<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended . . . . . . . .September 30, 1996 . . . . . .
OR
[ ] 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. . . 0-26240 . . . .
. . .ALIGN-RITE INTERNATIONAL, INC. . .
(Exact name of registrant as specified in its charter)
. . .California. . . . . .95-4528353. . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
. . . . . .2428 Ontario St. Burbank, CA. . . . . . . .91504. .
(Address of principal executive offices) (Zip Code)
. . .(818) 843-7220. . .
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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.
<TABLE>
<CAPTION>
Class Outstanding at October 31, 1996
<S> <C>
Common Stock, $.01 par value 4,387,029 Shares
</TABLE>
<PAGE> 2
ALIGN-RITE INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
September 30, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Earnings
for the Three and Six Months ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 7
PART II. FINANCIAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Align-Rite International, Inc.
Consolidated Condensed Balance Sheets
(Unaudited - 000's omitted, except per share data.)
<TABLE>
<CAPTION>
At Sept 30, At Mar 31,
----------- ----------
ASSETS 1996 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,090 $ 12,707
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,648 5,940
Inventories, primarily raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,462 1,816
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,826 1,429
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,026 21,892
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,963 8,517
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 12
--------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,001 $ 30,421
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,392 $ 2,770
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,021 1,868
--------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,413 4,638
Other liabilities and deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 499
Shareholders' equity:
Common Stock:
Authorized - 35,000 shares $.01 par value; Issued 4,379 shares and 4,346
shares at September 30, 1996 and March 31, 1996, respectively . . . . . . . . . . . . . . 44 43
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,873 17,829
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,084 7,369
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 43
--------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,124 25,284
--------- --------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . $ 35,001 $ 30,421
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE> 4
Align-Rite International, Inc.
Consolidated Condensed Statements of Operations
For the Three and Six Months Ended September 30, 1996 and 1995
(Unaudited - 000's omitted, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, Setember 30,
1996 1995 1996 1995
----- ------ ----- -----
<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . $9,666 $8,040 $19,179 $15,687
Cost of Sales . . . . . . . . . . . . . . . . . . 6,026 5,074 11,944 9,844
------ ------ ------- -------
Gross Profit . . . . . . . . . . . . . . . . . 3,640 2,966 7,235 5,843
Selling, general and administrative . . . . . . . 1,558 1,374 3,112 2,721
------ ------ ------- -------
Income from operations . . . . . . . . . . . . 2,082 1,592 4,123 3,122
. . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income (expense) and other income, net . 80 132 202 69
------ ------ ------- -------
Income before provison for income taxes . . . . . 2,162 1,724 4,325 3,191
Provison for income taxes . . . . . . . . . . . . 787 496 1,610 908
------ ------ ------- -------
Net income . . . . . . . . . . . . . . . . . . . $1,375 $1,228 $ 2,715 $ 2,283
====== ====== ======= =======
Per share information:
Shares used - per share computation . . . . . . . 4,809 4,363 4,805 3,593
Earnings per share . . . . . . . . . . . . . . .29 .28 .57 .64
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
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ALIGN-RITE INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED - 000'S OMITTED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,715 $ 2,283
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,247 924
(Increase) Decrease in:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 (897)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (646) (821)
Prepaids and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (397) (968)
Increase (decrease) in:
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,622 1,497
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . 142 (248)
------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 4,975 1,770
------- -------
Cash flows used in investing activities
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . (7,693) (1,738)
------ -------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . (7,693) (1,738)
-------
Cash flows used in financing activities:
Proceeds from Initial Public Offering, net . . . . . . . . . . . . . . . . . . . . . . - 14,144
Principal payments on borrowings (notes) . . . . . . . . . . . . . . . . . . . . . . . - (1,158)
Repayment of (obligation under) capital leases . . . . . . . . . . . . . . . . . . . . - (647)
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 -
------- -------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . 45 12,339
------- -------
Effect of exchange rate on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 (29)
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,617) 12,342
------- -------
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . 12,707 3,861
------- -------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . $10,090 $16,203
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE> 6
ALIGN-RITE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
Item 1 - Business and Basis of Consolidation
The consolidated Financial Statements include the accounts of Align-Rite
International, Inc. ("ARII"), a California corporation, incorporated on April
27, 1995, and its wholly-owned subsidiaries, Align-Rite International Limited
("ARI"), Align-Rite Corporation ("ARC"), and Align-Rite Limited ("ARL"). ARII
and its subsidiaries are collectively referred to as the "Company". All
significant intercompany accounts and transactions have been eliminated.
The principal activity of ARII and ARI is that of holding companies into which
their respective subsidiaries are consolidated. ARC and ARL manufacture and
market quality photomasks in the United States and Europe. Photomasks, which
are precision photographic quartz or glass plates, contain microscopic images
of integrated circuits. These are used primarily by semiconductor
manufacturers as master images to transfer circuit patterns onto silicon wafers
during the fabrication of integrated circuits.
During fiscal year 1996 the Company underwent an initial public offering of
Common Stock, as part of which all of the outstanding Ordinary Shares of ARI
were exchanged for the Common Stock of ARII.
The Company maintains a policy and practice of restricting ARC from paying
dividends or making certain other distributions in order to minimize tax
consequences resulting from its current corporate structure.
6
<PAGE> 7
Item 2. Management's Discussions and Analysis of Results of Operations and
Financial Condition.
Net sales for the three and six months ended September 30, 1996, increased 20.3%
to $9,666,000, and 22.3% to $19,179,000, respectively, compared with $8,040,000
and $15,687,000 in the same periods in the prior fiscal year. The increase
resulted from an increase in both the Company's United Kingdom ("U.K.") and
United States ("U.S.") operations. U.K. net sales for the three and six months
ended September 30, 1996 increased 18.2% to $3,182,000 and 25.0% to $6,485,000,
respectively, compared with $2,691,000 and $5,190,000 in the same periods in the
prior fiscal year. U.S. net sales for the three and six months ended September
30, 1996 increased 21.2% to $6,484,000 and 20.9% to $12,694,000, respectively,
compared with $5,349,000 and $10,497,000 in the same periods in the prior fiscal
year. The increase in net sales is attributable to increased demand for
photomasks as well as additional capacity of the Company. During the quarter,
the Company completed product qualifications with several new customers and is
currently in various stages of product qualification with other accounts which
the Company believes will position it for continued expansion in the
marketplace. The Company also expects to experience a decline in sales of
optical photomask products equivalent to approximately 4% of current revenues
over the next 6 month period, as a result of changes in recent customer demand.
Gross profit as a percentage of net sales for the three and six months ended
September 30, 1996 increased slightly to 37.7% compared with 36.9% and 37.2%,
respectively, in the prior period. The slight increase in gross profit as a
percentage of net sales for the three months ended September 30, 1996 is
primarily attributable to better utilization of assets and a better yield on
certain products which were offset in part, by start-up costs related to
equipment expansion in the U.S. and an increase in depreciation expense.
Depreciation expense for the three and six months ended September 30, 1996
increased 32.9% to $614,000 and 35.0% to $1,247,000, respectively, compared to
$462,000 for each quarter in the prior fiscal year. The increase was due to the
Company's recent purchases of equipment which resulted in an increase in the
Company's asset base.
Selling, general and administrative expenses for the three and six months ended
September 30, 1996 increased 13.4% to $1,558,000 and 14.4% to $3,112,000,
respectively, compared with $1,374,000 and $2,721,000 in the same period in the
prior fiscal year. While the absolute dollars increased each period, the
selling, general and administrative expenses as a percentage of net sales
decreased to 16.1% and 16.2%, respectively, for the three and six months ended
September 30, 1996 compared with 17.1% and 17.4% in the same periods in the
prior year. The principal reason for the decrease in selling, general and
administrative expenses is due to the Company's ability to spread its costs
over a higher revenue base.
For the three and six months ended September 30, 1996, the Company provided for
Federal and State income tax at an estimated combined effective rate of
approximately 36.4% and 37.2%, respectively, compared to 28.8% and 28.5% in the
same period in the prior year. The prior period rates were lower due to the
utilization of net operating loss carryforwards in the United Kingdom which
were fully utilized in 1996.
7
<PAGE> 8
Liquidity and Capital Resources
The Company's cash and cash equivalents were $10,090,000 at September 30, 1996.
Net cash provided by operating activities contributed $4,975,000 for the six
months ended September 30, 1996 compared to $1,170,000 in the prior fiscal
year.
Operating cash flows for the six months ended September 30, 1996 reflect higher
net income and higher non cash charges related to increased depreciation, along
with increases in Accounts Payable offset by increases in Inventory.
Accounts Receivable decreased $292,000 or 5.0% during the six months ended
September 30, 1996, despite a 22.2% increase in sales due to the Company's
aggressive cash collection policy instituted near the end of the quarter.
Management believes that the Company's reserve for bad debts is adequate.
Inventory levels increased 35.6% to $2,462,000 during the six months ended
September 30, 1996, primarily due to higher raw material costs obtained for
use on the new equipment purchases of the Company aimed at increasing capacity
and technological capabilities. The Company believes this inventory level is
reasonable in order to maintain the level of business the Company is currently
engaged in. Due to short turnaround times and the customized nature of
photomasks, the Company does not maintain any material amount of finished good
inventory thereby keeping the Company's inventory turnover low.
For the six months ended September 30, 1996, cash used in investing activities
totaled $7,693,000 compared to $1,738,000 in the prior year. The Company's
capital expenditures were primarily for equipment which will support and
complement new process development and higher end products.
The Company recently announced plans to further expand its facilities and
production capacity in Bridgend, Wales. The expansion is a two phase plan which
totals approximately $20,000,000. Phase one of the expansion is currently
scheduled for completion in June 1997 and will include a building expansion, and
additional equipment and cleanroom facilities. The first phase of expansion
will cost approximately $8,000,000. The Company plans to announce details
relating to the second phase of expansion some time in 1997.
Management believes that funds generated from operations together with its cash
and cash equivalents will be sufficient to meet its normal operating
requirements during the coming year. If these funds prove to be insufficient,
or if new opportunities require the Company to supplement its financial
resources, the Company may use established credit lines with its corporate
banker of $7,500,000 under which no amounts are currently outstanding,
additional financing or pursue other sources of financing, however, there can
be no assurance other sources of financing will be available at commercially
viable terms, if at all.
8
<PAGE> 9
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
In addition to historical information, this report includes certain
forward-looking statements regarding events and financial and industry trends
which may affect the Company's future operating results and financial position.
Such statements include, but are not limited to, statements as to: (i) the
Company's expected decline in the sales of optical photomask products resulting
in a 4% decline in revenues, (ii) the Company's belief regarding the adequacy of
its reserve for bad debts, (iii) the Company's expectations regarding expansion
in Europe and (iv) the sufficiency of funds to meet the Company's normal
operating requirements over the next 12 months. Such statements represent the
Company's reasonable judgment concerning the future and are subject to risks and
uncertainties that could cause the Company's actual operating results and
financial position to differ materially. Such risks and uncertainties include
but are not limited to: a change in economic conditions in the Company's
markets which could adversely affect the level of demand for the Company's
products, failure of the Company to anticipate, respond to or utilize changing
technologies used in production of photomasks; greater than anticipated
competition; manufacturing difficulties or capacity limitations; shortage of raw
materials; delays in delivery of recently purchased manufacturing equipment to
the Company; greater than anticipated capital investment requirements; and
currency fluctuations or changes in political conditions with respect to the
Company's foreign operations.
9
<PAGE> 10
Part II. Other Information
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
10
<PAGE> 11
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.
Date: November 6, 1996 . . . . . Align-Rite International, Inc. . . . . .
James Mac Donald
Chairman of the Board, President &
Chief Executive Director
Petar Katurich
Chief Financial Officer & Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,090
<SECURITIES> 0
<RECEIVABLES> 5,648
<ALLOWANCES> 0
<INVENTORY> 2,462
<CURRENT-ASSETS> 20,026
<PP&E> 14,963
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,001
<CURRENT-LIABILITIES> 6,413
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 28,124
<TOTAL-LIABILITY-AND-EQUITY> 35,001
<SALES> 9,666
<TOTAL-REVENUES> 9,666
<CGS> 6,026
<TOTAL-COSTS> 3,640
<OTHER-EXPENSES> 1,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 2,162
<INCOME-TAX> 787
<INCOME-CONTINUING> 1,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,375
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
