SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
--------------
Commission File Number 1-4373
------
THREE-FIVE SYSTEMS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0654102
- -------------------------------------- ---------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
1600 North Desert Drive, Tempe, Arizona 85281
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(602)389-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, at the latest practical date.
CLASS OUTSTANDING AS OF March 31, 1997
- ----- --------------------------------
Common 7,762,129
Par value $.01 per share
<PAGE>
THREE-FIVE SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets-
March 31, 1997 and December 31, 1996................1
Consolidated Statements of Income-
Three Months Ended March 31, 1997 and 1996..........2
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1997 and 1996..........3
Notes to Consolidated Financial Statements...................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION........................5
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................10
SIGNATURES....................................................................11
<PAGE>
THREE-FIVE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
MARCH 31, DECEMBER 31,
1997 1996
------- -------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $12,815 $12,580
Accounts receivable, net 7,134 6,830
Inventories, net 5,791 4,606
Deferred tax asset 5,930 5,930
Other current assets 928 1,384
------- -------
Total current assets 32,598 31,330
PROPERTY, PLANT AND EQUIPMENT, net 31,345 30,913
COST IN EXCESS OF NET ASSETS ACQUIRED, net 121 130
OTHER ASSETS 195 196
------- -------
$64,259 $62,569
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 5,053 $ 4,289
Accrued liabilities 4,820 4,524
Current maturities of long-term debt -- --
Current taxes payable 802 1,004
-------- --------
Total current liabilities 10,675 9,817
-------- --------
DEFERRED TAX LIABILITY 1,568 1,568
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 78 78
Additional paid-in capital 32,359 32,329
Retained earnings 19,817 19,016
Cumulative translation adjustment 15 14
Less - Treasury Stock at cost (22,500 shares) (253) (253)
-------- --------
Total stockholders' equity 52,016 51,184
-------- --------
$ 64,259 $ 62,569
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
1
<PAGE>
THREE-FIVE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except share amounts)
THREE MONTHS
ENDED MARCH 31,
---------------------------
1997 1996
----------- -----------
NET SALES $ 16,129 $ 18,082
----------- -----------
COSTS AND EXPENSES:
Cost of sales 12,488 14,401
Selling, general and administrative 1,466 1,459
Research and development 1,130 1,010
----------- -----------
15,084 16,870
----------- -----------
Operating income 1,045 1,212
OTHER INCOME (EXPENSE):
Interest, net 157 19
Other, net (12) (27)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,190 1,204
Provision for income taxes 389 482
----------- -----------
NET INCOME $ 801 $ 722
=========== ===========
EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT $ 0.10 $ 0.09
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING 8,047,736 8,039,794
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
THREE-FIVE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 801 $ 722
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 972 861
Provision (reduction) of accounts receivable valuation reserves (4) 36
Provision (reduction) of inventory valuation reserves (117) 1,317
Loss on disposal of assets -- 9
Change in assets and liabilities:
(Increase) decrease in accounts receivable (300) 3,624
Increase in inventories (1,068) (3,415)
Decrease in other assets 457 240
Increase in accounts payable and accrued liabilities 1,060 1,190
Increase (decrease) in taxes payable, net (202) 440
-------- --------
Net cash provided by operating activities 1,599 5,024
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,395) (284)
-------- --------
Net cash used for investing activities (1,395) (284)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on notes payable to banks -- (3,000)
Stock options exercised 30 3
-------- --------
Net cash provided by (used for) financing activities 30 (2,997)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 1 1
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 235 1,744
CASH AND CASH EQUIVALENTS, beginning of period 12,580 4,551
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 12,815 $ 6,295
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
ITEM 1. (continued)
Three-Five Systems, Inc. and Subsidiaries Notes to Consolidated
------------------------------------------------------------------
Financial Statements
--------------------
Note A The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions
to Form 10-Q. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations, and cash flows for all periods presented have been
made. The results of operations for the three-month period ended
March 31, 1997 are not necessarily indicative of the operating
results that may be expected for the entire year ending December
31, 1997. These financial statements should be read in conjunction
with the Company's December 31, 1996 financial statements and
accompanying notes thereto.
Note B Earnings per share is computed by dividing net earnings by the
weighted average number of common shares and common share
equivalents assumed outstanding during the three-month period.
Fully diluted earnings per share is considered equal to primary
earnings per share in all periods presented.
Note C Inventories consist of the following at:
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
(in thousands)
Raw Materials $3,991 $3,147
Work-in-process 1,034 780
Finished Goods 766 679
------ ------
$5,791 $4,606
------ ------
Note D Property, plant, and equipment consist of the following at:
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
(in thousands)
Building and improvements $10,431 $10,431
Furniture and equipment 30,170 28,776
------- -------
40,601 39,207
Less - accumulated depreciation ( 9,256) ( 8,294)
-------- -------
$31,345 $30,913
------- -------
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
- --------------------------------------------------------------------------------
1996.
- -----
Net sales were $16.1 million for the quarter ended March 31, 1997, a
decrease of 11.0 percent compared with net sales of $18.1 million for the
quarter ended March 31, 1996. The Company's net sales have not been subject to
any significant seasonal fluctuations or variations. In the quarter ended March
31, 1996, the Company's largest customer informed the Company that it had
decided to phase out a family of the Company's highest volume, longest running
programs more quickly than originally planned. The unexpected reduction of those
programs caused a severe decline in net sales in 1996, the full effects of which
were felt in the third quarter of 1996. The long product development time in the
custom business prevented the Company from quickly replacing the phased out
programs, although the Company has now had two sequential increases in its
quarterly revenue. In the first quarter of 1997, the Company's largest customer
accounted for net sales of $7.3 million compared with net sales of $13.3 million
to that customer for the quarter ended March 31, 1996, for an overall decrease
in net sales to the Company's largest customer of 45.1 percent. The Company's
major customer accounted for approximately 45.3 percent of the net sales in the
first quarter 1997 compared with approximately 73.5 percent for the comparable
quarter in 1996. All other customers accounted for net sales of $8.8 million for
the quarter ended March 31, 1997 compared with the net sales of $4.8 million for
the quarter ended March 31, 1996, for an overall increase of 83.3 percent.
Cost of sales, as a percentage of net sales, decreased to 77.4 percent
for the quarter ended March 31, 1997 as compared with 79.6 percent for the
quarter ended March 31, 1996. The corresponding increase in the gross margin in
the first quarter was primarily the result of sales of higher margin products.
Selling, general, and administrative expense of $1.5 million for the
quarter ended March 31, 1997 was equal to the expense of $1.5 million for the
quarter ended March 31, 1996. Selling, general, and administrative expense
increased as a percentage of net sales to 9.3 percent for the quarter ended
March 31, 1997 from 8.3 percent for the quarter ended March 31, 1996, primarily
as a result of decreased sales.
Research and development expense totaled $1.1 million, or 6.8 percent
of net sales, for the quarter ended March 31, 1997 as compared with $1.0 million
or 5.5 percent of net sales, for the quarter ended March 31, 1996. Research and
development expenses consist principally of salaries and benefits to scientists
and other personnel, related facilities costs, and various expenses for
projects. Research and development expense has increased as the Company has
invested in new technologies and manufacturing processes and has continued with
its in-house process development efforts related to the high-volume
manufacturing LCD line located in Tempe, Arizona. The Company believes that
continued investments in research and development relating to manufacturing
processes and new display technologies are necessary to remain competitive in
its marketplace as well as providing opportunities for growth.
Interest income (net) for the quarter ended March 31, 1997 was
$157,000, up from $19,000 for the quarter ended March 31, 1996. The increase in
interest income was the result of investing higher average cash balances during
the quarter. Other expense (net) was $12,000 for the quarter ended March 31,
1997 as compared with $27,000 for the quarter ended March 31, 1996. The
difference was primarily due to decreased closed facility expenses and a net
foreign exchange loss for the quarter ended March 31, 1997 as compared to a net
foreign exchange gain and a loss on sale of assets for the quarter ended March
31, 1996.
The provision for income taxes decreased to $389,000 for the quarter
ended March 31, 1997 from $482,000 for the quarter ended March 31, 1996. The tax
rate for the first quarter of 1997 was slightly lower due to certain accrual
adjustments. The Company expects that the overall tax rate for 1997 will
approximate 40%.
Net income increased to $801,000, or $0.10 per share, for the quarter
ended March 31, 1997 from $722,000, or $0.09 per share, for the quarter ended
March 31, 1996.
5
<PAGE>
Liquidity and Capital Resources
During the first three months of 1997, the Company generated $1.6
million in cash flow from operations as compared with $5.0 million during the
first three months of 1996. The decrease in cash flow from operations was
primarily due to (i) having no provision for inventory reserves in the first
quarter of 1997 and (ii) an increase in accounts receivable for the first
quarter of 1997 versus the significant reduction in accounts receivable that
occurred in the first three months of 1996. Overall, the Company's depreciation
expense has risen almost 13 percent since the first quarter of 1996. The
high-volume LCD line is depreciated on a units-of-production method based on
units started. It is anticipated that depreciation will continue to rise in 1997
as a result of an expected higher number of starts for the high-volume LCD
manufacturing line in 1997 versus 1996, as well as having additional capital
expenditures in 1997. The Company's working capital was $21.9 million at March
31, 1997, up slightly from the $21.5 million that it had at December 31, 1996.
The Company's current ratio at March 31, 1997 was 3.1-to-1 as compared with a
current ratio of 3.2-to-1 at December 31, 1996.
The Company has a $15 million unsecured revolving line of credit, which
matures May 31, 1997, with its primary lender, Wells Fargo Bank. At March 31,
1997, no borrowings were outstanding under this credit facility. Advances under
the revolving line may be made as Prime Rate Advances, which accrue interest
payable monthly at the bank's prime lending rate, or as LIBOR Rate Advances,
which bear interest at 150 basis points in excess of the LIBOR Base Rate. The
Company's subsidiary, Three-Five Systems Limited, has established an annually
renewable credit facility with a United Kingdom bank, Barclays Bank PLC, in
order to fund its working capital requirements. The facility provides $350,000
of borrowing capacity secured by accounts receivable of Three-Five Systems
Limited. Advances are based on accounts receivable, as defined. Advances under
the credit facility accrue interest, which is payable quarterly, at the bank's
base rate plus 200 basis points. The United Kingdom credit facility matures June
20, 1997. Three-Five Systems Limited had no borrowings outstanding under this
line of credit at March 31, 1997.
The Board of Directors has authorized the repurchase from time to time
of up to one million shares of the Company's Common Stock on the open market or
in negotiated transactions, depending on market conditions and other factors. In
October 1996, the Company entered into a new $5 million non-revolving line of
credit/term loan with Wells Fargo Bank to provide financing for the acquisition
of any treasury shares (the "Treasury Stock Loan"). As of March 31, 1997, 22,500
treasury shares had been purchased by the Company under the repurchase program
at a total cost of $253,000, but the Company had no borrowings outstanding under
the Treasury Stock Loan.
Capital expenditures during the first three months of 1997 were
approximately $1.4 million, as compared with $284,000 during the first three
months of 1996. Capital expenditures for 1997 thus far consisted primarily of
manufacturing and office equipment for the Company's operations in Manila and
Arizona and laboratory equipment for research and development. Most of the
manufacturing expenditures are for technical or process improvements and not for
capacity increases. The Company anticipates that its capital expenditures during
the remainder of 1997 should not have a significant effect on the Company's
liquidity. The expenditures should not be in excess of its 1997 depreciation
expense. Those expenditures will primarily relate to advanced manufacturing
processes, the high-volume LCD line, and necessary manufacturing equipment.
The Company anticipates that accounts receivable and inventory will
continue to rise in 1997 if revenue levels increase as currently anticipated.
The Company believes that its existing capital and anticipated cash flow from
operations will provide adequate sources to fund operations and planned
expenditures throughout 1997 without any need for borrowings. Should the Company
purchase a significant amount of treasury shares or encounter unexpected
additional cash requirements, however, the Company believes that its existing
loan commitments of $20 million will be adequate. The Company also expects that
its existing capital, anticipated cash flow from operations, and existing loan
commitments will provide adequate sources for its long-term liquidity and
capital requirements, such as expansion of its manufacturing facilities
overseas. The Company does not anticipate such expansion for two to three years.
6
<PAGE>
Effects of Inflation and Foreign Currency Exchange Fluctuations
The results of operations of the Company for the periods discussed have
not been significantly affected by inflation or foreign currency fluctuations.
The Company generally sells its products and services and negotiates purchase
orders with its foreign suppliers in United States dollars. An exception is the
Company's sub-assembly agreement in the Philippines, which is based on a fixed
conversion rate, exposing the Company to exchange rate fluctuations with the
Philippine peso. Although the Company has not incurred any material exchange
gains or losses to date, there can be no assurance that fluctuations in currency
exchange rates in the future will not have an adverse effect on the Company's
operations. The Company from time to time may enter into hedging transactions in
order to minimize its exposure to currency rate fluctuations.
Business Outlook and Risk Factors
Business Outlook
This Business Outlook section has numerous forward-looking statements.
Some of the risk factors associated with those forward-looking statements are
set forth in "Risk Factors" below. Other important risk factors are set forth in
the Company's other filings with the Securities and Exchange Commission.
The Company intends to continue its efforts to expand and diversify its
sales base in 1997, an area in which the Company believes that it already has
made significant strides. The Company's major customer, which is in the wireless
communication industry and which had accounted for as much as 80 percent of the
Company's revenue in past years, accounted for only 45 percent of the Company's
revenue in the first quarter of 1997. The current business plan of the Company
targets that customer to account for no more than 40 percent of its revenue for
all of 1997. This percentage reduction is occurring for two reasons. First,
although the number of programs that the Company has with its major customer
have continued to increase, the average selling price of the products sold to
that customer has declined. Second, the business plan of the Company calls for a
substantial increase in sales to other customers. In 1997, the Company expects
that all communication products will account for less than 50 percent of its
revenue, with strong growth in office automation products. Using the last half
of 1996 as a baseline, the Company is planning for modest revenue growth during
the first half of 1997 and a more rapid growth in the last half of the year.
The Company's gross margins are impacted by several factors, including
manufacturing efficiencies, product differentiation, product mix, and volume
pricing. In addition, many of the Company's competitors are Asian suppliers, and
a strong dollar could give a competitive pricing advantage to those suppliers.
It is the goal of the Company to have its gross margins return to the
mid-twenties by the fourth quarter of this year. The Company expects that a
variety of factors, including a more diverse product mix, proprietary products,
and greater manufacturing efficiencies as a result of increased production,
should enable the Company achieve that goal.
As the Company expands and diversifies its product and customer base,
it will have to increase its selling and administrative expenses. Serving a
myriad of customers with complex and differing issues requires increased
personnel committed to those customers. As a result, the actual dollar amount of
the selling, general, and administrative expenses in 1997 should be 10 to 25
percent greater than in 1996, although SG&A expenditures should decrease in 1997
as a percentage of net sales.
The Company believes that the key to its future is to be a leader in
the research and development of new display technology. In 1996, the Company
began to expand and intensify its internal research and development to focus on
proprietary display products rather than just manufacturing process
improvements. Use of the LCD manufacturing line in Tempe, Arizona is the key to
the development of these products, some of which will be proprietary and not
available from other display manufacturers.
The Company also intends to pursue technologies being developed in
related fields. Operating the highest volume LCD manufacturing line in North
America puts the Company in a unique position. As a result, several companies
have approached the Company about potential alliances. The Company believes that
a strategic alliance with one or more of those companies could minimize the cost
of entry into new markets and new technologies. The Company is also considering
licensing technologies from other companies that could be optimized on the LCD
7
<PAGE>
manufacturing line. This internal and external focus on research and development
will continue throughout 1997. As a result, the actual dollar amount of such
expenditures in 1997 should be 10 to 15 percent greater than in 1996, although
R&D expenditures should decrease in 1997 as a percentage of net sales.
Risk Factors
Forward-looking statements in this report include revenue, margin,
expense, and earnings analysis for 1997 as well as the Company's expectations
relating to future technologies and future design and production orders. The
Company's future operating results may be affected by various trends,
developments, and factors that the Company must successfully manage in order to
achieve its goals. In addition, there are trends, developments, and factors
beyond the Company's control that may affect its operations. The cautionary
statements and risk factors set forth below and elsewhere in this document, and
in the Company's other filings with the Securities and Exchange Commission,
identify important trends, factors, and currently known developments that could
cause actual results to differ materially from those in any forward-looking
statements contained in this report and in any written or oral statements of the
Company.
As noted previously, one customer is currently responsible for 45
percent of the Company's revenue. Although that customer is expected to account
for only 40 percent of the Company's revenue in 1997, the majority of the
Company's revenue in 1997 will still likely come from a core customer base. For
example, it is expected that one of the Company's recent new customers could
account for as much as 20 percent of the Company's revenue in 1997. Thus, any
material delay, cancellation, or reduction of orders from one or more of those
core customers could have a material adverse effect on the Company's operations.
Although the trend of the Company is to enter into more manufacturing
contracts with its customers, the principal benefit of these contracts is to
clarify order lead times, inventory risk allocation, and similar matters and not
to provide firm, long-term volume purchase commitments. The Company has no firm
long-term volume purchase commitments from its customers. Thus, customer
commitments can be canceled, and expected volume levels can be changed or
delayed. The timely replacement of canceled, delayed, or reduced commitments
cannot be assured and, among other things, could result in the Company holding
excess and obsolete inventory or having unfavorable manufacturing variances as a
result of under-absorption. These risks are exacerbated because the Company
expects that a majority of its sales will be to customers in the retail
electronics industry, which is subject to severe competitive pressures, rapid
technological change, and obsolescence.
Another risk, which is inherent in custom manufacturing, is the
satisfactory completion of design services and securing of production orders. It
is expected that a significant portion of the Company's anticipated revenue for
the last half of 1997 will come from programs currently in the design or pilot
production stage. Completion of the design is dependent on a variety of factors,
including the customer's changing needs and not every design is successful in
meeting those needs. In addition, some designs test new theories or applications
and may not meet the desired results. Failure of a design order to achieve the
customer's desired results could result in a material adverse effect on the
Company's operations if the expected production order for that product was
significant. Finally, even when a design is satisfactorily completed, the
customer may terminate or delay the program as a result of marketing or other
pressures.
The Company designs and manufactures products based on firm quotes.
Thus, the Company bears the risk of component price increases, which could
adversely affect the Company's gross margins. In addition, the Company depends
on certain suppliers, and the unavailability or shortage of materials could
cause delays or lost orders, either of which could have a material adverse
effect on the Company.
Finally, the Company's success, especially in penetrating new markets
and increasing its OEM customer base, depends to a large extent upon the efforts
and abilities of key managerial and technical employees. The loss of services of
certain key personnel could have a material adverse effect on the Company. The
Company's business also depends upon its ability to continue to attract and
retain senior managers and skilled employees. Failure to do so could adversely
affect the Company's operations.
8
<PAGE>
As a result of the foregoing and other factors, the Company's stock
price may be subject to significant volatility, particularly on a quarterly
basis. Any shortfall in revenue or earnings from levels expected by investors,
analysts, and brokers could have an immediate and significant adverse effect on
the trading price of the Company's common stock in any given period.
Additionally, the Company may not learn of such shortfalls until late in a
fiscal quarter, which could result in an even more immediate and adverse effect
on the trading price of the Company's common stock. Finally, other factors,
which generally affect the market for stocks of high technology companies, could
cause the price of the Company's common stock to fluctuate substantially over
short periods for reasons unrelated to the Company's performance.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) EXHIBIT 11: Statement Re: Computation of Per Share Earnings.
EXHIBIT 27: Financial Data Schedule
(b) Reports on Form 8-K: None
10
<PAGE>
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.
THREE-FIVE SYSTEMS, INC.
------------------------
(Registrant)
Dated: April 21, 1997 By: /s/ Jeffrey D. Buchanan
----------------------- -----------------------------------
Jeffrey D. Buchanan
Its: Vice President Finance,
Administration and Legal; Chief
Financial Officer
11
THREE-FIVE SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11 (UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1996
---------- ----------
Common shares outstanding beginning of period 7,757,329 7,735,745
Effect of Weighting Shares:
Employee stock options exercised 1,850 855
Employee stock options outstanding 288,557 303,194
---------- ----------
Primary 8,047,736 8,039,794
========== ==========
Common shares outstanding beginning of period 7,757,329 7,735,745
Effect of Weighting Shares:
Employee stock options exercised 1,850 855
Employee stock options outstanding 288,557 303,195
---------- ----------
Fully diluted 8,047,736 8,039,795
========== ==========
Net income $ 801,000 $ 722,000
========== ==========
EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT:
Earnings per share
Primary $ 0.10 $ 0.09
========== ==========
Fully diluted $ 0.10 $ 0.09
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AT MARCH 31, 1997 AND THE RELATED
CONSOLIDATED STATEMENTS OF INCOME AND OF CASH
FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 OF
THREE-FIVE SYSTEMS, INC. AND ITS SUBSIDIARIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 12,815
<SECURITIES> 0
<RECEIVABLES> 7,779
<ALLOWANCES> 645
<INVENTORY> 5,791
<CURRENT-ASSETS> 32,598
<PP&E> 40,601
<DEPRECIATION> 9,256
<TOTAL-ASSETS> 64,259
<CURRENT-LIABILITIES> 10,675
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 64,259
<SALES> 16,129
<TOTAL-REVENUES> 16,129
<CGS> 12,488
<TOTAL-COSTS> 15,084
<OTHER-EXPENSES> 12
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,190
<INCOME-TAX> 389
<INCOME-CONTINUING> 801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 801
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
