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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
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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 0-27202
ADVANCED LIGHTING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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OHIO 34-1803229
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2307 EAST AURORA ROAD, SUITE ONE, TWINSBURG, OHIO 44087
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(Address of principal executive offices) (Zip Code)
216/ 963-6680
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
Par Value
Indicate by check () 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of September 22, 1997 was $283,046,675.
There were 16,446,934 shares of the Registrant's Common Stock, $.001 par value
per share, outstanding as of September 22, 1997.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for use at the Annual Shareholders
Meeting on November 12, 1997 are incorporated by reference into Part III of this
Form 10-K to the extent stated herein.
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INDEX
ADVANCED LIGHTING TECHNOLOGIES, INC.
PAGE
PART I
Item 1. Business.......................................................... 4
Item 2. Properties........................................................17
Item 3. Legal Proceedings.................................................17
Item 4. Submission of Matters to a Vote of Security Holders...............18
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters .........................................................18
Item 6. Selected Financial Data...........................................18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........26
Item 8. Financial Statements and Supplementary Data.......................27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................28
PART III
Item 10. Directors and Executive Officers of the Registrant................28
Item 11. Executive Compensation............................................28
Item 12. Security Ownership of Certain Beneficial Owners and Management....28
Item 13. Certain Relationships and Related Transactions....................28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...28
SIGNATURES..........................................................................32
EXHIBIT INDEX.......................................................................34
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N/A - Not Applicable
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This Report contains statements which constitute forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Those statements appear in a number of
places in this Report and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) potential acquisitions or joint ventures by the
Company; (ii) the Company's financing plans; (iii) trends affecting the
Company's financial condition or results of operations; (iv) continued growth of
the metal halide lighting market; (v) the Company's operating strategy and
growth strategy; (vi) the declaration and payment of dividends; and (vii)
litigation affecting the Company. Prospective investors are cautioned that any
such forward looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in the forward looking statements as a result of various
factors. The accompanying information contained in this Report, including
without limitation the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," identifies important factors that could cause such
differences.
RISK FACTORS
Dependence on Metal Halide Industry
The Company derives substantially all of its net sales and net income from the
sale of metal halide materials, system components and production equipment and
the Company's current operations and growth strategy are focused on the metal
halide lighting industry. Metal halide is the newest of all commercial lighting
technologies, and metal halide lamp sales represented approximately 7% of
domestic lamp sales in 1996. The Company's success has been attributable to the
increased usage of metal halide lighting in commercial and industrial
applications and its future results are dependent upon the further growth of
metal halide lighting in these and other applications. There can be no assurance
that metal halide products will continue to gain market share within the overall
lighting market or that better lighting technologies will not be introduced,
displacing metal halide lighting in the market.
Risks Associated with Management of Growth
The Company has experienced significant growth in recent years, which has
placed, and could continue to place, a significant strain on its management,
employees, finances and operations. To manage growth effectively, the Company
must continue to implement changes in many aspects of its business, expand its
information systems, increase the capacity and productivity of its materials,
system components and production equipment operations, develop its metal halide
systems capability and hire, develop, train and manage an increasing number of
managerial, production and other employees. Certain of the Company's product
line extensions have been, or will be, effected through acquisitions, and the
success of these acquisitions will depend on the integration of the acquired
operations with the Company's existing operations. If management is unable to
anticipate or manage growth effectively, or unable to successfully integrate
acquired operations, the Company's operating results could be adversely
affected.
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Competition and Relationships with Competitors
The Company competes with General Electric Company and its subsidiaries
("General Electric" or "GE"), Philips Electronics N.V. ("Philips") and Siemens
A.G.'s OSRAM/Sylvania, Inc. subsidiary ("Sylvania") in the sale of metal halide
lamps and with these and a number of other firms that manufacture and sell
various other products. GE, Philips and Sylvania have significantly longer
operating histories, substantially greater financial, technical and other
resources, and larger marketing and distribution organizations than the Company.
Although GE, Philips and Sylvania each have focused their efforts on the larger
incandescent and fluorescent markets, all three companies produce metal halide
lamps and Philips produces power supplies. These three companies dominate the
manufacturing, distribution and sale of lighting products. Notwithstanding this
competition, the Company purchases a significant quantity of its raw materials
and private label lamps from these three companies and derives significant
revenue from sales of its materials and system components to each of these three
companies Any significant change in the Company's relationships with these
companies, or in the manner in which these companies participate in the
manufacturing, distribution and sale of metal halide lighting products, could
have a material adverse effect on the Company. GE currently holds 535,887 shares
of Common Stock of the Company.
Ability to Develop and Broaden Product Categories
The Company has recently broadened its system components product line. The
Company also has recently introduced a limited range of products for residential
use and expects to develop additional types of metal halide lighting systems.
The marketing efforts and strategies for such product extensions are
substantially different from those associated with the Company's historical
operations. There can be no assurance that the Company will be successful in
adding new products to its current product categories or in developing new
categories of products.
Dependence upon New Product Introductions
The Company's historical success has been attributable, in large part, to the
introduction of new products in each of its product lines to meet the
requirements of its customers. The Company's future success will depend upon its
continued ability to develop and introduce innovative products, and there can be
no assurance of the Company's ability to do so. Even if a new product is
developed for a particular type of lighting fixture or application, the product
may not be commercially successful in the lighting market. In addition,
competitors occasionally have followed the Company's introduction of successful
products with similar product offerings. As a result of these and other factors,
there can be no assurance that the Company will continue to be successful in
introducing new products.
Risks Associated with International Business
The Company has derived an increasing portion of its net sales from its
international business. The Company's international joint ventures and
operations and its export sales are subject to the risks inherent in doing
business abroad, including delays in shipments, adverse fluctuations in currency
exchange rates, increases in import duties and tariffs and changes in foreign
regulations and political climate. The Company's joint ventures and operations
in foreign countries have been and will be granted rights to use the Company's
technology. While the Company will attempt to protect its intellectual property
rights in these foreign joint ventures and operations,
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the laws of many foreign countries do not protect intellectual property rights
to the same extent as the laws of the United States.
Protection of Intellectual Property Rights
The Company relies on trade secret, trademark and patent laws to protect its
rights to certain aspects of its products, including proprietary manufacturing
processes and technologies, product research and concepts and trademarks, all of
which the Company believes are important to the success of its products and its
competitive position. There can be no assurance that the actions taken by the
Company to protect its proprietary rights will be adequate to prevent imitation
of its products, processes or technology, that the Company's proprietary
information will not become known to competitors, that the Company can
effectively protect its rights to unpatented proprietary information or that
others will not independently develop substantially equivalent or better
products that do not infringe on the Company's intellectual property rights. No
assurance can be given that others will not assert rights in, and ownership of,
the patents and other proprietary rights of the Company.
Dependence on Key Personnel
The Company is highly dependent on the continued services of Wayne R. Hellman,
the Company's founder, President, Chief Executive Officer and principal
shareholder. Mr. Hellman and the Company have entered into an employment
agreement providing for a term ending December 31, 1998. However, the loss of
the services of Mr. Hellman for any reason could have a material adverse effect
on the Company.
Control by Principal Shareholder
Mr. Hellman owns beneficially, directly and indirectly, approximately 12.6% of
the Company's outstanding shares of Common Stock and, individually and as voting
trustee under a voting trust, has the power to vote an aggregate total of 29.8%
of the Company's outstanding shares of Common Stock. As a result, Mr. Hellman
will be able to significantly influence, and may be able effectively to control,
all matters requiring shareholder approval, including the election of directors
(and thereby the affairs and management of the Company), amendments to the
Company's Articles of Incorporation, mergers, share exchanges, the sale of all
or substantially all of the Company's assets, going private transactions and
other fundamental transactions.
Environmental Regulation
The Company's operations are subject to federal, state, local and foreign laws
and regulations governing, among other things, emissions to air, discharge to
waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials as well as laws relating to occupational
health and safety. The Company believes that its business, operations and
facilities are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operations of manufacturing plants entail risks in these areas, and
there can be no assurance that the Company will not incur material costs or
liabilities. In addition, potentially significant expenditures could be required
to comply
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with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.
Possible Volatility of Stock Price
The Common Stock first became publicly traded in December 1995. Since then, the
per share price of the Common Stock has risen substantially from the initial
public offering price of $10.00 per share. The market price of the Common Stock
may be highly volatile and could be subject to wide fluctuations in response to
quarterly variations in operating results, changes in financial estimates by
securities analysts, announcements of material events by the Company,
developments in the lighting industry or other events or factors. The market
price of the Common Stock also may be affected by the Company's ability to meet
analysts' expectations, and any failure to meet such expectations, even if
minor, could have a material adverse effect on the market price of the Common
Stock. In addition, changes in general conditions in the economy or the
financial markets could adversely affect the market price of the Common Stock.
PART I
ITEM 1. BUSINESS
Advanced Lighting Technologies, Inc. is an innovation-driven designer,
manufacturer and marketer of metal halide lighting products. Metal halide
lighting combines superior energy efficient illumination with long lamp life,
excellent color rendition and compact lamp size. The Company believes that it is
the only designer and manufacturer in the world focused primarily on metal
halide lighting. As a result of this unique focus, the Company has developed
substantial expertise in all aspects of metal halide lighting. The Company
believes that this focus enhances its responsiveness to customer demand and has
contributed to its technologically advanced product development and
manufacturing capabilities.
The metal halide market is the fastest growing segment of the domestic lighting
market, having grown at a compound annual rate of approximately 15% since 1993.
The Company's strong market position, new product development capabilities and
participation in international markets have enabled the Company to increase its
revenues at rates in excess of the growth of the domestic metal halide market.
The Company's sales increased at a compound annual growth rate of 41% to $86.5
million in fiscal 1997 from $30.9 million in fiscal 1994, as the Company has
become a vertically integrated provider of metal halide products. The Company
has experienced growth in net sales in each of the past 16 consecutive quarters
and the Company's sales increased 58% to $86.5 million in fiscal 1997 from $54.6
million in fiscal 1996.
The Company has integrated vertically to design, manufacture and market: (i)
materials necessary for the manufacture of metal halide lamps (light bulbs);
(ii) system components necessary to assemble metal halide lighting systems; and
(iii) complete metal halide lighting systems for use or installation by an end
user. This integration is illustrated by the following list of principal
products:
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MATERIALS SYSTEM COMPONENTS SYSTEMS
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Metal Halide Salts Lamps (Light Bulbs): Portable Lighting
Electrodes Specialty Fixtures(1)
Amalgams Commodity Fiber Optic Lighting(1)
Getters Power Supplies: Projection TV
Magnetic Optical
Electronic Systems(2)
System Controls and
Switches
Fiber Optic Cable
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(1) Recent commercial introduction
(2) Currently in development
The Company also designs, manufactures and markets turnkey lamp production
equipment groups that are typically sold to international manufacturers. Such
equipment is sold to existing lamp manufacturers or to joint ventures formed by
the Company in developing markets. The Company generates revenue from the
initial sale of its production equipment and recurring sales of the materials
used in lamp production. The Company has also begun to manufacture and market
photometric measuring equipment and to market internationally its power supply
production equipment.
The Company produces over 300 ultra-pure metal halide salts and believes that it
produces 100% of the metal halide salts used in the manufacture of metal halide
lamps in the United States and over 80% of salts used worldwide. Metal halide
salts are the primary ingredient within the arc tube of metal halide lamps and
determine the lighting characteristics of the lamp. The Company currently
markets over 240 specialty and 40 commodity-type metal halide lamps, giving it
the most diverse product line of any metal halide lamp manufacturer. In
addition, the Company offers more than 400 power supply products for metal
halide and other discharge lamp systems.
METAL HALIDE
Invented approximately 35 years ago, metal halide is the newest of all major
lighting technologies and can produce the closest simulation to sunlight of any
available lighting technology. Metal halide lighting is currently used primarily
in commercial and industrial applications such as factories and warehouses,
outdoor site and landscape lighting, sports facilities and large retail spaces
such as superstores. In addition, due to metal halide's superior lighting
characteristics, the Company believes many opportunities exist to "metal
halidize" applications currently dominated by older incandescent and fluorescent
lighting technologies. For example, a 100 watt metal halide lamp, which is
approximately the same size as a household incandescent lamp, produces as much
light as five 100 watt incandescent lamps and as much as three 34 watt, four
foot long fluorescent lamps. While domestic sales of incandescent and
fluorescent lamps grew at a compound annual rate of approximately 5% over the
last three years, domestic metal halide lamp sales have grown at a compound
annual rate of approximately 15% over the same period, making metal halide the
fastest growing segment of the approximately $2.7 billion domestic lamp market.
In 1996, metal halide accounted for approximately 7% of domestic lamp sales.
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The Company believes that the majority of the growth of metal halide has
occurred in commercial and industrial applications. Recently, metal halide
systems have been introduced in fiber optic, projection television and
automotive headlamp applications. The Company believes that additional
opportunities for metal halide lighting exist in other applications where energy
efficiency and light quality are important. As a result of the Company's
dominant position in metal halide materials and lamp production equipment, the
Company expects to benefit from continued growth in metal halide markets. In
addition, the Company expects to be a leader in metal halide's continued market
expansion by providing innovative metal halide system components and integrated
systems.
The Company's operating strategies include: (i) remaining focused on the metal
halide market; (ii) continuing to pursue vertical integration to expand the
Company's ability to introduce new products and applications; and (iii)
strengthening the Company's relationships with original equipment manufacturers
("OEMs") and lighting agents to increase the number of applications and the
penetration of the Company's products in new metal halide installations. The
Company's growth strategy contains four key elements:
- Introduce New Products, Systems and Applications. The Company intends
to develop new products, system components and systems which will
permit metal halide to penetrate lighting applications that are
currently dominated by older lighting technologies. To further the
Company's integrated systems strategy, the Company acquired two
manufacturers of power supplies, emphasizing metal halide lighting
systems. The Company can now package lamps together with power
supplies and other system components, ensuring compatibility and
quality, increasing the marketability of these system components to
OEM customers and accelerating introduction of new systems.
- Increase Sales of Existing Products. By expanding existing
relationships and developing new relationships with lighting agents
and OEMs, the Company expects to increase sales of existing specialty
lamps and power supplies. The Company also expects its sales of
replacement bulbs to increase as the installed base of the Company's
specialty lamps increases and such lamps need to be replaced.
- Participate in Growing International Markets. Because the Company
expects that international growth of metal halide lighting products
and systems will exceed domestic growth, the Company intends to
directly market its products in developed countries and to pursue
joint venture arrangements in developing countries to accelerate metal
halide's penetration of international markets.
- Penetrate the Residential Lighting Market. Over the longer term, the
Company intends to penetrate the residential lighting market with
metal halide table and floor lamps as well as products designed for
residential recessed and track lighting applications. The Company has
recently introduced a limited range of metal halide residential
lighting fixtures and also has developed a "gear pack" which permits
existing incandescent table or floor lamp designs to be adapted to the
Company's MICROSUN(TM) technology.
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RECENT DEVELOPMENTS
To expand the Company's ability to develop and market new products and metal
halide lighting systems, the Company has recently announced a transaction, and
during fiscal 1997, entered into a number of other transactions:
On September 18, 1997, the Company and Ruud Lighting, Inc. announced that they
had entered into a letter of intent pursuant to which the two companies would
combine. Ruud Lighting, which is the leading direct marketer of HID systems,
manufactures and markets HID systems for commercial, industrial, outdoor and
retail lighting applications. Ruud Lighting's sales for the fiscal year ending
November 30, 1997 are expected to exceed $65 million. Under the terms of the
proposed agreement, Ruud Lighting shareholders would receive $35.5 million and
three million shares of Company Common Stock. The transaction is subject to
certain conditions, including completion by the Company of financing
arrangements, satisfactory completion of due diligence, and completion of the
pre-merger notification process. While no assurance can be given that the
conditions will be satisfied or that the terms of the definitive agreement will
be successfully negotiated, the transaction is expected to close in January
1998. After closing, Alan Ruud, Ruud Lighting's founder and CEO, will remain in
that capacity and join the Company's board as Vice Chairman.
On June 2, 1997, the Company purchased the system component manufacturing and
operating assets of W. J. Parry & Co. (Nottingham) Ltd. ("Parry"), a
manufacturer and marketer of magnetic power supplies for high intensity
discharge lighting systems, based in the United Kingdom. The assets are held by
the Company's newly-formed United Kingdom subsidiary which has 171 employees.
The assets include a 125,000 square foot manufacturing and warehousing facility
in Draycott, England. The purchase price for this acquisition was approximately
$8.5 million in cash, which the Company financed through borrowings under its
domestic revolving loan.
On May 6, 1997, the Company entered into a joint development agreement with Rohm
and Haas Company ("Rohm and Haas"), for the development of advanced fiber optic
cable systems using metal halide lamps. The Company is presently negotiating
with Rohm and Haas to form a joint venture focused on the manufacture and sale
of fiber optic cable and illuminators and fiber optic lighting systems. No
assurance can be given that the negotiations will be successfully completed,
that the joint venture will be formed or that the joint venture, if formed, will
successfully develop or commercialize products. During December 1996, the
Company, acquired all of the assets and assumed certain liabilities of Cable
Lite Corporation, a designer, manufacturer and marketer of fiber optic cable and
fiber optic lighting systems, for 50,000 shares of Common Stock (and up to
50,000 additional shares of Common Stock if the average price per share in May
1998 is less than $30.00). If the proposed joint venture with Rohm and Haas is
formed, the Company expects that its capital contribution will consist of $5.0
million, the Advanced Cable Lite operation and the Company's other fiber optic
system assets.
On April 2, 1997, the Company invested approximately $3.8 million of cash in
exchange for a 30% interest in Koto Luminous Co., Ltd., the Company's sole agent
in Japan. Subsequent to the date of investment, Koto Luminous, a maker and
distributor of metal halide lamps, began doing business under the name Venture
Lighting Japan. Using the proceeds of the investment and an additional
investment by a Koto affiliate, Venture Lighting Japan will equip and operate a
metal halide lamp manufacturing facility in Japan, which is expected to begin
operations in October 1997.
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On February 11, 1997, the Company expanded its system components offerings by
acquiring Ballastronix, Inc. ("Ballastronix"), a Canadian company focused on
designing, manufacturing and marketing magnetic power supplies for high
intensity discharge and fluorescent lighting systems. The consideration for the
acquisition was approximately $5.5 million and 38,024 shares of Common Stock.
On January 31, 1997, the Company completed the purchase, for approximately
$600,000, of certain assets of Web Design Associates, Inc., a company engaged in
consumer product design and development which was used initially to facilitate
introduction of the Company's residential products. During November 1996, the
Company entered into a 50% joint venture in the formation of Lighting
Professionals, Inc., to provide technical services and designs for advanced
optical system components not manufactured by the Company, such as reflectors
and shrouds, used in conjunction with metal halide lighting systems.
PRODUCTS
The Company designs, manufactures and sells metal halide materials, system
components and systems, which are used in a wide variety of applications and
locations including:
- - floodlighting - sports and arena lighting - general lighting
- - architectural area lighting - commercial downlighting - industrial highbays
- - general industrial lighting - airport and railway station - tunnel lighting
- - billboard and sign lighting lighting - indirect indoor sports
- - site lighting - gas station canopy lighting and office lighting
- - soffit lighting - interior downlighting - parking garage lighting
- - hazardous location lighting - decorative lighting - security lighting
- - accent lighting - retail store downlighting - landscape lighting
and track lighting
The Company also designs, manufacturers and sells production equipment for the
metal halide industry.
Materials
The Company produces and sells metal halide salts, electrodes, amalgams and
getters. Metal halide salts are the primary ingredient within the arc tube of
metal halide lamps, which determine the lighting characteristics of the lamp.
Electrodes form the electrical connections within the lamp. Amalgams are
chemicals which are used in the arc tubes of high pressure sodium ("HPS") lamps
and in fluorescent lamps. Getters are devices required to be included in each
metal halide lamp to remove impurities in the lamp.
The Company produces over 300 different metal halide salts that can be used in
metal halide lamps to produce different lighting characteristics. In addition to
meeting its own needs, the Company believes it produces all of the metal halide
salts used in metal halide lamps manufactured in the United States, including
those manufactured by GE, Philips and Sylvania, and a vast majority of metal
halide salts used in metal halide lamps manufactured overseas. The Company
serves all major lamp manufacturers, each of which uses different metal halide
salts. The Company vigorously guards each customers' specific formulas from
other customers, including the Company's own lamp engineers. Because of its
ability to produce these ultra pure
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metal halide doses, the Company has also been called upon by its lamp
manufacturer customer base to produce most of the amalgams used in the
domestic production of HPS lighting and, most recently, to develop and
supply a breakthrough amalgam for fluorescent applications.
System Components
The Company's system component products include specialty and commodity lamps,
magnetic and electronic power supplies, system controls and switches and fiber
optic cable. Specialty lamps are lamps designed and manufactured for particular
OEM applications. Commodity lamps are high-volume lamps which the Company
typically buys for resale under arrangements with GE and Sylvania. Power
supplies are devices which regulate power and are necessary for operation of
high intensity discharge ("HID") and fluorescent lamps. System controls and
switches are auxiliary electrical controls included in fixtures and systems.
Fiber optic cable transmits light from a light source to the place of intended
use.
The Company believes it differentiates itself from other metal halide lamp
manufacturers by offering a wider variety of lamps, many of which have been
customized to offer a specific solution to a lighting problem. Since 1985, the
Company believes that it has introduced over 75% of the approximately 200 new
lamps in the domestic metal halide lamp industry. Currently, the Company offers
over 240 specialty lamp types and 40 commodity-type lamps in 20 different watt
variations ranging from 32 watts to 2,000 watts for over 30 different
applications. In certain instances, the Company produces these products for its
competitors on a private label basis in order to capture sales through
competitors' distribution channels. The Company also sells commodity-type lamps
which it sources from other manufacturers.
The Company has acquired Ballastronix, a Canadian manufacturer of magnetic and
electronic power supplies, and the power supply business of Parry, a
manufacturer located in the United Kingdom, in fiscal 1997. These businesses
currently offer over 400 power supply products, including a variety of HID
(including metal halide) and fluorescent power supplies. The Company also
manufactures electronic controls for metal halide lighting systems.
Systems
A metal halide lighting system consists of a lamp, power supply and related
electronic controls and switches and any other necessary components assembled
into a product for an end user. The Company believes it will be able to combine
its metal halide expertise and system component manufacturing capabilities to
design, develop, produce and market metal halide systems for innovative
applications. Specifically, the Company has developed and begun to market
distinctive table and floor fixtures for residential and hospitality
applications and is finalizing development of fiber optic lighting systems using
metal halide technology.
The Company's residential metal halide lighting systems use a compact 68 watt
metal halide lamp (and the necessary electronic power supply) emitting light
equivalent to a 300 watt halogen lamp while using less than 25% of the
electricity. Additional benefits include longer life and greatly reduced
operating temperatures, which dramatically lessen safety concerns. To further
facilitate the penetration of the residential market, the Company's "gear pack"
permits manufacturers to adapt existing incandescent table and floor lamp
designs to the Company's MICROSUN(TM) technology.
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The Company is in the early stages of development of an optical light system for
use in projection televisions. Recent innovations in projection display have
made it possible for a compact light unit to generate substantially larger and
clearer imaging than that available in existing projection systems. Currently,
television manufacturers are limited by the high cost of existing lighting
units. The Company is working with a television manufacturer to develop a
low-cost system using a metal halide lamp, electronic power supply and optical
controls.
The Company also believes that it has a significant opportunity to introduce
metal halide technology to fiber optic lighting systems. Because of metal halide
lighting's ability to produce varied lighting effects, it is particularly
well-suited to be adapted as the light source for fiber optic lighting systems.
Fiber optic lighting systems are currently used in accent applications, such as
swimming pool lighting or as replacement lighting for neon lighting, and the
Company expects to introduce, through its proposed joint venture, metal halide
fiber optic systems for retail applications, such as downlighting and display
case lighting.
Production Equipment
The Company is the only manufacturer and marketer of turnkey metal halide lamp
production equipment groups, and has begun to market internationally its power
supply production equipment. A lamp production equipment group consists of up to
50 different production machines and is capable of producing metal halide lamps.
The Company has also begun to manufacture and sell photometric measuring
equipment, which is used to measure quantity and quality of light for design and
testing of lighting products and systems.
Each lamp production equipment group sells for between $1.0 million to $6.0
million. In order to maintain manufacturing flexibility, the Company must
continually update its own system component production equipment, through the
internal design and fabrication of production equipment. The Company leverages
its manufacturing expertise by selling lamp production equipment groups in
international markets to independent companies or to joint ventures formed by
the Company. In connection with each lamp production equipment group sale, the
Company provides lamp designs and specifications, trains the purchaser in
production and creates an on-going customer for its materials products.
PRODUCT DESIGN AND DEVELOPMENT
Management believes one of its key strengths is its ability to design and
develop new products. Management has dedicated research and development efforts
in each of its product lines. In fiscal 1997 the Company has invested $5.8
million (7% of net sales) in research and development, in fiscal 1996 $3.0
million (5% of net sales) and in fiscal 1995 $1.7 million (4% of net sales).
Historically, the Company's efforts primarily have been focused on the
development of materials and system components.
Materials. The Company is focused on improving the purity of, and production
processes for, metal halide salts. The Company pursues these efforts proactively
as well as in response to customer requests for specific metal halide salts. The
Company also focuses on designing and developing improved electrodes, amalgams
and getters used in lamp manufacturing.
System Components. The Company's product design and development has focused on
developing innovative components to meet the specialized needs of various
customers,including
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lighting fixture OEMs. The Company's product design teams work together with
OEMs on the design, development and commercialization of new system components.
Such collaborative development efforts have resulted in the design of improved
metal halide lamps with reduced wattage, better energy efficiency, smaller size
and increased life expectancy.
Systems. Since 1996, the Company has increased its focus on design and
development of integrated systems. For example, the "gear pack" was designed by
leveraging the Company's expertise in materials and system components. The
Company expects efforts in this area to become increasingly important as the
Company seeks to develop new fiber optic applications and systems for the
residential and hospitality markets.
MARKETING AND DISTRIBUTION
Commercial Products
The Company's innovative marketing techniques enabled it to capture
approximately 29% of all domestic metal halide lamp sales for new installations
in 1996. Since electrical distributors typically market only commodity-type
lamps, the Company believes that its specialty lamp products do not lend
themselves to the traditional marketing channels associated with commodity-type
lamp products. As a result, in initial distribution, the Company markets its
metal halide system components through OEMs, which generally have been involved
in the design of the lamp, and commissioned lighting agents, who package the
Company's lamps and power supplies in their bids on each construction or
renovation project. Due to the fact that the Company's lamps are produced to the
specifications required to match a particular fixture or use by an OEM, the
Company's lamp will generally be included with the fixture each time the fixture
is sold. The Company intends to market complementary lamps and power supplies as
a package to provide better service to its OEM customers, as well as to increase
sales.
The Company also has distributed its metal halide lamps through lighting agents.
Unlike GE, Philips and Sylvania that each have extensive local distributor
relationships, the Company has entered into agency agreements with lighting
agents who represent a full line of fixture manufacturers, under which the agent
receives a commission for selling the Company's lamps. The Company believes it
is the only major lamp manufacturer to distribute its products through lighting
agents. This relationship allows the lighting agent to package the Company's
metal halide lamps with the other products included in its bid on a project. By
bidding a more complete or unique package, the lighting agent has a competitive
advantage over less complete bids and, if selected, earns a commission on
Company lamps sold, which agents previously did not receive.
The Company intends to increase its sales of replacement lamps through direct
marketing. First, since 1994, the Company has printed its toll-free number on
each lamp that it sells allowing a customer to call the Company, rather than an
electrical distributor, to order the replacement lamp directly from the Company.
This enables the customer to speak to a more knowledgeable representative,
thereby increasing the accuracy and efficiency of service to the end user. This
interaction also allows the Company to suggest enhanced products better suited
for the end user's needs. In addition, the Company telemarkets replacement lamps
in connection with catalogue distributions. Lamps are delivered by overnight
courier to end users, thereby providing service efficiency comparable to local
electrical distributors. The Company estimates it sold less than 1% of all
replacement metal halide lamps in 1996. Given the expected life of the Company's
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lamps, the Company is only now beginning to benefit from this strategy.
Replacement lamps are typically sold at a higher margin than lamps sold
initially through OEMs or lighting agents.
In addition to packaging power supplies with lamps, the Company is continuing
direct marketing to OEMs and sales through electrical distributors.
The Company markets its metal halide materials to other metal halide lamp
manufacturers, primarily GE, Philips and Sylvania. The Company informs these
customers of its capabilities through seminars and direct marketing materials.
The Company also markets lamp materials to its joint venture partners. In
addition, the Company works very closely with its customers to manufacture
materials according to their specifications. Certain customer-developed
materials are considered proprietary to the Company's customers.
In marketing its production equipment internationally, the Company seeks out the
most technically advanced lamp manufacturers in each country or the Company is
approached by foreign lamp manufacturers seeking to acquire the technology. The
Company initially sends a catalogue to these manufacturers, then later calls on
these manufacturers to determine their needs. The Company develops a customized
configuration for the production equipment to meet the customers' needs. The
Company believes its ability to supply a full range of materials provides it an
advantage in selling production equipment.
International sales aggregated $41.0 million (47% of net sales) for fiscal
1997, $16.3 million (30% of net sales) for fiscal 1996 and $12.1 million (30%
of net sales) for fiscal 1995. For more detailed information regarding the
Company's international operations, see Note S to the Company's audited
consolidated financial statements.
Residential Products
The Company has begun preliminary manufacturing, marketing and sales of portable
metal halide fixtures for the residential and hospitality markets. The Company
intends to pursue a strategy of branding its products under its MICROSUN(TM)
brand name to create brand identity, differentiating it from potential
competitors, as well as establishing brand loyalty. In fiscal 1996, the Company
conducted focus groups where various examples of incandescent table lamps and
table lamps containing the MICROSUN(TM) metal halide lighting system were
presented to and compared by various potential customers. The responses received
by the Company were favorable, and using information obtained in the focus group
sessions, the Company designed a line of table lamps and produced a catalogue to
market these lamps. The Company has successfully marketed similar lamps to
selected hotel chains to provide well-lit work areas for business travelers. The
Company has received orders from several select lighting showrooms in Cleveland,
Ohio to further test market the sale of table lamps using its MICROSUN(TM) brand
name. The Company has commenced limited commercial production of MICROSUN(TM)
brand products. There can be no assurance that the Company will successfully
introduce metal halide lighting into the residential market.
General
Historically, the Company's sales have not been subject to seasonal variation.
The Company's marketing and distribution generally do not result in a meaningful
backlog for its products.
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MANUFACTURING AND OPERATIONS
The Company's lamp manufacturing facility in Solon, Ohio operates five days a
week, 16 hours a day, with the Company's lamp manufacturing employees working in
two eight-hour shifts each day. The manufacturing of metal halide lamps consists
of three primary processes. First, the quartz arc tube is shaped, electrodes for
carrying the current are installed, the metal halide salt dose is introduced and
the arc tube is sealed. The entire process is performed at high temperatures in
carefully controlled conditions to ensure that the arc tube is properly sealed
and that no impurities enter the arc tube. Second, the arc tube is mounted
inside a pyrex bulb container and sealed. Finally, the lamp is finished by
adding a contact for the electrical outlet. Although light output of metal
halide lamps is not affected by ambient temperatures, an outer bulb is used to
prevent contact with the arc tube, which operates at extremely high
temperatures. Quartz and pyrex are used in the production of metal halide lamps
because of their durability and ability to retain shape and function at
extremely high temperatures. All of the finished lamps are inspected, tested and
then shipped in accordance with customer instructions.
The Company produces magnetic power supplies at its facility in Amherst, Nova
Scotia, which operates five days a week with one full shift and a partial second
shift. The Company produces magnetic and electronic power supplies at its
facility in Draycott, England, which operates five days a week with one full
shift. The manufacture of magnetic power supplies is a combination of batch and
production line processes. The production line process starts with a coil
winding department, progresses to an in-line coil and core operation and then to
final assembly. Subassemblies for ignitors and capacitors are located off-line
in a batch operation for inclusion in final assembly.
The Company produces all of the metal halide salts it uses and sells at its
facility in Urbana, Illinois. The Urbana facility with 65 employees working a
single shift also produces precision metal pieces, precision metal electrode
leads and high speed dose dispensers which are used by the Company and sold to
other metal halide lamp manufacturers.
The Company manufactures production equipment for metal halide lamp production
at its facility in Bellevue, Ohio. This equipment is used for the Company's lamp
production and is also sold to other lamp manufacturers worldwide. The Company
internally manufactures many critical and proprietary parts for its production
equipment. It purchases commercial components and has other parts built to its
specifications by a number of local suppliers. The Company assembles and tests
this production equipment as well as trains customers in its use. The Company
supplies extensive product, quality, process and training documentation with the
production equipment.
RAW MATERIALS AND SUPPLIERS
The Company sources its raw materials from a variety of suppliers. Presently, it
sources most of its quartz tubing and pyrex bulbs for lamps from GE. The Company
purchases certain of its industrial commodity-type lamps from GE and Sylvania.
This enables the Company to use its production equipment to produce more
specialty, higher margin lamp types. Although an interruption in these supplies
could disrupt the Company's operations, the Company believes that alternative
sources of supply exist and could be arranged prior to the interruption having a
material adverse effect on the Company's operations or sales. The materials for
the Company's power supply products are readily available on the open market.
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Most of the raw materials used in the production of metal halide salts can be
sourced from several suppliers. The Company has been the dominant supplier of
metal halide salts to the metal halide lamp industry for many years. Therefore,
the Company has focused on addressing any circumstance which could jeopardize
the continued production of these vital materials. Since the Company is the
primary supplier of metal halide salts to the metal halide lamp industry, any
disruption in supply would also affect each producer of the affected lamp type.
The power supplies for the Company's MICROSUN(TM) systems are manufactured for
the Company by a single supplier. The Company believes that in the case of any
disruption of this supply, alternative sources of these power supplies can be
arranged prior to any material adverse effect on the Company's sales.
COMPETITION
General
Metal halide systems compete with other types of lighting technology for many
applications. Metal halide technology is the newest of all lighting technologies
and although the market awareness and the uses of metal halide lamps continue to
grow, competition exists from older technologies in each metal halide
application.
Materials
The Company produces materials which are used by the Company and virtually all
other manufacturers of metal halide lamps. In metal halide salts, where the
Company has successfully used its technology focus and manufacturing capability
to develop superior products, the Company has no competitors in the United
States. In overseas markets, one lamp manufacturer produces metal halide salts,
principally for its own use. In other materials categories, the Company's chief
competition is internal production by GE, Philips and Sylvania.
System Components
GE, Philips and Sylvania are the Company's principal competitors in the
production of metal halide lamps. Although GE, Philips and Sylvania have focused
their efforts on the larger incandescent and fluorescent markets, all three
companies produce metal halide lamps. These three companies have emphasized
sales of a relatively small variety of commodity-type metal halide lamps, such
as those found in the most common commercial and industrial applications, which
the Company believes represents approximately 75% of the total metal halide lamp
segment. Although the Company believes its technical and engineering expertise
in the production of specialty metal halide lamps and its unique marketing
approach give it a competitive advantage in this market, the Company's three
primary competitors have significantly longer operating histories, substantially
greater financial, technical and other resources and larger marketing and
distribution organizations than the Company and could potentially expand their
focus into specialty lamps.
The Company does not believe that the foreign lamp manufacturers to whom the
Company sells lamp production equipment compete with the Company's specialty
products. Due to the technical and engineering expertise required to produce a
new type of metal halide lamp, these purchasers have typically only produced the
commodity-type lamps in which they have been trained by the
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Company. Although these purchasers could potentially produce specialty lamp
types to compete with the Company, these purchasers would need to independently
develop the expertise required to produce specialty metal halide lamps.
The Company's North American and European power supply products compete
primarily with products of two manufacturers, Advance Transformers, a subsidiary
of Philips, and MagneTek, both headquartered in the United States. Both these
companies have focused on the large fluorescent power supply market whereas the
focus of the Company's acquisitions, Ballastronix and Parry, has been in HID
magnetic power supplies for use primarily in metal halide applications.
Systems
The Company's systems are in the early stages of commercial development. The
Company's portable metal halide lighting fixtures compete with portable lamps
using older technology, primarily incandescent, including halogen, and compact
fluorescent, manufactured by a large number of established manufacturers. The
Company's initial fiber optic systems will compete primarily with fiber optic
products using older lighting technology as well as conventional systems using
multiple lamps and fixtures.
Production Equipment
The Company believes it is the only source of turnkey metal halide lamp
manufacturing equipment groups.
RELATIONSHIPS WITH GENERAL ELECTRIC AND OTHER MAJOR LAMP MANUFACTURERS
As described above under "Competition," the Company competes with GE, Philips
and Sylvania in the sale of its products, and these three companies dominate the
manufacturing, distribution and sale of lighting products. Notwithstanding this
competition, the Company purchases a significant quantity of its raw materials
and private label lamps from these three companies (aggregating $10.5 million in
fiscal 1996, of which $8.2 million was from GE, and $8.4 million in fiscal 1997,
of which $4.0 million was from GE) and derives significant revenue from sales of
its materials and system components to each of these three companies
(aggregating $10.3 million in fiscal 1996, of which $5.7 million was to GE, and
$9.3 million in fiscal 1997, of which $5.1 million was to GE). Any significant
change in the Company's relationships with these companies, or in the manner in
which these companies participate in the manufacturing, distribution and sale of
metal halide lighting products, could have a material adverse effect on the
Company. GE currently holds 535,887 shares of Common Stock, which represent
approximately 3.3% of the issued and outstanding Common Stock of the Company.
INTELLECTUAL PROPERTY
The Company relies on trade secret, trademark and patent laws to protect its
rights to certain aspects of its products, including proprietary manufacturing
processes and technologies, product research and concepts and trademarks, all of
which the Company believes are important to the success of its products and its
competitive position. In recent years, the Company has successfully taken legal
action to enjoin misappropriation of trade secrets by other parties. Any
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increase in the level of activities involving misappropriation of the
Company's trade secrets or other intellectual property rights could require the
Company to increase significantly the resources devoted to such efforts. In
addition, an adverse determination in litigation could subject the Company to
the loss of its rights to a particular trade secret, trademark or patent, could
require the Company to grant licenses to third parties, could prevent the
Company from manufacturing, selling or using certain aspects of its products or
could subject the Company to substantial liability, any of which could have a
material adverse effect on the Company's results of operations.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state, local and foreign laws
and regulations governing, among other things, emissions to air, discharge to
waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials as well as laws relating to occupational
health and safety. The Company believes that its business, operations and
facilities are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operations of manufacturing plants entail risks in these areas,
which could potentially result in significant expenditures in order to comply
with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.
In 1993, the Company entered into a consent decree with the City of Solon Sewer
District ("Solon") with respect to the discharge of mercury into the sewer
system from its Solon, Ohio plant operations. The Company instituted procedures
to comply with this consent decree, and the consent decree expired by its terms
due to the Company's operation within required discharge limits for the period
required by the decree. However, routine sampling of the effluent by Solon
between September 1995 and September 1996 revealed instances of mercury
discharge in excess of the limits imposed by Solon. Subsequent tests conducted
by Solon showed mercury discharges within required limits. The Company has
implemented a plan intended to prevent intermittently exceeding Solon's mercury
standards in the future. The Company believes the cost of continued compliance
will not have a material effect on its financial position or results of
operations.
The Company believes that the overall impact of compliance with regulations and
legislation protecting the environment will not have a material effect on its
future financial position or results of operations. Capital expenditures and
operating expenses in fiscal 1995, fiscal 1996 and fiscal 1997 attributable to
compliance with such legislation were not material.
EMPLOYEES
As of June 30, 1997, the Company had approximately 1,182 full-time employees,
consisting of employees engaged in the designing, manufacturing and marketing of
materials (70 employees), system components (903 employees), systems (65
employees) and production equipment (111 employees) and 33 employees in
corporate/administrative services. The Company believes that its employee
relations historically have been good. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage.
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ITEM 2. PROPERTIES
The Company's headquarters are located in Twinsburg, Ohio, and the Company
maintains manufacturing facilities in Ohio, Illinois, Texas, Nova Scotia, Canada
and England. Set forth below is certain information with respect to the
Company's principal facilities:
APPROXIMATE
SQUARE OWNED/
FACILITY LOCATON ACTIVITIES FOOTAGE LEASED
- ------------------------ ------------------------------------------------ ----------- --------------
NORTH AMERICA
Solon, Ohio Systems components manufacturing, 150,000 Leased
office space
Bellevue, Ohio Systems components manufacturing, 60,000 Leased
production equipment manufacturing
Cleveland, Ohio Residential fixture manufacturing 45,000 Owned
Amherst, Nova Scotia,
Canada Power supply manufacturing 45,000 Owned
Urbana, Illinois Materials manufacturing 30,000 Owned
Scarborough, Ontario,
Canada Distribution warehouse, office space 28,000 Leased
Dallas, Texas Fiber optic cable and lighting systems
manufacturing 21,000 Leased
Buffalo, New York Power supply distribution warehouse 13,000 Leased
Twinsburg, Ohio Corporate office space 9,000 Leased
OTHER
Draycott, England Power supply manufacturing 125,000 Owned
Mitcham, Victoria,
Australia Distribution warehouse, office space 16,000 Leased
The owned facilities are subject to mortgages in the following approximate
outstanding amounts: Amherst - $646,000; Urbana - $753,000; Cleveland -
$450,000. The aggregate annual rental cost of the leased facilities is
approximately $1.5 million, and the average remaining lease term is 2.5 years.
ITEM 3. LEGAL PROCEEDINGS
The Company does not have pending any litigation that, separately, or in the
aggregate, if adversely determined, could reasonably be expected to have a
material adverse effect on the Company. The Company and its subsidiaries may,
from time to time, be a party to litigation or administrative proceedings which
arise in the normal course of their business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Since December 12, 1995, the Common Stock has been trading on the NASDAQ
National Market under the symbol "ADLT." The following table sets forth the
range of high and low closing sale prices per share of Common Stock for the
periods indicated, as reported by the NASDAQ National Market:
HIGH LOW
---- ---
Fiscal Year Ended June 30, 1996
Second Quarter (beginning December 12, 1995) $10.188 $10.000
Third Quarter 14.375 8.500
Fourth Quarter 18.125 12.625
Fiscal Year Ended June 30, 1997
First Quarter 19.875 13.125
Second Quarter 25.250 16.375
Third Quarter 27.250 22.000
Fourth Quarter 26.500 19.000
Fiscal Year Ending June 30, 1998
First Quarter (through September 24, 1997) 26.250 22.875
Information with respect to sales of the Company's Common Stock during fiscal
1997 which were not registered under the Securities Act have been previously
filed in the Company's Quarterly Report on Form 10-Q for the Quarter Ended
December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain selected financial data and is qualified by
the more detailed Consolidated Financial Statements and Notes thereto of the
Company. The selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included in Items
7 and 8 below.
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INCOME STATEMENT DATA:
(In thousands, except per share dollar amounts)
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Net sales ................................... $ 86,490 $ 54,636 $ 40,767 $ 30,938 $ 25,455
Costs and expenses:
Cost of sales (1) ....................... 45,738 29,164 21,899 17,253 17,033
Selling, general & administrative (1) ... 22,618 14,907 11,833 8,400 5,500
Research and development ................ 5,804 3,000 1,673 1,006 1,166
Settlement of claims..................... 771(2) 2,732(3) -- -- --
Consumer product advertising ............ 398 -- -- -- --
Fiber optic joint venture formation costs 286 -- -- -- --
Amortization of intangible assets (1) ... 406 90 55 55 55
Restructuring ........................... -- -- (121)(4) 852(4) 7,152(5)
-------- -------- -------- -------- --------
Income from operations ...................... 10,469 4,743 5,428 3,372 (5,451)
Interest income (expense), net .............. (668) (1,316) (2,074) (2,095) (883)(6)
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary item ...................... 9,801 3,427 3,354 1,277 (6,334)
Income taxes (7) ............................ 2,697 910 212 71 48
-------- -------- -------- -------- --------
Income before extraordinary item ........... 7,104 2,517 3,142 1,206 (6,382)
Extraordinary item, net of
applicable income tax .................. -- (135)(8) (253)(9) -- 11,368(10)
-------- -------- -------- -------- --------
Net income .................................. $ 7,104 $ 2,382 $ 2,889 $ 1,206 $ 4,986
======== ======== ======== ======== ========
Earnings (loss) per share:
Before extraordinary item ................ $ 0.52 $ 0.12 $ 0.10 $ 0.13 $ (0.96)
Extraordinary item ....................... -- (0.01) (0.03) -- 1.45
-------- -------- -------- -------- --------
Net earnings per share ...................... $ 0.52 $ 0.11 $ 0.07 $ 0.13 $ 0.49
======== ======== ======== ======== ========
Shares used for computing per
share amounts (11) ...................... 13,558 9,479 7,818 7,818 7,818
======== ======== ======== ======== ========
BALANCE SHEET DATA:
(In thousands)
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
------ -------- -------- -------- --------
Cash and cash equivalents and short-
term investments................... $ 8,273 $ 1,682 $ 1,030 $ 663 $ 1,095
Working capital (deficit) .......... 42,380 17,341 (870) (25) 853
Total assets ....................... 134,838 56,297 29,402 23,454 23,001
Total long-term debt ............... 35,908 11,034 8,853 7,821 10,246
Total shareholders' equity (deficit) 66,032 26,594 (1,035) 1,165 (320)
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(1) Beginning with fiscal 1997, the components of selling, general and
administrative expenses were disaggregated to report separately marketing
and selling expenses and general and administrative expenses. See
"Consolidated Statement of Income". Also, beginning with fiscal 1997,
amortization of intangible assets was reported as a separate component of
costs and expenses. Amortization of intangible assets for all periods
presented above has been reclassified to conform with this method of
presentation. Previously, amortization of intangible assets for fiscal
1996 was included in cost of sales, and for fiscal 1995 and earlier years
was included in interest expense.
(2) On March 1, 1996, a former Venture Lighting International ("VLI")
shareholder, asserted a claim against certain officers and directors of
the Company, and subsequently against the Company, seeking $3,600 in
damages relating to the redemption of his VLI shares prior to the
Combination. On August 23, 1996, another former VLI shareholder filed a
similar claim against the Company and such officers and directors seeking
damages of $1,600. On November 29, 1996, the Company and such officers and
directors entered into a settlement of both claims for an aggregate amount
of $475. The pretax charge of $771 in fiscal 1997 represents the $475
settlement plus legal and other directly-related costs, net of anticipated
insurance recoveries.
(3) On October 27, 1995, several former VLI shareholders, whose shares were
redeemed in August 1995 (prior to the Combination), asserted a claim
against certain officers of the Company. On November 15, 1995, such
officers entered into a settlement agreement. Since the settlement
resulted in a transfer of personal shares held by such officers, there was
no dilution of the ownership interests of other shareholders of the
Company. The settlement was recorded as a noncash expense and an increase
in paid-in capital of the Company in December 1995.
(4) In fiscal 1994, the Company recorded a provision of $852 for the costs,
principally inventory and equipment write-downs, in connection with
exiting a product line unrelated to lighting. In fiscal 1995, the
disposition plan was revised, resulting in a reduction of the original
estimate by $121.
(5) On July 29, 1992, VLI though never having missed any scheduled payments on
its then existing senior debt was unable to refinance such senior debt,
and therefore voluntarily filed for protection under Chapter 11 of the
United States Bankruptcy Code. VLI emerged from such protection in July
1993. While under such protection, the Company maintained substantially
all of its relationships with existing customers and suppliers. The
one-time reorganization charge of $7,152 in fiscal 1993 consisted of the
write-downs related to disposal of assets for exiting certain product
lines, professional fees and administrative expense.
(6) While under Chapter 11 protection during fiscal 1993, VLI was not required
to accrue interest on certain outstanding indebtedness, which, if accrued,
would have increased interest expense by approximately $507.
(7) At June 30, 1997, the Company had net operating loss tax carryforwards of
approximately $4,500, which expire in fiscal years 2006 through 2011. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(8) In fiscal 1996, the Company incurred an extraordinary loss on the early
extinguishment of debt of $135. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(9) In fiscal 1995, the Company incurred an extraordinary loss on the early
extinguishment of debt of $253. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(10) Upon VLI's emergence from Chapter 11 reorganization, the Company
recognized an extraordinary gain in fiscal 1993 from the discharge of
certain indebtedness.
(11) Net earnings per share is based upon the income attributable to common
shareholders. Such income has been decreased by preferred stock dividends
and increases in the value of warrants aggregating $1,350 ($.14 per share)
in fiscal 1996, $2,360 ($.30 per share) in fiscal 1995, $170 ($.02 per
share) in fiscal 1994 and $1,131 ($.14 per share) in fiscal 1993. See Note
O to "Notes to Consolidated Financial Statements" for further information
on fiscal years 1997, 1996 and 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(Dollars in thousands, except per share dollar amounts)
The following is management's discussion and analysis of certain significant
factors which have affected the results of operations and should be read in
conjunction with the accompanying Consolidated Financial Statements and related
Notes.
RESULTS OF OPERATIONS - SELECTED ITEMS AS A PERCENTAGE OF NET SALES
The following table sets forth, as a percentage of net sales, the components of
the Company's Consolidated Statements of Income for the indicated periods:
Year Ended June 30,
1997 1996 1995
Net sales ........................................ 100.0% 100.0% 100.0%
Costs and expenses
Cost of sales .................................. 52.9 53.4 53.7
Marketing and selling .......................... 17.8 16.0 15.7
Research and development ....................... 6.7 5.5 4.1
General and administrative ..................... 8.3 11.2 13.4
Settlement of claims............................ 0.9 5.0 --
Consumer product advertising ................... 0.5 -- --
Fiber optic joint venture formation costs....... 0.3 -- --
Amortization of intangible assets .............. 0.5 0.2 0.1
Restructuring .................................. -- -- (0.3)
----- ----- -----
Income from operations ........................... 12.1 8.7 13.3
Other income (expense)
Interest expense ............................... (1.8) (2.8) (5.2)
Interest income ................................ 1.0 0.4 0.1
----- ----- -----
Income before income taxes and
extraordinary charge ........................... 11.3 6.3 8.2
Income taxes ..................................... 3.1 1.7 0.5
----- ----- -----
Income before extraordinary charge ............... 8.2 4.6 7.7
Extraordinary charge, net of applicable
income tax benefits ............................ -- (0.2) (0.6)
----- ----- -----
Net income ....................................... 8.2% 4.4% 7.1%
===== ===== ====
Factors which have affected the results of operations and net income during
fiscal 1997 as compared to fiscal 1996 are discussed below.
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OVERVIEW OF THE RESULTS OF OPERATIONS - FISCAL 1997 COMPARED TO FISCAL 1996
The Company's operations for fiscal 1997 resulted in income from operations of
$10,469 compared to income from operations of $4,743 for fiscal 1996. The
Company realized net income of $7,104 for fiscal 1997, compared to net income of
$2,382 for fiscal 1996.
The following factors should be considered in comparing the Company's operations
for fiscal 1997 and fiscal 1996:
- - Results for fiscal 1997 include a nonrecurring charge of $771 ($0.06 per
share) in settlement of a claim.
- - Results for fiscal 1996 include a noncash charge of $2,732 ($0.29 per
share) in settlement of threatened litigation.
After excluding the above nonrecurring charges, the Company's operating
activities would have resulted in income from operations of $11,240 for fiscal
1997, a 50.4% increase over the $7,475 of income from operations that would have
been reported for fiscal 1996.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales. Net sales increased 58.3% to $86,490 for the fiscal year ended June
30, 1997 from $54,636 for the fiscal year ended June 30, 1996. This increase
consisted of a $22,558 increase in system components, a $6,345 increase in
production equipment sales, a $1,557 increase in systems, and a $1,394 increase
in materials. The increase in systems components is primarily the result of
increased unit sales of the Company's core businesses and the addition, during
fiscal 1997, of the Company's newly-acquired power supply businesses. The
increase in systems and materials sales arose primarily from increased unit
volume, while the increase in equipment sales was attributable to an increase in
the number of equipment contracts for the sale of production equipment currently
in-progress, as compared with the contracts in-progress during fiscal 1996.
Cost of Sales. Cost of sales increased 56.8% to $45,738 in fiscal 1997 from
$29,164 in fiscal 1996, relatively consistent with the increase in net sales. As
a percentage of net sales, cost of sales decreased slightly to 52.9% for fiscal
1997 from 53.4% for fiscal 1996.
Marketing and Selling Expenses. Marketing and selling expenses increased 76.3%
to $15,434 for fiscal 1997, compared with $8,755 for fiscal 1996. Marketing and
selling expenses, as a percentage of net sales, increased to 17.8% during fiscal
1997, from 16.0% during fiscal 1996. The increase primarily reflects increased
spending to develop new domestic and foreign market opportunities.
Research and Development Expenses. Research and development expenses increased
93.5% to $5,804 in fiscal 1997 from $3,000 in fiscal 1996. As a percentage of
net sales, research and development expenses increased to 6.7% in fiscal 1997
from 5.5% in fiscal 1996. The increased spending in this vital area reflected
the Company's continued emphasis on the development of additional commercial and
industrial products, the introduction of new lamp types, and metal halide
systems development.
General and Administrative Expenses. General and administrative expenses
increased 16.8% to $7,184 in fiscal 1997 from $6,152 in fiscal 1996. As a
percentage of net sales, general and
22
25
administrative expenses decreased to 8.3% in fiscal 1997 from 11.2% in fiscal
1996. The decrease primarily reflects a spending growth rate considerably lower
than sales increases, achieved through the leveraging of fixed costs as sales
levels increase.
Settlement of Claims. During fiscal 1997, the Company paid $475 in an
out-of-court settlement of a claim brought by certain former common shareholders
of a predecessor of the Company. The charge of $771 ($0.06 per share) represents
the $475 settlement plus legal and other directly-related costs, net of
insurance recoveries.
During fiscal 1996, a settlement agreement was entered into by certain principal
shareholders of the Company with former preferred shareholders of a subsidiary
of the Company (the "Settlement"). Since the Settlement resulted in a transfer
of personal shares held by such shareholders, there was no dilution of the
ownership interest of the remaining shareholders of the Company. The Settlement
was recorded as a noncash expense in fiscal 1996 and an increase to the
Company's paid-in-capital. This Settlement resulted in a noncash charge of
$2,732 ($0.29 per share).
Consumer Product Advertising Costs. In connection with the Company's metal
halide lamp systems for the residential and hospitality markets, beginning with
the sale of table and floor lamps in March 1997, the Company implemented a
direct marketing program which resulted in $398 of advertising and promotion
costs being charged to operations during the fourth quarter of fiscal 1997.
Fiber Optic Joint Venture Formation Costs. In May 1997, the Company entered into
a joint development agreement with Rohm and Haas Company, for the development of
advanced fiber optic cable systems using metal halide lamps. The Company is
presently negotiating with Rohm and Haas Company to form a joint venture focused
on the manufacture and sale of fiber optic cable and illuminators and fiber
optic lighting systems. In connection with this proposed joint venture, the
Company incurred $286 of formation and preoperating costs which was charged to
operations during the fourth quarter of fiscal 1997.
Income from Operations. Income from operations during fiscal 1997 increased to
$10,469 from $4,743 during fiscal 1996. As discussed in the Overview of Results
of Operations, excluding the nonrecurring charges for the settlements noted
above, income from operations for fiscal 1997 would have increased to $11,240, a
50.4% increase over the income from operations of $7,475 that would have been
reported for fiscal 1996. As a percentage of net sales, income from operations
before the nonrecurring charges would have decreased to 13.0% in fiscal 1997
from 13.7% in fiscal 1996.
Interest Income. Interest income increased to $845 in fiscal 1997, as compared
to $232 in fiscal 1996. This increase is attributable to the short-term
investments and cash equivalents arising from the availability of the net
proceeds of the common stock offering completed during July 1996.
Income Taxes. Income tax expense increased to $2,697 for fiscal 1997 from $910
during the preceding year. The increase was caused by increased profitability in
fiscal 1997 and by the utilization of lesser amounts of net operating loss
carryforwards ("NOLs") in 1997, compared with the utilization of NOLs in fiscal
1996. At June 30, 1997, the Company had United States NOLs for tax purposes of
approximately $4,500 to offset future taxable income. These NOLs expire in the
fiscal years 2006 through 2011.
Extraordinary Charge. The Company recorded a $135 extraordinary charge (net of
applicable income tax benefits of $91) in fiscal 1996, representing costs
associated with the early extinguishment of debt.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net Sales. Net sales increased 34.0% to $54,636 for fiscal 1996 from $40,767 for
fiscal 1995. This increase consisted of a $12,297 increase in system component
sales, a $1,210
23
26
increase in materials sales, and the remainder from increased production
equipment sales. The increase in system components and materials sales arose
primarily from increased unit volume in all major lamp sales channels and
material categories and increased sales of new products.
Cost of Sales. Cost of sales increased 33.2% to $29,164 for fiscal 1996 from
$21,899 for fiscal 1995. As a percentage of net sales, cost of sales decreased
to 53.4% for fiscal 1996 from 53.7% for fiscal 1995. This slight decrease was
primarily the result of improved margins on system component and materials
sales, which were somewhat offset by transitional costs of operational
integration associated with the acquisition of Current Industries.
Marketing and selling. Marketing and selling expenses increased 37.2% for fiscal
1996 to $8,755 from $6,381 for fiscal 1995. As a percentage of net sales,
marketing and selling expenses remained relatively constant at 16.0% in fiscal
1996 compared to 15.7% in fiscal 1995.
General and Administrative Expenses. General and administrative expenses
increased 12.8% to $6,152 for fiscal 1996 from $5,452 for fiscal 1995. As a
percentage of net sales, the expenses decreased to 11.2% in fiscal 1996 from
13.4% in fiscal 1995, primarily as a result of fixed costs leveraged against
increased sales.
Research and Development Expense. Research and development expenses increased
79.3% to $3,000 for fiscal 1996 from $1,673 for fiscal 1995. As a percentage of
net sales, research and development expenses increased to 5.5% for fiscal 1996
from 4.1% for fiscal 1995. These increases arose from increased spending for
the: (i) expansion of the line of new lamps intended to replace many first
generation metal halide lamps in industrial and commercial applications; (ii)
development and testing of electronic power supply systems and (iii) development
of new materials for the world's major lighting manufacturers.
Noncash Settlement of Claim and Restructuring Credit. As mentioned above, fiscal
1996 results include a noncash settlement expense of $2,732. In fiscal 1995, the
Company recorded a $121 credit to operating expenses. This credit resulted from
a revision of the Company's plan of disposition for exiting a product line
unrelated to lighting. There was no such credit in fiscal 1996.
Income from Operations. Income from operations was $4,743 for fiscal 1996,
compared to $5,428 for fiscal 1995. Excluding the noncash charge for the
Settlement during fiscal 1996 and the restructuring credit recognized in fiscal
1995, income from operations before such items for fiscal 1996 would have
increased to $7,475 from $5,307 in fiscal 1995. As a percentage of net sales,
income from operations before nonrecurring items would have increased to 13.7%
in fiscal 1996 from 13.0% in fiscal 1995.
Interest Expense. Interest expense decreased 26.5% to $1,548 for fiscal 1996
from $2,107 for fiscal 1995. This decrease resulted primarily from lower average
debt outstanding during fiscal 1996 as compared to the average debt outstanding
during fiscal 1995.
Interest Income. Interest income increased to $232 during fiscal 1996 as
compared to $33 for fiscal 1995. This increase is the result of deposits of
available proceeds from the Company's initial public offering of stock in fiscal
1996.
Income Taxes. Income tax expense for fiscal 1996 increased by $698 from fiscal
1995 primarily due to higher state and local income taxes and an increase in
deferred tax expense attributable to accelerated depreciation for tax purposes.
Extraordinary Item. The Company recorded a $135 extraordinary charge (net of
applicable income tax benefits of $91) during fiscal 1996, representing costs
associated with the early extinguishment of debt using a portion of the net
proceeds from its initial public offering. In
24
27
fiscal 1995, the Company recorded a $253 extraordinary charge (net of
applicable income tax benefits of $168), which also represented costs
associated with the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financial requirements are for manufacturing equipment,
market development activities, research and development efforts, business
acquisitions, investments in joint ventures and working capital. These
requirements have been, and the Company expects they will continue to be,
financed through a combination of cash flow from operations, borrowings under
various credit facilities and remaining proceeds from the July 1997 issuance of
Common Stock.
In July 1997, the Company received net proceeds of $70,530 from a public
offering of 3,000,000 shares of its Common Stock. Proceeds from this stock
offering were used to repay approximately $33,000 outstanding under its credit
facilities in July 1997. Approximately $8,500 of the borrowings were incurred to
fund the purchase of the power supply manufacturing and operating assets of W.J.
Parry and Company Ltd. in June 1997, and approximately $5,500 had been incurred
in February 1997 to finance the cash portion of the acquisition of Ballastronix,
Inc. Additionally, the Company intends to use $16,900 of the proceeds for
capital expenditures, consisting principally of the expansion of manufacturing
facilities and acquisition of manufacturing equipment and approximately $5,000
as the Company's cash contribution to the proposed fiber optic lighting system
joint venture with Rohm and Haas.
Net cash used in operating activities during fiscal 1997 totaled $4,183. Uses of
operating cash flow included: (i) an approximately $9,000 increase in accounts
receivable related to equipment contracts and (ii) an increase in inventories in
support of higher lamp service levels. Operating cash flow was provided
principally by net income and an increase in accounts payable and accrued
expenses resulting from higher levels of business activity.
The Company's working capital at June 30, 1997 was $42,380 as compared to
$17,341 at June 30, 1996, resulting in a working capital ratio of 2.5 to 1.0,
compared to 2.2 to 1.0 at June 30, 1996.
Capital expenditures, primarily for production equipment and leasehold
improvements, totaled $18,095 in fiscal of fiscal 1997.
The Company has a Revolving Credit and Security Agreement (the "Loan Agreement")
whereby the lender has agreed to extend working capital advances to the Company
in aggregate amounts equal to the lesser of: (i) $25.0 million less the current
outstanding amount of advances under the Capex Facility (defined below) (the
"Maximum Revolving Loan Amount") or (ii) an amount based on eligible receivables
and inventory (the "Working Capital Facility"). The unpaid principal balance of
the Working Capital Facility (together with accrued interest thereon) is payable
in March 1999. Advances under the Working Capital Facility bear interest at the
option of the Company at a rate per annum equal to: (i) the higher of (a) the
prime rate minus 0.5% or (b) the Federal Funds Rate; or (ii) the average LIBOR
plus 2.5%. At June 30, 1997, working capital advances outstanding were $24,754,
all of which was repaid with proceeds from the July 1997 offering.
The Company is able to obtain advances aggregating up to $5,000 at any time to
permit the Company to finance permitted capital expenditures (the "Capex
Facility"), which bear interest at a rate equal to the higher of (a) the prime
rate plus 0.5% or (b) the Federal Funds Rate plus 1.0%. The unpaid principal
balance of the Capex Facility (together with accrued interest thereon) is
25
28
payable on March 24, 1999. A bank has also agreed to issue letters of credit in
an aggregate amount of up to $5,000 at anytime, provided the outstanding letters
of credit and working capital advances do not exceed the Maximum Revolving Loan
Amount.
After the successful completion of the Company's July 1997 offering and
repayment of the bank facilities noted above and other uses of proceeds, the
Company's cash and short-term investments approximated $27,000 at September 25,
1997.
In September 1997, the Company announced the signing of a letter of intent to
acquire Ruud Lighting, Inc. for $35,500 and 3 million shares of the Company's
Common Stock. The Company intends to complete this acquisition through
additional debt financing.
The Company believes that the successful completion of the July 1997 offering
has strengthened its financial position and enhanced its ability to obtain
additional financing. In summary, the Company believes that the combination of
its available cash, cash flow from operations, current borrowing facilities and
strengthened financial position will be sufficient for the Company to fund its
operations for at least the next 12 months. In addition, the Company is
presently discussing with potential lenders the establishment of a comprehensive
financing to facilitate its prospective acquisition of Ruud in January 1998 and
its other short and long-term financial requirements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 128, "Earnings per Share," which
requires changes in computing and presenting earnings per share effective for
the quarter ended December 31, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and restate
all prior periods. The adoption of this standard will not have a material impact
on the Company's earnings per share.
In June 1997, the Financial Accounting Standards Board issued FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
statement requires a "management" approach to reporting financial and
descriptive information about a Company's operating segments. The Company must
adopt this statement in the first quarter of fiscal 1999. Management is
currently studying the potential effect of adopting this statement.
IMPACT OF INFLATION
Although inflation has slowed in recent years, it continues to be a factor in
our economy. However, management does not believe that inflation has or will
have a significant impact on its operations. Although the Company has not raised
prices significantly in recent years, it has been able to lower overall costs
sufficiently to offset inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Response not required
26
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JUNE 30, 1997
ADVANCED LIGHTING TECHNOLOGIES, INC.
TWINSBURG, OHIO
27
30
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
Form 10-K--Item 14(a)(1) and (2), (c) and (d)
ADVANCED LIGHTING TECHNOLOGIES, INC.
The following consolidated financial statements of Advanced Lighting
Technologies, Inc. are included in Item 8: Audited Consolidated Financial
Statements:
Page
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets as of June 30, 1997 and 1996 F-3
Consolidated Statements of Income for the Years Ended
June 30, 1997, 1996 and 1995 F-4
Statements of Consolidated Shareholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-8
Financial Statement Schedules:
None
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have
been omitted.
31
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
Advanced Lighting Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Lighting Technologies, Inc. as of June 30, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows, for each
of the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Advanced Lighting Technologies, Inc. as of June 30, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
September 25, 1997
F-2
32
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30,
1997 1996
-------- -----------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 4,198 $ 1,682
Short-term investments 4,075 --
Trade receivables, less allowances of $315 and $287 28,916 13,736
Receivables from related parties 346 98
Inventories:
Finished goods 21,143 10,344
Raw materials and work-in-progress 7,982 2,363
-------- --------
29,125 12,707
Prepaid expenses 1,363 526
Deferred taxes 2,566 3,517
-------- --------
Total current assets 70,589 32,266
Property, plant and equipment:
Land and buildings 6,143 2,304
Machinery and equipment 32,712 17,298
Furniture and fixtures 7,704 2,994
-------- --------
46,559 22,596
Less accumulated depreciation 8,558 6,359
-------- --------
38,001 16,237
Deferred taxes 535 231
Receivables from related parties 1,209 913
Investments in affiliates 7,565 638
Other assets 8,954 2,447
Excess of cost over net assets of businesses acquired, net 7,985 3,565
-------- --------
$134,838 $ 56,297
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 3,731 $ 972
Accounts payable 15,773 8,790
Payables to related parties 699 434
Employee-related liabilities 2,674 1,859
Accrued income and other taxes 1,689 263
Other accrued expenses 3,643 2,607
-------- --------
Total current liabilities 28,209 14,925
Long-term debt 35,908 11,034
Other liabilities 463 161
Deferred taxes 4,226 3,583
Shareholders' equity
Common stock 13 11
Paid-in-capital 59,087 26,755
Retained earnings (deficit) 6,932 (172)
-------- --------
66,032 26,594
-------- --------
$134,838 $ 56,297
======== ========
See notes to consolidated financial statements
F-3
33
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share dollar amounts)
YEAR ENDED JUNE 30,
--------------------------------------
1997 1996 1995
------------ ------------ ----------
Net sales $ 86,490 $ 54,636 $ 40,767
Costs and expenses:
Cost of sales 45,738 29,164 21,899
Marketing and selling 15,434 8,755 6,381
Research and development 5,804 3,000 1,673
General and administrative 7,184 6,152 5,452
Settlement of claims 771 2,732 --
Consumer product advertising 398 -- --
Fiber optic joint venture formation costs 286 -- --
Amortization of intangible assets 406 90 55
Restructuring -- -- (121)
------------ ------------ ----------
Income from operations 10,469 4,743 5,428
Other income (expense):
Interest expense (1,513) (1,548) (2,107)
Interest income 845 232 33
------------ ------------ ----------
Income before income taxes and
extraordinary charge 9,801 3,427 3,354
Income taxes 2,697 910 212
------------ ------------ ----------
Income before extraordinary charge 7,104 2,517 3,142
Extraordinary charge, net of applicable income
tax benefits of $91 in 1996 and $168 in 1995 -- (135) (253)
------------ ------------ ----------
NET INCOME $ 7,104 $ 2,382 $ 2,889
======== ======== ========
Earnings (loss) per share:
Before extraordinary charge $ 0.52 $ 0.12 $ 0.10
Extraordinary charge -- (0.01) (0.03)
-------- -------- --------
NET EARNINGS PER SHARE $ 0.52 $ 0.11 $ 0.07
======== ======== ========
Shares used for computing per share amounts 13,558 9,479 7,818
======== ======== ========
See notes to consolidated financial statements
F-4
34
ADVANCED LIGHTING TECHNOLOGIES, INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30, 1997
(Dollar amounts in thousands)
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ----------- ----------- -----------
BALANCE AT JULY 1, 1994 $ 2,175 $ 359 $ -- $ (1,369) $ 1,165
Net income -- -- -- 2,889 2,889
Redemption of preferred stock (2,125) -- -- (663) (2,788)
Change in value of warrants -- -- -- (2,302) (2,302)
Capitalization of subsidiary -- 1 -- -- 1
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1995 50 360 -- (1,445) (1,035)
Net income -- -- -- 2,382 2,382
Activities prior to initial public offering of stock:
Purchases of common stock -- 147 -- -- 147
Redemption of preferred and common stock (50) (252) -- (1,109) (1,411)
Stock options exercised -- 10 -- -- 10
Exchange of subsidiary companies stock for
parent company stock -- (259) 259 -- --
Noncash claim settlement -- -- 2,732 -- 2,732
Activities subsequent to initial public offering of stock:
Net proceeds from initial public offering of
2,900,000 shares -- 3 23,927 -- 23,930
Issuance of common stock in exchange for
warrants and other consideration -- 1 (1,350) -- (1,349)
Exchange of subsidiary company stock for
parent company stock -- -- 313 -- 313
Issuance of shares in connection with purchase
of business -- 1 874 -- 875
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1996 -- 11 26,755 (172) 26,594
Net income -- -- -- 7,104 7,104
Net proceeds from public offering of
2,452,050 shares -- 2 30,089 -- 30,091
Stock options exercised -- -- 706 -- 706
Issuance of shares in connection with
purchases of businesses -- -- 1,537 -- 1,537
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1997 $ -- $ 13 $ 59,087 $ 6,932 $ 66,032
=========== =========== =========== =========== ===========
See notes to consolidated financial statements
F-5
35
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
FOR THE YEARS ENDED JUNE 30,
--------------------------------
1997 1996 1995
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 7,104 $ 2,382 $ 2,889
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,579 1,638 1,399
Provision for doubtful accounts 28 43 32
Deferred income taxes 419 695 (959)
Noncash claim settlement -- 2,732 --
Extraordinary charge -- 135 253
Restructuring -- -- 286
Changes in operating assets and liabilities
(excluding the effects of purchased businesses):
Trade receivables (10,890) (4,057) (2,338)
Inventories (12,174) (4,128) (986)
Prepaid expenses and other assets (2,995) (3,032) (412)
Accounts payable and accrued expenses 10,373 4,930 4,369
Other liabilities 1,373 (12) (69)
-------- -------- --------
Net cash (used in) provided by operating activities (4,183) 1,326 4,464
INVESTING ACTIVITIES
Capital expenditures (16,015) (5,050) (1,530)
Purchase of short-term investments, net (4,075) -- --
Purchases of businesses (14,960) (3,075) --
Investments in affiliates (2,827) -- --
Use of net proceeds from public offering:
Capital expenditures (2,080) -- --
Investments in affiliates (4,101) -- --
-------- -------- --------
Net cash used in investing activities (44,058) (8,125) (1,530)
FINANCING ACTIVITIES
Proceeds from revolving credit facility 92,001 10,580 24,630
Payments of revolving credit facility (60,822) (8,192) (24,088)
Proceeds from long-term debt 16,775 22,362 1,726
Payments of long-term debt and capital leases (8,159) (19,453) (4,776)
Issuance of common stock 706 157 --
Redemption of common stock -- (311) --
Borrowings for preferred stock redemption and dividends -- -- 2,788
Redemption of preferred stock and dividends -- (1,100) (2,788)
Other -- -- (59)
Net proceeds from public offering 30,091 23,930 --
Use of net proceeds from public offering:
Payment of long-term debt -- (3,350) --
Payment of revolving credit facility (16,800) (4,429) --
Redemption of warrants -- (6,199) --
Payment of trade payables (3,035) (4,447) --
Payment of note -- (1,541) --
Other -- (556) --
-------- -------- --------
Net cash provided by (used in) financing activities 50,757 7,451 (2,567)
-------- -------- --------
Increase in cash and cash equivalents 2,516 652 367
Cash and cash equivalents, beginning of year 1,682 1,030 663
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,198 $ 1,682 $ 1,030
======== ======== ========
F-6
36
Supplemental Cash Flow Information:
Interest paid $ 1,375 $ 1,112 $ 1,688
Capitalized interest 455 98 9
Income taxes paid 81 375 280
Noncash transactions:
Equipment acquired through capital leases 1,683 149 145
Stock issued for purchases of businesses 1,537 1,188 --
Detail of acquisitions:
Assets acquired $23,033 $ 9,904 $ --
Liabilities assumed 6,142 5,546 --
Stock issued 1,537 1,188 --
------- ------- -------
Cash paid 15,354 3,170 --
Less cash acquired 394 95 --
------- ------- -------
Net cash paid for acquisitions $14,960 $ 3,075 $ --
======= ======= =======
See notes to consolidated financial statements
F-7
37
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Dollars in thousands, except per share data)
A. ORGANIZATION
Advanced Lighting Technologies, Inc. (the "Company") is an innovation-driven
designer, manufacturer and marketer of metal halide lighting products, including
materials, system components, systems, and production equipment.
The Company was formed on May 19, 1995 for the purpose of acquiring ownership,
primarily by merger (the "Combination"), of 17 affiliated operating corporations
that were previously under common ownership and management (the "Predecessors"),
each one of which is engaged in an aspect of the metal halide lighting business.
More specifically, the Combination was principally effected through a series of
nonmonetary mergers or stock exchanges in which the shareholders of the former
companies received shares of the Company. The Combination has been accounted for
as a reorganization of entities under common control. Historical financial
statements of each of the Predecessors for periods prior to the Combination have
been combined. Certain adjustments have been recorded primarily to eliminate
intercompany transactions that would have been required had the Company been a
consolidated entity during such periods.
B. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries, after elimination of all significant
intercompany accounts and transactions and related revenues and expenses.
Investments in 50% or less owned companies and joint ventures over which the
Company has the ability to exercise significant influence are accounted for
under the equity method. All other investments and investments of less than 20%
are accounted for under the cost method.
ACCOUNTING ESTIMATES
- --------------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect amounts reported in the
consolidated financial statements and notes. Actual results could differ from
those estimates.
TRANSLATION OF FOREIGN CURRENCY
- -------------------------------
The functional currency of consolidated subsidiaries outside of the United
States is the local currency. All assets and liabilities of foreign subsidiaries
are translated into United States dollars at year-end exchange rates while
revenues and expenses are translated at weighted-
F-8
38
average exchange rates in effect during the year. The resulting translation
adjustments were not significant in all years presented.
CASH EQUIVALENTS
- ----------------
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
- ----------------------
Short-term investments are recorded at fair market value, which approximates
cost.
CONCENTRATION OF CREDIT RISK
- -----------------------------
Financial instruments that potentially subject the Company to concentration of
credit risks consist primarily of temporary cash and cash equivalents,
short-term investments and trade receivables. The Company invests its excess
cash primarily in a high quality institutional money-market portfolio and high
quality securities and limits the amount of credit exposure to any one financial
institution.
The Company provides credit in the normal course of business, primarily from
major manufacturers and distributors in the lighting industry and, generally,
collateral or other security is not required. The Company conducts ongoing
credit evaluations of its customers and maintains allowances for potential
credit losses which, when realized, have been within the range of management's
expectations. Credit risk on trade receivables is minimized as a result of the
large and diverse nature of the Company's worldwide customer base.
INVENTORIES
- -----------
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, plant and equipment are stated at cost. The cost of self-constructed
assets include related materials, labor, overhead and interest. Repair and
maintenance costs are expensed as incurred.
Depreciation is computed for financial reporting purposes by the straight-line
method based on the estimated useful lives of the assets, both those owned and
under capital lease, as follows: buildings, 15 to 30 years; machinery and
equipment, 5 to 25 years; furniture and fixtures, 5 to 15 years; and, leasehold
improvements, the lease periods.
F-9
39
INTANGIBLE ASSETS
- -----------------
Intangible assets are amortized using the straight-line method over the
following lives:
Excess of cost over net assets acquired........ 15 - 25 years
Patents, trademarks and tradenames............. 3 - 17 years
Other intangibles.............................. 7 - 15 years
The Company examines the carrying value of its intangible assets when indicators
of impairment are present. When the undiscounted cash flows are not sufficient
to recover the assets' carrying amount, an impairment loss would be charged to
expense in the period identified. No such event has been identified. Accumulated
amortization was $720 and $314 at June 30, 1997 and 1996, respectively.
REVENUE RECOGNITION
- -------------------
Revenues from the sale of metal halide materials, system components (lamps,
power supplies, system controls, fiber optic cable) and systems are recognized
when products are shipped and production equipment revenues are recognized under
the percentage of completion method.
ADVERTISING EXPENSE
- -------------------
External costs incurred in providing media advertising and promoting products
are expensed the first time the advertising or promotion takes place.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development costs, primarily the development of new products and
modifications of existing products, are charged to expense as incurred.
STOCK COMPENSATION ARRANGEMENTS
- -------------------------------
The Company accounts for its stock compensation arrangements under the
provisions of APB Opinion No. 25 "Accounting for Stock Issued to Employees." The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting and Disclosure of Stock-Based
Compensation." These provisions require the Company to disclose pro forma net
income as if compensation expense related to grants of stock options were
recognized based on fair value accounting rules.
FINANCIAL STATEMENT PRESENTATION CHANGES
- ----------------------------------------
Certain amounts for prior years have been reclassified to conform to the current
year reporting presentation.
F-10
40
C. ACQUISITIONS
During fiscal 1997 and 1996, the Company completed the following business
combinations, all of which were accounted for by the purchase method and,
accordingly, results of operations for the acquired businesses have been
included in the consolidated statement of income from their respective dates of
acquisition. Assets acquired and liabilities assumed have been recorded at fair
value based on best estimates available. Pro forma financial information is not
presented because the impact is not significant to the results of operations.
On June 2, 1997, the Company purchased for approximately $8,500, the system
component manufacturing and operating assets of W. J. Parry & Co. (Nottingham)
Ltd. ("Parry"), a manufacturer and marketer of magnetic power supplies for high
intensity discharge lighting systems. The purchase price resulted in an excess
of cost over net assets acquired of $1,121, which is being amortized over 25
years.
On February 11, 1997, the Company acquired the outstanding shares of
Ballastronix, Inc., a company focused on designing, manufacturing and marketing
of electromagnetic power supplies for metal halide lighting systems. The
purchase price consisted of $5,511 in cash and 38,024 shares of the Company's
Common Stock (valued at $562). The purchase price resulted in an excess of cost
over net assets acquired of $2,018 which is being amortized over 25 years.
On January 31, 1997, the Company completed the purchase of certain assets of Web
Design Associates, Inc., a company engaged in consumer product design and
development for approximately $600 in cash. The purchase price resulted in an
excess of cost over net assets acquired of $526, which is being amortized over
15 years.
During December 1996, the Company acquired all the assets (and assumed certain
liabilities) of Cable Lite Corporation in exchange for 50,000 shares of the
Company's Common Stock (valued at $975), with up to an additional 50,000 shares
of Common Stock contingently issuable if the per share market price of the
Company's stock is less than $30.00 during the month of June 1998. The purchase
price resulted in an excess of cost over net assets acquired of $1,073, which is
being amortized over 25 years. Advanced Cable Lite Corporation designs,
manufactures and sells fiber optic and fiber optic lighting systems.
On June 28, 1996, the Company acquired the net assets of Venture Lighting
Australia Pty Ltd ("VLA"), a leading lamp marketing organization in Australia,
for $100 and 76,923 shares of the Company's Common Stock (valued at $875). VLA
has been the exclusive agent for the Company's products in Australia since 1987.
The purchase resulted in an excess of cost over net assets acquired of $1,698,
which is being amortized over 20 years.
On March 25, 1996, the Company acquired the net assets of Spectro Electric,
Inc., ("Spectro") for $1,636 and 34,783 shares of the Company's Common Stock
(valued at $500). Spectro (renamed Advanced Lighting Technologies, Canada, Inc.)
distributes the Company's products in the Canadian market and has facilities in
Toronto, Vancouver, Calgary and Montreal. The purchase resulted in an excess of
cost over net assets acquired of $72, which is being amortized over 20 years.
F-11
41
On February 5, 1996, the Company acquired the net assets of Current Industries,
Inc. ("Current") of Oceanside, New York for $1,689. Current designs,
manufacturers and markets specialized electrical and electromagnetic lighting
control systems used in metal halide and other high intensity discharge lighting
systems. The purchase resulted in an excess of cost over net assets acquired of
$1,456, which is being amortized over 25 years.
On July 1, 1995, and February 9, 1996 the Company acquired all of the
outstanding common stock of Venture Lighting-UK ("VLI-UK"), for 50,000 shares of
the Company's Common Stock (valued at $313). VLI-UK was the exclusive
distributor of the Company's products in the United Kingdom. The purchase
resulted in an excess of cost over net assets acquired of $675, which is being
amortized over 20 years.
D. INVESTMENT IN JOINT VENTURE
On April 2, 1997, the Company invested approximately $3,800 of cash in exchange
for a 30% interest in Koto Luminous Co., Ltd. ("Koto"), the Company's sole agent
in Japan. Subsequent to the date of investment, Koto, a marketer and distributor
of metal halide lamps, began doing business under the name Venture Lighting
Japan. Using the proceeds of the investment and an additional investment by an
affiliate, Venture Lighting Japan will equip and operate a metal halide lamp
manufacturing facility in Japan, which is expected to be operational in October
1997. The Company accounts for this investment under the cost method.
E. CONSUMER PRODUCT ADVERTISING COSTS
In connection with the Company's metal halide lamp systems for the residential
and consumer markets, beginning with the sale of portable lamps in March 1997,
the Company implemented a direct marketing program which resulted in $398 of
advertising and promotion costs being charged to operations during the fourth
quarter of fiscal 1997.
F. FIBER OPTICS JOINT VENTURE FORMATION COSTS
On May 6, 1997, the Company entered into a joint development agreement with Rohm
and Haas Company ("Rohm and Haas"), for the development of advanced fiber optic
cable systems using metal halide lamps. The Company is presently negotiating
with Rohm and Haas to form a joint venture focused on the manufacture and sale
of fiber optic cable and illuminators and fiber optic lighting systems. No
assurance can be given that the negotiations will be successfully completed,
that the joint venture will be formed or that the joint venture, if formed, will
successfully develop or commercialize products. If the expected joint venture is
formed, the Company will contribute $5,000 cash, its subsidiary, Advanced Cable
Lite Corporation, and other fiber optic system assets. In connection with this
proposed joint venture, the Company incurred $286 of formation and development
costs which were charged to operations during the fourth quarter of fiscal 1997.
F-12
42
G. FINANCING ARRANGEMENTS
Short-term debt consisted of the following:
JUNE 30,
1997 1996
------ ------
Multioption credit facility .......................... $ 711 $ 790
Trade facility ....................................... 253 --
Revolving line of credit ............................. 1,391 --
------ ------
2,355 790
Current portion of long-term debt..................... 1,376 182
------ ------
$3,731 $ 972
====== ======
In June 1996, the Company on behalf of a foreign subsidiary, entered into a
multioption credit facility with a foreign bank that provides a short-term
credit line of $1,200 and is collateralized with certain operating assets
($3,128 at June 30, 1997) and a $750 standby letter of credit. Amounts borrowed
and related interest are payable quarterly. The foreign bank also provides a
trade facility which allows the foreign subsidiary to issue documentary letters
of credit for imports and term-trade finance for importing its inventory. The
interest rate of this facility varies, depending upon the denomination of the
currency advanced. The weighted average interest rate on the multioption credit
facility was 9.33% and 7.89% during fiscal 1997 and fiscal 1996. The weighted
average interest rate of the trade facility was 7.58% during fiscal 1997.
A newly-acquired foreign subsidiary of the Company entered into a revolving line
of credit agreement with a bank, prior to acquisition, to finance its working
capital needs. This facility allows the subsidiary to borrow an amount that
approximates $2,900. The agreement matured at June 30, 1997, but the bank agreed
to extend the borrowing on a month-to-month basis. The bank has the right to
cancel any unutilized portion available under the agreement at any time.
Advances under the facility bear interest at the bank's prime rate plus 0.5% per
annum. During fiscal 1997, the weighted average interest rate incurred on the
revolving loan facility was 5.25%.
Long-term debt consisted of the following:
JUNE 30,
1997 1996
------ ------
Revolving credit and security agreements.............. $24,754 $ 9,924
Term note............................................. 8,000 -
Mortgage notes payable................................ 2,499 985
Obligations under capital leases...................... 1,598 195
Other................................................. 434 112
------- -------
37,284 11,216
Less current portion............................ 1,376 182
------- -------
$35,908 $11,034
======= =======
In July 1997, the Company repaid approximately $33,000 of amounts then
outstanding under the Revolving Credit and Security Agreements, as amended, and
a portion of the Term Note using proceeds from a Common Stock offering completed
in July 1997. Excluding the July 1997 amounts repaid, the aggregate maturities
of long-term debt (including
F-13
43
capital lease obligations) for the five fiscal years subsequent to June 30,
1997, were as follows: 1998 -- $1,376; 1999 -- $713; 2000 -- $1,115; 2001 --
$689; and 2002 -- $502.
In March 1996, the Company entered into a three-year domestic Revolving Credit
and Security Agreement (the "Loan Agreement") with a bank. The Loan Agreement
permits working capital advances to the Company in aggregate amounts equal to
the lesser of: (i) $25,000 less the current outstanding amount of the advances
under the Capex Facility (defined below) (the "Maximum Revolving Loan Amount")
or (ii) an amount based on eligible receivables and inventory (the "Working
Capital Facility"). The unpaid principal balance of the Working Capital Facility
(together with accrued interest thereon) is payable in March 1999. Advances
under the Working Capital Facility bear interest at the option of the Company at
a rate per annum (the "Working Capital Interest Rate") equal to: (i) the higher
of (a) the prime rate minus 0.5% or (b) the Federal Funds Rate; or (ii) the
average LIBOR plus 2.5%. Under the terms of the Loan Agreement, the bank may
make advances in excess of the applicable percentages of eligible receivables
and inventory, provided that, if such excess amounts remain outstanding for five
or more days in any calendar month, all outstanding advances bear interest at
the Working Capital Interest Rate plus 0.5% for such month. At June 30, 1997,
the interest rate of the Working Capital Facility was 8.00%.
The Company is able to obtain advances under the Loan Agreement up to $5,000 to
permit the Company to finance permitted capital expenditures (the "Capex
Facility"), which bear interest at a rate per annum equal to the higher of (a)
the prime rate plus 0.5% or (b) the Federal Funds Rate plus 1.0%. The unpaid
principal balance of the Capex Facility (together with accrued interest thereon)
is payable in March 1999. The bank has also agreed to issue letters of credit in
an amount of up to $5,000, at anytime, provided the outstanding letters of
credit and working capital advances do not exceed the Maximum Revolving Loan
Amount. At June 30, 1997 no amounts were outstanding under the Capex Facility,
and $4,234 was available through letters of credit.
In July 1996, a foreign subsidiary of the Company entered into a similar
Revolving Credit and Security Agreement with a foreign affiliate of the bank
(the "Foreign Loan Agreement"). Pursuant to the Foreign Loan Agreement, the bank
has agreed to extend working capital advances in the aggregate amount equal to
the lesser of (i) the United States dollar equivalent of approximately $3,000 in
the local currency (Canadian dollars) or (ii) an amount based on eligible
receivables and inventory. All amounts advanced under the Foreign Loan Agreement
reduce, by the United States dollar value of outstanding amounts, the Maximum
Revolving Loan Amount available to the Company under the Loan Agreement. The
unpaid principal balance of the Foreign Loan Agreement (together with accrued
interest thereon) is payable in March 1999. Advances under the Foreign Loan
Agreement bear interest at the rate per annum set at a formula intended to
approximate that of the Loan Agreement.
The provisions of the Loan Agreement contain certain restrictive covenants
concerning the incurrence of indebtedness and liens, capital expenditures,
investments, guarantees of the indebtedness of others, providing loans to
others, the sale of assets, and prohibit the payment of dividends. In addition,
the Company must maintain certain working capital, leverage, cash flow, debt,
and tangible net worth ratios.
In February 1997, the Company borrowed $8,400, for its acquisition of Parry,
under a twenty-six month term note from the same bank that provided the
Revolving Credit and
F-14
44
Security Agreement. Interest accrues on the note at a rate equal to the higher
of the prime rate or 0.5% over the Federal Funds Rate (rate approximated 8.5% at
June 30, 1997). The Company pays monthly principal installments of $100 plus
accrued interest for the first 25 months of the loan term with a final payment
of $5,900 plus accrued interest due March 24, 1999.
The Company leases certain equipment under agreements which are classified as
capital leases. The lease agreements have varying terms and the leased assets,
with a net carrying value of $1,819 at June 30, 1997, are included in the
consolidated balance sheet as machinery and equipment.
Mortgages payable consisted of six separate notes at various rates of interest,
ranging from 7.5% to 9.75%, and at June 30, 1997 were collateralized by land and
buildings with a net carrying value of $4,405.
During fiscal 1996, the company recorded an extraordinary loss of $135 (net of
applicable income tax benefits of $91) for the write-off of deferred financing
costs related to the early extinguishment of debt. In October 1994, the Company
refinanced certain of its borrowings, which resulted in an extraordinary loss on
the early extinguishment of debt of $253 (net of applicable income tax benefits
of $168).
The fair value of debt, based on market rates and maturity dates, approximates
carrying value. Debt issuance costs, classified with other assets, are being
amortized over the terms of the related debt.
H. SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
- --------------------
The Company's authorized capital stock consists of 80 million shares of Common
Stock having a par value of $.001 per share and 1 million shares of preferred
stock having a par value of $.001 per share. At June 30, 1997 and 1996, there
were 13,435,394 and 10,844,659 shares of Common Stock issued and outstanding,
respectively, and no shares of preferred stock were issued and outstanding.
On July 1, 1997, the Company issued 3,000,000 shares of its Common Stock in a
public offering at $24.75 a share. Net proceeds, after offering costs, amounted
to approximately $70,530, of which $33,000 was used to pay down existing bank
debt and $2,835 was used for the purchase of 630,111 shares of the common stock
of Fiberstars, Inc., increasing the Company's ownership to 19.6% of Fiberstars.
The remainder of the net proceeds will be used for capital expenditures and
general corporate purposes, including investments in joint ventures.
On July 16, 1996, the Company issued 2,452,000 shares of its Common Stock in a
public offering at $13.50 a share. Net proceeds, after offering costs, amounted
to $30,091.
On December 12, 1995, the Company completed an initial public offering and
issued 2,900,000 shares of its Common Stock. Prior to the initial public
offering, shares of the Predecessors were exchanged for 7,281,849 shares of
Common Stock of the Company; and 535,887 shares were issued to a warrant holder
in exchange for the warrants. During 1996, the Company issued 126,923 shares of
Common Stock in connection with certain acquisitions, and at June 30, 1997,
34,783 shares of Common Stock were issuable in connection with an acquisition.
The common
F-15
45
stock authorized, issued and outstanding as of June 30, 1995 represents the
aggregate of the Predecessors' common stocks. The shares authorized, issued and
outstanding of the individual issues of common stock of the Predecessors are not
presented as the information is not meaningful. At June 30, 1995, the Company
had 892,500 preferred shares outstanding (without par value). In August 1995,
the Company redeemed such preferred shares for $1,012.
EMPLOYEE STOCK OPTIONS
- ----------------------
The Company's 1995 Incentive Award Plan provides for granting of "A" and "B"
incentive stock options to purchase common stock of the Company. The "A" options
become exercisable over one-to-five years from the date of grant depending on
the Company's operating performance. The "B" options become exercisable at the
rate of 25% after one year, 35% after two years, and 40% after three years. All
"A" and "B" options have been granted at market value on the date of grant and
expire ten years from the date of grant. At June 30, 1997, the Company had
949,339 shares reserved for future issuance upon exercise of stock options
granted under the Incentive Award Plan.
Information related to stock options at June 30 under the Incentive Award Plan
follows:
1997 1996
------------------------ -------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- --------
Outstanding, beginning of year 791,850 $ 12.33 -- --
Granted 228,150 19.73 814,350 $ 12.26
Exercised (50,661) 10.32 -- --
Forfeited (55,125) 10.63 (22,500) 10.00
-------- --------
Outstanding, end of year 914,214 14.38 791,850 12.33
======== ========
Weighted -average fair value
of options granted during
the year $ 6.62 -- $ 3.77 --
The following table summarizes additional information concerning outstanding and
exercisable options at June 30, 1997:
F-16
46
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ----------------- -------------- --------------- -------------- -------------- --------------
$10.00 to 16.00 439,827 8.9 years $ 10.09 59,377 $ 10.05
16.00 to 23.00 474,387 9.3 years 18.36 61,800 17.00
----------- -----------
914,214 121,177 13.60
=========== ===========
If the Company had elected to report compensation expense for the Incentive
Award Plan based on the fair value at the grant dates for all awards consistent
with the methodology prescribed by Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation", net income and earnings per
share would be as follows:
YEAR ENDED JUNE 30,
-------------------------------
1997 1996
-------------- --------------
Net income As reported $ 7,104 $ 2,382
Pro forma 6,540 2,208
Earnings per share As reported $ 0.52 $ 0.11
Pro forma 0.48 0.09
The fair values of the stock options used to calculate the pro forma net income
and pro forma earnings per share were estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
fiscal 1997 and 1996, respectively: expected volatility of 30% and 25%,
risk-free interest rates of 6.41% and 6.06%, and expected lives of 4 years in
both periods with no dividend yield.
I. REDEEMABLE STOCK PURCHASE WARRANTS
Warrants issued in connection with a financing entered into during 1994 were
redeemed in December 1995 for $3,000 plus 5.0% of the Company's then existing
common stock. Warrants issued in connection with a financing entered into during
1990 were redeemed by the Company for $3,199 in March 1996.
J. INCOME TAXES
Income before income taxes and extraordinary charges were attributable to the
following sources:
F-17
47
YEAR ENDED JUNE 30,
--------------------------------------------
1997 1996 1995
----------- ------------ -----------
United States $ 8,924 $ 3,086 $ 3,354
Foreign 877 341 -
----------- ------------ -----------
Total $ 9,801 $ 3,427 $ 3,354
=========== ============ ===========
The provision for income taxes is computed using the liability method and is
based on applicable federal and state statutory rates adjusted for permanent
differences between financial and taxable income.
Income taxes have been provided as follows:
1997 1996 1995
---------- --------- ---------
Current:
Federal ..................... $ 1,373 $ (138) $ 776
State and local ............. 550 281 160
Foreign ..................... 355 72 --
------- ------- -------
2,278 215 936
Deferred:
Federal ..................... $ 313 $ 485 $ (538)
State and local ............. 149 167 (186)
Foreign ..................... (43) 43 --
------- ------- -------
419 695 (724)
------- ------- -------
$ 2,697 $ 910 $ 212
======= ======= =======
The income tax provision for periods prior to the Combination has been
calculated as if the Company filed a consolidated tax return.
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets and liabilities
at June 30, 1997 and 1996 are as follows:
F-18
48
1997 1996
------- -------
Deferred tax assets:
Net operating loss carryforwards .................... $ 1,536 $ 2,882
AMT carryforward .................................... 262 208
Payroll-related and other accrued expenses .......... 768 630
Other ............................................... 535 304
------- -------
3,101 4,024
Deferred tax liabilities:
Depreciation ........................................ 2,989 3,380
Other ............................................... 1,238 203
------- -------
4,227 3,583
------- -------
Net deferred tax assets (liabilities) before
valuation allowance..................................... (1,126) 441
Valuation allowance ...................................... -- (276)
------- -------
Net deferred tax assets (liabilities) .................... $(1,126) $ 165
======= =======
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
1997 1996 1995
---- ----- ------
Statutory rate ...................................... 35.0% 35.0% 35.0%
State and local income taxes net of federal benefit . 3.6 9.2 1.0
Net operating loss carryforwards .................... (2.8) (56.4) (31.0)
Adjustment of deferred tax liabilities .............. (10.9) -- --
Nondeductible settlement of a claim ................. -- 30.9 --
Other ............................................... 2.6 7.8 1.3
----- ---- ----
Effective tax rate .................................. 27.5% 26.5% 6.3%
==== ==== ====
Income taxes paid (net of refunds) were $81 in 1997, $375 in 1996 and $280 in
1995.
At June 30, 1997, the Company had United States net operating loss carryforwards
("NOLs") for tax purposes of approximately $4,500 to offset future taxable
income. These NOLs expire in the fiscal years 2006 through 2011. Alternative
minimum tax paid through June 30, 1997 of $262 is available as a credit with an
unlimited carryforward period.
K. EMPLOYEE BENEFITS
The Company has defined contribution elective savings and retirement plans that
cover substantially all full-time employees in its domestic and foreign
subsidiaries. The Company matches the contributions of participating employees
on the basis of the percentages specified in the respective plans, ranging from
1% to 2% of eligible employee earnings. Contributions charged to income for the
defined contribution plans were $373 in fiscal 1997 and $250 in each of fiscal
1996 and fiscal 1995.
L. SETTLEMENT OF A CLAIM
On March 1, 1996, a former common shareholder of a Predecessor asserted a claim
in the United States District Court for the Northern District of Ohio against
the Chief Executive Officer and a director of the Company, and the Executive
Vice President and a director of the Company, and subsequently, a claim against
the Company. The claim alleged that certain misrepresentations and/or omissions
were made to the former common shareholder in connection with: (i) the
F-19
49
Company's purchase of his equity interest effected by a merger of a Predecessor
into the Company, as to which the former common shareholder waived his statutory
appraisal rights and (ii) the purchase by the Chief Executive Officer of the
former common shareholder's beneficial interest in a trust controlled by the
Chief Executive Officer. The former common shareholder alleged that the
misrepresentations and/or omissions caused direct damages which exceeded $900.
The suit also claimed punitive damages in an undetermined amount believed by the
former common shareholder to exceed $2,700. On August 23, 1996, another former
common shareholder filed similar claims against the Chief Executive Officer and
Executive Vice President and the Company seeking direct damages of $400 and
punitive damages of $1,200. The Chief Executive Officer, the Executive Vice
President and the Company denied all of the allegations and vigorously defended
against the claims.
On November 29, 1996, the Company, the Chief Executive Officer and the Executive
Vice President reached an out-of-court settlement of both former common
shareholders' claims. The charge of $771 represents the settlement of $475 plus
legal and other directly-related costs, net of insurance recoveries.
M. NONCASH SETTLEMENT OF CLAIM
On October 27, 1995, several former preferred shareholders of the Company's lamp
manufacturing subsidiary, whose shares were redeemed in August 1995 (prior to
the Combination), asserted a claim against certain officers of the Company. On
November 15, 1995, such officers entered into a settlement agreement with the
former preferred shareholders, whereby such officers and certain other
shareholders transferred, from their personal holdings, an aggregate of 273,185
shares of the Company's common stock to the former preferred shareholders. Since
the settlement resulted in a transfer of personal shares held by such officers,
there was no dilution of the ownership interest of shareholders of the Company.
The settlement was recorded as a noncash expense and paid-in-capital of the
Company.
N. RESTRUCTURING CHARGES
In June 1994, one of the Company's subsidiaries provided for the costs,
principally inventory and equipment write-downs, to exit its nonlamp product
line. During 1995, the disposition plan was revised resulting in a reduction of
$121 in the estimated costs to exit the nonlamp product line. During 1996, the
assets of the nonlamp product line were sold to an affiliate of the Company for
an amount equal to the carrying amount of such assets as of June 30, 1995. As of
June 30, 1996 and 1997, the Company has an 8.5% note from the affiliate for $220
related to the sale of the assets of the nonlamp product line which is recorded
as a long-term receivable from related parties in the consolidated balance
sheet.
F-20
50
O. EARNINGS PER SHARE
Earnings per share is computed as follows:
1997 1996 1995
------- ------- -------
Income:
Income before extraordinary charge ................................ $ 7,104 $ 2,517 $ 3,142
Less: Preferred stock dividends (1) .............................. -- -- 58
Increase in warrants' value (2) ............................ -- 1,350 2,302
------- ------- -------
Income before extraordinary items attributable to common
shareholders ................................................... $ 7,104 $ 1,167 $ 782
======= ======= =======
Net income ........................................................ $ 7,104 $ 2,382 $ 2,889
Less: Preferred stock dividends (1) .............................. -- -- 58
Increase in warrants' value (2) ............................ -- 1,350 2,302
------- ------- -------
Net income attributable to common shareholders .................... $ 7,104 $ 1,032 $ 529
======= ======= =======
Earnings (loss) per share:
Income before extraordinary charge ................................ $ 0.52 $ 0.12 $ 0.10
Extraordinary charges ............................................. -- (0.01) (0.03)
------- ------- -------
Net income ........................................................ $ 0.52 $ 0.11 $ 0.07
======= ======= =======
Weighted average shares (in thousands) ................................. 13,558 9,479 7,818
======= ======= =======
Weighted average shares were computed as follows:
Shares outstanding or deemed outstanding at beginning of period..... 10,844 7,282 7,282
Weighted average shares issued pursuant to public offering.......... 2,327 1,601 --
Weighted average shares issued in acquisition ...................... 41 -- --
Weighted average shares issued for exercise of stock options ....... 22 -- --
Weighted average common share equivalents .......................... 289 272 536
Weighted average shares issued upon warrant conversion ............. -- 296 --
Weighted average shares issued in exchange for subsidiary stock .... -- 20 --
Weighted average shares issuable ................................... 35 8 --
------- ------- -------
13,558 9,479 7,818
======= ======= =======
- ---------------------
(1) The preferred stock dividends represent cumulative dividends in arrears. No
dividends were declared on the preferred stock in any of the years
presented. The cumulative dividends in arrears were paid to the preferred
shareholders when the related preferred shares were redeemed in October
1994.
(2) The warrants were redeemed in fiscal 1996.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which requires
changes in computing and presenting earnings per share effective for the quarter
ended December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and restate all prior
periods. The adoption of this standard is not expected to have a material impact
on the Company's earnings per share.
P. RELATED PARTY TRANSACTIONS
Prior to the initial public offering, management fees paid by the Company to an
affiliate were $764 in fiscal 1996 and $831 in fiscal 1995.
During January 1996, the Company entered into a six-year Aircraft Operating
Agreement ("Agreement") with an unrelated company to charter an airplane for
service into locations which are not adequately served by commercial carriers.
The unrelated company leases the airplane from an affiliate of the Company owned
by certain officers of the Company. These officers have guaranteed the repayment
of $1.7 million of indebtedness incurred by the affiliate to purchase the
airplane. The Company's minimum annual commitments under the Agreement are $261.
F-21
51
Fees paid by the Company under this agreement were $554 in fiscal 1997 and $244
in fiscal 1996.
The Company paid a director of the Company $79 during fiscal 1997 and $100 in
fiscal years 1996 and 1995 for consulting services.
The Company sold lamps, lamp components, and lamp production equipment to an
overseas company aggregating $3,853 in fiscal 1997, $2,363 in fiscal 1996 and
$650 in fiscal 1995. An executive officer and director of the overseas company
became a Director of the Company in January 1996.
Q. COMMITMENTS
The Company leases buildings and certain equipment under noncancelable operating
lease agreements. Total rent expense was $1,478 in 1997, $893 in 1996 and $613
in 1995. Future minimum lease commitments, as of June 30, 1997, were as follows:
Year:
1998 $ 1,645
1999 1,495
2000 1,293
2001 1,169
2002 785
Thereafter 687
--------
Minimum lease payments $ 7,074
========
Estimated costs to complete construction in progress at June 30, 1997 were
$3,593.
F-22
52
R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended June 30, 1997 and 1996.
Three Months Ended
-------------------------------------------
Fiscal 1997
-------------------------------------------
Jun 30 (a) Mar 31 Dec 31(d) Sep 30
---------- -------- -------- -------
Net sales ............................................. $25,714 $22,334 $20,107 $18,335
Gross profit .......................................... 12,485 10,468 9,411 8,388
Income from operations ................................ 3,348 3,065 1,779 2,277
Net income ............................................ $ 2,601 $ 1,882 $ 1,151 $ 1,470
======= ======= ======= =======
Net earnings per share ............................... $ 0.19 $ 0.14 $ 0.08 $ 0.11
======= ======= ======= =======
Average shares outstanding ............................ 13,775 13,802 13,650 13,034
Price Range of Common Stock:
High .............................................. $26.500 $27.250 $25.250 $19.875
Low ............................................... $19.000 $22.000 $16.375 $13.125
Three Months Ended
-------------------------------------------
Fiscal 1996
-------------------------------------------
Jun 30 (b) Mar 31 Dec 31(d) Sep 30
---------- -------- -------- -------
Net sales ............................................. $17,341 $ 13,786 $ 12,037 $11,472
Gross profit (b) ...................................... 8,133 6,382 5,615 5,342
Income (loss) from operations (b) ..................... 2,172 1,883 (923) 1,611
Income (loss) before extraordinary charge.............. 1,559 1,487 (1,453) 924
Net income (loss) ..................................... $ 1,559 $ 1,455 $ (1,556) $ 924
======= ======== ======== =======
Earnings (loss) per share:
Before extraordinary charge......................... $ 0.14 $ 0.14 $ (0.33) $ 0.12
Extraordinary charge ............................... -- (0.00) (0.01) --
------- -------- -------- -------
Net earnings (loss) per share ......................... $ 0.14 $ 0.14 $ (0.34) $ 0.12
======= ======== ======== =======
Average shares outstanding ............................ 11,000 10,749 8,448 7,818
Price Range of Common Stock:
High .............................................. $18.125 $ 14.375 $ 10.188 (c)
Low ............................................... $12.625 $ 8.500 $ 10.000 (c)
- ---------------
(a) Fourth Quarter 1997 -- Net income was increased by $1,000 for a change in
accounting estimate related to income taxes.
(b) Fourth Quarter 1996 -- Capitalization of overhead variances increased gross
profit and income from operations by approximately $300.
(c) Second Quarter 1996 -- The Company completed its initial public offering on
December 12, 1995.
(d) See Notes L and M regarding claims settlements.
F-23
53
S. INDUSTRY SEGMENT AND GEOGRAPHIC FINANCIAL AREA INFORMATION
The Company operates in a single industry, on a global basis: the design,
manufacture and sales of metal halide lighting products including materials,
components, systems and production equipment.
Information concerning the Company's operations in different geographic areas at
June 30, 1997 and for the year then ended follows:
NORTH UNITED OTHER
AMERICA KINGDOM FOREIGN ELIMINATIONS CONSOLIDATED
------- ------- ------- ------------ ------------
Net sales to unaffiliated customers $ 74,941 $ 5,786 $5,764 $ -- $ 86,490
Transfers between geographic areas 3,424 -- -- (3,424) --
-------- ------- ------ -------- --------
Net sales $ 78,365 $ 5,786 $5,764 $ (3,424) $ 86,490
======== ======= ====== ======== ========
Operating profit $ 10,187 $ 347 $ 270 $ (335) $ 10,469
Identifiable assets 130,363 14,937 4,895 (15,357) 134,838
The information presented above may not be indicative of the results of
operations if the geographic areas were independent organizations. Transfers
between geographic areas and other geographic transactions are made at
established transfer prices. Operating profit by geographic segment is net sales
less operating costs, excluding interest and income taxes. Net sales generated
by the foreign operations or identifiable assets of foreign operations were less
than 10% of related consolidated totals for fiscal 1996 and 1995.
Export sales from the Company's United States operations, which did not exceed
10% of consolidated sales to any individual country, amounted to $16,696,
$12,129 and $6,442 in fiscal 1997, 1996 and 1995, respectively.
In fiscal 1997 and fiscal 1995 no single customer accounted for 10% or more of
the Company's net sales, while approximately $5,689, or 10%, of fiscal 1996 net
sales were made to one customer.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Reporting Disaggregated Information
about a Business Enterprise". The statement requires a "management" approach to
reporting financial and descriptive information about a Company's operating
segments. The Company must adopt this statement in the first quarter of fiscal
1999. Management is currently studying the potential effect of adopting this
statement.
T. SUBSEQUENT EVENTS
In July 1997, the Company issued 3,000,000 shares of its Common Stock in a
public offering. A portion of the net proceeds from this offering were used to
repay substantially all amounts outstanding under its Revolving Credit and
Security Agreement and its $8,400 term note. The early extinguishment of this
debt will result in an extraordinary charge against the first quarter fiscal
1998 earnings of approximately $500 net of applicable estimated income tax
benefits.
In September 1997, the Company announced the signing of a letter of intent to
acquire Ruud Lighting, Inc. for $35,500 and 3 million shares of the Company's
Common Stock. The Company intends to complete this acquisition through a
combination of available cash from its July 1997 offering and additional bank
financing.
F-24
54
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
The information required by Item 10 is incorporated herein by reference to the
Registrant's definitive Proxy Statement relating to its 1997 Annual Shareholders
Meeting ("Proxy Statement"), under the captions "Nominees," "Continuing
Directors and Executive Officers," and "Section 16(a) Beneficial Ownership
Reporting Compliance." The Proxy Statement will be filed with the SEC prior to
October 27, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Compensation" in the Proxy
Statement is included by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Certain Holders of Voting
Securities" in the Proxy Statement is included by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Other Transactions With Directors
And Officers" in the Proxy Statement is included by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2). The following consolidated financial statements of
Advanced Lighting Technologies, Inc. are included in Item 8:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Income for the Years Ended
June 30, 1997, 1996 and 1995
Statements of Consolidated Shareholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Financial Statement Schedules:
(2) The following Financial Statement Schedules are included in Item 14(d):
None
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been
omitted.
28
55
(3) List of Exhibits
Sequential Page Number/
Exhibit No. Title Incorporated by Reference
- ---------------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation *
3.2 Code of Regulations *
9.1 Form of Voting Trust Agreement dated as of October 10, 1995
by and among the Company, Wayne R. Hellman, Louis S. Fisi,
David L. Jennings, Robert S. Roller, Juris Sulcs, James F. Sarver,
Brian A. Hellman and Lisa Hellman, as amended
December 20, 1995. ****
9.2 Form of Irrevocable Proxy ****
10.1 Copy of the Company's Incentive Award Plan *
10.1/A Form of Amended Option "A" Grant, qualifying as an
Incentive Stock Option *
10.2 Copy of the Non-Employee Director Stock Purchase
Plan for Venture Lighting International, Inc. *
10.3 Plan and Agreement of Merger Among H&F Four, Inc.
VLI Partners II, Inc. and Venture Lighting International,
Inc., effective as of October 6, 1995 *
10.4 Plan and Agreement of Merger With of H&F Six, Inc.,
H&F Seven, Inc., H&F Eight, Inc., H&F Nine, Inc.,
H&F Twelve, Inc. and Into Advanced Lighting
Technologies, Inc., effective as of October 6, 1995 *
10.5 Plan and Agreement for Exchange of Stock Among Advanced
Lighting Technologies, Inc. and Shareholders of Metal Halide
Technologies, Inc., effective as of October 10, 1995 *
10.6 Plan and Agreement for Exchange of Stock Among Advanced
Lighting Technologies, Inc. and Shareholders of Microsun
Technologies, Inc. and Shareholders of Microsun Technologies,
Inc., effective as of October 10, 1995 *
10.7 Plan and Agreement of Merger of VLI Partners II, Inc. With
and Into Advanced Lighting Technologies, Inc., effective as of
October 10, 1995, as amended *
10.8 Plan and Agreement of H&F One, Inc. With and Into Advanced
Lighting Technologies, Inc., effective as of October 10, 1995,
as amended *
10.9 Form of Plan and Agreement for Exchange of Stock Among
Advanced Lighting Technologies, Inc. and Individual
Shareholders of APL Engineered Materials, Inc.,
effective as of October 10, 1995 *
10.10 Form of Preferred Stock Redemption Agreement between
Partners II, Inc. and its preferred shareholders (all
substantially the same except the number of shares being
redeemed and the total redemption price) *
10.11 Agreement to Repay, dated October 5, 1995 with GE *
10.12 Bill of Sale dated September 15, 1995 from APL Engineered
Materials, Inc. to H&F Five, Inc. *
29
56
Sequential Page Number/
Exhibit No. Title Incorporated by Reference
- ---------------------------------------------------------------------------------------------------------------
10.13 Letter Agreement between Greyrock Financial Group
APL Engineered Materials, Inc. dated October 10, 1995 *
10.14 Lease Agreement dated January 1, 1993, by and between
Weston, Inc. and Venture Lighting International, Inc. **
10.15 Amended Lease Agreement dated September 30, 1992, by
between LR Properties and Lighting Resources International,
Inc. *
10.16 Employment Agreement dated October 6, 1995, by and between
the Company and Wayne R. Hellman *
10.17 Employment Agreement dated October 6, 1995, by and between
the Company and Louis S. Fisi *
10.18 Settlement Agreement, Covenant Not To Sue and
Mutual Release II *
10.19 Aircraft Lease Agreement between LightAir, Ltd., an Ohio
limited liability company, of which Wayne R. Hellman owns
owns 80% of the membership interests and Louis S. Fisi owns
20% of the membership interests, and Levetz Investments, Inc.
an unrelated corporation engaged in the business of chartering
aircraft and otherwise providing general aviation services
(Levetz Investments"), dated as of January 22, 1996.
(Form 10-Q Exhibit 10.1) ***
10.20 Aircraft Operating Agreement between Levetz Investments and
Venture Lighting International, Inc., a wholly-owned subsidiary
of the Company, dated as of January 22, 1996. (Form 10-Q
Exhibit 10.1) ***
10.21 Aircraft Operating Agreement between Levetz Investments and
APL Engineered Materials, Inc., a wholly-owned subsidiary of
the Company, dated as of January 22, 1996. (Form 10-Q
Exhibit 10.3) ***
10.22 Asset Purchase Agreement between Current Industries, Inc.,
Metal Halide Controls, Inc. and Advanced Lighting Technologies,
Inc. dated January 26, 1996. (Form 10-Q Exhibit 10.1) ****
10.23 Letter Agreement between Venture Lighting International, Inc.
and the Bank of Nova Scotia dated March 11, 1996 regarding
the purchase of capital stock and certain indebtedness of
Spectro Electric, Inc. (form 10-Q Exhibit 10.2) ****
30
57
Sequential Page Number/
Exhibit No. Title Incorporated by Reference
- ---------------------------------------------------------------------------------------------------------------
10.24 Revolving Credit and Security Agreement between the Company
and BNY Financial Corporation dated March 25, 1996, as
amended. **
10.25 Amendment No. 1 to Lease Agreement dated March 6, 1996,
by and between 32000 Aurora Road Company, Ltd. and
Venture Lighting International, Inc. (a wholly-owned
subsidiary of the Company) **
10.26 Aircraft Dry Lease Agreement dated as of May 27, 1997
by and between LightAir, Ltd. and Advanced Lighting
Technologies, Inc. **
11.0 Statement of Computation of Per Share Earnings 37
21.0 Subsidiaries of the Registrant **
23.0 Consent of Ernst & Young LLP, Independent Auditors 38
24.1 Powers of Attorney 39
27.1 Financial Data Schedule 40
* Incorporated by reference to Exhibit of same number in Company's
Registration Statement on Form S-1, Registration No. 33-97902, effective
December 11, 1995.
** Incorporated by reference to Exhibit of same number in Company's
Registration Statement on Form S-1, Registration No. 333-28529, effective
July 1, 1997.
*** Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended December 31,
1995.
**** Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
1996.
(b). Reports on Form 8-K.
During the fourth quarter of fiscal 1997, the Company filed no Reports
on Form 8-K.
(c). Exhibits.
The exhibits to this Form 10-K are submitted as a separate section of this
Report. See Exhibit Index.
(d). Financial Statement Schedules
None.
31
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ADVANCED LIGHTING TECHNOLOGIES, INC.
Date: September 29, 1997 By: /s/ Louis S. Fisi
-----------------
Louis S. Fisi
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------
/s/ Wayne R. Hellman Chief Executive Officer September 29, 1997
Wayne R. Hellman and Director
/s/ Nicholas R. Sucic Chief Financial Officer, September 29, 1997
Nicholas R. Sucic Vice President and
Treasurer
(Chief Accounting Officer)
/s/ Louis S. Fisi Director September 29, 1997
Louis S. Fisi
/s/ Theodore A. Filson Director September 29, 1997
Theodore A. Filson
/s/ Francis H. Beam Director September 29, 1997
Francis H. Beam
/s/ Susuma Harada Director September 29, 1997
Susuma Harada
/s/ A Gordon Tunstall Director September 29, 1997
A Gordon Tunstall
*The undersigned, by signing his name hereto, does hereby execute this Report on
behalf of the above indicated directors of Advanced Lighting Technologies, Inc.
pursuant to Powers of Attorney executed by each such director appointing the
undersigned as attorney-in-fact and filed with the Securities and Exchange
Commission.
By: /s/ Louis S. Fisi
-----------------
Louis S. Fisi
Attorney-in-Fact
32
59
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM 10-K
ADVANCED LIGHTING TECHNOLOGIES, INC.
33
60
EXHIBIT INDEX
Sequential Page Number/
Exhibit No. Title Incorporated by Reference
- ---------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation *
3.2 Code of Regulations *
9.1 Form of Voting Trust Agreement dated as of October 10, 1995
by and among the Company, Wayne R. Hellman, Louis S. Fisi,
David L. Jennings, Robert S. Roller, Juris Sulcs, James F. Sarver,
Brian A. Hellman and Lisa Hellman, as amended
December 20, 1995. ****
9.2 Form of Irrevocable Proxy ****
10.1 Copy of the Company's Incentive Award Plan *
10.1/A Form of Amended Option "A" Grant, qualifying as an
Incentive Stock Option *
10.2 Copy of the Non-Employee Director Stock Purchase
Plan for Venture Lighting International, Inc. *
10.3 Plan and Agreement of Merger Among H&F Four, Inc.
VLI Partners II, Inc. and Venture Lighting International
Inc., effective as of October 6, 1995 *
10.4 Plan and Agreement of Merger With of H&F Six, Inc.,
H&F Seven, Inc., H&F Eight, Inc., H&F Nine, Inc.,
H&F Twelve, Inc. and Into Advanced Lighting
Technologies, Inc., effective as of October 6, 1995 *
10.5 Plan and Agreement for Exchange of Stock Among Advanced
Lighting Technologies, Inc. and Shareholders of Metal Halide
Technologies, Inc., effective as of October 10, 1995 *
10.6 Plan and Agreement for Exchange of Stock Among Advanced
Lighting Technologies, Inc. and Shareholders of Microsun
Technologies, Inc. and Shareholders of Microsun Technologies,
Inc., effective as of October 10, 1995 *
10.7 Plan and Agreement of Merger of VLI Partners II, Inc. With
and Into Advanced Lighting Technologies, Inc., effective as of
October 10, 1995, as amended *
10.8 Plan and Agreement of H&F One, Inc. With and Into Advanced
Lighting Technologies, Inc., effective as of October 10, 1995,
as amended *
34
61
Sequential Page Number/
Exhibit No. Title Incorporated by Reference
- ---------------------------------------------------------------------------------------------------------
10.9 Form of Plan and Agreement for Exchange of Stock Among
Advanced Lighting Technologies, Inc. and Individual
Shareholders of APL Engineered Materials, Inc.,
effective as of October 10, 1995 *
10.10 Form of Preferred Stock Redemption Agreement between
Partners II, Inc. and its preferred shareholders (all
substantially the same except the number of shares being
redeemed and the total redemption price) *
10.11 Agreement to Repay, dated October 5, 1995 with GE *
10.12 Bill of Sale dated September 15, 1995 from APL Engineered
Materials, Inc. to H&F Five, Inc. *
10.13 Letter Agreement between Greyrock Financial Group
APL Engineered Materials, Inc. dated October 10, 1995 *
10.14 Lease Agreement dated January 1, 1993, by and between
Weston, Inc. and Venture Lighting International, Inc. **
10.15 Amended Lease Agreement dated September 30, 1992, by
between LR Properties and Lighting Resources International,
Inc. *
10.16 Employment Agreement dated October 6, 1995, by and between
the Company and Wayne R. Hellman *
10.17 Employment Agreement dated October 6, 1995, by and between
the Company and Louis S. Fisi *
10.18 Settlement Agreement, Covenant Not To Sue and
Mutual Release II *
10.19 Aircraft Lease Agreement between LightAir, Ltd., an Ohio
limited liability company, of which Wayne R. Hellman owns
80% of the membership interests and Louis S. Fisi owns
20% of the membership interests, and Levetz Investments, Inc.
an unrelated corporation engaged in the business of chartering
aircraft and otherwise providing general aviation services
(Levetz Investments"), dated as of January 22, 1996.
(Form 10-Q Exhibit 10.1) ***
10.20 Aircraft Operating Agreement between Levetz Investments and
Venture Lighting International, Inc., a wholly-owned subsidiary
of the Company, dated as of January 22, 1996. (Form 10-Q
Exhibit 10.1) ***
35
62
Sequential Page Number/
Exhibit No. Title Incorporated by Reference
- ---------------------------------------------------------------------------------------------------------
10.21 Aircraft Operating Agreement between Levetz Investments and
APL Engineered Materials, Inc., a wholly-owned subsidiary of
the Company, dated as of January 22, 1996. (Form 10-Q
Exhibit 10.3) ***
10.22 Asset Purchase Agreement between Current Industries, Inc.,
Metal Halide Controls, Inc. and Advanced Lighting Technologies,
Inc. dated January 26, 1996. (Form 10-Q Exhibit 10.1) ****
10.23 Letter Agreement between Venture Lighting International, Inc.
and the Bank of Nova Scotia dated March 11, 1996 regarding
the purchase of capital stock and certain indebtedness of
Spectro Electric, Inc. (form 10-Q Exhibit 10.2) ****
10.24 Revolving Credit and Security Agreement between the Company
and BNY Financial Corporation dated March 25, 1996, as
amended. **
10.25 Amendment No. 1 to Lease Agreement dated March 6, 1996,
by and between 32000 Aurora Road Company, Ltd. and
Venture Lighting International, Inc. (a wholly-owned
subsidiary of the Company) **
10.26 Aircraft Dry Lease Agreement dated as of May 27, 1997
by and between LightAir, Ltd. and Advanced Lighting
Technologies, Inc. **
11.0 Statement of Computation of Per Share Earnings 37
21.0 Subsidiaries of the Registrant **
23.0 Consent of Ernst & Young LLP 38
24.1 Powers of Attorney 39
27.1 Financial Data Schedule 40
* Incorporated by reference to Exhibit of same number in Company's
Registration Statement on Form S-1, Registration No. 33-97902,
effective December 11, 1995.
** Incorporated by reference to Exhibit of same number in Company's
Registration Statement on Form S-1, Registration No. 333-28529,
effective July 1, 1997.
*** Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended December
31, 1995.
**** Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
1996.
36