MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
OVERVIEW Net earnings increased 36% in fiscal 2000 to $7.4 million
from $5.5 million in fiscal 1999. Revenues grew 20% to $73.8 million in
fiscal 2000 from $61.8 million last fiscal year. Bookings increased 38%
to $83.0 million in fiscal 2000 from $60.0 million in fiscal 1999.
Order backlog increased 51% to $27.2 million at June 30, 2000 from
$18.0 million at June 30, 1999 as a result of bookings outpacing
shipments in fiscal 2000. Manufacturing orders comprised 99% of the
backlog at June 30, 2000, compared to 97% of the backlog at June 30,
1999.
NET EARNINGS Net earnings increased 36% in fiscal 2000 to $7.4 million
from $5.5 million in fiscal 1999. The major contributors to the net
earnings increase were higher revenues and higher gross margins. Each
of these are explained further in this section.
BOOKINGS Bookings increased 38% to $83.0 million in fiscal 2000
compared to $60.0 million in fiscal 1999. Manufacturing bookings
increased by approximately $22.3 million while contract research and
development bookings increased by approximately $0.7 million. Bookings
for laser optics and component products increased approximately 35% and
bookings for the eV PRODUCTS division (radiation detectors) increased
approximately 60%. The increase was attributable to strong demand for
the Company's laser optics and component products and continued
acceptance of products of the eV PRODUCTS division.
REVENUES Revenues grew 20% to $73.8 million in fiscal 2000 compared to
$61.8 million last fiscal year. Revenues for laser optics and component
products increased approximately 20% while revenues from the eV
PRODUCTS division were consistent with the previous year. The increase
was attributable to strong demand for the Company's laser optics and
component products.
COSTS AND EXPENSES Manufacturing gross margin was $30.6 million or 42%
of net sales in fiscal 2000 compared to $23.7 million or 39% of net
sales in fiscal 1999. The dollar increase was attributable to higher
sales volume, particularly sales of infrared optics and materials. The
increase in gross margin as a percentage of net sales reflects
productivity gains and cost control programs, lower per unit cost
associated with higher production volume for laser optics and component
products and a strengthened Japanese Yen.
Contract research and development gross margin was $455,000 or 28% of
contract research and development revenues in fiscal 2000 compared to
$395,000 or 28% of contract research and development revenues in fiscal
1999. The Company has increased the amount of contract research and
development projects it undertakes.
Company-funded internal research and development increased to $2.8
million in fiscal 2000 from $2.3 million in fiscal 1999. The Company
continues to expand its internal research and development projects,
including projects associated with developing nuclear radiation
detectors, infrared optics and materials and silicon carbide.
Selling, general and administrative expenses were $17.9 million or 24%
of revenues in fiscal 2000 compared to $13.6 million or 22% of revenues
in fiscal 1999. This dollar increase is attributable to higher general
<PAGE>
and administrative expenses needed to support the Company's growth.
The increase in selling, general and administrative expenses as a
percentage of net revenues is attributable to increased compensation
expense associated with the Company's worldwide profit-driven bonus
programs and increased professional service expenses.
Other expense, including interest expense, was $415,000 in fiscal 2000
compared to other expense of $201,000 in fiscal 1999. The primary
reason for the increase in other expense is due to foreign currency
losses as a result of the fluctuations of foreign currencies relative
to the U.S. dollar as compared to foreign currency gains in the prior
year.
The effective corporate income tax rate was 25% in fiscal 2000 compared
to 32% in fiscal 1999. The decrease in the effective income tax rate is
primarily attributable to an increase in the utilization of the tax
savings available to the Company from its foreign sales corporation.
Fiscal 1999 Compared to Fiscal 1998
OVERVIEW Net earnings decreased 19% in fiscal 1999 to $5.5 million
from $6.8 million in fiscal 1998. Revenues grew 1% to $61.8 million in
fiscal 1999 compared to $61.3 million in fiscal 1998. Bookings
decreased 7% to $60.0 million in fiscal 1999 compared to $64.2 million
in fiscal 1998. Order backlog decreased 9% to $18.0 million at June 30,
1999 from $19.8 million at June 30, 1998 as a result of shipments
exceeding bookings in fiscal 1999. Manufacturing orders comprised 97%
of the backlog at June 30, 1999, compared to 93% of backlog at June 30,
1998.
NET EARNINGS Net earnings decreased 19% in fiscal 1999 to $5.5 million
from $6.8 million in fiscal 1998. The major contributors to the net
earnings decrease were lower manufacturing gross margins, higher
internal research and development expenses and a higher effective tax
rate. Each of these are explained further in this section.
BOOKINGS Bookings decreased 7% to $60.0 million in fiscal 1999
compared to $64.2 million in fiscal 1998. Bookings of the Company's
VLOC subsidiary and infrared optics and material products decreased by
a total of approximately 10% while bookings of the eV PRODUCTS division
increased by approximately 10%.
REVENUES Revenues grew 1% to $61.8 million in fiscal 1999 compared to
$61.3 million in fiscal 1998. Revenues from contract research and
development decreased to $1.4 million in fiscal 1999 from $2.2 million
in fiscal 1998. Revenues of the eV PRODUCTS division increased
approximately 30%, revenues from the Company's VLOC subsidiary
decreased approximately 10% and revenues from infrared optics and
material products remained consistent as compared to fiscal 1998.
COSTS AND EXPENSES Manufacturing gross margin was $23.7 million or 39%
of manufacturing revenues in fiscal 1999 compared to $25.1 million or
42% of manufacturing revenues in fiscal 1998. The decrease in the gross
margin percentage reflects higher per unit costs at the Company's VLOC
subsidiary and continued price sensitivity in the infrared optics and
materials market.
Contract research and development gross margin was $395,000 or 28% of
contract research and development revenues in fiscal 1999 compared to
$516,000 or 23% of contract research and development revenues in fiscal
<PAGE>
1998. The Company has decreased the amount of contract research and
development projects it undertakes in an effort to focus on internal
research and development projects and higher margin manufacturing
products.
Company-funded internal research and development increased to $2.3
million in fiscal 1999 from $1.6 million in fiscal 1998. The increased
expense is the result of internally funded projects associated with the
development of new materials to improve and expand product offerings,
as well as continued efforts to improve material growth yields.
Selling, general and administrative expenses were $13.6 million or 22%
of revenues in fiscal 1999 compared to $14.3 million or 23% of revenues
in fiscal 1998. The dollar and percentage decreases reflect planned
discretionary cost reductions, decreased expense associated with the
Company's worldwide profit-driven bonus program and improved
utilization of existing personnel and resources.
Other expense, including interest expense, increased to $201,000 in
fiscal 1999 from $177,000 in fiscal 1998. Interest expense increased to
$415,000 in fiscal 1999 from $23,000 in fiscal 1998. The primary
reasons for the increase in interest expense are increased borrowings
on the Company's line of credit facility and the absence of the
capitalization of interest during fiscal 1999. During fiscal 1999, the
Company wrote down certain assets held for sale by approximately
$200,000. These expenses were partially offset by the occurrence of
foreign currency gains due to the strengthening of the Japanese Yen
against the U.S. dollar.
The effective corporate income tax rate was 32% in fiscal 1999 compared
to 29% in fiscal 1998. The increase in the effective corporate income
tax rate was partially attributable to a change in the level of profit
generated by the Company's foreign subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its working capital needs, capital
expenditures and growth from cash flow from operations and, to a lesser
extent, borrowings.
The largest sources of the $12.5 million in cash generated from
operations in fiscal 2000 was $12.4 million in net earnings before
depreciation and amortization, an increase in accounts payable of $1.7
million and a decrease in other operating net assets of $3.2 million.
This increase in cash was partially offset by an increase in inventory
of $4.5 million. The increase in accounts payable, the decrease in
other operating net assets, and the increase in inventory was
attributable to the increased business activity of the Company.
The Company invested $8.9 million in capital expenditures during fiscal
2000. These expenditures focused on automation of processes, facility
improvements and investments in new business opportunities. Planned
discretionary capital expenditures for fiscal 2001 of approximately
$12.0 million will focus on automation of processes, expansion of
facilities and equipment and investments in new business opportunities.
The Company had a $15.0 million unsecured line of credit with PNC Bank
that was scheduled to expire on March 24, 2001. At June 30, 2000, $12.2
million was available under this facility. The line of credit could
<PAGE>
have been extended upon mutual agreement of the Company and PNC Bank
for an additional year. On August 14, 2000, the Company replaced its
$15.0 million unsecured credit agreement with a $45.0 million secured
line of credit agreement in connection with the Company's acquisition
of Laser Power Corporation. This facility has a five year life and
contains term and line of credit borrowing options. This facility is
secured by certain assets of the Company and is subject to certain
restrictive covenants, including those related to minimum net worth,
leverage and interest coverage. This facility has an interest rate
range of LIBOR plus 0.88% to LIBOR plus 1.50%.
The Company believes internally generated funds, existing cash reserves
and available borrowing capacity will be sufficient to fund its working
capital needs, capital expenditures and scheduled debt payments for at
least fiscal 2001.
The impact of inflation on the Company's business has not been
material.
MARKET RISKS The Company is exposed to market risks arising from
adverse changes in interest rates and foreign currency exchange rates.
In the normal course of business, the Company uses a variety of
techniques and instruments as part of its overall risk management
strategy.
In the normal course of business, the Company enters into foreign
currency forward exchange contracts with its banks. The purpose of
these contracts is to hedge the impact of foreign currency fluctuations
on committed or anticipated foreign currency positions. The Company
monitors its positions and the credit ratings of the parties to these
contracts. While the Company may be exposed to potential losses due to
risk in the event of non-performance by the counterparties to these
financial instruments, it does not anticipate such losses. The Company
entered into a low interest rate, 237 million Yen loan with PNC Bank in
September 1997 in an effort to minimize the foreign currency exposure
in Japan. A change in the interest rate of 1% would have changed the
interest expense by approximately $75,000 and a 10% change in the Yen
to dollar exchange rate would have changed revenues by approximately
$900,000 for the year ended June 30, 2000.
This Management's Discussion and Analysis and the Letters to
Shareholders contained in the Annual Report to Shareholders contain
forward looking statements as defined by Section 21E of the Securities
Exchange Act of 1934, as amended, including the statements regarding
projected growth rates, markets, product development, financial
position, capital expenditures and foreign currency hedging. Forward-
looking statements are also identified by words such as "expects,"
"anticipates," "intends," "plans," "projects" or similar expressions.
Actual results could materially differ from such statements due to the
following factors: materially adverse changes in economic or industry
conditions generally (including capital markets) or in the markets
served by the Company, the development and use of new technology and
the actions of competitors.
There are additional 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 most
recent Form 10-K as filed with the Securities and Exchange Commission.
<PAGE>
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities on the
balance sheet at fair value. This statement has been amended by SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the effective date of SFAS No. 133." This statement is
effective for the Company's fiscal year beginning July 1, 2000. The
Company does not believe that adoption will have a material effect on
its financial position or results of operations.
LASER POWER CORPORATION ACQUISITION On August 14, 2000, the Company
increased its ownership in Laser Power Corporation from approximately
13% to approximately 88%, giving the Company a controlling interest.
This approximately 75% additional ownership was acquired for a total
consideration of approximately $22.3 million in cash and the issuance
of 739,000 shares of the Company common stock.
OTHER MATTERS The Company experienced no material problems with its
information and non-information systems, or those of its vendors,
customers or financial institutions, as a result of the date change to
the Year 2000.
<PAGE>
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY
<CAPTION>
Year Ended June 30,
(000 except per share data) 2000 1999 1998 1997 1996
---------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net revenues $73,810 $61,750 $61,340 $52,741 $37,940
Net earnings $ 7,440 $ 5,463 $ 6,780 $ 7,111 $ 4,371
Basic earnings per share $ 0.58 $ 0.43 $ 0.53 $ 0.56 $ 0.37
Diluted earnings per share $ 0.56 $ 0.42 $ 0.51 $ 0.54 $ 0.35
Diluted weighted average
shares outstanding 13,176 12,980 13,348 13,228 12,506
--------------------------- ------- ------- ------- ------- -------
</TABLE>
[FN]
Share and per share data was adjusted to reflect the two-for-one stock split in
September 2000 (fiscal 2001).
</FN>
<TABLE>
<CAPTION>
June 30,
($000) 2000 1999 1998 1997 1996
--------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Working capital $24,335 $17,590 $13,420 $21,089 $16,687
Total assets 87,736 70,843 67,774 54,512 44,169
Total debt 5,585 6,674 8,209 1,346 1,461
Retained earnings 44,825 37,385 31,922 25,142 18,031
Shareholders' equity 65,833 54,493 50,063 42,522 34,403
--------------------------- ------- ------- ------- ------- -------
</TABLE>
[FN]
For the five-year period ended June 30, 2000, no dividends were declared.
</FN>
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA
<CAPTION>
FISCAL 2000 QUARTER ENDED
($000 except per share data) 9/30/99 12/31/99 3/31/00 6/30/00
----------------------------------------- ------- -------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $16,198 $16,874 $19,781 $20,957
Cost of goods sold 9,286 9,644 11,315 12,501
Internal research and development 623 602 744 875
Selling, general and administrative 3,806 4,208 4,933 4,942
Interest and other expense (income) - net 13 35 164 203
----------------------------------------- ------- -------- ------- -------
Earnings before income taxes 2,470 2,385 2,625 2,436
Income taxes 731 715 574 456
----------------------------------------- ------- -------- ------- -------
Net earnings 1,739 1,670 2,051 1,980
----------------------------------------- ------- -------- ------- -------
Basic earnings per share $ 0.14 $ 0.13 $ 0.16 $ 0.15
----------------------------------------- ------- -------- ------- -------
Diluted earnings per share $ 0.13 $ 0.13 $ 0.15 $ 0.15
========================================= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1999 QUARTER ENDED
($000 except per share data) 9/30/98 12/31/98 3/31/99 6/30/99
----------------------------------------- ------- -------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $13,793 $15,210 $15,538 $17,209
Cost of goods sold 9,204 9,382 8,938 10,107
Internal research and development 578 574 617 548
Selling, general and administrative 3,007 3,436 3,592 3,528
Interest and other expense (income) - net 107 (107) 168 33
----------------------------------------- ------- -------- ------- -------
Earnings before income taxes 897 1,925 2,223 2,993
Income taxes 268 623 725 959
----------------------------------------- ------- -------- ------- -------
Net earnings 629 1,302 1,498 2,034
----------------------------------------- ------- -------- ------- -------
Basic earnings per share $ 0.05 $ 0.10 $ 0.12 $ 0.16
----------------------------------------- ------- -------- ------- -------
Diluted earnings per share $ 0.05 $ 0.10 $ 0.12 $ 0.16
========================================= ======= ======== ======= =======
</TABLE>
[FN]
Per share data was adjusted to reflect the two-for-one stock split in
September 2000 (fiscal 2001).
</FN>
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF II-VI INCORPORATED AND
SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of II-VI
Incorporated and subsidiaries as of June 30, 2000 and 1999, and the
related consolidated statements of earnings, shareholders' equity,
comprehensive income and cash flow for each of the three years in the
period ended June 30, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
II-VI Incorporated and subsidiaries as of June 30, 2000 and 1999 and
the results of their operations and their cash flows for each of the
three years in the period ended June 30, 2000 in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
August 4, 2000 (August 14, 2000 as to Notes D and J and
September 20, 2000 as to Note K)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 30,
($000) 2000 1999
----------------------------------------------------------- ------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,330 $ 5,558
Accounts receivable - less allowance for doubtful accounts
of $575 at June 30, 2000 and $457 at June 30, 1999 14,202 13,070
Inventories 13,738 9,096
Deferred income taxes 896 722
Prepaid and other current assets 1,184 567
----------------------------------------------------------- ------- -------
Total Current Assets 36,350 29,013
PROPERTY, PLANT & EQUIPMENT, NET 40,883 36,955
AVAILABLE FOR SALE SECURITIES 6,261 -
OTHER ASSETS 4,242 4,875
----------------------------------------------------------- ------- -------
$87,736 $70,843
=========================================================== ======= =======
CURRENT LIABILITIES
Notes payable $ - $ 4,082
Accounts payable 3,726 1,934
Accrued salaries, wages and bonuses 4,685 2,836
Income taxes payable 222 367
Accrued profit sharing contribution 812 580
Other accrued liabilities 2,526 1,581
Current portion of long-term debt 44 43
----------------------------------------------------------- ------- -------
Total Current Liabilities 12,015 11,423
LONG-TERM DEBT 5,541 2,549
OTHER LIABILITIES, PRIMARILY DEFERRED INCOME TAXES 4,347 2,378
COMMITMENTS & CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized - 5,000,000 shares; none issued - -
Common stock, no par value; authorized
- 30,000,000 shares;
issued - 13,976,102 shares at June 30, 2000;
13,751,532 shares at June 30, 1999 20,454 18,746
Accumulated other comprehensive income 2,464 272
Retained earnings 44,825 37,385
----------------------------------------------------------- ------- -------
67,743 56,403
Less treasury stock at cost, 1,068,880 shares 1,910 1,910
----------------------------------------------------------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 65,833 54,493
----------------------------------------------------------- ------- -------
$87,736 $70,843
=========================================================== ======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended June 30,
($000 except per share data) 2000 1999 1998
----------------------------------- ------- ------- -------
<S> <C> <C> <C>
REVENUES
Net sales:
Domestic $35,983 $31,495 $31,705
International 36,176 28,819 27,429
Contract research and development 1,651 1,436 2,206
----------------------------------- ------- ------- -------
73,810 61,750 61,340
----------------------------------- ------- ------- -------
COSTS, EXPENSES AND
OTHER EXPENSE (INCOME)
Cost of goods sold 41,550 36,590 34,049
Contract research and development 1,196 1,041 1,690
Internal research and development 2,844 2,317 1,568
Selling, general and administrative 17,889 13,563 14,268
Interest expense 349 415 23
Other expense (income) - net 66 (214) 154
----------------------------------- ------- ------- -------
63,894 53,712 51,752
----------------------------------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES 9,916 8,038 9,588
INCOME TAXES 2,476 2,575 2,808
----------------------------------- ------- ------- -------
NET EARNINGS $ 7,440 $ 5,463 $ 6,780
----------------------------------- ------- ------- -------
BASIC EARNINGS PER SHARE $ 0.58 $ 0.43 $ 0.53
----------------------------------- ------- ------- -------
DILUTED EARNINGS PER SHARE $ 0.56 $ 0.42 $ 0.51
=================================== ======= ======= =======
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY Accumulated
Other
Comprehensive Retained
Common Stock Income Earnings Treasury Stock Total
Shares Amount Shares Amount
------ ------- ------ ------- ------ -------- -------
(000)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JULY 1, 1997 13,606 $18,072 $ 70 $25,142 (769) $ (762) $42,522
Shares issued under
stock option plans 64 173 - - - - 173
Net earnings - - - 6,780 - - 6,780
Other comprehensive income, net of tax - - 365 - - - 365
Income tax benefit for
options exercised - 223 - - - - 223
------------------------ ------ ------- ------ ------- ------ -------- -------
BALANCE - JUNE 30, 1998 13,670 18,468 435 31,922 (769) (762) 50,063
Shares issued under
stock option plans 82 203 - - - - 203
Net earnings - - - 5,463 - - 5,463
Other comprehensive loss, net of tax - - (163) - - - (163)
Income tax benefit for
options exercised - 75 - - - - 75
Purchase of treasury stock - - - - (300) (1,148) (1,148)
-------------------------- ------ ------- ------ ------- ------ -------- -------
BALANCE - JUNE 30, 1999 13,752 18,746 272 37,385 (1,069) (1,910) 54,493
Shares issued under
stock option plans 224 681 - - - - 681
Net earnings - - - 7,440 - - 7,440
Other comprehensive income, net of tax - - 2,192 - - - 2,192
Income tax benefit for
options exercised - 1,027 - - - - 1,027
------------------------ ------ ------- ------ ------- ------ -------- -------
BALANCE - JUNE 30, 2000 13,976 $20,454 $2,464 $44,825 (1,069) $(1,910) $65,833
========================== ====== ======= ====== ======= ====== ======== =======
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended June 30, 2000 1999 1998
($000)
<S> <C> <C> <C>
Net earnings $7,440 $5,463 $6,780
Other comprehensive income (loss):
Foreign currency translation adjustments (62) (163) 365
Unrealized gain on available for
sale securities, net of tax of $1,214 2,254 - -
Total other comprehensive income (loss) 2,192 (163) 365
COMPREHENSIVE INCOME $9,632 $5,300 $7,145
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended June 30,
($000) 2000 1999 1998
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings $ 7,440 $ 5,463 $ 6,780
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 4,693 4,343 3,550
Amortization 307 326 301
(Gain) loss on foreign currency transactions (368) (167) 588
Net loss (gain) on disposal or writedown of
property, plant and equipment - 203 125
Deferred income taxes 662 347 (563)
Increase (decrease) in cash from changes in:
Accounts receivable (576) (1,679) (924)
Inventories (4,478) 1,145 (2,473)
Accounts payable 1,674 (1,522) 500
Other operating net assets 3,182 1,297 (985)
---------------------------------------------------- ------- ------- -------
Net cash provided by operating activities 12,536 9,756 6,899
---------------------------------------------------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,877) (5,420) (20,515)
Investment in unconsolidated businesses (2,894) - -
Disposals (additions) of other assets 786 (600) 1
---------------------------------------------------- ------- ------- -------
Net cash used in investing activities (10,985) (6,020) (20,514)
---------------------------------------------------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) proceeds on short-term borrowings (1,344) (1,790) 5,345
Proceeds from long-term borrowings - - 1,980
Payments on long-term borrowings (46) (61) (60)
Proceeds from sale of common stock 681 203 173
Purchases of treasury stock - (1,148) -
---------------------------------------------------- ------- ------- -------
Net cash (used in) provided by financing activities (709) (2,796) 7,438
---------------------------------------------------- ------- ------- -------
Effect of exchange rate changes on cash and cash equivalents (70) 458 (517)
---------------------------------------------------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 772 1,398 (6,694)
CASH AND CASH EQUIVALENTS
Beginning of year 5,558 4,160 10,854
---------------------------------------------------- ------- ------- -------
End of year $ 6,330 $ 5,558 $ 4,160
==================================================== ======= ======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include II-VI Incorporated and its wholly-owned subsidiaries II-VI
Worldwide, Incorporated; II-VI Delaware, Incorporated; II-VI Japan
Incorporated; VLOC Incorporated; II-VI U.K. Limited; II-VI Singapore
Pte., Ltd; II-VI Optics (Suzhou) Co. Ltd.; II-VI International Pte.,
Ltd; and II-VI Acquisition Corp. (collectively the "Company"). All
intercompany transactions and balances have been eliminated.
INVENTORIES Inventories are valued at the lower of cost or market,
with cost determined on the first-in, first-out basis. Inventory costs
include material, labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are
carried at cost. Major improvements are capitalized, while maintenance
and repairs are generally expensed as incurred.
DEPRECIATION AND AMORTIZATION Depreciation and amortization for
financial reporting purposes is computed primarily by the straight-line
method over the estimated useful lives of the assets. Depreciable
useful lives range from 3 to 20 years while amortizable useful lives
range from 5 to 25 years.
AVAILABLE FOR SALE SECURITIES The Company classifies its investments
in equity securities that have a readily determinable fair value as
available for sale and reports these investments at market value. The
unrealized gains and losses, net of tax, are reported as accumulated
other comprehensive income within shareholders' equity. As of
June 30, 2000, the Company held available for sale securities with a
market value of $6,261,000 and an historic cost of $2,794,000.
FOREIGN CURRENCY TRANSLATION For II-VI Singapore Pte., Ltd., the
functional currency is the U.S. dollar. Gains and losses on the
remeasurement of the local currency financial statements are included
in net earnings.
For II-VI Japan Incorporated and II-VI U.K. Limited, the functional
currency is the local currency. Assets and liabilities of those
operations are translated into U.S. dollars using period-end exchange
rates; income and expenses are translated using the average exchange
rates for the reporting period. Translation adjustments are recorded as
accumulated other comprehensive income within shareholders, equity.
INCOME TAXES Deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized.
REVENUE RECOGNITION Revenue, other than on long-term contracts, is
recognized when a product is shipped. Revenue on long-term contracts is
accounted for using the percentage-of-completion method, whereby
revenue and profits are recognized throughout the performance period of
the contract. Percentage-of-completion is determined by relating the
actual cost of work performed to date to the estimated total cost for
each contract. Losses on contracts are recorded in full when
<PAGE>
identified.
EARNINGS PER SHARE The following table sets forth the computation of
earnings per share for the periods indicated:
Year Ended June 30,
(000 except per share data) 2000 1999 1998
Net earnings $ 7,440 $ 5,463 $ 6,780
Divided by:
Weighted average common
shares outstanding 12,756 12,720 12,874
Basic earnings per share $ 0.58 $ 0.43 $ 0.53
Net earnings $ 7,440 $ 5,463 $ 6,780
Divided by:
Weighted average common
shares outstanding 12,756 12,720 12,874
Dilutive effect of common
stock equivalents 420 260 474
Dilutive weighted average common
shares outstanding 13,176 12,980 13,348
Diluted earnings per share $ 0.56 $ 0.42 $ 0.51
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows,
the Company considers highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. The majority
of cash and cash equivalents is invested in investment grade money
market type instruments. Cash to fund current operations of foreign
subsidiaries is on deposit at banks in Japan, Singapore, China and the
United Kingdom.
NATURE OF BUSINESS The Company designs, manufactures and markets
optical and electro-optical components, devices and materials for
infrared, near-infrared, visible light, x-ray and gamma-ray, and
telecommunication instrumentation and applications. The Company
markets it products in the United States through its direct sales force
and worldwide through its wholly-owned subsidiaries, distributors and
agents.
The Company uses certain uncommon materials and compounds to
manufacture its products. Some of these materials are available from
only one proven outside source. The continued high quality of these
materials is critical to the stability of the Company's manufacturing
yields. The Company has not experienced significant production delays
due to a shortage of materials. However, the Company does occasionally
experience problems associated with vendor supplied materials not
meeting contract specifications for quality or purity. A significant
failure of the Company's suppliers to deliver sufficient quantities of
necessary high-quality materials on a timely basis could have a
material adverse effect on the Company's results of operations.
ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and
assumptions were used to estimate the fair value of financial
instruments:
Cash and Cash Equivalents The carrying amount approximates fair
value because of their short maturities.
Debt Obligations The fair values of debt obligations are established
based upon market values of similar issues. The fair values and
carrying amounts of the Company's debt obligations, specifically the
line of credit, Yen loan and the PIDA loan, are approximately
equivalent.
The Company has entered into foreign currency forward exchange
contracts in order to hedge its currency exposure in Japan. Gains and
losses on those contracts are recognized as they occur. At June 30,
2000 and 1999, the Company had foreign currency forward exchange
contracts outstanding of approximately $1,580,000 and $1,430,000,
respectively. The counterparty to these foreign currency forward
exchange contracts is a large financial institution, and the Company
does not believe that it is subject to any significant risk associated
with these contracts.
CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk with
respect to accounts receivable are limited due to the Company's large
number of customers. However, a significant portion of accounts
receivable is from European distributors. Although the Company does not
currently foresee a risk associated with these receivables, repayment
is dependent upon the financial stability of these distributors.
COMPREHENSIVE INCOME Comprehensive income is a measure of all changes
in shareholders' equity that result from transactions and other
economic events of the period other than transactions with owners. The
Company has presented accumulated other comprehensive income as a
component of the statement of shareholders' equity and consists of
unrealized gains of $2,254,000 and foreign currency translation
adjustments of $210,000 at June 30, 2000 and foreign currency
translation adjustments of $272,000 at June 30, 1999.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities on the
balance sheet at fair value. This statement has been amended by SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the effective date of SFAS No. 133." This statement is
effective for the Company's fiscal year beginning July 1, 2000. The
Company does not believe that adoption will have a material effect on
its financial position or results of operations.
<PAGE>
Note B INVENTORIES
The components of inventories are as follows:
June 30,
($000) 2000 1999
Raw materials $ 3,947 $3,014
Work in process 5,518 3,731
Finished goods 4,273 2,351
$13,738 $9,096
Note C PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (at cost) consists of the following:
June 30,
($000) 2000 1999
Land and land improvements $ 1,528 $ 1,501
Buildings and improvements 21,333 19,559
Machinery and equipment 47,578 40,758
70,439 61,818
Less accumulated depreciation 29,556 24,863
$40,883 $36,955
The interest capitalized associated with the construction of buildings
and improvements approximated $166,000 during the year ended June 30,
1998. No interest was capitalized during the years ended June 30, 2000
and 1999.
Note D DEBT
The components of debt are as follows:
June 30,
($000) 2000 1999
Line of credit, interest at the Euro-Rate, as defined,
plus 0.75% $2,750 $4,000
Term note, interest at 1.70%, payable in monthly
installments through October 1999 - 82
Pennsylvania Industrial Development Authority
(PIDA) term note, interest at 3%, payable in
monthly installments through October 2011 589 632
Term note, interest at the Japanese Yen Base Rate,
as defined, plus 1.49% up to a maximum rate of
3.74%, principal payable in full in September 2002 2,246 1,957
Term note, interest at 7.5%, payable in monthly
installments through August 1999 - 3
Total debt 5,585 6,674
Notes payable and current maturities of long-term debt (44) (4,125)
Long-term debt $5,541 $2,549
The Company had a $15.0 million unsecured line of credit agreement with
PNC Bank that expired on March 25, 2000. This line of credit was
extended for one year until March 24, 2001 upon mutual agreement of the
Company and PNC Bank. The average interest rate in effect as of June
30, 2000 was 7.47%. The average outstanding borrowings under this line
of credit were $4.6 million and $5.7 million during the years ended
June 30, 2000 and 1999, respectively. The Company was subject to
certain restrictive covenants under this agreement.
<PAGE>
On August 14, 2000, the Company replaced its $15.0 million unsecured
line of credit agreement with a $45.0 million secured credit agreement
in connection with the Company's acquisition of Laser Power Corporation
(see Note J). This facility has a five-year life and contains term and
line of credit borrowing options. This facility is secured by certain
assets of the Company and is subject to certain restrictive covenants,
including those related to minimum net worth, leverage and interest
coverage. This facility has an interest rate range of LIBOR plus 0.88%
to LIBOR plus 1.50%.
In September 1997, the Company obtained a 237 million Yen loan with PNC
Bank. Interest is 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 Japanese Yen Base Rate, as defined, plus 1.49% and the
maximum rate is 3.74%. On June 30, 2000, the Japanese Yen Base Rate was
0.18% and the floating rate was 1.67%.
The Company has a line of credit facility with a Singapore bank which
permits maximum borrowings of approximately $475,000. Borrowings are
payable upon demand with interest being charged at the rate of 1.5%
above the bank's prevailing prime lending rate. The interest rate at
June 30, 2000 was 7.0%. At June 30, 2000 and 1999 there were no
outstanding borrowings under this facility.
The aggregate annual amounts of principal payments required on the
long-term debt are as follows:
($000) Year Ended June 30,
2001 $ 44
2002 2,795
2003 2,004
2004 49
2005 51
Thereafter 642
Interest payments made during the years ended June 30, 2000, 1999 and
1998 totaled approximately $369,000, $450,000, and $23,000,
respectively.
Note E INCOME TAXES
The components of income tax expense are as follows:
Year Ended June 30,
($000) 2000 1999 1998
Current:
Federal $1,094 $2,033 $2,843
State 53 121 463
Foreign 667 74 65
1,814 2,228 3,371
Deferred 662 347 (563)
$2,476 $2,575 $2,808
<PAGE>
Principal items comprising deferred income taxes are as follows:
June 30,
($000) 2000 1999
Deferred income tax liabilities
Tax over book accumulated depreciation $2,276 $1,496
Intangible assets 443 532
Available for sale securities 1,227 -
Deferred income tax liability - long-term $3,946 $2,028
Deferred income tax assets
Inventory capitalization $ 385 $ 266
Non-deductible accruals 511 456
Deferred income tax asset - current $ 896 $ 722
Net operating loss carryforward $ 134 $ 193
Valuation allowance (134) (48)
Deferred income tax asset - long-term
(included in other assets) $ - $ 145
<PAGE>
The reconciliation of income tax expense at the statutory federal rate
to the reported income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
($000) 2000 % 1999 % 1998 %
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Taxes at statutory rate $3,371 34 $2,733 34 $3,260 34
Increase (decrease) in taxes resulting from:
State income taxes - net of federal benefit 69 - 112 1 306 3
Excludable Foreign Sales Corporation income (628) (6) (106) (1) (173) (2)
Excludable foreign income (728) (7) (617) (7) (407) (4)
Foreign taxes 181 2 - - - -
Non-deductible expenses 24 - 14 - 26 -
Other 187 2 439 5 (204) (2)
-------------------------------------------- ------- --- -------- --- -------- ---
$2,476 25 $2,575 32 $2,808 29
============================================ ======= === ======== === ======== ===
</TABLE>
<PAGE>
During the years ended June 30, 2000, 1999 and 1998, cash paid by the
Company for income taxes was approximately $1,572,000, $1,134,000, and
$3,665,000, respectively.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested outside the United States. If the earnings of such foreign
subsidiaries were not indefinitely reinvested, a deferred tax liability
of approximately $4,507,000 and $3,541,000 would have been required as
of June 30, 2000 and 1999, respectively.
The sources of differences resulting in deferred income tax expense
(credit) and the related tax effect of each were as follows:
Year Ended June 30,
($000) 2000 1999 1998
Depreciation and amortization $691 $241 $ (22)
Inventory capitalization (119) 24 (138)
Net operating loss carryforward 145 129 (274)
Other - primarily
nondeductible accruals (55) (47) (129)
$662 $347 $(563)
Note F OPERATING LEASES
The Company leases certain property under operating leases that expire
at various dates through fiscal 2007. Future rental commitments
applicable to the operating leases at June 30, 2000 are approximately
$416,000, $392,000, $296,000, $132,000, $145,000 and $241,000 for
fiscal 2001, 2002, 2003, 2004, 2005 and thereafter, respectively. Rent
expense was approximately $452,000, $397,000 and $475,000 for the years
ended June 30, 2000, 1999 and 1998, respectively.
Note G STOCK OPTION PLANS
The Company has a stock option plan under which stock options have been
granted by the Board of Directors to certain officers and key
employees, with 3,120,000 shares of common stock reserved for use under
this plan. All options to purchase shares of common stock granted to-
date have been at market price at the date of grant. Generally, twenty
percent of the options granted may be exercised one year from the date
of grant with comparable annual increases on a cumulative basis each
year thereafter. The stock option plan also has vesting provisions
predicated upon the death, retirement or disability of the optionee.
The amount available for future grants under the stock option plan was
575,032 as of June 30, 2000.
The Company has a nonemployee directors stock option plan with 240,000
shares of common stock reserved for use under this plan. The plan
provides for the automatic grant of options to purchase 30,000 shares
to each nonemployee director at the fair value on the date of
shareholder approval of the plan and a similar grant for each
nonemployee director that joins the Board prior to October 1999.
Twenty percent of the options granted may be exercised one year from
the date of grant with comparable annual increases on a cumulative
basis each year thereafter. The amount available for future grants
under the nonemployee directors stock option plan was 120,000 as of
June 30, 2000.
<PAGE>
All stock options expire 10 years after the grant date.
Stock option activity relating to the plans in each of the three years
in the period ended June 30, 2000 is as follows:
Number of Weighted
Shares Subject Average Exercise
Options to Option Price Per Share
Outstanding - July 1, 1997 1,171,068 $ 3.45
Granted 149,194 $10.41
Exercised (63,680) $ 1.82
Forfeited (11,600) $ 4.15
Outstanding - July 1, 1998 1,244,982 $ 4.36
Granted 176,828 $ 5.34
Exercised (81,960) $ 2.47
Forfeited (61,860) $ 7.00
Outstanding - July 1, 1999 1,277,990 $ 4.49
Granted 80,300 $ 9.38
Exercised (224,570) $ 3.00
Forfeited (26,994) $ 8.30
Outstanding - June 30, 2000 1,106,726 $ 5.04
Exercisable - June 30, 2000 733,416 $ 3.75
Outstanding and exercisable options at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number of Life Exercise Number of Exercise
Prices Shares (Years) Price Shares Price
------------- ------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.75 - $1.34 247,240 3.58 $ 1.19 247,240 $ 1.19
$1.97 - $2.00 220,200 4.34 $ 1.99 220,200 $ 1.99
$4.25 - $6.72 347,286 7.46 $ 5.35 122,496 $ 5.05
$7.63 - $8.75 106,920 6.15 $ 8.66 63,960 $ 8.65
$10.00 - $20.00 185,080 7.74 $11.17 79,520 $10.60
1,106,726 5.89 $ 5.04 733,416 $ 3.75
</TABLE>
The Company uses the intrinsic value approach specified in Accounting
Principles Board Opinion No. 25 in accounting for stock options. Had
the Company determined compensation costs based upon the fair value of
the options at the grant dates in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," its net earnings for the
years ended June 30, 2000, 1999 and 1998 would have been reduced by
$390,000, $350,000 and $263,000 or $.03, $.03 and $.02 per diluted
share, respectively.
<PAGE>
The pro forma adjustments were calculated using the Black-Scholes
option pricing model under the following weighted-average assumptions
in each fiscal year:
2000 1999 1998
Risk free interest rate 6.5% 6.0% 5.7%
Expected volatility 81% 64% 44%
Expected life of options 5.95 years 5.95 years 7.33 years
Expected dividends none none none
Based on the option pricing model, options granted during the years
ended June 30, 2000, 1999 and 1998 had fair values of $6.90, $3.42 and
$5.85 per share, respectively.
Note H SEGMENT AND GEOGRAPHIC REPORTING
The Company reports its segments using the "management approach" model
for segment reporting. The management approach model is based on the
way a company's management organizes segments within the company for
making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal
structure, management structure or any other manner in which management
segregates a company.
The Company's reportable segments offer similar products to different
target markets. The segments are managed separately due to the
production requirements and facilities that are unique to each segment.
The Company has two reportable segments: Optical Components, which is
an aggregation of the Company's infrared optics and material products
business and the Company's VLOC subsidiary, and Radiation Detectors,
which is the Company's eV PRODUCTS division.
The Optical Components segment is divided into the geographic locations
within the United States, Singapore, China, Japan and the United
Kingdom. Each geographic location is directed by a managing director
and is further divided into production and administrative units that
are directed by managers. The Optical Components segment designs,
manufactures and markets optical and electro-optical components,
devices and materials for precision use in infrared, near infrared and
visible light instrumentation. The Optical Components segment includes
certain general corporate management and administrative activities of
the Company which are not allocated to the other segment, certain
research and development activities of the Company not necessarily
specific to the Optical Components segment and other unallocated
charges.
The Radiation Detectors segment is located in the United States and is
a division of the Company. The Radiation Detectors segment is directed
by a managing director. The Radiation Detectors segment is further
divided into production and administrative units that are directed by
managers. The Radiation Detectors segment develops and markets solid-
state x-ray and gamma-ray products for the nuclear radiation detection
industry.
The accounting policies of the segments are the same as those described
in the Summary of Significant Accounting Policies. Substantially all
of the Company's corporate expenses are allocated to the segments. The
Company evaluates segment performance based upon reported segment
profit or loss from operations. Inter-segment sales and transfers are
<PAGE>
insignificant.
Net revenues from external customers attributable to the Company's
foreign operations, primarily II-VI Japan and II-VI Singapore Pte.,
Ltd. were $18,599,000, $14,535,000 and $16,950,000 in for the years
ended June 30, 2000, 1999 and 1998, respectively. Identifiable assets
of the Company's foreign operations, primarily II-VI Singapore Pte.,
Ltd. and II-VI Japan are $15,382,000, $10,131,000 and $8,208,000 as of
June 30, 2000, 1999 and 1998, respectively.
Optical Radiation
(000's) Components Detectors Totals
2000
Net revenues $68,044 $ 5,766 $73,810
Income (loss) from operations 12,427 (2,096) 10,331
Interest expense - - 349
Other income, net - - 66
Earnings before income taxes - - 9,916
Depreciation 4,026 667 4,693
Segment assets 80,086 7,650 87,736
Expenditures for property,
plant and equipment 8,501 376 8,877
1999
Net revenues $56,127 $ 5,623 $61,750
Income (loss) from operations 9,375 (1,136) 8,239
Interest expense - - 415
Other income, net - - (214)
Earnings before income taxes - - 8,038
Depreciation 3,635 708 4,343
Segment assets 62,390 8,453 70,843
Expenditures for property,
plant and equipment 4,925 495 5,420
1998
Net revenues $57,100 $ 4,240 $61,340
Income (loss) from operations 12,223 (2,458) 9,765
Interest expense - - 23
Other expense, net - - 154
Earnings before income taxes - - 9,588
Depreciation 2,971 579 3,550
Segment assets 59,069 8,705 67,774
Expenditures for property,
plant and equipment 14,922 5,593 20,515
Note I EMPLOYEE BENEFIT PLANS
Eligible employees of the Company participate in a profit sharing
retirement plan. Contributions to the plan are made at the discretion
of the Company's Board of Directors and were approximately $812,000,
$579,000 and $711,000 for the years ended June 30, 2000, 1999 and 1998,
respectively.
The Company has an employee stock purchase plan for employees who have
completed six months of continuous employment with the Company. The
employee may purchase the common stock at 5% below the prevailing
market price. The amount of shares which may be bought by an employee
is limited to 10% of the employee's base pay for each fiscal year. This
<PAGE>
plan, as amended, limits the number of shares of common stock available
for purchase to 400,000 shares. At June 30, 2000, 221,770 shares of
common stock are available for purchase under the plan.
The Company has no program for postretirement health and welfare and
postemployment benefits.
The II-VI Incorporated Deferred Compensation Plan (the "Plan") is
designed to allow officers and key employees of the Company to defer
receipt of compensation into a trust fund for retirement purposes. The
Plan is a nonqualified, defined contribution employees' retirement
plan. At the Company's discretion, the Plan may be funded by the
Company making contributions based on compensation deferrals, matching
contributions and discretionary contributions. Compensation deferrals
will be based on an election by the participant to defer a percentage
of compensation under the Plan. All assets in the Plan are subject to
claims of the Company's creditors until such amounts are paid to the
Plan participants. Employees of the Company made contributions to the
Plan in the amount of approximately $248,000, $30,000 and $67,000 for
the years ended June 30, 2000, 1999 and 1998, respectively.
NOTE J SUBSEQUENT EVENTS - LASER POWER CORPORATION ACQUISITION AND
CREDIT FACILITY REPLACEMENT
On August 14, 2000, the Company increased its ownership in Laser Power
Corporation from approximately 13% to approximately 88%, giving the
Company a controlling interest. This approximately 75% additional
ownership was acquired for a total consideration of approximately $22.3
million in cash and the issuance of 739,000 shares of the Company's
common stock.
On August 14, 2000, the Company replaced its $15.0 million unsecured
line of credit agreement with a $45.0 million secured credit agreement
in connection with the Company's acquisition of Laser Power
Corporation. This facility has a five-year life and contains term and
line of credit borrowing options. This facility is secured by certain
assets of the Company and is subject to certain restrictive covenants,
including those related to minimum net worth, leverage and interest
coverage. This facility has an interest rate range of LIBOR plus 0.88%
to LIBOR plus 1.50%.
NOTE K SUBSEQUENT EVENT - STOCK SPLIT
On August 23, 2000, the Company announced that its Board of Directors
had declared a two-for-one stock split of the Company's common stock in
the form of a 100% common stock dividend. The record date was
September 5, 2000 and the distribution date was September 20, 2000.
All share and per share amounts included in the Company's consolidated
financial statements have been restated to reflect the stock split for
all periods presented.
