UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1995 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 0-10095 AUTOCLAVE ENGINEERS, INC. State of Address and IRS Employer Incorporation Telephone Number Identification Pennsylvania 2930 West 22nd Street Number Erie, Pennsylvania 16506 25-0941759 814-838-5700 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. The number of shares of common stock, $.15 par value, outstanding as of March 31, 1995 was 4,222,519. Exhibit Index 13 Total Pages 15 -1- AUTOCLAVE ENGINEERS, INC. AND SUBSIDIARIES INDEX Page No. Part I. Financial Information Consolidated Balance Sheet -- 3-4 February 28, 1995 and May 31, 1994 Consolidated Statement of Income -- 5 Three months and nine months ended February 28, 1995 and February 28, 1994 Consolidated Statement of Cash Flows -- 6 Nine months ended February 28, 1995 and February 28, 1994 Notes to Consolidated Financial Statements 7-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II. Other Information 13 -2- AUTOCLAVE ENGINEERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET February 28, 1995 and May 31, 1994 (amounts in thousands) (unaudited) ASSETS: 02/28/95 05/31/94 Current Assets: Cash and cash equivalents $ 2,153 $ 5,719 Short-term investments, at cost 7,785 17 Accounts and notes receivable 12,767 18,320 Inventories 10,366 14,318 Prepaid expenses and other 2,628 3,195 Net assets of discontinued operations, held for disposal 942 -- _______ _______ Total current assets 36,641 41,569 _______ _______ Property, plant and equipment, at cost: Land and land improvements 291 266 Buildings and improvements 5,345 6,167 Machinery and equipment 18,504 19,648 ______ _______ 24,140 26,081 Accumulated depreciation and amortization (15,902) (16,815) _______ _______ 8,238 9,266 Property held for sale, net of accumulated depreciation of $1,033 and $1,166, respectively 697 996 Investment in equity interests 807 739 Goodwill, net of amortization of $1,532 and $1,417, respectively 4,528 4,643 Other assets 573 1,037 _______ _______ $51,484 $58,250 See accompanying notes to consolidated financial statements. -3- AUTOCLAVE ENGINEERS, INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET February 28, 1995 and May 31, 1994 (amounts in thousands, except share data) (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY 02/28/95 05/31/94 Current liabilities: Short-term borrowings - banks $ 2,222 $ 1,500 Accounts payable, trade 4,058 6,627 Accrued compensation and benefits 1,673 3,504 Income taxes 874 888 Current installments on term debt 483 703 Other current liabilities 3,104 3,219 _______ _______ Total current liabilities 12,414 16,441 Term debt 583 952 Deferred income taxes 156 216 Other long-term liabilities and deferred credits 682 1,278 _______ _______ Total liabilities and deferred credits 13,835 18,887 _______ _______ Excess of net assets acquired over cost -- 1,642 _______ _______ Shareholders' equity: Common stock, $.15 par value; authorized shares: 12,000,000; issued shares: 4,416,193 662 662 Additional paid-in capital 20,103 20,083 Retained earnings 17,946 16,183 Foreign currency translation adjustment (473) 1,369 _______ _______ 38,238 38,297 Less treasury stock, at cost: 198,029 shares and 201,573 shares, respectively (589) (576) ________ ________ Total shareholders' equity 37,649 37,721 _______ _______ $51,484 $58,250 See accompanying notes to consolidated financial statements. -4- AUTOCLAVE ENGINEERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME for the three months and nine months ended February 28, 1995 and February 28, 1994 (amounts in thousands, except share data) (unaudited) Three Months Ended Nine Months Ended 02/28/95 02/28/94 02/28/95 02/28/94 Net sales $ 19,659 $ 13,510 $ 52,620 $ 41,798 Operating costs & expenses: Cost of goods sold 12,675 9,514 34,120 28,641 Selling and administration 5,176 4,321 14,284 12,735 Research and development 478 321 1,306 800 __________ __________ __________ _________ Operating income(loss) 1,330 (646) 2,910 (378) Interest income 67 19 114 68 Interest expense (88) (95) (296) (343) Other income, net 20 17 119 39 __________ __________ __________ _________ Income(loss) from continuing operations before income taxes and equity interests 1,329 (705) 2,847 (614) Provision for(benefit from) income taxes 670 (198) 1,233 (102) __________ __________ _________ _________ Income(loss) from continu- ing operations before equity interests 659 (507) 1,614 (512) Equity interests (7) 95 68 12 __________ __________ _________ _________ Income(loss) from continuing operations 652 (412) 1,682 (500) Discontinued operations: Income from operations 718 428 581 705 Gain on disposal 259 -- 259 -- __________ __________ __________ _________ Net income $ 1,629 $ 16 $ 2,522 $ 205 Per common share: Income (loss) from continuing operations $ .15 $ (.10) $ .39 $ (.12) Discontinued operations: Income .17 .10 .13 .17 Gain on disposal .06 -- .06 -- __________ __________ __________ _________ Net income $ .38 $ .00 $ .58 $ .05 Average shares used in computing earnings per share 4,329,703 4,302,902 4,321,863 4,265,747 See accompanying notes to consolidated financial statements. -5- AUTOCLAVE ENGINEERS,INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS for the nine months ended February 28, 1995 and February 28, 1994 (amounts in thousands, unaudited) Nine Months Ended 2/28/95 2/28/94 Cash Flows from Operating Activities: Net Income $ 2,522 $ 205 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 2,245 2,195 Deferred income taxes (430) (191) Equity interests (68) (12) Loss on disposal of fixed assets 28 -- (Gain) on sale of discontinued operations (259) -- Changes in assets & liabilities: Accounts receivable (1,092) (176) Inventories (2,741) 509 Prepaids and other assets (697) (116) Accounts payable and accrued liabilities 1,119 459 Income taxes 347 (984) Other current liabilities 245 (85) Change in other long-term liabilites 373 8 Other (72) 22 _______ ________ Net cash provided from operating activities 1,520 1,834 _______ ________ Cash Flows from Investing Activities: Capital expenditures (2,585) (2,101) Proceeds from sale of property, plant & equip. 242 89 Proceeds from sale of discontinued operations, net of cash sold 5,208 -- Change in short-term investments (7,864) 6,633 Other (51) (183) ________ ________ Net cash provided from (used in) investing activities (5,050) 4,438 _______ ________ Cash Flows from Financing Activities Payments on long-term debt (343) (570) Proceeds from issuance of common stock 7 6 Change in short-term borrowings, net 423 (3,795) Cash dividends paid (759) (758) ________ _______ Net cash (used in) financing activities (672) (5,117) ________ _______ Effect of exchange rate changes 636 (501) ________ _______ Net increase(decrease) in cash and cash equivalents (3,566) 654 Cash and cash equivalents at beginning of year 5,719 3,907 _______ _____ Cash and cash equivalents at end of period $ 2,153 $4,561 See accompanying notes to consolidated financial statements. -6- AUTOCLAVE ENGINEERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data) 1. Significant Accounting Policies The financial information furnished herein is unaudited but includes all adjustments which management of the Corporation considers normal, recurring and necessary to fairly present the Corporation's financial position, results of operations, and cash flows for the periods indicated. This report should be read in conjunction with the Corporation's financial statements as reported in its Form 10-K for the fiscal year ended May 31, 1994. 2. Inventories Inventories at February 28, 1995 and May 31, 1994 consisted of the following: Feb. 28, 1995 May 31, 1994 Raw materials $ 5,285 $ 4,303 Work in process 3,104 6,350 Finished goods 2,111 5,379 _______ _______ 10,500 16,032 Less advance payments (134) (1,714) ________ ________ Total inventories $10,366 $14,318 3. Discontinued Operations On January 19, 1995, the Corporation sold its compressor operations in the United States and France to James Howden & Godfrey Overseas Limited (Howden) for a cash sales price of $9,064 and the forgiveness of $2,584 in debt owed by Autoclave Engineers, Inc. to Burton Corblin, S.A. (BCSA). Howden did not acquire control of Autoclave Engineers Europe (AEE) which was owned by BCSA and operated out of the BCSA facility in France; however, interdivisional debt of $3,122, owed by AEE to BCSA was forgiven. As the administrative and management support of AEE was previously provided by BCSA, the Corporation has determined that the continued operation of AEE without this support is not feasible. Therefore, the net assets of AEE are shown as a separate line item entitled, "Net Assets of Discontinued Operations Held for Disposal" on the Consolidated Balance Sheet. After providing for costs of the transaction, adjustments and certain obligations in connection with the sale, and an estimated $752,000 of costs to dispose of the AEE operations, the Corporation recognized a pre-tax gain of $157. -7- 3. Discontinued Operations (continued) The following is a summary of the operating results of Burton Corblin for the periods presented: Three Months Ended Nine Months Ended 2/28/95 2/28/94 2/28/95 2/28/94 Net sales $9,171 $5,670 $19,792 $14,132 Income before provision for income tax $1,163 $ 636 $ 931 $ 1,054 Provision for income tax 445 208 350 349 ______ ______ _______ _______ Net income $ 718 $ 428 $ 581 $ 705 -8- AUTOCLAVE ENGINEERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (amounts in thousands, except share data) Discussion included herein relates to the results of continuing operations of the Corporation and the performance of its two operating groups -- the Autoclave Engineers Group of companies ("AEG") and Unit Instruments, Inc. and its subsidiaries ("Unit"); and the discontinued operations of Burton Corblin S.A. ("BCSA") and Burton Corblin North America, Inc. ("BCNA") (combined "Burton Corblin"). RESULTS OF CONTINUING OPERATIONS Included in net sales for the three months and nine months ended February 28, 1995 and 1994 are the following sales by operating group: Three Months Ended Nine Months Ended 02/28/95 02/28/94 02/28/95 02/28/94 AEG $ 6,800 $ 5,848 $19,884 $18,737 Unit 12,859 7,662 32,736 23,061 ________ _______ _______ _______ Consolidated Net Sales $19,659 $13,510 $52,620 $41,798 Net sales at AEG increased $952, or $16%, in the third quarter and $1,147, or 6%, for the first nine months of fiscal 1995 from the corresponding periods in the prior year. Research product and system sales increased worldwide by $818, or 32%, in the third quarter, while remaining relatively unchanged for the first nine months of 1995 compared to 1994. Two large cold isostatic presses that had been delayed in the previous quarter were shipped in the third quarter, along with two large reaction systems. Fluid component sales increased slightly in the third quarter and first nine months of 1995 due to strengthening general economic conditions both in the United States and worldwide. The shipment of supercritical cleaning systems earlier in 1995 increased AEG's net sales by $682 for the first nine months of 1995. At Unit, net sales increased 68% in the third quarter and 42% for the first nine months of 1995, compared to 1994. These record levels were primarily attributable to the continuing strong activity in the semi- conductor equipment market and the excellent reception of Unit's new 1660 Metal Seal Mass Flow Controller in the market. AEG's cost of goods sold as a percentage of net sales decreased from approximately 75% to 65% in the third quarter of 1995 compared to 1994 and decreased from 73% to 64% in the corresponding nine-month periods. These decreases were primarily due to a reduction in personnel from the prior year, continuous quality improvement resulting in lower warranty costs, and lower operating costs resulting from a consolidation of facilities. -9- Unit's cost of goods sold percentage was 64% for the third quarter of 1995 compared to 67% for the third quarter of 1994. For the nine months ended February 28, 1995 and 1994, this percentage was approximately 65% in both periods. Increased shipments of the new flow controller and other models caused the improvement in this percentage in the third quarter as fixed production overheads were absorbed over a higher volume of net sales. For the year-to-date percentage, higher manufacturing costs, primarily for direct labor and materials, the cost of quality improvements, and the cost of additional service requirements by Unit's customers offset the incremental margin on the higher sales volume during the first six months of 1995 because of contracted selling prices on the increased volume. On a consolidated basis, selling and administration expenses increased approximately $855 or 20% and $1,549 or 12% for the third quarter and first nine months, respectively, from 1994 levels. AEG's selling and administration expenses remained level for both the quarter and nine-month period. Unit's expenses increased 36% for the quarter and 23% for the first nine months, due to higher commissions and selling costs associated with the higher sales volume. Research and development expenses increased $157 or 49% and $506 or 63% for the third quarter and first nine months, respectively, from 1994. Most of these increases occurred at Unit, where an increased level of new product development activity has been planned for 1995. Interest income increased from the prior year due to the significant increase in short-term investments caused by the proceeds from the sale of discontinued operations. The decrease in interest expense is due to a lower level of short-term borrowings partially offset by increases in short-term interest rates. Other income and expense increased significantly from a gain of $39 in the first nine months of fiscal 1994 to $119 in the current year. This was due to currency fluctuations in France and Japan. The effective tax rate was 50.4% and 43.3% for the third quarter and year-to-date periods of 1995 compared to 28.1% and 16.6% for the same periods in the prior year. The higher-than normal effective tax rates in 1995 are due to losses at overseas subsidiaries which could not be offset against taxable income from operations in the United States. Equity interests represents the Corporation's share of the income or loss incurred by its joint venture, ABB Pressure Systems AB. -10- DISCONTINUED OPERATIONS On January 19, 1995, the Corporation sold its compressor operations at Burton Corblin, S.A. (BCSA) in France and Burton Corblin North America, Inc. (BCNA) in Horsham, Pennsylvania (combined Burton Corblin) to James Howden & Godfrey Overseas Limited. See Note 3 of Notes to Consolidated Financial Statements included elsewhere in this Report on Form 10Q. The fiscal quarters of Burton Corblin historically ended two months earlier than the rest of the Corporation's operations. The Consolidated Balance Sheet at May 31, 1994 includes the accounts of Burton Corblin at March 31, 1994. The Consolidated Statements of Income and Cash Flows for the three-month and nine- month periods ended February 28, 1995 and 1994 include the results of its operations for the three-month and nine-month periods ended December 31, 1994 and 1993. Also included in the Consolidated Statements of Income and Cash Flows for the three- month and nine-month periods ended February 28, 1995 are the results of its operations for the period January 1, 1995 through the date of sale, January 19, 1995. The results of operations of Burton Corblin have been segregated from the results of the continuing operations of the Corporation and reported as a single line item "Discontinued Operations - Income from Operations" on the Consolidated Statement of Income for all periods presented. LIQUIDITY AND CAPITAL RESOURCES The Corporation generated $1,520 in cash from operations in the first nine months of fiscal 1995. Although the increase in volume resulted in more investment in working capital, improved earnings and depreciation on fixed assets more than offset this investment. In the corresponding period of fiscal 1994, $1,834 was provided from operations, primarily from the depreciation of fixed assets. These are normal operational fluctuations in these accounts. Cash of $5,050 was consumed in investing activities, while $4,438 was generated in the prior year. This difference is almost entirely due to the maturity of short-term investments in the prior year which were used principally to pay off short-term borrowings and the acquisition of short-term investments in the current year from the proceeds received from the sale of discontinued operations. Financing activities utilized cash of $672 in the current year and $5,117 in the prior year due to normal payments of term debt and quarterly cash dividends in both years and the change in short-term borrowings in 1994. The financial condition of the Corporation at February 28, 1995 reflected a continuing strong working capital position of $24,227 or a ratio of 2.95 to 1 compared to $25,128, or a ratio of 2.53 to 1 at May 31, 1994. -11- The Corporation believes it has sufficient resources to meet all anticipated short-term capital requirements. The ratio of total liabilities to tangible net worth (i.e. shareholders' equity less goodwill, plus the excess of assets acquired over cost) was .42 to 1 at February 28, 1995 compared to .54 to 1 at May 31, 1994. The Corporation was not committed to any significant plant or equipment contracts at February 28, 1995. -12- AUTOCLAVE ENGINEERS, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 11.1 - Computation of Earnings Per Share - Page 15 (b) Reports on Form 8-K - A report on Form 8-K dated January 19,1995 concerning the sale of 100% of the Corporation's stock holdings in Burton Corblin S.A. and Burton Corblin North America, Inc. effective January 19, 1995 was filed during the fiscal quarter ended February 28, 1995. An unaudited pro forma balance sheet as of November 30, 1994 and unaudited pro forma statements of income for the six months ended November 30, 1994 and for the year ended May 31, 1994 were included in the filing. -13- AUTOCLAVE ENGINEERS, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirement 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. AUTOCLAVE ENGINEERS, INC. Registrant Date: April 13, 1995 /S/William F. Schilling William F. Schilling, President and Chief Executive Officer Date: April 13, 1995 /S/Thomas C. Guelcher Thomas C. Guelcher Chief Financial Officer -14- EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE Three Months Ended Nine Months Ended 02/28/95 02/28/94 02/28/95 02/28/94 Income(Loss) from con- tinuing operations $ 652,000 $ (412,000) $1,682,000 $(500,000) Net Income 1,629,000 16,000 2,522,000 205,000 Earnings Per Share - Primary Weighted average number of shares outstanding 4,218,164 4,214,581 4,216,187 4,213,972 Common share equivalents assuming exercise of stock options 111,539 88,321 105,676 5l,775 __________ __________ __________ _________ Average shares used in computing earnings per share 4,329,703 4,302,902 4,321,863 4,265,747 Income(Loss) from continuing operations per share $ .15 $ (.10) $ .39 $ (.12) Net income per share $ .38 $ .00 $ .58 $ .05 Earnings Per Share - Fully Diluted Weighted average number of shares outstanding 4,218,164 4,214,581 4,216,187 4,213,972 Common share equivalents assuming exercise of stock options 100,520 88,322 105,658 56,331 __________ __________ __________ __________ Average shares used in computing earnings per share 4,318,684 4,302,903 4,321,845 4,270,303 Income(Loss) from continu- ing operations per share $(1) .15 $ (.10) $(1) .39 $ (.12) Net income per share $(1) .38 $ .00 $(1) .58 $ .05 (1)This calculation is submitted in accordance with Regulation S-K, item 601(b)(11), although it is contrary to paragraph 40 of APB opinion 15 because it produces an anti-dilutive result. -15-