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 JANUARY 31, 1995
[ ] 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 0-2537
OPTICAL COATING LABORATORY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
68-0164244
(I.R.S. Employer Identification No.)
2789 NORTHPOINT PARKWAY, SANTA ROSA, CA 95407-7397
(Address of principal executive offices)
(707) 545-6440
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Classes of Common Stock
COMMON STOCK, $.01 PAR VALUE
Outstanding at February 28, 1995: 9,013,793 Shares
This document contains 16 pages.
The Exhibit listing appears on Page 14.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
January 31, October 31,
1995 1994
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and short-term investments $16,452 $19,663
Accounts receivable, net of
allowance for doubtful
accounts of $1,767 and $1,810 24,767 22,007
Inventories 12,187 10,559
Deferred income tax assets 4,946 4,235
Other current assets 2,464 1,246
------ ------
Total Current Assets 60,816 57,710
Other Assets and Investments 9,054 9,159
Property, Plant and Equipment:
Land and improvements 8,619 8,623
Buildings and improvements 27,628 27,495
Machinery and equipment 80,724 80,206
Construction-in-progress 5,507 3,083
________ ________
122,478 119,407
Less accumulated depreciation (68,916) (67,397)
Property, Plant and ________ ________
Equipment - Net 53,562 52,010
________ ________
$123,432 $118,879
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $6,503 $ 6,197
Accrued expenses 9,253 8,423
Accrued compensation expenses 5,398 4,785
Income taxes payable 3,019 1,671
Current maturities on long-term debt 6,947 6,878
Notes payable 613 428
Deferred revenue 844 636
------ ------
Total Current Liabilities 32,577 29,018
Accrued postretirement health benefits
and pension liabilities 1,907 1,877
Deferred income tax liabilities 853 506
Long-term debt 34,955 35,441
Stockholders' Equity:
Common stock, $.01 par value;
authorized 30,000,000
shares; issued and
outstanding 8,978,000
and 8,973,000 shares 90 90
Paid-in capital 39,969 39,967
Retained earnings 13,340 12,055
Cumulative foreign currency
translation adjustment (259) (75)
------ -------
Total Stockholders' Equity 53,140 52,037
$123,432 $118,879
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended January 31, 1995 and 1994
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
January 31,
1995 1994
<S> <C> <C>
Net sales and other revenues $35,993 $30,091
Costs and expenses:
Cost of sales 21,352 19,017
Research and development 1,387 1,111
Selling and administrative 9,244 7,208
Amortization of intangibles 171 166
------ ------
Total costs and expenses 32,154 27,502
------ ------
Earnings from operations 3,839 2,589
Other income (expense):
Interest income 226 9
Interest expense (920) (698)
------ -------
Earnings before income taxes 3,145 1,900
Income taxes 1,321 798
------ -------
Net earnings $1,824 $1,102
======= =======
Net earnings per common and common
equivalent share $ .20 $ .12
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three months ended January 31, 1995
(Amounts in thousands)
(Unaudited)
FOREIGN
COMMON STOCK PAID-IN RETAINED CURRENCY
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION
<S> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 1, 1994 8,978 $90 $39,967 $12,055 $(75)
Exercise of stock options,
including tax benefit 2
Foreign currency translation
adjustment for the period (184)
Net earnings for the period 1,824
Dividend on common stock (539)
_____ ___ _______ _______ _____
BALANCE AT JANUARY 31, 1995 8,978 $90 $39,969 $13,340 $(259)
===== === ======= ======= =====
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended January 31, 1995 and 1994
(Amounts in thousands)
(Unaudited)
Three Months Ended
January 31,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $37,258 $31,017
Interest received 297 5
Cash paid to suppliers and employees (35,037) (28,428)
Interest paid (1,270) (506)
Income taxes paid, net of refunds (369) 588
Net cash provided by operating activities 879 2,676
Cash Flows from Investing Activities:
Purchase of plant and equipment (3,301) (1,523)
Cash Flows used for Financing Activities:
Proceeds from notes payable 182 152
Proceeds from exercise of stock options 2 4
Repayment of long-term debt (404) (467)
Repayment of notes payable (17)
Payment of dividend on common stock (539) (538)
Net cash used for financing activities (759) (866)
Effect of exchange rate changes on cash (30) (27)
Net increase (decrease) in cash and
short-term investments (3,211) 260
Cash and short-term investments
at beginning of period 19,663 2,284
Cash and short-term investments
at end of period $ 16,452 $ 2,544
</TABLE>
<TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended January 31, 1995 and 1994
(Amounts in thousands)
(Unaudited)
Three Months Ended
January 31,
1995 1994
<S> <C> <C>
Reconciliation of net earnings to cash flows
from operating activities:
Net earnings $1,824 $1,102
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,821 1,720
Loss on disposal or abandonment of equipment 19 3
Accrued postretirement health benefits 27 (31)
Deferred income taxes 357 56
Other non-cash adjustments to net earnings (60) (39)
Change in:
Accounts receivable (2,953) 228
Inventories (1,689) (236)
Income tax receivable 1,345
Deferred income tax assets (711) (36)
Other current assets and
other assets and investments (1,328) (825)
Accounts payable, accrued
expenses and accrued compensation expenses 2,013 (381)
Deferred revenue 208 (209)
Income taxes payable 1,351 (21)
Total adjustments (945) 1,574
Net cash provided by operating activities $ 879 $ 2,676
</TABLE>
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended January 31, 1995 and 1994
(Unaudited)
1. GENERAL
The Consolidated Balance Sheet as of January 31, 1995, the Consolidated
Statements of Earnings for the three month periods ended January 31,
1995 and 1994, the Consolidated Statement of Stockholders' Equity for
the three month period ended January 31, 1995 and the Consolidated
Statements of Cash Flows for the three month periods ended January 31,
1995 and 1994 have been prepared by the Company without audit. In the
opinion of management, all adjustments consisting of normal recurring
accruals, necessary to present fairly the financial position, results of
operations and cash flows at January 31, 1995 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's Annual Report to Stockholders for fiscal 1994.
Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform with the presentation in the 1995 consolidated
financial statements.
The results of operations for the period ended January 31, 1995 are not
necessarily indicative of the operating results anticipated for the full
year.
2. INVENTORIES
Inventories consisted of the following:
January 31, October 31,
1995 1994
(Amounts in thousands)
Raw materials and supplies $ 4,940 $ 3,633
Work-in-process and finished goods 7,247 6,926
$12,187 $10,559
3. ACCRUED EXPENSES
Accrued expenses consisted of the following:
January 31, October 31,
1995 1994
(Amounts in thousands)
Workers' compensation reserve $ 1,619 $ 1,578
Ground water remediation reserve 1,193 1,197
Other accrued liabilities 6,441 5,648
$ 9,253 $ 8,423
4. LONG-TERM DEBT
Long-term debt consisted of:
January 31, October 31,
1995 1994
(Amounts in thousands)
Unsecured Senior Notes. Interest at
8.71% payable semi-annually. Principal
payable in annual installments of $3.6
million from 1998 through 2002. $18,000 $18,000
Unsecured bank term loan. Interest at
approximately 9.7% payable quarterly.
Principal payable in twelve equal quarterly
installments commencing October 31, 1994
and ending July 31, 1997. 5,500 5,500
Land improvement assessment, at an average
rate of 6.75% interest. Principal and
interest payable in semi-annual installments
of $77,000 through 1998. 459 517
Scottish Development Agency (SDA) building
loan, at 12%, with semi-annual payments of
approximately $357,000, each comprising
principal and interest through 2006.
Collateralized by the land and building of
the Company's Scottish subsidiary. 4,209 4,289
Notes payable to private parties in
connection with the purchase of MMG. Principal
and interest at 8% payable over ten years in
quarterly installments of approximately
$400,000 through 2003. 7,920 8,167
Bank loans of MMG with interest rates ranging
from 4.5% to 9.75%. Payable in annual and
semi-annual installments through 2014. Partly
collateralized by mortgages on MMG land and
buildings and liens on equipment. 5,157 5,133
Present value of obligations under capital
leases at an assumed interest rate of 7.5%
payable in monthly installments through 2004. 657 713
41,902 42,319
Less current maturities (6,947) (6,878)
$34,955 $35,441
The Company has a $10 million credit facility with a bank carrying a
commitment fee of 1/2% per annum. $5.5 million of the credit commitment
is allocated to a term loan and becomes available under the revolving
credit segment as the term loan is repaid on a quarterly basis over
three years. The facility expires on June 30, 1997. Additionally,
the credit facility covers a bank guarantee of approximately $4.0
million to secure 50% of the notes payable arising from the purchase
of MMG. This guarantee facility carries a fee of 1.25% per annum.
The Company's subsidiary in Scotland has a credit arrangement at market
interest rates of up to approximately $430,000 with interest payable at
market rates. There were no borrowings under this credit arrangement in
the first quarter 1995 or in 1994.
The Company has outstanding letters of credit in the amount of $1.9
million to meet the requirements under the Company's workers'
compensation self insurance plans, and the Company's subsidiary in
Scotland has outstanding letters of credit of approximately $370,000
to guarantee payment of import duty.
5. STOCK OPTIONS
During the first quarter of 1995, the Company granted options to
purchase 338,000 shares of the Company's common stock at a price equal
to 100% of the market price on the date of grant under the Company's
incentive compensation and employee stock option plans. At January 31,
1995, 1,680,737 shares are subject to outstanding options, of which
1,157,362 options are exercisable. Options to purchase 418,213 shares
of common stock are available for future grants under the plans.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF MATERIAL CHANGES IN RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales and other revenues for the first quarter of 1995 were $36.0 million,
up 20% over net sales and other revenues of $30.1 million for the first
quarter of 1994. The increase in net sales and other revenues for the first
quarter of 1995 over the comparative period of 1994 was primarily due to
increased demand for the Company's visual filters and instrument components,
for X-ray telescope work for NASA, and for fabricated glass components in
the U.S. and Europe. The Company's DirectCoatTM operation, a new capability
as compared to the first quarter of 1994, shipped at available capacity
during the first quarter of 1995.
During the first quarter of 1995, the Company estimates that it experienced a
price decline of approximately 5% in its OEM display product line. This price
decline was substantially offset by incremental volume in the product area.
The Company experienced no other significant price changes in other product
areas in the first quarter of 1995.
Cost of sales as a percent of sales was 59.3% for the first quarter of 1995
compared to 63.2% for the first quarter of 1994. The lower cost of sales
ratio in the first quarter of 1995 reflects the increased utilization of
existing capacity due to the higher level of sales during the period.
Research and development expenditures in the first quarter of 1995 were
3.9% of sales, compared to 3.7% for the first quarter of 1994; with the
level of expenditure increasing by $276,000, or 25%, in the current period
compared to the first quarter of 1994. This reflects management's objective
to maintain research and development expenditures at a relatively consistent
level as a percent of sales.
Selling and administrative expenses in the first quarter of 1995 were 25.7%
of sales, compared to 24.0% for the first quarter of 1994; with the level of
expenditure increasing by $2.0 million, or 28%, in the current period
compared to the first quarter of 1994. This increase primarily reflects
higher general and administrative expenses in the current period.
Interest income in the first quarter of 1995 increased $217,000 compared
to the first quarter of 1994, reflecting the higher short term investment
balances on hand in the current period. Interest expense for the first
quarter of 1995 increased $222,000, or 32%, compared to the first quarter
of 1994, reflecting the increase in the Company's long-term debt.
As a result of the foregoing, the Company reported earnings before income
taxes of $3.1 million in the first quarter of 1995 compared to $1.9 million
in the first quarter of 1994.
The effective income tax rate was 42% for the first quarter of 1995 and 1994.
The Company had net earnings of $1.8 million, or $.20 per share, for the
first quarter of 1995, compared to $1.1 million, or $.12 per share, for the
first quarter of 1994.
FINANCIAL CONDITION
During the first quarter ended January 31, 1995, the Company's operating
activities provided $879,000 in cash flow while $3.3 million was expended to
purchase plant and equipment. During the first quarter of 1995, working
capital, other than cash and temporary investments, increased by $2.8 million
primarily due to increases in accounts receivable and inventories associated
with higher sales. As a result of its operating activities and changes in
its working capital, the Company's cash and short term investment position
decreased by $3.2 million during the quarter.
During the first quarter of 1995, the Company announced that it had signed a
Letter of Intent to increase its equity position from 40% to 60% in Flex
Products, Inc. Flex Products is the exclusive supplier of Optically Variable
Pigment, produced by a proprietary and patent protected thin film
roll-coating process and used in approximately 30 countries for
anti-counterfeiting imprinting of currencies. The Company also completed
negotiations to acquire a precision plastic optics manufacturer to add this
capability to its overall product offerings. The Company is also adding
additional MetaMode(R) machine capacity to its Linear Polarizer and
DirectCoatTM operations and is upgrading its in-line MetaMACTM sputter
coater for increased capacity for front surface mirror products.
Relatedly, management has initiated discussions with its banks to increase
its bank borrowing and line of credit facilities to have available
incremental borrowing capacity to meet the cash flow requirements associated
with the Company's capital investment and selected acquisition programs.
The Company has also initiated the potential private placement, in an
amount of up to $10 million, of a new series of convertible redeemable
preferred stock.
Management believes that the cash on hand at January 31, 1995, cash
anticipated to be generated from future operations, borrowings available
from renegotiated bank loan and credit arrangements, and private placement
of preferred stock will be sufficient for the Company to meet its near-term
working capital needs, capital expenditures, above referenced acquisitions,
debt service requirements and payments of dividends as declared.
INDEPENDENT ACCOUNTANTS' REVIEW
The January 31,1995 consolidated financial statements included in this
filing on Form 10-Q have been reviewed by Deloitte & Touche LLP, independent
accountants, in accordance with established professional standards and
procedures for such a review.
The report of Deloitte & Touche LLP commenting on their review follows.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
and Stockholders of
Optical Coating Laboratory, Inc.
Santa Rosa, California
We have reviewed the accompanying condensed consolidated balance sheet
of Optical Coating Laboratory, Inc. and subsidiaries as of January 31, 1995
and the related condensed consolidated statements of earnings and cash
flows for the three-month periods ended January 31, 1995 and 1994 and the
related condensed consolidated statement of stockholders' equity for the
three-month period ended January 31, 1995. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institure of Certified Public Accountants. A review of interim
financial information consists of applying analytical review procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Optical Coating Laboratory,
Inc. and subsidiaries as of October 31, 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the year
then ended (not presented herein); and in our reported dated December 14,
1994, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of October 31, 1994 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/DELOITTE & TOUCHE LLP
San Francisco, California
February 15, 1995
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Page(s)
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following are filed as Exhibits to this
Quarterly Report. The numbers refer to the
Exhibit Table of Item 601 of Regulation S-K.
(2) None
(4) None
(11)* Computation of per share earnings
for the three months ended January 31,
1995 and 1994.
(15)* Letter of Deloitte & Touche regarding
unaudited interim financial information.
(18) None
(19)* Items not previously filed are designated
by an asterisk.
(22) None
(23) None
(24) None
(27) None
(b) Reports on Form 8-K filed for the three
months ended January 31, 1995.
None
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 and in the capacity indicated.
OPTICAL COATING LABORATORY, INC.
(Registrant)
March 16, 1995 /s/HERBERT M. DWIGHT, JR.
Date Herbert M. Dwight, Jr.
President and Chief Financial Officer
(Principal Financial Officer)
<TABLE>
EXHIBIT 11.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
January 31,
1995 1994
Primary Shares:
<S> <C> <C>
Average common shares outstanding 8,978 8,972
Common equivalent shares outstanding 47 47
9,025 9,019
Net earnings $ 1,824 $1,102
Net earnings per common and common
equivalent share, primary $ .20 $ .12
Fully Diluted Shares:
Average common shares outstanding 8,978 8,972
Common equivalent shares outstanding 117 97
9,095 9,069
Net earnings $ 1,824 $1,102
Net earnings per common and common
equivalent share, fully diluted $ .20 $ .12
Fully diluted earnings per share do not result in dilution of three
percent or more and are, therefore, not presented.
</TABLE>
EXHIBIT 15
To the Board of Directors and Stockholders
of Optical Coating Laboratory, Inc.
Santa Rosa, California
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of Optical Coating Laboratory, Inc. and subsidiaries for the
periods ended January 31, 1995 and 1994 as indicated in our report dated
February 15, 1995; because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended January 31, 1995, is
incorporated by reference in Registration Statements No. 33-41050, No.
33-26271, No. 33-12276, No. 33-48808 and No. 33-65132 on Forms S-8 and
Registration Statement No. 2-97482 on Form S-3.
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of
that Act.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 10, 1995
