<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 June 30, 1997
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.
Class Outstanding at July 31, 1997
Common Stock, $.01 par value 4,432,350 Shares
<PAGE> 2
ALIGN-RITE INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations
for the Three Months ended June 30, 1997
and 1996 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended June 30, 1997
and 1996 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 11
Signatures 12
</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 June 30 At Mar 31,
Assets 1997 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 5,696 $ 6,734
Accounts receivable, net ............................................... 6,932 6,120
Inventories, primarily raw materials ................................... 2,243 2,180
Prepaid and other current assets ....................................... 1,226 1,233
------- -------
Total current assets ............................................. 16,097 16,267
Property and equipment, net ........................................... 25,150 22,089
Other assets ........................................................... 948 425
------- -------
Total assets ..................................................... $42,195 $38,781
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable ................................................. $ 3,831 $ 3,670
Accrued expenses and other ............................................. 2,653 1,543
Taxes payable .......................................................... 1,010 327
------- -------
Total current liabilities ........................................ 7,494 5,540
Deferred taxes ............................................................ 1,398 1,398
Other liabilities ......................................................... 443 470
Shareholders' equity:
Common stock:
Authorized - 35,000 shares $.01 par value; Issued 4,427 shares and 4,416
shares at June 30, 1997 and March 31, 1997, respectively ............... 44 44
Additional paid-in capital ................................................ 18,331 18,287
Retained earnings ......................................................... 14,142 12,694
Foreign currency translation adjustment ................................... 343 348
------- -------
Total shareholders' equity ....................................... 32,860 31,373
------- -------
Total liabilities and shareholders' equity .................... $42,195 $38,781
======= =======
</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 Months Ended June 30, 1997 and 1996
(Unaudited - 000's omitted, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30
--------------------
1997 1996
------- -------
<S> <C> <C>
Net sales .............................. $10,616 $ 9,513
Cost of sales .......................... 6,598 5,918
------- -------
Gross profit ......................... 4,018 3,595
Selling, general and administrative .... 1,694 1,554
------- -------
Income from operations ............... 2,324 2,041
Interest income ........................ 16 122
------- -------
Income before provision for income taxes 2,340 2,163
Provision for income taxes ............. 892 823
------- -------
Net income ............................. $ 1,448 $ 1,340
======= =======
Per share information:
Shares used - per share computation .... 4,841 4,803
Earnings per share ................... $ .30 $ .28
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE> 5
Align-Rite International, Inc.
Consolidated Condensed Statements of Cash Flows
For the Three Months Ended June 30, 1997 and 1996
(Unaudited - 000's omitted)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income: ................................................ $ 1,448 $ 1,340
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization ....................... 887 633
Bad Debt Expense .................................... 31 --
Compensation related to stock options granted ....... 27 --
Changes in assets and liabilities:
Accounts receivable, net ........................... (694) (366)
Inventories ........................................ (63) 30
Prepaids and other assets .......................... 500 (55)
Trade accounts payable ............................. 828 1,763
Accrued expenses and other liabilities ............. 1,027 514
-------- --------
Net cash provided by operating activities ......... 3,991 3,859
-------- --------
Cash flows from investing activities
Purchase of property and equipment ..................... (2,585) (4,755)
Payments for business acquisition, net of cash received (2,467) --
-------- --------
Net cash used in investing activities ............. (5,052) (4,755)
Cash flows from financing activities:
Stock options exercised ................................. 17 28
-------- --------
Net cash provided by financing activities ......... 17 28
-------- --------
Effect of exchange rate on cash ............................ 6 6
Net decrease in cash ....................................... (1,038) (862)
-------- --------
Cash and cash equivalents, beginning of year ............... 6,734 12,707
-------- --------
Cash and cash equivalents, end of year ..................... $ 5,696 $ 11,845
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the three months ended June 30, for;
Income taxes ........................................... $ -- $ 50
</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 Months Ended June 30, 1997
(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"), Align-Rite Limited ("ARL"), Align-Rite
BV ("ARBV"), and Align-Rite GmbH ("ARGMBH"). 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, ARI, and ARBV is that of holding companies into
which their respective subsidiaries are consolidated. ARC, ARL, and ARGMBH
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 completed 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.
Effective June 1, 1997, the Company completed its first business acquisition.
The Company purchased the photomask business unit of TEMIC, a division of
Daimler-Benz, located in Heilbronn, Germany. The purchased division operates
within the Company's German subsidiary, ARGMBH. The acquisition was accounted
for using the purchase method of accounting. The purchase price allocation is
premilinary pending appraisals, evaluations, and other studies regarding the
fair value of the assets acquired. The acquisition was not material to the
financial position or results of operations of the Company.
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 months ended June 30, 1997, increased 11.6% to
$10,616,000 compared with $9,513,000 for the same period in the prior fiscal
year. The increase resulted from an overall increase in the demand for
photomasks, which management believes will continue and as a result of one
month's revenue contribution from the Company's newly acquired manufacturing
unit, ARGMBH, located in Heilbronn, Germany. This new manufacturing site, which
began operations under the Company's control beginning June 1, 1997, accounted
for approximately 4.3% or $456,000 of total first quarter revenue and is
anticipated to generate approximately $5,000,000 in sales in fiscal year 1998.
In addition, both the Company's United Kingdom ("U.K.") and United States
("U.S.") operations increased their net sales throughout the quarter. U.K. net
sales for the three months ended June 30, 1997 increased 4.1% to $3,437,000
compared with $3,303,000 for the same period in the prior fiscal year. U.S. net
sales for the three months ended June 30, 1997 increased 8.3% to $6,723,000,
compared with $6,210,000 for the same period in the prior fiscal year.
Gross profit as a percentage of net sales for the three months ended June 30,
1997 increased slightly to 37.85%, compared with 37.79%, in the prior period.
The slight increase in gross profit as a percentage of net sales for the three
months ended June 30, 1997 is primarily attributable to better yields on certain
products which were offset, in part, by lower profit margins at the German
facility and by an overall increase in depreciation expense. Depreciation
expense for the three months ended June 30, 1997 increased 40.1% to $887,000,
compared to $633,000 for the same period in the prior fiscal year. The increase
was due to the Company's recent purchases of equipment and cleanrooms at the
Company's U.S. and U.K facilities which resulted in an increase to the Company's
asset base.
Selling, general and administrative expenses for the three months ended June 30,
1997 increased 9.0% to $1,694,000 compared with $1,554,000 for the same period
in the prior fiscal year. While the absolute dollars increased for the period,
the selling, general and administrative expenses as a percentage of net sales
decreased to 15.96% for the three months ended June 30, 1997 compared with
16.34% for the same period 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 months ended June 30, 1997 and June 30, 1996, the Company provided
for Federal and State income tax at an estimated combined effective rate of
approximately 38.1%.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $5,696,000 at June 30, 1997. Net
cash provided by operating activities amounted to $3,991,000 for the three
months ended June 30, 1997 compared to $3,859,000 for the same period in the
prior year. Additions to operating cash flows for the three months ended June
30, 1997 reflect a higher net income, increased non-cash charges related to
increased depreciation and amortization and increases in accounts payable and
accrued expenses which were partially offset by increases in accounts receivable
and inventory.
7
<PAGE> 8
Accounts receivable increased $695,000 or 11.4% during the three months ended
June 30, 1997, largely in part to the 11.6% increase in net sales and a longer
than expected collection period at the German operation. Management believes
that the Company's reserve for bad debts is adequate. Inventory levels during
the three months ended June 30, 1997 were relatively consistent with those of
March 31, 1997. The Company believes those inventory levels are reasonable in
order to maintain the current level of business of the Company. Due to short
turnaround times and the customized nature of photomasks, the Company does not
maintain significant finished goods inventory.
For the three months ended June 30, 1997, cash used in investing activities
totaled $5,052,000 compared to $4,755,000 in the prior year. The Company's
capital expenditures in the amount of $2,585,000 were primarily for equipment
and cleanrooms which will support and complement new process development and
high end products. Included in the investing activities for the three months
ended June 30, 1997 was the purchase of the photomask business unit of TEMIC for
$2,467,000.
In April 1997, the Company entered into a long-term Strategic Alliance, Supply
and Cooperation Agreement in connection with the purchase of the photomask
business unit of TEMIC. Additionally, under the terms of the agreement, the
Company leased the existing facility from TEMIC for a period of ten years with
an option to renew.
Management believes that funds generated from operations together with its cash,
cash equivalents and established credit lines will be sufficient to meet the
Company's normal operating requirements for the remainder of the 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 to seek 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
Foreign Operations and Inflation
Foreign operations are subject to certain risks inherent to conducting business
abroad, including price and currency exchange controls, fluctuation in the
relative value of currencies and restrictive governmental actions. Changes in
the relative value of currencies occur from time to time and may, in certain
instances, have a material adverse effect on the Company's results of
operations. The Company does not hedge foreign currency risks, and the effects
of these risks are difficult to predict. The risks associated with foreign
operations have not, to date, had a material adverse effect on the Company's
results of operations and cash flows. There can, however, be no assurance that
such risks will not have a material adverse effect on the Company's financial
position, results of operations and cash flows in the future.
The effects of inflation are experienced by the Company through increases in
cost of labor, services and raw materials. In general, these costs have been
anticipated by periodic increases in the prices of its products. The Company
does not believe, however, that inflation has had a material effect on its
results of operations in the past. There can be no assurance that the Company's
results will not be materially affected by inflation in the future.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share". This statement requires dual presentation of
newly defined basic and diluted earnings per share on the face of the income
statement for any entities with complex capital structures. The accounting
standard is effective for fiscal years ending after December 15, 1997, including
interim periods; the Company has not yet determined what, if any, impact SFAS
No. 128 may have on the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130, which requires companies to adopt its provisions for fiscal years
ending after December 15, 1997, establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. The impact of adopting SFAS No.
130 has not been determined by the Company.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131, which requires companies
to adopt its provisions for fiscal years ending after December 15, 1997,
requires publicly-held companies to report financial and other information about
key revenue-producing segments of the entity for which such information is
available and is utilized by the chief operating decision makers. Specific
information to be reported for individual segments include profit or loss,
certain revenue and expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements would be
provided. The impact on the Company of adopting SFAS No. 131 has not been
determined.
9
<PAGE> 10
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 belief regarding the continuation of the increased demand for
photomasks; (ii) the adequacy of its reserve for bad debts, and (iii) 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: adverse
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 levels of competition and competitive
pricing, 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.
10
<PAGE> 11
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 June
30, 1997.
11
<PAGE> 12
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 7, 1997 Align-Rite International, Inc.
James Mac Donald
Chairman of the Board, President &
Chief Executive Director
Petar Katurich
Vice President of Finance,
Chief Financial Officer & Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,696
<SECURITIES> 0
<RECEIVABLES> 6,815
<ALLOWANCES> 0
<INVENTORY> 2,243
<CURRENT-ASSETS> 16,097
<PP&E> 23,150
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,195
<CURRENT-LIABILITIES> 7,494
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 32,860
<TOTAL-LIABILITY-AND-EQUITY> 42,195
<SALES> 10,616
<TOTAL-REVENUES> 10,616
<CGS> 6,598
<TOTAL-COSTS> 4,018
<OTHER-EXPENSES> 1,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 2,340
<INCOME-TAX> 892
<INCOME-CONTINUING> 1,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,448
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
