<PAGE>
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 30, 1997
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 September 18, 1997:
------- ----------------------------------
Common Stock $.15 Par Value.............. 4,505,986
===============================================================================
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UNIT INSTRUMENTS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information
Condensed Consolidated Balance Sheets........................................ 3-4
August 30, 1997 and May 31, 1997
Condensed Consolidated Statements of Operations.............................. 5
Three months ended August 30, 1997 and August 31, 1996
Condensed Consolidated Statements of Cash Flows.............................. 6
Three months ended August 30, 1997 and August 31, 1996
Notes to Condensed Consolidated Financial Statements......................... 7-8
Management's Discussion and Analysis of...................................... 8-10
Financial Condition and Results of Operations
Part II. Other Information 10
Item 6 Exhibits and Reports on Form 8-K................................. 10
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
UNIT INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of August 30, 1997 and May 31, 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
August 30, 1997 May 31, 1997
--------------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $12,501 $12,203
Accounts and notes receivable 8,717 7,032
Inventories 8,811 8,700
Income taxes refundable 1,265 1,523
Prepaid expenses and other 450 322
Deferred taxes 1,333 1,333
------- -------
Total current assets 33,077 31,113
Property, plant and equipment, at cost:
Buildings and improvements 5,210 5,046
Machinery and equipment 14,700 14,644
------- -------
19,910 19,690
Accumulated depreciation and amortization 10,375 9,767
------- -------
9,535 9,923
Construction in progress 225 226
------- -------
Net property, plant and equipment 9,760 10,149
Goodwill, net of accumulated amortization of
$2,413 and $2,275, respectively 8,439 8,577
Other assets 1,106 1,125
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$52,382 $50,964
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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UNIT INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of August 30, 1997 and May 31, 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
August 30, 1997 May 31, 1997
--------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,584 $ 2,290
Accrued compensation and benefits 1,482 1,113
Current installments on term debt 1,699 1,740
Other current liabilities 2,065 2,274
------- -------
Total current liabilities 7,830 7,417
Deferred income taxes 203 203
Other long-term liabilities and deferred credits 644 683
------- -------
Total liabilities 8,677 8,303
Shareholders' equity:
Common stock, $.15 par value; authorized shares:
12,000,000; issued shares: 4,495,163 as of
August 30, 1997 and 4,384,627 as of
May 31, 1997 674 658
Additional paid-in capital 23,877 23,211
Retained earnings 19,639 19,280
Foreign currency translation adjustment (485) (488)
------- -------
Total shareholders' equity 43,705 42,661
------- -------
$52,382 $50,964
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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UNIT INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
Net sales $ 14,596 $ 13,288
Operating costs and expenses:
Cost of goods sold 9,961 8,670
Selling and administration 3,108 3,259
Restructuring costs -0- 262
Research, development and engineering 1,105 1,130
--------- ---------
Operating income (loss) 422 (33)
Interest income 199 204
Interest expense (15) (11)
Other income (expense), net (8) 25
--------- ---------
Income before income taxes 598 185
Provision for income taxes 239 83
--------- ---------
Net income 359 102
Per common share: --------- ---------
Net income $0.08 $0.02
========= =========
Average shares used in computing earnings per share 4,481,000 4,561,000
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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UNIT INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 359 $ 102
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation and amortization 765 777
Changes in assets and liabilities net of effect of
businesses acquired:
Accounts receivable (1,685) 3,654
Inventories (111) 138
Prepaids and other assets (123) 48
Accounts payable and accrued liabilities 454 (1,800)
Income taxes 258 (680)
Other liabilities (39) 33
------- -------
Net cash flows provided from (used in) operating activities (122) 2,272
Cash Flows from Investing Activities:
Capital expenditures (246) (546)
Net cash paid for acquisition of Control Systems, Inc. -0- (1,127)
Proceeds from asset sales 22 -0-
------- -------
Net cash (used in) investing activities (224) (1,673)
Cash Flows from Financing Activities:
Payments on long-term debt -0- (254)
Change in short-term borrowings, net (41) (488)
Proceeds from exercise of stock options 682 30
------- -------
Net cash provided from (used in) financing activities 641 (712)
Effect of exchange rate changes on cash and cash equivalents 3 (32)
------- -------
Net increase (decrease) in cash and cash equivalents 298 (145)
------- -------
Cash and cash equivalents at beginning of year 12,203 14,572
------- -------
Cash and cash equivalents at end of period $12,501 $14,427
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 15 $ 11
Income tax paid, net of refunds $ 19 $ 764
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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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 30, 1997
and May 31, 1997 and the results of its operations for the three month
periods ended August 30, 1997 and August 31, 1996. 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, 1997.
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 30, 1997 and May 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
August 30, 1997 May 31, 1997
--------------- ------------
<S> <C> <C>
Raw materials $4,624 $6,701
Work in process 3,358 1,058
Finished goods 829 941
------ ------
Total inventories $8,811 $8,700
====== ======
</TABLE>
3. Acquisition of Control Systems, Inc.
The Company acquired Control Systems, Inc. ("CSI") on June 3, 1996 in
exchange for $1.2 million cash and 289,000 shares of Company stock valued
at $3,977,000. CSI fabricates high purity gas isolation boxes and gas
panels for semiconductor manufacturers. 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 periods
ended on August 30,
7
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1997 and August 31, 1996. A Current Report on Form 8-K was filed on August
13, 1996 reporting this transaction.
4. Restructuring Charges
During the first quarter of the prior 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 26% of the Company's worldwide employment. A restructuring
charge of $262,000 was recorded in the first quarter for severance and
other related costs of these workforce reductions.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 30, 1997 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1996
Net sales, for the first fiscal quarter ended August 30, 1997, increased 10% to
$14,596,000 from $13,288,000 for the comparable prior year period. Sales of
high purity gas distribution systems were up substantially for the comparative
periods, while sales of mass flow controllers ("MFCs") were down slightly. The
Company commenced prototype shipments of its Z-Bloc(TM) modular gas system
during the quarter, which generated modest sales. Sales for the current quarter
were 18% over the preceding quarter, and have recovered significantly since the
trough experienced in the second quarter of the prior fiscal year. This
increase in sales reflects the Company's partial recovery from the effects of
the sharp semiconductor equipment contraction that began in mid-1996.
Gross profit margin declined to 32% for the current quarter, from 35% for the
first quarter of last year. This decrease resulted from higher material costs
resulting from product mix, especially high purity gas distribution systems, and
the phase-in of new MFC models. Partially offsetting higher material costs were
lower direct labor and overhead costs.
Selling, general and administrative ("S,G&A") expenses decreased to $3,108,000
in the first quarter of fiscal 1998, from $3,259,000 in the comparable prior
year period. As a percent of sales, S,G&A expenses declined to 21% in the
current quarter from 25% in the first quarter of the prior fiscal year. This
decrease in S,G&A expenses resulted from reductions in expense levels
implemented the prior fiscal year in response to the semiconductor equipment
market contractions.
8
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In the first quarter of the prior fiscal year, the Company incurred a
restructuring charge of $262,000 for severance and other related costs
associated with workforce reductions. These reductions were implemented in
response to a sharp decline in the business level activity experienced by the
Company.
Research, development and engineering ("R,D&E") expenses were essentially
unchanged at $1,105,000 for the current fiscal quarter, as compared to the prior
fiscal year. R,D&E activity is primarily directed towards new product
development, including the Company's proprietary Z-Bloc(TM) modular gas system.
The Company believes that the continued timely development of new products and
product enhancements is essential to maintaining its competitive position within
the semiconductor equipment market.
Income before income tax expense increased to $598,000 in the current quarter
from $185,000 in the first quarter of the prior year. Income taxes of $239,000
were provided at a 40% rate for the current quarter. The tax rate is based on
the statutory federal rate increased for the effect of goodwill amortization,
plus the applicable state income tax rates.
Net income increased to $359,000, or $.08 per share, in the current period from
$102,000, or $.02 per share, in the comparable prior year period.
FINANCIAL CONDITION AND LIQUIDITY
Net cash used by operations, for the three months ended August 30, 1997, was
$122,000. The main contributor to the use of operating funds was the large
increase in accounts receivable of $1,685,000 as a result of increased sales
volumes, as compared to the sales volume from which the accounts receivable
balance of May 31, 1997 was derived. This was partially offset by cash provided
by depreciation of $765,000. Increases in accounts payable of $485,000, and a
decrease in income taxes refundable, also provided cash to offset the negative
cash impact of the increase in accounts receivable. Capital expenditures used $
246,000 of cash, less $22,000 received for an asset disposal. Financing
activities provided positive cash flow mainly due to $682,000 received by the
Company from employees for the exercise of stock options. Net cash provided by
all of the Company's activities for the current period was $298,000. Cash and
cash equivalents were $12,501,000 as of August 30, 1997.
The Company has a revolving credit line with a bank which provides for an
overall credit limit of $5,000,000 and expires in January, 1998. Interest is
payable monthly at prime, or an Offshore Rate plus 1.5 %. The credit facility
provides for the issuance of letters of credit, not to exceed $5,000,000. At
August 30, 1997, there were no amounts borrowed under this agreement. A
$1,900,000 standby letter of credit was issued to support a loan, with a balance
of $1,660,000 at August 30, 1997, from a Japanese bank to Unit Instruments Japan
Inc., a subsidiary of the Company. The revolving credit agreement contains
certain financial covenants with which the Company was in compliance as of
August 30, 1997.
9
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FORWARD-LOOKING STATEMENT
This quarterly report on Form 10-Q contains certain forward-looking statements
made in good faith by the Company pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. In connection with these
"safe harbor" provisions, the Company identifies important factors that could
cause actual results to differ materially from those contained in any forward-
looking statements made by, or on behalf of, the Company. Any such statements
are qualified by reference to the following cautionary statements.
The Company's businesses operate in a highly competitive market and are subject
to many risks and uncertainties. Such risks and uncertainties include, but are
not limited to, the Company's dependency on a few large customers, cyclicality
and business activity levels of the semiconductor equipment market, expenses for
extended product warranty, the successful development and industry acceptance of
new products, the replacement of the Company's products with new technology,
pricing pressures, the potential change in competitive conditions within the
markets served by the Company, industry consolidation, the failure to achieve
higher sales and improved operating margins at its Control Systems, Inc.
subsidiary, the failure to retain key technical and management personnel,
material or adverse changes in the Company's operations or business, failure to
diversify into markets other than the semiconductor equipment market, failure to
reduce product costs, failure to commercialize the Z-Bloc(TM) gas distribution
system and failure to accurately anticipate demand for the Company's products.
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 within a single industrial segment and are
dependent on a few large customers. This concentration on a single market and
limited customer base subjects the Company 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) Exhibit 11.1 - Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule (for electronic
filing only)
(b) No Current Reports on Form 8-K were filed by the Company during
the quarter ended August 30, 1997.
10
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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: September 26, 1997 /s/ Michael J. Doyle
--------------------
Michael J. Doyle, President
and Chief Executive Officer
Date: September 26, 1997 /s/ Gary N. Patten
------------------
Gary N. Patten
Chief Financial Officer
11
<PAGE>
EXHIBIT 11.1
UNIT INSTRUMENTS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
-------------------
August 30, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
NET INCOME (LOSS) $ 359,000 $ 102,000
========== ==========
Earnings Per Share
- ------------------
Weighted average number
of shares outstanding 4,442,681 4,384,929
Common share equivalents,
assuming exercise of stock
options and warrants 38,713 176,610
---------- ----------
Average shares used in
computing earnings per share 4,481,394 4,561,064
========== ==========
Net income per share $ 0.08 $ 0.02
========== ==========
Earnings Per Share Assuming Full Dilution
- -----------------------------------------
Weighted average number
of shares outstanding 4,442,681 4,384,454
Common share equivalents, assuming
exercise of stock options and
warrants 207,422 176,610
---------- ----------
Average shares used in computing
earnings per share 4,650,103 4,561,064
========== ==========
Net income per share $ 0.08 $ 0.02
========== ==========
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-30-1997
<CASH> 12,501
<SECURITIES> 0
<RECEIVABLES> 8,717
<ALLOWANCES> 0
<INVENTORY> 8,811
<CURRENT-ASSETS> 3,048
<PP&E> 20,135
<DEPRECIATION> 10,375
<TOTAL-ASSETS> 52,382
<CURRENT-LIABILITIES> 7,830
<BONDS> 0
0
0
<COMMON> 674
<OTHER-SE> 43,031
<TOTAL-LIABILITY-AND-EQUITY> 52,382
<SALES> 14,596
<TOTAL-REVENUES> 14,596
<CGS> 9,961
<TOTAL-COSTS> 18,387
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 598
<INCOME-TAX> 239
<INCOME-CONTINUING> 359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
