<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended December 31, 1995
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
----------- --------
Commission File Number: 0-16195
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1214948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
375 Saxonburg Boulevard
Saxonburg, PA 16056 16056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412-352-4455
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
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
At February 8, 1996, 6,117,635 shares of Common Stock, no par value,
of the registrant were outstanding.
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES
-----------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Independent Accountants' Report........................................ 3
Condensed Consolidated Balance Sheets - December 31, 1995, and
June 30, 1995.......................................................... 4
Condensed Consolidated Statements of Earnings -- Three and six
months ended December 31, 1995 and 1994................................ 5
Condensed Consolidated Statements of Shareholders' Equity -- Three
and six months ended December 31, 1995................................. 7
Condensed Consolidated Statements of Cash Flows -- Six months
ended December 31, 1995 and 1994....................................... 8
Notes to Condensed Consolidated Financial Statements................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.................... 12
Item 6. Exhibits and Reports on Form 8-K....................................... 12
</TABLE>
2
<PAGE>
[LOGO OF ALPERN, ROSENTHAL & COMPANY]
Certified Public Accountants
Warner Centre, Suite 400 . 332 Fifth Avenue .
Pittsburgh, Pennsylvania 15222-2413
(412) 281-2501 . Fax (412) 471-1996
Independent Accountants' Report
To the Board of Directors and
Shareholders of II-VI Incorporated
Saxonburg, Pennsylvania
We have reviewed the accompanying condensed consolidated balance sheet of
II-VI Incorporated and Subsidiaries as of December 31, 1995, and the related
condensed consolidated statements of earnings, shareholders' equity and cash
flows for the three and six month periods ended December 31, 1995 and 1994.
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 of 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.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of II-VI Incorporated and
Subsidiaries as of June 30, 1995, and the related consolidated statements of
earnings, shareholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated August 19, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of June 30, 1995 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Alpern, Rosenthal & Company
January 16, 1996
A Professional Corporation
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Irving P. Rosenthal, CPA Members American and Pennsylvania Deborah H. Wells, CPA
Michael H. Levin, CPA Institutes of Certified Public Accountants Fred M. Rock, CPA
Harvey A. Pollack, CPA Sean M. Brennan, CPA
Fred J. Morelli, Jr., CPA Accounting Firms Associated, inc. Alexander Paul, CPA
Edward F. Rockman, CPA Member Firms in Principal Cities Michael E. Forgas, CPA
Emanuel V. DiNatale, CPA Joel M. Rosenthal, CPA
</TABLE>
3
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
- ---------------------------------------------
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000 except share data)
<TABLE>
<CAPTION>
December 31 June 30
Assets 1995 1995
----------- --------
<S> <C> <C>
Current Assets
Cash and equivalents $ 11,311 $ 3,822
Accounts receivable - less allowance for doubtful
accounts of $231 at 12/31/95 and $261 at 6/30/95 5,562 5,412
Inventories 4,665 4,165
Deferred income taxes 282 309
Prepaid and other current assets 513 376
---------- --------
Total Current Assets 22,333 14,084
Property, Plant & Equipment, net 12,644 9,892
Other Assets 387 391
---------- --------
$ 35,364 $ 24,367
========== ========
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 1,093 $ -
Accounts payable - trade 912 835
Accrued salaries, wages and bonuses 1,464 2,114
Income taxes payable 231 585
Accrued profit sharing contribution 171 278
Other current liabilities 760 1,027
Current portion of long-term debt 23 373
---------- --------
Total Current Liabilities 4,654 5,212
Long-Term Debt--less current portion 56 1,190
Deferred Income Taxes 944 967
Commitments & Contingencies - -
Shareholders' Equity
Preferred stock, no par value; authorized -
5,000,000 shares; unissued - -
Common stock, no par value; authorized - 30,000,000 shares;
issued - 6,685,858 shares at 12/31/95 and 5,669,987 at 6/30/95 15,482 4,485
Cumulative translation adjustment 58 (17)
Retained Earnings 15,300 13,660
---------- --------
30,840 18,128
Less treasury stock, at cost - 570,623 shares at
12/31/95 and 6/30/95. 1,130 1,130
---------- --------
29,710 16,998
---------- --------
$ 35,364 $ 24,367
========== ========
</TABLE>
All share data reflects the two-for-one stock split which was effected as of the
close of business September 6, 1995.
- -See notes to condensed consolidated financial statements.
4
<PAGE>
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Revenues
Net Sales:
Domestic $ 4,076 $ 2,658
International 3,642 3,012
------------ ------------
7,718 5,670
Contract research and development 236 234
------------ ------------
7,954 5,904
------------ ------------
Costs, Expenses & Other Income
Cost of goods sold 4,475 3,295
Contract research and development 163 253
Internal research and development 138 120
Selling, general and administrative expenses 2,152 1,598
Interest and other expense - net (139) (15)
------------ ------------
6,789 5,251
------------ ------------
Earnings Before Income Taxes 1,165 653
Income Tax Expense 331 144
------------ ------------
Net Earnings $ 834 $ 509
============ ============
Earnings Per Share $ 0.14 $ 0.10
============ ============
</TABLE>
All share data reflects the two-for-one stock split which was effected as of
the close of business September 6, 1995.
- -See notes to condensed consolidated financial statements.
5
<PAGE>
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1995 1994
------------- -------------
<S> <C> <C>
Revenues
Net Sales:
Domestic $ 8,313 $ 5,063
International 7,362 5,768
------------- -------------
15,675 10,831
Contract research and development 367 519
------------- -------------
16,042 11,350
------------- -------------
Costs, Expenses & Other Income
Cost of goods sold 9,031 6,359
Contract research and development 264 451
Internal research and development 286 252
Selling, general and administrative expenses 4,283 3,070
Interest and other expense - net (123) (4)
------------- -------------
13,741 10,128
------------- -------------
Earnings Before Income Taxes 2,301 1,222
Income Tax Expense 661 317
------------- -------------
Net Earnings $ 1,640 $ 905
============= =============
Earnings Per Share $ 0.28 $ 0.18
============= =============
</TABLE>
All share data reflects the two-for-one stock split which was effected as
of the close of business September 6, 1995.
- -See notes to condensed consolidated financial statements.
6
<PAGE>
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
(000)
<TABLE>
<CAPTION>
Common Stock Cumulative Treasury Stock
---------------------- Translation Retained ----------------------
Shares Amount Adjustment Earnings Shares Amount Total
--------- --------- -------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--July 1, 1995 5,670 $ 4,485 $ (17) $ 13,660 (571) $ (1,130) $ 16,998
Shares issued under stock option plan 15 51 - - - - 51
Net earnings for the quarter - - - 806 - - 806
Translation adjustment - - 61 - - - 61
--------- --------- ------------- ---------- -------- -------- --------
Balance--September 30, 1995 5,685 $ 4,536 $ 44 $ 14,466 (571) $ (1,130) $ 17,916
Shares issued under stock option plan 1 6 - - - - 6
Net proceeds from second offering 1,000 10,940 - - - - 10,940
Net earnings for the quarter - - - 834 - - 834
Translation adjustment - - 14 - - - 14
--------- --------- ------------- ---------- -------- -------- --------
Balance--December 31, 1995 6,686 $ 15,482 $ 58 $ 15,300 (571) $ (1,130) $ 29,710
========= ========= ============= ========== ======== ======== ========
</TABLE>
All share data reflects the two-for-one stock split which was effected as of
the close of business September 6, 1995.
- -See notes to condensed consolidated financial statements.
7
<PAGE>
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1995 1994
-------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net Earnings $ 1,640 $ 905
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,195 993
Loss on sale of asset - 17
(Gain) on foreign currency transactions (87) (7)
Deferred income taxes 4 90
Increase (decrease) in cash from changes in:
Accounts receivable (271) (213)
Inventories (668) (149)
Accounts payable 298 72
Accrued salaries, wages and bonuses (647) 115
Accrued profit sharing contribution (107) 23
Income taxes payable (354) (37)
Other operating net assets (451) 165
-------- ----------
Net cash provided by operating activities 552 1,974
-------- ----------
Cash Flows from Investing Activities
Additions to fixed assets (3,920) (796)
Payment for purchase of Virgo Optics, net of cash acquired - (2,353)
-------- ----------
Net cash used in investing activities (3,920) (3,149)
-------- ----------
Cash Flows from Financing Activities
Proceeds on short-term borrowings - 1,499
Payments on short-term borrowings - (94)
Proceeds from long-term borrowings - 108
Payments on long-term borrowings (141) (270)
Proceeds from sale of common stock 10,998 39
Purchase of treasury stock - (18)
-------- ----------
Net cash provided by financing activities 10,857 1,264
-------- ----------
Net increase in cash and equivalents 7,489 89
Cash and Equivalents at Beginning of period 3,822 1,734
-------- ----------
Cash and Equivalents at End of period $ 11,311 $ 1,823
======== ==========
</TABLE>
- -See notes to condensed consolidated financial statements.
8
<PAGE>
II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A - Basis of Presentation
---------------------
The condensed consolidated financial statements for the three and six
month periods ended December 31, 1995 and 1994 are unaudited. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation for the periods presented have
been included. These interim statements should be read in conjunction with
the audited consolidated financial statements and footnotes thereto contained
in the Company's Annual Report as filed as an exhibit to the Company's Form
10-K Annual Report dated October 3, 1995 filed with the Securities and
Exchange Commission. The consolidated results of operations for the three and
six month periods ended December 31, 1995 and 1994 are not necessarily
indicative of the results to be expected for the full year.
Note B - Inventories ($000)
-------------------
The components of inventories are as follows:
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
----------- ---------
<S> <C> <C>
Raw Materials $ 1,859 $ 1,750
Work in Progress 1,237 1,348
Finished Goods 1,569 1,067
-------- ---------
$ 4,665 $ 4,165
======== =========
</TABLE>
Note C - Property, Plant and Equipment ($000)
-------------------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
----------- ---------
<S> <C> <C>
Land and land improvements $ 367 $ 307
Buildings and improvements 5,782 4,258
Machinery and equipment 19,823 17,486
--------- ---------
25,972 22,051
Less accumulated depreciation 13,328 12,159
--------- ---------
$ 12,644 $ 9,892
========= =========
</TABLE>
9
<PAGE>
II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note D - Stock Split
-----------
On August 16, 1995, the Board of Directors declared a two-for-one split
of II-VI's common stock which was distributed to shareholders of record on
August 30, 1995, effective at the close of business September 6, 1995. All
per share amounts included in the condensed consolidated financial
statements and notes are based on the increased number of shares giving
retroactive effect to the stock split, unless otherwise noted.
Note E - Stock Offering
--------------
On October 20, 1995, a registration statement on Form S-3 covering the
public offering of 1,000,000 shares was declared effective by the Securities
and Exchange Commission, with the shares sold to the public at $12.00 per
share.
Note F - Subsequent Events
-----------------
On January 9, 1996 the Company's Japan subsidiary borrowed $761,000 from a
Japanese bank. The debt is payable in equal installments over a sixteen
month period. The current interest rate on this loan is 2.125%.
On January 11, 1996 the Company announced that it has entered into a
letter of intent to acquire Lightning Optical Corporation. Consummation of
the transaction is subject to customary conditions and execution of a
definitive purchase agreement.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
- ---------------------
Net earnings for the second fiscal quarter of 1996, ended December 31, 1995,
were $834,000 ($0.14 per share) on revenues of $7,954,000. This compares to net
earnings of $509,000 ($0.10 per share) on revenues of $5,904,000 in the second
quarter of fiscal 1995. For the six months ended December 31, 1995, net earnings
were $1,640,000 ($0.28 per share) on revenues of $16,042,000. This compares with
net earnings of $905,000 ($0.18 per share) on revenues of $11,350,000 for the
same period last fiscal year. The Company issued an additional 1,000,000 shares
of common stock during the second quarter of fiscal 1996. This increased the
average shares outstanding for the second quarter by 667,000 shares to 6,155,000
shares, and the average outstanding shares for the year by 333,000 to 5,834,000.
Order bookings for the second quarter were $10,522,000 compared to $6,762,000
for the same period last fiscal year, a 56% increase. Year-to-date order
bookings grew by 46% to $18,569,000 from $12,698,000 in last fiscal year. These
increases are attributable to the addition of the Virgo Optics Division,
increased demand in the international industrial market and the eV PRODUCTS
Division, and additional contract R&D bookings.
Manufacturing gross margin for the quarter was $3,243,000 or 42% of revenues
compared to $2,375,000 or 42% of revenues for the second quarter of fiscal 1995.
Manufacturing gross margin year-to-date was $6,644,000 or 42% of revenues
compared to $4,472,000 or 41% of revenues in fiscal 1995. The year-to-date
increase reflects lower per unit operating costs associated with increased
volume.
Selling, General and Administrative expenses for the quarter were $2,152,000 or
27% of revenues compared to $1,598,000 or 27% of revenues for last fiscal year's
second quarter. Selling, General and Administrative expenses year-to-date were
$4,283,000 or 27% of revenues compared to $3,070,000 or 27% of revenues in
fiscal 1995. The increase in expense is attributable to higher compensation
expense associated with the Company's world-wide profit driven bonus programs
and expenses incurred at the Virgo Optics Division.
The Company's year-to-date effective income tax rate is 29% of pre-tax earnings
as compared to 26% for the same period last year. The higher rate is due to the
mix of earnings from domestic and foreign operations.
Liquidity and Capital Resources
- -------------------------------
Cash increased during the first six months of fiscal 1996 by $7,489,000 due
mainly to $10,940,000 in net proceeds from the October public stock offering and
cash generated from operations of $552,000 being offset by $3,920,000 in capital
expenditures.
The cash generated from operations was a result of net earnings before
depreciation of $2,835,000 being offset mostly by the payment of compensation
costs relating to the Company's fiscal 1995 world-wide profit-driven bonus
programs, the payment of corporate income tax estimates, and increases in
inventory and other net operating assets.
The capital expenditures focused on manufacturing facility expansion and process
automation.
The current cash balance will be used for working capital needs, further capital
expenditures, and possible acquisitions of complementary businesses, products or
technologies.
In January, the Company entered into a letter of intent to acquire Lightning
Optical Corporation. Consummation of the transaction is subject to customary
conditions and execution of a definitive purchase agreement. Also in January,
the Company's Japan subsidiary borrowed $761,000 from a Japanese Bank. Terms of
this loan call for equal installments to be made over a sixteen month period
with interest being paid at 2.125%.
11
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
On November 3, 1995, the Company held its annual meeting of shareholders.
The two matters voted upon at the annual meeting were the election of two
directors and the ratification of the selection of Alpern, Rosenthal & Company
as auditors for the year ending June 30, 1996.
Each of the Company's nominees for director was reelected at the annual
meeting. The total number of votes cast for the election of directors was
4,428,933. Following is a separate tabulation with respect to each director:
Votes For Votes Withheld
--------- --------------
Peter W. Sognefest 4,433,065 11,932
Francis J. Kramer 4,395,057 17,812
The total number of votes cast for the ratification of the appointment of
Alpern, Rosenthal & Company as auditors for the year ending June 30, 1996, was
4,428,933 with 4,418,949 votes for, 3,800 votes against and 6,184 votes
abstaining.
There were no broker non-votes on these two matters.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibits.
--------
15.01 Accountant's acknowledgment letter dated
February 12, 1996...........................Filed herewith.
27.01 Financial Data Schedule.....................Filed herewith.
(b) Reports on Form 8-K.
-------------------
None
12
<PAGE>
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.
II-VI INCORPORATED
(Registrant)
Date: February 12, 1996 By: /s/ Carl J. Johnson
------------------------------------
Carl J. Johnson
Chairman and Chief Executive Officer
Date: February 12, 1996 By: /s/ James Martinelli
------------------------------------
James Martinelli
Treasurer & Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No.
- -----------
15.01 Accountant's acknowledgment letter dated
February 12, 1996..............................Filed herewith.
27.01 Financial Data Schedule........................Filed herewith.
<PAGE>
Exhibit 15.01
[LOGO OF ALPERN, ROSENTHAL & COMPANY]
Certified Public Accountants
Warner Centre, Suite 400 . 332 Fifth Avenue .
Pittsburgh, Pennsylvania 15222-2413
(412) 281-2501 . Fax (412) 471-1996
To the Board of Directors and
Shareholders of II-VI Incorporated
Saxonburg, Pennsylvania
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 II-VI Incorporated and Subsidiaries for the periods
ended December 31, 1995 and 1994, as indicated in our report dated January 16,
1996; 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 December 31, 1995, is
incorporated by reference in Registration Statements No. 33-19511, No. 33-38019,
and No. 33-19510 on Form S-8 and No. 33-63739 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, 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.
Alpern, Rosenthal & Company
February 12, 1996
A Professional Corporation
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Irving P. Rosenthal, CPA Members American and Pennsylvania Deborah H. Wells, CPA
Michael H. Levin, CPA Institutes of Certified Public Accountants Fred M. Rock, CPA
Harvey A. Pollack, CPA Sean M. Brennan, CPA
Fred J. Morelli, Jr., CPA Accounting Firms Associated, inc. Alexander Paul, CPA
Edward F. Rockman, CPA Member Firms in Principal Cities Michael E. Forgas, CPA
Emanuel V. DiNatale, CPA Joel M. Rosenthal, CPA
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,311
<SECURITIES> 0
<RECEIVABLES> 5,793
<ALLOWANCES> 231
<INVENTORY> 4,665
<CURRENT-ASSETS> 22,333
<PP&E> 25,972
<DEPRECIATION> 13,328
<TOTAL-ASSETS> 35,364
<CURRENT-LIABILITIES> 4,654
<BONDS> 56
0
0
<COMMON> 15,482
<OTHER-SE> 15,358
<TOTAL-LIABILITY-AND-EQUITY> 35,364
<SALES> 16,042
<TOTAL-REVENUES> 16,042
<CGS> 9,295
<TOTAL-COSTS> 9,295
<OTHER-EXPENSES> 4,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,301
<INCOME-TAX> 661
<INCOME-CONTINUING> 1,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,640
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
</TABLE>
