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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 . . . . . . . December 31, 1996 . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . . . . . to . . . . . . .
Commission file number. . . 0-26240 . . . .
ALIGN-RITE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
California 95-4528353
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2428 Ontario St., Burbank, CA 91504
(Address of principal executive offices) (Zip Code)
(818) 843-7220
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1997
Common Stock, $.01 par value 4,404,122 Shares
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ALIGN-RITE INTERNATIONAL, INC.
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements [unaudited]
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Earnings
for the Three and Nine Months ended
December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended
December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 7
PART II. FINANCIAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Align-Rite International, Inc.
Consolidated Condensed Balance Sheets
(Unaudited - 000's omitted, except per share data.)
At Dec 31 At Mar 31,
--------- ---------
ASSETS 1996 1996
------- -------
Current assets:
Cash and cash equivalents .............................................. $ 6,615 $12,707
Accounts receivable, net ............................................... 5,619 5,940
Inventories, primarily raw materials ................................... 2,922 1,816
Prepaid and other current assets ....................................... 1,628 1,429
------- -------
Total current assets ............................................. 16,784 21,892
Property and equipment, net ........................................... 18,687 8,517
Other assets ........................................................... 7 12
------- -------
Total assets ..................................................... $35,478 $30,421
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................................................. $ 3,443 $ 2,770
Accrued expenses and other ............................................. 2,124 1,868
------- -------
Total current liabilities ........................................ 5,567 4,638
Other liabilities and deferred taxes ...................................... 254 499
Shareholders' equity:
Common Stock:
Authorized - 35,000 shares $.01 par value; Issued 4,403 shares and 4,346
shares at December 31, 1996 and March 31, 1996, respectively ........... 44 43
Additional paid-in capital ................................................ 17,906 17,829
Retained earnings ......................................................... 11,330 7,369
Foreign currency translation adjustment ................................... 377 43
------- -------
Total shareholders' equity ....................................... 29,657 25,284
------- -------
Total liabilities and shareholders' equity .................... $35,478 $30,421
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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Align-Rite International, Inc.
Consolidated Condensed Statements of Operations
For the Three and Nine Months Ended December 31, 1996 and 1995
(Unaudited - 000's omitted, except per share data)
Three Months Ended Nine Months Ended
December 31 December 31
1996 1995 1996 1995
------- ------- ------- -------
Net Sales ............................................. $ 9,395 $ 8,617 $28,574 $24,305
Cost of Sales ......................................... 5,952 5,507 17,896 15,351
------- ------- ------- -------
Gross Profit ........................................ 3,443 3,110 10,678 8,954
Selling, general and administrative ................... 1,548 1,424 4,661 4,145
------- ------- ------- -------
Income from operations .............................. 1,895 1,686 6,017 4,809
Interest Income (expense) and other income, net........ 78 168 280 237
Income before provison for income taxes ............... 1,973 1,854 6,297 5,046
------- ------- ------- -------
Provison for income taxes ............................. 727 506 2,336 1,414
Net income ............................................ $ 1,246 $ 1,348 $ 3,961 $ 3,632
======= ======= ======= =======
Per share information:
Shares used - per share computation ................... 4,823 4,802 4,823 3,985
Earnings per share .................................. .26 .28 .82 .91
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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ALIGN-RITE INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED - 000'S OMITTED)
1996 1995
-------- --------
Cash flows from operating activities:
Net income:...................................................................................... $ 3,961 $3,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .............................................................................. 1,881 1,381
(Increase) Decrease in:
Accounts receivable, net ................................................................. 580 (710)
Inventories .............................................................................. (1,010) (741)
Prepaids and other assets ................................................................ (159) (1,000)
Increase (decrease) in:
Trade accounts payable ................................................................... 540 310
Accrued expenses and other liabilities ................................................... 123 (476)
-------- --------
Net cash provided by operating activities ............................................... 5,916 2,396
-------- --------
Cash flows from investing activities
Purchase of property and equipment ........................................................... (11,683) (2,672)
-------- --------
Net cash used in investing activities ................................................... (11,683) (2,672)
-------- --------
Cash flows from financing activities:
Proceeds from Initial Public Offering, net ................................................... -
13,654
Principal payments on borrowings (notes) ..................................................... - (1,430)
Repayment of (obligation under) capital leases ............................................... - (644)
Stock options exercised ...................................................................... 77 28
-------- --------
Net cash provided by financing activities ............................................... 77 11,608
-------- --------
Effect of exchange rate on cash ............................................................... (402) (22)
Net increase (decrease) in cash ............................................................... (6,092) 11,310
-------- --------
Cash and cash equivalents, beginning of year .................................................. 12,707 3,861
-------- --------
Cash and cash equivalents, end of year ........................................................ $ 6,615 $ 15,171
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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ALIGN-RITE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
Item 1 - Business and Basis of Consolidation
The consolidated Financial Statements include the accounts of Align-Rite
International, Inc. ("ARII"), a California corporation, incorporated on April
27, 1995, and its wholly-owned subsidiaries, Align-Rite International Limited
("ARI"), Align-Rite Corporation ("ARC"), and Align-Rite Limited ("ARL"). ARII
and its subsidiaries are collectively referred to as the "Company". All
significant intercompany accounts and transactions have been eliminated.
The principal activity of ARII and ARI is that of holding companies into which
their respective subsidiaries are consolidated. ARC and ARL manufacture and
market quality photomasks in the United States and Europe. Photomasks, which are
precision photographic quartz or glass plates, contain microscopic images of
integrated circuits. These are used primarily by semiconductor manufacturers as
master images to transfer circuit patterns onto silicon wafers during the
fabrication of integrated circuits.
During fiscal year 1996 the Company 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.
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.
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Item 2. Management's Discussions and Analysis of Results of Operations and
Financial Condition.
Net sales for the three and nine months ended December 31, 1996, increased 9.0%
to $9,395,000, and 17.6% to $28,574,000, respectively, compared with $8,617,000
and $24,305,000 in the same periods in the prior fiscal year. The increase
resulted from an increase in both the Company's United Kingdom ("U.K.") and
United States ("U.S.") operations. U.K. net sales for the three and nine months
ended December 31, 1996 increased 7.9% to $2,788,000 and 19.3% to $9,273,000,
respectively, compared with $2,585,000 and $7,775,000 in the same periods in the
prior fiscal year. U.S. net sales for the three and nine months ended December
31, 1996 increased 9.5% to $6,607,000 and 16.8% to $19,301,000, respectively,
compared with $6,032,000 and $16,530,000 in the same periods in the prior fiscal
year. The increase in net sales is attributable to increased demand domestically
for photomasks as well as additional capacity of the Company's U.S. and U.K.
facilities. During the quarter, despite an increase in net sales as compared
with the prior year's quarter, the Company experienced a decrease in European
demand of approximately 13%, compared to the preceeding quarter's results. The
Company believes the decrease was attributable to customers shutting down
operations due to the timing of Christmas and New Year's holidays in addition to
a general slowdown in the customers own business demands. The Company does not
expect this decrease to continue.
Gross profit as a percentage of net sales for the three and nine months ended
December 31, 1996 increased slightly to 36.7% and 37.4%, respectively, compared
with 36.1% and 36.8%, in the prior period. The slight increase in gross profit
as a percentage of net sales for the three months ended December 31, 1996 is
primarily attributable to better yield on certain products which were offset, in
part, by start-up costs related to equipment expansion in the U.S. and an
increase in depreciation expense. Depreciation expense for the three and nine
months ended December 31, 1996 increased 38.7% to $634,000 and 36.2% to
$1,881,000, respectively, compared to $457,000 and $1,381,000 in the same
periods in the prior fiscal year. The increase was due to the Company's recent
purchases of equipment and cleanrooms which resulted in an increase in the
Company's equipment.
Selling, general and administrative expenses for the three and nine months ended
December 31, 1996 increased 8.7% to $1,548,000 and 12.5% to $4,661,000,
respectively, compared with $1,424,000 and $4,145,000 in the same period in the
prior fiscal year. While the absolute dollars increased each period, the
selling, general and administrative expenses as a percentage of net sales
decreased to 16.48% and 16.3%, respectively, for the three and nine months ended
December 31, 1996 compared with 16.53% and 17.1% in the same periods in the
prior year. The principal reason for the decrease in selling, general and
administrative expenses is due to the Company's ability to spread its costs over
a higher revenue base.
For the three and nine months ended December 31, 1996, the Company provided for
Federal and State income tax at an estimated combined effective rate of
approximately 36.9% and 37.1%, respectively, compared to 27.3% and 28.0% in the
same period in the prior year. The prior period rates were lower due to the
utilization of net operating loss carryforwards in the United Kingdom which were
fully utilized in 1996.
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Liquidity and Capital Resources
The Company's cash and cash equivalents were $6,615,000 at December 31, 1996.
Net cash provided by operating activities contributed $5,916,000 for the nine
months ended December 31, 1996 compared to $2,396,000 in the prior fiscal year.
Operating cash flows for the nine months ended December 31, 1996 reflect higher
net income and higher non cash charges related to increased depreciation, along
with increases in accounts payable offset by increases in inventory.
Accounts receivable decreased $321,000 or 5.4% during the nine months ended
December 31, 1996, despite a 17.6% increase in sales due to the Company's
aggressive cash collection policy instituted throughout the year. Management
believes that the Company's reserve for bad debts is adequate. Inventory levels
increased 61% to $2,922,000 during the nine months ended December 31, 1996,
preliminary due to higher raw material costs obtained for use on the new
equipment purchases of the Company aimed at increasing capacity and
technological capabilities. The Company believes this inventory level is
reasonable in order to maintain the level of business the Company is currently
engaged in. Due to short turnaround times and the customized nature of
photomasks, the Company does not maintain any material amount of finished good
inventory.
For the nine months ended December 31, 1996, cash used in investing activities
totaled $11,683,000 compared to $2,672,000 in the prior year. The Company's
capital expenditures were primarily for equipment and cleanrooms which will
support and complement new process development and high end products.
The Company recently announced plans to further expand its facilities and
production capacity in Bridgend, Wales. The expansion is a two phase plan which
totals approximately $20 million. Phase one of the expansion is currently
scheduled for completion in Summer of 1997 and will include a building expansion
and additional equipment and cleanroom facilities. The first phase of expansion
will cost approximately $8,000,000 to $10,000,000. The Company plans to announce
details relating to the second phase of expansion some time in 1997.
Management believes that funds generated from operations together with its cash
and cash equivalents will be sufficient to meet its normal operating
requirements during the coming year. If these funds prove to be insufficient, or
if new opportunities require the Company to supplement its financial resources,
the Company may use established credit lines with its corporate banker of
$7,500,000 under which no amounts are currently outstanding, additional
financing or pursue other sources of financing. There can, however, be no
assurance other sources of financing will be available at commercially viable
terms, if at all.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In addition to historical information, this report includes certain
forward-looking statements regarding events and financial and industry trends
which may affect the Company's future operating results and financial position.
Such statements include, but are not limited to, statements as to: (i) the
Company's expected improvement in demand in the European market, (ii) the
Company's belief regarding 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 positon 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.
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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 December
31, 1996.
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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: February 13, 1997 . . Align-Rite International, Inc . .
James Mac Donald
Chairman of the Board, President &
Chief Executive Director
Petar Katurich
Chief Financial Officer & Secretary
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