed the analysis to determine the
effect that SAB 101 will have on its financial statements.
3. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw material ................................ $15,357 $15,277
Work in process ............................. 6,071 3,482
Finished goods .............................. 8,977 7,823
------- -------
$30,405 $26,582
======= =======
</TABLE>
4. NET INCOME (LOSS) PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128 requires the
presentation of basic and diluted net income (loss) per share. Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed giving effect to all dilutive potential common
shares that were outstanding during the period. Dilutive potential common shares
consist of the incremental common shares issuable upon the exercise of stock
options. Diluted net loss per share does not include certain incremental common
shares issuable upon the exercise of stock options as they were anti-dilutive.
Approximately 0.1 million and 2.1 million options to acquire shares of common
stock were excluded from the calculation of diluted net income (loss) per share
for the three months ended March 31, 2000 and 1999, respectively, as they were
antidilutive.
6
<PAGE> 7
The following table presents the calculation of basic and diluted net income
(loss) per share as required under SFAS No. 128 (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Numerator:
Net Income (Loss) .......................... $ 702 $ (1,880)
======== ========
Denominator:
Denominator For Basic Net Income (Loss)
Per Share:
Weighted Average Shares ................. 16,464 16,168
Effect Of Dilutive Securities:
Employee Stock Options .................. 890 --
-------- --------
Denominator for diluted net
income (loss) per share ................. 17,354 16,168
======== ========
Net income (loss) per share -- Basic ......... $ 0.04 $ (0.12)
Net income (loss) per share -- Diluted ....... $ 0.04 $ (0.12)
</TABLE>
5. COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the
fourth quarter of 1998. SFAS No. 130 established new rules for the reporting and
display of comprehensive income (loss) and its components. The adoption of SFAS
No. 130 had no impact on the Company's net income (loss) or total stockholders'
equity.
Comprehensive income (loss) was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
------- -------
<S> <C> <C>
Net income (loss) ............................ $ 702 $(1,880)
Foreign currency translation adjustments ..... (430) (748)
Unrealized gain (loss) on forward foreign
currency contracts, net of income taxes .... 857 1,237
------- -------
Total comprehensive income (loss) ............ $ 1,129 $(1,391)
======= =======
</TABLE>
Accumulated other comprehensive income (loss) presented in the
accompanying consolidated balance sheet consists of the cumulative foreign
currency translation adjustments and net unrealized gains (losses) on forward
foreign currency contracts.
6. ENVIRONMENTAL MATTERS
See Part II., Item 1. Legal Proceedings
7. SEGMENT REPORTING
Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires enterprises to report information about operating segments in
annual financial statements and selected information about reportable segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers.
DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH OF THE
REPORTABLE SEGMENT DERIVES ITS REVENUES
The Company has five reportable segments: Passive Components (PC) business
unit; the Industrial and Scientific Lasers (ISL) business unit; the Original
Equipment Manufacturer (OEM) business unit; Opto Power Corporation (OPC); and
Spectra-Physics Distribution (SPD) business unit. PC designs and manufactures
optics, thin films, and fabricated parts for all operating units within the
Company and external customers. ISL designs, markets and manufactures high power
semiconductor-based and conventional lasers for the industrial and scientific
markets. ISL also designs, manufactures, and markets low power laser sources and
beam delivery systems for OEM products in the industrial and medical
instrumentation markets. OEM designs, markets and manufactures high power
7
<PAGE> 8
semiconductor-based lasers for various OEM markets. OPC designs, markets and
manufactures high power semiconductor lasers. SPD is the Company's worldwide
sales, service and support organization. Certain 1999 segment information has
been reclassified to conform to the 2000 presentation.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources based on
Earnings Before Interest and Taxes (EBIT). The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies in the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
Intersegment sales and transfers are recorded at intercompany transfer
prices which approximate sales as if conducted on an arm's length basis.
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
The Company's reportable segments are business units that are, except for
SPD, organized primarily by technology (for example, high power semiconductor
lasers, semiconductor laser pumped solid state lasers, ultrafast lasers, and
optics.) The reportable segments are each managed separately because they
manufacture and distribute distinct products based on different technology and
different production methods.
Information about segments (in thousands):
<TABLE>
<CAPTION>
ALL
PC ISL OEM OPC SPD OTHERS TOTAL
-------- ------- ------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 2000:
Net sales to external customers ..... $ 94 $ -- $ -- $ 1,115 $ 36,033 $ 26 $ 37,268
Intersegment net sales .............. 4,849 19,100 13,608 5,791 -- -- 43,348
Segment EBIT ........................ (338) 3,155 3,486 (425) (1,634) -- 4,244
Segment assets ...................... 14,298 32,459 14,602 34,362 68,923 -- 164,644
Three months ended March 31, 1999:
Net sales to external customers ..... $ 185 $ -- $ -- $ 1,964 $ 28,451 $ 481 $ 31,081
Intersegment net sales .............. 3,547 18,125 7,603 3,265 -- -- 32,540
Segment EBIT ........................ (307) 3,394 648 (954) (2,441) (527) (187)
Segment assets ...................... 12,558 28,403 9,478 37,201 57,676 2,769 148,085
</TABLE>
8
<PAGE> 9
Reconciliation of segment information to financial statements (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Net Sales:
Total external sales for reportable segments ............... $ 37,242 $ 30,600
Intersegment sales for reportable segments ................. 43,348 32,540
Other sales ................................................ 26 481
Elimination of intersegment sales .......................... (43,348) (32,540)
-------- --------
Total consolidated net sales ............................ $ 37,268 $ 31,081
======== ========
Income (loss) before income taxes:
Total EBIT for reportable segments ......................... $ 4,244 $ 340
Other EBIT ................................................. -- (527)
Corporate expenses ......................................... (1,314) (1,253)
Other expenses not allocated to segments ................... (2,191) (1,300)
Restructuring .............................................. -- (468)
Interest income ............................................ 238 218
Foreign currency gain ...................................... 155 (43)
-------- --------
Total consolidated income (loss) before income taxes .... $ 1,132 $ (3,033)
======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
Certain information in this quarterly report on Form 10-Q, including but
not limited to the Management's Discussion and Analysis of Financial Condition
and Results of Operations, may constitute forward-looking statements as such
term is defined in Section 27A of the Securities Act of 1933 (the "Securities
Act") and Section 21E of the Securities Exchange Act of 1934. Certain
forward-looking statements can be identified by the use of forward-looking
terminology such as, "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates," "anticipates," or "hopeful,"
or the negative thereof or other comparable terminology, or by discussions of
strategy, plans or intentions. Forward-looking statements involve risks and
uncertainties, including those described in the Risk Factors section of Item 1
of Spectra-Physics Lasers, Inc's (the "Company's") Annual Report on Form 10-K,
which could cause actual results to be materially different than those in the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company assumes no obligation to update such information.
OVERVIEW
The Company is a leader in the design, development, manufacture and
distribution of lasers, laser systems and optics for a broad range of markets.
Thermo Instrument Systems Inc. (TIS), a company whose common stock is traded on
the American Stock Exchange and a subsidiary of Thermo Electron Corporation,
indirectly owned approximately 78.5% of the Company's outstanding common stock
on March 31, 2000. Prior to its acquisition by TIS in February 1999,
Spectra-Physics AB, a Swedish company, beneficially owned approximately 80% of
the Company's outstanding common stock.
Net sales for products are recognized upon shipment. The Company derives
its revenue primarily from the sale of high power semiconductor-based and
conventional lasers and laser systems and optics. High power semiconductor-based
lasers and laser systems are sold into the OEM/industrial market and research
and development market. The OEM/industrial market is characterized by unit
sales, with varying prices, in volumes of as much as several thousand units.
Conventional lasers are primarily sold into the research and development market.
This market is typically characterized by the sale of single units and systems
with prices that range from approximately $3,000 to $500,000. Sales in this
market have historically varied from quarter to quarter due to seasonal
fluctuations and governmental spending patterns. Optics are sold in varying
units and per unit prices in telecommunications, computer and micro-electronics
manufacturing, industrial manufacturing, medical and image recording markets.
Over the last several years, a growing proportion of the Company's total net
sales and most of its sales growth have generally been from high power
semiconductor-based lasers.
The Company's sales have shown a pattern in the last several years whereby
the fiscal fourth quarter net sales represent a large share of the Company's
annual net sales and whereby the Company's first quarter net sales decline
significantly compared to the fourth quarter
9
<PAGE> 10
of the prior fiscal year. The Company believes these sales patterns result in
part because of seasonal sales pattern related to customers' fiscal years and in
part from the Company's incentive compensation plan which compensates employees
based on annual results. The Company recognizes that the non-linear pattern of
its shipments leads to inefficiencies in asset and employee utilization. The
Company is taking steps to mitigate this sales trend, but this pattern is likely
to continue in the near term.
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, cost of components, the proportion of third party
products incorporated into the Company's systems, foreign currency exchange
rates and manufacturing costs. For example, since high power semiconductor-based
lasers and laser systems generally have higher gross margins than conventional
lasers, absent other factors, a shift in sales toward high power
semiconductor-based lasers and laser systems would lead to a gross margin
improvement for the Company. On the other hand, if market conditions in the
highly competitive conventional laser market forced the Company to lower unit
prices, the Company would suffer a decline in gross margin unless the Company
were able to timely offset the price reduction by a reduction in production
costs or by sales of other products with higher gross margins. Either of these
events could have a material effect on the Company's business, operating results
and financial condition.
The Company spends a significant amount of resources on research and
development. In fiscal 1999 and the first quarter of fiscal 2000, the Company
focused much of these resources on high power semiconductor-based lasers and
optics for the telecommunications market. The Company expects to continue to
spend substantial resources in developing high power semiconductor-based lasers
and optics for the telecommunications market in addition to making focused
research and development expenditures to maintain its leadership position in its
other markets.
A significant proportion of the Company's sales are to international
customers and are denominated in currencies other than the U.S. dollar. The
Company also has sales and support operations located in certain European
countries and in Japan which operate in local currencies. As a result, while the
Company attempts to hedge its economic risk of foreign currency fluctuations,
the Company is exposed to fluctuations in foreign currency exchange rates. These
fluctuations have had in the past, and may have in the future, a significant
impact on the Company's results of operations.
The Company has five reportable segments: Passive Components (PC) business
unit; the Industrial and Scientific Lasers (ISL) business unit; the Original
Equipment Manufacturer (OEM) business unit; Opto Power Corporation (OPC); and
Spectra-Physics Distribution (SPD) business unit. PC designs and manufactures
optics, thin films and fabricated parts for all operating units within the
Company and external customers. ISL designs, markets and manufactures high power
semiconductor-based and conventional lasers for the industrial and scientific
markets. ISL also designs, manufactures and markets low power laser sources and
beam delivery systems for OEM products in the industrial and medical
instrumentation markets. OEM designs, markets and manufactures high power
semiconductor-based lasers for various OEM markets. OPC designs, markets and
manufactures high power semiconductor lasers. SPD is the Company's worldwide
sales, service and support organization. Reference is made to Footnote 7 of the
Consolidated Financial Statements included in the 1999 Annual Report on Form
10-K for disclosures of certain financial information related to the reportable
segments.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the Company's
results of operations in dollar terms and as a percentage of net sales and the
percent change from 1999 to 2000:
<TABLE>
<CAPTION>
PERCENT OF
NET SALES
THREE MONTHS ENDED THREE MONTHS ENDED PERCENT
MARCH 31, MARCH 31, CHANGE
------------------- ------------------ 2000 TO
2000 1999 2000 1999 1999
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales .................................. $37,268 $ 31,081 100.0% 100.0% 19.9%
Cost of products sold ...................... 22,633 21,160 60.7% 68.1% 7.0%
------- -------- ----- ----- ----
Gross margin ........................... 14,635 9,921 39.3% 31.9% 47.5%
------- -------- ----- ----- ----
Operating expenses:
Research and development ................. 5,499 4,151 14.8% 13.4% 32.5%
Selling, general and administrative ...... 8,397 8,510 22.5% 27.4% -1.3%
Restructuring ............................ -- 468 -- 1.5% -100.0%
------- -------- ----- ----- ----
Total operating expenses ............... 13,896 13,129 37.3% 42.2% 5.8%
------- -------- ----- ----- ----
Operating income (loss) ................ 739 (3,208) 2.0% -10.3% NM
------- -------- ----- ----- ----
Other income (expense):
Interest income .......................... 238 218 0.6% 0.7% 9.2%
Foreign currency gain (loss) ............. 155 (43) 0.4% -0.1% NM
------- -------- ----- ----- ----
Total other income ..................... 393 175 1.0% 0.6% 124.6%
------- -------- ----- ----- ----
Income (loss) before income taxes ...... 1,132 (3,033) 3.0% -9.7% NM
Income tax expense (benefit) ............... 430 (1,153) 1.1% -3.7% NM
------- -------- ----- ----- ----
Net income (loss) ...................... $ 702 $ (1,880) 1.9% -6.0% NM
======= ======== ===== ===== ====
</TABLE>
NM -- not meaningful
Three Months Ended March 31, 2000 and 1999
Net sales
Net sales were $37.3 million and $31.1 million in the three months ended
March 31, 2000 and 1999, respectively, representing an increase of 19.9%. Net
sales for the three months ended March 31, 2000, calculated using foreign
currency exchange rates for the same period in 1999, increased 19.3%. For the
three months ended March 31, 2000 compared to the three months ended March 31,
1999, sales of high power semiconductor-based lasers and optics increased 41%
and 17%, respectively, and sales of conventional products decreased 9%. The
principal reason for the decrease in sales of conventional products is the
continued shift of sales of conventional products to high power
semiconductor-based products. Sales of high power semiconductor-based lasers
also increased as a result of improvements in the Company's principal markets,
particularly computer and microelectronic manufacturing and image recording.
Net Sales in the following geographic markets were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
North America ................ $17,525 $12,384
Japan ........................ 10,892 9,634
Europe ....................... 6,044 7,129
Other Asia ................... 1,575 1,238
Rest of the World ............ 1,232 696
------- -------
$37,268 $31,081
======= =======
</TABLE>
Net sales for the three months ended March 31, 2000 at actual currency
exchange rates increased 41.5% for North America, 13.1% for Japan, 27.2% for
Other Asia, and 77.0% for Rest of the World, and decreased 15.2% for Europe. Net
sales for the three months ended March 31, 2000, calculated using foreign
currency exchange rates for the same period in 1999, increased 41.5% for North
America, 3.8% for Japan, 27.2% for Other Asia and 77.0% for Rest of the World,
and decreased 6.1% for Europe.
11
<PAGE> 12
Net sales are attributed in the above tables based on the location of the
Company's customer. Substantially all sales in North America, Other Asia and
Rest of the World are denominated in U.S. dollars. Europe and Japan in the above
table include sales from the Company's European and Japanese sales subsidiaries,
respectively. Export sales to countries not located in Asia are included in Rest
of the World.
Cost of products sold and gross margin
Cost of products sold includes all manufacturing materials and labor and a
proportionate share of overhead costs, as well as costs of shipping, tooling,
royalties, third party products incorporated in the Company's products and
provisions for excess and obsolete inventories and warranty. Cost of products
sold varies by product mix, product pricing, cost of components, the proportion
of third party products incorporated in systems manufactured by the Company, and
manufacturing costs.
Gross margin was $14.6 million and $9.9 million for the three months ended
March 31, 2000 and 1999, respectively, representing a increase of 47.5%. As a
percentage of net sales, gross margin was 39.3% and 31.9% in the three months
ended March 31, 2000 and 1999, respectively. The principal reason for the
increase in gross margin as a percentage of net sales was favorable product mix
and overhead absorption resulting from increased sales.
Operating expenses
Operating expenses totaled $13.9 million and $13.1 million in the three
months ended March 31, 2000 and 1999, respectively, representing an increase of
5.8%. As a percentage of net sales, operating expenses were 37.3% and 42.2% in
the three months ended March 31, 2000 and 1999, respectively. Included in
operating expenses for the three months ended March 31, 1999 were restructuring
costs of $0.5 million. Excluding such restructuring costs, operating expenses
for the three months ended March 31, 1999 were 40.7% of sales and were 9.8%
lower than for the three months ended March 31, 2000.
Research and development expenses represent expenses associated with
Company funded research and new product development, and efforts designed to
improve the performance of existing products and manufacturing processes.
Customer funded product development engineering for certain OEM customers and
the U.S. government, which to date has been minimal, is recorded as a reduction
of research and development expenses. Research and development expenses are
charged to operations as incurred.
Research and development expenses totaled $5.5 million and $4.2 million
for the three months ended March 31, 2000 and 1999, respectively, representing a
increase of 32.5%. As a percentage of net sales, research and development
expenses were 14.8% and 13.4% in the three months ended March 31, 2000 and 1999,
respectively. Most of the increase represented spending to develop active and
passive products for the telecommunications market.
Selling, general and administrative expenses include the expenses of the
Company's sales and support subsidiaries in the United Kingdom, France, Germany,
the Netherlands and Japan as well as the Company's North American sales and
support organization, and other administrative expenses such as legal and
accounting.
Selling, general and administrative expenses totaled $8.4 million and $8.5
million for the three months ended March 31, 2000 and 1999, respectively,
representing a decrease of 1.3%. As a percentage of net sales, selling, general
and administrative expenses were 22.5% and 27.4% in the three months ended March
31, 2000 and 1999, respectively.
Interest income
Interest income totaled $0.2 million and $0.2 million in the three months
ended March 31, 2000 and 1999, respectively. Interest income was earned on the
Company's invested cash and cash equivalents.
Foreign currency gain (loss)
At March 31, 2000, the Company had contracts for the sale of foreign
currencies and the purchase of U.S. dollars totaling $35.9 million. At March 31,
2000, the Company had deferred losses relating to its foreign currency contracts
of approximately $0.1 million (net of income taxes), substantially all of which
is expected to be recognized in income over the next nine months.
The following table provides information about the Company's foreign
currency derivative financial instruments outstanding as of March 31, 2000. The
information is provided in U.S. dollar amounts, as presented in the Company's
consolidated financial statements.
12
<PAGE> 13
The table presents the notional amount (at contract exchange rates) and the
weighted average contractual foreign currency exchange rates. All contracts
mature within nine months.
Foreign currency spot/forward contracts (in thousands, except average
contract rates):
<TABLE>
<CAPTION>
AVERAGE
NOTIONAL CONTRACT
AMOUNT RATE
-------- --------
<S> <C> <C>
Japanese Yen .............. $ 23,544 103.95
British Pound Sterling .... 2,471 0.62
German Marks .............. 5,854 1.87
Netherland Guilder ........ 1,283 2.07
French Franc .............. 2,289 6.26
Australian Dollar ......... 414 0.62
--------
$ 35,855
========
Estimated fair value ...... $ (57)(*)
========
</TABLE>
(*) The estimated fair value is based on the estimated amount at which the
contracts could be settled based on forward exchange rates.
During the three months ended March 31, 2000, the Company recorded a
foreign currency gain of $0.2 million, principally related to net gains
recognized as a result of foreign exchange rate movements on unhedged accounts
receivable.
Income tax expense
Income taxes have been provided in the financial statements as if the
Company were a separate taxable entity.
The Company's effective tax rate is 38% of pre tax income (loss). During
the three months ended March 31, 2000 the Company recognized income tax expense
of $0.4 million. During the three months ended March 31,1999, an income tax
benefit of $1.2 million was recorded.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had working capital of $63.6 million,
including cash and cash equivalents of $24.3 million, compared to working
capital at December 31, 1999 of $57.9 million, including cash and cash
equivalents of $23.3 million.
Cash provided by operating activities was $1.2 million in the three months
ended March 31, 2000, and cash used in operating activities was $4.3 million in
the three months ended March 31, 1999. Cash used in investing activities,
primarily purchases of property, plant and equipment, was $2.9 million and $2.4
million in the three months ended March 31, 2000 and 1999, respectively. Cash
provided by financing activities was $3.0 million in the three months ended
March 31, 2000. Cash used in financing activities was $1.6 million in the three
months ended March 31, 1999. During the three months ended March 31, 2000,
financing activities included $3.8 million from the issuance of common stock
upon the exercise of stock options. The effect of foreign currency exchange rate
changes on cash was $0.3 million and $0.5 million in the three months ended
March 31, 2000 and 1999, respectively.
These activities resulted in an increase in cash and cash equivalents of
$1.1 million in the three months ended March 31, 2000 and a decrease in cash and
cash equivalents of $8.8 million in the three months ended March 31, 1999.
The Company has unsecured short-term credit facilities with several banks
in Japan. The facilities allow aggregate borrowings of 1.3 billion Yen and bear
interest at 1.625% per annum. At March 31, 2000 and December 31, 1999 there were
approximately $12.9 million and $13.7 million, respectively, of borrowings
outstanding under these facilities. The Company's foreign subsidiaries other
than Japan have credit facilities aggregating $3.7 million, none of which was
outstanding as of March 31, 2000. The Company also has available in the U.S. a
committed, unsecured credit facility aggregating $15.0 million with a bank which
expires in December 2000. From time to time, the amount available under all
credit facilities may be reduced by the amount of performance bonds outstanding
guaranteed by the applicable bank to the Company's customers, foreign currency
contracts outstanding with the applicable bank or similar arrangements.
The Company has reviewed its short- and long-term liquidity needs. The
Company anticipates that its liquidity needs for at least the next twelve months
will be met by cash flows from operations and existing cash balances.
13
<PAGE> 14
EUROPEAN MONETARY UNION (EMU)
The euro is the new currency introduced by certain European countries
collectively known as the European Monetary Union (EMU). The euro was introduced
on January 1, 1999 and the eleven participating EMU members established fixed
conversion rates between their existing currencies (legacy currencies) and the
euro. The legacy currencies have no value of their own but are subsets of the
euro. The legacy currencies and the euro will both be used through June 30, 2002
when the legacy currencies will be withdrawn (euro only environment).
The introduction of the euro could have an adverse impact on a company's
information systems, its markets and the economies in which it operates.
With regard to information systems, through March 31, 2000, the euro had
no material impact on the Company's information systems. The Company believes
the euro will have no material impact on its systems in 2000. Furthermore, the
Company's review indicates that the Company's information systems can operate in
the "euro only" environment in 2002. As that date gets closer the Company
expects to conduct another survey concerning the euro's impact on information
systems.
With regard to the Company's markets, the Company has reviewed its
customer list and current selling practices and expects no material adverse
impact from the introduction of the euro.
The Company is currently unable to determine the ultimate long term
financial impact of the exclusive use of the euro on the Company's markets and
on the economies of the countries in which the Company operates. This impact
will be dependent upon the evolving competitive situations and macro-economic
impact of the introduction of the euro.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's exposure to market risk
since December 31, 1999. See Spectra-Physics Lasers, Inc.'s Annual Report on
Form 10-K dated December 31, 1999.
14
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's facilities and operations are subject to a wide variety of
Environmental Laws and Employee Safety Laws. Further, compliance with
Environmental Laws also may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements. Although the Company believes that its operations are
in compliance in all material respects with current requirements under
Environmental Laws and Employee Safety Laws, the nature of the Company's
operations exposes it to the risk of liabilities or claims with respect to such
matters.
Certain of these Environmental Laws, including Superfund Laws, hold owners
or operators of land or businesses liable for their own and for previous owners'
or operators' releases of Hazardous Substances. Such Superfund Laws also provide
for responses to and liability for releases of certain Hazardous Substances into
the environment. The nature of the Company's operations and the long history of
industrial uses at some of its current or former facilities expose the Company
to risk of liabilities or claims under Superfund Laws. In 1988, the Company was
named on the General Notification List of the Environmental Protection Agency
(EPA) stating that the Company may be a Potentially Responsible Party (PRP)
under the Superfund Laws for Hazardous Substances which may have been generated
by its former operations at a former site. Since that time, the Company has not
been named in the EPA's first or second tier lists, and has not been pursued as
PRP by the EPA or any of the other PRPs.
Since 1984, the Company's facilities in Mountain View, California
("Mountain View Site") have been undergoing investigation and remediation in
response to past releases of industrial solvents to the soil and groundwater. In
addition, the impacted groundwater has migrated to what is referred to as the
North Bayshore Area. As a result of these past releases, the Mountain View Site
and other neighboring sites are listed on the NPL or the Superfund List under
CERCLA. The Company is subject to Orders that require the Company to perform
remediation on-site and off-site and investigate other potentially responsible
parties. Pursuant to the Orders and other orders issued to other responsible
parties, the Company and other responsible parties are jointly performing and
funding remediation which includes soil vapor extraction and groundwater
extraction, treatment and monitoring. All of the required soil and groundwater
remediation and monitoring systems currently required by the Order are in place,
and consequently the initial capital expenses for such systems have been
incurred. As of November 1999, the Company had been granted approval to shut
down two of its extraction wells in the North Bayshore Extraction System (NBES)
and also to shut down two soil vapor extraction systems (on site) by the
Regional Water Quality Control Board (RWQCB). Since the granting of the
approvals, both wells and both soil vapor extraction systems have been shut
down.
In October 1997, the Company was served with a complaint that had been
filed on behalf of five individuals in the Superior Court of the State of
California seeking an unspecified amount of damages for personal injuries and
property damage incurred by residents of a single location alleged to have
resulted from the Company's and others' negligent and/or intentional handling of
toxic chemicals (Rosario Balcita et al. v. Teledyne Semiconductor,
Spectra-Physics Lasers, et al.). As of December 31, 1999, there has been a
summary judgement ruling in the case in favor of the Company and its
co-defendants in regards to the four adults in the case. The fifth plaintiff has
agreed to settle for a nominal amount. There can be no assurances that other
parties will not come forward and claim personal injury or property damage.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing Environmental Laws (or liability for
known environmental liabilities or claims) and Employee Safety Laws should not
have a material adverse effect on the Company's business, operating results and
financial condition. However, future events, such as changes in existing laws
and regulations or their interpretation, or the discovery of heretofore unknown
contamination, may give rise to additional compliance costs or liabilities that
could have a material adverse effect on the Company's business, operating
results and financial condition. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of regulatory
agencies or stricter or different interpretations of existing laws, may require
additional expenditures by the Company that may be material.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
15
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Plan of Reorganization of the Company (Incorporated by
reference to exhibit 2.1 of the Company's Registration
Statement on Form S-1 (No. 333-38329))
3.1 Certificate of Incorporation of the Company, as amended
(Incorporated by reference to exhibit 3.1 of the Company's
Registration Statement on Form S-1 (No. 333-38329))
3.2 Bylaws of the Company (Incorporated by reference to exhibit
3.2 of the Company's Registration Statement on Form S-1 (No.
333-38329))
4.1 Specimen of Common Stock Certificate (Incorporated by
reference to exhibit 4.1 of Amendment No. 1 of the Company's
Registration Statement on Form S-1 (No. 333-38329))
10.1 Agreement by and between Spectra-Physics USA and the Company,
dated as of August 29, 1997 (Incorporated by reference to
exhibit 10.1 of the Company's Registration Statement on Form
S-1 (No. 333-38329))
10.2 Registration Rights Agreement between Spectra-Physics USA and
the Company (Incorporated by reference to exhibit 10.2 of
Amendment No. 2 of the Company's Registration Statement on
Form S-1 (No. 333-38329))
10.3 Form of Executive Employment Agreement with certain officers
of the Company (Incorporated by reference to exhibit 10.3 of
Amendment No. 2 of the Company's Registration Statement on
Form S-1 (No. 333-38329))
10.4 Form of Executive Incentive Plan (Incorporated by reference to
exhibit 10.5 of Amendment No. 1 of the Company's Registration
Statement on Form S-1 (No. 333-38329))
10.5 1997 Spectra-Physics Lasers, Inc. Stock Option Plan
(Incorporated by reference to exhibit 10.6 of Amendment No. 1
of the Company's Registration Statement on Form S-1 (No.
333-38329))
10.6 Patent License Agreement dated as of October 4, 1997 by and
between the Company, as licensor, and Spectra Precision, Inc.,
as licensee (Incorporated by reference to exhibit 10.7 of
Amendment No. 1 of the Company's Registration Statement on
Form S-1 (No. 333-38329))
10.7 Patent License Agreement dated as of October 4, 1997 by and
between Spectra Precision, Inc., as licensor, and the Company,
as licensee (Incorporated by reference to exhibit 10.8 of
Amendment No. 1 of the Company's Registration Statement on
Form S-1 (No. 333-38329))
10.8 Tradename and Trademark License Agreement dated as of August
29, 1997 by and between the Company, Spectra-Physics AB and
certain Spectra-Physics AB subsidiaries (Incorporated by
reference to exhibit 10.9 of Amendment No. 1 of the Company's
Registration Statement on Form S-1 (No. 333-38329))
10.9 Employment Agreement dated January 1, 1998, between the
Company and Patrick L. Edsell (Incorporated by reference to
Exhibit 10.10 of the Company's 1998 Annual Report on Form
10-K)
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K:
None.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Spectra-Physics Lasers, Inc.
Date: May 1, 2000 /s/ PATRICK L. EDSELL
-------------------------------------
Patrick L. Edsell
Chairman, President and Chief
Executive Officer
Date: May 1, 2000 /s/ SETH HALIO
--------------------------------------
Seth Halio
Vice President, Finance, and Treasurer
(Principal Financial Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Plan of Reorganization of the Company (Incorporated by reference to
exhibit 2.1 of the Company's Registration Statement on Form S-1 (No.
333-38329))
3.1 Certificate of Incorporation of the Company, as amended
(Incorporated by reference to exhibit 3.1 of the Company's
Registration Statement on Form S-1 (No. 333-38329))
3.2 Bylaws of the Company (Incorporated by reference to exhibit 3.2 of
the Company's Registration Statement on Form S-1 (No. 333-38329))
4.1 Specimen of Common Stock Certificate (Incorporated by reference to
exhibit 4.1 of Amendment No. 1 of the Company's Registration
Statement on Form S-1 (No. 333-38329))
10.1 Agreement by and between Spectra-Physics USA and the Company, dated
as of August 29, 1997 (Incorporated by reference to exhibit 10.1 of
the Company's Registration Statement on Form S-1 (No. 333-38329))
10.2 Registration Rights Agreement between Spectra-Physics USA and the
Company (Incorporated by reference to exhibit 10.2 of Amendment No.
2 of the Company's Registration Statement on Form S-1 (No.
333-38329))
10.3 Form of Executive Employment Agreement with certain officers of the
Company (Incorporated by reference to exhibit 10.3 of Amendment No.
2 of the Company's Registration Statement on Form S-1 (No.
333-38329))
10.4 Form of Executive Incentive Plan (Incorporated by reference to
exhibit 10.5 of Amendment No. 1 of the Company's Registration
Statement on Form S-1 (No. 333-38329))
10.5 1997 Spectra-Physics Lasers, Inc. Stock Option Plan (Incorporated by
reference to exhibit 10.6 of Amendment No. 1 of the Company's
Registration Statement on Form S-1 (No. 333-38329))
10.6 Patent License Agreement dated as of October 4, 1997 by and between
the Company, as licensor, and Spectra Precision, Inc., as licensee
(Incorporated by reference to exhibit 10.7 of Amendment No. 1 of the
Company's Registration Statement on Form S-1 (No. 333-38329))
10.7 Patent License Agreement dated as of October 4, 1997 by and between
Spectra Precision, Inc., as licensor, and the Company, as licensee
(Incorporated by reference to exhibit 10.8 of Amendment No. 1 of the
Company's Registration Statement on Form S-1 (No. 333-38329))
10.8 Tradename and Trademark License Agreement dated as of August 29,
1997 by and between the Company, Spectra-Physics AB and certain
Spectra-Physics AB subsidiaries (Incorporated by reference to
exhibit 10.9 of Amendment No. 1 of the Company's Registration
Statement on Form S-1 (No. 333-38329))
10.9 Employment Agreement dated January 1, 1998, between the Company and
Patrick L. Edsell (Incorporated by reference to Exhibit 10.10 of the
Company's 1998 Annual Report on Form 10-K)
27.1 Financial Data Schedule
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 2000 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 24,345
<SECURITIES> 0
<RECEIVABLES> 36,731
<ALLOWANCES> 723
<INVENTORY> 30,405
<CURRENT-ASSETS> 106,643
<PP&E> 95,889
<DEPRECIATION> 52,939
<TOTAL-ASSETS> 154,534
<CURRENT-LIABILITIES> 43,008
<BONDS> 0
0
0
<COMMON> 166
<OTHER-SE> 110,243
<TOTAL-LIABILITY-AND-EQUITY> 154,534
<SALES> 37,268
<TOTAL-REVENUES> 37,268
<CGS> 22,633
<TOTAL-COSTS> 22,633
<OTHER-EXPENSES> 13,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,132
<INCOME-TAX> 430
<INCOME-CONTINUING> 702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 702
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
