<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: February 28, 1998
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 March 31, 1998:
------- ------------------------------
Common Stock $.15 Par Value........ 3,995,118
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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
February 28, 1998 and May 31, 1997
Condensed Consolidated Statements of Operations............... 5
Three months and nine months ended February 28, 1998
and March 1, 1997
Condensed Consolidated Statements of Cash Flows............... 6
Nine months ended February 28, 1998 and March 1, 1997
Notes to Condensed Consolidated Financial Statements.......... 7-9
Management's Discussion and Analysis of....................... 10-15
Financial Condition and Results of Operations
Part II. Other Information
Item 5. Significant Events................................ 16
Item 6. Exhibits and Reports on Form 8-K.................. 16
Signatures.................................................... 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
UNIT INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of February 28, 1998 and May 31, 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
--------------------- ---------------------
ASSETS:
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 8,839 $12,203
Accounts and notes receivable 8,145 7,032
Inventories 8,809 8,700
Income taxes refundable 85 1,523
Prepaid expenses and other 409 322
Deferred taxes 1,333 1,333
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Total current assets 27,620 31,113
Property, plant and equipment, at cost:
Buildings and improvements 5,700 5,046
Machinery and equipment 13,139 14,644
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18,839 19,690
Accumulated depreciation and amortization 10,266 9,767
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8,573 9,923
Construction in progress 185 226
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Net property, plant and equipment 8,758 10,149
Goodwill, net of accumulated amortization of
$1,989 and $2,275 respectively 4,072 8,577
Other assets 1,150 1,125
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$41,600 $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 February 28, 1998 and May 31, 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
--------------------------- -------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,981 $ 2,290
Accrued compensation and benefits 1,745 1,113
Current installments on term debt 1,572 1,740
Other current liabilities 2,506 2,274
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Total current liabilities 7,804 7,417
Deferred income taxes 203 203
Other long-term liabilities and deferred credits 570 683
------- -------
Total liabilities 8,577 8,303
Shareholders' equity:
Common stock, $.15 par value; authorized shares: 599 658
12,000,000; issued shares: 3,995,118 as of
February 28, 1998 and 4,384,627 as of
May 31, 1997
Additional paid-in capital 21,672 23,211
Retained earnings 11,506 19,280
Foreign currency translation adjustment (754) (488)
------- -------
Total shareholders' equity 33,023 42,661
$41,600 $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
February 28, 1998 and March 1, 1997
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ----------------------------
02/28/98 03/01/97 02/28/98 03/01/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 13,294 $ 9,624 $ 42,815 $ 30,914
Operating costs and expenses:
Cost of goods sold 9,787 7,499 29,616 23,796
Selling and administration 3,371 2,742 9,511 9,106
Restructuring costs 4,931 -0- 4,931 558
Research, development and engineering 1,173 862 3,498 3,064
---------- ---------- ---------- ----------
Operating income (loss) (5,968) (1,479) (4,741) (5,610)
Interest income 184 219 603 629
Interest expense (14) (15) (42) (41)
Other income (expense), net 22 (48) (58) (60)
---------- ---------- ---------- ----------
Loss before income taxes (5,776) (1,323) (4,238) (5,082)
Income tax benefit (700) (423) (85) (1,626)
---------- ---------- ---------- ----------
Net loss $ (5,076) $ (900) $ (4,153) $ (3,456)
========== ========== ========== ==========
Loss per share:
Basic and diluted $ (1.21) $ (0.21) $ (0.95) $ (0.79)
========== ========== ========== ==========
Average shares used in computing loss per share:
Basic and diluted 4,192,000 4,370,000 4,394,000 4,376,000
========== ========== ========== ==========
</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
For the Nine Months Ended February 28, 1998 and March 1, 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------------------
February 28, 1998 March 1, 1997
---------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,153) $(3,456)
Adjustments to reconcile net loss to
net cash provided from operating activities:
Depreciation and amortization 2,174 2,341
(Gain) loss on write-off and disposal of assets 381 (1)
Loss from asset impairment 4,125 -0-
Changes in assets and liabilities net of effect of
businesses sold and acquired:
Accounts receivable (1,113) 4,673
Inventories (109) 1,912
Prepaids and other assets (150) (188)
Accounts payable and accrued liabilities 555 (1,880)
Income taxes 1,438 (1,854)
Other liabilities (113) 60
------- -------
Net cash flows provided from operating activities 3,035 1,607
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (819) (913)
Net cash paid for acquisition of Control Systems, Inc. -0- (1,127)
Proceeds from asset sales 73 16
------- -------
Net cash used in investing activities (746) (2,024)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt -0- (254)
Change in short-term borrowings, net (168) (783)
Purchase of company common stock (6,042) (250)
Proceeds from exercise of stock options 823 116
------- -------
Net cash flows used in financing activities (5,387) (1,171)
Effect of exchange rate changes on cash and cash equivalents (266) (116)
------- -------
Net decrease in cash and cash equivalents (3,364) (1,704)
Cash and cash equivalents at beginning of year 12,203 14,572
------- -------
Cash and cash equivalents at end of period $ 8,839 $12,868
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 62 $ 41
Net (refunds) or payments of income taxes $(1,522) $ 231
</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 February 28,
1998 and May 31, 1997, and the results of its operations for the three
month and nine month periods ended February 28, 1998 and March 1, 1997.
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 February 28, 1998 and May 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
----------------- ------------
<S> <C> <C>
Raw materials $6,139 $6,701
Work in process 1,513 1,058
Finished goods 1,157 941
------ ------
Total inventories $8,809 $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 in 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 and nine month
7
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periods ended on February 28, 1998 and March 1, 1997. A Current Report on
Form 8-K was filed on July 1, 1996 reporting this transaction.
4. Restructuring Charges
During the third quarter of the current fiscal year, the Company approved a
restructuring plan which included the closure of the Rio Rancho, New Mexico
manufacturing and administrative facility of CSI. In addition, the Company
reduced its workforce by 35 employees at its Yorba Linda manufacturing
facility because of a downturn in the semiconductor equipment market.
Operations and administrative functions of the Rio Rancho facility were
transferred to the Chandler, Arizona facility and the Yorba Linda,
California corporate office, respectively. The intent of the restructuring
was to reduce the manufacturing costs of producing high purity gas systems,
limit product offerings, and to improve efficiency by centralizing certain
administrative and marketing functions.
The categories of costs included in the restructuring charge are as
follows:
<TABLE>
<S> <C>
Severance and other employee related costs $ 288,000
Facility closure costs 136,000
Impairment of goodwill 4,125,000
Fixed asset disposition and write-off 382,000
Total restructuring costs $4,931,000
</TABLE>
47 employees were terminated as a result of the restructuring, including
two executives of the Company, resulting in a charge of $288,000 of which
$54,000 has been paid and $234,000 is recorded as a current liability.
The Rio Rancho facility is no longer utilized, except for three (3)
engineering employees and a sales representative who temporarily remain at
the facility. Costs to close the facility and remove the leasehold
improvements have been accrued in the amount of $136,000. The Company is
looking for a tenant to sublease the building, or to negotiate the
termination of the lease.
Due to the decline in expected sales volume of high purity gas systems and
the decision to curtail product offerings, management has determined, in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived to
Be Disposed of" ("SFAS121"), that an asset impairment exists. Management
has determined that future undiscounted cash flows from this business will
not equal the value of the related goodwill over its remaining life of
approximately 10 years. It has been determined that the value of the high
purity gas system business is not in excess of the value of the associated
tangible assets based on the past and anticipated performance of the
business. Therefore, the Company deems that the high purity gas system
related goodwill, with a remaining unamortized carrying value of
$4,125,000, is fully impaired and has written off the entire carrying
amount of such goodwill. No tax deduction is allowed for this charge.
8
<PAGE>
The fixed assets of the Rio Rancho facility that are useable were relocated
to Yorba Linda or Chandler. The fixed assets that are not useable or
removable have been written off in the amount of $382,000.
During the first and second quarters of the prior fiscal year, the Company
reduced its workforce by 109 and 22 positions, respectively, 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 and $296,000 was recorded in the second quarter for costs
associated with the consolidation of certain facilities and for additional
severance related expenses.
5. Significant Events
On January 2, 1998 the Company entered into a Stock Repurchase Agreement
with James C. Levinson and Marilyn G. Levinson ("the Levinsons"), as
individuals and as general partners of the J & L Levinson Partnership, to
purchase 368,475 shares of the Company's common stock at a purchase
price of $12.25 per share, and to purchase 18,868 common stock options held
by the Levinsons for an aggregate purchase price of $54,479. In addition,
the Company entered into a similar agreement with various family members of
the Levinson's to purchase approximately 44,000 shares at a purchase price
of $12.25. The combined stock repurchase of approximately 412,000 shares
represents 9.2% of the outstanding stock of the Company. The stock
repurchases provided by these agreements were substantially completed on
January 2, 1998. The Company used available cash resources of
approximately $5.1 million to complete this transaction.
Pursuant to the Stock Purchase Agreement dated January 2, 1998, James C.
Levinson resigned from the Company' Board of Directors effective January
2, 1998.
9
<PAGE>
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 FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED MARCH 1,
1997
Net sales for the third fiscal quarter ended February 28, 1998 increased 38% to
$13,294,000 from $9,624,000 for the comparable prior year period. Mass flow
controller ("MFC") shipments from the U.S. were up 59% over the prior year
period, while sales from the Company's facilities in Ireland, Japan and Korea
were up 45%. High purity gas system sales were unchanged for the comparative
period. The overall increase in sales was due to higher unit volumes and higher
average selling prices. During the third quarter of the prior fiscal year, the
Company's sales were starting a gradual recovery from an industry-wide decline
in semiconductor equipment orders. This trend continued through the Company's
second quarter of the current fiscal year. In the third fiscal quarter of the
current year, order rates started to decline in the first part of quarter and
this trend accelerated throughout the balance of the quarter. Therefore, while
sales for the current period are substantially higher than the prior year's
period, the trends in both periods were exactly opposite. Without a significant
change in the trend of orders during the fourth fiscal quarter of 1998, sales
will be lower in the fourth quarter compared to the comparative period in fiscal
1997. The current softness in orders for MFC's appears to be directly related
to an overall downturn in the semiconductor equipment market.
Gross profit margin increased to $3,507,000, or 26% of sales for the current
quarter, from $2,125,000, or 22% of sales, for the third quarter of last fiscal
year. The higher sales achieved for the current period allowed improved
utilization of manufacturing facilities, which reduced overhead costs as a
percentage of sales. Also, direct labor productivity increased because of a
more favorable product mix, higher operating activity levels, and cost reduction
programs. These reductions in cost were partially offset by higher material
cost, as a percent of sales, attributable to increases in inventory reserves of
obsolete components related to discontinued MFC models and obsolete high purity
gas system components.
Selling, general and administrative ("SG&A") expenses increased to $3,371,000
for the current quarter from $2,742,000 for the third quarter of the prior
fiscal year. As a percentage of sales, SG&A declined to 25% from 29% in the
third quarter of last fiscal year. SG&A expenses increased because of the
higher sales levels for the current period, in addition to expenses for employee
separation, recruitment and relocation charges, bad debt expense and legal fees.
During the third quarter of the current fiscal year, the Company approved a
restructuring plan which included the closure of the Rio Rancho, New Mexico
manufacturing and administrative facility. Operations and administrative
functions of the Rio Rancho facility have been transferred to the Chandler,
Arizona facility and the Yorba Linda, California corporate office, respectively.
The intent of the restructuring was to reduce the manufacturing costs of
producing high purity gas systems and to
10
<PAGE>
improve efficiency by centralizing certain administrative and marketing
functions. The restructuring plan also incorporated a reduction in product
offerings and a corresponding decrease in engineering and new product
development activities.
The categories of costs included in the restructuring charge are as follows:
<TABLE>
<S> <C>
Severance and other employee related costs $ 288,000
Facility closure costs 136,000
Impairment of goodwill 4,125,000
Fixed asset disposition and write-off 382,000
Total restructuring costs $4,931,000
</TABLE>
47 employees were terminated as a result of the restructuring, including two
executives of the Company, resulting in a charge of $288,000 of which $54,000
has been paid and $234,000 is recorded as a current liability.
The Rio Rancho facility is no longer utilized, except for a few engineering
employees and a sales representative who temporarily remain at the facility.
Costs to close the facility and remove the leasehold improvements have been
accrued in the amount of $136,000. The Company is looking for a tenant to
sublease the building, or to negotiate the termination of the lease.
Due to the decline in expected sales volume of high purity gas systems and a
curtailment of product offerings, management has determined, in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived to Be Disposed of"
("SFAS121"), that an asset impairment exists. Management has determined that
future undiscounted cash flows from the high purity gas system business will not
equal the carrying value of the related goodwill over its remaining life of
approximately 10 years. It has been determined that the value of the high
purity gas system business is not in excess of the carrying value of the
associated tangible assets based on the past and anticipated performance of the
business. Therefore, the Company has determined that the high purity gas system
related goodwill, with a remaining unamortized carrying value of $4,125,000, is
fully impaired and has written off the entire carrying amount of such goodwill.
No tax deduction is allowable for the write-off of goodwill.
The fixed assets of the Rio Rancho facility that are useable were relocated to
Yorba Linda or Chandler. The fixed assets that are not useable or removable
have been written off in the amount of $382,000.
Research, development and engineering ("RD&E") expenses increased 36% to
$1,173,000 in the current quarter from $862,000 in the third quarter of the
prior fiscal year. RD&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.
Interest income decreased 16% to $184,000 in the current quarter from $219,000
in the prior year quarter due to lower cash balances, which mainly resulted from
the purchase of Company stock from a former director.
11
<PAGE>
Loss before income tax for the current quarter was $5,776,000, compared to loss
before income tax of $1,323,000 for the prior year period. An income tax
benefit of $700,000 was provided for the current quarter, compared to an income
tax benefit of $423,000 for the comparable prior year period. The rate of tax
benefit is 12% for the current period, as compared to the prior year tax benefit
rate of 32%. The reduction in tax benefit rate is mainly due to the non-
deductibility of the goodwill asset impairment loss recorded during the current
period.
Net loss for the current period is $5,076,000, or $1.21 per share, compared to a
net loss of $900,000, or $0.21 per share, for the prior year period.
The Company sells directly to Pacific Rim customers and sells indirectly to
Pacific Rim customers through semiconductor equipment manufacturers. The
Company has experienced a reduction in orders since December, 1997. This
reduction may be partially due to the economic difficulties in that region, but
it is not known to what extent such difficulties have contributed to the
reduction in orders, if any. The Company is not able to predict the extent of
this downturn, either in terms of severity or length of time that it will exist.
The Company has entered into a supply agreement with the owner of a
semiconductor fabrication facility ("End User") that provides for Unit to be the
exclusive supplier of MFC's during build-out of Phase I. As part of this
agreement, Unit has warranted its MFC's for a ten (10) year period. Unit's
standard warranty period for metal seal MFC's is three (3) years, and the
Company has no experience with what incremental costs could be for this extended
warranty period. The Company has established a warranty reserve for this
extended warranty period based on mean time between failure data that it
believes to be the most appropriate criteria for estimating this future
liability. As such, the Company does not believe this to be a material
liability, but there can be no assurances that its methodology for the
establishment of the warranty reserve will be adequate during the extended
warranty period.
The Company installed a new enterprise resources planning system during fiscal
1997 that integrates the Company's manufacturing, marketing and accounting
systems. The Company believes it is in compliance with the year 2000
requirements.
NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO NINE MONTHS ENDED
MARCH 1, 1997
Sales for the nine-month period ended February 28, 1998 increased 38% to
$42,815,000 from $30,914,000 for the comparable prior year period. This sales
increase is primarily due to the semiconductor equipment market recovery from
the industry downturn that started in mid-1996. Sales of MFC's were up 42%,
while sales from the Company's facilities in Ireland, Japan and Korea were up
37%. High purity gas system sales were up 76% for the comparative period. The
increase in MFC sales resulted from higher unit volumes and higher average
selling prices. In June 1996, the start of the Company's 1997 fiscal year,
incoming order rates started to decline and this trend continued until the end
of the second fiscal quarter and then trended up during the third quarter of
fiscal 1997. During the current fiscal year, order rates were stable during the
first and second fiscal quarters, but then declined rapidly during the third
fiscal quarter. The Company's order pattern during fiscal 1997 and fiscal 1998
closely matched activity levels in the semiconductor equipment market during
those same periods. Sales of high purity gas systems have declined each quarter
of the current fiscal year because of lower orders from a major customer for
manifolds and lower overall industry demand.
12
<PAGE>
Gross profit for the current period increased to $13,199,000, or 31% of sales,
as compared to $7,118,000, or 23% of sales, for the comparable period last year.
This improvement in gross profit margins is attributable to significantly
higher sales, improved direct labor productivity, cost reduction programs and
higher facility utilization. Partially offsetting these lower cost of sales, as
a percent of sales, is higher material costs because of product mix and certain
inventory reserves for model discontinuance and obsolete components.
SG&A expenses increased to $9,511,000, or 22% of sales, in the current period
from $9,106,000, or 30% of sales, in the prior year period. SG&A expenses
decreased, as a percent of sales, because of higher sales volume and generally
tight control over discretionary expenses.
During the third quarter of the current fiscal year, the Company approved a
restructuring plan which included the closure of the Rio Rancho, New Mexico
manufacturing and administrative facility. Operations and administrative
functions of the Rio Rancho facility have been transferred to the Chandler,
Arizona facility and the Yorba Linda, California corporate office, respectively.
The intent of the restructuring was to reduce the manufacturing costs of
producing high purity gas systems and to improve efficiency by centralizing
certain administrative and marketing functions. The restructuring plan also
incorporated a reduction in product offerings and a corresponding decrease in
engineering and new product development activities.
The categories of costs included in the restructuring charge are as follows:
<TABLE>
<S> <C>
Severance and other employee related costs $ 288,000
Facility closure costs 136,000
Impairment of goodwill 4,125,000
Fixed asset disposition and write-off 382,000
Total restructuring costs $4,931,000
</TABLE>
A restructuring charge of $558,000 was recorded in the prior fiscal year for
severance related expenses and costs associated with the consolidation of a
service center facility.
The Company's research, development and engineering expense increased 14% to
$3,498,000 in the current nine-month period from $3,064,000 in the prior year
period. This increase reflects continued new product development programs, in
conjunction with performance enhancements for current products. The Company's
Z-Bloc(TM) modular gas delivery development program is part of the product
development effort. The Company believes the continued development of new
products, and product enhancements, is essential to maintaining and improving
its competitive position within the semiconductor equipment market.
Interest income decreased moderately to $603,000 in the current period from
$629,000 in the prior year period due to lower average cash balances. Interest
expense was basically unchanged.
Loss before income tax for the current period was $4,238,000, compared to loss
before income tax of $5,082,000 for the prior year period. An income tax
benefit of $85,000 was provided for the current nine month period, compared to
an income tax benefit of $1,626,000 for the comparable prior year period. The
rate of tax benefit is 2% for the current period, as compared to the prior year
tax benefit
13
<PAGE>
rate of 32%. The reduction in tax benefit rate is mainly due to the non-
deductibility of the goodwill asset impairment loss recorded during the third
fiscal quarter of the current year.
Net loss for the current period is $4,153,000, or $0.95 per share, compared to a
net loss of $3,456,000, or $0.79 per share, for the prior year period.
FINANCIAL CONDITION
Cash flow for the nine-month period ending February 28, 1998 provided by
operations was $3,035,000. Net loss, plus non-cash charges of depreciation,
amortization, asset write-off and impairment, provided cash of $2,527,000.
Income taxes, net of accruals and refunds, provided $1,438,000 of cash flow,
primarily from refunds received from carrying back the fiscal 1996 loss.
Accounts receivable used $1,113,000, primarily because of higher balances caused
by increased sales volume. Inventory turns for the current nine-month period
improved to 4.5 from 3.8 in the prior comparable period, due to higher sales and
reduced inventory balances.
Capital expenditures used $819,000 of cash with approximately $500,000 of this
amount for the new service center in Richmond, Virginia. The exercise of stock
options provided cash flow of $823,000 for the current period. The exercise of
these options was primarily related to expiration of the subject options and, as
such, the Company does not anticipate that this level of option exercise will
continue for the balance of the fiscal year. $6,042,000 cash was utilized to
buy-back Company stock. The majority of such stock was purchased during the
third quarter from a former director of the Company. Net cash used by all the
Company's activities for the current nine-month period was $3,364,000.
As of February 28, 1998, cash and equivalents were $8,839,000, as compared to
$12,203,00 at May 31, 1997. The significant cause of the reduction in cash
balances was the purchase of Company stock. The Company expects that its cash
resources will be adequate to fund its anticipated near-term capital
requirements.
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, 1999. 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
February 28, 1998, there were no amounts borrowed under this agreement. A
$1,900,000 standby letter of credit was issued to support a loan from a Japanese
bank, with a balance of $1,561,000 at February 28, 1998, 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 will not
be in compliance as a result of the third quarter net loss. The Company
anticipates receiving a waiver of the financial covenants with which it will not
be in compliance as a result of the third quarter loss. However, there can be
no assurance that the bank will waive compliance and, in this event, the Company
would be obligated to repay the borrowing from the Japanese bank in the amount
of approximately $1,600,000. The Company has classified this amount as a
current liability and believes that it has adequate cash resources if it were
required to repay such amount.
14
<PAGE>
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 dependence on a few large customers, the Company's
dependence on the semiconductor market, which is subject to cyclicality and
periodic fluctuations in demand, current economic and financial conditions in
Asia and, in particular, Korea, the magnitude and duration of the current
industry downturn, the successful development and industry acceptance of new
products, failure to gain MFC market share, 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, expenses for
extended product warranties, industry consolidation, 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.
15
<PAGE>
PART II. OTHER INFORMATION
Item 5. Significant Events.
(a) On January 2, 1998 the Company entered into a Stock Repurchase
Agreement with James C. Levinson and Marilyn G. Levinson ("the
Levinsons"), as individuals and as general partners of the J & L
Levinson Partnership, to purchase 368,475 shares of the Company's
common stock at a purchase price of $12.25 per share, and to purchase
18,868 common stock options held by the Levinsons for an aggregate
purchase price of $54,479. In addition, the Company entered into a
similar agreement with various family members of the Levinsons to
purchase approximately 44,000 shares at a purchase price of $12.25.
The combined stock repurchase of approximately 412,000 shares
represents 9.2% of the outstanding stock of the Company. The stock
repurchases provided by these agreements were substantially completed
on January 2, 1998. The Company used available cash resources of
approximately $5.1 million to complete this transaction.
(b) Pursuant to the Stock Purchase Agreement dated January 2, 1998, James
C. Levinson resigned from the Company's Board of Directors effective
January 2, 1998 .
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 - Computation of Earnings per Share
27 - Financial Data Schedule (for electronic filing only)
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed for the quarter ended
February 28, 1998
16
<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: April 9, 1998 /S/ Michael J. Doyle
--------------------
Michael J. Doyle, President
and Chief Executive Officer
Date: April 9, 1998 /S/ Gary N. Patten
------------------
Gary N. Patten
Chief Financial Officer
17
<PAGE>
EXHIBIT 11.1
UNIT INSTRUMENTS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
02/28/98 03/01/97 02/28/98 03/01/97
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET LOSS APPLICABLE TO
COMMON STOCK HOLDERS $(5,076,000) $ (900,000) $(4,153,000) $(3,456,000)
============ =========== ============ ============
BASIC EARNINGS PER SHARE
- ------------------------
Weighted average number
of shares outstanding 4,192,334 4,370,325 4,394,334 4,375,794
Net loss per share $ (1.21) $ (0.21) $ (0.95) $ (0.79)
------------ ----------- ------------ ------------
EARNINGS PER SHARE ASSUMING FULL DILUTION
- -----------------------------------------
Weighted average number
of shares outstanding 4,192,334 4,370,325 4,394,334 4,375,794
Common share equivalents, assuming
exercise of stock options
and warrants -0- -0- -0- -0-
------------------ ------------------ ------------------ ------------------
Average shares used in computing
earnings per share 4,192,334 4,370,325 4,394,334 4,375,794
============ =========== ============ ============
Net loss per share $ (1.21) $ (0.21) $ (0.95) $ (0.79)
============ =========== ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 8,839
<SECURITIES> 0
<RECEIVABLES> 8,145
<ALLOWANCES> 0
<INVENTORY> 8,809
<CURRENT-ASSETS> 27,620
<PP&E> 19,024
<DEPRECIATION> 10,266
<TOTAL-ASSETS> 41,600
<CURRENT-LIABILITIES> 7,804
<BONDS> 0
0
0
<COMMON> 599
<OTHER-SE> 33,178
<TOTAL-LIABILITY-AND-EQUITY> 41,600
<SALES> 13,294
<TOTAL-REVENUES> 42,815
<CGS> 29,616
<TOTAL-COSTS> 47,556
<OTHER-EXPENSES> 58
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> (4,238)
<INCOME-TAX> (85)
<INCOME-CONTINUING> (4,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,153)
<EPS-PRIMARY> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
