UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Mark one
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended OCTOBERE31, 1994
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OPTICAL COATING LABORATORY, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 0-2537
DELAWARE 68-0164244
(State or other jurisdiction of (IRS Identification No.)
incorporation or organization)
2789 NORTHPOINT PARKWAY, SANTA ROSA CALIFORNIA 95407-7397
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (707) 545-6440
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value NASDAQ
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At December 31, 1994, the aggregate market value of the
registrant's common stock (based upon the closing price of these
shares on the NASDAQ National Market System) held by non-
affiliates, which excludes shares held by officers and directors
and the Employee Stock Ownership Plan of the registrant (not all
of whom claim to be affiliates), was approximately $53.4 million.
At December 31, 1994, there were 8,978,152 shares of the
registrant's common stock, $.01 par value, issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Optical Coating Laboratory, Inc.'s Annual Report to
Stockholders for the year ended October 31, 1994 are incorporated
by reference into Parts I, II and IV of this Form 10-K.
Portions of the definitive Proxy Statement for the Company's
Annual Meeting of Stockholders to be held March 30, 1995 are
incorporated by reference into Part III of this Form 10-K.
The Exhibit index appears on Pages 17-20.
OPTICAL COATING LABORATORY, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
PAGES
Item 1. Business 3-10
Item 2. Properties 10-11
Item 3. Legal Proceedings 11-12
Item 4. Submission of Matters to a Vote
of Security Holders 12
Executive Officers of the Registrant 12-14
PART II 14-15
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III 15
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) Index 17-20
(b) Reports on Form 8-K 20
(c) Financial Statement Schedules 21
(d) Exhibits 23-56
SIGNATURES 22
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
Optical Coating Laboratory, Inc., together with its consolidated
subsidiaries ("OCLI" or the "Company"), was originally
incorporated in Delaware in 1948. Subsequently, the Company was
reincorporated in California in 1963 and again reincorporated in
Delaware in 1987.
The Company is engaged primarily in the design, development,
manufacture and marketing of multi-layer optical thin film coated
products and, through its German subsidiary acquired in December
1992, fabricated glass products. Optical thin film coatings
control and enhance light energy by altering the transmission,
reflection and absorption of the various wavelengths of light to
achieve a desired optical effect. The Company's products are used
principally as components in products and systems manufactured by
original equipment manufacturers (OEMs) and defense/aerospace
contractors. The Company also manufactures and sells as a
finished product Glare/Guard(R) anti-glare and anti-static
filters for computer display terminals. The Company believes that
it is the world's leading independent manufacturer of optical
thin film coated products.
The Company's initial growth came from the development of high
precision coated products for use primarily in defense and
aerospace applications and in sophisticated analytical equipment.
These types of coated products are produced by relatively costly
batch processes and continue to represent a portion of the
Company's revenues. From this base, the Company has expanded
into commercial markets by designing and fabricating continuous
coating equipment capable of producing a high volume of
relatively less complex products at lower unit costs. This
equipment has enabled the Company to serve large scale commercial
markets with many of its products.
The Company has manufacturing facilities in Santa Rosa,
California, Hillend, Scotland and Goslar, Germany. The Company
has developed many of its thin film coating processes and has
designed and fabricated most of the coating equipment used to
produce its products. The Company believes its ability to design
and build this specialized equipment has been an important factor
in enabling it to compete successfully. Consequently, OCLI
maintains an extensive array of thin film coating equipment,
glass fabrication equipment and metrology equipment to meet
customer requirements for coated products and fabricated glass
components.
The Company has established strong, long-term customer
relationships and serves a wide range of markets, including
leading manufacturers of computers, photographic equipment,
copier products, medical instrumentation, home entertainment
products, and space and defense products.
SANTA ROSA OPERATIONS
The Company's corporate headquarters and its Santa Rosa and
Glare/Guard(R) Divisions are located in Santa Rosa, California.
The Santa Rosa Division manufactures a wide array of generally
high volume thin film coated products for application in
commercial markets. These products are manufactured in high
volume, single chamber coaters and in the Company's proprietary
multi-chamber, multi-layer automatic coater (MAC). The division
is a major supplier of coated front surface mirrors (FSM) for
applications in copier and projection television optics systems.
This division also supplies optical coatings for computer
displays to OEM's and coated products for CRT and flat panel
displays, photographic and scanning systems applications and
specialty products for medical, scientific and analytical
instruments and lighting applications.
The Santa Rosa Division also manufactures sophisticated, high
precision coated products and optical components that are
designed to meet the specific performance standards required for
advanced scientific, space and defense systems. In this area, the
division has unique thin film engineering and precision
manufacturing capabilities to supply highly specialized, advanced
optical coated products. The division has supplied coated solar
cell covers for the solar power modules of all US space missions
and many types of coated infrared optics used in space satellites
and weapons guidance systems.
The Company's Glare/Guard(R) Division produces ergonomic
enhancement products sold in the computer end-user market.
Glare/Guard(R) filters provide viewing comfort and health and
safety protection for computer users by improving the visibility
of the information displayed on computer display monitors.
Several models are also capable of minimizing electrical field
radiation and static charge buildup of display devices. These
products are generally sold through distributors, computer
accessory dealers and computer supply catalogs.
EUROPEAN OPERATIONS
The Company's operations in Hillend, Scotland, consist of a fully
integrated coating facility and Glare/Guard(R) assembly
operation. The Hillend operation has independent thin film
coating technology and, in several areas, is pursuing research
and development independent of the parent company's technical
programs.
The Company's subsidiary in Goslar, Germany, acquired December
31, 1992, is a fully integrated glass fabrication operation with
capability for sawing, machining, heat treating, chemical
treating and etching of glass products to its customers'
requirements. This operation, for example, supplies fabricated
glass elements for use as components in copiers, cameras and
other electro-optical devices and instruments.
The manufacturing facilities and equipment of the Company's
Scottish and German operations are modern and up-to-date, and the
technology of the subsidiaries has been independently established
over many years.
The Company has subsidiaries in Reinheim, Germany, Paris, France,
Milan, Italy, and Madrid, Spain, primarily for distribution of
its products in Europe. The headquarters for the Company's sales
force in Europe is located in Reinheim, Germany.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used by the Company in its coating
operations are various forms of glass, germanium, fused silica
and several types of plastic and inorganic coating materials,
such as magnesium fluoride, silicon dioxide, aluminum or
germanium. The Company has more than one supplier for each of
its raw materials and maintains adequate inventories and close
working relationships with its suppliers to assure a continuous
and adequate supply for production. The Company purchases special
grade flat glass under long-term allocation arrangements from one
major US glass supplier and cannot routinely increase its supply
of such special grade flat glass. The Company has not
experienced any significant interruptions in production due to a
shortage of raw material. Substrate materials are purchased by
the Company or supplied by customers, while coating materials and
their composition are generally supplied by the Company, as they
are often considered a proprietary element of the manufacturing
process.
RESEARCH AND DEVELOPMENT
The Company has devoted significant resources over time to the
research and development of improved thin film products,
processes and manufacturing equipment. As a result of these
investments, the Company has been recognized as a leader in the
development of many advanced thin film coating technologies. In
certain cases, when particularly suited to customer mass
production applications, the Company licenses these coating
technologies to other companies for integrated mass production
applications that the Company otherwise would not serve as part
of its normal business. In conjunction with these licensing
arrangements, the Company sometimes builds coating equipment.
The Company's most significant research and development effort
over the past several years has been focused on metal mode
reactive sputtering, which has been patented as MetaMode(R).
Using its patented MetaMode(R) technology, the Company has
developed a new process named DirectCoatTM. The DirectCoatTM
process was developed at the request of one of the Company's long-
time customers who desired a more cost effective method of
coating CRTs than the Company's existing coating process which
required that the glass panels be shipped to the Company for
coating, then be returned to the customer to be bonded to the
CRTs. In 1993, the Company signed a multi-year licensing
agreement with this customer for the DirectCoatTM process and
MetaMode(R) technology. The DirectCoatTM process has enabled the
customer to integrate this highly reliable, fully automated
process directly into its manufacturing line, allowing the
customer to achieve a flexible, nearly zero lead time capability.
The Company has also established a DirectCoatTM pilot line at its
Santa Rosa facility and has made a general announcement regarding
its DirectCoatTM capability, making this technology available to
other CRT manufacturers.
Over the last several years, the Company has also been in the
process of developing solid state (as compared to liquid based)
electrochromic products utilizing thin film coating technology.
Electrochromic devices allow for variations in the transmission
or reflectance of light through or off an optical component
depending on the voltage applied to the device. The initial
development effort was to produce an electrochromic truck mirror
in conjuntion with Donnelly Corporation under a joint venture
agreement. This effort reached the prototype production stage
but was abandoned in favor of each company pursuing its own
independent electrochromic development program. The Company has
continued its efforts to develop electrochromic coatings for
various specific market and product applications.
Other areas receiving significant R&D focus include the
development of techniques to improve coating uniformity on
plastic substrates for flat panel display applications; the
automation of the Company's coating equipment to improve product
quality and increase equipment productivity; the development of
new and improved product configurations for the Glare/Guard(R)
market, and to eliminate coating and cleaning materials that are
potentially harmful to the environment.
Company funded research and development expenditures totaled $5.2
million, $5.9 million, and $8.2 million, or 4.0%, 4.8%, and
7.1% of revenues during fiscal years 1994, 1993, and 1992.
Additionally, a significant portion of the Company's customer
contracts are for state-of-the-art coating applications entailing
substantial development efforts. Such customer related
developments contribute to the broad technology base of the
Company.
MARKETING
The Company's coated products are sold by its sales engineering
teams headquartered in Santa Rosa, California and Reinheim,
Germany, who communicate directly with customers' engineering,
manufacturing and purchasing personnel in determining the design,
performance and cost specifications for customer product
requirements. The Company also has regional sales offices in
several major cities throughout the United States and in Germany,
France, Italy, Spain and the United Kingdom. In Japan and other
Asian countries, the Company uses independent distributors and
sales representatives for product marketing and sales.
With the exception of its Glare/Guard(R) product line, the
Company markets most of its standard high volume coated products
and fabricated glass components to original equipment
manufacturers (OEMs). Its customized, technically sophisticated
products are also marketed to original equipment manufacturers in
addition to defense and aerospace contractors. In the export
market, the Company markets some of its products to major
distributors who perform product conversion and other value-added
process steps before resale.
The Company's Glare/Guard(R) product line is marketed through
distributors and dealers directly to end users.
The Company's ten largest customers accounted for 30% of its
sales in 1994 and its largest customer accounted for 7%, 7%, and
6% of its sales in fiscal years 1994, 1993, and 1992. Because
relatively few customers account for a substantial portion of the
Company's sales, the loss of their business could have a material
adverse effect on the Company's operating results. However, the
Company believes that it has the resources and capabilities to
replace any lost business over time through the development of
new products and new applications for its products.
Foreign sales, primarily in Europe and Asia, represented 45%, 41%
and 35% of net sales and other revenues for fiscal years 1994,
1993 and 1992. Sales by the Company's wholly-owned subsidiary in
Scotland represented 16%, 18% and 21% of net sales and other
revenues for fiscal years 1994, 1993 and 1992. Sales by the
Company's wholly-owned subsidiary in Germany represented 15% and
11% of net sales and other revenues for fiscal years 1994 and
1993. Sales by these subsidiaries are primarily to customers in
European countries.
Export sales by US operations to Asian countries represented 11%,
9% and 8% and to European countries 3%, 2% and 6% of net sales
and other revenues for fiscal years 1994, 1993 and 1992. Such
export sales could be adversely affected by significant adverse
currency alignments. However, since such sales are generally to
customers in major US trading partner countries, the risk of
sudden adverse currency realignments affecting such export sales
is considered low. Furthermore, a major portion of such sales
are to long-standing customers of the Company who have
participated in the development of product specifications and
standards for their use and who are, therefore, not relying on
competitive pricing alone in their decision to buy from the
Company. Accordingly, the Company considers its export sales
portfolio well balanced and with little risk of substantial
overall loss.
Sales of products to the federal government, primarily under
subcontracts, accounted for 11%, 7% and 8% of sales for the
fiscal years 1994, 1993 and 1992. The Company's cost-plus-fixed
fee (CPFF) government contracts for the years 1982 through 1994
are subject to pending governmental audit review. Such audit
entails, primarily, a review of costs and expenses charged to
government contracts with the focus on potential adjustments to
general and administrative expense allocation to such contracts.
For the period 1982 to 1994, general and administrative expenses
allocated to government CPFF contracts have averaged
approximately $930,000 per year, and for the most recent three
years, such general and administrative expense allocations were
$1,640,000 for 1994, $500,000 for 1993 and $220,000 for 1992.
The Company has established a reserve for anticipated adjustments
and disallowances that may result from such government audit
reviews and does not expect any adjustments or disallowances to
exceed amounts already reserved.
SEASONALITY
The Company's business is not seasonal in any material sense.
However, the Company customarily shuts down a major portion of
its operations between Christmas and New Year's Day. As a
result, during the last five fiscal years, normally scheduled
work days for the first fiscal quarter have averaged 56 compared
to an average of 64 for the other three fiscal quarters.
Nonetheless, the Company generally has sufficient manufacturing
capacity and the ability to schedule additional production shifts
to meet its customers' shipment requirements in any period of the
year. The Company further believes that its revenues and costs
are consistently matched in each fiscal quarter since labor costs
during the holiday shutdown period are generally charged to
vacation and holiday labor expense categories which are accounted
for on a pro rata basis over the fiscal year.
The Company's European subsidiaries customarily shut down their
operations for a two-week summer vacation. The summer shutdown
has historically reduced the Company's fiscal fourth quarter
sales in Europe as compared to sales of the other three fiscal
quarters. In 1994 and prior years, the decline in sales during
the summer in Europe has not been significant to the consolidated
operations of the Company. Such seasonality, however, could
become significant in future periods depending upon the overall
significance of European sales to total Company sales.
BACKLOG
The Company's backlog of orders at the end of each of the last
three fiscal years was as follows:
OCTOBER 31,
1994 1993 1992
(In Millions)
$35.0 $30.7 $29.3
Backlog includes $4.7 million and $3.4 million for 1994 and 1993
for the Company's operation in Goslar, Germany which was acquired
during fiscal 1993. There was no backlog included in 1992 for
this operation.
Substantially all orders in backlog at October 31, 1994 are
scheduled for shipment during 1995. The amount of backlog at
October 31, 1994 represents only a portion of anticipated sales
in 1995, with new orders historically comprising the major
portion of sales in a fiscal year.
Backlog consists of new orders on which shipments have not yet
started or unfilled portions of orders which are only partly
completed. Some of these orders are completed within several
days of receipt, while others are not completed for a number of
months. Substantially all orders included in backlog are subject
to cancellation without penalty; however, the Company generally
has not experienced significant order cancellations.
Contractually specified delivery dates on orders sometimes are
adjusted at the request of either the customer or the Company.
COMPETITION
The Company believes that it is the world's leading independent
manufacturer of multilayer optical thin film coated products,
although it is not aware of any publicly available market studies
indicating its market share position. Its competitors include
several private companies whose sales of coated products are
believed to be considerably less than the Company's, as well as
coating operations that comprise only a portion of the total
business of other companies. The Company's glass fabrication
operation in Germany also has local and foreign competitors.
In its commercial and technical markets, the Company competes
primarily on the basis of the advanced technical characteristics
and quality of its coated products, ability to meet individual
customer specifications and dependability and capability as a
supplier, the quality of technical assistance furnished to
customers and product price.
In its Glare/Guard(R) anti-reflective optical filters market, the
Company competes primarily on the basis of price, design,
performance features and product distribution as well as the
dependability and capability of the Company as a supplier.
There are a number of domestic and foreign competitors in the
Glare/Guard(R) product market that purchase coated glass and
assemble and sell filters in competition with the Company. Such
competitors include 3M, Fellows, Polaroid and Hunts. The Company
is the world's largest manufacturer of anti-reflective optical
filters, as measured by total number of units produced, and
manufactures filters for both Glare/Guard(R) products and other
private label distributors. Glare/Guard(R) products are one of
the largest brand names in their markets, both domestically and
internationally.
Generally, no other single competitor can offer the market the
versatility of the Company in terms of technologies or
manufacturing capacity.
PATENTS AND LICENSES
The Company has 49 patents and 39 patent applications in the
United States which cover materials, processes, products and
production equipment. The Company also has patents and patent
applications pending in various foreign countries covering the
same technology. In addition, the Company assigned 13 patents
and 3 patent applications to Flex Products, Inc. in connection
with the Flex Products joint venture (see "Joint Ventures,
Investments and Acquisitions" below). The Company has a license
to use such patents. Expiration dates for the Company's various
patents range from 1995 to 2010.
The Company considers its proprietary technology, its trade
secrets and its patents to be of considerable value to its
business. The Company's patent position is particularly
important to its business in that its patents demonstrate and
support its technological leadership position, safeguard its
competitive position, and support existing and potential sales
volume.
EMPLOYEES
At October 31, 1994, the Company had 1,162 employees of whom 834
were employed domestically, 123 were employed by the Company's
operation in Scotland, 181 were employed by the Company's
operation in Goslar, Germany, and 24 were employed in its sales
offices in Europe. U.S. employees and employees in Scotland are
not subject to collective bargaining agreements. Some of the
employees of the Goslar operation are part of the national
chemical, paper and ceramic union organization in Germany. There
have been no work stoppages due to labor difficulties. The
Company believes that its employee relations are satisfactory.
In 1987, the Board of Directors approved increases in severance
benefits for employees in the event of certain changes in control
of the Company. These severance arrangements have been extended
through November 1995.
JOINT VENTURES, INVESTMENTS AND ACQUISITIONS
Information regarding joint ventures, investments and
acquisitions by the Company for the years ended October 31, 1994,
1993 and 1992, is included in Note 4 and 13 to the Consolidated
Financial Statements of the Company's 1994 Annual Report, which
notes are incorporated herein by reference.
ITEM 2. PROPERTIES
PROPERTY, PLANT AND EQUIPMENT
The Company's principal facility is located in Santa Rosa,
California. The facility site consists of approximately 75 acres
of land of which approximately 50 acres are occupied by existing
operations with the remaining 25 acres currently held available
for sale or development. The total site is within an industrial
development area and is served by well developed road access and
utilities infrastructure. The facility is comprised of 11
buildings totaling approximately 370,000 square feet. The
principal use of these facilities is for Company executive and
administrative offices and for manufacturing operations and
research activities of the Company. Approximately 36,000 square
feet formerly utilized by the Company's Flex Products operation
has been leased to Flex Products, Inc. in connection with the
Flex Products joint venture. See "Acquisitions, Joint Ventures
and Investments" above.
The Company leases approximately 18,000 square feet for its
Glare/Guard(R) operations in an industrial park area in Santa
Rosa. The Company also leases approximately 30,000 square feet
for warehousing in the same industrial park area.
The Company's wholly-owned subsidiary in Hillend, Scotland,
occupies a 56,000 square foot manufacturing and office building
on a 16 acre site in an industrial park area. The facility was
constructed for the subsidiary by the Scottish Development Agency
(SDA). This property is owned by the Company subject to a
mortgage that had a balance of $4.3 million as of October 31,
1994, with approximately 12 years left on the term of the
mortgage. The subsidiary also leases approximately 9,000
additional square feet for warehousing.
The Company's subsidiary operation in Goslar, Germany, acquired
December 31, 1992, occupies approximately 87,000 square feet of
manufacturing space and approximately 8,000 square feet of office
space on two sites totaling approximately 8 acres in industrial
park areas in Goslar, Germany. A portion of these facilities is
occupied under lease with right to purchase and a portion of the
industrial land is occupied under a long-term hereditary rights
agreement.
The Company leases approximately 5,000 square feet of office
space for its subsidiary operation in Reinheim, Germany.
Management believes that the Company's facilities, including the
facilities in Scotland and Germany, are adequate for its current
level of business and near-term growth requirements.
ENVIRONMENTAL CONSIDERATIONS
Since the discovery of groundwater contamination at its
facilities in Santa Rosa, the Company has conducted extensive
investigations to determine the lateral and vertical extent of
the contamination. During 1990, the Company substantially
completed its investigation and study and formulated a plan of
remediation. The total cost of the investigation was
approximately $5.0 million which has been charged to operations
in prior periods.
Based upon extensive tests conducted to date, it has not been
demonstrated that contaminant levels pose a current public health
hazard. The Company has established a program for reducing
contaminant concentration levels to acceptable federal and state
levels with the assistance of its environmental consultants and
under the regulatory guidance of the California Regional Water
Quality Control Board.
The Company is continuing to evaluate the effectiveness of its
monitoring, extraction and remediation systems. In addition, the
Company anticipates drilling additional monitoring and extraction
wells in connection with its final remediation plan.
Based upon the extensive tests conducted and advice of
environmental consultants, the Company believes that the annual
cost of maintaining compliance with environmental standards
related to the above matter will not have a material adverse
effect on the Company's business, financial position or
prospects.
ITEM 3. LEGAL PROCEDURES
No material legal proceedings are presently pending by or against
the Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
security holders during the three months ended October 31, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of Company executive officers, their ages
and positions as of January 15, 1995.
<TABLE>
<S> <C> <C>
NAME POSITION AGE
Herbert M. Dwight , Jr. President,
Chief Executive Officer
and Chief Financial Officer 64
Frank J. Bufano Vice President and
Managing Director, 55
OCLI Optical Coatings Limited
William C. Burgess Vice President,
Human Resources 48
Klaus F. Derge Vice President,
International Operations 57
John McCullough Vice President 61
Laurence D. Parson Vice President and
General Manager, 46
Glare/Guard(R) Division
Kenneth D. Pietrelli Vice President, Corporate Services 46
James W. Seeser, Ph.D. Vice President
and Chief Technical Officer 51
N.E. Rick Strandlund Vice President and General Manager,
Santa Rosa Division 50
Josef Wally Vice President and
Corporate Controller 55
Joseph C. Zils Vice President, General Counsel
and Corporate Secretary 40
</TABLE>
Mr. Herbert M. Dwight, Jr. joined the Company on August 19, 1991
as Chairman of the Board of Directors, President and Chief
Executive Officer. On December 17, 1993, he also assumed the
position of Chief Financial Officer. Mr. Dwight was a founder of
Spectra Physics Inc., a leading manufacturer and developer of
commercial lasers. He served as Chief Executive Officer of
Spectra Physics from 1967 to 1988. Mr. Dwight was Chairman,
President and Chief Executive Officer of Superconductor
Technologies, Inc. from 1988 through August 1991 and continued to
serve as Chairman from 1991 until his resignation in May 1994.
Mr. Dwight also serves as director of Laserscope Surgical
Systems, Applied Materials, Inc., Applied Magnetics Corp. and
various privately held corporations and nonprofit agencies.
Mr. Bufano has been employed by the Company since 1961 in various
engineering and operations management positions. He was
appointed General Manager, Advanced Products Division, in March
1989 and appointed Vice President in December 1989. With the
formation of the Santa Rosa Division, effective November 1, 1992,
he assumed the position of Vice President and Director of
Operations of the Santa Rosa Division. On November 1, 1993, Mr.
Bufano assumed the position of Vice President of the Company and
Managing Director of the Company's operations in Scotland.
Mr. Burgess joined the Company and was appointed Vice President,
Human Resources, effective June 6, 1994. Prior to joining the
Company, Mr. Burgess was employed as Vice President, Human
Resources and Administration of Teknekron Communications Systems,
Berkeley, California, from February 1991 and from 1985 to 1991
was employed by ABB Asea Brown Boveri, Ltd., Stamford,
Connecticut, as Vice President, Human Resources.
Mr. Derge has been employed by the Company as Vice President,
International Operations since July 1992. Mr. Derge also serves
as the Managing Director of OCLI Optical Coating Laboratory GmbH,
the Company's subsidiary located in Reinheim, Germany. He is
also Co-Managing Director of MMG Glastechnik in Goslar, Germany,
and Managing Director of the Company's various European sales
operations. Mr. Derge was previously employed by Spectra Physics,
Sweden, as Vice President, International Marketing.
Mr. McCullough was the Company's Vice President, Finance and
Administration from 1958 to 1967. During 1976 and 1977, he was
Vice President in charge of the Company's Commercial Products and
Raytek Divisions. In January 1978, he was appointed Senior Vice
President, and in December 1988, he was appointed Executive Vice
President of the Company. In January 1992, he assumed a lesser
involvement with the Company with the title of Vice President.
Mr. Parson has been employed by the Company since 1973 in various
manufacturing, marketing and sales positions. He was appointed
General Manager, Glare/Guard(R) Division, in May 1992 and was
appointed Vice President on June 22, 1993.
Mr. Pietrelli has been employed by the Company since 1980. Mr.
Pietrelli held the position of Corporate Materials Manager until
May 1992 when he assumed the position of Manager, Corporate
Services. He was appointed Vice President, Corporate Services
effective June 22, 1993.
Dr. Seeser has been employed by the Company since 1983. Dr.
Seeser has held engineering and engineering management positions
with the Company and was appointed Vice President in March 1986
and Chief Technical Officer effective November 1, 1993. From
August 1987 through March 1989, he also held the position of
General Manager, Advanced Products Division, in addition to his
management responsibilities for the Corporate Technology Group of
the Company.
Mr. Strandlund has been employed by the Company since 1973 and
has held various engineering and management positions in the
Company. He was appointed Vice President and General Manager,
Commercial Products Division in September 1986. Effective with
the formation of the Santa Rosa Division on November 1, 1992, he
became Vice President and General Manager, Santa Rosa Division.
Mr. Wally has been employed by the Company since 1978 as
Controller, and in December 1988, Mr. Wally was also appointed
Vice President. Mr. Wally was designated as acting Corporate
Secretary in July 1981 and Corporate Secretary in April 1983.
Effective December 17, 1993, Mr. Wally relinquished the title of
Corporate Secretary.
Mr. Zils was employed by the Company in 1989 as Director of
Contracts/Corporate Counsel. He was appointed Vice President on
June 22, 1993 and Corporate Secretary on December 17, 1993. At
that time, Mr. Zils also assumed the title of General Counsel.
Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is set forth in the definitive
Proxy Statement, which information is incorporated herein by
reference.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information required by this item is included in the Company's
1994 Annual Report to Stockholders under Market for Registrant's
Common Stock and Related Stockholder Matters and is herein
incorporated by reference. The Company's Common Stock is traded
over-the-counter and quoted on the NASDAQ/National Market System
under the symbol OCLI. The number of stockholders of record at
December 31, 1994 was 1,197.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item (Five-Year Summary) is included
in the Company's 1994 Annual Report to Stockholders and is herein
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Information required by this item is included in the Company's
1994 Annual Report to Stockholders under Management's Discussion
and Analysis of Results of Operations and Financial Condition and
is herein incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is included in the Company's
1994 Annual Report to Stockholders under Consolidated Balance
Sheets; Consolidated Statements of Operations; Consolidated
Statements of Stockholders' Equity; Consolidated Statements of
Cash Flows; Notes to Consolidated Financial Statements; and
Independent Auditors' Report and is herein incorporated by
reference.
The consolidated financial schedules of Optical Coating
Laboratory, Inc. and Subsidiaries are filed as part of Item 14 of
this annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Paragraph G(3) of the General Instructions to Form 10-
K, the information called for in Part III, Items 10, 11, 12 and
13 of Form 10-K is omitted since the Company will file, not later
than 120 days after the close of the fiscal year ended October
31, 1994, with the Securities and Exchange Commission, a
definitive proxy statement pursuant to Regulation 14A in
connection with its 1995 Annual Meeting of Stockholders. The
information contained under the caption "Executive Officers of
the Registrant" in Part I of this Form 10-K is incorporated by
reference into Item 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) ITEMS FILED AS PART OF REPORT
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
The consolidated financial statements and notes to consolidated
financial statements of Optical Coating Laboratory, Inc. and
Subsidiaries are incorporated herein by reference to the
Company's 1994 Annual Report to Stockholders.
2. FINANCIAL STATEMENT SCHEDULES
Schedule VIII Valuation and Qualifying Accounts
The financial statement schedule should be read in conjunction
with the financial statements in the 1994 Annual Report to
Stockholders. Schedules not included in these financial statement
schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(A)(3) EXHIBITS
The following are filed as Exhibits to this Annual Report on Form
10-K. The numbers refer to the Exhibit Table of Item 601 of
Regulation S-K.
3.1 Restated Certificate of Incorporation.Incorporated by
reference to Exhibit (4)(a) of the Registrant's Form 10-Q
for the quarter ended July 31, 1988.
3.2 By-Laws. Incorporated by reference to Exhibit (3)(b) of
the Registrant's Form 8-K under Item 5 dated November 20,
1987.
4.1 Interest Rate Swap Agreement between Registrant and Bank
of America, NT&SA, dated July 20, 1988. Incorporated by
reference to Exhibit (4)(b) of the Registrant's Form 10-Q
for the quarter ended July 31, 1988.
4.2 Rights Agreement between Registrant and First Interstate
Bank of California dated November 25, 1987. Incorporated
by reference to Exhibit (4) of the Registrant's Form 10-K
for the year ended October 31, 1987.
4. 3 Confirmation of Interest Rate Swap between Registrant and
Bank of America, NT&SA, dated August 2, 1991.
Incorporated by reference to Exhibit (28)(c) of the
Registrant's Form 10-Q for the quarter ended July 31,
1991.
4.4 Note Purchase Agreement(s) dated as of May 27, 1994 for
the private placement of $18,000,000 of 8.71% Senior Notes
due June 1, 2002 between the Registrant and Connecticut
Mutual Life Insurance Company, Modern Woodman of America
and American Life and Casualty Insurance Company.
Incorporated by reference to Exhibit (4)(a) of the
Registrant's Form 10-Q for the quarter ended July 31,
1994.
4.5 Amended and Restated Credit Agreement dated as of June 30,
1994 between the Registrant and Bank of America, NT&SA.
Incorporated by reference to Exhibit (4)(b) of the
Registrant's Form 10-Q for the quarter ended July 31,
1994.
9 Not applicable.
10.0* Registrant's Management Incentive Plan for 1995.(1) (See
pages 23 through 24)
10.1 Registrant's Employee Stock Ownership Plan (OCLI ESOP+) as
amended. Incorporated by reference to Exhibit (10)(c) of
the Registrant's Form 10-K for the year ended October 31,
1988.
10.2 Registrant's 1993 Incentive Compensation Plan.
Incorporated by reference to Exhibit A of the Registrant's
Proxy Statement dated March 8, 1993.(1)
10.3 Registrant's 1992 Incentive Compensation Plan.
Incorporated by reference to Exhibit A of the
Registrant's Proxy Statement dated March 8, 1992.(1)
10.4 Registrant's 1991 Incentive Compensation Plan.
Incorporated by reference to Exhibit A of the
Registrant's Proxy Statement dated February 25, 1991.(1)
10.5 Registrant's 1987 Incentive Compensation Plan.
Incorporated by reference to Exhibit A of the Registrant's
Proxy Statement dated February 19, 1987.(1)
10.6 Registrant's 1984 Incentive Stock Option Plan.
Incorporated by reference to Exhibit (10)(d) of the
Registrant's Form 10-K for the year ended October 31,
1985.(1)
10.7 Registrant's 1983 Incentive Stock Option Plan.
Incorporated by reference to Exhibit (10)(d) of the
Registrant's Form 10-K for the year ended October 31,
1983.(1)
10.8 Registrant's 1982 Incentive Stock Option Plan.
Incorporated by reference to Exhibit A of Proxy Statement
of Registrant dated March 1, 1982.(1)
10.9 Form of Incentive Compensation Agreement between
Registrant and its Executive Officers. Incorporated by
reference to Exhibit (10)(h) of the Registrant's Form 10-K
for the year ended October 31, 1987.(1)
10.10 Registrant's Directors' and Officers' Liability and
Corporate Reimbursement Insurance Policy. Incorporated by
reference to Exhibit (10)(i) of the Registrant's Form 10-K
for the year ended October 31, 1987.(1)
10.11 Form of Directors' and Officers' Indemnification
Agreement. Incorporated by reference to Exhibit (10)(j) of
the Registrant's Form 10-K for the year ended October 31,
1987.(1)
10.12 Employment Agreements between Registrant and its Executive
Officers. Incorporated by reference to Exhibit (10)(k) of
the Registrant's Form 10-K for the year ended October 31,
1987. Second Amendment thereto incorporated by reference
to Exhibit (28)(a) of the Registrant's Form 10-Q for the
quarter ended January 31, 1992.(1)
10.13 Form of Third Amendment to Employment Agreements between
Registrant and its Executive Officers dated November 20,
1993.(1) Incorporated by reference to Exhibit 10.13 of
the Registrant's Form 10-K for the year ended October 31,
1993. (1)
10.14 Form of Employment Assurance Agreements between Registrant
and its key technical and professional employees.
Incorporated by reference to Exhibit (10)(l) of the
Registrant's Form 10-K for the year ended October 31,
1987. Form of Amendment thereto incorporated by reference
to Exhibit (28)(b) of the Registrant's Form 10-Q for the
quarter ended January 31, 1992.(1)
10.15 Mortgage Agreement between the Scottish Development Agency
and Registrant's Scottish Subsidiary. Incorporated by
reference to Exhibit (10)(o) of the Registrant's Form 10-K
for the year ended October 31, 1987.
10.16 Acquisition Agreement between Henning Von Birkhahn and
Ingo Mertens and the Registrant's German subsidiary, OCLI
Optical Coating Laboratory GmbH, dated December 31, 1992
for the acquisition by the Registrant of MMG MinnahYtte
Maschinelle Glasbearbeitung GmbH. Incorporated by
reference to Exhibit 2A of Registrant's Form 8-K dated
December 31, 1992.
10.17 Joint Venture Agreement between Waldemar J. Milas and the
Registrant's German subsidiary, OCLI Optical Coating
Laboratory GmbH, dated March 12, 1993. Incorporated by
reference to Exhibit 10.19 of the Registrant's Form 10-K
for the year ended October 31, 1993.
10.18 Joint Venture Agreement between Nesa Informatica Srl,
Italy, and the Registrant's Italian subsidiary, Optical
Coating Laboratory Srl dated April 22, 1993. Incorporated
by reference to Exhibit 10.20 of the Registrant's Form 10-
K for the year ended October 31, 1993.
10.19 Joint Venture Agreement by and among ICI American Holdings
Inc., Optical Coating Laboratory, Inc. and Flex Products,
Inc., dated December 19, 1988. Incorporated by reference
to Exhibit (10)(p) of the Registrant's Form 10-K for the
year ended October 31, 1988.
10.20 Non-Qualified Stock Option Agreement dated August 26, 1988
under the Registrant's 1987 Incentive Compensation Plan
between the Registrant and John McCullough. Incorporated
by reference to Exhibit (10)(r) of the Registrant's Form
10-K for the year ended October 31, 1988.
10.21 Stock Purchase Agreement by and between Registrant and
John McCullough dated August 19, 1991. Incorporated by
reference to Exhibit (10)(v) of the Registrant's Form 10-K
for the year ended October 31, 1991.
10.22 Employment Agreement by and between Registrant and Herbert
M. Dwight dated August 19, 1991. Incorporated by
reference to Exhibit (10)(w) of the Registrant's Form 10-K
for the year ended October 31, 1991.(1)
10.23 Employment Agreement by and between John McCullough and
Registrant dated August 19, 1991. Incorporated by
reference to Exhibit (10)(x) of the Registrant's Form 10-K
for the year ended October 31, 1991.(1)
10.24 Severance Agreement dated September 1, 1993 and
Supplemental Release Agreement dated January 5, 1994 by
and between Gilbert L. Whissen and Registrant.(1)
Incorporated by reference to Exhibit 10.29 of the
Registrant's Form 10-K for the year ended October 31,
1993.
11* Computation of earnings (loss) per share for the years
ended October 31, 1994, 1993 and 1992. (See pages 25
through 26)
12 Not applicable.
13* Registrant's Annual Report to Stockholders for the fiscal
year ended October 31, 1994. With the exception of the
information incorporated by reference in Items 1, 5, 6, 7,
8 and 14 of this Form 10-K, the Annual Report to
Stockholders for the fiscal year ended October 31, 1994 is
not deemed filed as part of this report. (See pages 27
through 54)
16 Not applicable.
18 Not applicable.
21* Subsidiaries of the Registrant. (See page 55)
22 Not applicable.
23* Independent Auditors' Consent and Report on Schedules (See
page 56)
24 Not applicable
99 Not applicable.
* Items not previously filed are designated by an asterisk.
(1) Designates management contracts or compensatory plan
arrangements required to be filed as exhibits pursuant to
Item 14(c) of Form 10-K.
(B) REPORTS ON FORM 8-K
None
<TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(S-X, RULE 12-09)
(AMOUNTS IN THOUSANDS)
<CAPTION>
Column A Column B Column C Column D Column E
Balance Additions Deductions
at charged to Amounts Balance
Beginning Costs & Other Charged at End
Description of Period Expenses Accounts Off of Period
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C> <C>
Year ended
October 31, 1994 $1,817 $667 $85(a) $759 $1,810
Year ended
October 31, 1993 $728 $1,167 $102(a) $180 $1,817
Year ended
October 31, 1992 $432 $408 $1(a) $113 $728
ALLOWANCE FOR INTERCOMPANY PROFIT
IN INVENTORY:
Year ended
October 31, 1994 $1,130 $36 $-0- $-0- $1,166
Year ended
October 31, 1993 $1,809 $-0- $-0- $679 $1,130
Year ended
October 31, 1992 $948 $861 $-0- $-0- $1,809
VALUATION RESERVES FOR INVENTORY:
Year ended
October 31, 1994 $826 $-0- $-0- $61 $765
Year ended
October 31, 1993 $248 $578 $-0- $-0- $826
Year ended
October 31, 1992 $395 $-0- $-0- $147 $248
<FN>
<F1>
(a)The 1994 and 1992 balances consist of recoveries and foreign
currency translation effects. The 1993 balances consist
primarily of amounts recorded in connection with the
acquition of MMG, net of recoveries.
</FN>
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: January 25, 1995 OPTICAL COATING LABORATORY, INC.
By:/S/HERBERT M. DWIGHT, JR.
Herbert M. Dwight, Jr.
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
Chairman of the Board,
President,
Chief Executive Officer and
Chief Financial Officer
(Principal Executive,
Operating and Financial
/S/HERBERT M. DWIGHT, JR. Officer) January 25, 1995
Herbert M. Dwight, Jr.
Vice President,
General Counsel and
Corporate Secretary
/S/JOSEPH C. ZILS (Executive Officer) January 25, 1995
Joseph C. Zils
Vice President and
Corporate Controller
/S/JOSEF WALLY (Principal Accounting
Josef Wally Officer) January 25, 1995
/S/JOHN MCCULLOUGH Director
John McCullough and Vice President January 25, 1995
/S/DOUGLAS C. CHANCE Director January 25, 1995
Douglas C. Chance
/S/JULIAN SCHROEDER Director January 25, 1995
Julian Schroeder
/S/RENN ZAPHIROPOULOS Director January 25, 1995
Renn Zaphiropoulos
OPTICAL COATING LABORATORY, INC.
FY95 MANAGEMENT INCENTIVE PLAN
OBJECTIVES
The objectives of the Fiscal Year 1995 OCLI Management Incentive
Plan (FY95 MIP) are:
o to motivate key decision makers to achieve
the goals set forth in the 1995 annual plan
and budget; and
o to reward those who are successful in doing so.
In order to qualify for either a quarterly or year end payout from
the FY95 MIP, a participant must achieve certain prescribed management
objectives. Attainment of quantitative goals will be based on audited
results. In no case will the aggregate of all payouts from the
FY95 MIP be allowed to exceed 15% of the 1995 pre-tax profits as
determined by the company's outside auditors before any adjustments
for prior years.
PLAN STRUCTURE
The plan provides for 80% of a participant's potential payout to be
based on his or her division and the company meeting certain prescribed
quantitative targets and 20% upon the achievement of previously
established individual qualitative objectives.
Participants' "base bonuses" are the amounts that they would earn if their
division (or company for participants in corporate departments) were to
achieve budgeted profit levels for each quarter and for the entire year,
the company were to achieve its budgeted profit level for the year and
the participants were to achieve all of their qualitative objectives.
A participant's "base bonus" is equal to a percent of his or her actual
base salary paid during the measurement periods (quarter or year) as
follows:
PARTICIPANT LEVEL PERCENT
Vice President 25%
Salary Grades 13 & 14 15%
Salary Grades 11 & 12 10%
See Table 3 for a list of MIP participants.
Division participants can earn up to 10% of their base bonus each quarter,
depending on the profit performance of their division. The quarterly bonus
will be prorated linearly between 0% and 10% of base bonus, depending
on actual profit performance. Proration of the bonus will start at
an amount equal to budgeted division operating profit (COM) less 3%
of budgeted division sales and reach maximum (10%) at budgeted division COM.
Corporate participants can earn up to 10% of their base bonus each quarter
depending on the profit performance of the company. The quarterly bonus
will be prorated linearly between 0% and 10% of base bonus, depending
on actual profit performance. Proration of the bonus will start at an amount
equal to budgeted company profit before taxes (PBT) less 3% of budgeted
company sales and reach maximum (10%) at budgeted company PBT.
FY 1995 Management Incentive Plan
Page 2
Division participants can earn up to 40% of their base bonus for FY95
depending on the annual profit of their division and the company. The
division component of the year end bonus will be prorated
linearly between 0% and 20% starting at an amount equal to budgeted
division COM less 3% of budgeted division sales and reaching 20% at
budgeted division COM. The company component will be prorated
linearly between 0% and 20% starting at an amount equal to company
PBT less 3% of budgeted company sales and reaching 20% at budgeted
company PBT.
Corporate participants can earn up to 40% of their base bonus for
FY95 depending on the annual company PBT. Proration of the bonus
will start at an amount equal to budgeted company PBT less 3% of
budgeted company sales and reach 40% at budgeted company PBT.
All participants can earn up to 20% of their base bonus at year end
depending upon their supervisor's rating of their performance against
their qualitative objectives for the year.
All amounts earned will be subject to a "multiplication factor" in
the event that a division or the company exceeds its annual budgeted
profit target. The multiplication factor will be prorated linearly
between 1.0 and 2.0 starting at budgeted annual profit and reaching
2.0 at an amount equal to the sum of budgeted annual profit and 3%
of budgeted sales. In the case of division participants, amounts
earned for division performance plus the qualitative bonus will be
leveraged by division performance above plan, and amounts earned for
Company performance will be leveraged by company performance above plan.
For corporate participants, all bonuses earned will be leveraged by
company performance above plan.
The level of COM (or PBT for corporate) at which payouts will commence
for each quarter and the fiscal year, target COM and the COM at
which participants will be eligible for maximum payout under the
FY95 MIP are shown in Table 2.
In addition to the above, a $25,000 discretionary pool will be
created for use by the CEO to reward performance of plan participants
that may not be recognized by the above measures.
TIMING OF PAYMENT
All quarterly bonuses (except for the fourth quarter) will be paid within 45
days of the close of the quarter. All other bonuses will be paid on the 15th
of January of the following year. A participant must be employed full time at
the end of a given measurement period in order to be eligible for any bonus
attributable to that period.
The decision of the Compensation Committee of the Board of Directors is final
in determining payouts under this plan.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 11, PAGE 1:
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Amounts in thousands, except per share data)
<TABLE>
YEARS ENDED OCTOBER 31,
1994 1993 1992
Primary Shares:
<S> <C> <C> <C>
Average common shares outstanding 8,975 8,795 8,180
Common equivalent shares
outstanding 48 456
9,023 8,795 8,636
Earnings (loss) before cumulative effect
of change in accounting principle $ 4,604 $(5,737) $6,027
Cumulative effect of change in accounting
for income taxes 510
Net earnings (loss) $ 4,604 $(5,737) $6,537
Earnings (loss) per common and common
equivalent share:
Earnings (loss) before cumulative effect
of change in accounting principle $.51 $(.65) $.69
Cumulative effect of change in accounting
for income taxes .06
Net earnings (loss), primary $.51 $(.65) $.75
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 11, PAGE 2:
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Amounts in thousands, except per share data)
YEARS ENDED OCTOBER 31,
1994 1993 1992
Fully Diluted Shares:
<S> <C> <C> <C>
Average common shares outstanding 8,975 8,795 8,180
Common equivalent shares outstanding 70 304 522
9,045 9,099 8,702
Earnings (loss) before cumulative effect
of change in accounting principle $4,604 $(5,737) $6,027
Cumulative effect of change in accounting
for income taxes 510
Net earnings (loss) $4,604 $(5,737) $6,537
Earnings (loss) per common and common
equivalent share:
Earnings (loss) before cumulative effect
of change in accounting principle $.51 $(.63) $.69
Cumulative effect of change in accounting
for income taxes .06
Net earnings (loss), fully diluted $.51 $(.63) $.75
</TABLE>
NOTE:Fully diluted earnings (loss) per share do not result in
dilution of three percent or more or are anti-dilutive and are,
therefore, not applicable.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 13 TO FORM 10-K
FOR THE YEAR ENDED OCTOBER 31, 1994
PART II, ITEM 5. Market For Registrant's Common Stock and
Related Stockholder Matters
PART II, ITEM 6. Seleected Financial Data
PART II, ITEM 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Independent Auditors' Report
PART II, ITEM 8. Financial Statements and Supplementary Data
- Consolidated Balance Sheets
- Consolidated Statements of Operations
- Consolidated Statements of Stockholders'Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
PART II
Item 5. Market For Registrant's Common Stock
And Related Stockholder Matters
PRINCIPAL MARKET
The Company's common stock is traded in the NASDAQ National
Market System under the symbol OCLI.
STOCK PRICE AND DIVIDEND INFORMATION
The following table sets forth the range of high and low closing
prices in the over-the-counter market as reported by the NASDAQ
National Market System for 1994 and 1993.
Year ended October 31, 1994 High Low
First Quarter 7-3/8 5-7/8
Second Quarter 7-3/8 6-3/8
Third Quarter 7-1/8 5-1/8
Fourth Quarter 6-5/8 5-3/4
Year ended October 31, 1993 High Low
First Quarter 11-1/4 9-1/2
Second Quarter 12-3/4 10
Third Quarter 10-1/4 6-5/8
Fourth Quarter 8-1/8 6-1/2
Beginning in June 1991, the Company has paid a semiannual cash
dividend on common stock of $.06 per share.
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's common stock as
of December 31, 1994 was 1,197.
Item 6. Selected Financial Data
<TABLE>
Years Ended October 31,
1994 1993 1992 1991 1990
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales and revenues $131,780 $123,013 $115,016 $103,711 $93,503
Earnings (loss) before
cumulative effect of
changes in accounting
principles $4,604 $(5,737) $6,027 $1,530 $3,747
Earnings (loss) per
common and common
equivalent share before
cumulative effect of
changes in accounting
principles $.51 $(.65) $.69 $.16 $.43
Cash dividend paid on
common stock $1,075 $1,043 $967 $491
At October 31:
Working capital $28,692 $16,251 $ 27,399 $ 21,913 $19,271
Total assets $118,879 $99,226 $ 91,313 $ 84,419 $85,255
Long-term debt $35,441 $23,110 $ 14,900 $ 20,935 $18,711
Redeemable convertible
preferred stock $ 6,403
Stockholders' equity $52,037 $47,135 $52,254 $43,112 $39,707
Stockholders' equity
per share $5.79 $5.25 $6.16 $5.41 $5.71
Number of employees 1,162 1,107 1,000 1,039 1,057
</TABLE>
Item 7. Management's Discussion And Analysis Of Results
Of Operations And Financial Condition
RESULTS OF OPERATIONS
Net sales and revenues for the Company were $131.8 million
in 1994, increasing $8.8 million, or 7%, over 1993 which had
increased $8.0 million, or 7%, in 1993 over 1992. Net sales and
other revenues for 1993 include $13.3 million of sales by MMG, a
German precision glass fabrication company acquired effective
December 31, 1992. Without the contribution of MMG sales,
Company sales and revenues would have shown a decrease of $5.3
million, or 4.6%, in 1993 versus 1992.
New orders and shipments in 1994 were particularly strong in
the office automation market for fabricated coated glass
products. Orders were also strong during this period for coated
glass stock sheets exported from the US for custom fabrication by
others and for projection television mirrors and for fabricated
glass components manufactured by MMG in Germany. Orders and sales
of the Company's Glare/Guard" anti-glare filters sold for use in
the computer display aftermarket declined in 1994 and 1993 due to
the emergence of increased competition and generally poor
economic conditions in Europe. Sales in other commercial,
industrial and government markets increased modestly in 1993 over
1992.
During 1994, the Company experienced price declines of
approximately 2-4% in OEM display product lines and approximately
8-10% in fabricated glass product lines. These price declines
were substantially offset by the increase in orders and shipments
discussed above. At the beginning of fiscal 1994, the Company
also reduced prices by approximately 10% for Glare/Guard(R)
products in the US to maintain its market position. Although the
Company was able to partially offset these price decreases
through the reduction of product cost, profit margins for the
Glare/Guard" product line were negatively impacted. The Company
continues to experience competitive price pressures in
Glare/Guard" products in the US as well as in foreign markets and
is responding to such price competition with continued product
cost reductions and design enhancements. In 1993, the Company
experienced price declines of approximately 4-6% in OEM display
product lines and approximately 6-8% in fabricated glass product
lines. There were no other significant price changes in the
remainder of the CompanyOs product areas in 1993.
Cost of sales as a percent of sales was 63.7% in 1994, 66.6%
in 1993, and 60.8% in 1992. In 1994, the cost of sales
percentage improved from 1993 as a result of higher utilization
of available capacity, yield improvements as a result of the
Company's continuous quality improvement program and cost savings
resulting from of the 1993 restructuring program. Cost of sales
in 1993 increased as a percentage of sales in most product areas
of the Company as a result of price decreases the Company
absorbed in order to maintain market share. This increase in the
cost of sales as a percentage of sales was also impacted by the
consolidation of MMG which generally has a higher cost of sales
percentage than the Company average primarily due to an
approximately 10% higher material cost content. However, not
withstanding the increase in the cost of sales as a percentage of
sales and revenues in 1993 as compared to 1992, the Company
generally experienced a decrease in the absolute cost of sales
when the actual cost of sales per unit of sales is considered.
In 1993, under a plan to restructure the Company's approach
to research and development, many of the personnel and resources
that had traditionally been reported under the Company's research
and development effort were transferred into the Santa Rosa
operating division in an effort to focus on product development
efforts and improve the quality of communications with customers.
The traditional research and development group has continued to
focus its efforts on advances in new and innovative processes
including its work on active films. The product development group
has been responsible for identifying new applications for
existing processes. During 1994, the product development group
was responsible for establishing the Company's innovative
DirectCoat" pilot production line and linear polarizer
facilities. As a result of this restructuring, reported research
and development expenditures for 1994 decreased $697,000, or 12%,
compared to 1993 which had decreased $2.3 million, or 28%,
compared to 1992. As a percentage of sales, research and
development expenditures were 4.0% in 1994, 4.8% in 1993 and 7.1%
in 1992.
Selling and administrative expenses increased $1.2 million,
or 4%, in 1994 over 1993, and had increased $3.6 million, or 14%,
in 1993 over 1992. The 1994 increase in this expense category
was principally in selling expenses related to the establishment
of seven new regional sales offices in the US. In 1993, the
inclusion of MMG accounted for a $2.4 million increase in selling
and administrative expenses. Without MMG, the increase would
have been $1.2 million, or 5%, in 1993 over 1992. The increase
in 1993 was principally in administrative expenses as a result of
increasing the Company-wide allowance for potentially
uncollectible accounts and increases in expenses for professional
services.
In 1993, the Company recorded restructuring charges and
provisions for severance payments totaling $9.7 million. The
Company took these actions to reduce costs to respond to price
competition and a general weakness in some of its markets.
Accordingly, the Company established reserves and took write-offs
for severance payments for staff reductions and the reduction of
the carrying value of certain equipment, inventory and other
assets. Respectively, in 1994 and 1993, the Company recorded
amortization of intangibles of $648,000 and $446,000,
representing the amortization of goodwill relating to the
acquisition of MMG.
As a result of the foregoing changes in net sales and other
revenues and in costs and expenses, the Company had earnings from
operations of $10.6 million in 1994 versus a loss from operations
of $5.1 million in 1993, including the $9.7 million of
restructuring charges, and compared to earnings from operations
of $10.3 million for 1992.
Interest income increased $208,000, or 160%, in 1994 over
1993, and declined $165,000, or 56%, in 1993 from 1992. The
increase in 1994 was because of the substantially larger short
term investment balances on hand in the second half of the year
that resulted from an $18 million senior note financing
undertaken by the Company during this period. The decline in
interest income in 1993 was the result of having significantly
smaller cash balances available for short-term investment.
Interest expense increased $217,000, or 7.2%, in 1994 over
1993, and had increased $775,000, or 35%, in 1993 over 1992. The
increase in interest expense for 1994 resulted from the issuance
of the $18 million senior notes partially offset by debt
repayment of $11.3 million. Increased interest expense in 1993
resulted from approximately $9.0 million of additional long-term
debt incurred with the purchase of MMG and approximately $5.4
million of MMG long-term debt assumed with the purchase. Such
increase was partially offset by the repayment of other long-term
debt of approximately $4.5 million during 1993.
The provision (credit) for income taxes as a percent of
earnings (loss) before income taxes was 40.1% in 1994, <28.4%> in
1993, and 37.2% in 1992. For 1994 and 1992, the effective tax
rate was at the normal combined federal, state and applicable
foreign tax rates for the Company. For 1993, the effective tax
rate was a credit. The effective tax credit in 1993 was less
than the combined federal, state and applicable foreign statutory
rates because, under SFAS 109, the full tax benefit of losses
incurred in European operations could not be recognized.
As a result of the foregoing, the Company had net earnings
of $4.6 million in 1994, compared to a net loss of $5.7 million
in 1993, and net earnings of $6.5 million in 1992.
Management does not believe that inflation has had a
significant effect on operations in 1994, 1993 and 1992. As
described above, the Company experienced price decreases in
certain markets in 1994 and 1993. There were no material
fluctuations in the results for the fourth quarter compared to
prior quarters of 1994.
FINANCIAL CONDITION AND LIQUIDITY
In 1994, the Company's cash and short term investment
position increased by $17.4 million for the year. Operations
provided $16.6 million of cash, including $4.6 million from net
earnings, $7.6 million from depreciation and amortization and
$4.4 million from other operating activities. Financing
activities provided $9.5 million, including $22.3 million from
issuance of new debt, offset by $11.7 million of debt repayment
and payment of $1.1 million of dividends on common stock. During
the year, the Company spent $9.0 million for the purchase of new
equipment. At year-end, October 31, 1994, the Company had cash
and short term investments totaling $19.7 million.
The Company's financial condition and liquidity at October
31, 1994, reflects various financing transactions during 1994,
including the issuance of $18 million of unsecured senior notes
in a private placement with three major insurance companies and
the renegotiation of the Company's revolving credit arrangement
with its bank. The private placement was completed during the
third quarter of 1994. $6.5 million of the proceeds from this
debt offering were used to pay back outstanding borrowings under
the CompanyOs bank line of credit and the residual $11.5 million
was added to the Company's general funds. The borrowing was
undertaken primarily to restructure the Company's debt at a
favorable interest rate and provide the Company with additional
liquidity for general corporate purposes. The senior notes carry
an interest rate of 8.71%, with interest payable semiannually
beginning in December 1994, and principal repayment of $3.6
million per year from 1998 to 2002.
The Company also renegotiated its bank credit line
arrangement during the third quarter of 1994. The credit
commitment under this new credit line is $10 million, of which
$5.5 million was allocated to a term loan as of October 31, 1994,
and will become available under the revolving credit segment as
the term loan is repaid on a quarterly basis over the next three
years. In addition to the $10 million revolving credit limit,
the line of credit arrangement also provides approximately $4
million in a bank guarantee securing a portion of the MMG
acquisition debt. The bank line of credit arrangement expires on
June 30, 1997. In addition, the Company's subsidiaries in
Germany and Scotland have additional credit arrangements in place
for their operating requirements.
In 1994, the Company's working capital, excluding cash and
short-term investments, decreased by $4.9 million. Accounts
receivable increased while inventories decreased, reflecting
higher sales for 1994. Taxes receivable, which reflected the 1993
income tax credit, were collected, while in conjunction with
profitable operations for 1994, current income taxes payable were
recorded. Accounts payable and accrued expenses increased as a
result of increased business activities for 1994. In 1993,
Company working capital, excluding cash and short term
investments, decreased by $3.4 million, primarily as a result of
increases in accrued expenses and various reserves for severance
payments in connection with the restructuring of operations
during the year. Staff severances occurred at the beginning of
1994 and severance payments previously accrued in 1993 were made
during 1994, as scheduled. There were no other significant
changes in the restructuring program established in 1993 that
would require modification of the accruals and reserves as then
recorded.
The Company conducts its export business from the United
States mostly in US dollars and, therefore, does not experience
foreign exchange transaction risks. Additionally, since the
Company also manufactures in two European countries to serve
local markets, the Company does not have significant exposure to
fluctuations in foreign currencies. The assets and liabilities
of the Company's foreign operations are not hedged against
fluctuations in international currency rates. The Company has no
other financial derivative arrangements in place except an
interest rate swap to fix its interest rate on $5.5 million of
bank debt at rates consistent with current market rates. There
exists no significant financial exposure under this interest rate
swap arrangement.
Management believes that the cash on hand at October 31,
1994, cash anticipated to be generated from future operations and
the available funds from revolving credit arrangements will be
sufficient for the Company to meet its near-term working capital
needs, normal capital expenditures, debt service requirements,
and payment of dividends as declared. The Company has operated at
capacity during the second half of 1994 in several business areas
due to increased demand. Management is continuously assessing
the potential requirement of having to add manufacturing capacity
above planned levels in order to serve growing market demand in
future years. In addition, management is currently reviewing
several product line acquisitions to add to the overall
capabilities of the Company. In conjunction therewith, the
Company is exploring additional credit facilities and possible
equity financing arrangements. Management believes that such
additional debt or equity financing will be available to the
Company as required.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Optical Coating Laboratories, Inc.
Santa Rosa, California
We have audited the accompanying consolidated balance sheets of
Optical Coating Laboratory, Inc. and subsidiaries (the "Company")
as of October 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended October 31, 1994.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Optical Coating Laboratory, Inc. and its subsidiaries at October
31, 1994 and 1993 and the results of their operations and their
cash flows for each of the three years in the period ended
October 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for income taxes in
1992.
DELOITTE & TOUCHE LLP
San Francisco, California
December 14, 1994
<TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
OCTOBER 31,
<S> <C> <C>
ASSETS 1994 1993
Current Assets:
Cash and short-term investments $19,663 $ 2,284
Accounts receivable, net of
allowance for doubtful accounts
of $1,810 and $1,817 22,007 19,850
Inventories 10,559 11,605
Income tax receivable 2,043
Deferred income tax assets 4,235 4,510
Other current assets 1,246 1,061
Total Current Assets 57,710 41,353
Other assets and investments 9,159 8,949
Property, Plant and Equipment:
Land and improvements 8,623 8,380
Buildings and improvements 27,495 26,317
Machinery and equipment 80,206 72,429
Construction-in-progress 3,083 3,470
119,407 110,596
Less accumulated depreciation (67,397) (61,672)
Property, Plant and Equipment-Net 52,010 48,924
$118,879 $ 99,226
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,197 $ 4,243
Accrued expenses 8,423 7,694
Accrued compensation expenses 4,785 5,309
Income taxes payable 1,671
Current maturities on long-term debt 6,878 6,702
Notes payable 428 490
Deferred revenue 636 664
Total Current Liabilities 29,018 25,102
Accrued postretirement health benefits
and pension liabilities 1,877 1,767
Deferred income tax liabilities 506 2,112
Long-term debt 35,441 23,110
Commitments and contingencies (Note 10)
Stockholders' Equity:
Common stock, $.01 par value;
authorized 30,000,000 shares; issued
and outstanding 8,978,000 and
8,972,000 shares 90 90
Paid-in capital 39,967 39,930
Retained earnings 12,055 8,526
Cumulative foreign currency
translation adjustment (75) (1,411)
Total Stockholders' Equity 52,037 47,135
$118,879 $ 99,226
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
YEAR ENDED OCTOBER 31,
1994 1993 1992
<S> <C> <C> <C>
Net sales and other revenues $131,780 $123,013 $115,016
Costs and Expenses:
Cost of sales 84,001 81,885 69,958
Research and development 5,229 5,926 8,178
Selling and administrative 31,341 30,153 26,532
Restructuring charges 9,746
Amortization of intangibles 648 446
Total Costs and Expenses 121,219 128,156 104,668
Earnings (loss) from operations 10,561 (5,143) 10,348
Other Income (Expense):
Interest income 338 130 295
Interest expense (3,215) (2,998) (2,223)
Insurance recovery 1,180
Earnings (loss) before income taxes 7,684 (8,011) 9,600
Income taxes (credit) 3,080 (2,274) 3,573
Earnings (loss) before cumulative
effect of change in accounting
principle 4,604 (5,737) 6,027
Cumulative effect of change
in accounting for income taxes 510
Net earnings (loss) $ 4,604 $(5,737) $ 6,537
Net earnings (loss) per common and
common equivalent share:
Earnings (loss) before cumulative
effect of change in accounting
principle $ .51 $ (.65) $ .69
Cumulative effect of change
in accounting for income taxes .06
Net earnings (loss) $ .51 $ (.65) $ .75
Average common and common
equivalent shares used to
compute earnings (loss)
per share 9,023 8,795 8,636
See Notes to Consolidated Financial Statements
</TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
(Amounts in thousands)
<TABLE>
FOREIGN
RETAINED
COMMON STOCK PAID-IN CURRENCY
SHARES AMOUNT CAPITAL EARNINGS
TRANSLATION
<S> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 1, 1991 7,964 $ 80 $32,950 $ 9,786 $ 296
Shares issued to Employee
Stock Ownership Plan 43 1 415
Exercise of stock options,
including tax benefit and
shares issued to directors 474 4 3,314
Foreign currency translation
adjustment for the year (162)
Net earnings for the year 6,537
Dividend on common stock (967)
BALANCE AT OCTOBER 31, 1992 8,481 85 36,679 15,356 134
Shares issued to Employee
Stock Ownership Plan 47 1 474
Exercise of stock options and
warrants, including tax
benefit and shares issued
to directors 438 4 2,716
Exercise of stock options
through surrender of common
stock, including tax benefit 6 61 (50)
Foreign currency translation
adjustment for the year (1,545)
Net loss for the year (5,737)
Dividend on common stock (1,043)
BALANCE AT OCTOBER 31, 1993 8,972 90 39,930 8,526 (1,411)
Exercise of stock options and
warrants, including tax
benefit and shares issued
to Directors 6 37
Foreign currency translation
adjustment for the year 1,336
Net earnings for the year 4,604
Dividend on common stock (1,075)
BALANCE AT OCTOBER 31, 1994 8,978 $ 90 $39,967 $12,055 $ (75)
See Notes to Consolidated Financial Statements
</TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
<TABLE>
YEARS ENDED OCTOBER 31,
1994 1993 1992
Cash Flows from Operating
Activities:
<S> <C> <C> <C>
Cash received from customers $133,125 $129,852 $113,905
Cash received from insurance
companies 3,412
Interest received 268 109 232
Cash paid to suppliers
and employees (112,341) (115,315) (100,925)
Cash paid to ESOP+ (947) (205) (476)
Interest paid (2,567) (2,740) (2,578)
Income taxes paid, net of refundsEE (986) (3,437) (2,170)
Net cash provided by operating
activities 16,552 8,264 11,400
Cash Flows from Investing Activities:
Purchase of plant and equipment (8,821) (9,338) (5,446)
Cash portion of payment for purchase
of MMG, net of cash acquired (3,443)
Net cash used for investing
activities (8,821) (12,781) (5,446)
Cash Flows from Financing Activities:
Proceeds from issuance of
senior notes 18,000
Proceeds from long-term debt 4,005 4,388
Proceeds from notes payable 283
Proceeds from exercise of
stock options 16 2,019 2,409
Repayment of long-term debt (11,327) (7,916) (2,841)
Repayment of notes payable (400) (752)
Payment of dividend on common stock (1,075) (1,043) (967)
Other 33
Net cash provided by (used for)
financing activities 9,502 (3,271) (1,399)
Effect of exchange rate
changes on cash 146 14 (39)
Increase (decrease) in cash and
short-term investments 17,379 (7,774) 4,516
Cash and short-term investments
at beginning of year 2,284 10,058 5,542
Cash and short-term investments
at end of year $ 19,663 $ 2,284 $ 10,058
</TABLE>
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
<TABLE>
YEARS ENDED OCTOBER 31,
1994 1993 1992
Reconciliation of net earnings
(loss) to cash flows from
operating activities:
<S> <C> <C> <C>
Net earnings (loss) $4,604 $(5,737) $ 6,537
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,635 7,372 6,527
Loss on disposal or abandonment
of equipment 634 5,229 1,313
Accrued postretirement
health benefits 76143 80
Deferred income taxes (1,650) (2,038) (31)
Other non-cash adjustments
to net earnings (98) 323 436
Change in:
Accounts receivable (973) 2,250 (3,935)
Inventories 1,572 2,237 (945)
Income tax receivable 2,045 (1,925) 1,192
Deferred income tax assets 275 (705) (1,646)
Other current assets and
other assets
and investments (312) (631) 1,425
Accounts payable, accrued
expenses and accrued
compensation expenses 1,230 1,973 (624)
Deferred revenue (28) 664 (303)
Income taxes payable 1,542 (891) 1,374
Total adjustments 11,948 14,001 4,863
Net cash provided by
operating activities $ 16,552 $ 8,264 $11,400
</TABLE>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Effective December 31, 1992, the Company acquired MMG
Glastechnik GmbH (MMG) for approximately $3.4 million in cash and
approximately $9.3 million of notes payable to the sellers. Cash
and non-cash components of the acquisition were as follows:
Fair value of assets acquired,
including intangibles $ 22,865
Cash acquired (16)
Liabilities assumed (10,141)
Notes payable to sellers (9,265)
Net cash paid $ 3,443
In 1994, 1993 and 1992, common stock, with an aggregate fair
market value of $20,000, $42,000 and $15,000 was awarded to the
Company's outside directors as remuneration.
During 1993 and 1992, the Company issued 46,500 and 43,500
shares of common stock to its Employee Stock Ownership Plan (ESOP+)
at fair market value to satisfy a portion of its Company
contribution.
See Notes to Consolidated Financial Statements
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial
statements include the accounts of the Company and its wholly and
majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
INVESTMENTS. Cash and short-term investments are comprised
of bank repurchase agreements and short-term commercial paper
readily convertible to cash. Short-term investments are carried
at cost which approximates market value. For purposes of the
Statements of Cash Flows, all highly liquid short-term
investments with a maturity of three months or less are
considered cash equivalents.
REVENUE RECOGNITION. Revenue from sales of manufactured
products and from sales under fixed-price contracts is recorded
at the time deliveries are made or work is performed. Revenue
from cost reimbursement contracts is recorded as work is
performed.
INVENTORIES. Inventories are stated at the lower of cost, on
a first-in, first-out basis, or market. Work-in-process
inventories related to fixed-price contracts are stated at the
accumulated cost of material, labor and manufacturing overhead,
less the estimated cost of units delivered. To the extent total
costs under fixed-price contracts are estimated to exceed the
total sales price, charges are made to current operations to
reduce inventoried costs to net realizable value. In addition,
if future costs are estimated to exceed future revenues, an
allowance for losses equal to such excess is provided by a charge
to current operations.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment
are stated at cost. Estimated service lives range from 5 to 45
years for buildings and improvements and from 5 to 8 years for
all other property, plant and equipment. Buildings and
improvements and substantially all equipment are depreciated
using accelerated methods.
RESEARCH AND DEVELOPMENT. Research and development costs are
charged to operations in the year incurred. The cost of
equipment used in research and development activities which has
alternative uses is capitalized as equipment and not treated as
an expense of the period. Such equipment is depreciated over
estimated lives of 5-8 years.
INCOME TAXES. Income taxes include provisions for temporary
differences between earnings for financial reporting purposes and
earnings for income tax purposes. In 1992, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." As a result of adoption of this
Statement, the Company recorded a credit to earnings of $510,000,
as the cumulative effect of a change in accounting principle
resulting from differences which existed at October 31, 1991 in
the method of calculating deferred taxes between the Statement
the Company had previously adopted (SFAS No. 96) and SFAS No.
109.
FOREIGN OPERATIONS. The financial position and operating
results of substantially all foreign operations are consolidated
using the local currency as the functional currency. Local
currency assets and liabilities are translated at the rate of
exchange on the balance sheet date, and the local currency
revenues and expenses are translated at average rates of exchange
during the period. Resulting translation gains or losses are
included in stockholders' equity under cumulative foreign
currency translation adjustment. Foreign currency transaction
gains and losses, which have not been material, are reflected in
operating results.
EARNINGS PER SHARE. Earnings per common and common
equivalent share assumes dilutive stock options outstanding (none
in 1993) were exercised at the beginning of the year or the date
of grant, whichever is later. Fully diluted earnings per share
approximate primary earnings per share, or the effect is anti-
dilutive, and are, therefore, not presented.
RECLASSIFICATIONS. Certain amounts in the 1993 and 1992
consolidated financial statements have been reclassified to
conform with the presentation in the 1994 consolidated financial
statements.
2. LONG-TERM DEBT
<TABLE>
Long-term debt as of October 31 consisted of:
1994 1993
(Amounts in thousands)
<S> <C> <C>
Unsecured Senior Notes. Interest at
8.71% payable semiannually. Principal
payable in annual installments of
$3.6 million from 1998 through 2002. $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 $ 6,000
Term loan. Balance paid in 1994. 2,750
Unsecured borrowings under bank line of
credit. Balance paid in 1994. 2,500
Land improvement assessment, at an
average rate of 6.75% interest. Principal
and interest payable in semiannual
installments of $77,000 through 1998. 517 627
Scottish Development Agency (SDA) building
loan, at 12%, with semiannual payments
of approximately $357,000, each comprising
principal and interest through 2006.
Collateralized by the land and building
of the Company's Scottish subsidiary. 4,289 4,050
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. 8,167 8,187
Bank loans of MMG with interest rates ranging
from 4.5% to 9.75%. Payable in annual and
semiannual installments through 2014. Partly
collateralized by mortgages on MMG land
and buildings and liens on equipment. 5,133 4,630
Present value of obligations under capital leases
at an assumed interest rate of 7.5% payable in
monthly installments through 2004. 713 789
European Coal and Steel Community loan to
Scottish subsidiary. Balance paid in 1994. 279
42,319 29,812
Less current maturities (6,878) (6,702)
$35,441 $23,110
</TABLE>
Annual long-term debt maturities and capital lease payments
for the years 1994 through 1998 are $6,878,000, $3,583,000,
$3,079,000, $5,177,000 and $5,057,000, with the balance payable
through 2014. It is anticipated that approximately $3,500,000 of
the bank loans of MMG, included in the $6,878,000 current
maturities of debt, will be refinanced in 1995.
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 of up to approximately $440,000 with interest payable
at market rates. There were no borrowings under this credit
arrangement in 1994 or 1993, and there were no amounts
outstanding at October 31, 1994 or 1993 under this credit
arrangement.
In 1994, the Company issued $18 million of unsecured senior
notes in a private placement. $6.5 million of the proceeds were
used to pay back outstanding borrowings under a previous bank
line of credit.
At October 31, 1994, the Company had outstanding letters of
credit in the amount of $1,900,000 to meet the requirements under
the Company's workers' compensation self insurance plans, and the
Company's subsidiary in Scotland had outstanding letters of
credit of approximately $370,000 to guarantee payment of import
duty.
The Company has certain financial covenants and restrictions
under its bank credit arrangements and the unsecured senior
notes.
3. RESTRUCTURING CHARGES
In 1993, the Company took action to reduce its worldwide
work force and restructure certain of its operations.
Accordingly, in 1993 the Company recorded $9,746,000 of
restructuring charges reflecting severance payments relating to
staff reductions and reduction of the carrying value of certain
equipment, inventory and other assets.
4. ACQUISITION OF MMG
Effective December 31, 1992, the Company completed its
acquisition of MMG Glastechnik GmbH (MMG), a precision glass
fabricating company in Germany. This acquisition was accounted
for as a purchase. Payment consisted of approximately $3.4
million in cash and $9.3 million in ten year notes due to the
sellers which are payable in equal quarterly principal
installments plus interest at 8% per annum. In connection with
the acquisition, the Company assumed approximately $5.3 million
of long-term debt owed by MMG.
The Consolidated Statement of Operations for the fiscal year
ended October 31, 1993 included ten months of MMG operation. For
the ten month period ended October 31, 1993, MMG's sales and
other revenues were $13.3 million and MMG's contribution to the
loss before income taxes was approximately $2.0 million,
including interest expense on the non-cash portion of the
purchase price.
At October 31, 1994, other assets and investments includes
$7.5 million of intangibles, principally goodwill, resulting from
the purchase of MMG, which is being amortized over 15 years.
5. STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN. In November 1987, the Company
adopted a Stockholder Rights Plan, which expires in November
1997, under which the Company declared a dividend of preferred
stock purchase rights which only become exercisable, if not
redeemed, ten days after a person or group has acquired 20% or
more of the Company's common stock or the announcement of a
tender offer which would result in a person or group acquiring
30% or more of the Company's common stock. Under certain
circumstances, the plan allows stockholders, other than the
acquiring person or group, to purchase the Company's common stock
or the common stock of the acquirer having a market value of
twice the exercise price.
PREFERRED STOCK. The Company has authorized 100,000 shares
of preferred stock at $.01 par value of which 10,000 shares were
designated Series A Preferred Stock in connection with the
Company's Stockholder Rights Plan. None of the Series A
Preferred Stock is issued. Additionally, 15,000 shares were
designated Series B Preferred Stock, of which 8,350 shares were
issued and subsequently converted to common stock on call for
redemption. None of the Series B Preferred Stock is currently
issued and outstanding.
6. INCENTIVE COMPENSATION PLANS, STOCK OPTION PLANS AND
WARRANTS
Under the Company's incentive compensation and employee
stock option plans, options have been granted to purchase the
common stock of the Company at prices equal to 100% of the market
price of the Company's common stock at the date of grant.
Outstanding options are exercisable at prices ranging from $4.50
to $10.625 per share. Options expire five years from the date of
grant.
Changes in options, shares reserved for issuance and options
available for future grants under these plans were as follows:
<TABLE>
SHARES
SUBJECT TO AVAILABLE
OUTSTANDING FOR FUTURE
RESERVED OPTIONS GRANTS
<S> <C> <C> <C>
BALANCE AT NOVEMBER 1, 1991 1,594,125 1,380,115 214,010
Authorized and reserved 500,000 500,000
Granted 474,210 (474,210)
Exercised at an aggregate
price of $2,409,000 (472,437) (472,437)
Canceled (18,613) 18,613
BALANCE AT OCTOBER 31, 1992 1,621,688 1,363,275 258,413
Authorized and reserved 300,000 300,000
Granted 181,800 (181,800)
Exercised for cash at an
aggregate price of $2,019,000 (398,337) (398,337)
Exercised for shares at an
aggregate fair market value
of $101,000 (17,859) (17,859)
Canceled ________ (38,200) 38,200
BALANCE AT OCTOBER 31, 1993 1,505,492 1,090,679 414,813
Granted 819,900 (819,900)
Exercised for cash at an aggregate
price of $16,000 (2,884) (2,884)
Canceled (3,300) (564,100) 560,800
BALANCE AT OCTOBER 31, 1994 1,499,308 1,343,595 155,713
EXERCISABLE AT OCTOBER 31, 1994 990,370
</TABLE>
In 1993, options to purchase 17,859 shares of common stock
were exercised through exchange of 11,200 shares of common stock
at fair market value.
In 1993, warrants to purchase 75,000 shares of the Company's
common stock were exercised at $5.51 per share by the net
issuance of 34,913 shares of common stock.
7. INCOME TAXES
The provision (credit) for income taxes consisted of:
<TABLE>
1994 1993 1992
(Amount in thousands)
Current:
<S> <C> <C> <C>
Federal $ 2,174 $ 584 $ 3,017
Business tax credits (114)
2,174 470 3,017
State 516 221 943
Foreign 58 (24) 867
2,748 667 4,827
Deferred:
Federal 249 (1,738) (982)
State 281 (631) (190)
Foreign (198) (572) (82)
332 (2,941) (1,254)
$3,080 $(2,274) $ 3,573
The reconciliation of the effective income tax rates to the
federal statutory rates was as follows:
1994 1993 1992
Statutory federal income
tax rate 34.0% (34.0)% 34.0%
State taxes, net of federal
tax benefit 6.9 (2.6) 5.2
Business tax credits (1.4)
Adjustment of prior year
provisions (0.6) (0.4)
Tax benefit from export
sales corporation (1.3) (0.3) (0.8)
Foreign income taxes at rates
different from US statutory
rates 0.7 11.8 0.1
Other 0.4 (1.5) (1.3)
Effective tax rate 40.1% (28.4)% 37.2%
</TABLE>
The tax benefit recorded in 1993 was less than would have
been recorded by applying the federal and state statutory rates
because, under the requirements of SFAS 109, the full tax benefit
of losses incurred by European operations could not be
recognized.
The Company's deferred tax assets and liabilities at October
31, 1994 and 1993 under SFAS 109 arise from the following
temporary differences in accounting for financial versus tax
reporting purposes:
<TABLE>
DEFERRED TAX ASSET (LIABILITY) 1994 1993
CURRENT: (Amounts in thousands)
<S> <C> <C>
Valuation reserves and
accruals not deductible for
tax purposes until paid or
utilized $ 3,637 $3,640
Intercompany profit eliminated
for financial statement purposes
which is taxable currently 505 489
Revenue recognized in different
periods for financial and tax
reporting purposes 72 217
Tax credits eligible for carry
forward, related expenses deducted
for financial reporting purposes 224
Other 21 (60)
4,235 4,510
NONCURRENT:
Tax depreciation greater than
financial statement depreciation (2,771) (2,398)
Valuation reserves and accruals not
deductible for tax reporting
purposes until paid or utilized 191 283
Plant and equipment written off for
financial reporting purposes,
depreciable for tax purposes 1,023 1,302
Burden and interest on
self-constructed assets
expensed for tax purposes
and depreciated for
financial reporting purposes (489) (562)
Costs required to be capitalized
under the uniform capitalization
tax rules which are deducted
for financial reporting purposes 353 267
State income taxes not deductible
for federal purposes until the year
following payment (33) (71)
Liability for postretirement health
benefits not deductible for tax
purposes until paid 658 621
Foreign net operating losses
available for carryforward 1,724 1,035
Foreign deferred taxes recorded
upon the purchase of MMG (1,663)
Other (85) 36
571 (1,150)
Less valuation allowance (1,077) (962)
(506) (2,112)
Total deferred tax balances $ 3,729 $ 2,398
</TABLE>
The Company has provided a valuation allowance related to
the deferred tax asset resulting from the operating loss
carryforwards of certain of its foreign subsidiaries until the
realization of the loss carryforwards is determinable.
The deferred tax liability relating to the purchase of the
German subsidiary in 1993 has been reversed as a result of a tax
reorganization of the Company's German subsidiaries during 1994.
Income taxes have not been provided on approximately $9.1
million of unremitted earnings of the Company's subsidiary in
Scotland. The Company intends to continue to reinvest these
amounts in the subsidiary's operations. Should any of these
amounts be distributed to the Company, any taxes on these
distributions would be substantially offset by foreign tax
credits.
8. EMPLOYEE BENEFIT PLANS
US OPERATIONS. The Company has an Employee Stock Ownership
Plan (ESOP+), a defined contribution plan for its US employees.
Company contributions to ESOP+ are determined by a profit sharing
formula with additional contributions, if any, determined by the
Company's Board of Directors. The Company follows the policy of
funding ESOP+ contributions as accrued. The Company
contributions are made in the form of cash to purchase the
Company's common stock or in the form of the Company's common
stock. The Company contributed to ESOP+ and charged to operations
$950,000, $500,000 and $1,000,000 for 1994, 1993 and 1992.
In 1993, as part of its restructuring, the Company offered a
voluntary severance program to US employees who had met certain
age and service requirements. The Company expensed $550,000 as
part of its restructuring charges as a result of this program.
SCOTTISH OPERATIONS. The Company's Scottish subsidiary
maintains a contributory defined benefit pension program
covering most of its employees. Benefits are primarily based on
years of service and the employee's compensation. The program is
funded in conformity with the funding requirements of applicable
UK government regulations. Plan assets are invested in
diversified fund units which are comprised primarily of corporate
equity securities.
The following table sets forth the plan's funded status at
October 31:
<TABLE>
1994 1993 1992
(Amounts in thousands)
<S> <C> <C> <C>
Plan assets at fair value $ 4,971 $ 3,824 $ 3,383
Projected benefit obligation (4,820) (3,890) (3,466)
Plan assets greater (less)
than projected
benefit obligation 151 (66) (83)
Unrecognized net loss 640 700 798
Unrecognized transition asset
being amortized over 19 years (521) (510) (635)
Net effect of exchange
rate fluctuations 13 2
Prepaid pension cost included
in other assets $ 270 $ 137 $ 82
</TABLE>
At October 31, 1994, 1993 and 1992, the projected benefit
obligations include accumulated benefit obligations of
$4,621,000, $3,675,000 and $3,365,000, of which $4,602,258,
$3,667,000 and $3,064,000 are vested.
A discount rate of 8.5% in 1994, 8.0% in 1993 and 9.0% in
1992 was used in determining the present value of the projected
benefit obligation. The expected long-term rate of return on
assets was 9.0% and the assumed rate of increase in future
compensation levels was 5.5% in 1994 and 1993 and 6.5% in 1992.
The net pension expense recorded in 1994, 1993 and 1992
included the following components:
<TABLE>
1994 1993 1992
(Amounts in thousands)
<S> <C> <C> <C>
Service-cost benefits earned
during the period $ 275 $278 $286
Interest cost on projected
benefit obligation 317 269 298
Actual return on plan assets (479) (688) 71
Net amortization and deferral 92 389 (421)
Net pension expense $ 205 $248 $234
</TABLE>
9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a contributory defined benefit
postretirement plan for its US operations which provides medical,
dental and life insurance benefits to employees who meet age and
years of service requirements prior to retirement and agree to
contribute a portion of the cost. The Company has the right to
modify or terminate this benefit program.
The Company's contribution is a set amount per retiree
depending on the retiree's years of service and dependent status
at the date of retirement and the age of the retiree and
dependents when benefits are provided. Cost increases are paid
by the retiree.
The postretirement plan's benefit obligation was as follows:
<TABLE>
10/31/94 10/31/93 10/31/92
(Amounts in thousands)
Accumulated postretirement
benefit obligation:
<S> <C> <C> <C>
Retirees $ 894 $921 $680
Fully eligible plan participants 175 135 110
Other active plan participants 590 653 544
Total accumulated
postretirement benefit
obligation (unfunded) 1,659 1,709 1,334
Unrecognized loss (227)
Accrued postretirement
benefit obligation $1,659 $1,482 $1,334
Net periodic postretirement
benefit cost included the
following components:
Service-cost benefits earned
during the period $ 59 $ 42 $ 39
Interest cost on accumulated
postretirement benefit
obligation 120 11 106
Effect of special termination
benefits 71
Net postretirement
benefit cost $179 $227 $145
</TABLE>
Net postretirement benefit costs and accumulated benefit
obligation for 1993 were increased by $71,000 as a result of
special termination benefits provided to US employees who
participated in a voluntary severance program.
Because the Company has established a maximum amount it will
pay per retiree under the plan, health care cost trends do not
affect the calculation of the accumulated benefit obligation or
the net postretirement benefit cost. The weighted average
discount rate used in determining the accumulated benefit
obligation was 8.0% in 1994, 7.0% in 1993 and 8.5% in 1992.
10. CONTINGENCIES AND COMMITMENTS
INTEREST RATE SWAP AGREEMENT. The Company has entered into
an interest rate swap agreement to reduce the impact of changes
in interest rates on its floating rate term loan. The interest
rate differential that is paid or received under this agreement
is accrued as interest rates change and is recognized over the
life of the agreement. At October 31, 1994, the Company had an
interest rate swap agreement with a commercial bank having a
notional principal amount of $5,500,000. The agreement
effectively changes the Company's interest rate on the $5,500,000
floating rate term loan to a fixed 9.7%. The interest rate swap
agreement matures in accordance with the due date of the payment
of the term loan. While the Company does not anticipate
nonperformance, it is exposed to credit loss in the event of
nonperformance by the other party to the swap agreement.
CONCENTRATIONS OF CREDIT RISK. The Company grants credit to
customers, subject to credit approval, for most of its sales. At
October 31, 1994, accounts receivable from customers in foreign
countries, primarily in Europe and Asia, were $12.2 million,
constituting 55% of accounts receivable.
OPERATING LEASE AGREEMENTS. The Company and its
subsidiaries lease computer equipment, manufacturing space and
warehouse space. Such operating lease payments are recorded as
rental expense and totaled $2,186,000, $2,075,000 and $2,041,000
for 1994, 1993 and 1992. Future minimum operating lease payments
amount to $3,606,000, and for the years 1995 through 1999 are
$1,522,000, $759,000, $222,000, $44,000 and $38,000 under present
operating lease agreements.
EMPLOYMENT AGREEMENTS. The Company has approved employment
agreements for officers, as well as increases in severance
benefits for full-time employees, to be effective in the event of
certain changes in control of the Company. These agreements are
currently effective through 1995.
PROPERTY, PLANT AND EQUIPMENT PURCHASES. At October 31,
1994, the Company had no significant commitments for property,
plant or equipment additions.
11. INFORMATION ON OPERATIONS
INVENTORIES. Inventories as of October 31 consisted of:
<TABLE>
1994 1993
(Amounts in thousands)
<S> <C> <C>
Raw materials and supplies $ 3,633 $ 5,730
Work-in-process and finished goods 6,926 5,875
$10,559 $11,605
ACCRUED EXPENSES. Accrued expenses at October 31 consisted
of:
1994 1993
(Amounts in thousands)
Workers' compensation reserve $ 1,578 $ 1,897
Ground water remediation reserve 1,197 1,433
Other accrued liabilities 5,648 4,364
$ 8,423 $ 7,694
</TABLE>
INTEREST. Interest expense and amounts capitalized were as
follows:
<TABLE>
1994 1993 1992
(Amounts in thousands)
<S> <C> <C> <C>
Interest costs incurred $3,372 $3,176 $2,341
Less amounts capitalized 157 178 118
Net interest expense $3,215 $2,998 $2,223
</TABLE>
SALES INFORMATION. Information on sales to significant
customers and sales to the federal government is as follows:
Sales to the Company's largest customer, who is also an
approximately 10% stockholder of the Company, accounted for 7% of
net sales and other revenues in 1994 and 1993 and 6% of net sales
and other revenues in 1992.
Sales of products and services to the federal government,
primarily under subcontracts, were 11%, 7% and 8% of net sales
and other revenues in 1994, 1993 and 1992. Certain of these
contracts are subject to cost review by various governmental
agencies. Management believes that refunds will not exceed
amounts already reserved.
FOREIGN OPERATIONS. Foreign sales of the Company were as
follows:
<TABLE>
1994 1993 1992
(Amounts in thousands)
Export sales by US operations:
<S> <C> <C> <C>
To Asian countries $15,012 $11,454 $ 9,574
To European and other
countries 4,243 2,850 6,767
19,255 14,304 16,341
Foreign Sales by European
operations 40,241 36,104 24,153
$59,496 $50,408 $40,494
</TABLE>
Identifiable assets of the Company's foreign operations were
$43.3 million at October 31, 1994, $37.7 million at October 31,
1993 and $19.8 million at October 31, 1992.
COMPONENTS OF EARNINGS. The components of earnings (loss)
before income taxes were as follows:
<TABLE>
1994 1993 1992
(Amounts in thousands)
<S> <C> <C> <C>
Domestic $ 8,311 $(3,480) $ 7,057
Foreign (627) (4,531) 2,543
$ 7,684 $(8,011) $ 9,600
</TABLE>
12. QUARTERLY RESULTS (UNAUDITED)
Results of operations for each quarter of 1994 and 1993 were as
follows:
<TABLE>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
(Amounts in thousands, except per share data)
1994
<S> <C> <C> <C> <C> <C>
Net sales and
other revenues $30,091 $33,544 $33,403 $34,742 $131,780
Gross profit 11,074 13,000 11,364 12,341 47,779
Net earnings $ 1,102 $ 1,347 $ 910 $ 1,245 $ 4,604
Net earnings per share $ .12 $ .15 $ .10 $ .14 $ .51
1993
Net sales and
other revenues $27,987 $32,416 $31,497 $31,113 $123,013
Gross profit 10,700 12,316 8,069 10,043 41,128
Net earnings (loss) $ 1,067 $ 1,371 $(6,822) $(1,353) $(5,737)
Net earnings (loss)
per share $ .12 $ .15 $ (.77) $ (.15) $ (.65)
</TABLE>
The third and fourth quarters of 1993 included restructuring
charges of $8,637,000 and $1,109,000, which increased the net
loss per share by $.60 and $.09 in the respective quarter and by
$.70 for the year.
13. OTHER INVESTMENTS
FLEX PRODUCTS, INC. JOINT VENTURE. In 1988, the Company
formed a joint venture, consisting of its Flex Products
operation, with ICI Americas Inc., the US subsidiary of Imperial
Chemical Industries PLC (ICI). The joint venture, Flex Products,
Inc., is 40% owned by the Company and 60% owned by ICI.
The Company received proceeds in excess of the carrying
amount of the assets contributed to the joint venture. The
proceeds were allocated first to reduce the carrying amount of
the Company's investment to zero, with the remaining proceeds
reported as gain on sale of equity in affiliated company. Since
the Company carries its investment in the joint venture at zero
and is not obligated to make further investment in the joint
venture, it has not recognized losses attributable to its equity
position in the joint venture.
The Flex Products, Inc. joint venture received an $18
million investment, plus a $5 million working capital loan, form
ICI for ICI's 60% interest. In consideration for OCLI's
contribution of the assets and business of its Flex Products
operation and a covenant not to compete with the joint venture,
Flex Products, Inc. assumed and paid $12 million of OCLI's bank
term loan and paid OCLI $6 million cash for a total of $18
million.
Simultaneously with entering into the joint venture
agreement, the parties entered into several other agreements
pursuant to which OCLI is receiving, or has received, the
following additional payments: (i) $5 million over the first
five years of the joint venture for research and development
services; (ii) $1.8 million over the first two years of the
joint venture in technology support fees under a support services
agreement; and (iii) royalties starting at 10% of joint venture
sales and declining to 4% over the first five years of the joint
venture and continuing thereafter at 4% until cumulative
royalties of $13.7 million have been paid to the Company. The
joint venture agreement also includes a buyout option of the
Company's interest by ICI that began five years after the close
of the transaction.
As of October 31, 1994, the Company has received cumulative
royalties of $4.1 million. In 1994, 1993 and 1992, the Company
received $906,000, $859,000 and $856,000 as royalties on sales.
In addition, in 1994, 1993 and 1992, Flex Products Inc. paid the
Company approximately $916,000, $761,000 and $720,000, for
facility rent; $565,000, $616,000 and $730,000 in cost
reimbursement for general, administrative and support services;
and $217,000, $808,000 and $788,000 under the research,
development and engineering services contract. These amounts are
reflected in the operating results of the Company for the
respective years.
INVESTMENT IN SUPERCONDUCTOR TECHNOLOGIES, INC. In January
1988, OCLI made an investment of $250,000, to purchase 83,333
shares of Series B Preferred Stock of Superconductor
Technologies, Inc. (STI). These preferred shares have been
converted to 41,666 common shares of STI with an approximate fair
value of $270,000.
MILAS MONITOR PRODUKTE GMBH JOINT VENTURE. In March 1993,
the Company formed a joint venture with Mr. Waldemar Milas, a
distributor of the Company's Glare/Guard(R) product line in
Germany. At October 31, 1993, the Company wrote down its
investment and the receivables relating to this investment due to
the uncertainty of the viability of this venture. On July 29,
1994, the Company terminated its contractual obligations under
the joint venture with Mr. Milas. However, Mr. Milas remains a 49%
shareholder of Milas Monitor Produckte GmbH.
NESA MONITOR PRODUCTS SRL JOINT VENTURE. In April 1993, the
Company formed a joint venture with Nesa Informatica Srl, a
distributor of the Company's Glare/Guard(R) product line in
Italy. The Company's investment in the joint venture was
approximately $590,000.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
Optical Coating Laboratory, Inc. was incorporated in Delaware in 1948. The
Company was reincorporated in California in 1963 and again reincorporated in
Delaware November 2, 1987.
Optical Coating Laboratory, Inc. has the following subsidiaries:
NAME OWNERSHIP PLACE OF INCORPORATION
OCLI International Service
Corporation 100% California
OCLI Foreign Sales Corporation 100% Guam
OCLI Optical Coatings Limited 100% Scotland
OCLI Optical Coatings Espana S.A. 100% Spain
Optical Coating Laboratory B.V. 100% Netherlands
OCLI Optical Coating Laboratory GmbH 100% Germany
MMG Glastechnik GmbH 100% Germany
Optical Coating Laboratory EURL 100% France
Optical Coating Laboratory Srl 100% Italy
Milas Monitor Produkte GmbH 51% Germany
Nesa Monitor Products Srl 51% Italy
Flex Products, Inc. (i) 40% Delaware
The subsidiaries listed above are included in the consolidated financial
statements of the Company which are incorporated by reference to the
Company's 1994 Annual Report. Flex Products, Inc. is not a consolidated
subsidiary.
(i) Flex Products, Inc. is comprised of the Company's former roll coating
activities which business and assets were contributed to an unconsolidated
40% owned joint venture effective October 31, 1988.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statements
No. 33-41050, No. 33-26271, No. 33-12276, No. 33-48808 and No. 33-65132 of
Optical Coating Laboratory, Inc. on Forms S-8 and Registration Statement
No. 2-97482 on Form S-3 of our report dated December 14, 1994, appearing
in this Annual Report on Form 10-K of Optical Coating Laboratory, Inc.
for the year ended October 31, 1994.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Optical Coating Laboratory, Inc., listed in Item 14(a)(2). The financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, the financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Francisco, California
January 24, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000074697
<NAME> OCLI
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<CASH> 5,578
<SECURITIES> 14,085
<RECEIVABLES> 22,007
<ALLOWANCES> 1,810
<INVENTORY> 10,559
<CURRENT-ASSETS> 57,510
<PP&E> 52,010
<DEPRECIATION> 6,930
<TOTAL-ASSETS> 118,879
<CURRENT-LIABILITIES> 29,018
<BONDS> 0
<COMMON> 90
0
0
<OTHER-SE> 51,947
<TOTAL-LIABILITY-AND-EQUITY> 118,879
<SALES> 131,780
<TOTAL-REVENUES> 131,780
<CGS> 84,001
<TOTAL-COSTS> 84,001
<OTHER-EXPENSES> 37,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,215
<INCOME-PRETAX> 7,684
<INCOME-TAX> 3,080
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,604
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
