FIRST QUARTER 1998
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark one
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
[OCLI LOGO]
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Classes of Common Stock:
COMMON STOCK, $.01 PAR VALUE
Outstanding at February 28, 1998: 10,684,775 shares
This document contains 16 pages.
The Exhibit listing appears on Page 15.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 31, OCTOBER 31,
ASSETS 1998 1997
(Unaudited)
(Dollars in thousands, except per share amounts)
CURRENT Cash and cash equivalents............... $ 3,419 $15,217
ASSETS Accounts receivable, net of allowance for
doubtful accounts of $1,835 and $1,884. 37,856 34,923
Inventories............................. 24,634 22,829
Income taxes receivable................. 460 504
Deferred income tax assets.............. 6,644 6,853
Other current assets.................... 2,565 1,707
------- -------
Total Current Assets............ 75,578 82,033
OTHER ASSETS
Other assets and investments............ 8,007 8,243
PROPERTY, Land and improvements................... 9,212 9,225
PLANT AND Buildings and improvements.............. 41,615 41,944
EQUIPMENT Machinery and equipment ................ 121,900 121,717
Construction-in-progress................ 12,868 9,525
------- -------
185,595 182,411
Less accumulated depreciation........... (91,588) (89,194)
------- -------
Property, plant and equipment-net ... 94,007 93,217
-------- --------
Total Assets.................... $177,592 $183,493
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT Accounts payable....................... $ 9,688 $ 14,301
LIABILITIES Accrued expenses....................... 7,645 6,854
Accrued compensation expenses.......... 5,666 8,752
Income taxes payable................... 464 339
Current maturities on long-term debt... 7,801 7,888
Notes payable.......................... 544 381
Deferred revenue....................... 1,966 900
--------- --------
Total Current Liabilities ..... 33,774 39,415
NON- Accrued postretirement health benefits
CURRENT and pension liabilities............... 2,080 2,040
LIABILITIES Deferred income tax liabilities........ 1,323 785
Long-term debt ........................ 40,992 40,975
Minority interest...................... 11,628 13,315
STOCK- Preferred stock-Series C;
HOLDERS' 8% cumulative, convertible, redeemable;
EQUITY issued and outstanding 6,250 and 12,000
shares; aggregate liquidation value at
January 31, 1998 $6,250............... 5,559 5,559
Common stock, $.01 par value;
authorized 30,000,000 shares; issued
and outstanding 10,671,000 and
10,599,000 shares.................... 107 106
Paid-in capital........................ 56,661 55,723
Retained earnings...................... 27,052 26,217
Cumulative foreign currency
translation adjustment .............. (1,584) (642)
-------- ---------
Common Stockholders' Equity......... 87,795 86,963
-------- ---------
Total Liabilities and
Stockholders' Equity ........ $177,592 $ 183,493
======== =========
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months ended January 31, 1998 and 1997
(Amounts in thousands, except per share amounts) 1998 1997
REVENUES Revenues............................... $ 53,373 $ 45,720
Cost of sales.......................... 36,235 30,199
-------- --------
Gross Profit........................ 17,138 15,521
COSTS AND Operating Expenses:
EXPENSES Research and development ............. 3,821 2,562
Selling and administrative............ 9,488 10,266
Amortization of intangibles........... 200 243
-------- --------
Total Operating Expenses............. 13,509 13,071
-------- --------
Income from Operations.............. 3,629 2,450
Nonoperating Income (Expense):
Interest income ...................... 84 175
Interest expense...................... (808) (1,052)
-------- --------
EARNINGS Income Before Provision for Income Taxes
and Minority Interest............. 2,905 1,573
Provision for income taxes............. 1,162 630
Minority interest...................... 147 36
-------- --------
Net Income.......................... 1,596 907
Dividend on convertible redeemable
preferred stock....................... 125 240
-------- --------
Net Income Applicable to Common Stock $1,471 $ 667
======== ========
Net Income Per Share, Basic........... $ .14 $ .07
========= ========
Net Income Per Share, Diluted......... $ .13 $ .07
======== ========
Weighted average number of common shares used
to compute basic earnings per share... 10,625 9,777
======== ========
Weighted average number of common shares used
to compute diluted earnings per share. 11,396 10,165
========= ========
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended January 31, 1998 and 1997
(Amounts in thousands) 1998 1997
OPERATIONS Cash Flows From Operations:
Cash received from customers.......... $ 42,062 $ 41,641
Interest received..................... 51 164
Cash paid to suppliers and employees.. (46,747) (41,811)
Cash paid to OCLI 401(k)/ESOP Plan.... (129) (31)
Interest paid......................... (808) (1,426)
Income taxes paid, net of refunds..... (28) (51)
-------- --------
Net Cash Used For Operations...... (5,599) (1,514)
-------- --------
INVESTMENTS Cash Flows From Investments:
Purchase of plant and equipment....... (4,261) (3,078)
-------- --------
Net Cash Used For Investments..... (4,261) (3,078)
FINANCING Cash Flows From Financing:
Proceeds from long-term debt.......... 6,774
Repayment of long-term debt........... (6,564) (481)
Proceeds from notes payable........... 183 8
Repayment of notes payable............ (418)
Proceeds from exercise of
stock options....................... 335 96
Proceeds from note to minority
stockholder......................... 800 484
Purchase of note from minority
stockholder......................... (2,600)
Payment of dividend on
preferred stock..................... (125) (240)
Payment of dividend on common stock... (636) (586)
Net Cash Used For Financing...... (1,833) (1,137)
-------- --------
Effect of exchange rate
changes on cash................... (105) (242)
-------- --------
Decrease in cash and short-term
investments....................... (11,798) (5,971)
Cash and cash equivalents at beginning
of period......................... 15,217 16,027
-------- --------
Cash and cash equivalents at
end of period..................... $ 3,419 $ 10,056
======== ========
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
For the three months ended January 31, 1998 and 1997
(Amounts in thousands) 1998 1997
ADJUST- Reconciliation of Net Income
MENTS To Cash Flows From Operations:
Net income............................. $1,596 $ 907
Adjustments to reconcile net income to net cash
used for operations:
Depreciation and amortization ...... 2,985 3,246
Minority interest in
earnings of subsidiaries .......... 147 36
Loss on disposal of equipment ...... 210 42
Accrued postretirement
health benefits ................... 40 16
Deferred income tax liabilities..... 34 27
Value of shares issued to
OCLI 401(k)/ESOP Plan ............. 555 159
Other non-cash adjustments
to net income ..................... (84) (50)
Change in:
Accounts receivable............... (3,364) (4,011)
Inventories....................... (2,004) (599)
Income tax receivable ............ 93 852
Deferred income tax assets........ 567 (325)
Other current assets and other
assets and investments........... (1,074) (546)
Accounts payable, accrued
expenses and accrued
compensation expenses............ (6,508) (1,452)
Deferred revenue.................. 1,066 169
Income taxes payable.............. 142 15
-------- -------
Total adjustments................ (7,195) (2,421)
-------- -------
Net Cash Used For Operations...... $(5,599) $(1,514)
======== =======
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the three months ended January 31, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
FOREIGN
PREFERRED STOCK COMMON STOCK PAID-IN RETAINED CURRENCY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TRANSLATION
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 1, 1997 6 $5,559 10,599 $106 $55,723 $26,217 $ (642)
Shares issued to Employee Stock
Ownership Plan 39 1 555
Exercise of stock options,
including tax benefit 33 383
Foreign currency translation
adjustment (942)
Net income 1,596
Dividend on preferred stock (125)
Dividend on common stock (636)
---- ------ ------ ---- ------- ------- -------
BALANCE AT JANUARY 31, 1998 6 $5,559 10,671 $107 $56,661 $27,052 $(1,584)
==== ====== ====== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended January 31, 1998 and 1997
(Unaudited)
1. GENERAL
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 to original equipment manufacturers ("OEMs") of optical and
electro-optical systems and sells its GlareGuardO brand ergonomic computer
display products through resellers and office retailers. OCLI's products
are found in many applications including computer monitors, flat panel
displays, telecommunication systems, photocopiers, fax machines,
medical/analytical equipment and instruments, projection imaging systems,
satellite power systems and aerospace and defense systems. Through its 60%
owned subsidiary, Flex Products, Inc. ("Flex Products"), the Company
designs and manufactures thin film coatings on flexible substrates using
high vacuum roll-to-roll processes. Flex Products supplies critical
pigments for use in anti-counterfeiting applications, energy conserving
window film for residential, commercial, and automotive applications,
photoreceptor components for copiers and ChromaFlair light interference
pigments for commercial paints.
The Condensed Consolidated Balance Sheet as of January 31, 1998, the
Condensed Consolidated Statements of Income for the three month periods
ended January 31, 1998 and 1997, the Condensed Consolidated Statement of
Stockholders' Equity for the three month period ended January 31, 1998 and
the Condensed Consolidated Statements of Cash Flows for the three month
periods ended January 31, 1998 and 1997 have been prepared by the Company
without audit. In the opinion of management, all adjustments consisting of
normal recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows at January 31, 1998 and for
all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes included in the Company's Annual Report on
Form 10-K for the year ended October 31, 1997.
The results of operations for the period ended January 31, 1998 are not
necessarily indicative of the operating results anticipated for the full
year.
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," which required
the Company to replace its presentation of primary earnings per share with
a presentation of basic earnings per share and requires dual presentation
of basic and diluted earnings per share on the face of the income
statement. Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding. Diluted earnings
per share under the new statement includes the potential dilution of
convertible securities, stock options and warrants. The earnings per share
presentation for 1997 was restated to conform to the new statement,
however, diluted earnings per share for the first quarter of 1997 is the
same as net income per common and common equivalent share as previously
reported.
2. INVENTORIES
Inventories consisted of the following:
JANUARY 31, OCTOBER 31,
(Amounts in thousands) 1998 1997
(Unaudited)
Raw materials and supplies $ 9,122 $ 7,541
Work-in-process 12,137 12,308
Finished goods 3,375 2,980
------- -------
Total inventories $24,634 $22,829
======= =======
3. ACCRUED EXPENSES
Accrued expenses consisted of the following:
JANUARY 31, OCTOBER 31,
(Amounts in thousands) 1998 1997
(Unaudited)
Workers' compensation reserve $ 763 $ 555
Ground water remediation reserve 759 759
Other accrued liabilities 6,123 5,540
------ ------
$7,645 $6,854
====== ======
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CHANGES IN
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THE INFORMATION CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION INCLUDES FORWARD LOOKING
STATEMENTS WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURE,"
"STRATEGY," OR WORDS OF SIMILAR IMPORT. VARIOUS IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD LOOKING STATEMENTS ARE IDENTIFIED BELOW. ACTUAL RESULTS MAY VARY
SIGNIFICANTLY BASED ON A NUMBER OF FACTORS INCLUDING, BUT NOT LIMITED TO,
PRODUCT DEVELOPMENT, COMMERCIALIZATION AND TECHNOLOGICAL DIFFICULTIES;
MANUFACTURING COSTS AND YIELD ISSUES ASSOCIATED WITH INITIATING PRODUCTION
AT NEW FACILITIES; THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING; CHANGING
CUSTOMER REQUIREMENTS; AND THE CHANGE IN ECONOMIC CONDITIONS OF THE VARIOUS
MARKETS THE COMPANY SERVES.
RESULTS OF OPERATIONS
REVENUE. Revenue for the first quarter of fiscal 1998 was $53.4 million,
an increase of $7.7 million, or 17%, over revenues of $45.7 million in the
first quarter of fiscal 1997. The 1998 increase was primarily due to
revenue growth in the telecommunications markets ($8.4 million) and
increased sales of security products ($1.0 million) by the Company's 60%
owned subsidiary, Flex Products Inc. (Flex Products). The increase in
telecommunications sales is due to the Company's participation with its
partner, JDS FITEL Inc. (JDS) in the growing market for wavelength division
multiplexers (WDM's) and to the expanding market for space satellites.
Sales of security products by Flex Products were affected by increased
demand but were also positively affected by the rescheduling of orders from
Flex Products' major customer and minority stockholder, SICPA Holding S.A.
(SICPA), to align the quarterly order periods from calendar quarters to the
Company's fiscal quarters. This rescheduling could result in offsetting
adjustments in order quantities over the remainder of the fiscal year.
Revenues in the Company's office automation, display and other markets
decreased by a total of $1.7 million primarily due to slower demand and
currency issues due to economic conditions in Asia.
GROSS PROFIT. Gross profit for the first quarter of fiscal 1998 was $17.1
million, or 32.1% of revenue, compared to $15.5 million, or 33.9% of
revenue, for the first quarter of fiscal 1997. The 1998 gross margin
decrease is primarily due to sales of WDM products becoming a more
prominent part of the total sales mix. Margins on WDM sales are lower than
Company average gross margins although the contribution to income from
operations as a percent of sales is consistent with the Company's average.
RESEARCH AND DEVELOPMENT. Research and development expenditures in the
first quarter of 1998 were $3.8 million, an increase of $1.2 million, or
49%, over expenditures of $2.6 million in 1997. The 1998 increase is
primarily due to increased spending by Flex Products for the qualification
of new products and processes incorporating new production equipment, the
development and improvement of telecommunications products and research and
development investments in other strategic market areas.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses in the
first quarter of fiscal 1998 were $9.5 million, a decrease of $800,000, or
8%, from selling and administrative expenses of $10.3 million for the first
quarter of 1997. The 1998 decrease was primarily due to simplification of
some of the Company's sales processes and to lower legal expenses primarily
due to the settlement of lawsuits.
AMORTIZATION OF INTANGIBLES. The Company recorded amortization of
intangibles of $200,000 in 1998 and $243,000 in 1997, primarily resulting
from amortization of goodwill. The 1998 decrease was primarily due to
exchange rate changes.
INCOME FROM OPERATIONS. As a result of the foregoing changes in revenue,
gross profit and operating expenses, the Company's income from operations
was $3.6 million for the first quarter of fiscal 1998 compared to $2.5
million for the first quarter of fiscal 1997.
INTEREST INCOME AND EXPENSE. Interest income for the first quarter of
fiscal 1998 was $84,000 compared to interest income of $175,000 for the
first quarter of fiscal 1997. Interest expense, net of capitalized
interest, for the first quarter of 1998 was $808,000 compared to $1.1
million for the first quarter of fiscal 1997. Capitalized interest for the
first quarter of 1998 was $84,000 compared to $50,000 for the first
quarter of fiscal 1997. The decrease in interest expense is due to lower
interest rates on borrowings that were refinanced in the second quarter of
fiscal 1997.
PROVISION FOR INCOME TAXES AND MINORITY INTEREST. The effective income tax
rate was 40% for the first quarter of 1998 and the first quarter of 1997.
Minority interest was $147,000 in 1998 compared to $36,000 for the first
quarter of 1997. 1998 minority interest represents the share of net income
of Flex Products accruing to its 40% stockholder and the portion of
operating results of OCLI Asia attributable to its Japanese partner. 1997
minority interest represents the share of net income of Flex Products
accruing to its 40% stockholder.
NET INCOME APPLICABLE TO COMMON STOCK. The Company had net income
applicable to common stock of $1.5 million, or $.13 per share on a diluted
basis, for the first quarter of fiscal 1998 compared to $667,000, or $.07
per share on a diluted basis, for the first quarter of fiscal 1997.
As described in Note 1 to the Condensed Consolidated Financial Statements,
in fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share", which requires dual presentation
of basic and diluted earnings per share. Prior period amounts have been
restated to reflect this change.
LITIGATION
In July of 1996, SICPA filed a lawsuit in Delaware Chancery Court in order
to block an attempted initial public offering by Flex Products arguing that
such an offering without SICPA's consent was prohibited by Flex Products'
articles of incorporation, as well as by certain contractual provisions
between the Company and SICPA. In fiscal 1998, the Company announced that
it had completed final negotiations for the settlement of the litigation
with SICPA. Under the terms of the settlement, the Company and SICPA have
agreed to modify their co-ownership agreement to enable OCLI to more
effectively manage the day-to-day operations of Flex Products, to allow for
public financing of Flex Products' operations and to modify the License and
Supply Agreement between Flex Products and SICPA to provide for more
attractive scheduled pricing discounts on higher volume purchases and to
change the scheduled order patterns to be consistent with the Company's
fiscal quarters. In addition, the Company purchased $2.6 million of Flex
Products' working capital loan from SICPA.
IMPACT OF FOREIGN OPERATIONS, EXPORT SALES AND FOREIGN CURRENCY
The Company has significant investments in Germany, Scotland and Japan.
Changes in the value of those countries' currencies relative to the U.S.
dollar are recorded as direct charges or credits to equity. The Company
also has manufacturing operations in Germany, Scotland and Japan and sales
presence in other European and Asian countries. A significant weakening of
the currencies in Europe or Asia in relation to the U.S. dollar could
reduce the reported results of those operations. In addition, a
significant amount of the Company's sales are export sales which could be
subject to competitive price pressures if the U.S. dollar was to strengthen
compared to the currency of foreign competitors.
In the first quarter of 1998, 32% of the Company's consolidated sales
constituted sales to customers in Europe and 13% of the Company's
consolidated sales constituted sales to customers in Asia. In the first
quarter of 1998, the Company experienced a 2% decline in sales mix from
sales to customers in Asia (from 15% of consolidated sales in 1997 to 13%
of consolidated sales in 1998) and a slight decline in sales mix from sales
to customers in Europe (from 33% of consolidated sales in 1997 to 32% in
1998). The Company attributes the decline in the Asian sales mix to
economic factors in Asia and the decline in European sales mix to growth in
other geographic markets.
FINANCIAL CONDITION
At January 31, 1998, the Company's cash and cash equivalents position
decreased by $11.8 million from October 31, 1997. $5.6 million was used
for operations, primarily due to increased accounts receivable and
inventory, $4.3 million was invested in plant and equipment, $761,000 was
used to pay dividends and $2.6 million was used to purchase a portion of
Flex Products' working capital loan from SICPA. These decreases were
offset by stockholder investments of $335,000, working capital loans from
SICPA to Flex Products of $800,000 and net borrowings and noncash items
totaling $393,000.
At January 31, 1998, the Company's working capital, excluding cash and
short-term investments, increased $11.0 million, primarily due to increased
accounts receivable and inventories and decreased accounts payable and
accrued compensation expenses. The increased accounts receivable and
inventory balances are due to increased sales and bookings. The decrease
in accounts payable is due to higher than average accounts payable at the
end of fiscal year 1997. The decrease in accrued compensation expenses is
due to payment in the first quarter of 1998 of annual bonus and commission
payments accrued in fiscal year 1997.
Management believes that the cash on hand at January 31, 1998, 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, capital expenditures, debt
service requirements and payment of dividends as declared for the
foreseeable future.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1996
Except for historical information contained in this report, matters
discussed in this report are forward-looking statements that involve risks
and uncertainties. Actual results may vary significantly based on a number
of factors including, but not limited to, product development,
commercialization and technological difficulties, manufacturing costs and
yield issues associated with initiating production at new facilities, the
impact of competitive products and pricing, changing customer requirements
and the change in economic conditions of the various markets the Company
serves.
INDEPENDENT ACCOUNTANTS' REVIEW
The January 31, 1998 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' REPORT
To the Board of Directors
and Stockholders of
Optical Coating Laboratory, Inc.
Santa Rosa, California
We have reviewed the accompanying condensed consolidated balance sheet of
Optical Coating Laboratory, Inc. and subsidiaries as of January 31, 1998,
and the related condensed consolidated statements of income and cash flows
for the three-month periods ended January 31, 1998 and 1997 and the related
condensed consolidated statement of stockholders' equity for the three-
month period ended January 31, 1998. 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), for the
three month period ended January 31, 1997 whose total revenues constituted
17% of consolidated total revenues for that period.
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, 1997, 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 19,
1997, we expressed an unqualified opinion on those consolidated financial
statements based on our audit. In our opinion, based on our audit, and the
report of other auditors, the information set forth in the accompanying
condensed consolidated balance sheet as of October 31, 1997 is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
San Jose, California
February 18, 1998
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
and Stockholders of
Flex Products, Inc.
Santa Rosa, California
We have reviewed the balance sheet of Flex Products, Inc. as of February 2,
1997 and the related statements of operations and cash flows for the three-
month periods ended February 2, 1997 and January 28, 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted 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.
These financial statements have been prepared on a historical basis of
accounting and do not reflect any purchase accounting adjustments recorded
by Optical Coting Laboratory, Inc. as a result of their acquisition of a
majority interest in Flex Products, Inc. as of May 8, 1995.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
The balance sheet as of November 2, 1997 was audited by us, and we
expressed an unqualified opinion on it in our report dated November 26,
1997, but we have not performed any auditing procedures since that date.
KPMG Peat Marwick LLP
San Francisco, California
February 17, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following are filed as Exhibits to this Quarterly
Report. The numbers refer to the Exhibit Table of Item 601 of
Regulation S-K.
(2) None
(3) None
(4) None
(10) None
(11)* Computation of earnings per share for the three months
ended January 31, 1998 and 1997.
(15)* Letter of Deloitte & Touche LLP regarding unaudited
interim financial information.
(18) None
(19) None
(22) None
(23) None
(24) None
(27)* Financial Data Schedule for the three months ended
January 31, 1998.
* Items not previously filed are designated by an asterisk.
(b) Reports on Form 8-K filed for the three
months ended January 31, 1998.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
OPTICAL COATING LABORATORY, INC.
(Registrant)
March 17, 1998 /s/ CRAIG B. COLLINS
- -------------- ----------------------------------
Date Craig B. Collins
Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
For the three months ended January 31, 1998 and 1997
(Amounts in thousands, except per share data) 1998 1997
BASIC SHARES:
Average common shares outstanding..................... 10,625 9,777
======= ========
Net income............................................ $ 1,596 $ 907
Less dividend on preferred stock...................... (125) (240)
------- --------
Net income applicable to common stock................. $ 1,471 $ 667
======= ========
Net income per common share, basic.................... $ .14 $ .07
======= ========
DILUTED SHARES:
Average common shares outstanding..................... 10,625 9,777
Dilutive effect of employee stock options............. 771 388
Potential dilution of preferred stock................. * *
------- ------
11,396 10,165
======= ======
Net income applicable to common stock................. $ 1,471 $ 667
Add back dividend on preferred stock.................. * *
------- -------
Net income for calculating diluted earnings per share. $ 1,471 $ 667
======= =======
Net income per share, diluted......................... $ .13 $ .07
======= =======
*Anti-dilutive
EXHIBIT 15. LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
To the Board of Directors and Stockholders
of Optical Coating Laboratory, Inc.
Santa Rosa, California
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of Optical Coating Laboratory, Inc. and subsidiaries for the
periods ended January 31, 1998 and 1997 as indicated in our report dated
February 18, 1998. Because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended January 31, 1998, is
incorporated by reference in Registration Statements No. 33-41050,
No. 33-26271, No. 33-12276, No. 33-48808, No. 33-65132, No. 33-60891 and
No. 333-13013 on Forms S-8, Registration Statement No. 33-61177 and
No. 33-65319 on Form S-3.
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
Deloitte & Touche LLP
San Jose, California
March 17, 1998
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