<PAGE>
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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: AUGUST 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: 0-10095
UNIT INSTRUMENTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0077406
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
22600 SAVI RANCH PARKWAY, YORBA LINDA, CALIFORNIA 92887
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 921-2640
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 XXX NO
---- ----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASSES OUTSTANDING AT OCTOBER 4, 1996:
--------------------------- -------------------------------
COMMON STOCK $.15 PAR VALUE......... 4,384,454
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<PAGE>
UNIT INSTRUMENTS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Condensed Consolidated Balance Sheets........................ 3-4
August 31, 1996 and May 31, 1996
Condensed Consolidated Statements of Income.................. 5
Three months ended August 31, 1996 and August 31, 1995
Condensed Consolidated Statements of Cash Flows.............. 6
Three months ended August 31, 1996 and August 31, 1995
Notes to Condensed Consolidated Financial Statements......... 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8-11
Part II. Other Information 11
Item 6 Exhibits and Reports on Form 8-K................. 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
UNIT INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
August 31, 1996 May 31, 1996
--------------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $14,427 $14,572
Accounts and notes receivable 7,885 10,179
Inventories 11,446 9,709
Deferred taxes 1,042 1,042
Prepaid expenses and other 196 191
------- -------
Total current assets 34,996 35,693
Property, plant and equipment, at cost:
Buildings and improvements 5,293 5,096
Machinery and equipment 13,760 11,732
------- -------
19,053 16,828
Accumulated depreciation and amortization 7,872 7,267
------- -------
11,181 9,561
Construction in progress 61 662
------- -------
Net property, plant and equipment 11,242 10,223
Goodwill, net of accumulated amortization of
$1,861 and $1,723, respectively 8,991 4,338
Deferred taxes 249 249
Other assets 1,191 2,277
------- -------
$56,669 $52,780
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
August 31, 1996 May 31, 1996
---------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable - trade $ 1,639 $ 1,969
Accrued compensation and benefits 2,165 1,786
Income taxes 461 1,141
Current installments on term debt 1,987 1,845
Other current liabilities 2,091 2,228
------- -------
Total current liabilities 8,343 8,969
Deferred income taxes 344 -0-
Other long-term liabilities and deferred credits 682 587
------- -------
Total liabilities 9,369 9,556
Shareholders' equity:
Common stock, $.15 par value;
authorized shares:
12,000,000; issued shares: 4,384,454 as of
August 31, 1996 and 4,090,146
as of May 31, 1996 658 613
Additional paid-in capital 23,209 19,247
Retained earnings 23,774 23,673
Foreign currency translation adjustment (341) (309)
------- -------
Total shareholders' equity 47,300 43,224
$56,669 $52,780
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31
------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Net sales $ 13,288 $ 15,023
Operating costs and expenses:
Costs of goods sold 8,670 9,029
Selling and administration 3,259 3,692
Restructuring costs 262 83
Research and development 1,130 956
---------- ----------
Operating income (33) 1,263
Interest income 204 81
Interest expense (11) (51)
Other expense, net 25 (17)
---------- ----------
Income from continuing operations
before income taxes 185 1,276
Provision for income taxes 83 560
---------- ----------
Income from continuing operations 102 716
Discontinued operations:
Income, net of income tax provision of $298 -0- 604
---------- ----------
Net income $ 102 $ 1,320
========== ==========
Per common share:
Income from continuing operations $ 0.02 $ 0.16
Discontinued operations -0- 0.13
---------- ----------
Net income $ 0.02 $ 0.29
========== ==========
Average shares used in computing
earnings per share 4,561,064 4,502,272
========== ==========
Dividends per share $ 0 $ 0.06
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31
------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 102 $ 1,320
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation and amortization 777 510
Deferred income taxes -0- 63
Changes in assets and liabilities net of acquisition:
Accounts receivable 3,654 (126)
Inventories 138 (1,503)
Prepaids and other assets 48 (326)
Accounts payable and accrued liabilities (1,800) (428)
Income taxes (680) 715
Other liabilities 33 -0-
Other -0- (75)
------- -------
Net cash provided from operating activities 2,272 150
Cash Flows from Investing Activities:
Capital expenditures (546) (1,632)
Net cash paid for acquisition of Control Systems, Inc. (1,127) -0-
Change in short-term investments -0- 1,205
Other -0- 65
------- -------
Net cash (used in) investing activities (1,673) (362)
Cash Flows from Financing Activities:
Payments on long-term debt (254) (230)
Change in short-term borrowings, net (488) -0-
Cash dividends paid -0- (257)
Stock option exercise, related tax benefit and other 30 200
------- -------
Net cash (used in) financing activities (712) (287)
Effect of exchange rate changes on cash and cash equivalents (32) (28)
------- -------
Net (decrease) in cash and cash equivalents (145) (527)
Cash and cash equivalents at beginning of year 14,572 4,465
------- -------
Cash and cash equivalents at end of year $14,427 $ 3,938
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 11 $ 51
Income taxes paid $ 764 $ 171
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
UNIT INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
1. Significant Accounting Policies
The condensed consolidated financial statements included herein are based
in part on estimates and include such adjustments (consisting solely of
normal, recurring adjustments) which management believes are necessary for
a fair presentation of the Company's financial position at August 31, 1996
and May 31, 1996, and the results of its operations for the three month
periods ended August 31, 1996 and 1995. The consolidated financial
statements and related notes are condensed and have been prepared in
accordance with generally accepted accounting principles applicable to
interim periods; consequently, they do not include all generally accepted
accounting disclosures required for complete annual financial statements.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K for the year ended May 31, 1996.
The results of operations for the period presented are not necessarily
indicative of results to be expected for the entire fiscal year. Certain
prior year items have been reclassified to conform to the current year
presentation.
2. Inventories
Inventories at August 31, 1996 and May 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
August 31, 1996 May 31, 1996
--------------- ------------
<S> <C> <C>
Raw materials $ 8,292 $6,514
Work in process 2,282 2,313
Finished goods 872 882
------- ------
Total inventories $11,446 $9,709
======= ======
</TABLE>
3. Acquisition of Control Systems, Inc.
The Company acquired Control Systems, Inc. ("CSI") on June 3, 1996 in
exchange for $1.2 million and 289,000 shares of Company stock valued at
$3,977,000. The acquisition has been accounted for by using the purchase
method. Accordingly, the results of operations of CSI are included with
those of the Company for the three month period ended on August 31, 1996.
A Current Report on Form 8-K was filed on August 13, 1996 reporting this
transaction.
7
<PAGE>
The unaudited combined results of operations of the Company and CSI for the
three month period ended August 31, 1995, after giving effect for certain
pro forma adjustments, is as follows:
<TABLE>
<S> <C>
Net sales $17,717,000
Income from continuing operations 742,000
Net income 1,346,000
Pro forma per share data
Income from continuing operations $ 0.15
Net income $ 0.28
</TABLE>
The foregoing unaudited pro forma results reflect three months amortization
of goodwill resulting from the acquisition of CSI. The Company has
determined that the goodwill has an estimated 12-year life and, for
purposes of the pro forma adjustments, a 12-year amortization period has
been used.
4. Restructuring Charges
During the first quarter of the current fiscal year, the Company reduced
its workforce by 109 positions in response to the steep downturn in the
semiconductor equipment market. This workforce reduction represented
approximately 22% of the Company's worldwide employment. A restructuring
charge of $262,000 was recorded in the quarter for severance and other
related costs of these workforce reductions.
In the first quarter of the prior fiscal year, a restructuring charge of
$83,000 was recorded for expenses associated with the pending sale of the
Autoclave Engineers Group, which was sold in September, 1995.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with Unit
Instruments, Inc.'s condensed consolidated financial statements and related
notes included herein.
The Company acquired Control Systems, Inc. ("CSI") on June 3, 1996 in exchange
for $1.2 million and 289,000 shares of Company stock valued at $4 million. The
purchase method was used to account for the acquisition. Accordingly, the
results of CSI are included in the Company's balance sheets as of August 31,
1996 and in the statement of income and statements of cash flows for the three
months ended August 31, 1996. The financial statements in this report that
relate to the prior fiscal year do not include CSI activity or account balances.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1996 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1995
Sales from continuing operations for the quarter ended August 31, 1996 decreased
12% to $13,288,000 from $15,023,000 for the comparable prior year period. This
sales decrease resulted from generally lower industry-wide semiconductor
equipment sales. Semiconductor fabrication tools are the primary application
for the Company's mass flow controllers (MFCs). In addition, because of the
precipitous drop in new orders for semiconductor equipment, the Company's
principal domestic OEM customers aggressively commenced inventory reduction
programs that further reduced demand for the Company's MFCs. Shipments of gas
isolation boxes and gas panels, through CSI, were down sharply because of
reduced capital spending by a major semiconductor manufacturer, which represents
a substantial portion of CSI's business. International sales also declined for
the comparative period while sales to end-users increased over the first quarter
of the prior fiscal year.
Gross profit margin declined to 35% for the current quarter from 40% for the
first quarter last year. Overhead expenses increased slightly because of the
inclusion of CSI, but increased as a percent to sales because of the lower sales
level. Offsetting this increase, to some extent, was lower material cost of
sales resulting from product cost savings realized through procurement and value
engineering activities.
Selling, general and administrative ("S,G&A") expenses decreased to $3,259,000
in the first quarter of the current fiscal year from $3,692,000 in the
comparable prior year period. As a percent to sales, S,G&A remained steady at
25% for both comparative periods. The reduction in S,G&A expenses for the
current quarter primarily resulted from the closure of the Erie corporate office
and consolidation of those functions at Unit during the second quarter of the
prior fiscal year. Offsetting these savings in S,G&A was the inclusion of CSI
for the current quarter.
During the first quarter of the current fiscal year, the Company reduced its
workforce by 109 positions in response to the steep downturn in the
semiconductor equipment market. This workforce reduction represented
approximately 22% of the Company's worldwide employment. A restructuring charge
of $262,000 was recorded in the quarter for severance and other related costs of
these workforce reductions. In the first quarter of the prior fiscal year, a
restructuring charge of $83,000 was recorded for expenses associated with the
pending sale of the Autoclave Engineers Group, which was sold in September,
1995.
Research, development and engineering expenses increased 18% to $1,130,000, or
8.5% of sales for the current quarter, from $956,000, or 6.4% of sales, for the
comparable prior year period. These higher expenditures reflect increased new
product development charges to support current and anticipated future sales.
The Company believes that the continued timely development of new products and
enhancements to its existing products is essential to maintaining its
competitive position within the industry.
9
<PAGE>
Interest income increased substantially for the current quarter to $204,000 from
$81,000 for the prior year period. This increase in interest income results
primarily from the sale of the Autoclave Engineers Group in September of 1995
and the resultant increase in cash balances. Interest expense declined for the
quarter to $11,000 from $51,000 because a domestic bank borrowing was paid off
during the previous fiscal year.
Income from continuing operations before income taxes decreased to $185,000 for
the current quarter from $1,276,000 for the prior year period. Income taxes for
continuing operations were provided for at a 45% rate for the third quarter as
compared to a 44% rate for the prior year. The tax rate is unfavorably impacted
in both periods by the nondeductability of goodwill amortization.
Income from continuing operations declined to $102,000 for the current period,
or $.02 per share, as compared to $716,000, or $.16 per share, for the
comparable prior year period.
Income from discontinued operations for the prior year period reflects the
results of Autoclave Engineers Group for the period, which was sold on September
22, 1995.
Net income for the comparable prior year period was $1,320,000, or $.29 per
share, which includes $604,000 of net income from the operations of the
Autoclave Engineers Group, which is classified as income from discontinued
operations.
FINANCIAL CONDITION
On June 3, 1996, the Company acquired all the outstanding shares of Control
Systems, Inc. for $1,200,000 cash and 289,000 shares of Company stock valued at
$3,977,000. Prior to the acquisition, the Company had advanced cash to CSI of
$1,025,000.
Cash flow was a negative $145,000 for the first quarter, even though collection
of receivables provided $3,654,000 of cash flow. Some of the larger uses of
cash that offset the positive flow of cash from the collection of receivables
were: the acquisition of CSI for $1,200,000, the reduction of accounts payable
in the amount of $1,834,000, and net payments of income tax in excess of
accruals for $680,000. Capital expenditures were $546,000. Capital
expenditures are expected to be approximately $1.5 to $2.0 million for fiscal
1997.
Cash and cash equivalents were $14.4 million as of August 31, 1996. The
Company's only debt outstanding is a Yen denominated credit facility through
Unit Japan for approximately $1.8 million. During the prior fiscal year, the
Company entered into a $5 million unsecured credit facility with a major
domestic bank. The Company can use any portion of the credit facility for
letters of credit and has utilized approximately $2 million for such purpose.
No borrowings were outstanding at the end of the current quarter under this
credit facility. The Company expects that its current cash resources and cash
generated from continuing operations will be adequate to fund the Company's
anticipated near-term capital requirements.
10
<PAGE>
FORWARD-LOOKING STATEMENT
This quarterly report on Form 10-Q contains certain forward-looking statements.
The forward-looking statements contained herein are based on current
expectations that involve a number of risks and uncertainties. These forward-
looking statements are based on assumptions that the Company will not lose a
significant customer or customers or experience further reductions of demand or
rescheduling of purchase orders that have occurred because of unsettled market
conditions in the semiconductor equipment industry, that the Company's products
will remain accepted within their respective markets and will not be replaced by
new technology, that competitive conditions within the Company's markets will
not change materially or adversely, that the Company will be successful in
integrating the operations of its Control Systems, Inc. subsidiary with the rest
of its operations, and that the Company will retain key technical and management
personnel, that the Company's forecasts will accurately anticipate market
demand, and that there will be no material adverse change in the Company's
operations or business. Assumptions related to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are beyond the control
of the Company. Although the Company believes that the assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, there can be no assurance that the results
contemplated in forward-looking statements will be realized. In addition, the
business and operations of the Company are subject to substantial risks which
increase the uncertainty inherent in such forward-looking statements. In light
of the significant uncertainties inherent in the forward-looking information
included herein, the inclusion of such information should not be regarded as a
representation by the Company, or any other person, that the objectives or plans
for the Company will be achieved.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
2.1 - Agreement of Plan of Reorganization and Merger dated April
23, 1996 among the Company, CSI Acquisition Corporation and
Control Systems, Inc. (incorporated by reference to Exhibit
(c)(1) to the Company's Current Report on Form 8-K filed July 1,
1996).
11.1 - Computation of Earnings per Share.
27 - Financial Data Schedule
(b) Reports
-------
One report on Form 8-K was filed July 1, 1996 by the Company for
the quarter for which this report is filed, reporting that it had
concluded the acquisition of Control Systems, Inc. In a Form 8-
K/A filing dated August 13, 1996, the Company filed the required
financial statements of the business acquired and the required
pro forma financial information.
11
<PAGE>
UNIT INSTRUMENTS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirement 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.
UNIT INSTRUMENTS, INC.
----------------------
Registrant
Date: October 4, 1996 /s/ Michael J. Doyle
--------------------
Michael J. Doyle, President
and Chief Executive Officer
Date: October 4, 1996 /s/ Gary N. Patten
------------------
Gary N. Patten
Chief Financial Officer
12
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended August 31
----------------------------
1996 1995
---- ----
<S> <C> <C>
INCOME FROM CONTINUING
OPERATIONS $ 102,000 $ 716,000
---------- ----------
NET INCOME $ 102,000 $1,320,000
========== ==========
Earnings Per Share
- ------------------
Weighted average number of shares
outstanding 4,384,454 4,256,172
Common share equivalents, assuming
exercise of stock options and warrants 176,610 246,100
---------- ----------
Average shares used in computing
earnings per share 4,561,064 4,502,272
========== ==========
Net income per share from continuing
operations $ .02 $ .16
---------- ----------
Net income per share $ .02 $ .29
========== ==========
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 14,427
<SECURITIES> 0
<RECEIVABLES> 8,001
<ALLOWANCES> 116
<INVENTORY> 11,446
<CURRENT-ASSETS> 34,996
<PP&E> 19,114
<DEPRECIATION> 7,872
<TOTAL-ASSETS> 56,669
<CURRENT-LIABILITIES> 9,369
<BONDS> 0
0
0
<COMMON> 658
<OTHER-SE> 46,642
<TOTAL-LIABILITY-AND-EQUITY> 56,669
<SALES> 13,288
<TOTAL-REVENUES> 13,517
<CGS> 8,670
<TOTAL-COSTS> 13,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 185
<INCOME-TAX> 83
<INCOME-CONTINUING> 102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0
</TABLE>
