<PAGE> 1
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 period ended March 31, 1996
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________________
Commission file number 1-8403
ENERGY CONVERSION DEVICES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-1749884
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1675 WEST MAPLE ROAD, TROY, MICHIGAN 48084
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 280-1900
________________________________________________________________________________
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 ___.
As of May 14, 1996 there were 219,913 shares of Class A Common Stock
and 10,403,519 shares of Common Stock outstanding.
Page 1 of 21 pages
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Product sales $ 3,804,556 $ 2,391,281 $11,058,631 $ 5,990,693
Royalties 658,238 1,280,723 235,797
Revenues from business
agreements 2,707,313 8,313,587 17,605,009 24,857,820
Other 346,534 142,502 1,010,258 272,933
----------- ----------- ----------- ------------
TOTAL REVENUES 7,516,641 10,847,370 30,954,621 31,357,243
EXPENSES
Cost of product sales 4,726,619 2,519,753 12,041,162 6,531,417
Cost of revenues from business agreements 1,908,752 3,025,644 7,330,034 11,087,009
Product development and research 2,176,176 960,742 6,110,906 2,630,274
Patent Defense 1,070,012 -- 1,823,085 --
Patent 144,930 55,300 327,724 167,257
Operating, general and administrative 1,486,614 1,582,027 4,268,358 3,611,562
------------ ------------ ------------- -------------
TOTAL EXPENSES 11,513,103 8,143,466 31,901,269 24,027,519
----------- ------------ ------------ ------------
NET INCOME (LOSS) FROM OPERATIONS (3,996,462) 2,703,904 (946,648) 7,329,724
OTHER INCOME (EXPENSES)
Gain on sale of Ovonic Battery Company
stock 4,500,000 4,500,000
Interest expense (107,985) (104,120) (340,880) (365,341)
Interest income 350,620 74,295 530,027 131,640
Other nonoperating income (net) 11,994 11,499 86,810 80,358
-------------- ------------ --------------- -------------
TOTAL OTHER INCOME (EXPENSE) 4,754,629 (18,326) 4,775,957 (153,343)
--------------- ------------ ---------------- ------------
NET INCOME $ 758,167 $ 2,685,578 $ 3,829,309 $ 7,176,381
========= =========== =========== ===========
NET INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ .07 $ .30 $ .37 $ .83
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
ASSUMING FULL DILUTION $ .07 $ .29 $ .36 $ .80
=========== =========== =========== =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
-------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash, including cash equivalents of
$26,356,000 at March 31, 1996 and
$6,254,000 at June 30, 1995 $ 26,362,362 $ 6,259,451
Investments 4,290,000 --
Accounts receivable (net of allowance for
uncollectible accounts of $29,000 at
March 31, 1996 and at June 30, 1995) 16,148,532 7,431,835
Amounts due from related parties 643,713 728,374
Inventories 2,701,780 2,054,750
Prepaid expenses and other current assets 186,964 208,160
--------------- ---------------
TOTAL CURRENT ASSETS 50,333,351 16,682,570
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 312,588 312,588
Buildings and improvements 3,573,532 3,432,603
Machinery and other equipment 19,010,997 16,768,046
Capitalized lease equipment 4,535,144 5,731,936
-------------- --------------
27,432,261 26,245,173
Less accumulated depreciation and amortization (21,437,035) (20,482,363)
------------- -------------
PROPERTY, PLANT AND EQUIPMENT 5,995,226 5,762,810
JOINT VENTURES
United Solar -- --
GM Ovonic -- --
Sovlux Co. Ltd. -- --
OTHER ASSETS 806,070 885,639
------------- ------------
TOTAL ASSETS $ 57,134,647 $ 23,331,019
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------------- ------------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,150,609 $ 3,912,338
Amounts due to related parties 51,736 106,130
Salaries, wages and amounts withheld
from employees 1,161,809 986,420
Deferred revenues under business agreements 589,168 884,151
Current installments on long-term debt, capitalized
lease obligations and short-term debt 1,338,332 1,482,846
--------------- -----------------
TOTAL CURRENT LIABILITIES 6,291,654 7,371,885
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 2,128,875 3,012,079
DEFERRED GAIN 802,016 1,149,011
NON-REFUNDABLE ADVANCE ROYALTIES 3,858,548 3,898,377
--------------- -----------------
TOTAL LIABILITIES 13,081,093 15,431,352
STOCKHOLDERS' EQUITY
Capital Stock
Class A Convertible Common Stock,
par value $0.01 per share:
Authorized - 500,000 shares
Issued and outstanding - 219,913 shares 2,199 2,199
Common Stock, par value $0.01 per share:
Authorized - 15,000,000 shares
Issued and outstanding - 10,257,424
shares at March 31, 1996 and
8,078,667 shares at June 30, 1995 102,574 80,787
Additional paid-in capital 196,704,493 164,401,702
Accumulated deficit (152,755,712) (156,585,021)
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY 44,053,554 7,899,667
---------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 57,134,647 $ 23,331,019
=============== =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 3,829,309 $ 7,176,381
Adjustments to reconcile net income to
net cash (used in) by operating activities:
Depreciation and amortization 883,985 833,577
Gain on sale of Ovonic Battery Company stock (4,500,000)
Creditable royalties (39,829) (42,430)
Employee stock options 339,750 339,750
Stock issued for services rendered 59,463 52,905
Amortization of deferred gain (34,497) (34,497)
Long-term intangible asset (license agreement) (330,000)
Changes in working capital other than debt:
Accounts receivable and amounts due from related
parties, less amount due from gain on sale of
Ovonic Battery Company stock (4,132,036) (3,972,073)
Inventories (647,030) (1,331,276)
Prepaid expenses and other assets 100,765 36,618
Accounts payable, amounts due to related parties,
accrued expenses, salaries, wages and amounts
withheld from employees (640,734) (759,200)
Deferred revenues under business agreements (294,983) 190,532
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATIONS (5,075,837) 2,160,287
INVESTING ACTIVITIES:
Purchases of capital equipment (net) (1,428,899) (243,073)
Purchases of investments (4,290,000)
-------------- ---------------
NET CASH (USED IN) INVESTING ACTIVITIES (5,718,899) (243,073)
FINANCING ACTIVITIES:
Proceeds from sale of stock and exercise of stock
options and warrants 31,925,365 2,556,143
Principal payments under short-term and long-term
debt obligations and capitalized lease obligations (1,194,879) (1,926,979)
Proceeds from capital lease transactions 167,161 1,250,000
--------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 30,897,647 1,879,164
NET INCREASE IN CASH & CASH EQUIVALENTS 20,102,911 3,796,378
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,259,451 2,115,622
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,362,362 $ 5,912,000
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $340,880 $433,130
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 1996
(Unaudited)
NOTE A - Basis of Presentation
Information for the three and nine months ended March 31, 1996 and 1995
is unaudited but includes all adjustments which Energy Conversion Devices, Inc.
("ECD") considers necessary for a fair presentation of its financial condition,
cash flows and results of operations.
In accordance with the instructions for the completion of the Quarterly
Report on Form 10-Q, certain information and footnotes necessary to comply with
generally accepted accounting principles have been condensed or omitted. These
financial statements should be read in conjunction with ECD's 1995 Annual
Report on Form 10-K, which contains a summary of ECD's accounting principles
and other footnote information.
The consolidated financial statements include the accounts of ECD and
its 94%-owned subsidiary (97% as of June 30, 1995), Ovonic Battery Company,
Inc. ("Ovonic Battery"), a company formed to develop and commercialize ECD's
battery technology. ECD and Ovonic Battery are referred to collectively herein
as the "Company." Due to accumulated losses incurred by Ovonic Battery, no
minority interest is recorded in the consolidated financial statements. Upon
consolidation, all intercompany accounts and transactions have been eliminated.
ECD also has three investments accounted for by the equity method: (i)
United Solar Systems Corp. ("United Solar") (49.98%), ECD's photovoltaic (solar
energy) joint venture with Canon Inc. of Japan ("Canon"); (ii) Sovlux Co. Ltd.
("Sovlux") (50%), ECD's Russian joint venture with Scientific and Industrial
Enterprise Kvant ("Kvant"); and (iii) GM Ovonic L.L.C. ("GM Ovonic") (40%),
Ovonic Battery's joint venture with General Motors Corporation ("General
Motors") to manufacture and sell the Company's proprietary nickel metal hydride
("Ni-MH") batteries for electric vehicle applications worldwide.
The Company has recorded its investments in its joint ventures at zero,
which represents the net book value of the Company's assets transferred to its
joint ventures. Based upon the opinion of legal counsel, the Company believes
that it has no obligation to fund any losses that its joint ventures incur.
Additionally, the Company has made no financial or other guarantees with
respect to liabilities incurred by its joint ventures. The Company will
continue to carry its investments at zero until the ventures become profitable,
at which time the Company will start to recognize over a period of years its
share, if any, of the then equity of its joint ventures and will recognize its
share of the ventures' profits or losses in accordance with the equity method
of accounting. In addition, the Company's patents and technology are recorded
at zero value on the Company's balance sheets.
Upon consolidation, all intercompany accounts and transactions have been
eliminated.
7
<PAGE> 8
United Solar
In June 1990, ECD and Canon entered into a joint venture agreement for
the formation of United Solar. The United Solar joint venture agreement
provided that United Solar would be owned 49.98% by ECD, 49.98% by Canon, with
the balance held by Mrs. Haru Reischauer, a member of the Board of Directors of
ECD and United Solar.
In January 1995, ECD received a $7,565,000 contract (amended to
$7,996,000 in September 1995) from United Solar for solar cell manufacturing
equipment to provide production capacity on an annual basis of solar cells
capable of producing 5MW of electricity. As of March 31, 1996, ECD received
payments of $6,694,000 relative to this order and is completing the
optimization of this equipment. As of March 31, 1996, ECD recognized revenue
of $6,923,000 and had an unbilled receivable of $229,000 in connection with
this contract.
The following sets forth certain selected financial data regarding
United Solar that is derived from United Solar's financial statements:
UNITED SOLAR STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------- -----------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues* $ 1,298,042 $ 1,013,364 $ 4,333,576 $ 3,716,055
Operating Expenses
Cost of sales 1,961,934 1,441,942 4,934,344 3,859,850
Research and development 664,055 700,416 2,119,513 2,486,964
General and administrative 399,010 372,632 1,241,854 1,032,225
Sales and marketing 394,656 367,518 1,211,518 1,286,413
------------- ------------ ------------ ------------
Total 3,419,655 2,882,508 9,507,229 8,665,452
------------ ----------- ------------ ------------
Other Income (Expense) (149,549) 40,151 (142,796) (4,336,736)
--------------- ------------ --------------- ------------
Net Loss $(2,271,162) $(1,828,993) $(5,316,449) $(9,286,133)
=========== =========== =========== ===========
</TABLE>
* Includes product sales and revenues earned under research contracts.
UNITED SOLAR BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
------------ ------------
1996 1995
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,009,551 $1,076,787
Accounts Receivable - Trade 398,767 498,668
Accounts Receivable - NREL 290,980 197,818
Accounts Receivable - Stockholders 107,323 246,771
Inventory 2,134,816 1,027,841
Other Current Assets 261,355 226,298
-------------- ------------
Total Current Assets 4,202,792 3,274,183
Property, Plant and Equipment (Net) 9,910,645 5,251,306
Other Assets 172,221 117,842
-------------- ------------
Total Assets $14,285,658 $8,643,331
=========== ==========
Current Liabilities:
Accounts Payable - Trade $ 352,848 $ 703,779
Accrued Expenses and Other 11,638,014 328,305
------------ ------------
Total Current Liabilities 11,990,862 1,032,084
------------ -----------
Total Stockholders' Equity 2,294,796 7,611,247
------------- -----------
Total Liabilities and Stockholders' Equity $14,285,658 $8,643,331
=========== ==========
</TABLE>
8
<PAGE> 9
Sovlux
In April 1990, ECD established Sovlux, a joint venture with Kvant in
Russia, to manufacture photovoltaic and battery products and systems in the
countries comprising the former U.S.S.R. and sell them worldwide (except for
Japan and India). Sovlux is owned 50% by ECD and 50% by Kvant. In 1990, Kvant
entered into machine-building contracts with the Company for the construction
of photovoltaic manufacturing equipment and battery equipment. Kvant paid ECD
a total of $10,450,000 under these machine-building contracts. At June 30,
1993, ECD had completed these machines and shipped them to Kvant.
The joint venture arrangements provide that Kvant contribute such
equipment in an installed and operational condition to the joint venture in
exchange for its 50% interest. ECD's contribution to the venture consists
solely of the technology necessary to support Sovlux's operations. No tangible
assets have been contributed to Sovlux by ECD. Through March 31, 1996, the
activities related to Sovlux have been limited to facility preparation at
certain Kvant facilities from which Sovlux will operate, the cost of which
Kvant has also assumed as part of its commitment to the venture, the training
of employees and other pre-production activities.
There are no financial statements available for Sovlux since the
December 31, 1993 unaudited financial statements set forth in ECD's Annual
Report on Form 10-K for the year ended June 30, 1995.
GM Ovonic
In June 1994, Ovonic Battery and General Motors formed a joint venture
for the manufacture and commercialization of Ovonic Ni-MH batteries for
electric vehicles. General Motors has a 60% interest and Ovonic Battery has a
40% interest in this joint venture. Ovonic Battery has contributed
intellectual property, licenses, production processes, know-how, personnel and
engineering services pertaining to Ovonic Ni-MH battery technology to the joint
venture. General Motors' contribution consists of operating capital, plant,
equipment and management personnel necessary for the commercial production of
batteries. GM Ovonic's management team was formed shortly after its creation
in September 1994. Facility design and preparation and equipment procurement
are currently under way.
9
<PAGE> 10
The following sets forth certain financial data regarding GM Ovonic
derived from GM Ovonic's unaudited financial statements:
GM OVONIC STATEMENTS OF OPERATIONS
(000's)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------- ------------------------
1996 1996
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Prototype Sales $ 803 $ 2,163
Operating expenses:
Cost of sales and
experimental testing 1,872 4,160
General and administrative
expenses 359 642
---------- ----------
Total 2,231 4,802
--------- ---------
OPERATING (LOSS) $ (1,428) $ (2,639)
======== ========
</TABLE>
GM OVONIC BALANCE SHEET
(000's)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Current Assets:
Accounts receivable $ 382 $ 18
Property, plant and equipment 4,168 862
---------- ----------
TOTAL ASSETS $ 4,550 $ 880
========= =========
Current Liabilities:
Accounts payable $ 1,563 $ 313
--------- ---------
Total Current Liabilities 1,563 313
Notes Payable - Stockholders 6,622 3,536
Stockholders' (Deficit) (3,635) (2,969)
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 4,550 $ 880
========= =========
</TABLE>
There are no financial statements available for GM Ovonic for the
three months and nine months ended March 31, 1995.
Cash Equivalents
Cash equivalents consist of investments in short-term, highly liquid
securities having a maturity of three months or less from date of acquisition.
10
<PAGE> 11
Investments
Investments consist of commercial paper, classified as available for
sale, maturing in four to six months from date of acquisition and which are
stated at market value.
Accounts Receivable
The following tabulation shows the component elements of accounts
receivable from long-term contracts and other programs:
<TABLE>
<CAPTION>
March 31, June 30,
------------- --------------
1996 1995
---------------- ----------------
<S> <C> <C>
U.S. Government:
Amounts billed $ 1,592,858 $ 420,126
Unbilled 1,147,606 778,513
------------- -------------
Total 2,740,464 1,198,639
------------- ------------
Commercial Customers:
Amounts billed 1,463,648 951,931
Unbilled (including amounts due under
license agreements) 12,427,409 5,973,430
------------ ------------
Total 13,891,057 6,925,361
------------ ------------
Other 189,929 65,414
Allowance for Uncollectible Accounts (29,205) (29,205)
--------------- --------------
$16,792,245 $ 8,160,209
=========== ===========
</TABLE>
Unbilled receivables represent revenues recognized for the present
value of license payments to be received in future periods, machine-building
contracts on the percentage-of-completion method of accounting and amounts
earned under certain contracts and billed in subsequent months.
Certain contracts with the U.S. government require a retention that is
paid upon completion of audit of the Company's indirect labor and overhead
rates. There are no material retentions of accounts receivable amounts at
March 31, 1996 and June 30, 1995.
Inventories
Inventories of raw materials, work in process and finished goods for
the manufacture of negative electrodes, hydride materials, battery packs and
other products, together with supplies, are valued at the lower of cost (moving
average) or market. Cost elements included in inventory are materials, direct
labor and manufacturing overhead.
11
<PAGE> 12
Inventories (principally those of Ovonic Battery) are as follows:
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Finished products $ 433,971 $ 315,276
Work in process 1,437,822 910,582
Raw materials 794,355 793,569
Supplies 35,632 35,323
------------- -------------
$2,701,780 $2,054,750
========== ==========
</TABLE>
Product Sales
Product sales include battery-related materials (hydride materials and
Ovonic electrodes), contract revenues related to building of prototype and
preproduction battery packs, and revenues related to machine-building
contracts. Revenues related to machine-building contracts are recognized on
the percentage-of-completion method of accounting. All other product sales are
recognized when the product is shipped.
Royalties
Most license agreements provide for the Company to receive royalties
from the sale of products which utilize the Company's licensed technology.
Typically, the royalties are incremental to and distinct from the license fee
and are recognized as revenue upon the sale of the respective licensed product.
The Company records royalty revenue based on management's estimates of
royalties earned, using the best evidence available, generally reports from
its licensees and other available information.
In several instances, the Company has received cash payments for
non-refundable advance royalty payments which are creditable against future
royalties under the licenses. Advance royalty payments are deferred and
recognized in revenues as the creditable sales occur, the underlying agreement
expires, or when the Company has demonstrative evidence that no additional
royalties will be creditable and, accordingly, the earnings process is
completed.
Business Agreements
A substantial portion of revenues are derived through business
agreements seeking to develop and/or commercialize products based upon the
Company's proprietary technologies. Such agreements are of two types.
The first type of agreement relates to licensing the Company's
proprietary technology. Licensing activities are tailored to provide each
licensee with the right to use the Company's technology, most of which is
patented, for a specific product application or, in some instances, for further
exploration of new product applications for such technologies.
12
<PAGE> 13
The terms of such licenses, accordingly, are tailored to address a number of
circumstances relating to the use of such technology which have been negotiated
between the Company and the licensee. Such terms generally address whether the
license will be exclusive or nonexclusive, whether the licensee is limited to
very narrowly defined applications or to broader-based product manufacture or
sale of products using such technologies, whether the license will provide
royalties for products sold which employ such licensed technology and how such
royalties will be measured, as well as other factors specific to each
negotiated arrangement. In some cases, licenses relate directly to research
and development that the Company has undertaken pursuant to contracts for an
agreed-upon fee ("R&D contracts"); in other cases, they relate to product
development and commercialization efforts of the licensee; other agreements
combine the efforts of the Company with those of the licensee.
License agreement fees are generally recognized as revenue at the time
the agreements are consummated, which is the completion of the earnings
process. Typically, such fees are non-refundable, do not obligate the Company
to incur any future costs or require future performance by the Company and are
not related to future production or earnings of the licensee. License fees
payable in installments are recorded at the present value of the amounts to be
received taking into account the collectibility of the license fee. In some
instances, a portion of such license fees is contingent upon the commencement
of production or other uncertainties. In these cases, license fee revenues are
not recognized until commencement of production or the resolution of
uncertainties.
In the second type of agreement, R&D contracts, the Company conducts
specified product development and research projects related to one of its
principal technology specializations. Some of these projects have stipulated
performance criteria and deliverables whereas others require "best efforts"
with no specified performance criteria. Revenues from R&D contracts that
contain specific performance criteria are recognized on a
percentage-of-completion basis which matches the contract revenues to the costs
incurred on a project based on the relationship of costs incurred to estimated
total project costs. Revenue from R&D contracts, where there are no specific
performance terms, are recognized in amounts equal to the amounts expended on
the programs. Generally, the agreed-upon fees for R&D contracts contemplate
reimbursing the Company for costs considered associated with project activities
including expenses for direct product development and research, patents,
operating, general and administrative expenses and depreciation. Accordingly,
expenses related to R&D contracts are recorded as cost of revenues from
business agreements.
Other Operating Revenues
Other operating revenues consist principally of third-party service
revenue realized by certain of the Company's service departments, including the
Production Technology and Machine Building Division and Central Analytical
Laboratory.
13
<PAGE> 14
Other Non-operating Income
Other non-operating income (net) consists of rental income and gains and
losses on sale of fixed assets.
NOTE B - Revenues from Business Agreements
In the three and nine months ended March 31, 1996 and 1995, the Company
had revenues from business agreements as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Royalties:
Battery technology $ 619,732 $ -- $ 1,220,674 $ 198,178
Optical memory technology 38,506 60,049 37,619
----------- ----------- ----------- ------------
658,238 -- 1,280,723 235,797
Revenues from R&D contracts:
Photovoltaics
National Renewable Energy
Laboratory ("NREL") 97,790 377,650 263,424 1,445,969
Department Of Energy ("DOE") 292,665 397,494 928,230 1,366,463
U.S. Trade & Development Agency
and Industrial Partnering
Program ("IPP") 611,844 190,000 1,184,583 340,000
Department of Defense ("DOD") -- 99,399 -- 199,989
Battery technology
Honda R&D Co., Ltd. ("Honda") -- 51,576 342,390 157,610
United States Advanced Battery
Consortium ("USABC") 779,361 1,532,788 2,951,445 4,420,117
National Aeronautics Space Admin. -- 96,391 -- 360,111
Microelectronics
Micron Technology, Inc./ARPA
("Micron-ARPA") 394,318 -- 881,374 --
Hydrogen 97,916 -- 435,630 76,736
Other 58,419 96,113 143,671 393,649
----------- ----------- ----------- ------------
2,332,313 2,841,411 7,130,747 8,760,644
License and Other Agreements:
Battery
Asia Pacific Investment Co. ("APIC") -- -- 6,024,262 --
Sanoh Industrial Co., Ltd. ("Sanoh") -- -- 2,825,000 --
Three Consumer Battery Manufacturers -- 500,000 -- 10,500,000
Walsin Technology Corp. ("Walsin") -- 3,500,000 -- 3,500,000
Other battery licensees 1,097,176 500,000 1,097,176
Microelectronics
Micron 375,000 375,000 1,125,000 1,000,000
----------- ----------- ----------- ------------
375,000 5,472,176 10,474,262 16,097,176
----------- ----------- ----------- ------------
$ 2,707,313 $ 8,313,587 $17,605,009 $24,857,820
=========== =========== =========== ===========
</TABLE>
14
<PAGE> 15
NOTE C - Advance Royalties
At March 31, 1996 and at June 30, 1995, the Company deferred recognition
of revenues relating to non-refundable advance royalty payments.
Non-refundable advance royalties consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
------------------- -------------
<S> <C> <C>
Battery:
Japanese battery manufacturer $1,125,000 $1,125,000
Hitachi Maxell 355,189 355,189
Daido Steel Co. Ltd. ("Daido") 224,802 225,000
Optical Memory:
Matsushita Electric Ind'l Co. Ltd. ("Matsushita") 1,005,356 1,061,862
Hitachi, Ltd. ("Hitachi") 685,700 685,700
Sony Corporation ("Sony") 360,000 360,000
Polaroid Corporation ("Polaroid") 50,000 50,000
Plasmon PLC ("Plasmon") 18,750 18,750
Toshiba Corporation ("Toshiba") 16,876 16,876
Toray Industries Inc. ("Toray") 16,875
------------- ------------------
$3,858,548 $3,898,377
========== ==========
</TABLE>
NOTE D - Net Income Per Common Share
The Company uses the treasury stock method to calculate primary and
fully-diluted earnings per share.
The weighted average number of shares outstanding and primary earnings
per share for the three months and nine months ended March 31, 1996 and 1995
are computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding 10,015,088 8,079,485 8,957,381 7,961,052
Pro Forma weighted average shares for
Common Stock Equivalents 1,457,593 841,503 1,399,382 650,776
----------- ---------- ----------- -----------
AVERAGE NUMBER OF SHARES
OUTSTANDING AND
EQUIVALENTS 11,472,681 8,920,988 10,356,763 8,611,288
========== ========= ========== =========
EARNINGS PER SHARE $ .07 $ .30 $ .37 $ .83
============ =========== ============ ===========
</TABLE>
The number of shares used in computing net income per common share
assuming full dilution for the three months ended March 31, 1996 and 1995 were
11,572,760 and 9,182,912, respectively, and for the nine months ended March 31,
1996 and 1995 were
15
<PAGE> 16
10,586,162 and 8,961,340, respectively. The calculation of the number of
shares used in the computation for net income per common share and common
equivalent share and the number of shares used in the computation for net
income per common share assuming full dilution are the same except that the
repurchases of common stock were assumed to be made at the March 31, 1996 and
1995 price of $21.125 and $16, respectively, for the fully diluted computation
(compared to an average price for the period for the calculation of net income
per common share and common equivalent share.)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
During the nine months ended March 31, 1996, the Company had total
revenues of approximately $30,955,000. The Company's business strategy to
develop and license new products and production technology with third parties
generated royalties of approximately $1,281,000 and revenues of $17,605,000.
Additionally, product sales were $11,059,000, other revenue was $1,010,000.
The Company had net income for the nine months ended March 31, 1996 of
$3,829,000, primarily due to battery agreements and related payments thereunder
with APIC for $6,000,000, Sanoh for $2,825,000, and other battery agreements
for $500,000, as well as royalties of $1,281,000 and a gain on the sale of
Ovonic Battery common stock of $4,500,000.
As of March 31, 1996, the Company had unrestricted consolidated cash and
cash equivalents of approximately $26,362,000, an increase of approximately
$20,103,000 from June 30, 1995. As of March 31, 1996, the Company had
consolidated working capital of approximately $44,042,000, compared with a
consolidated working capital of $9,311,000 as of June 30, 1995.
The increases in consolidated cash and cash equivalents and consolidated
working capital as of March 31, 1996 were primarily due to the receipt by ECD
of the net proceeds of approximately $28 million from a registered public
offering of 1,650,000 shares of its common stock completed in January 1996.
The offering was made to a limited number of major institutional investors.
During the nine months ended March 31, 1996, ECD also received approximately
$3.7 million in connection with the exercise of stock options and warrants for
the purchase of its common stock.
During the nine months ended March 31, 1996, approximately $5,076,000
cash was used in operations. The difference between the net income of
approximately $3,829,000 and the net cash used in operations was principally
due to revenues recorded on an accrual basis and included in accounts
receivable in the nine months ended March 31, 1996 under the aforementioned
APIC, Sanoh and other agreements and a gain on the sale
16
<PAGE> 17
of Ovonic Battery common stock of $4,500,000, which payments will be received
at a later date, partially offset by the receipt of $2,500,000 from Walsin
(which license fee was recorded at June 30, 1995). In addition, during this
period approximately $1,429,000 of machinery and equipment were purchased or
constructed for the Company's operations. During the next 12 months, Ovonic
Battery is considering the purchase of up to $6,000,000 of machinery and
equipment. The machinery and equipment are principally for expansion of Ovonic
Battery's manufacturing capacity and would be financed with a portion of the
proceeds from the recent public offering.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
The Company had net income for the three months ended March 31, 1996 of
$758,000 compared to net income of $2,686,000 for the three months ended March
31, 1995.
Royalties were $658,000 in the three months ended March 31, 1996 due
principally to royalty revenues under three consumer battery agreements entered
into in 1995.
Product sales increased 59%, from $2,391,000 in the three months ended
March 31, 1995 to $3,805,000 in the three months ended March 31, 1996, due to
increased machine-building revenue for the Company, partially offset by
decreased sales of Ovonic electrodes in 1996 due to plant shutdown necessary
for the installation and optimization of equipment for expansion.
The decrease in revenues from business agreements to $2,707,000 in the
three months ended March 31, 1996 from $8,314,000 in the three months ended
March 31, 1995 was due to higher revenues in 1995 from agreements with Walsin
and a Japanese consumer battery manufacturer in settlement of an ITC
investigation, together with reduced revenues in 1996 from USABC, partially
offset by the Micron (ARPA) agreement in 1996.
The increase in other revenues was due to increased billings in 1996 for
miscellaneous work performed for Ovonic Battery licensees.
The decrease in the cost of revenues from business agreements in the
three months ended March 31, 1996 compared to the three months ended March 31,
1995 were principally due to decreases in activities in 1996 under the
agreements with USABC, NREL and DOE.
The increase in product development and research expense in the three
months ended March 31, 1996 compared to the three months ended March 31, 1995
was due to
17
<PAGE> 18
the aforementioned decrease in activity under the agreements with USABC, NREL
and DOE.
The increase in cost of product sales from $2,520,000 in the three
months ended March 31, 1995 to $4,727,000 in the three months ended March 31,
1996 was principally due to the increased machine-building activities and
related costs and increased overhead costs associated with the production of
Ovonic electrodes due to plant shutdown necessary for the installation and
optimization of equipment for expansion.
Patent defense costs of $1,070,000 in the three months ended March 31,
1996 were due to increased expenses incurred in connection with the defense
and prosecution of litigation involving SAFT America, Inc. ("SAFT") and related
parties or entities and Matsushita Battery with respect to certain of Ovonic
Battery's United States patents covering its proprietary technology for Ni-MH
batteries.
The decrease in operating, general and administrative expenses from
$1,582,000 in the three months ended March 31, 1995 to $1,487,000 in the three
months ended March 31, 1996 was primarily due to decreased taxes and other
expenses in 1996.
The change from other expenses of $18,000 in the three months ended
March 31, 1995 compared to other income of $4,755,000 in the three months ended
March 31, 1996 was due principally to the gain on sale of Ovonic Battery common
stock in 1996.
Nine Months Ended March 31, 1996 Compared to Nine Months Ended March 31, 1995
The Company had net income for the nine months ended March 31, 1996 of
$3,829,000 compared to a net income of $7,176,000 for the nine months ended
March 31, 1995. The decrease in net income for the nine months ended March 31,
1996 was due principally to initial non-recurring payments received by the
Company under three consumer battery agreements entered into in 1995.
Royalties increased from $236,000 in the nine months ended March 31,
1995 to $1,281,000 in the nine months ended March 31, 1996 due principally to
increased royalty revenues under three consumer battery agreements.
Product sales increased 85% from $5,991,000 in the nine months ended
March 31, 1995 to $11,059,000 in the nine months ended March 31, 1996 due to
increased machine-building revenue for the Company and increased sales of
Ovonic electrodes in 1996.
The decrease in revenues from business agreements to $17,605,000 in the
nine months ended March 31, 1996 from $24,858,000 in the nine months ended
March 31, 1995 was due to non-recurring revenues related to the three consumer
battery agreements and agreements with Walsin, Sylva and Hitachi Maxell in 1995
and reductions in revenue
18
<PAGE> 19
in 1996 under agreements with NREL, DOE and USABC, partially offset by revenue
from agreements in 1996 with APIC, Sanoh and other licensees, as well as
increased revenues recognized under agreements with the U.S. Trade and
Development Agency, IPP, Honda and Micron.
The increase in other revenues was due to increased billings in 1996 for
miscellaneous work performed for Ovonic Battery licensees.
The decrease in cost of revenues from business agreements in the nine
months ended March 31, 1996 compared to the nine months ended March 31, 1995
was principally due to the payment of contingent fees related to the three
consumer battery agreements in 1995 and decreases in activities in 1996 under
the agreements with NREL and DOE.
The increase in product development and research expense in the nine
months ended March 31, 1996 compared to the nine months ended March 31, 1995
was due to the aforementioned decrease in activity under the agreements with
NREL and DOE.
The increase in cost of product sales from $6,531,000 in the nine months
ended March 31, 1995 to $12,041,000 in the nine months ended March 31, 1996 was
principally due to the increased machine-building costs for ECD and increased
sales of Ovonic electrodes.
Patent defense costs of $1,823,000 in the nine months ended March 31,
1996 was due to expenses incurred in connection with the defense and
prosecution of litigation involving SAFT and related parties or entities and
Matsushita Battery with respect to certain of Ovonic Battery's United States
patents covering its proprietary technology for Ni-MH batteries.
The increase in operating, general and administrative expenses to
$4,268,000 in the nine months ended March 31, 1996 from $3,612,000 in the nine
months ended March 31, 1995 was primarily due to increased travel, lease and
depreciation expenses in 1996.
The change from other expenses of $153,000 in the nine months ended
March 31, 1995 compared to other income of $4,776,000 in the nine months ended
March 31, 1996 was due principally to the gain on the sale of Ovonic Battery
common stock in 1996.
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation with Matsushita Battery Industrial
Co., Ltd. ("MBI") concerning Ovonic Battery's U.S. Patent No. 5,348,822 ("'822
Patent") covering advanced electrodes for NiMH batteries.
Prior to the litigation, the Company had been in discussions with MBI
regarding electric vehicle batteries and had informed MBI that the Company
intended to enforce its patents. The litigation also involves Toyota Motor
Sales U.S.A., Inc. and Toyota Motor Corporation ("Toyota") in view of the use
of MBI batteries in Toyota electric vehicles which have been imported into
California for fleet testing.
The Company is charging MBI and Toyota with infringement of the '822
Patent and is seeking injunctive relief and damages.
Management of the Company believes that the allegations of MBI are
without merit.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K
The Company filed the following reports on Form 8-K:
- Report on Form 8-K, dated January 4, 1996, under Item 5.
Other Events, reporting a license agreement between APIC
and Ovonic Battery, portions of which were filed
confidentially pursuant to Rule 24b-2.
- Report on Form 8-K, dated January 11, 1996, as amended on
January 18, 1996, under Item 5. Other Events, attaching
as an exhibit, a Placement Agreement in connection with
its January 1996 limited public offering.
20
<PAGE> 21
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.
Energy Conversion Devices, Inc.
----------------------------------
(Registrant)
By: /s/ Nancy M. Bacon
----------------------------------
Nancy M. Bacon
Senior Vice President - Government
Date: May 15, 1996 Contracts and International Projects
By: /s/ Kenneth A. Pullis
------------------------------------
Kenneth A. Pullis
Acting Chief Financial Officer
Date: May 15, 1996 and Treasurer
By: /s/ Stanford R. Ovshinsky
------------------------------------
Stanford R. Ovshinsky
Date: May 15, 1996 President and Chief Executive Officer
21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the Period Ended March 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 26,362,362
<SECURITIES> 4,290,000
<RECEIVABLES> 16,821,245
<ALLOWANCES> (29,000)
<INVENTORY> 2,701,780
<CURRENT-ASSETS> 50,333,351
<PP&E> 27,432,261
<DEPRECIATION> (21,437,035)
<TOTAL-ASSETS> 57,134,647
<CURRENT-LIABILITIES> 6,291,654
<BONDS> 2,128,875
0
0
<COMMON> 104,773
<OTHER-SE> 43,948,781
<TOTAL-LIABILITY-AND-EQUITY> 57,134,647
<SALES> 11,058,631
<TOTAL-REVENUES> 30,954,621
<CGS> 12,041,162
<TOTAL-COSTS> 7,330,034
<OTHER-EXPENSES> 12,530,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340,880
<INCOME-PRETAX> 3,829,309
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,829,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,829,309
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
</TABLE>
