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, 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: 0-16195
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 10, 1997, 6,393,780 shares of Common Stock, no par value,
of the registrant were outstanding.
II-VI INCORPORATED AND SUBSIDIARIES
-----------------------------------
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements.
Independent Accountants' Report. . . . . . . . . . 3
Condensed Consolidated Balance Sheets -
December 31, 1996, and June 30, 1996 . . . . . . . 4
Condensed Consolidated Statements of Earnings -
Three and six months ended December 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of
Shareholders' Equity - Three and six months ended
December 31, 1996 . . . . . . . . . . . . . . . . . 7
Condensed Consolidated Statements of
Cash Flows - Six months ended
December 31, 1996 and 1995 . . . . . . . . . . . . 8
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security-Holders . . . . . . . . . . . . . . . . . 11
Item 5. Other Events . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 12
</TABLE>
2
[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, 1996, and the
related condensed consolidated statements of earnings, shareholders'
equity and cash flows for the six month periods ended December 31,
1996 and 1995. 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, 1996, 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 12, 1996, 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, 1996 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Alpern, Rosenthal & Company
January 20, 1997
A Professional Corporation
- ----------------------------------------------------------------
Members American and Pennsylvania
Institutes of Certified Public Accountants
Accounting Firms Associated, inc.
Member Firms in Principal Cities
<TABLE>
<S> <C>
Irving P. Rosenthal, CPA Deborah H. Wells, CPA
Michael H. Levin, CPA Fred M. Rock, CPA
Harvey A. Pollack, CPA Sean M. Brennan, CPA
Fred J. Morelli, Jr., CPA Alexander Paul, CPA
Edward F. Rockman, CPA Michael E. Forgas, CPA
Emanuel V. DiNatale, CPA Joel M. Rosenthal, CPA
</TABLE>
3
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 1996 1996
------------ -----------
<S> <C> <C>
Current Assets
Cash and equivalents $ 9,389 $ 9,417
Accounts receivable - less allowance for doubtful
accounts of $266 in December and $246 in June 8,533 8,712
Inventories 6,766 5,490
Deferred income taxes 428 429
Prepaid and other current assets 687 607
------- -------
Total Current Assets 25,803 24,655
Property, Plant & Equipment, net 17,163 15,085
Goodwill 2,090 2,138
Other Assets 2,236 2,291
------- -------
$47,292 $44,169
------- -------
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 926 $ 1,393
Accounts payable - trade 1,661 1,260
Accrued salaries, wages and bonuses 2,362 3,105
Income taxes payable 301 607
Accrued profit sharing contribution 346 556
Other current liabilities 999 1,024
Current portion of long-term debt 73 23
------- -------
Total Current Liabilities 6,668 7,968
Long-Term Debt--less current portion 715 45
Deferred Income Taxes 1,697 1,753
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 - 6,751,480 shares in
December 1996; 6,691,718 shares in June 1996 17,480 17,055
Foreign Currency Translation 88 79
Retained Earnings 21,406 18,031
------- -------
38,974 35,165
Less treasury stock, at cost - 384,440 shares at
12/31/96 and 6/30/96. 762 762
------- -------
38,212 34,403
------- -------
$47,292 $44,169
------- -------
</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
4
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
-------- --------
<S> <C> <C>
Revenues
Net Sales:
Domestic $ 6,531 $ 4,076
International 4,984 3,642
------- -------
11,515 7,718
Contract research and development 675 236
------- -------
12,190 7,954
------- -------
Costs, Expenses & Other Income
Cost of goods sold 6,264 4,475
Contract research and development 468 163
Internal research and development 260 138
Selling, general and administrative expenses 2,951 2,152
Interest and other expense - net (168) (139)
------- -------
9,775 6,789
------- -------
Earnings Before Income Taxes 2,415 1,165
Income Tax Expense 700 331
------- -------
Net Earnings $ 1,715 $ 834
------- -------
Earnings Per Share $ 0.25 $ 0.14
------- -------
</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
5
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1996 1995
-------- --------
<S> <C> <C>
Revenues
Net Sales:
Domestic $13,303 $ 8,313
International 9,804 7,362
------- -------
23,107 15,675
Contract research and development 1,193 367
------- -------
24,300 16,042
------- -------
Costs, Expenses & Other Income
Cost of goods sold 12,612 9,031
Contract research and development 863 264
Internal research and development 384 286
Selling, general and administrative expenses 5,981 4,283
Interest and other expense - net (293) (123)
------- -------
19,547 13,741
------- -------
Earnings Before Income Taxes 4,753 2,301
Income Tax Expense 1,378 661
------- -------
Net Earnings $ 3,375 $ 1,640
------- -------
Earnings Per Share $ 0.50 $ 0.28
------- -------
</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
6
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, 1996 6,692 $17,055 $ 79 $ 18,031 (384) $ (762) $34,403
Shares issued under stock option plan 29 66 - - - - 66
Net earnings for the quarter - - - 1,660 - - 1,660
Translation adjustment - - 2 - - - 2
------ ------- ----------- -------- ------- -------- -------
Balance--September 30, 1996 6,721 $17,121 $ 81 $ 19,691 (384) $ (762) $36,131
Shares issued under stock option plan 30 63 - - - - 63
Net earnings for the quarter - - - 1,715 - - 1,715
Translation adjustment - - 7 - - - 7
Tax benefit for options exercised - 296 - - - - 296
------ ------- ----------- -------- ------- -------- -------
Balance--December 31, 1996 6,751 $17,480 $ 88 $ 21,406 (384) $ (762) $38,212
</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
7
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1996 1995
------- -------
<S> <C> <C>
s from Operating Activities
Net Earnings $ 3,375 $ 1,640
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,663 1,195
(Gain) on foreign currency transactions (207) (87)
Deferred income taxes (54) 4
Increase (decrease) in cash from changes in:
Accounts receivable 224 (271)
Inventories (1,307) (668)
Accounts payable 515 298
Accrued salaries, wages and bonuses (773) (647)
Accrued profit sharing contribution (210) (107)
Income taxes payable (10) (354)
Other operating net assets (69) (451)
------- -------
Net cash provided by operating activities 3,147 552
------- -------
Cash Flows from Investing Activities
Additions to property, plant & equipment (3,550) (3,920)
Additions to other assets (87) -
------- -------
Net cash used in investing activities (3,637) (3,920)
------- -------
Cash Flows from Financing Activities
Payments on short-term borrowings (388) -
Proceeds from long-term borrowings 741 -
Payments on long-term borrowings (21) (141)
Proceeds from sale of common stock 130 10,998
------- -------
Net cash provided by financing activities 462 10,857
------- -------
Net increase (decrease) in cash and equivalents (28) 7,489
Cash and Equivalents at Beginning of Period 9,417 3,822
------- -------
Cash and Equivalents at End of Period $ 9,389 $11,311
------- -------
</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
8
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, 1996 and 1995 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 1996 Annual Report to the
shareholders. The consolidated results of operations for the
three and six month periods ended December 31, 1996 and 1995 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:
December 31 June 30
1996 1996
Raw Materials $ 3,016 $ 2,279
Work in Progress 1,468 1,427
Finished Goods 2,282 1,784
-------- -------
$ 6,766 $ 5,490
-------- -------
Note C - Property, Plant and Equipment ($000)
Property, plant and equipment consist of the following:
December 31 June 30
1996 1996
Land and land improvements $ 555 $ 539
Buildings and improvements 7,254 6,952
Machinery and equipment 25,316 22,084
------- -------
33,125 29,575
Less accumulated depreciation 15,962 14,490
------- -------
$17,163 $15,085
------- -------
Note D - Debt
In September of 1996, the Company secured a $741,000 low
interest rate loan from the Pennsylvania Industrial Development
Authority to finance a portion of a facility expansion. The
terms of the loan call for equal monthly payments over a
fifteen year period, including interest at three percent.
9
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 1997, ended December 31,
1996, were $1,715,000 ($0.25 per share) on revenues of $12,190,000. This
compares to net earnings of $834,000 ($0.14 per share) on revenues of
$7,954,000 in the second quarter of fiscal 1996. For the six months
ended December 31, 1996, net earnings were $3,375,000 ($0.50 per share)
on revenues of $24,300,000. This compares with net earnings of
$1,640,000 ($0.28 per share) on revenues of $16,042,000 for the same
period last fiscal year. The increased earnings were driven by the
improved revenue volume.
Order bookings for the second quarter were $13,894,000 compared to
$10,642,000 for the same period last fiscal year, a 31% increase. Year-
to-date order bookings grew by 44% to $26,821,000 from $18,569,000 last
fiscal year. Commercial orders at the Company's VLOC operation accounted
for two-thirds of the increase for the quarter, while domestic
industrial orders for infrared optics and materials accounted for most
of the remaining increase. Year-to-date, VLOC Commercial orders were
responsible for approximately one-half of the increase, followed by
higher infrared optics and materials orders and Contract Research and
Development awards.
Manufacturing revenues for the second quarter were $11,515,000 compared
to $7,718,000 for the same period last fiscal year, a 49% increase.
Year-to-date manufacturing revenues grew by 47% to $23,107,000 from
$15,675,000 last fiscal year. These increases are the result of improved
shipments in all of the markets served by the Company. The Company's
VLOC operation contributed approximately one-half of the quarter and
year-to-date improvements.
Manufacturing gross margin for the second quarter was $5,251,000 or 46%
of revenues compared to $3,243,000 or 42% of revenues for the second
quarter of fiscal 1996. Manufacturing gross margin year-to-date was
$10,495,000 or 45% of revenues compared to $6,644,000 or 42% of revenues
in fiscal 1996. Both the quarter and year-to-date increases in gross
margin as a percent of revenues reflect lower per unit operating costs
associated with increased volume and efficiency improvements, which are
partially offset by the strengthening of the U.S. dollar against the
Japanese yen.
Selling, General and Administrative expenses for the second quarter were
$2,951,000 or 24% of revenues compared to $2,152,000 or 27% of revenues
for last fiscal year's second quarter. Selling, General and
Administrative expenses year-to-date were $5,981,000 or 25% of revenues
compared to $4,283,000 or 27% of revenues in fiscal 1996. The increases
in expense are attributable to additional expenses in the VLOC
operation, higher compensation expense associated with the Company's
world-wide profit driven bonus programs and higher general and
administrative expenses needed to support the Company's growth.
10
Other income for the quarter was $168,000 compared to $139,000 for last
fiscal year's second quarter. Other income year-to-date was $293,000
compared to $123,000 in fiscal 1996. The year-to-date increase is
primarily due to foreign currency gains and investment earnings on
increased cash balances. The increase in cash was primarily due to the
October 1995 public stock offering.
The Company's year-to-date effective income tax rate was 29% of pre-tax
earnings, the same as the first six months of fiscal 1996.
Liquidity and Capital Resources
Cash decreased during the first six months of fiscal 1997 by $28,000
primarily from cash generated from operations of $3,147,000 and
$741,000 of financing from a low interest rate loan with the
Pennsylvania Industrial Development Authority being offset by $3,550,000
of capital expenditures.
The capital expenditures focused on improved capacity, process
automation and the start up of the Company's China operation.
The Company generated $3,147,000 in cash from operations for the first
six months of fiscal 1997. The $5,038,000 in cash generated from net
earnings before depreciation and amortization was offset by increases in
inventories needed to support the growth in sales volume and the payment
of compensation costs relating to the Company's fiscal 1996 world-wide
profit-driven bonus and retirement programs.
The current cash balance will be used for working capital needs, further
capital expenditures, and possible acquisitions of complementary
businesses, products or technologies.
There are certain risk factors that could affect the Company's business,
results of operations or financial condition. Investors are encouraged
to review the risk factors set forth in the Company's Form 10-K filed on
September 24, 1996.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On November 1, 1996, the Company held its annual meeting of
shareholders. The three matters voted upon at the annual meeting were
the election of two directors, the ratification of the selection of
Alpern, Rosenthal & Company as auditors for the year ending June 30,
1997 and the ratification of the purchase of common stock by the
deferred compensation plan for participants.
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 5,800,971. Following is a separate tabulation with respect to
each director:
Votes For Votes Withheld
Carl J. Johnson 5,787,216 15,205
Thomas E. Mistler 5,784,166 15,355
11
The total number of votes cast for the ratification of the
appointment of Alpern, Rosenthal & Company as auditors for the year
ending June 30, 1997 was 5,800,971 with 5,734,371 votes for, 49,890
votes against and 16,710 votes abstaining.
The total number of votes cast for the ratification of the
purchase of common stock by the deferred compensation plan for
participants was 5,800,971 with 5,562,901 votes for, 108,130 votes
against and 28,720 votes abstaining.
There were no broker non-votes on these three matters.
Item 5. OTHER EVENTS
------------
On February 12, 1997, the Company filed a current report on
Form 8-K for the events dated February 10, 1997.
On February 10, 1997, the Registrant terminated
Alpern, Rosenthal & Company as independent accountants for
the Registrant and its subsidiaries (other than II-VI Singapore
Pte. Ltd. which will continue to be serviced by Deloitte &
Touche LLP) upon completion of its review of the Registrant's
unaudited financial statements for its second fiscal quarter
ended December 31, 1996.
Also effective February 10, 1997, the Registrant engaged
Deloitte & Touche LLP as independent auditors to review the
Registrant's unaudited financial statements for its third fiscal
quarter ending March 31, 1997, and to audit the Registrant's
financial statements for the fiscal year ending 1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits.
--------
10.01 Amended and Restated II-VI Incorporated
Deferred Compensation Plan . . . . . . . Filed herewith.
15.01 Accountant's acknowledgment letter dated
February 13, 1997 . . . . . . . . . . . . Filed herewith.
27.01 Financial Data Schedule . . . . . . . . . Filed herewith.
99.01 Press release dated January 21, 1997. . . Filed herewith.
(b) Reports on Form 8-K.
None
12
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.
II-VI INCORPORATED
(Registrant)
Date: February 13, 1997 By: /s/ Carl J. Johnson
-----------------------
Carl J. Johnson
Chairman and Chief
Executive Officer
Date: February 13, 1997 By: /s/ James Martinelli
-----------------------
James Martinelli
Treasurer &
Chief Financial Officer
EXHIBIT INDEX
Exhibit No.
- -----------
10.01 Amended and Restated II-VI Incorporated
Deferred Compensation Plan . . . . . . . Filed herewith.
15.01 Accountant's acknowledgment letter dated
February 13, 1997 . . . . . . . . . . . . Filed herewith.
27.01 Financial Data Schedule . . . . . . . . . Filed herewith.
99.01 Press release dated January 21, 1997. . . Filed herewith.
14
AMENDED AND RESTATED
II-VI INCORPORATED
DEFERRED COMPENSATION PLAN
Effective June 30, 1996
Amended November 2 , 1996
TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . .
2. Participation . . . . . . . . . . . . . . . . . . . .
3. Contributions . . . . . . . . . . . . . . . . . . . .
4. Investment of Contributions . . . . . . . . . . . . .
5. Benefits. . . . . . . . . . . . . . . . . . . . . . .
6. Distribution of Benefits . . . . . . . . . . . . . .
7. General Provisions. . . . . . . . . . . . . . . . . .
8. Plan Execution. . . . . . . . . . . . . . . . . . . .
INTRODUCTION
The Employer is establishing a nonqualified, defined contribution
employees' retirement plan which has been designed as, and is intended
to
be, an unfunded plan for purposes of the Employee Retirement Income
Security Act of 1974, as amended, and a nonqualified plan under the
Internal Revenue Code of 1986, including any later amendments to the
Code. The Employer agrees to operate the plan according to the terms,
provisions and conditions set forth in this document.
Any funds accumulated for purposes of providing benefits under this
plan are fully available to satisfy the claims of the Employer's
creditors. Participants have no greater rights with regard to such fund
than any other general creditor of the Employer.
The Plan was originally adopted by II-VI Incorporated to be
effective as of June 30, 1996.
ARTICLE I
DEFINITIONS
1.01 "Account" means, for a Participant, a bookkeeping account
that reflects the amount available for benefits under this Plan.
Separate accounting records are kept for those parts of his Account
that result from:
(a) Salary Deferral Contributions.
(b) Matching Contributions.
(c) Discretionary Contributions.
A Participant's Account shall be reduced by any distribution of
his Account. A Participant's Account will participate in the earnings
credited, expenses charged and any appreciation or depreciation of the
deemed investments of the Plan. His Account is subject to any minimum
guarantees applicable under the Group Contract or other investment
arrangements.
1.02 "Beneficiary" means the person or persons named by a
Participant to receive any benefits under this Plan upon the
Participant's death.
1.03 "Benefit Date" means, for a Participant, the first day of
the
first period for which an amount of benefit is payable to him under this
Plan. See Article V - BENEFITS.
1.04 "Code" means the Internal Revenue Code of 1986, as amended.
1.05 "Compensation" means the total earnings paid or made
available to an Employee by the Employer during any specified period.
1.06 "Contributions" means, Salary Deferral Contributions,
Matching Contributions or Discretionary Contributions, as set out in
Article III, unless the context clearly indicates otherwise.
1.07 "Eligible Employee" means any Employee of the Employer who
is invited to participate in the Plan and who represents a select group
of highly-compensated or management employees, as determined by the
Employer.
1.08 "Employee" means an individual who is employed by the
Employer.
1.09 "Employer" means II-VI INCORPORATED or any subsidiary
corporations which are included in a parent subsidiary controlled group
or brother/sister controlled group of corporations under Sect. 1653 of
the Internal Revenue Code.
1.10 "Entry Date" means the date an Employee first enters the
Plan as an Active Participant. See Article II - PARTICIPATION.
1.11 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
1.12 "Fiscal Year" means the Employer's taxable year. The
last day of the Fiscal Year is June 30.
1.13 "Group Contract" means the group annuity contract or
contracts into which the Trustee enters with the Insurer for the
investment of Contributions and the payment of benefits under this
Plan. The term Group Contract as it is used in this Plan is deemed
to include the plural unless the context clearly indicates otherwise.
Any funds accumulated under the Group Contract are available to
the general creditors of the Employer.
1.14 "Insurer" means Principal Mutual Life Insurance Company
and any other insurance company or companies named by the Trustee or
Employer.
1.15 "Monthly Date" means each Yearly Date and the same day of
each following month during the Plan Year beginning on such Yearly Date.
1.16 "Participant" means an Eligible Employee who is actively
participating in the Plan.
1.17 "Plan" means the nonqualified retirement plan of the
Employer
set forth in this document, including any later amendments to it.
1.18 "Plan Administrator" means the person or persons who
administer the Plan. The Plan Administrator is the Employer.
1.19 "Plan Year" means a period beginning on a Yearly Date and
ending on the day before the next Yearly Date.
1.20 "Qualified Plan" means The II-VI Incorporated Employees
Profit Sharing Plan.
1.21 "Reentry Date" means the date a former Participant reenters
the Plan. See Article II - PARTICIPATION.
1.22 "Retirement Date" means his retirement date under the
Qualified Plan.
1.23 "Totally and Permanently Disabled" means that a Participant
is disabled to the extent he is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or be of
long-continued and indefinite duration, pursuant to Code Section
72(m)(7), and, as a result of such condition, the Participant's
employment with the Employer terminates.
1.24 "Trust" means an agreement of trust between the Employer and
Trustee established for the purpose of holding and distributing the
Trust
Fund under the provisions of the Plan and conforming to the terms of the
model trust, as described in Revenue Ruling 92-64. The Trust may
provide
for the investment of all or any portion of the Trust Fund in the Group
Contract.
1.25 "Trust Fund" means the total funds held under the Trust for
the purpose of providing benefits for Participants. These funds result
from Contributions made under the Plan which are forwarded to the
Trustee to be deposited in the Trust Fund.
1.26 "Trustee" means the trustee or trustees under the Trust.
The term Trustee as it is used in this Plan is deemed to include the
plural unless the context clearly indicates otherwise.
1.27 "Yearly Date" means June 30, 1996, and each following July
1.
ARTICLE II
PARTICIPATION
An Employee shall first become a Participant (begin active
participation in the Plan) on the earliest Yearly Date on or after June
30, 1996, on which he is an Eligible Employee. This date is his Entry
Date.
A former Participant shall again become a Participant (resume
active participation in the Plan) on the date he again performs an hour
of service as an Eligible Employee. This date is his Reentry Date.
A Participant shall cease to be a Participant on the date he is no
longer an Eligible Employee and the value of his Account is zero.
ARTICLE III
CONTRIBUTIONS
3.01 Employer Contributions. Employer Contributions for each
Plan Year will be equal to the Employer Contributions as described
below.
(a) Salary Deferral Contributions. The amount of each
Salary Deferral Contribution for a Participant shall be equal to any
percentage of his Compensation for the pay period as elected in his or
her deferral agreement. An Employee who is eligible to participate in
the Plan may file a deferral agreement with the Employer. Except as
otherwise provided in this Section 3.01, the deferral agreement to start
Salary Deferral Contributions must be effective on the 1st day of
January
immediately following a Participant's Entry Date (Reentry Date, if
applicable) or any following Yearly Date. The Participant shall make
any
change or terminate the deferral agreement by filing a new deferral
agreement. A Participant's deferral agreement making a change may be
effective on any date a deferral agreement to start Salary Deferral
Contributions could be effective. A Participant' deferral agreement to
stop Salary Deferral Contributions may be effective on any date.
Except as otherwise provided in this Section, to be
effective
the deferral agreement must be in writing and filed with the Employer
before the beginning of the calendar year in which Salary Deferral
Contributions are to start, change or stop. In the year that the Plan
is
first implemented, a Participant's deferral agreement may be filed with
the Employer and become effective for the current calendar year within
thirty (30) days after the Plan is effective. In the first year in
which
a Participant becomes eligible to participate in the Plan, such
Participant's deferral agreement may be filed with the Employer and
become effective for the current calendar year within thirty (30) days
after the date on which such Participant becomes eligible to participate
in the Plan.
Salary Deferral Contributions may include contributions the
Employee would have made to the Qualified Plan of the Employer under its
contribution formula but for the additional restrictions imposed by such
Plan to meet the qualification requirements of the Internal Revenue
Code.
(b) Matching Contributions. The amount of each Matching
Contribution made by the Employer for a Participant shall be equal to a
percentage as determined by the Employer, of the Participant's Salary
Deferral Contributions for the pay period. Said percentage shall be
uniform for all Participants.
However, Salary Deferral Contributions in excess of the
percentage of Compensation as provided in the Qualified Plan will not be
matched.
(c) Discretionary Contributions. The amount of each
Discretionary Contribution made by the Employer for the Participant
shall be determined by the Employer and shall be made on a uniform
basis for all Participants.
3.02 Allocation. The following Contributions for each Plan
Year shall be allocated among all eligible persons:
Discretionary Contributions
The eligible persons are all Participants who the Employer
determines are eligible for an allocation for the Plan Year. The
amount allocated to such a person shall be determined below.
The following Contributions for each Plan Year shall be
allocated to each Participant for whom such Contributions were made
under the EMPLOYER CONTRIBUTIONS SECTION of Article III:
Salary Deferral Contributions
Matching Contributions
These Contributions shall be allocated when made and credited
to the Participant's Account.
Discretionary Contributions and Matching Contributions shall be
allocated in a uniform manner by the Employer.
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
4.01 The Participants' Accounts shall be valued at current fair
market value as of the last day of the last calendar month ending in
the Plan Year and, at the discretion of the Plan Administrator, may be
valued more frequently. The Account of a Participant shall be
considered a deemed investment of the Plan and shall be credited with
its share of the deemed gains and losses of the deemed investments of
the Plan.
4.02 The Plan at all times shall be considered unfunded both for
tax purposes and for purposes of Title I of the ERISA. Any funds
invested hereunder shall continue for all purposes to be part of the
general assets of the Employer and available to its general creditors
in the event of bankruptcy or insolvency. This Plan constitutes a mere
promise by the Employer to make benefit payments in the future to
Participants or to Participants' beneficiaries.
ARTICLE V
BENEFITS
5.01 Retirement Benefits. On a Participant's Retirement Date,
his Account shall be distributed to him according to the distribution of
benefits provisions of Article VI. This date shall be a Participant's
Benefit Date.
5.02 Death Benefits. If a Participant dies before his Retirement
Date, his Account shall be distributed according to the distribution of
benefits provisions of Article VI. This date shall be a Participant's
Benefit Date.
5.03 Disability Benefits. If a Participant becomes Totally and
Permanently Disabled before his Retirement Date causing the termination
of his employment with the Employer, his Account shall be distributed
according to the distribution of benefits provisions of Article VI. The
date of such Participant's termination of employment shall be a
Participant's Benefit Date.
5.04 Termination Benefits. A Participant will receive a
distribution of his Account according to the distribution provisions of
Article VI, if he ceases to be an Employee before his Retirement Date,
provided he has not again become an Employee. This date shall be a
Participant's Benefit Date.
5.05 Withdrawal Privileges. Before he ceases to be an Employee,
a Participant may withdraw up to 90% of the value of his Account in the
event of an unforeseeable emergency. The Participant's request for a
withdrawal shall include his statement that such an unforeseeable
emergency exists and explain its nature. To qualify as an unforeseeable
emergency withdrawal, it must be determined that the amount of the
withdrawal is to meet a severe financial hardship to the Participant and
the amount of the withdrawal is not reasonably available from other
resources of the Participant. Examples of severe financial hardship may
include a sudden and unexpected illness or accident of the Participant
or
a dependent of the Participant, loss of the Participant's property due
to
casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant.
The
Plan Administrator will establish uniform, nondiscriminatory guidelines
to use in determining if such a condition of undue financial hardship
exists. The Plan Administrator's determination shall be final. The
Participant has no legal or equitable right to such a withdrawal.
A request for withdrawal shall be in writing on a form
furnished for that purpose and delivered to the Plan Administrator
before
the withdrawal is to occur.
Any Participant who chooses to exercise this option shall
not
be allowed to make Salary Deferral Contributions to this Plan for a
period of one year from the time such withdrawal is received by the
Participant.
ARTICLE VI
DISTRIBUTION OF BENEFITS
6.01 Automatic Forms of Distribution. The automatic form of
benefit payable to or on behalf of a Participant is determined as
follows:
The automatic form of benefit shall be a lump sum payment
or a series of installments for periods of 2, 5 or 10 years as chosen
by the Participant to begin at any time on or within thirty (30) days
after his Benefit Date, provided that beginning with the year in which
the Participant turns age 70 1/2, a minimum payment each year shall
apply. The minimum payment will be based on a period equal to the joint
and last survivor expectancy of the Participant and the Participant's
spouse, if any, where the joint and last survivor expectancy is
recalculated. The election shall be irrevocable and must be made by the
Participant in his first written deferral agreement effective for a
specific calendar year.
ARTICLE VII
GENERAL PROVISIONS
7.01 Amendments. The Employer may amend this Plan at any time,
including any remedial retroactive changes (within the specified period
of time as may be determined by Internal Revenue Service regulations) to
comply with the requirements of any law or regulation issued by any
governmental agency to which the Employer is subject.
7.02 Employment Status. Nothing contained in this Plan gives an
Employee the right to be retained in the Employer's employ or to
interfere with the Employer's right to discharge any Employee.
7.03 Rights to Plan Assets. No Employee shall have any right to
or interest in any assets of the Plan upon termination of his employment
or otherwise except as a general unsecured creditor of the Employer.
Any final payment or distribution to a Participant or his
legal representative or to any Beneficiaries or spouse of such
Participant under the Plan provisions shall be in full satisfaction of
all claims against the Plan, the Plan Administrator and the Employer
arising under or by virtue of the Plan.
7.04 Nonalienation of Benefits. Benefits payable under the Plan
are not subject to the claims of any creditor of any Participant,
Beneficiary or spouse. A Participant, Beneficiary of spouse does not
have any rights to alienate, anticipate, commute, pledge, encumber or
assign any of such benefits. The preceding sentences shall also apply
to
the creation, assignment, or recognition of a right to any benefit
payable with respect to a Participant according to a domestic relations
order, unless such order is determined by the Plan Administrator to be a
qualified domestic relations order, as defined in ERISA Act Section
206(d), or any domestic relations order entered before January 1, 1985.
7.05 Legal Actions. The Plan and the Plan Administrator are the
necessary parties to any action or proceeding involving the assets held
with respect to the Plan or administration of the Plan or Trust. No
person employed by the Employer, no Participant, former Participant or
their Beneficiaries or any other person having or claiming to have an
interest in the Plan is entitled to any notice of process. A final
judgment entered in any such action or proceeding shall be binding and
conclusive on all persons having or claiming to have an interest in the
Plan.
7.06 Word Usage. The masculine gender, where used in this Plan,
shall include the feminine gender and the singular words as used in this
Plan may include the plural, unless the context indicates otherwise.
By executing this Plan, the Employer acknowledges having
counseled
to the extent necessary with selected legal and tax advisors regarding
the Plan's legal and tax implications.
Executed this 2nd day of November, 1996.
II-VI INCORPORATED
By: /s/ Francis J. Kramer
----------------------------
Francis J. Kramer, President
[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, 1996 and 1995, as
indicated in our report dated January 20, 1997; 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,
1996, is incorporated by reference in Registration Statements No.
33-19511, No. 33-38019, No. 33-19510 and No. 33-63739 on Form S-8.
We are 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.
/s/ Alpern, Rosenthal & Company
February 13, 1997
A Professional Corporation
- ----------------------------------------------------------------
Members American and Pennsylvania
Institutes of Certified Public Accountants
Accounting Firms Associated, inc.
Member Firms in Principal Cities
<TABLE>
<S> <C>
Irving P. Rosenthal, CPA Deborah H. Wells, CPA
Michael H. Levin, CPA Fred M. Rock, CPA
Harvey A. Pollack, CPA Sean M. Brennan, CPA
Fred J. Morelli, Jr., CPA Alexander Paul, CPA
Edward F. Rockman, CPA Michael E. Forgas, CPA
Emanuel V. DiNatale, CPA Joel M. Rosenthal, CPA
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,389
<SECURITIES> 0
<RECEIVABLES> 8,799
<ALLOWANCES> 266
<INVENTORY> 6,766
<CURRENT-ASSETS> 25,803
<PP&E> 33,125
<DEPRECIATION> 15,962
<TOTAL-ASSETS> 47,292
<CURRENT-LIABILITIES> 6,668
<BONDS> 715
0
0
<COMMON> 17,480
<OTHER-SE> 21,494
<TOTAL-LIABILITY-AND-EQUITY> 47,292
<SALES> 24,300
<TOTAL-REVENUES> 24,300
<CGS> 13,475
<TOTAL-COSTS> 13,475
<OTHER-EXPENSES> 6,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,753
<INCOME-TAX> 1,378
<INCOME-CONTINUING> 3,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,375
<EPS-PRIMARY> .50
<EPS-DILUTED> 0
</TABLE>
January 21, 1997
Jim Martinelli
Treasurer &
Chief Financial Officer
(412) 352-4455
II-VI INCORPORATED ANNOUNCES SECOND QUARTER RESULTS
PITTSBURGH, PA., January 21, 1997--II-VI Incorporated
(NASDAQ NMS: IIVI) today reported results for its second
fiscal quarter ended December 31, 1996. Net earnings for
the period were $1,715,000 ($0.25 per share) on revenues
of $12,190,000. These results compare with net earnings
of $834,000 ($0.14 per share) on revenues of $7,954,000
in the second quarter of last fiscal year. For the six
months ended December 31, 1996, net earnings were
$3,375,000 ($0.50 per share) on revenues of $24,300,000.
This compares with net earnings of $1,640,000 ($0.28 per
share) on revenues of $16,042,000 for the same period last
fiscal year.
Bookings for the quarter increased 31% to $13,894,000 from
$10,642,000 for the same period last year. Bookings year-to-
date increased 44% to $26,821,000 from $18,659,000 in last
fiscal year. Commercial bookings at the Company's VLOC
operation accounted for almost two-thirds of the increase
for the quarter, and domestic industrial orders of infrared
optics and materials accounted for most of the remaining
increase. Approximately one-half of the year-to-date increase
was attributable to VLOC commercial orders, one-third to
increased orders for infrared optics and materials and the
remaining increase was for Contract Research and Development
Contracts.
Manufacturing revenues for the quarter increased 49% to
$11,515,000 from $7,718,000 for the same period last year.
Manufacturing revenues year-to-date increased 47% to
$23,107,000 from $15,675,000 for the same period last year.
The quarter and year-to-date increases reflect increased
shipments of VLOC products and infrared optics and materials
to the domestic and international industrial market. VLOC
products account for slightly more than one-half of the
increase for both the quarter and year-to-date.
Manufacturing gross margin for the quarter was $5,251,000
or 46% of net sales compared to $3,243,000 or 42% of net
sales for the same period last year. Manufacturing gross
margin year-to-date was $10,495,000 or 45% of net sales
compared to $6,644,000 or 42% of net sales in fiscal 1996.
The quarter and year-to-date increases reflect the lower
per unit operating cost associated with the higher production
volume and improved manufacturing efficiencies offset
slightly by the strengthening of the U.S. dollar against the
Japanese yen.
Selling, general and administrative expenses for the quarter
were $2,951,000 or 24% of revenues compared to $2,152,000 or
27% of revenues for the same period last year. Selling,
general and administrative expenses year-to-date were
$5,981,000 or 25% of revenues compared to $4,283,000 or 27%
of revenues in fiscal 1996. The expense increase is
attributable to increased expenses in the VLOC operation,
higher compensation expense associated with the Company's
worldwide profit-driven bonus programs and higher general and
administrative expenses needed to support the Company's growth.
Francis J. Kramer, president and chief operating officer
said, "To meet increased customer demand for our products,
we have made significant progress during the past year
expanding our manufacturing capacity at every II-VI location.
We plan to continue this expansion program for our current
product lines and to develop new products and markets to
achieve the Company growth targets."
Headquartered in Saxonburg, Pennsylvania II-VI Incorporated
designs, manufactures and markets optical and electro-optical
components, devices and materials for precision use in
infrared, near infrared, visible light and x-ray instruments
and applications. The Company's infrared products are used in
high-power CO2 (carbon dioxide) lasers for industrial
processing worldwide. The Company's VLOC subsidiary
manufactures near infrared and visible light products used in
industrial, scientific and medical instruments and solid-state
(such as YAG and YLF) lasers. II-VI is also developing and
marketing solid-state x-ray and gamma-ray products for the
nuclear radiation detection industry through its eV PRODUCTS
division.
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
($000 except per share data)
Three Months Ended
December 31,
1996 1995
Revenues
Net sales 11,515 7,718
Contract research and development 675 236
12,190 7,954
Costs, Expenses & Other Income
Cost of goods sold 6,264 4,475
Contract research and development 468 163
Internal research and development 260 138
Selling, general and administrative expenses 2,951 2,152
Interest and other (income) expense - net (168) (139)
9,775 6,789
Earnings Before Income Taxes 2,415 1,165
Income Tax Expense 700 331
Net Earnings $ 1,715 $ 834
Earnings Per Share $ 0.25 $ 0.14
Average Shares Outstanding 6,800 6,155
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
($000 except per share data)
Six Months Ended
December 31,
1996 1995
Revenues
Net sales 23,107 15,675
Contract research and development 1,193 367
24,300 16,042
Costs, Expenses & Other Income
Cost of goods sold 12,612 9,031
Contract research and development 863 264
Internal research and development 384 286
Selling, general and administrative expenses 5,981 4,283
Interest and other (income) expense - net (293) (123)
19,547 13,741
Earnings Before Income Taxes 4,753 2,301
Income Tax Expense 1,378 661
Net Earnings $ 3,375 $1,640
Earnings Per Share $ 0.50 $ 0.28
Average Shares Outstanding 6,761 5,834
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
December 31, June 30,
Assets 1996 1996
Current Assets
Cash and equivalents $ 9,389 $ 9,417
Accounts receivable 8,533 8,712
Inventories 6,766 5,490
Other current assets 1,115 1,036
Total Current Assets 25,803 24,655
Property, Plant & Equipment, net 17,163 15,085
Other Assets 4,326 4,429
$ 47,292 $ 44,169
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 926 $ 1,393
Accounts payable 1,661 1,260
Other current liabilities 4,081 5,315
Total Current Liabilities 6,668 7,968
Long-Term Debt--less current portion 715 45
Deferred Income Taxes 1,697 1,753
Shareholders' Equity 38,212 34,403
$ 47,292 $ 44,169
# # # #
