FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended, September 30, 1995 [ ] 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 16056 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 412-352-4455 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: At November 10, 1995, 6,114,690 shares of Common Stock, no par value, of the registrant were outstanding.
II-VI INCORPORATED AND SUBSIDIARIES ----------------------------------- INDEX ----- <TABLE> <CAPTION> Page No. -------- <S> <C> <C> PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements. Independent Accountants' Report. . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Balance Sheets - September 30, 1995, and June 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Earnings -- Three months ended September 30, 1995 and 1994 . . . . . .. . . . . . . . . . . . . . . . . . . . . 5 Condensed Consolidated Statements of Shareholders' Equity -- Three months ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Condensed Consolidated Statements of Cash Flows -- Three months ended September 30, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . . 7 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 11 </TABLE> 2
[LOGO OF ALPERN, ROSENTHAL & COMPANY] Certified Public Accountants Warner Centre, Suite 400 . 332 Fifth Avenue . Pittsburgh, Pennsylvania 15222-2413 (412) 281-2501 . Fax (412) 471-1996 Independent Accountants' Report To the Board of Directors and Shareholders of II-VI Incorporated Saxonburg, Pennsylvania We have reviewed the accompanying condensed consolidated balance sheet of II-VI Incorporated and Subsidiaries as of September 30, 1995, and the related condensed consolidated statements of operations, shareholders' equity and cash flows for the three month periods ended September 30, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of II-VI Incorporated and Subsidiaries as of June 30, 1995, and the related consolidated statements of earnings, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated August 19, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Alpern, Rosenthal & Company Alpern, Rosenthal & Company October 20, 1995 A Professional Corporation - -------------------------------------------------------------------------------- <TABLE> <S> <C> <C> Irving P. Rosenthal, CPA Members American and Pennsylvania Deborah H. Wells, CPA Michael H. Levin, CPA Institutes of Certified Public Accountants Fred M. Rock, CPA Harvey A. Pollack, CPA Sean M. Brennan, CPA Fred J. Morelli, Jr., CPA Accounting Firms Associated, inc. Alexander Paul, CPA Edward F. Rockman, CPA Member Firms in Principal Cities Michael E. Forgas, CPA Emanuel V. DiNatale, CPA Joel M. Rosenthal, CPA </TABLE> 3
PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements - --------------------------------------------------- II-VI Incorporated and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) ($000 except share data) <TABLE> <CAPTION> September 30 June 30 1995 1995 ------------ --------- <S> <C> <C> Assets Current Assets Cash and equivalents $ 1,148 $ 3,822 Accounts receivable - less allowance for doubtful accounts of $225 at 9/30/95 and $261 at 6/30/95 5,589 5,412 Inventories 4,245 4,165 Deferred income taxes 317 309 Prepaid and other current assets 403 376 ----------- --------- Total Current Assets 11,702 14,084 Property, Plant & Equipment, net 11,794 9,892 Other Assets 378 391 ----------- --------- $ 23,874 $ 24,367 ========== ========= Liabilities and Shareholders' Equity Current Liabilities Accounts payable - trade $ 1,006 $ 835 Accrued salaries, wages and bonuses 1,188 2,114 Income taxes payable 564 585 Accrued profit sharing contribution 91 278 Other current liabilities 877 1,027 Current portion of long-term debt 327 373 ---------- --------- Total Current Liabilities 4,053 5,212 Long-Term Debt--less current portion 969 1,190 Deferred Income Taxes 936 967 Commitments & Contingencies - - Shareholders' Equity Preferred stock, no par value; authorized - 5,000,000 shares; unissued - - Common stock, no par value; authorized - 30,000,000 shares; issued - 5,685,313 shares at 9/30/95 and 5,669,987 at 6/30/95 4,536 4,485 Cumulative translation adjustment 44 (17) Retained Earnings 14,466 13,660 -------- -------- 19,046 18,128 Less treasury stock, at cost - 570,623 shares at 9/30/95 and 6/30/95. 1,130 1,130 -------- -------- 17,916 16,998 -------- -------- $ 23,874 $ 24,367 ======== ======== </TABLE> All share data reflects the two-for-one stock split which was effected on the close of business September 6, 1995. - -See notes to condensed consolidated financial statements. 4
II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited) ($000 except per share data) <TABLE> <CAPTION> Three Months Ended September 30, 1995 1994 ------------ ----------- <S> <C> <C> Revenues Net Sales: Domestic $ 4,237 $ 2,405 International 3,720 2,756 ------------ ----------- 7,957 5,161 Contract research and development 131 285 ------------ ----------- 8,088 5,446 ------------ ----------- Costs, Expenses & Other Income Cost of goods sold 4,556 3,064 Contract research and development 101 198 Internal research and development 148 132 Selling, general and administrative expenses 2,131 1,472 Interest and other expense - net 16 11 ------------ ----------- 6,952 4,877 ------------ ----------- Earnings Before Income Taxes 1,136 569 Income Tax Expense 330 173 ------------ ----------- Net Earnings $ 806 $ 396 ============ ----------- Earnings Per Share $ 0.15 $ 0.08 ============ =========== </TABLE> All share data reflects the two-for-one stock split which was effected on the close of business September 6, 1995. - -See notes to condensed consolidated financial statements. 5
II-VI Incorporated and Subsidiaries Condensed Consolidated Statement of Shareholders' Equity (Unaudited) (000) <TABLE> <CAPTION> Common Stock Cumulative Treasury Stock ----------------- Translation Retained ----------------- Shares Amount Adjustment Earnings Shares Amount Total ------ -------- ---------- ---------- ------ --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Balance--July 1, 1995 5,670 $ 4,485 $ (17) $ 13,660 (571) $ (1,130) $ 16,998 Shares issued under stock option 15 51 - - - - 51 plan Net earnings for the quarter - - - 806 - - 806 Translation adjustment - - 61 - - - 61 ------ ------- ----------- -------- ------ -------- -------- Balance--September 30, 1995 5,685 $ 4,536 $ 44 $ 14,466 (571) $ (1,130) $ 17,916 ====== ======= =========== ======== ====== ======== ======== </TABLE> All share data reflects the two-for-one stock split which was effected on the close of business September 6, 1995. - -See notes to condensed consolidated financial statements. 6
II-VI Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ($000) <TABLE> <CAPTION> Three Months Ended September 30, 1995 1994 -------------- --------------- <S> <C> <C> Cash Flows from Operating Activities Net Earnings $ 806 $ 396 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 593 489 Loss on sale of asset - 15 (Gain) loss on foreign currency transactions 39 (38) Deferred income taxes (38) 33 Increase (decrease) in cash from changes in: Accounts receivable (405) 21 Inventories (221) (230) Accounts payable 346 122 Accrued salaries, wages and bonuses (923) (78) Accrued profit sharing contribution (187) (26) Income taxes payable (21) 33 Other operating net assets (175) 67 --------------- -------------- Net cash (used in) provided by operating activities (186) 804 --------------- -------------- Cash Flows from Investing Activities Additions to property, plant & equipment (2,482) (471) --------------- -------------- Net cash used in investing activities (2,482) (471) --------------- -------------- Cash Flows from Financing Activities Proceeds on short-term borrowings - 1,495 Proceeds from long-term borrowings - 108 Payments on long-term borrowings (57) (265) Proceeds from sale of common stock 51 1 --------------- ------------- Net cash provided by (used in) financing activities (6) 1,339 --------------- ------------- Net increase (decrease) in cash and equivalents (2,674) 1,672 Cash and Equivalents at Beginning of period 3,822 1,734 --------------- ------------- Cash and Equivalents at End of period $ 1,148 $ 3,406 =============== ============= </TABLE> - -See notes to condensed consolidated financial statements. 7
II-VI Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Note A - Basis of Presentation -------------------------- The condensed consolidated financial statements for the three month periods ended September 30, 1995 and 1994 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 Annual Report as filed as an exhibit to the Company's Form 10-K, as amended, as filed with the Securities and Exchange Commission. The consolidated results of operations for the three month periods ended September 30, 1995 and 1994 are not necessarily indicative of the results to be expected for the full year. Note B - Inventories ($000) ---------------------------- The components of inventories are as follows: <TABLE> <CAPTION> September 30 June 30 1995 1995 -------------- -------------- <S> <C> <C> Raw Materials $ 1,882 $ 1,750 Work in Progress 1,111 1,348 Finished Goods 1,252 1,067 -------------- -------------- $ 4,245 $ 4,165 ============== ============== </TABLE> Note C - Property, Plant and Equipment ($000) ----------------------------------------------- Property, plant and equipment consist of the following: <TABLE> <CAPTION> September 30 June 30 1995 1995 -------------- -------------- <S> <C> <C> Land and land improvements $ 311 $ 307 Buildings and improvements 5,090 4,258 Machinery and equipment 19,132 17,486 -------------- -------------- 24,533 22,051 Less accumulated depreciation 12,739 12,159 -------------- -------------- $ 11,794 $ 9,892 ============== ============== </TABLE> 8
II-VI Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Note D - Stock Split ----------------- On August 16, 1995, the Board of Directors declared a two-for-one split of II-VI's common stock which was distributed to shareholders of record on August 30, 1995, effective at the close of business September 6, 1995. All per share amounts included in the condensed consolidated financial statements and notes are based on the increased number of shares giving retroactive effect to the stock split, unless otherwise noted. Note E - Stock Offering -------------------- On October 20, 1995, a registration statement on Form S-3 covering the public offering of 1,000,000 shares was declared effective by the Securities and Exchange Commission, with the shares sold to the public at $12.00 per share. 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Net earnings increased 104% to $806,000 ($0.15 per share) in the first quarter of fiscal 1996 from $396,000 ($0.08 per share) in the first quarter of fiscal 1995. Revenues grew 49% to $8,088,000 in the first quarter of fiscal 1996 from $5,446,000 in the first quarter of fiscal 1995. Order bookings for the first quarter were $8,017,000 compared to $5,936,000 for the same period last fiscal year, a 35% increase. This increase is attributable to the Virgo Optics Division and increased demand from the industrial markets of Europe, Japan and the United States. Manufacturing revenues increased 54% to $7,957,000 from $5,161,000 in the last fiscal year's first quarter. This improvement is attributable to increased sales in all of the Company's markets, and to a lesser extent, the acquisition of the Virgo Optics Division. Manufacturing gross margin was $3,401,000 or 43% of revenues compared to $2,097,000 or 41% of revenues for the first quarter of fiscal 1995. The increase reflects lower per unit operating costs associated with increased volume, increased efficiencies and yields, and favorable production mix. Selling, General and Administrative expenses of $2,131,000 or 26% of revenues for the quarter compared to $1,472,000 or 27% of revenues for last fiscal year's first quarter. The increase in expense is attributable to higher compensation expense associated with the Company's world-wide profit driven bonus programs and expenses incurred at the Virgo Optics Division. The Company's year-to-date effective income tax rate is 29% of pre-tax earnings as compared to 30% for the same period last year. The lower rate is due to the mix of earnings from domestic and foreign operations. Liquidity and Capital Resources - ------------------------------- Cash decreased during the first quarter of fiscal 1996 by $2,674,000 due to capital expenditures of $2,482,000 and cash being used in operating activities of $186,000. The capital expenditures focused on manufacturing facility expansion and process automation, which the cash used in operations was a result of net earnings before depreciation of $1,399,000 being offset mostly by the payment of compensation costs relating to the Company's fiscal 1995 world-wide profit-driven bonus programs and an increase in accounts receivable. Subsequent to September 30, 1995, the Company received the proceeds from a 1,000,000 share Common Stock offering. These shares were sold at a price to the public of $12.00 per share. The net proceeds to the Company were $11,280,000 after deducting underwriting discounts and commissions. These proceeds from the sale of the shares will be used for general corporate purposes including working capital, capital expenditures and possible acquisitions of complementary businesses, products or technologies. 10
PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------- -------------------------------- (a) Exhibits. -------- 1.01 Underwriting Agreement dated October 20, 1995 . . . . . . . . . . . . Filed herewith. 15.01 Accountants' acknowledgment letter dated November 13, 1995 . .. . . . . . . Filed herewith. 27.01 Financial Data Schedule. . . . . . . . . Filed herewith. (b) Reports on Form 8-K. ------------------- None 11
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. II-VI INCORPORATED (Registrant) Date: November 13, 1995 By: /s/ Carl J. Johnson ------------------------------------ Carl J. Johnson Chairman and Chief Executive Officer Date: November 13, 1995 By: /s/ James Martinelli ------------------------------------ James Martinelli Treasurer & Chief Financial Officer 12
EXHIBIT INDEX Exhibit No. - ----------- 1.01 Underwriting Agreement dated October 20, 1995. . . . . . . . . . . . . . . . . Filed herewith. 15.01 Accountants' acknowledgment letter dated November 13, 1995 . . . . . . . . . . . . . . . . Filed herewith. 27.01 Financial Data Schedule (supplied for the information of the Commission). . . . . . . . Filed herewith. 13