CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: January 29, 1999
Commission File Number: 0-16304
OPTEK TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
State of Delaware
(State or other jurisdiction of incorporation or organization)
75-1962405
(I.R.S. Employer Identification No.)
1215 West Crosby Road Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
(972) 323-2200
(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.
X
---- ----
Yes No
Number of common shares outstanding as of January 29, 1999:
7,705,606 with par value $.01 per share
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Page
Optek Technology, Inc. Consolidated Balance Sheets
as of January 29, 1999 and October 30, 1998. 2
Optek Technology, Inc. Consolidated Statements of
Income for the Three Months Ended January 29, 1999
and January 30, 1998. 3
Optek Technology, Inc. Consolidated Statements of
Cash Flows for the Three Months Ended January 29,
1999 and January 30, 1998. 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations. 6
PART II - OTHER INFORMATION
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K. 9
PAGE
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands except share and per share data)
<TABLE>
January 29, October 30,
1999 1998
---------- -----------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $18,006 $15,836
Accounts receivable, net of
allowance for doubtful
accounts and customer
returns of $1,731 in 1999
and $1,891 in 1998 9,329 10,185
Inventories (Note 2) 7,634 7,916
Deferred income taxes 2,610 2,610
Prepaid expenses 205 313
------- -------
Total current assets 37,784 36,860
Property, plant and equipment,
net 16,020 15,675
Other assets 137 137
------- -------
$53,941 $52,672
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 2,848 $ 2,258
Accrued expenses 6,361 7,859
------ ------
Total current liabilities 9,209 10,117
Other liabilities 176 140
Stockholders' equity:
Preferred stock, $.01 par
value; authorized 1,000,000
shares; none issued - -
Common stock, $.01 par value;
authorized 12,000,000 shares;
issued and outstanding 7,715,940
shares in 1999 and 7,738,740
shares in 1998 77 77
Additional paid-in-capital 16,559 17,674
Treasury stock, at cost;
10,334 shares in 1999 and
31,300 shares in 1998 (184) (497)
Retained earnings 28,104 25,161
------- -------
Total stockholders'
equity 44,556 42,415
------- -------
$53,941 $52,672
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
THREE MONTHS ENDED
--------------------------------
January 29, January 30,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $21,208 $20,419
Costs and expenses:
Cost of sales 12,734 12,105
Product development and
engineering expenses 1,888 1,458
Selling expenses 1,321 1,457
General and administrative
expenses 952 971
------- -------
Total costs and expenses 16,895 15,991
------- -------
Operating income 4,313 4,428
Other (income) expense, net:
Interest income (202) (111)
Other expense 64 15
------- -------
Total other, net (138) (96)
------- -------
Income before income
taxes 4,451 4,524
Income tax expense 1,508 1,584
------- -------
Net income $ 2,943 $ 2,940
------- -------
Basic earnings per share
(Note 4) $ 0.38 $ 0.69
------- -------
Weighted average common
shares outstanding 7,686,732 4,272,727
--------- ---------
Diluted earnings per share
(Note 4) $ 0.37 $ 0.37
------- -------
Weighted average common and
potentially dilutive shares
outstanding 7,913,547 7,881,398
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
THREE MONTHS ENDED
--------------------------------
January 29, January 30,
1999 1998
----------- -----------
Cash flows from operating
activities:
Net income $ 2,943 $ 2,940
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 477 410
Gain on sale of property,
plant and equipment - (6)
Changes in assets and
liabilities:
Accounts receivable 856 1,147
Inventories 282 (417)
Prepaid expenses and other
assets 108 10
Accounts payable, accrued
expenses and other
liabilities (872) (344)
------- -------
Net cash provided by
operating activities 3,794 3,740
Cash flows from investing
activities:
Purchase of property, plant
and equipment (822) (2,007)
Proceeds from sale of property,
plant and equipment - 6
------- -------
Net cash used in investing
activities (822) (2,001)
Cash flows from financing
activities:
Net proceeds from exercise of
stock options and warrants 162 90
Purchase of treasury stock (964) -
------- -------
Net cash provided by (used
in) financing activities (802) 90
Net increase in cash and cash
equivalents 2,170 1,829
Cash and cash equivalents at
beginning of period 15,836 9,815
------- -------
Cash and cash equivalents at
end of period $18,006 $11,644
------- -------
Interest payments $ - $ -
------- -------
Income tax payments $ 494 $ 1,020
======= =======
[/TABLE]
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 29, 1999
NOTE 1 The consolidated financial statements of Optek
Technology, Inc. (the "Company") are unaudited and reflect all
adjustments, consisting only of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended October 30, 1998. The results of operations for the three
months ended January 29, 1999 are not necessarily indicative of
the results for the entire year ending October 29, 1999.
NOTE 2 The components of inventories, in thousands of dollars,
are as follows:
<TABLE>
January 29, October 30,
1999 1998
---------- ----------
<S> <C> <C>
Finished goods $ 2,012 $ 2,416
Work-in-process 4,109 4,018
Raw materials 3,570 3,618
Reserves for excess and
obsolete inventory (2,057) (2,136)
------- -------
$ 7,634 $ 7,916
======= =======
</TABLE>
NOTE 3 The registrant has no material pending legal
proceedings.
NOTE 4 Shares used in calculating basic and diluted
earnings per share for the three months ended January 29, 1999
and January 30, 1998 are as follows (in thousands):
<TABLE>
January 29, January 30,
1999 1998
---------- -----------
<S> <C> <C>
Weighted average common
shares outstanding used
in computing basic
earnings per share 7,686 4,273
Warrants to purchase
common shares held by
First Source Financial,
LLP - 3,150
Other warrants to purchase
common shares - 179
Common stock options 456 608
Assumed repurchase of
common shares (228) (329)
------- -------
Shares used in computing
diluted earnings per
share 7,914 7,881
======= =======
</TABLE>
Prior to fiscal 1997, the Company granted its former lender,
First Source Financial L.L.P., a warrant (as amended on October
31, 1997) to purchase 3,150,000 shares of the Company's common
stock at an exercise price of $.50 per share. During the third
quarter of fiscal 1998, First Source Financial L.L.P. exercised
all 3,150,000 warrants to purchase common shares and subsequently
sold 2,500,000 shares in a public offering.
NOTE 5 Other notes have been omitted pursuant to Rule 10-01
(a) (5) of Regulation S-X.
<PAGE>
FORM 10-Q
PART 1
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
- ----------------------------------------------------------------
This Report includes "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act. All of
the statements contained in this Report, other than statements of
historical fact, should be considered forward-looking statements,
including, but not limited to, those concerning demand for the
Company's products and services, future product mix and margins.
There can be no assurances that these expectations will prove to
have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations
include customers' inventory levels, demand and ordering
patterns; changes in specifications and demand for customers'
products. Other significant factors are disclosed in the
Company's other public filings. All subsequent written and oral
forward-looking statements by or attributable to the Company or
persons acting on its behalf are expressly qualified in their
entirety by such cautionary statements. Investors are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof and are not intended to
give any assurance as to future results. The Company undertakes
no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
- ----------------------
Three Months Ended January 29, 1999 Compared to Three Months
Ended January 30, 1998
Net sales for the three months ended January 29, 1999 were
$21.2 million compared to net sales of $20.4 million for the
three months ended January 30, 1998. The increase was primarily
the result of higher net sales volume in automotive products with
total net sales of $8.1 million, an increase of 11% over the
comparable period of fiscal 1998. Commercial net sales of $12.2
million increased 2% over the comparable period of the prior
year. This increase was substantially below the fiscal year 1998
average growth rate of 10%. The softness in Commercial product
sales experienced during the first quarter is expected to
continue or even worsen on a comparative basis from the second
quarter of fiscal 1998 to the second quarter of fiscal 1999.
Aerospace net sales of $910,000 were down 26% from the comparable
period of the prior fiscal year as the Company phases out of this
product line. The automotive industry, which accounted for
approximately 38% of the Company's net sales during the three
months ended January 29, 1999, has in recent years represented
the fastest area of growth for the Company. The Company's growth
rate has been more significantly impacted by the addition of new
programs than growth in existing programs. Therefore, the
Company's quarter-to-quarter and year-to-year growth rates depend
largely upon the number, size and timing of new program
additions.
Gross profit for the three months ended January 29, 1999 was
$8.5 million, or 40.0% of net sales, compared to $8.3 million, or
40.7% of net sales, in the comparable period of fiscal 1998. The
lower gross margin percentage was primarily the result of the
Company's investment to increase capacity in the Commercial
product area in anticipation of future growth from new products
combined with lower than expected net sales of core Commercial
products. In addition, the impact of the softness in Commercial
product sales during the second quarter of fiscal 1999
appears to relate primarily to higher margin assembly products.
Product development and engineering expenses during the
three months ended January 29, 1999 were $1.9 million, or 8.9% of
net sales, compared to $1.5 million, or 7.1% of net sales, during
the comparable period of the prior fiscal year. These expenses
were primarily related to the development of new products and
processes as well as ongoing engineering support for existing
programs. The Company anticipates expenditures in absolute
dollars to be greater during fiscal 1998 than during fiscal 1999
in order to support new product development and expand ongoing
engineering support.
Selling, general and administrative expenses during the
three months ended January 29, 1999 were $2.3 million, or 10.7%
of net sales, compared to $2.4 million, or 11.9% of net sales, in
the three months ended January 30, 1998.
<PAGE>
As a result of the foregoing factors, operating income for
the three months ended January 29, 1999 was $4.3 million, or
20.3% of net sales, versus $4.4 million, or 21.7% of net sales,
during the comparable period of fiscal 1998. The Company's
expense levels are based, in part, on its expectations as to
future net sales and to some extent are fixed in the short term.
Accordingly, the Company may be unable to adjust spending in a
timely manner to compensate for an unexpected shortfall in net
sales, and any significant shortfall of demand in relation to the
Company's expectations or any material delay or deferral of
customer orders would have a material adverse effect on the
Company's business, operating results and financial condition.
Other income consisted primarily of net interest income of
$202,000 in the three months ended January 29, 1999 compared to
net interest income of $111,000 in the comparable period of
fiscal 1998.
Income tax expense for the three months ended January 29,
1999 was $1.5 million, or 7.1% of net sales, compared to $1.6
million, or 7.8% of net sales, in the same period of fiscal 1998.
The decrease in tax expense for the period was attributable to
tax credits related to research and development. The effective
tax rate, before tax credits, for both periods was 35%.
As a result of the factors discussed above, net income for
the three months ended January 29, 1999 was $2.9 million, or
13.9% of net sales, compared to $2.9 million, or 14.4% of net
sales, in the comparable period of fiscal 1998.
Liquidity and Capital Resources
- --------------------------------
The Company generated approximately $3.8 million in cash
from operations during the first three months of fiscal 1999.
The largest uses of operating cash flows were the purchase of
manufacturing equipment in the amount of $822,000 and the
purchase of treasury stock in connection with its repurchase
program in the amount of $964,000. At the end of the first three
months of fiscal 1999, the Company's working capital was $28.6
million, including $18.0 million of cash and cash equivalents.
The Company anticipates that additional manufacturing
capacity and new product development capability will be required
to support growth over the next several years. Therefore, the
Company increased capital expenditures in fiscal 1998 to
approximately $6.6 million and plans to make capital expenditures
of up to $10 million during fiscal 1999, including additional
expenditures for new product development. The timing and amount
of such expenditures is subject to adjustment based upon
continued evaluation by management.
In January 1998, the Company obtained a three-year $10.0
million unsecured line of credit from NationsBank NA. Borrowings
under this facility bear interest, at the option of the Company,
either at (i) a LIBOR-based rate plus a margin ranging from 1.00%
per annum to 1.50% per annum, depending upon the Company's ratio
of indebtedness to operating income, or (ii) a base rate equal to
a reference rate plus a margin ranging from (1.00%) to 0%,
depending upon the Company's ratio of indebtedness to operating
income. This facility contains customary covenants that, among
other things: require the maintenance of certain financial
ratios relating to fixed charges and interest coverage and debt
and equity amounts; require the maintenance of certain net worth
levels; restrict liens on Company and subsidiary assets; and
limit the payment of cash dividends.
The Company anticipates that it will generate sufficient
cash flows from operations to meet its obligations, including
capital requirements and the purchase of treasury stock, for the
next 12 months. However, an unanticipated expansion or
contraction of its business or future acquisitions may require
the Company to draw upon its existing credit line or obtain other
financing.
<PAGE>
Impact of the Year 2000 Issue
- ------------------------------
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any computer programs that have date-sensitive
software may recognize a date using 00 as the year 1900 rather
than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business
activities. To become Year 2000 compliant, the Company has
implemented a comprehensive study of its information technology
systems. Because many of its systems were outdated and no longer
supported, ordinary replacement with Year 2000 compliant systems
has addressed most of the Company's needs in those areas.
However, the Company found it necessary to upgrade its marketing
order management software outside of the ordinary replacement
cycle to be Year 2000 compliant at a cost of approximately
$75,000. In addition, the Company is currently conducting a
review of all PC's, HVAC, test equipment and similar systems and
acting on them accordingly. To date, the Company has not
identified any of such systems which it believes would fail and
significantly disrupt the Company's operations. In any event,
the Company does not expect future costs to address its internal
Year 2000 matters to exceed $150,000.
Because the Company's products are not date sensitive, the
Company does not believe that they will be affected by the Year
2000 Issue.
Further, the Company has requested from all of its
suppliers, and has received from approximately 70% of its
suppliers, written questionnaires and assurances that they are
taking the necessary measures to avoid any significant
disruptions from Year 2000 noncompliance. The company is
continuing its efforts to identify any exposures from failure of
any significant supplier to provide goods or services required by
the Company.
The Company anticipates being fully Year 2000 compliant in
all of its information systems by April 30, 1999 and its
production equipment by July 31, 1999. Although the Company is
committed to a successful and timely Year 2000 conversion and
funds are dedicated and available for this project, no assurance
can be given that it will be fully and timely implemented.
Failure of the Company's equipment or software to operate
properly with regards to the Year 2000 and thereafter could
require the Company to incur unanticipated expenses to remedy any
problems, which could have a material adverse effect on the
Company's business, operating results and financial condition.
Furthermore, the purchasing patterns of customers or potential
customers may be affected by Year 2000 issues if their systems
malfunction or they expend significant resources to correct their
current systems for Year 2000 compliance. Their expenditures may
result in reduced funds to purchase products and services such as
those offered by the Company, which could have a material adverse
effect on the Company's business, operating results and financial
condition. The Company believes the least controllable and
therefore most probable exposure specifically related to its
business would be the failure of a supplier to timely provide
goods or services required by the Company. The Company has
obtained assurances of Year 2000 compliance from most of its
suppliers and intends to continue canvassing critical suppliers
concerning the compliance of their systems. In addition, the
Company has in many instances sought to identify and qualify
alternate suppliers, where feasible. However, if notwithstanding
these measures, the Company does not receive required goods or
services as a result of the failure of one or more suppliers,
such failure could have a material adverse effect upon the
Company's business, operating results and financial condition.
Recent Accounting Pronouncements
- ---------------------------------
In June of 1997, the Financial Accounting Standards Board
issued Statement of Accounting Standards No. 131 (SFAS No. 131)
Disclosures About Segments of an Enterprise and Related
Information. SFAS No. 131 is effective for the Company's
financial statements to be issued at the end of the Company's
current fiscal year ended October 29, 1999. The Company does not
expect this standard to have a significant impact on the
consolidated financial statements.
<PAGE>
FORM 10-Q PART II
PART II. - OTHER INFORMATION
ITEM 5
Other Information.
- ------------------
The Company has advanced a loan to its President and Chief
Operating Officer, Jerry L. Curtis, in the amount of $99,990
evidenced by a note bearing interest at 5.5% per annum and
payable on July 23, 2001.
ITEM 6
Exhibits and Reports on Form 8-K.
- ---------------------------------
None
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
behalf of the undersigned thereunto duly authorized.
Optek Technology, Inc.
Date: March 15, 1999 By:/s/ Thomas R. Filesi
--------------- --------------------------
Thomas R. Filesi
Chairman and CEO
(Principal Executive Officer)
Date: March 15, 1999 By:/s/ William J. Collinsworth
--------------- ---------------------------
William J. Collinsworth
Vice President - Finance and
CFO (Principal Financial
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-Q for the quarter ended January 29, 1999 and is
qualified in its entirety by reference to such financial statement.
The numbers are in thousands, except per share amounts.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-29-1999
<PERIOD-END> JAN-29-1999
<CASH> 18006
<SECURITIES> 0
<RECEIVABLES> 11060
<ALLOWANCES> 1731
<INVENTORY> 7634
<CURRENT-ASSETS> 37784
<PP&E> 39104
<DEPRECIATION> 23084
<TOTAL-ASSETS> 53941
<CURRENT-LIABILITIES> 9209
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 44479
<TOTAL-LIABILITY-AND-EQUITY> 53941
<SALES> 21208
<TOTAL-REVENUES> 21208
<CGS> 12734
<TOTAL-COSTS> 16895
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (202)
<INCOME-PRETAX> 4451
<INCOME-TAX> 1508
<INCOME-CONTINUING> 2943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2943
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
</TABLE>
