FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2000 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________________ to _____________________. Commission File Number: 0-16195 II-VI INCORPORATED (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1214948 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 375 Saxonburg Boulevard Saxonburg, PA 16056 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 724-352-4455 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: At February 9, 2001, 13,894,128 shares of Common Stock, no par value, of the registrant were outstanding.
II-VI INCORPORATED AND SUBSIDIARIES ----------------------------------- INDEX ----- <TABLE> <CAPTION> Page No. -------- <S> <C> PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets -- December 31, 2000 and June 30, 2000..................................................... 3 Condensed Consolidated Statements of Earnings -- Three and six months ended December 31, 2000 and 1999...................................... 4 Condensed Consolidated Statements of Cash Flows - Six months ended December 31, 2000 and 1999...................................... 6 Notes to Condensed Consolidated Financial Statements.................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk (no significant changes since September 30, 2000) PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders..................... 16 Item 6. Exhibits and Reports on Form 8-K ....................................... 17 </TABLE> 2
PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements: - ------------------------------------------------------------------------------ II-VI Incorporated and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) ($000) <TABLE> <CAPTION> December 31, June 30, 2000 2000 ------------------ ---------------- <S> <C> <C> Assets Current Assets Cash and cash equivalents $ 5,678 $ 6,330 Accounts receivable - net 21,602 14,202 Inventories 20,390 13,738 Other current assets 5,013 2,080 ------------------ ---------------- Total Current Assets 52,683 36,350 Property, Plant and Equipment, net 52,342 40,883 Cost in Excess of Net Assets Acquired, net 34,736 1,792 Other Intangible Assets, net 1,440 1,516 Other Assets 4,078 3,690 ------------------ ---------------- $ 145,279 $ 84,231 ================= ================ Liabilities and Shareholders' Equity Current Liabilities Accounts payable 5,006 3,726 Accrued salaries, wages and bonuses 5,151 4,685 Income taxes payable 1,814 222 Accrued profit sharing contribution 533 812 Other current liabilities 6,626 2,526 Current portion of long-term debt 1,356 44 ------------------ --------------- Total Current Liabilities 20,486 12,015 Long-Term Debt--less current portion 37,385 5,541 Other Liabilities, primarily deferred income taxes 3,075 3,120 Shareholders' Equity Preferred stock, no par value; authorized - 5,000,000 shares; unissued - - Common stock, no par value; authorized - 30,000,000 shares; issued - 14,951,824 shares at December 31, 2000; 13,976,102 shares at June 30, 2000 36,922 20,454 Accumulated other comprehensive income 193 186 Retained earnings 49,128 44,825 ------------------ ---------------- 86,243 65,465 Less treasury stock, at cost - 1,068,880 shares 1,910 1,910 ------------------ ---------------- 84,333 63,555 ------------------ ---------------- $ 145,279 $ 84,231 ================== ================ </TABLE> - -See notes to condensed consolidated financial statements. 3
II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited) ($000 except per share data) <TABLE> <CAPTION> Three Months Ended December 31, 2000 1999 ------------------ ------------------ <S> <C> <C> Revenues Net sales: Domestic $ 19,696 $ 8,256 International 10,668 8,397 ------------------ ------------------ 30,364 16,653 Contract research and development 1,374 221 ------------------ ------------------ 31,738 16,874 ------------------ ------------------ Costs, Expenses & Other Income Cost of goods sold 18,722 9,476 Contract research and development 642 168 Internal research and development 1,166 602 Selling, general and administrative 6,239 4,208 Interest expense 837 94 Other expense (income) - net 543 (59) ------------------ ------------------ 28,149 14,489 ------------------ ------------------ Earnings Before Income Taxes 3,589 2,385 Income Taxes 1,246 715 ------------------ ------------------ Net Earnings $ 2,343 $ 1,670 ================== ================== Basic Earnings Per Share $ 0.17 $ 0.13 ================== ================== Diluted Earnings Per Share $ 0.16 $ 0.13 ================== ================== </TABLE> - -See notes to condensed consolidated financial statements. 4
II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited) ($000 except per share data) <TABLE> <CAPTION> Six Months Ended December 31, 2000 1999 ------------------ ------------------ <S> <C> <C> Revenues Net sales: Domestic $ 34,338 $ 16,792 International 21,684 15,983 ------------------ ------------------ 56,022 32,775 Contract research and development 2,429 297 ------------------ ------------------ 58,451 33,072 ------------------ ------------------ Costs, Expenses & Other Income Cost of goods sold 34,170 18,704 Contract research and development 1,374 226 Internal research and development 2,158 1,225 Selling, general and administrative 12,507 8,014 Interest expense 1,174 179 Other expense (income) - net 610 (131) ------------------ ------------------ 51,993 28,217 ------------------ ------------------ Earnings Before Income Taxes 6,458 4,855 Income Taxes 2,155 1,446 ------------------ ------------------ Net Earnings $ 4,303 $ 3,409 ================== ================== Basic Earnings Per Share $ 0.32 $ 0.27 ================== ================== Diluted Earnings Per Share $ 0.31 $ 0.26 ================== ================== </TABLE> - -See notes to condensed consolidated financial statements. 5
II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ($000) <TABLE> <CAPTION> Six Months Ended December 31, 2000 1999 ------------------- ------------------- <S> <C> <C> Cash Flows from Operating Activities Net earnings $ 4,303 $ 3,409 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 3,704 2,790 Gain on foreign currency transactions (220) (104) Deferred income taxes (84) (4) Increase (decrease) in cash from changes in: Accounts receivable (1,997) 210 Inventories (1,505) (1,912) Accounts payable 1,207 366 Other operating net assets (3,607) (743) ------------------- ------------------- Net cash provided by operating activities 1,801 4,012 ------------------- ------------------- Cash Flows from Investing Activities Purchases of businesses (27,726) - Additions to property, plant and equipment (6,794) (2,841) Investments in unconsolidated businesses - (2,888) Disposals of other assets 121 750 ------------------- ------------------- Net cash used in investing activities (34,399) (4,979) ------------------- ------------------- Cash Flows from Financing Activities Proceeds on short-term borrowings, net 6,252 909 Increase in long-term borrowings 25,000 - Payments on long-term borrowings (22) (25) Proceeds from sale of common stock 382 71 ------------------- ------------------- Net cash provided by financing activities 31,612 955 ------------------- ------------------- Effect of exchange rate changes on cash and cash equivalents 334 337 Net increase (decrease) in cash and cash equivalents (652) 325 Cash and Cash Equivalents at Beginning of Period 6,330 5,558 ------------------- ------------------- Cash and Cash Equivalents at End of Period $ 5,678 $ 5,883 =================== =================== Cash paid for interest $ 692 $ 258 Cash paid for taxes $ 705 $ 1,163 Non-cash transactions: Net assets acquired for fair value of common stock $ 15,469 $ - </TABLE> - -See notes to condensed consolidated financial statements. 6
II-VI Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Note A - Basis of Presentation --------------------- The consolidated financial statements for the three and six month periods ended December 31, 2000 and 1999 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation for the periods presented have been included. These interim statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto contained in the Company's 2000 Annual Report to shareholders. The consolidated results of operations for the three and six month periods ended December 31, 2000 and 1999 are not necessarily indicative of the results to be expected for the full year. The results for the six month period ended December 31, 2000 include five months of operations of the Company's recently acquired Laser Power Corporation subsidiary. Certain amounts from the prior period financial statements have been reclassified to conform with current period presentation, including classification of Laser Power Corporation as an investment accounted for under the Equity method. Note B - Inventories The components of inventories are as follows ($000): <TABLE> <CAPTION> December 31, June 30, 2000 2000 ------------------ -------------------- <S> <C> <C> Raw materials $ 5,394 $ 3,947 Work in progress 9,254 5,518 Finished goods 5,742 4,273 ------------------ ------------------- $ 20,390 $ 13,738 ================== =================== </TABLE> Note C - Property, Plant and Equipment ----------------------------- Property, plant and equipment (at cost) consist of the following ($000): <TABLE> <CAPTION> December 31, June 30, 2000 2000 ------------------ ------------------- <S> <C> <C> Land and land improvements $ 1,652 $ 1,528 Buildings and improvements 26,498 21,333 Machinery and equipment 57,207 47,578 ------------------ ------------------- 85,357 70,439 Less accumulated depreciation 33,015 29,556 ------------------ ------------------- $ 52,342 $ 40,883 =================== ==================== </TABLE> 7
II-VI Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued Note D - Debt 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%. The average interest rate in effect as of December 31, 2000 was 8.08%. As of December 31, 2000, the total borrowings under this line of credit of $36.0 million consisted of $25.0 million under the term loan option and $11.0 million under the line of credit option. Note E - Earnings Per Share The following table sets forth the computation of earnings per share for the periods indicated: <TABLE> <CAPTION> Three Months Ended December 31, Six Months Ended December 31, (000 except per share data) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net earnings $2,343 $1,670 $4,303 $3,409 Divided by: Weighted average shares 13,838 12,707 13,582 12,700 - --------------------------------------------------------------------------------------------------------------------- Basic earnings per share $0.17 $0.13 $ 0.32 $ 0.27 - --------------------------------------------------------------------------------------------------------------------- Net earnings $2,343 $1,670 $4,303 $3,409 Divided by: Weighted average shares 13,838 12,707 13,582 12,700 Dilutive effect of common stock equivalents 454 383 480 352 - --------------------------------------------------------------------------------------------------------------------- Diluted weighted average common shares 14,292 13,090 14,062 13,052 - --------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.16 $ 0.13 $ 0.31 $ 0.26 - --------------------------------------------------------------------------------------------------------------------- </TABLE> Note F - Other Comprehensive Income The components of comprehensive income were as follows for the periods indicated ($000): <TABLE> <CAPTION> Three Months Ended Six Months Ended September 30, December 31, ----------------------------------------------------------------- 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net income $2,343 $1,670 $4,303 $3,409 Foreign currency items (10) (104) 7 (131) - --------------------------------------------------------------------------------------------------------- Comprehensive income $2,333 $1,566 $4,310 $3,278 - --------------------------------------------------------------------------------------------------------- </TABLE> 8
II-VI Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued Note G - Segment Reporting The Company has three reportable segments: Optical Components, which is an aggregation of the Company's II-VI infrared optics and material products business and the Company's VLOC subsidiary; Radiation Detectors, which is the Company's eV PRODUCTS division; and the Company's Laser Power Corporation subsidiary acquired in fiscal 2001. The accounting policies of the segments are the same as those of the Company. 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 have been eliminated. The following table summarizes selected financial information of the Company's operations by segment ($000's): <TABLE> <CAPTION> Three Months Ended December 31, 2000 -------------------------------------------------------------------------- Optical Radiation Laser Power Components Detectors Corporation Totals - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net revenues $20,867 $2,242 $8,629 $31,738 Income (loss) from operations 3,745 (78) 1,302 4,969 Interest expense - - - 837 Other expense, net - - - 543 Earnings before income taxes - - - 3,589 Depreciation and amortization 1,056 169 819 2,044 Segment assets 79,947 8,342 56,990 145,279 Capital expenditures 2,646 80 434 3,160 Cost in excess of net assets acquired, net 1,748 - 32,988 34,736 </TABLE> <TABLE> <CAPTION> Three Months Ended December 31, 1999 ---------------------------------------------------------- Optical Radiation Components Detectors Totals - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Net revenues $15,668 $1,206 $16,874 Income (loss) from operations 2,953 (533) 2,420 Interest expense - - 94 Other (income), net - - (59) Earnings before income taxes - - 2,385 Depreciation and amortization 1,212 176 1,388 Segment assets 67,543 8,411 75,954 Capital expenditures 1,471 90 1,561 Cost in excess of net assets acquired, net 1,836 - 1,836 </TABLE> 9
II-VI Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued Note G - Segment Reporting, Continued <TABLE> <CAPTION> Six Months Ended December 31, 2000 ----------------------------------------------------------------------------- Optical Radiation Laser Power Components Detectors Corporation Totals - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net revenues $40,487 $3,861 $14,103 $58,451 Income (loss) from operations 7,565 (842) 1,519 8,242 Interest expense - - - 1,174 Other expense, net - - - 610 Earnings before income taxes - - - 6,458 Depreciation and amortization 2,184 337 1,183 3,704 Segment assets 79,947 8,342 56,990 145,279 Capital expenditures 6,125 120 549 6,794 Cost in excess of net assets acquired, net 1,748 - 32,988 34,736 </TABLE> <TABLE> <CAPTION> Six Months Ended December 31, 1999 ---------------------------------------------------- Optical Radiation Components Detectors Totals - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Net revenues $30,509 $2,563 $33,072 Income (loss) from operations 5,808 (905) 4,903 Interest expense - - 179 Other (income), net - - (131) Earnings before income taxes - - 4,855 Depreciation and amortization 2,439 351 2,790 Segment assets 67,543 8,411 75,954 Capital expenditures 2,649 192 2,841 Cost in excess of net assets acquired, net 1,836 - 1,836 </TABLE> Note H - Acquisition of Laser Power Corporation On September 21, 1999, the Company purchased 1,250,000 shares of Laser Power Corporation common stock for a total purchase price of approximately $2.8 million. Laser Power Corporation designs, manufactures, and markets high performance optics for the industrial, medical and military applications. Laser Power also provides thin film design and coating services to industrial and military customers. On August 14, 2000, the Company increased its ownership in Laser Power Corporation to approximately 88%, giving the Company a controlling interest. This additional ownership was acquired for a total consideration of approximately $23.8 million in cash and the issuance of approximately 739,000 shares of the Company's common stock. On October 24, 2000, the Company completed its acquisition of Laser Power Corporation for a total consideration of approximately $3.9 million in cash and the issuance of approximately 132,000 shares of the Company's common stock. 10
II-VI Incorporated and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued Note H - Acquisition of Laser Power Corporation, Continued The transaction is being accounted for as a purchase. The excess of the purchase price over the value of net assets acquired will be amortized over 20 years on a straight-line basis. The preliminary purchase price allocation is subject to change when additional information concerning assets, primarily property, plant, and equipment and intangible assets, and liability values is obtained. The results of Laser Power Corporation are included in the Company's consolidated financial statements for the entire three months ended December 31, 2000 and for the two months ended September 30, 2000. Pro forma results, as if the acquisition of Laser Power Corporation had occurred at the beginning of the period, are as follows. Results presented for the three months ended December 31, 2000 are shown for comparative purposes only and do not reflect any changes from amounts presented in the consolidated statement of earnings. <TABLE> <CAPTION> Three Months Ended Six Months Ended December 31, December 31, --------------------------------------------------------------------- (000 except per share data) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net revenues $31,738 $25,444 $60,600 $50,699 Net income from continuing operations 2,343 2,156 4,051 4,438 Net income 2,343 2,156 4,051 3,210 Basic earnings per share: Income from continuing operations $0.17 $0.16 $0.30 $0.33 Loss from discontinued operations - - - ($0.09) - --------------------------------------------------------------------------------------------------------------------------- Net income $0.17 $0.16 $0.30 $0.24 Diluted earnings per share: Income from continuing operations $0.16 $0.15 $0.29 $0.32 Loss from discontinued operations - - - ($0.09) - --------------------------------------------------------------------------------------------------------------------------- Net income $0.16 $0.15 $0.29 $0.23 </TABLE> The pro forma results are not necessarily indicative of what actually would have occurred if the transaction had taken place at the beginning of the period, are not intended to be a projection of future results and do not reflect any cost savings that might be achieved from the combined operations. Prior year financial statements reflect the adoption of the Equity method in a manner consistent with the accounting for a step-by-step acquisition of Laser Power Corporation. The effect of the restatement was to reclassify all of the Company's investment in Laser Power common stock at June 30, 2000 from an investment accounted for as an Available for Sale Security to an investment accounted for under the Equity method. The effect of the restatement on income for the three and six month periods ended December 31,1999 was immaterial. Note I - 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. 11
Note J - New Accounting Pronouncements Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the effective date of SFAS No. 133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", is effective for the Company as of July 1, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company from time to time purchases foreign currency forward exchange contracts, primarily Japanese Yen, that permit it to sell specified amounts of these foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. These contracts are entered into to limit transactional exposure to changes in currency exchange rates of export sales transactions in which settlement will occur in future periods and which otherwise would expose the Company, on a basis of its aggregate net cash flows in respective currencies, to foreign currency risk. The Company recorded the fair value of contracts with a notional amount of approximately $2.2 million as of December 31, 2000 on the statement of financial position. The Company has elected not to account for these contracts as hedges as defined by SFAS No. 133, and recorded the change in the fair value of these contracts in the results of operations as they occur. For the three and six month periods ended December 31, 2000 the change in the fair value of these contracts increased after tax earnings by $51,000 and $39,000, respectively. 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Results of Operations - --------------------- Net earnings for the second quarter of fiscal 2001 were $2,343,000 ($0.16 per share-diluted) on revenues of $31,738,000. This compares to net earnings of $1,670,000 ($0.13 per share-diluted) on revenues of $16,874,000 in the second quarter of fiscal 2000. For the six months ended December 31, 2000, net earnings were $4,303,000 ($0.31 per share-diluted) on revenues of $58,451,000. This compares with net earnings of $3,409,000 ($0.26 per share-diluted) on revenues of $33,072,000 for the same period last fiscal year. Order bookings for the second quarter of fiscal 2001 were $38,014,000 compared to $20,024,000 for the same period last fiscal year, an increase of 90%. Bookings for contract research and development for the second quarter of fiscal year 2001 were $1,571,000 compared to $448,000 for the same period last fiscal year. For the quarter, bookings for laser optics and component products, including bookings from telecommunication products of approximately $550,000, increased approximately 25%, bookings for the eV PRODUCTS division increased approximately 30% and the Company recorded bookings from its recently acquired Laser Power Corporation subsidiary of approximately $13,230,000. Order bookings for the six months ended December 31, 2000 were $67,441,000 compared to $36,856,000 for the same period last fiscal year, an increase of 83%. Bookings for contract research and development for the six months ended December 31, 2000 were $2,668,000 compared to $448,000 for the same period last fiscal year. For the year-to-date, bookings for laser optics and component products, including bookings from telecommunication products of approximately $1,250,000, increased approximately 30%, bookings for the eV PRODUCTS division increased approximately 55%, and the Company recorded bookings from its Laser Power Corporation subsidiary of approximately $19,455,000. Revenues for the second quarter of fiscal 2001 increased 88% to $31,738,000 compared to $16,874,000 for the same period last fiscal year. For the six months ended December 31, 2000, revenues increased 77% to $58,451,000 from $33,072,000 for the same period last fiscal year. For the quarter, revenues from laser optics and component products, including revenues from telecommunication products of approximately $700,000, increased by approximately 30%, revenues from the eV PRODUCTS division increased by approximately 85%, and the Company recorded revenues from its Laser Power Corporation subsidiary of approximately $8,629,000. For the six months ended December 31, 2000, revenues from laser optics and component products, including revenues from telecommunication products of approximately $950,000, increased approximately 30%, revenues from the eV PRODUCTS division increased approximately 50% and the Company recorded revenues from its Laser Power Corporation subsidiary of approximately $14,103,000. Manufacturing gross margin for the second quarter of fiscal 2001 was $11,642,000 or 38% of revenues compared to $7,177,000 or 43% of revenues for the same period last fiscal year. For the six months ended December 31, 2000, manufacturing gross margin was $21,852,000 or 39% of revenues compared to $14,071,000 or 43% of revenues for the same period last fiscal year. The reduction in gross margin percentage for the quarter and year-to-date reflects the addition of Laser Power Corporation which has historically lower gross margins than the Company. Company-funded internal research and development expenses for the second quarter of fiscal 2001 were $1,166,000 or 4% of revenues compared to $602,000 or 4% of revenues for the same period last fiscal year. For the six months ended December 31, 2000, internal research and development expenses were $2,158,000 or 4% of revenues compared to $1,225,000 or 4% of revenues for the same period last fiscal year. The increased expenses for the quarter and year-to-date reflect projects associated with the continued effort to develop our silicon carbide crystal growth technology, nuclear radiation detector development, programs associated with infrared optics and materials development, and ongoing research and development programs at the Company's Laser Power Corporation subsidiary. Selling, general and administrative expenses for the second quarter of fiscal 2001 were $6,239,000 or 20% of revenues compared to $4,208,000 or 25% of revenues for the same period last fiscal year. For the six months ended December 31, 2000, selling, general and administrative expenses were $12,507,000 or 21% of revenues compared to $8,014,000 or 13
24% of revenues for the same period last fiscal year. The quarter and year-to- date percentage decreases as compared to the same periods last fiscal year reflect the addition of the Company's Laser Power Corporation subsidiary and revenue improvements from the eV PRODUCTS division and the Company's VLOC subsidiary with limited corresponding increases to selling, general and administrative expenses. The quarter and year-to-date dollar increase over the same periods last fiscal year reflect the addition of the selling, general, and administrative expenses of Laser Power Corporation, increased employment costs associated with new employees and increased payroll expense attributable to the Company's worldwide profit driven bonus programs, increased legal and professional fees resulting from protecting and defending our eV PRODUCTS' trade secrets and increased sales and marketing efforts. Interest expense for the second quarter of fiscal 2001 was $837,000 compared to $94,000 for the same period last fiscal year. For the six months ended December 31, 2000, interest expense was $1,174,000 compared to $179,000 for the same period last fiscal year. The quarter and year-to-date increase in interest expense are the direct result of additional borrowings in connection with the purchase of Laser Power Corporation. For fiscal 2001, the Company's year-to-date effective income tax rate is 33% compared to an effective income tax rate of 30% for the same period last fiscal year. This increase in the income tax rate reflects a return to a rate that is closer to the statutory rate and was primarily due to the completion of several international related tax opportunities during fiscal 2000 and changes to state taxation in connection with the Company's acquisition of Laser Power Corporation. Liquidity and Capital Resources - ------------------------------- In the first six months of fiscal 2001, cash generated from operations of $1.8 million, and proceeds from the net increase in borrowings of $31.2 million were used primarily to finance the cash portion of the Company's acquisition of Laser Power Corporation for $27.7 million, an investment of $6.8 million in property, plant and equipment, and payment of various compensation costs relating to the Company's fiscal 2000 worldwide profit-driven bonus programs. Cash transactions for the first six months of fiscal 2001 plus cash on hand at the beginning of the fiscal year resulted in a cash position of $5.7 million at December 31, 2000. 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. In October 2000, the Company borrowed an additional $4.0 million against its available line of credit of $45.0 million to finance the remaining cash portion of the Laser Power Corporation acquisition. In November 2000, the Company borrowed an additional $2.0 million against its available line of credit of $45.0 million to liquidate the Laser Power Corporation line of credit arrangement with Wells Fargo Bank, thereby reducing the unused available line of credit to $9.0 million. 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 fiscal 2001. 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. On August 14, 2000, the Company increased its borrowings an additional $25.0 million and for the quarter ended December 31, 2000 increased its borrowings an additional $6.0 million for a total of $31.0 million against its available line of credit, thus increasing the Company's exposure to potential adverse changes in interest rates. A change in the interest rate of 1% would have changed the interest expense by approximately $70,000 and $100,000 for the three and six month periods ended December 31, 2000, respectively. 14
This Management's Discussion and Analysis contains 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 exposure. 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 on September 27, 2000. 15
PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ -------------------------------------------------- On November 3, 2000, the Company held its annual meeting of shareholders. The two matters voted upon at the annual meeting were the election of two directors for terms to expire in 2003 and the ratification of the Board of Directors' selection of Deloitte & Touche LLP as auditors for the fiscal year ending June 30, 2001. Since the record date for the annual meeting preceded the two-for-one common stock split effected on September 20, 2000, all voting was conducted on a pre-stock split basis. Each of the Company's nominees for director was reelected at the annual meeting. The total number of votes cast for the election of directors was 6,583,470. Following is a separate tabulation with respect to each director: Votes For Votes Withheld --------- -------------- Duncan A.J. Morrison 6,533,736 49,734 Vincent D. Mattera, Jr. 6,533,736 49,734 The total number of votes cast for the ratification of the appointment of Deloitte & Touche LLP as auditors for the year ending June 30, 2001 was 6,583,470 with 6,569,396 votes for, 9,408 votes against and 4,666 votes abstaining. There were no broker non-votes on these matters. 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ -------------------------------- (a) Exhibits. -------- None (b) Reports on Form 8-K. -------------------- None 17
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. II-VI INCORPORATED (Registrant) Date: February 13, 2001 By: /s/ Carl J. Johnson -------------------------------------- Carl J. Johnson Chairman and Chief Executive Officer Date: February 13, 2001 By: /s/ Craig A. Creaturo --------------------------------------- Craig A. Creaturo Treasurer 18