UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 28, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-2537
OPTICAL COATING LABORATORY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
68-0164244
(I.R.S. Employer Identification No.)
2789 NORTHPOINT PARKWAY, SANTA ROSA, CA 95407-7397
(Address of principal executive offices)
(707) 545-6440
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Classes of Common Stock
COMMON STOCK, $.01 PAR VALUE
Outstanding at August 30, 1996: 9,729,629 shares
The Exhibit listing appears on Page 16.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 28, October 31,
ASSETS 1996 1995
(Unaudited)
Current Assets:
Cash and short-term investments $ 10,147 $ 6,602
Accounts receivable, net of
allowance for doubtful accounts
of $1,462 and $1,229 32,802 29,565
Inventories 18,859 15,886
Income taxes receivable 1,563
Current deferred income tax assets 5,153 6,665
Other current assets 2,773 2,476
Total Current Assets 71,297 61,194
Deferred income tax assets 3,350 4,597
Other assets and investments 12,304 12,432
Property, Plant and Equipment:
Land and improvements 9,941 8,651
Buildings and improvements 38,129 31,461
Machinery and equipment 108,940 101,586
Construction-in-progress 12,289 23,717
169,299 165,415
Less accumulated depreciation (81,987) (73,804)
Property, Plant and Equipment - Net 87,312 91,611
Total Assets $174,263 $169,834
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $9,511 $10,324
Accrued expenses 9,185 9,515
Accrued compensation expenses 7,047 6,559
Current maturities on long-term debt 3,452 3,344
Notes payable 2,657 3,339
Deferred revenue 1,324 98
Total Current Liabilities 33,176 33,179
Postretirement health benefits
and pension liabilities 2,195 2,150
Deferred income tax liabilities 1,270 2,239
Long-term debt 48,500 47,267
Minority interest 10,718 11,105
Convertible redeemable preferred stock 11,309 11,357
Common Stockholders' Equity:
Common stock, $.01 par value;
authorized 30,000,000 shares;
issued and outstanding 9,728,000
and 9,489,000 shares 97 95
Paid-in capital 46,923 44,461
Retained earnings 20,872 17,901
Cumulative foreign currency
translation adjustment (797) 80
Common Stockholders' Equity 67,095 62,537
Total Liabilities and
Stockholders' Equity $174,263 $169,834
The accompanying notes are an integral part of these financial
statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and nine month periods ended July 28, 1996 and July 31, 1995
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
July 28, July 31, July 28, July 31,
1996 1995 1996 1995
Revenue $48,772 $47,289 $141,134 $124,769
Cost of sales 33,353 29,536 93,500 76,811
Gross profit 15,419 17,753 47,634 47,958
Operating Expenses:
Research and development 2,934 2,546 7,944 5,565
Selling and administrative 8,109 9,707 27,310 28,341
Amortization of intangibles 284 213 849 688
Total operating expenses 11,327 12,466 36,103 34,594
Income from operations 4,092 5,287 11,531 13,364
Other Income (Expense):
Interest income 52 127 191 549
Interest expense (829) (974) (2,552) (2,885)
Income before provision for
income taxes and
minority interest 3,315 4,440 9,170 11,028
Provision for income taxes 1,117 1,866 3,576 4,632
Minority interest 165 443 750 443
Net income 2,033 2,131 4,844 5,953
Dividend on convertible redeemable
preferred stock 240 222 720 222
Net Income Applicable
to Common Stock $1,793 $1,909 $4,124 $5,731
Net Income Per Common and Common
Equivalent Share $ .17 $ .20 $ .40 $ .61
Weighted Average Number of
Common Shares Used to Compute
Net Income Per Share 10,550 9,557 10,279 9,321
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine month period ended July 28, 1996
(Amounts in thousands)
(Unaudited)
FOREIGN
COMMON STOCK PAID-IN RETAINED CURRENCY
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION
BALANCE AT NOVEMBER 1, 1995 9,489 $95 $44,461 $17,901 $80
Shares issued to Employee Stock
Ownership Plan 40 438
Exercise of stock options,
including tax benefit and
shares issued to directors 199 2 2,024
Foreign currency translation
adjustment (877)
Net income 4,844
Dividend on preferred stock (720)
Dividend on common stock (1,153)
BALANCE AT JULY 28, 1996 9,728 $97 $46,923 $20,872 $(797)
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and nine month periods ended July 28, 1996 and July 31, 1995
(Amounts in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
July 28, July 31, July 28, July 31,
1996 1995 1996 1995
Cash Flows From
Operating Activities:
Cash received from customers $47,238 $46,529 $136,806 $119,028
Interest received 32 123 139 617
Cash paid to suppliers
and employees (46,339) (34,907) (123,319)(100,983)
Cash paid to ESOP+ (406)
Interest paid (1,514) (1,294) (3,642) (3,397)
Income taxes paid,
net of refunds 3,606 (631) (1,383) (4,518)
Net Cash Provided By
Operating Activities 3,023 9,820 8,601 10,341
Cash Flows From Investing Activities:
Purchase of plant and equipment (7,163) (9,321) (23,957) (20,459)
Proceeds from sale-leaseback
of new equipment 12,304 18,980
Equity and debt acquired of
Flex Products, Inc., net
of cash acquired (15,185) (15,185)
Cash portion of payment
for purchase of Netra,
net of cash acquired (1,477)
Net Cash Provided By
(Used For)Investing
Activities 5,141 (24,506) (4,977) (37,121)
Cash Flows From Financing Activities:
Net proceeds from issuance
of preferred stock 11,362 11,362
Proceeds from long-term debt 5,957
Proceeds from debt borrowings 19,542 19,542
Proceeds from notes payable 269 6 423 194
Proceeds from exercise of
stock options 1,032 263 1,485 635
Repayment of long-term debt (1,002) (8,752) (3,902) (10,644)
Repayment of notes payable (80) (924) (387)
Repayment of note to
minority stockholder (2,090) (1,137)
Payment of dividend on
preferred stock (240) (222) (720) (222)
Payment of dividend on
common stock (582) (544) (1,153) (1,083)
Net Cash (Used For) Provided By
Financing Activities (2,613) 21,575 29 19,397
Effect of exchange rate
changes on cash 97 56 (108) 132
Net increase (decrease) in
cash and short-term investments 5,648 6,945 3,545 ( 7,251)
Cash and short-term investments
at beginning of period 4,499 5,467 6,602 19,663
Cash and short-term investments
at end of period $10,147 $12,412 $10,147 $12,412
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three and nine month periods ended July 28, 1996 and July 31, 1995
(Amounts in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
July 28, July 31, July 28, July 31,
1996 1995 1996 1995
Reconciliation Of Net Income To Cash
Flows From Operating Activities:
Net income $2,033 $2,131 $4,844 $5,953
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 3,544 2,955 10,040 6,925
Minority interest in earnings
of Flex Products, Inc. 165 443 750 443
Net book value of coating machine
sold 880 880
Loss on disposal or abandonment of
equipment 334 82 389 180
Accrued postretirement health benefits 10 19 65 56
Deferred income tax liabilities (1,076) 17 (967) 527
Other non-cash adjustments
to net income (292) 446 (512) 267
Change in:
Accounts receivable (1,000) 308 (3,748) (4,375)
Inventories (458) 294 (3,217) (1,492)
Income tax receivable 147 (31)
Deferred income tax assets 2,334 243 2,742 (456)
Other current assets and
other assets and investments (1,551) (360) (1,610) (2,120)
Accounts payable, accrued expenses
and accrued compensation expenses (1,201) 2,726 (626) 4,766
Deferred revenue 289 (449) 484 (490)
Income taxes payable (1,135) 965 (882) 157
Total adjustments 990 7,689 3,757 4,388
Net Cash Provided By
Operating Activities $3,023 $9,820 $8,601 $10,341
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended July 28, 1996 and July 31, 1995
(Unaudited)
1. GENERAL
Optical Coating Laboratory, Inc. ("OCLI") designs, develops and
manufactures multi-layer thin film coatings which control and enhance light
by altering the transmission, reflection and absorption of its various
wavelengths to achieve a desired effect, such as anti-reflection, anti-
glare, electromagnetic shielding, electrical conductivity and abrasion
resistance. OCLI markets and distributes components worldwide to OEMs of
optical and electro-optical systems. OCLI sells its Glare/Guard brand
ergonomic computer display products through resellers and office retailers.
Flex Products, Inc. (Flex Products), a 60% owned subsidiary of OCLI,
designs and manufactures thin film coatings on flexible substrates using
high vacuum roll-to-roll processes. In addition to supplying a critical
pigment for use in anti-counterfeiting applications, Flex Products
manufactures energy-conserving window film for residential, commercial and
automotive applications, as well as photoreceptor components for copiers
and ChromaFlair pigments for commercial paints.
The Condensed Consolidated Balance Sheet as of July 28, 1996, the
Condensed Consolidated Statements of Income for the three and nine month
periods ended July 28, 1996 and July 31, 1995, the Condensed Consolidated
Statement of Common Stockholders' Equity for the nine month period ended
July 28, 1996 and the Condensed Consolidated Statements of Cash Flows for
the three and nine month periods ended July 28, 1996 and July 31, 1995 have
been prepared by the Company without audit. In the opinion of management,
all adjustments, consisting of normal recurring accruals necessary to
present fairly the financial position, results of operations and cash flows
at July 28, 1996 and for all periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report to
Stockholders for fiscal 1995.
The results of operations for the period ended July 28, 1996 are not
necessarily indicative of the operating results anticipated for the full
year.
2. INVENTORIES
Inventories consisted of the following:
July 28, October 31,
1996 1995
(Amounts in thousands)
Raw materials and supplies $ 8,370 $7,330
Work-in-process and finished goods 10,489 8,556
$18,859 $15,886
3. ACCRUED EXPENSES
Accrued expenses consisted of the following:
July 28, October 31,
1996 1995
(Amounts in thousands)
Workers' compensation reserve $ 495 $ 937
Ground water remediation reserve 1,182 1,187
Other accrued liabilities 7,508 7,391
$ 9,185 $9,515
4. LONG-TERM DEBT
Long-term debt consisted of: July 28, October 31,
1996 1995
(Amounts in thousands)
Unsecured senior notes. Interest at 8.71%
payable semiannually. Principal payable in
annual installments of $3.6 million from
1998 through 2002. $18,000 $18,000
Unsecured bank term loan. Variable interest
rates averaging 6.5% at July 28, 1996,
payable quarterly. Principal payable semiannually
as follows:
Payment Dates Amounts
October 1996 and April 1997 $1,000,000
Each October and April
thereafter 2,000,000 14,000 14,500
Mortgage payable. Interest at 8%.
Collateralized by a 72,000 sq. ft. newly
constructed building and related land area.
Principal and interest payable
over 15 years at $25,000 per month. 2,546
Mortgage payable. Interest at 7.5%.
Collateralized by a 72,000 sq. ft. newly
constructed building and related land area
leased to Flex Products, Inc. Principal
and interest payable over 15 years at
$28,000 per month. 2,971
Unsecured borrowings under revolving
bank line of credit. Repaid during first
quarter of fiscal 1996. 2,000
Land improvement assessment. Interest
at an average rate of 6.75%. Principal and
interest payable in semiannual installments
of $77,000 through 1998. 276 401
Scottish Development Agency (SDA) building loan,
with a conditional interest moratorium
through January 31, 1998 with interest at 9.5%
thereafter. Semiannual principal payments of
approximately $100,000 are payable through
January 1998 with subsequent payments of $331,000,
comprising principal and interest, through 2006.
Collateralized by the land and building of the
Company's Scottish subsidiary. 3,866 4,026
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 $420,000 through 2003. 6,533 7,721
Bank loans of MMG with interest rates ranging from
4.5% to 8.0%. Payable in semiannual and annual
installments through 2005. Partly collateralized by
mortgages on MMG land and buildings
and liens on equipment. 3,011 3,050
Present value of obligations under capital
leases at an assumed interest rate of
8.0% payable in monthly installments
through 2004. 749 913
51,952 50,611
Less current maturities (3,452) (3,344)
$48,500 $47,267
The Company has a $30 million unsecured credit facility comprised of a
$15 million term loan and a $15 million revolving line of credit. The
revolving line of credit carries a commitment fee of .375% per year on the
unused portion of the facility and expires on April 28, 2000. The Company
has an incremental credit facility to cover a surety letter for
approximately $3.3 million issued to secure 50% of the Company's notes
payable arising from the purchase of MMG. The Company also has a letter of
credit for approximately $775,000 to satisfy the Company's workers'
compensation self-insurance requirements. The surety commitment and letter
of credit facilities carry a fee of 1.25% per year.
The Company's subsidiary in Scotland has a credit arrangement of up to
approximately $470,000 at market interest rates and has outstanding letters
of credit of approximately $320,000 to guarantee import duty. There were
no borrowings under the credit arrangement in fiscal years 1996 or 1995.
The Company's subsidiary in Germany has various credit facilities with
local banks totaling approximately $2.7 million which are used for working
capital requirements. These credit facilities are utilized as part of
normal local payment practices.
During the first nine months of 1996, the Company entered into three
operating lease arrangements for a newly acquired continuous coating
machine and related equipment and for two newly acquired coating machines
to be used in the manufacturing operations of Flex Products, Inc. The
lease terms are six years, with monthly payments totalling approximately
$290,000 and incorporate buyout provisions at the end of the lease term.
The Company has certain financial covenants and restrictions under its
bank credit arrangements and the unsecured senior notes.
5. STOCK OPTIONS
During the nine months ended July 28, 1996, options to purchase
546,450 shares of the Company's common stock were granted under the
Company's incentive compensation and employee stock option plans at prices
equal to 100% of the market price on the date of grant. At July 28, 1996,
1,873,250 shares are subject to outstanding options at prices ranging from
approximately $6.13 to $17.38 per share, of which 1,046,359 option shares
are exercisable. At the Annual Meeting held on March 29, 1996, the
Stockholders approved the 1996 Incentive Compensation Plan which authorizes
the Company to grant options to purchase the Company's common stock up to
950,000 shares. At July 28, 1996, options to purchase 718,263 shares of
common stock are available for future grants under all of the Company's
authorized plans.
6. LEGAL PROCEEDING
During the quarter, SICPA Holding S.A. (SICPA), the 40% joint owner of
Flex Products, Inc. (Flex Products), filed suit in Delaware Chancery Court
seeking injunctive and other relief against the Registrant, Flex Products
and certain of Flex Products' directors. In the suit, SICPA alleges that
Flex Products cannot proceed with an initial public offering of its common
stock without the consent of SICPA and that SICPA has the right to purchase
the Registrant's 60% ownership of Flex Products pursuant to a call option
beginning after May 8, 1998.
7. SUBSEQUENT EVENT
The Company has entered into an Agreement and Plan of Merger with
Optical Corporation of America, "OCA" in which the Company will acquire
100% of the outstanding shares and common stock equivalents of OCA in
exchange for approximately 1.9 million shares of OCLI common stock. The
merger is expected to close in the fourth quarter of 1996 and is anticpated
to be accounted for as a "pooling of interests" which will require the
Company to restate its consolidated financial statements for each period
presented as if the merger had taken place prior to the beginning of the
period or prior to the balance sheet date. For its fiscal year ended June
30, 1996, OCA had unaudited revenues of $29.6 million and unaudited net
income of $416,000.
OCA is a privately held corporation which designs and manufactures
optical and electro-optical components and subsystems, including devices
for expanding the capacity of new and existing long distance fiber optic
telecommunications networks.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF MATERIAL CHANGES IN
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
REVENUE. Revenue for the third quarter of fiscal 1996 was $48.8
million, an increase of $1.5 million, or 3%, over revenue of $47.3 million
in the third quarter of fiscal 1995. Revenue for the first nine months of
fiscal 1996 was $141.1 million, an increase of $16.3 million, or 13%, over
revenue of $124.8 million for the first nine months of fiscal 1995. Revenue
for the third quarter of 1996 increased due to higher shipments of products
used in projection imaging and telecommunications applications and due to
licensing and sales revenue from the sale of a coating machine, partially
offset by decreased shipments of products used in office automation and
computer display applications. Revenue for the first nine months of
fiscal 1996 increased primarily due to the consolidation of Flex Products,
Inc. (Flex Products). The Company increased its ownership in Flex Products
from 40% to a controlling 60% in May of 1995, resulting in the
consolidation of Flex Products' financial results into the Company's
financial statements beginning in the third quarter of fiscal 1995.
GROSS PROFIT. Gross profit for the third quarter of fiscal 1996 was
$15.4 million, or 31.6% of revenue, compared to $17.8 million, or 37.5% of
revenue, for the third quarter of fiscal 1995. Gross profit for the first
nine months of fiscal 1996 was $47.6 million, or 33.8% of revenue,
compared to $48.0 million, or 38.4% of revenue, for the first nine months
of fiscal 1995. The gross profit decrease in the fiscal 1996 third quarter
was due to lower shipments of computer display and office automation
products and startup costs associated with new manufacturing facilities,
partially offset by the gross profit associated with the sale of a coating
machine. Gross profit for the fiscal 1996 nine month period was
approximately even with the comparative period of fiscal 1995 and reflects
gross profit increases resulting from the consolidation of Flex Products
and the sale of a coating machine offset by lower gross profit in computer
display and office automation markets along with start up costs associated
with new manufacturing facilities. Gross profit margin declines in the
current year three and nine month periods were due primarily to decreased
shipments of higher margin products used in computer display applications
and start up costs associated with the new manufacturing facilities,
partially offset by the higher gross margins associated with the sale of a
coating machine.
RESEARCH AND DEVELOPMENT. Research and development expenditures in
the third quarter of fiscal 1996 were $2.9 million, or 6.0% of revenue,
compared to $2.5 million, or 5.4% of revenue, for the third quarter of
fiscal 1995. Research and development expenditures for the first nine
months of fiscal 1996 were $7.9 million, or 5.6% of revenue, compared to
$5.6 million, or 4.5% of revenue, for the first nine months of fiscal 1995.
The fiscal 1996 third quarter expenditures were fairly even with the
comparative period of fiscal 1995. The nine month year to year increase in
research and development expenditures was due to the consolidation of Flex
Products and to the realignment of engineering resources from
manufacturing to new product development programs.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses in
the third quarter of fiscal 1996 were $8.1 million, or 16.6% of revenue,
compared to $9.7 million, or 20.5% of revenue, for the third quarter of
fiscal 1995. Selling and administrative expenses for the first nine months
of fiscal 1996 were $27.3 million, or 19.4% of revenue, compared to $28.3
million, or 22.7% of revenue, for the first nine months of fiscal 1995. The
decreases in the fiscal 1996 three and nine month period selling and
administrative expenses were primarily due to reductions in the year-to-
year selling and administrative expenses of the Company's Glare/Guard
computer display aftermarket business in Europe.
INCOME FROM OPERATIONS. As a result of the foregoing changes in
revenue, gross profit and operating expenses, the Company's income from
operations was $4.1 million for the third quarter of fiscal 1996 compared
to $5.3 million for the third quarter of fiscal 1995, a decrease of $1.2
million or 23%. The Company's income from operations totaled $11.5 million
for the first nine months of fiscal 1996 compared to $13.4 million for the
first nine months of fiscal 1995, a decrease of $1.8 million or 14%.
INTEREST INCOME AND EXPENSE. Interest income for the third quarter of
fiscal 1996 decreased $75,000, or 59%, compared to the third quarter of
fiscal 1995. Interest income for the first nine months of fiscal 1996
decreased $358,000, or 65%, compared to the first nine months of fiscal
1995. The decrease in interest income reflects the lower average cash
balances available for investment in the current periods compared to the
year ago periods. Interest expense, net of capitalized interest, for the
third quarter of fiscal 1996 decreased $145,000, or 15%, compared to the
third quarter of fiscal 1995. Interest expense, net of capitalized
interest, for the first nine months of fiscal 1996 decreased $333,000, or
12%, compared to the first nine months of fiscal 1995. Most of the decrease
in interest expense resulted from the refinancing of the Company's debt
obligations during the third quarter of fiscal 1995 at more favorable
interest rates and decreased market interest rates on its variable rate
loans.
INCOME TAXES AND MINORITY INTEREST. The effective income tax rate was
34% for the third quarter and 39% for the first nine months of fiscal 1996.
The decrease from the 42% rate in the comparable periods of fiscal 1995 is
due to the recognition of new tax credit provisions under the tax law and
the utilization of net operating loss carryforwards for foreign operations
for which tax benefits had not been provided in prior years. Minority
interest was $165,000 for the third quarter and $750,000 for the first nine
months of fiscal 1996 compared to $443,000 for the comparable periods of
fiscal 1995. The fiscal 1995 third quarter and nine month period minority
interest amount was the same because the Company's ownership increase in
Flex Products took place in the third quarter of fiscal 1995. Minority
interest represents the 40% share of Flex Products' net income accruing to
the minority shareholder.
DIVIDEND ON CONVERTIBLE REDEEMABLE PREFERRED STOCK. During the third
quarter and first nine months of fiscal 1996, the Company paid or accrued
$240,000 and $720,000 of dividends on its convertible redeemable preferred
stock, while fiscal 1995 third quarter and first nine months convertible
redeemable preferred stock dividends were $222,000. The preferred stock
was issued during the third quarter of fiscal 1995 in connection with the
increase in the Company's ownership of Flex Products.
NET INCOME. The Company had net income applicable to common stock of
$1.8 million, or $.17 per share, for the third quarter of fiscal 1996
compared to $1.9 million, or $.20 per share, for the third quarter of
fiscal 1995. The Company had net income applicable to common stock of $4.1
million, or $.40 per share, for the first nine months of fiscal 1996
compared to $5.7 million, or $.61 per share, for the first nine months of
fiscal 1995.
FINANCIAL CONDITION
During the third quarter and first nine months of fiscal 1996, the
Company generated $3.0 million and $8.6 million of cash, respectively, from
its operating activities. Net income, depreciation and amortization
generated $5.6 million and $14.9 million, respectively, in gross cash flow,
while increases in working capital and other operating activities required
$2.6 million and $6.3 million for the fiscal 1996 third quarter and first
nine months respectively.
The Company's investing activities for the fiscal 1996 third quarter
generated $5.1 million while investing activities in the first nine months
of fiscal 1996 required $5.0 million in cash. Approximately $7.2 million
and $24.0 million was invested in plant and equipment in the fiscal 1996
third quarter and first nine months respectively, while $12.3 million and
$19.0 million was generated by two equipment sale-leaseback transactions
structured to finance new manufacturing equipment.
During the first nine months of fiscal 1996, the Company entered into
two mortgage loan agreements totalling $5.6 million, collateralized by two
newly constructed 72,000 square foot manufacturing facilities located on
the Company's Santa Rosa, California campus. Separately, approximately $1.0
million and $3.9 million of long-term debt and $2.0 million and $1.1
million of a note to the minority stockholder of Flex Products was repaid
during the third quarter and first nine months of fiscal 1996 respectively.
As a result of these operating, investing and financing activities,
the Company's cash and short-term investment position increased by $5.6
million in the fiscal 1996 third quarter and by $3.5 million during the
first nine months of fiscal 1996.
The Company has entered into an Agreement and Plan of Merger with
Optical Corporation of America ("OCA") wherein the Company will acquire
100% of the outstanding common shares and common share equivalents of OCA
in exchange for approximately 1.9 million shares of OCLI common stock. The
merger is expected to close in the fourth quarter of 1996 and is
anticipated to be accounted for as a "pooling of interests". For its
fiscal year ended June 30, 1996, OCA had unaudited revenues of $29.6
million and unaudited net income of $416,000.
OCA is a privately held corporation which designs and manufactures
optical and electro-optical components and subsystems, including devices
for expanding the capacity of new and existing long distance fiber optic
telecommunications networks. The merger provides an opportunity for both
companies to leverage their technologies across OCLI's worldwide
manufacturing and distribution channels, provides OCLI with new
capabilities in the design and manufacture of high precision optical
assemblies and, using the leadership position established by OCA, provides
a vehicle for early entry into the rapidly growing market for optical
devices used in fiber optic telecommunications.
.
At the end of the third quarter of 1996, the Company had financial
obligations of approximately $1.1 million relating to the expansion of Flex
Products' manufacturing capacity. Other than the commitment for the OCA
merger, the Company has no other major outstanding financial commitments.
Management believes that the cash on hand at July 28, 1996, cash
anticipated to be generated from future operations and the funds available
from revolving credit agreements will be sufficient for the Company to meet
near-term working capital needs, capital expenditures, debt service
requirements, payment of dividends as declared and any obligations arising
from the merger with OCA.
INDEPENDENT ACCOUNTANTS' REVIEW
The July 28, 1996 condensed consolidated financial statements included
in this filing on Form 10-Q have been reviewed by Deloitte & Touche LLP,
independent accountants, in accordance with established professional
standards and procedures for such a review.
The report of Deloitte & Touche LLP commenting on their review
follows.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
and Stockholders of
Optical Coating Laboratory, Inc.
Santa Rosa, California
We have reviewed the accompanying condensed consolidated balance sheet of
Optical Coating Laboratory, Inc. and subsidiaries as of July 28, 1996, and
the related condensed consolidated statements of income and cash flows for
the three-month and nine-month periods ended July 28, 1996 and July 31,
1995 and the related condensed consolidated statement of stockholders'
equity for the nine-month period ended July 28, 1996. These financial
statements are the responsibility of the Company's management. We were
furnished with the report of other accountants on their review of the
interim financial information of Flex Products, Inc. (a consolidated
subsidiary), whose total assets constituted 10% of consolidated total
assets at July 28, 1996 and whose total revenues constituted 14% and 15% of
consolidated total revenues for the three-month and nine-month periods
ended July 28, 1996, and 17% and 7% of consolidated total revenues for the
respective three-month and nine-month periods ended July 31, 1995.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review and the report of other accountants, we are not aware
of any material modifications that should be made to such condensed
consolidated financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Optical Coating Laboratory,
Inc. and subsidiaries as of October 31, 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year
then ended (not presented herein); and in our report dated December 18,
1995, we expressed an unqualified opinion on those consolidated financial
statements based on our audit. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of October 31,
1995 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Francisco, California
August 14, 1996
(September 11, 1996 as to Note 7)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Page(s)
During the quarter, SICPA Holding S.A. (SICPA), the 40% joint owner
of Flex Products, Inc. (Flex Products), filed suit in Delaware
Chancery Court seeking injunctive and other relief against the
Registrant, Flex Products and certain of Flex Products' directors.
In the suit, SICPA alleges that Flex Products cannot proceed with
an initial public offering of its common stock without the consent
of SICPA and that SICPA has the right to purchase the Registrant's
60% ownership of Flex Products pursuant to a call option beginning
after May 8, 1998.
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a)The following are filed as Exhibits to this Quarterly
Report. The numbers refer to the Exhibit Table of Item 601 of
Regulation S-K.
(11) Computation of earnings per share for
the three and nine month periods ended
July 28, 1996 and July 31, 1995. 18
(15) Letter of Deloitte & Touche LLP
regarding unaudited interim financial
information. 19
(27) Financial Data Schedule for the
three months ended July 28, 1996. 20
(b) Reports on Form 8-K filed for the three months ended July
28, 1996.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized and in the capacity indicated.
OPTICAL COATING LABORATORY, INC.
(Registrant)
September 11, 1996 /s/JOHN M. MARKOVICH
Date John M. Markovich
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 11.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
July 28, July 31, July 28, July 31,
1996 1995 1996 1995
PRIMARY SHARES:
Average common shares outstanding 9,691 9,134 9,588 9,044
Common equivalent shares
outstanding 859 423 691 277
10,550 9,557 10,279 9,321
Net income 2,033 2,131 4,844 5,953
Dividend on preferred stock (240) (222) (720) (222)
Net income applicable to
common stock $1,793 $1,909 $4,124 $ 5,731
Net income per common and common
equivalent share, primary $ .17 $ .20 $ .40 $ .61
FULLY DILUTED SHARES:
Average common shares outstanding 9,691 9,134 9,588 9,044
Common equivalent shares 859 554 709 364
Potential dilution of convertible
redeemable preferred stock 1,143 1,068 1,143 356
11,693 10,756 11,440 9,764
Net income 1,793 1,909 4,124 5,731
Add back dividend on preferred stock 240 222 720 222
Net income for calculating fully
diluted earnings per share $2,033 $2,131 $4,844 $5,953
Net income per common and common
equivalent share, fully diluted $ .17 $ .20 $ .42 $ .61
Fully diluted earnings per common and common equivalent share do not
result in dilution of three percent or more or are anti-dilutive and,
therefore, are not separately presented in the consolidated statements
of income.
EXHIBIT 15
To the Board of Directors and Stockholders
of Optical Coating Laboratory, Inc.
Santa Rosa, California
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of Optical Coating Laboratory, Inc. and
subsidiaries for the periods ended July 28, 1996 and July 31, 1995 as
indicated in our report (which report makes reference to the report of
other accountants), dated August 14, 1996 (September 11, 1996 as to Note
7). Because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended July 28, 1996, is
incorporated by reference in Registration Statements No. 33-41050,
No. 33-26271, No. 33-12276, No. 33-48808, No. 33-65132, and No. 33-60891 on
Forms S-8, Registration Statement No. 33-61177 and No. 33-65319 on
Form S-3, and Registration Statement No. 33-09925 on Form S-4.
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of such
Registration Statements prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
Deloitte & Touche LLP
San Francisco, California
September 11, 1996
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