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, September 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from to .
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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 November 6, 1997, 6,815,786 shares of Common Stock, no par value,
of the registrant were outstanding.
II-VI INCORPORATED AND SUBSIDIARIES
-----------------------------------
INDEX
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Page No.
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<S> <C>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements.
Independent Accountants' Report. . . . . . . . . . 3
Condensed Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 . . . . . . . 4
Condensed Consolidated Statements of Earnings -
Three months ended September 30, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of
Shareholders' Equity - Three months ended
September 30, 1997 . . . . . . . . . . . . . . . . 6
Condensed Consolidated Statements of
Cash Flows - Three months ended
September 30, 1997 and 1996. . . . . . . . . . . . 7
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 12
2
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
II-VI Incorporated and Subsidiaries
Saxonburg, Pennsylvania
We have reviewed the accompanying condensed consolidated
balance sheet of II-VI Incorporated and subsidiaries as
of September 30, 1997, and the related condensed
consolidated statements of earnings, shareholders'
equity and cash flows for the three-month period then
ended. These financial statements are the responsibility
of the Company's management. The condensed interim
financial statements as of September 30, 1996, and the
for the three-month period then ended, were reviewed by
other accountants whose report dated October 16, 1996
stated thatthey were not aware of any material
modifications that should be made to those
statements in order for them to be in conformity with
generally accepted accounting principles.
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
sheet of II-VI Incorporated and subsidiaries as of
June 30, 1997,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, 1997, 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, 1997 is fairly stated, in all material
respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
October 16, 1997
3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------------------------
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000 except share data)
</TABLE>
<TABLE>
<CAPTION>
September 30, June 30,
Assets 1997 1997
------------ -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7,097 $10,854
Accounts receivable - less allowance for doubtful
accounts of $319 at September 1997 and
$306 at June 1997 12,272 10,808
Inventories 8,836 8,129
Deferred income taxes 439 428
Prepaid and other current assets 658 563
------- -------
Total Current Assets 29,302 30,782
Property, Plant & Equipment, net 23,577 19,631
Other Assets 4,016 4,099
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$56,895 $54,512
======= =======
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 776 $ 590
Accounts payable 2,906 3,207
Accrued salaries, wages and bonuses 2,047 3,740
Income taxes payable 852 80
Accrued profit sharing contribution 220 740
Other current liabilities 1,021 1,264
Current portion of long-term debt 70 72
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Total Current Liabilities 7,892 9,693
Long-Term Debt--less current portion 2,651 684
Deferred Income Taxes 1,683 1,613
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 - 6,815,286 shares at
September 1997; 6,802,946 shares at June 1997 18,117 18,072
Foreign currency translation 60 70
Retained earnings 27,254 25,142
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45,431 43,284
Less treasury stock, at cost - 384,440 shares at
September 1997 and June 1997 762 762
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44,669 42,522
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$56,895 $54,512
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</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
September 30,
1997 1996
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<S> <C> <C>
Revenues
Net sales:
Domestic $ 7,793 $ 6,772
International 7,087 4,820
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14,880 11,592
Contract research and development 639 518
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15,519 12,110
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Costs, Expenses & Other Income
Cost of goods sold 8,305 6,348
Contract research and development 471 395
Internal research and development 300 124
Selling, general and administrative 3,450 3,030
Other income - net (17) (125)
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12,509 9,772
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Earnings Before Income Taxes 3,010 2,338
Income Taxes 898 678
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Net Earnings $ 2,112 $ 1,660
======= =======
Earnings Per Share $ 0.32 $ 0.25
======= =======
</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
5
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, 1997 6,803 $18,072 $ 70 $ 25,142 384 $ 762 $42,522
Shares issued under stock option plan 12 45 - - - - 45
Net earnings for the quarter - - - 2,112 - - 2,112
Translation adjustment - - (10) - - - (10)
----- ------- ----------- -------- ------- -------- -------
Balance-- September 30, 1997 6,815 $18,117 $ 60 $ 27,254 384 $ 762 $44,669
===== ======= =========== ======== ======= ======== =======
</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
6
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
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<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 2,112 $ 1,660
Adjustments to reconcile net earnings to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,061 816
Loss on foreign currency transactions 204 67
Deferred income taxes 59 -
Increase (decrease) in cash from changes in:
Accounts receivable (1,834) (456)
Inventories (860) (525)
Accounts payable (95) 43
Accrued salaries, wages and bonuses (1,670) (1,336)
Accrued profit sharing contribution (519) (349)
Income taxes payable 772 343
Other operating net assets (188) (132)
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Net cash (used in) provided by operating activities (958) 131
------- -------
Cash Flows from Investing Activities
Additions to property, plant & equipment (4,926) (1,407)
Additions in other assets 2 (9)
------- -------
Net cash used in investing activities (4,924) (1,416)
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Cash Flows from Financing Activities
Net change in notes payable 205 (202)
Proceeds from long-term borrowings 1,980 741
Payments on long-term borrowings (15) (6)
Proceeds from sale of common stock 45 66
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Net cash provided by financing activities 2,215 599
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Effect of exchange rate changes on cash
and cash equivalents (90) (125)
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Net decrease in cash and cash equivalents (3,757) (811)
Cash and Cash Equivalents at Beginning of Period 10,854 9,417
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Cash and Cash Equivalents at End of Period $ 7,097 $ 8,606
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</TABLE>
[FN]
- -See notes to condensed consolidated financial statements.
7
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
month periods ended September 30, 1997 and 1996 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 1997 Annual Report to shareholders. The
consolidated results of operations for the three month periods
ended September 30, 1997 and 1996 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:
September 30, June 30,
1997 1997
------------- --------
Raw materials $ 3,540 $ 3,083
Work in progress 2,175 1,992
Finished goods 3,121 3,054
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$ 8,836 $ 8,129
============= ========
Note C - Property, Plant and Equipment ($000)
Property, plant and equipment consist of the following:
September 30, June 30,
1997 1997
------------- --------
Land and land improvements $ 1,033 $ 876
Buildings and improvements 10,936 8,073
Machinery and equipment 29,798 27,893
------------- --------
41,767 36,842
Less accumulated depreciation 18,190 17,211
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$ 23,577 $19,631
============= ========
8
II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note D - Debt
In September 1997, the Company secured a $1,980,000 low
interest rate loan from PNC Bank. The terms of the loan
call for the entire principal amount to be paid on
September 25, 2002. Interest payments are payable semi-
annually from the inception of the loan at a rate equal to
the lesser of the floating rate or the maximum rate as
defined in the loan agreement. The floating rate is equal
to the Euro-Rate plus 1.49% and the maximum rate is 3.74%.
Note E - New Accounting Standard
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share," which establishes standards
for computing and presenting earnings per share and applies
to entities with publicly held common stock or potential
common stock. This Statement is effective for financial
statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not
permitted. This Statement requires restatement of all prior-
period earnings per share data presented. Basic earnings
per share as defined by SFAS No. 128 for the three month
periods ended September 30, 1997 and 1996 would have been
$.33 and $.26, respectively. Dilutive earnings per share
as defined by SFAS No. 128 approximates the historically
presented earnings per share.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net earnings for the first quarter of fiscal 1998 were
$2,112,000 ($0.32 per share) on revenues of $15,519,000.
This compares to net earnings of $1,660,000 ($0.25 per share)
on revenues of $12,110,000 in the first quarter of fiscal 1997.
The increased earnings were driven by increased revenue volume.
Order bookings for the first quarter of fiscal 1998 were
$16,050,000 compared to $12,927,000 for the same period last
fiscal year, an increase of 24%. Included in bookings were
contract research and development bookings for the first
quarter of fiscal year 1998 of $90,000 compared to $1,104,000
for the same period last fiscal year. Excluding these long-term
research and development contract bookings, manufacturing
bookings increased 35% to $15,960,000 for the quarter from
$11,823,000 for the same period last year. Approximately 60%
of the increase was attributable to bookings for infrared
optics and materials and the remainder for products
manufactured by the Company's VLOC subsidiary.
Total revenues for the first quarter of fiscal 1998
increased 28% to $15,519,000 compared to $12,110,000 for
the same period last fiscal year. Nearly 80% of the increase
in revenues was attributable to shipments of infrared optics
and materials, while increased shipments from the Company's
VLOC subsidiary accounted for the remainder of the increase.
Manufacturing gross margin for the first quarter of fiscal 1998
was $6,575,000 or 44% of net sales compared to $5,244,000 or
45% of net sales for the first quarter of fiscal 1997. The
decrease in manufacturing gross margin was due to the
strengthening of the U.S. dollar against foreign currencies
and increased expenses in the Company's eV PRODUCTS division
due to the expansion in operations required to fulfill a major
order from Neoprobe Corporation.
Selling, general and administrative expenses for the first
quarter of fiscal 1998 were $3,450,000 or 22% of revenues
compared to $3,030,000 or 25% of revenues for last fiscal
year's first quarter. The increase in expense is attributable
to higher general and administrative expenses needed to
support the Company's growth and higher compensation expense
associated with the Company's world-wide profit driven bonus
programs.
10
Other income decreased by $108,000 in the first quarter of
fiscal 1998 in comparison to last fiscal year's first quarter
due to foreign currency translation losses and lower
investment earnings on reduced cash balances. The lower cash
balance is primarily due to increased capital spending.
The Company's first quarter fiscal 1998 effective income
tax rate is 30%, which is slightly higher than 29% for last
fiscal year's first quarter. This increase is due to a
higher percentage of earnings generated from U.S. operations.
Liquidity and Capital Resources
Cash decreased during the first quarter of fiscal 1998 by
$3,757,000 primarily due to $4,926,000 in capital expenditures
and payment of compensation costs relating to the Company's
fiscal 1997 world-wide profit-driven bonus and retirement
programs, partially offset by proceeds from a long-term loan.
The capital expenditures focused on increasing capacity and
included the construction costs incurred for a new 45,000
square foot manufacturing facility at the Company's VLOC
subsidiary in Florida and a 30,000 square foot manufacturing
facility for the Company's eV PRODUCTS division in Pennsylvania.
The Company used $958,000 in cash from operations for the first
quarter of fiscal 1998. The $3,173,000 in cash generated from
net earnings before depreciation and amortization for the quarter
was offset by the payment of compensation costs relating to
the Company's fiscal 1997 world-wide profit-driven bonus and
retirement programs, and increases in accounts receivable and
inventories needed to support the growth in sales volume.
The current cash balance, which includes a $1,980,000 low
interest rate loan from PNC, as well as cash provided by
operations during the remainder of fiscal year 1998, will
be used for working capital needs, further capital expenditures
on facilities and equipment, scheduled debt payments, and
possible acquisitions of complementary businesses, products,
or technologies.
This Management's Discussion and Analysis contains forward
looking statements as defined by Section 21E of the Securities
Exchange Act of 1934, including the statements regarding the
Company's ability to fund future working capital needs, capital
expenditures and scheduled debt payments from internally generated
funds and existing cash reserves. The Company's ability to fund
future capital needs from internally generated funds and existing
cash reserves could differ from these statements if worldwide
economic conditions change, competitive conditions intensify,
technology problems emerge, and/or if suitable acquisitions of
technologies or businesses cannot be consummated.
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 1997 Form 10-K filed on September 29, 1997.
11
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
11.01 Statement of Computation of
Earnings Per Share. . . . . . . . . . . . Filed herewith.
15.01 Accountant's awareness letter dated
November 13, 1997 . . . . . . . . . . . . Filed herewith.
27.01 Financial Data Schedule . . . . . . . . . Filed herewith.
(b) Reports on Form 8-K.
None
12
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: November 13, 1997 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman and Chief Executive Officer
Date: November 13, 1997 By: /s/ James Martinelli
James Martinelli
Treasurer & Chief Financial Officer
EXHIBIT INDEX
Exhibit No.
11.01 Statement of Computation of
Earnings Per Share. . . . . . . . . . . . Filed herewith.
15.01 Accountant's acknowledgment letter dated
November 13, 1997 . . . . . . . . . . . . Filed herewith.
27.01 Financial Data Schedule . . . . . . . . . Filed herewith.
<TABLE>
II-VI INCORPORATED AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Quarter Ended September 30,
($000'S except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 2,112 $ 1,660 $ 806
======= ======= =======
Common stock 6,420 6,312 5,102
Outstanding options 264 431 404
------- ------- -------
Primary weighted average shares outstanding 6,684 6,743 5,506
======= ======= =======
Common stock 6,420 6,312 5,102
Outstanding options 274 456 416
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Fully diluted weighted average shares outstanding 6,694 6,769 5,518
======= ======= =======
Primary earnings per share $ 0.32 $ 0.25 $ 0.15
======= ======= =======
Fully diluted earnings per share $ 0.32 $ 0.25 $ 0.15
======= ======= =======
Notes:
The 1995 calculation is adjusted to reflect the two-for-one stock split in fiscal 1996.
The common stock equivalents consist of the shares reserved for issuance under II-VI's stock option plan and
deferred under II-VI's deferred compensation, earnings growth, deferred compensation plan for directors and
directors' common stock plan.
The fully diluted earnings per share calculations are submitted in accordance with Regulation S-K item
601(b)(11).
</TABLE>
November 13, 1997
II-VI Incorporated
375 Saxonburg Boulevard
Saxonburg, PA 16056
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 period ended September 30, 1997, as indicated in our report dated
October 16, 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 September 30,
1997, is incorporated by reference in Registration Statements No. 33-
19511, No. 33-38019, No. 33-19510, No. 33-63739, and No. 333-12737 on
Form S-8 and Registration Statement No. 333-04531 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.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,097
<SECURITIES> 0
<RECEIVABLES> 12,591
<ALLOWANCES> 319
<INVENTORY> 8,836
<CURRENT-ASSETS> 29,302
<PP&E> 41,767
<DEPRECIATION> 18,190
<TOTAL-ASSETS> 56,895
<CURRENT-LIABILITIES> 7,892
<BONDS> 2,651
0
0
<COMMON> 18,117
<OTHER-SE> 27,314
<TOTAL-LIABILITY-AND-EQUITY> 56,895
<SALES> 15,519
<TOTAL-REVENUES> 15,519
<CGS> 8,776
<TOTAL-COSTS> 8,776
<OTHER-EXPENSES> 3,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,010
<INCOME-TAX> 898
<INCOME-CONTINUING> 2,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,112
<EPS-PRIMARY> .32
<EPS-DILUTED> 0
</TABLE>
