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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q (Mark One) [X] Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
  or [   ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
 Commission File Number: 0-27202 ADVANCED LIGHTING TECHNOLOGIES, INC. 
  Ohio
    
    34-1803229(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)32000 Aurora Road, Solon, Ohio
    
    44139(Address of principal executive offices)
    
    (Zip Code)
 440 / 519-0500 
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [   ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes [   ] No [X] There were 1,131 shares of the Registrants Common Stock, $.001 par value per share, outstanding as
of December 31, 2004.




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INDEX Advanced Lighting Technologies, Inc.  
 Page No.Part I Financial InformationItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets Reorganized Company as of December 31 and June 30, 2004
    
    
    2Condensed Consolidated Statements of Operations Reorganized Company for the Three Months Ended December 31, 2004
    
    
    4Reorganized Company for the Six Months Ended December 31, 2004
    
    
    4Predecessor Company for the Three Months Ended December 31, 2003
    
    
    4Predecessor Company for the Six Months Ended December 31, 2003
    
    
    4Condensed Consolidated Statement of Shareholders Equity Reorganized Company for the Six Months Ended December 31, 2004
    
    
    5Condensed Consolidated Statements of Cash Flows Reorganized Company for the Six Months Ended December 31, 2004
    
    
    6Predecessor Company for the Six Months Ended December 31, 2003
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22Part II Other InformationItem 1. Legal Proceedings
    
    
    23Item 6. Exhibits and Reports on Form 8-K
    
    
    23Signatures
    
    
    25EX-12 Statement re: Computation of Ratio of Earnings to Fixed ChargesEX-31.1 Rule 13a-14(a)/15d-14(a) CertificationEX-31.2 Rule 13a-14(a)/15d-14(a) CertificationEX-32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002EX-32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  1




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Advanced Lighting Technologies, Inc.
Condensed Consolidated Balance Sheets of Reorganized Company(in thousands, except per share amounts) (Unaudited)
    
    
    (Audited)December 31,
    
    
    June 30,2004
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,296
    
    
    $
    4,701Trade receivables, less allowances of $900 and $706
    
    
    29,575
    
    
    
    29,787Inventories:Finished goods
    
    
    15,822
    
    
    
    16,105Raw materials and work-in-process
    
    
    12,393
    
    
    
    9,07328,215
    
    
    
    25,178Prepaid expenses
    
    
    2,210
    
    
    
    1,552Total current assets
    
    
    62,296
    
    
    
    61,218Property, plant and equipment:Land and buildings
    
    
    18,638
    
    
    
    18,165Machinery and equipment
    
    
    29,761
    
    
    
    29,100Furniture and fixtures
    
    
    2,240
    
    
    
    1,88050,639
    
    
    
    49,145Less accumulated depreciation
    
    
    4,319
    
    
    
    2,11846,320
    
    
    
    47,027Receivables from related parties
    
    
    3,020
    
    
    
    4,282Investments in affiliates
    
    
    2,201
    
    
    
    2,360Other assets
    
    
    5,146
    
    
    
    3,849Intangible assets, net
    
    
    24,543
    
    
    
    24,810Goodwill
    
    
    50,561
    
    
    
    50,561$
    194,087
    
    
    $
    194,107
 See Notes to Condensed Consolidated Financial Statements, including
Basis of Presentation describing the Reorganized Company. 2




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Advanced Lighting Technologies, Inc.
Condensed Consolidated Balance Sheets of Reorganized Company(in thousands, except per share amounts) (Unaudited)
    
    
    (Audited)December 31,
    
    
    June 30,2004
    
    
    2004Liabilities and shareholders equityCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    3,299
    
    
    $
    4,184Accounts payable
    
    
    9,341
    
    
    
    10,755Payables to related parties
    
    
    1,358
    
    
    
    2,973Employee-related liabilities
    
    
    4,732
    
    
    
    6,197Accrued income and other taxes
    
    
    1,538
    
    
    
    1,414Other accrued expenses and liabilities
    
    
    11,449
    
    
    
    9,216Total current liabilities
    
    
    31,717
    
    
    
    34,739Long-term debt
    
    
    125,328
    
    
    
    126,679Deferred tax liabilities
    
    
    812
    
    
    
    700Total liabilities
    
    
    157,857
    
    
    
    162,118Minority interest
    
    
    1,816
    
    
    
    1,477Preferred stock, $.001 par value, 239 shares authorized;
29 Series A shares issued and outstanding
    
    
    29,338
    
    
    
    29,338Common shareholders equityCommon stock, $.001 par value, 80,000 shares authorized;
1 share issued and outstanding
    
    
    1
    
    
    
    1Paid-in-capital
    
    
    1,130
    
    
    
    1,130Accumulated other comprehensive income (loss)
    
    
    1,023
    
    
    
    (216
    )Retained earnings
    
    
    2,922
    
    
    
    259Total common shareholders equity
    
    
    5,076
    
    
    
    1,174$
    194,087
    
    
    $
    194,107
 See Notes to Condensed Consolidated Financial Statements, including
Basis of Presentation describing the Reorganized Company. 3




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Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Operations (Unaudited)(in thousands) Reorganized Company
    
    
    
    Predecessor CompanyQuarter
    
    
    Six Months
    
    
    
    Quarter
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    
    December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    
    2003
    
    
    2003Net sales
    
    $
    41,122
    
    
    $
    79,700
    
    
    
    $
    37,678
    
    
    $
    70,510Costs and expenses:Cost of sales
    
    
    24,339
    
    
    
    46,943
    
    
    
    
    23,182
    
    
    
    43,361Marketing and selling
    
    
    5,947
    
    
    
    11,842
    
    
    
    
    6,010
    
    
    
    11,311Research and development
    
    
    1,570
    
    
    
    3,112
    
    
    
    
    1,709
    
    
    
    3,095General and administrative
    
    
    3,603
    
    
    
    7,474
    
    
    
    
    3,119
    
    
    
    6,208Amortization of intangible assets
    
    
    248
    
    
    
    489
    
    
    
    
    89
    
    
    
    177Income from operations
    
    
    5,415
    
    
    
    9,840
    
    
    
    
    3,569
    
    
    
    6,358Other income (expense):Interest expense
    
    
    (3,469
    )
    
    
    (6,892
    )
    
    
    
    (4,039
    )
    
    
    (7,459
    )Interest income
    
    
    104
    
    
    
    197
    
    
    
    
    105
    
    
    
    188Income (Loss) from investments
    
    
    3
    
    
    
    489
    
    
    
    
    (13
    )
    
    
    3Gain on restructuring
    
    
    
    
    
    
    
    
    
    
    
    1,184
    
    
    
    1,184Write-off of deferred loan costs
    
    
    
    
    
    
    
    
    
    
    
    (2,251
    )
    
    
    (2,251
    )Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    
    (5,635
    )
    
    
    (11,258
    )Income (loss) before income taxes
and minority interest
    
    
    2,053
    
    
    
    3,634
    
    
    
    
    (7,080
    )
    
    
    (13,235
    )Income tax expense
    
    
    259
    
    
    
    632
    
    
    
    
    272
    
    
    
    360Income (loss) before minority interest
    
    
    1,794
    
    
    
    3,002
    
    
    
    
    (7,352
    )
    
    
    (13,595
    )Minority interest in income
of consolidated subsidiary
    
    
    (188
    )
    
    
    (339
    )
    
    
    
    (122
    )
    
    
    (251
    )Net income (loss)
    
    $
    1,606
    
    
    $
    2,663
    
    
    
    $
    (7,474
    )
    
    $
    (13,846
    )
 See Notes to Condensed Consolidated Financial Statements, including Basis of
Presentation describing the Reorganized Company and Predecessor Company. 4




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Advanced Lighting Technologies, Inc.
Condensed Consolidated Statement of Shareholders Equity (Unaudited)
Six Months Ended December 31, 2004(in thousands) 
 AccumulatedOther
    
    
    
    
    
    
    CommonPreferred
    
    
    Common Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    Shareholders'Stock
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equity
    
    
    TotalBalance at June 30, 2004
    
    $
    29,338
    
    
    
    1
    
    
    $
    1
    
    
    $
    1,130
    
    
    $
    (216
    )
    
    $
    259
    
    
    $
    1,174
    
    
    $
    30,512Net income  reorganized company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,663
    
    
    
    2,663
    
    
    
    2,663Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,239
    
    
    
    
    
    
    
    1,239
    
    
    
    1,239Balance at December 31, 2004
    
    $
    29,338
    
    
    
    1
    
    
    $
    1
    
    
    $
    1,130
    
    
    $
    1,023
    
    
    $
    2,922
    
    
    $
    5,076
    
    
    $
    34,414
 See Notes to Condensed Consolidated Financial Statements, including
Basis of Presentation describing the Reorganized Company. 5




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Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)(in thousands) Reorganized
    
    
    
    PredecessorCompany
    
    
    
    CompanySix Months
    
    
    
    Six MonthsEnded
    
    
    
    EndedDecember 31,
    
    
    
    December 31,2004
    
    
    
    2003Operating activitiesNet income (loss)
    
    $
    2,663
    
    
    
    $
    (13,846
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Depreciation
    
    
    2,210
    
    
    
    
    3,412Amortization
    
    
    489
    
    
    
    
    177Provision for doubtful accounts
    
    
    166
    
    
    
    
    381Loss (income) from investments
    
    
    (489
    )
    
    
    
    (3
    )Gain on restructuring
    
    
    
    
    
    
    
    (1,184
    )Write-off of deferred loan costs
    
    
    
    
    
    
    
    2,251Reorganization expenses in excess of (less than)
cash payments of reorganization expenses
    
    
    (1,842
    )
    
    
    
    2,968Old Senior Note interest accrued but not paid
    
    
    
    
    
    
    
    4,000Changes in current assets and liabilities and other
    
    
    (1,753
    )
    
    
    
    6,032Net cash provided by operating activities
    
    
    1,444
    
    
    
    
    4,188Investing activitiesCapital expenditures
    
    
    (2,063
    )
    
    
    
    (1,799
    )Investment in affiliate
    
    
    
    
    
    
    
    (592
    )Proceeds from sale of investment
    
    
    450
    
    
    
    
    Net cash used in investing activities
    
    
    (1,613
    )
    
    
    
    (2,391
    )Financing activitiesNet borrowings under revolving credit loan
    
    
    642
    
    
    
    
    Net borrowings (payments) under debtor in possession facility
    
    
    
    
    
    
    
    (25,141
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    11,000Payments of long-term debt and capital leases
    
    
    (2,878
    )
    
    
    
    (1,522
    )Investment by Saratoga Lighting Holdings, LLC
    
    
    
    
    
    
    
    18,000Officer loan repayment
    
    
    
    
    
    
    
    1,334Net cash provided by (used in) financing activities
    
    
    (2,236
    )
    
    
    
    3,671Increase (decrease) in cash and cash equivalents
    
    
    (2,405
    )
    
    
    
    5,468Cash and cash equivalents, beginning of period
    
    
    4,701
    
    
    
    
    4,167Cash and cash equivalents, end of period
    
    $
    2,296
    
    
    
    $
    9,635Supplemental cash flow informationInterest paid
    
    $
    7,034
    
    
    
    $
    1,200Income taxes paid
    
    
    188
    
    
    
    
    159Capitalized interest
    
    
    13
    
    
    
    
    37
 See Notes to Condensed Consolidated Financial Statements, including Basis of
Presentation describing the Reorganized Company and Predecessor Company. 6




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Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2004
(Dollars in thousands) A. Organization Advanced Lighting Technologies, Inc. (the Company or ADLT) is an innovation-driven designer,
manufacturer and marketer focused on metal halide lighting products, including materials, system
components, systems and equipment. B. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion of management, the
financial statements include all material adjustments necessary for a fair presentation, including
adjustments of a normal and recurring nature as well as adjustments related to the Companys
emergence from bankruptcy. For further information, refer to the consolidated financial statements
and notes thereto included in the Companys Annual Report on Form 10-K for the year ended June 30,
2004. The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
reported amounts and related disclosures. Actual results could differ from those estimates. On December 10, 2003, Advanced Lighting Technologies, Inc. and six of its United States
subsidiaries, (collectively, the Debtors), completed their previously announced financial
restructuring when their Fourth Amended Chapter 11 Plan of Reorganization (the Final Plan) under
the U.S. Bankruptcy Code (the Bankruptcy Code) became effective and was substantially
consummated. ADLTs non-U.S. operating subsidiaries and Deposition Sciences, Inc., a U.S.
subsidiary, were not a part of the proceedings under the Bankruptcy Code. The Companys emergence
from Chapter 11 bankruptcy proceedings resulted in a new reporting entity and the adoption of fresh
start accounting in accordance with Statement of Position No. 90-7, Financial Reporting by Entities
in Reorganization under the Bankruptcy Code. Also, as encouraged under SEC Staff Accounting
Bulletin No. 54, Push Down Basis of Accounting Required in Certain Limited Circumstances, the
Company has reflected an additional adjustment to establish a new basis for its assets and
liabilities based on the amount paid by Saratoga Lighting Holdings, LLC (Saratoga) for its
ownership. For financial reporting purposes, the Company used an effective date of December 31,
2003. References in these financial statements to Predecessor Company refer to the Company prior
to December 31, 2003. References to Reorganized Company refer to the Company on and after
December 31, 2003, after giving effect to the issuance of new securities in exchange for the
previously outstanding securities in accordance with the Final Plan, the additional investment in
the Company by Saratoga, and the implementation of fresh start and push down accounting. 7




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Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2004
(Dollars in thousands) B. Basis of Presentation (continued) A black line has been drawn between the results of operations and statements of cash flows to
distinguish between the Reorganized Company and the Predecessor Company. The results of operations
and statements of cash flows for the Reorganized Company and Predecessor Company are not considered
comparable in all respects. Reporting Periods The Companys subsidiaries have fiscal years that end on the Sunday closest to June 30 and fiscal
quarters that end on the Sunday closest to the respective calendar quarter end. As a result, the
first six months of fiscal 2005 consisted of 27 weeks as compared to the first six months of fiscal
2004 that consisted of 26 weeks. The three month periods ended December 31, 2004 and 2003
contained 13 weeks each. Income Taxes Actual income tax expense for the three month interim periods differ from the amounts computed by
applying the U.S. Federal income tax rate of 35% to the income (loss) before income taxes because
under FAS No. 109, Accounting for Income Taxes, the tax benefit related to the U.S. loss for these
interim periods was required to be reserved in a valuation allowance due to the uncertainty
regarding the ultimate realization of the tax benefit of such losses. The income tax expense
recognized for the interim periods relates to income taxes on certain foreign subsidiaries income. C. Comprehensive Income (Loss) For the quarters ended December 31, 2004 and 2003, the Companys comprehensive income (loss) was
$2,510 and $(6,341), respectively. For the six months ended December 31, 2004 and 2003, the
Companys comprehensive income (loss) was $3,902 and $(12,487), respectively. These amounts
include the periods net income (loss) and the Companys other component of comprehensive income,
foreign currency translation adjustments. 8




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Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2004
(Dollars in thousands) D. Financing Facilities The Companys Bank Credit Facility is a $30,000 facility that consists of a term loan that requires
monthly principal payments of $183 ($8,800 outstanding at December 31, 2004) with a revolving
credit loan, subject to availability, making up the remainder of the facility. Availability of
borrowings under the revolving credit loan is determined by the Companys eligible account
receivables and inventories. The amount outstanding under the revolving credit loan was $642 at
December 31, 2004. Interest rates on the revolving credit loan are based on Libor plus 2.75% or
Prime plus .75% (6.00% at December 31, 2004). Interest rates on the term loan are based on Libor
plus 3.50% or Prime plus 1.50% (6.75% at December 31, 2004). The final maturity of the Bank Credit
Facility is December 10, 2008. The revolving credit loan amount at December 31, 2004 has been
classified as a current liability in accordance with the provisions of Emerging Issues Task Force
Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit
Agreements that include Both a Subjective Acceleration Clause and a Lock-box Arrangement. The Bank Credit Facility includes affirmative and negative covenants customary for this type of
agreement, prohibits cash dividends and includes financial covenants relating to Minimum Adjusted
EBITDA and Capital Expenditures. The principal security for the Bank Credit Facility is
substantially all of the personal property of the Company and each of its North American and United
Kingdom subsidiaries. The term loan is secured by substantially all of the Companys machinery and
equipment in North America and the United Kingdom and the Companys facility in Urbana, Illinois,
and is cross-collateralized and secured with the revolving credit loan. On December 10, 2003, in connection with the Companys emergence from bankruptcy proceedings, the
Companys Old 8% Senior Notes were cancelled and, in exchange for such Old Senior Notes, the
Company issued $114,400 of 11% Senior Notes due March 2009 (New Notes). The aggregate principal
amount of the New Notes is equal to the aggregate principal amount of the Companys Old Senior
Notes, plus interest which would have accrued and been unpaid through December 31, 2003. The New
Notes are redeemable at the Companys option, in whole or in part, at any time at a redemption
price equal to the principal amount of the New Notes plus accrued interest. Interest on the New
Notes is payable semi-annually on March 31 and September 30. The Indenture for the New Notes contains covenants that, among other things, limit the ability of
the Company and its Restricted Subsidiaries (as defined therein) to incur indebtedness, pay
dividends, prepay subordinated indebtedness, repurchase capital stock, make investments, create
liens, engage in transactions with stockholders and affiliates, sell assets and, with respect to
the Company, engage in mergers and consolidations. There are no sinking fund requirements. 9




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Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2004
(Dollars in thousands) E. Saratoga Investment Saratoga received, in exchange for cancellation of its holdings of the Predecessor Companys Common
Stock and Old Preferred Stock, and an $18,000 cash investment, new redeemable preferred stock (the
Series A Preferred) of the Reorganized Company, with an initial liquidation preference of
$29,000, and approximately 91% of the common stock of the Reorganized Company (on a diluted basis,
assuming issuance of common stock of the Reorganized Company to its senior management pursuant to
the new management incentive plan). Under the management incentive plan, shares equal to
approximately 9% of the common stock of the Reorganized Company have been issued. The Series A Preferred has a liquidation preference of $1 per share, plus dividends at the rate of
8% per annum, when and if declared. The cumulative undeclared dividends were $2,489 as of December
31, 2004. The initial carrying amount of the Series A Preferred was set at $29,000, the estimated
fair value at the date of issuance. The Holder of the Series A Preferred may, by notice, require
the Company to redeem the outstanding Series A Preferred within 21 days following the occurrence of
certain corporate events. The Company may redeem the Series A Preferred in whole, but not in part,
at any time. The redemption price for the Series A Preferred is equal to the liquidation
preference amount for such shares. The Series A Preferred shares are each entitled to one vote on
each matter presented to shareholders of the Company, as well as one vote on each matter required
to be voted upon by the Series A Preferred as a class. As a consequence, the Series A Preferred
represents approximately 96.3% of the voting power of the Company at December 31, 2004. As of
December 31, 2004, Saratoga held 98.5% of the voting power of the Company. 10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands)
 This report on Form 10-Q may contain forward-looking statements that involve risks and
uncertainties. On February 5, 2003, the Company and six of its United States subsidiaries (the
Debtors), filed voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code. Effective December 10, 2003, the Debtors emerged from bankruptcy protection
pursuant to the Bankruptcy Courts confirmation of the Debtors Fourth Amended Chapter 11 Plan of
Reorganization (the Plan). The operation of the Company and its subsidiaries following emergence
from bankruptcy court protection involves risks and uncertainties, including the strength of the
recovery of the U.S. economy, trends affecting the Companys financial condition or results of
operations, continued growth of the metal halide lighting market, the Companys operating strategy
and growth strategy, potential acquisitions or joint ventures by the Company, litigation affecting
the Company, the timely development and market acceptance of new products, the ability to provide
adequate incentives to retain and attract key employees, the impact of competitive products and
pricing, and other risks which are detailed in the Companys Form 10-K for the fiscal year ended
June 30, 2004. For this purpose, any statement contained herein that is not a statement of
historical fact may be deemed to be a forward-looking statement. Without limiting the foregoing,
the words believes, anticipates, plans, expects, and similar expressions are intended to
identify forward-looking statements. The Companys actual results may differ materially from those
indicated by such forward-looking statements based on the factors outlined above. 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
unaudited Condensed Consolidated Financial Statements and notes thereto. General The Company is an innovation-driven designer, manufacturer and marketer focused on metal halide
lighting products, including materials, system components, systems and equipment. Metal halide
lighting is currently used primarily in commercial and industrial applications such as factories
and distribution centers, outdoor site and landscape lighting, sports facilities and large retail
spaces such as superstores. Systems, components and materials revenue is recognized when products
are shipped, and equipment revenue is recognized under the percentage of completion method. Consistent with the Companys strategy for new product introductions, the Company invests
substantial resources in research and development to engineer materials and system components to be
included in customers specialized systems. Such expenditures have enabled the Company to develop
new applications for metal halide lighting, improve the quality of its materials, and introduce new
specialized products, such as the Uni-Form® pulse start products. Uni-Form® pulse start products
are a new generation of metal halide components and systems which permit (a) increased light output
with lower power utilization, (b) faster starting, (c) a quicker restart of lamps which have been
recently turned off, and (d) better color uniformity. The Company expects to continue to make
substantial expenditures on research and development to enhance its position as the leading
innovator in the metal halide lighting industry. 11




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##### Table of Contents



Results of Operations The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity
and adoption of fresh start accounting in accordance with Statement of Position No. 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code. For financial reporting
purposes, the Company used an effective date of December 31, 2003. References to Predecessor
Company refer to the Company prior to December 31, 2003. References to Reorganized Company
refer to the Company on and after December 31, 2003. A black line has been drawn between the
results of operations noted below to distinguish between the Reorganized Company and the
Predecessor Company. The results of operations for the Reorganized Company and Predecessor Company
are not considered comparable in all respects. The following table sets forth, as a percentage of net sales, certain items in the Companys
Condensed Consolidated Statements of Operations for the three months ended December 31, 2004 and
2003: Reorganized Company
    
    
    
    Predecessor CompanyThree Months Ended
    
    
    
    Three Months EndedDecember 31, 2004
    
    
    
    December 31, 2003Net sales
    
    $
    41,122
    
    
    
    100.0
    %
    
    
    $
    37,678
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    24,339
    
    
    
    59.2
    
    
    
    
    23,182
    
    
    
    61.5Marketing and selling
    
    
    5,947
    
    
    
    14.5
    
    
    
    
    6,010
    
    
    
    16.0Research and development
    
    
    1,570
    
    
    
    3.8
    
    
    
    
    1,709
    
    
    
    4.4General and administrative
    
    
    3,603
    
    
    
    8.7
    
    
    
    
    3,119
    
    
    
    8.8Amortization of intangible assets
    
    
    248
    
    
    
    0.6
    
    
    
    
    89
    
    
    
    0.3Income from operations
    
    
    5,415
    
    
    
    13.2
    
    
    
    
    3,569
    
    
    
    9.0Other income (expense):Interest expense
    
    
    (3,469
    )
    
    
    (8.4
    )
    
    
    
    (4,039
    )
    
    
    (10.6
    )Interest income
    
    
    104
    
    
    
    0.2
    
    
    
    
    105
    
    
    
    0.3Income from investments
    
    
    3
    
    
    
    
    
    
    
    
    (13
    )
    
    
    Gain on restructuring
    
    
    
    
    
    
    
    
    
    
    
    1,184
    
    
    
    1.7Write-off of deferred loan costs
    
    
    
    
    
    
    
    
    
    
    
    (2,251
    )
    
    
    (3.2
    )Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    
    (5,635
    )
    
    
    (16.0
    )Income (loss) before income taxes
and minority interest
    
    
    2,053
    
    
    
    5.0
    
    
    
    
    (7,080
    )
    
    
    (18.8
    )Income tax expense
    
    
    259
    
    
    
    0.6
    
    
    
    
    272
    
    
    
    0.5Income (loss) before minority interest
    
    
    1,794
    
    
    
    4.4
    
    
    
    
    (7,352
    )
    
    
    (19.3
    )Minority interest in income
of consolidated subsidiary
    
    
    (188
    )
    
    
    (0.5
    )
    
    
    
    (122
    )
    
    
    (0.3
    )Net income (loss)
    
    $
    1,606
    
    
    
    3.9
    %
    
    
    $
    (7,474
    )
    
    
    (19.6
    )%
 Factors that have affected the results of operations for the second quarter of fiscal 2005 as
compared to the second quarter of fiscal 2004 are discussed below. 12




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##### Table of Contents



Net Sales. Net sales increased 9.1% to $41,122 in the second quarter of fiscal 2005 from $37,678
in the second quarter of fiscal 2004. Second quarter metal halide product sales increased 12% to
$31,616 compared with $28,154 in the same period last year. This increase in metal halide product
sales is primarily the result of an increase in lamp and material sales. Sales of APL materials
increased 5% over the same quarter a year ago. Geographically, these materials sales decreased 15%
in the U.S. and increase 17% outside the U.S. Non-metal halide lighting product sales decreased
27% over the year ago period due primarily to a decrease in power supply sales. Total lighting product sales inside the U.S. increased 5% in the second quarter of fiscal 2005 as
compared to the same period a year ago due to a 12% increase in lamp sales offset by a decrease in
U.S materials and power supplies sales. Total lighting product sales outside the U.S. increased 5%
as compared to the year ago period due to increases in lamp and material sales offset by a decrease
in non-metal halide power supply sales. Pricing in the metal halide lighting business is competitive, and prices for the Companys products
have remained flat or declined slightly. The introduction of new products has helped to stabilize
the Companys product pricing. Cost of Sales.Cost of sales increased 5.0% to $24,339 in the second quarter of fiscal 2005 from
$23,182 in the second quarter of fiscal 2004. As a percentage of net sales, cost of sales
decreased to 59.2% in the second quarter of fiscal 2005 from 61.5% in the second quarter of fiscal
2004. The reduction in cost of sales as a percentage of sales is due to the transfer of lamp and
power supply production to India, improvements in cost management, an improvement in the product
mix (more lamp and material sales and less power supply sales), and a reduction in depreciation
expense of $532 related primarily to the effects of the application of fresh-start accounting
principles. Marketing and Selling Expenses.Marketing and selling expenses decreased 1.0% to $5,947 in the
second quarter of fiscal 2005 from $6,010 in the second quarter of fiscal 2004. As a percentage of
net sales, marketing and selling expenses decreased to 14.5% in the second quarter of fiscal 2005
from 16.0% in the second quarter of fiscal 2004. This decrease resulted from the significant
increase in sales that occurred while marketing and sales expenses were held relatively constant. Research and Development Expenses. Research and development expenses decreased 8.1% in the second
quarter of fiscal 2005 to $1,570 from $1,709 in the second quarter of fiscal 2004. Research and
development expenses incurred related to: (i) expansion of the product line and continued
improvement in lamp technology including the line of Uni-Form® pulse start lamps (with improved
energy efficiency, quicker starting and restarting and a more compact arc source, which improves
the light and reduces material costs) intended to replace many first generation metal halide lamps
in industrial and commercial applications; (ii) continual development of new materials for the
worlds major lighting manufacturers; (iii) development and testing of electronic and
electromagnetic power supply systems; and, (iv) improvement of coating processes of optical
thin-films to broaden the applications and development of new thin-film materials, and using
coatings to develop improvements to lighting technologies. The Company expects to continue to make
substantial expenditures on research and development to enhance its position as the leading
innovator in the metal halide lighting industry. General and Administrative Expenses.General and administrative expenses increased 15.5% to $3,603
in the second quarter of fiscal 2005 from $3,119 in the second quarter of fiscal 2004. The
increase in general and administrative expenses was due to an increase in bonus expense of $786,
including $507 for the CEO retention bonus, offset by reductions in corporate overhead costs. The
after-tax amount of the 13




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##### Table of Contents



CEO retention bonus, approximately $286, is scheduled to be applied against the Companys
receivable from the CEO in July 2005. Amortization of Intangible Assets.Amortization expense increased to $248 in the second quarter of
fiscal 2005 from $89 in the second quarter of fiscal 2004. The increase was due to the
amortization of identifiable intangibles established in accordance with the provisions of
fresh-start accounting. Income from Operations.As a result of the items noted above, the Company realized income from
operations in the second quarter of fiscal 2005 of $5,415 as compared to income from operations of
$3,569 in the year ago period. Interest Expense.Interest expense decreased to $3,469 in the second quarter of fiscal 2005 from
$4,039 in the second quarter of fiscal 2004. Interest expense in the second quarter of fiscal 2004
included $1,302 of amortization and write-off of deferred loan costs related to the Companys
Debtor-in-Possession Bank Facility and Old Senior Notes. Amortization of deferred loan costs
totaled $47 in the second quarter of fiscal 2005. The remainder of the difference in interest
expense is primarily due to the increase in the interest rate on the Companys New Senior Notes to
11% from 8% for the Old Senior Notes. Income (Loss) from Investments.The income from investments in the second quarter of fiscal 2005
of $3 represents the equity income from the Companys 40% ownership of Aldrich-APL LLC, a
manufacturer and distributor of ultra-pure inorganics and metals for high-technology applications.
The loss from investments in the second quarter of fiscal 2004 of $(13) represents the equity loss
from the Companys investment in Fiberstars, Inc., a marketer and distributor of fiber optic
lighting products. The Final Plan provided that the holders of the Predecessor Companys Common
Stock (other than Saratoga Lighting and the Predecessor Companys CEO) receive the benefit of
certain equity investments held by the Predecessor in Fiberstars. As a result, no further equity
income or loss related to this investment has been recorded subsequent to December 31, 2003. Gain on Restructuring.The gain on restructuring in fiscal 2004 included a net increase in the
receivable from officer of $1,169 related to the settlement approved by the bankruptcy court. The
gain on restructuring also includes the impact of the implementation of the Plan approved by the
court and a settlement with GE related to amounts owed to and receivable from GE. Write-off of Deferred Loan Costs.The write-off of deferred loan costs of $2,251 represented the
write-off of deferred loan costs related to the $100,000 8% Senior Notes in accordance with
Emerging Issues Task Force Issue No. (EITF) 96-19, Debtors Accounting for a Modification or
Exchange of Debt Instruments. Reorganization Expenses.Reorganization expenses, totaling $5,635 in the second quarter of fiscal
2004, reflected the cost of consultants, investment bankers and attorneys related to the Companys
efforts to reorganize under Chapter 11 Bankruptcy. Income (Loss) before Income Taxes and Minority Interest.The Company had income before income
taxes and minority interest of $2,053 in the second quarter of fiscal 2005 as compared to a loss
before income taxes and minority interest of $(7,080) in the second quarter of fiscal 2004. Income Tax Expense.Income tax expense was $259 for the second quarter of fiscal 2005 as compared
to $272 in the second quarter of fiscal 2004. The income tax expense in both quarters related to
certain of the Companys foreign operations. 14




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##### Table of Contents



At June 30, 2004, the Company had net operating loss carryforwards of $130,833 available to reduce
future United States federal taxable income, which expire 2008 through 2024. On August 15, 2003,
Saratoga purchased the preferred and common shares owned by GE. This transaction caused an
ownership change greater than 50% which will limit the annual net operating loss the Company can
use to offset any future taxable income pursuant to Section 382 of the Internal Revenue Code. This
limitation is effective with the fiscal year ended June 30, 2004. The Company also has a capital
loss carryforward of $40,117 available to reduce future capital gains. The usage of this
carryforward will also be limited as a result of the ownership change. This carryforward expires
in 2007. The Company also had research and development credit carryforwards of approximately $3,818
available at June 30, 2004, which expire 2008 through 2020. Additionally, in conjunction with the
Alternative Minimum Tax (AMT) rules, the Company had available AMT credit carryforwards for tax
purposes of approximately $98, which may be used indefinitely to reduce regular federal income
taxes. The usage of these credits will also be limited as a result of the ownership change. Also, at June 30, 2004, the Company had foreign net operating loss carryforwards for tax purposes
totaling $1,163 that expire 2006 to 2007 and $9,395 that have no expiration dates. 15




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##### Table of Contents



The Companys subsidiaries have fiscal years that end on the Sunday closest to June 30 and fiscal
quarters that end on the Sunday closest to the respective calendar quarter end. The first six
months of fiscal 2005 consisted of 27 weeks as compared to the first six months of fiscal 2004 that
consisted of 26 weeks. As a result, an increase of approximately 4% in sales and costs and
expenses resulted from the additional week in the first six months of fiscal 2005 compared to the
first six months of fiscal 2004. The three month periods ended December 31, 2004 and 2003
contained 13 weeks each. The following table sets forth, as a percentage of net sales, certain items in the Companys
Condensed Consolidated Statements of Operations for the six months ended December 31, 2004 and
2003: Reorganized Company
    
    
    
    Predecessor CompanySix Months Ended
    
    
    
    Six Months EndedDecember 31, 2004
    
    
    
    December 31, 2003Net sales
    
    $
    79,700
    
    
    
    100.0
    %
    
    
    $
    70,510
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    46,943
    
    
    
    58.9
    
    
    
    
    43,361
    
    
    
    61.5Marketing and selling
    
    
    11,842
    
    
    
    14.9
    
    
    
    
    11,311
    
    
    
    16.0Research and development
    
    
    3,112
    
    
    
    3.9
    
    
    
    
    3,095
    
    
    
    4.4General and administrative
    
    
    7,474
    
    
    
    9.4
    
    
    
    
    6,208
    
    
    
    8.8Amortization of intangible assets
    
    
    489
    
    
    
    0.6
    
    
    
    
    177
    
    
    
    0.3Income from operations
    
    
    9,840
    
    
    
    12.3
    
    
    
    
    6,358
    
    
    
    9.0Other income (expense):Interest expense
    
    
    (6,892
    )
    
    
    (8.6
    )
    
    
    
    (7,459
    )
    
    
    (10.6
    )Interest income
    
    
    197
    
    
    
    0.3
    
    
    
    
    188
    
    
    
    0.3Income from investments
    
    
    489
    
    
    
    0.6
    
    
    
    
    3
    
    
    
    Gain on restructuring
    
    
    
    
    
    
    
    
    
    
    
    1,184
    
    
    
    1.7Write-off of deferred loan costs
    
    
    
    
    
    
    
    
    
    
    
    (2,251
    )
    
    
    (3.2
    )Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    
    (11,258
    )
    
    
    (16.0
    )Income (loss) before income taxes
and minority interest
    
    
    3,634
    
    
    
    4.6
    
    
    
    
    (13,235
    )
    
    
    (18.8
    )Income tax expense
    
    
    632
    
    
    
    0.8
    
    
    
    
    360
    
    
    
    0.5Income (loss) before minority interest
    
    
    3,002
    
    
    
    3.8
    
    
    
    
    (13,595
    )
    
    
    (19.3
    )Minority interest in income
of consolidated subsidiary
    
    
    (339
    )
    
    
    (0.5
    )
    
    
    
    (251
    )
    
    
    (0.3
    )Net income (loss)
    
    $
    2,663
    
    
    
    3.3
    %
    
    
    $
    (13,846
    )
    
    
    (19.6
    )%
 Net Sales. Net sales increased 13.0% to $79,700 in the first six months of fiscal 2005 from
$70,510 in the first six months of fiscal 2004. Approximately one-third of this increase was due
to the Companys subsidiaries having an additional week in the first six months of fiscal 2005 as
compared to the first six months of fiscal 2004. Metal halide product sales for the first six
months of fiscal 2005 increased 18% to $61,967 compared with $52,435 in the same period last year. This increase in metal halide product
sales is partly due to the additional week in the quarter, but was primarily the result of an
increase in lamp and material sales. Sales of APL materials increased 9% over the same period a
year ago, a portion of which was due to the additional week. Geographically, these materials sales
decreased 6% in the U.S. and increased 18% outside the U.S. Non-metal halide lighting product sales
decreased 23% over the year ago period due primarily to a decrease in power supply sales. 16




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##### Table of Contents



Total lighting product sales inside the U.S. increased 11% in the first six months of fiscal 2005
as compared to the same period a year ago due to the additional week and to a 19% increase in lamp
sales offset by a decrease in U.S. materials sales. Total lighting product sales outside the U.S.
increased 9% as compared to the year ago period due to the additional week and to increases in lamp
and material sales offset by non-metal halide power supply sales. Pricing in the metal halide lighting business is competitive, and prices for the Companys products
have remained flat or declined slightly. The introduction of new products has helped to stabilize
the Companys product pricing. Cost of Sales.Cost of sales increased 8.3% to $46,943 in the first six months of fiscal 2005 from
$43,361 in the first six months of fiscal 2004, due in part to the additional week during the first
six months of fiscal 2005. As a percentage of net sales, cost of sales decreased to 58.9% in the
first six months of fiscal 2005 from 61.5% in the first six months of fiscal 2004. The reduction in
cost of sales as a percentage of sales is due to the transfer of lamp and power supply production
to India, improvements in cost management, an improvement in the product mix (more lamp and
material sales and less power supply sales), and a reduction in depreciation expense of $1,008
related primarily to the effects of the application of fresh-start accounting principles. Marketing and Selling Expenses.Marketing and selling expenses increased 4.7% to $11,842 in the
first six months of fiscal 2005 from $11,311 in the first six months of fiscal 2004, due primarily
to the additional week during the first six months of fiscal 2005. As a percentage of net sales,
marketing and selling expenses decreased to 14.9% in the first six months of fiscal 2005 from 16.0%
in the first six months of fiscal 2004. The decrease resulted from the significant increase in
sales that occurred while marketing and selling expenses were held relatively constant. Research and Development Expenses. Research and development expenses increased 0.5% in the first
six months of fiscal 2005 to $3,112 from $3,095 in the first six months of fiscal 2004, due to the
additional week during the fiscal 2005 quarter. Research and development expenses incurred related
to: (i) expansion of the product line and continued improvement in lamp technology including the
line of Uni-Form® pulse start lamps (with improved energy efficiency, quicker starting and
restarting and a more compact arc source, which improves the light and reduces material costs)
intended to replace many first generation metal halide lamps in industrial and commercial
applications; (ii) continual development of new materials for the worlds major lighting
manufacturers; (iii) development and testing of electronic and electromagnetic power supply
systems; and, (iv) improvement of coating processes of optical thin-films to broaden the
applications and development of new thin-film materials, and using coatings to develop improvements
to lighting technologies. The Company expects to continue to make substantial expenditures on
research and development to enhance its position as the leading innovator in the metal halide
lighting industry. General and Administrative Expenses.General and administrative expenses increased 20.4% to $7,474
in the first six months of fiscal 2005 from $6,208 in the first six months of fiscal 2004. The
increase in general and administrative expenses was due to an increase in bonus expense of $1,571,
including $1,014 for the CEO retention bonus, offset by reductions in corporate overhead costs. The after-tax
amount of the CEO retention bonus, approximately $572, is scheduled to be applied against the
Companys receivable from the CEO in July 2005. 17




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##### Table of Contents



Amortization of Intangible Assets.Amortization expense increased to $489 in the first six months
of fiscal 2005 from $177 in the first six months of fiscal 2004. The increase was due to the
amortization of identifiable intangibles established in accordance with the provisions of
fresh-start accounting. Income from Operations.As a result of the items noted above, the Company realized income from
operations in the first six months of fiscal 2005 of $9,840 as compared to income from operations
of $6,358 in the year ago period. Interest Expense.Interest expense decreased to $6,892 in the first six months of fiscal 2005 from
$7,459 in the first six months of fiscal 2004. Interest expense in the first six months of fiscal
2004 included $1,993 of amortization and write-off of deferred loan costs related to the Companys
Debtor-in-Possession Bank Facility and Old Senior Notes. Amortization of deferred loan costs
totaled $87 in the first six months of fiscal 2005. The remainder of the difference in interest
expense is primarily due to the increase in the interest rate on the Companys New Senior Notes to
11% from 8% for the Old Senior Notes. Income from Investments.The income from investments in the first six months of fiscal 2005 of
$489 represents $169 in equity income from the Companys 40% ownership of Aldrich-APL LLC, a
manufacturer and distributor of ultra-pure inorganics and metals for high-technology applications
and a gain on the sale of an investment of $320. The income from investments in the first six
months of fiscal 2004 of $3 represents the equity income from the Companys investment in
Fiberstars, Inc., a marketer and distributor of fiber optic lighting products. The Final Plan
provided that the holders of the Predecessor Companys Common Stock (other than Saratoga Lighting
and the Predecessor Companys CEO) receive the benefit of certain equity investments held by the
Predecessor in Fiberstars. As a result, no further equity income or loss related to this
investment has been recorded subsequent to December 31, 2003. Gain on Restructuring.The gain on restructuring in fiscal 2004 included a net increase in the
receivable from officer of $1,169 related to the settlement approved by the bankruptcy court. The
gain on restructuring also includes the impact of the implementation of the Plan approved by the
court and a settlement with GE related to amounts owed to and receivable from GE. Write-off of Deferred Loan Costs.The write-off of deferred loan costs of $2,251 represented the
write-off of deferred loan costs related to the $100,000 8% Senior Notes in accordance with
Emerging Issues Task Force Issue No. (EITF) 96-19, Debtors Accounting for a Modification or
Exchange of Debt Instruments. Reorganization Expenses.Reorganization expenses, totaling $11,258 in the first six months of
fiscal 2004, reflected the cost of consultants, investment bankers and attorneys related to the
Companys efforts to reorganize under Chapter 11 Bankruptcy. Income (Loss) before Income Taxes and Minority Interest.The Company had income before income
taxes and minority interest of $3,634 in the first six months of fiscal 2005 as compared to a loss
before income taxes and minority interest of $(13,235) in the first six months of fiscal 2004. Income Tax Expense.Income tax expense was $632 for the first six months of fiscal 2005 as
compared to $360 in the first six months of fiscal 2004. The income tax expense in both periods
related to certain of the Companys foreign operations. 18




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##### Table of Contents



Liquidity and Capital Resources The Companys sources of liquidity include cash and cash equivalents, cash flow from operations and
amounts available under its Bank Credit Facility. The Company believes these sources of liquidity
are sufficient for at least the next several years. As a result of the exchange of the $100,000 8%
Senior Notes due March 2008 for $114,400 11% Senior Notes due March 2009, the Company has extended
the maturity of most of its debt until 2009. The Company believes that its cash flow from
operations will be more than adequate to service the debt, prior to the maturity of the 11% Senior
Notes. The Bank Credit Facility is a $30,000 facility that consists of a term loan that requires monthly
principal payments of $183 ($8,800 outstanding at December 31, 2004) with a revolving credit loan,
subject to availability, making up the remainder of the facility. The amount outstanding under the
revolving credit loan was $642 at December 31, 2004. Interest rates on the revolving credit loan
are based on Libor plus 2.75% or Prime plus .75% (6.00% at December 31, 2004). Interest rates on
the term loan are based on Libor plus 3.50% or Prime plus 1.50% (6.75% at December 31, 2004). The
final maturity of the revolving credit facility and the term loan is December 10, 2008. The Bank Credit Facility contains certain affirmative and negative covenants customary for this
type of agreement, prohibits cash dividends, and includes financial covenants related to Minimum
Adjusted EBITDA and Capital Expenditures. At December 31, 2004, the Company was in compliance with
the terms of the Bank Credit Facility. The principal security for the Bank Credit Facility is
substantially all of the personal property of the Company and each of its North American and United
Kingdom subsidiaries. The term loan is secured by substantially all of the Companys machinery and
equipment in North America and the United Kingdom as well as the Companys facility in Urbana,
Illinois, and is cross-collateralized and secured with the revolving credit loan. Cash decreased $2,405 during the six months ended December 31, 2004. Cash provided by operating
activities totaled $1,444, cash used in investing activities totaled $1,613, and cash used in
financing activities totaled $2,236. Net Cash Provided by Operating Activities.Net cash provided by operating activities totaled
$1,444 for the six months ended December 31, 2004. This cash provided by operating activities also
reflects the impact of one-time payments of reorganization expenses totaling $1,842 related to the
Companys emergence from Chapter 11 Bankruptcy. Net Cash Used in Investing Activities.In the six months ended December 31, 2004, net cash used in
investing activities totaled $1,613, including $2,063 related to capital expenditures for plant and
equipment, primarily machinery and equipment. The Companys capital expenditure program is
expected to approximate between $5,000 and $6,000 in fiscal 2005. Future capital expenditures
beyond this level will be discretionary, as the Company presently has sufficient operating
capacities to support several years of sales growth at its historical rates. Net Cash Used in Financing Activities.In the six months ended December 31, 2004, net cash used in
financing activities was $2,236 resulting from an increase in borrowings on the Companys revolving
credit loan of $642, net of $2,878 of scheduled payments of long-term debt that included the
one-time payment of $1,402 to Rohm and Haas Company related to a promissory note obligation (see Part II,
Item 1. Legal Proceedings). 19




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##### Table of Contents



The interest-bearing obligations of the Company totaled $128,627 as of December 31, 2004, and
consisted of: $9,442 outstanding under the Bank Credit Facility; $114,400 of 11% Senior Notes;
mortgages of $4,400; and obligations of foreign subsidiaries and other debt of $385. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that effect the reported amounts of our
assets, liabilities, revenues and costs and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including those related to:
valuation of accounts and notes receivable and loan receivable from officer, valuation of
investments, valuation of long-lived assets, valuation of inventory valuation reserves, revenue
recognition, and deferred tax assets. We base our estimates on historical experience and on
various other assumptions that we believe reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We have identified the following policies as critical to our business operations and the
understanding of our results of operations. For a detailed discussion on the application of these
and other accounting policies, see Note C of the Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the Period Ended June 30, 2004. Valuation of Accounts and Notes Receivable and Loan Receivable from Officer Management evaluates and makes estimates of the collectibility of the Companys accounts and notes
receivable, including unbilled accounts receivable related to long-term equipment contracts, based
on a combination of factors. Management analyzes historical bad debts, customer credit-worthiness,
and current economic trends in evaluating the adequacy of the allowance for doubtful accounts and
whether there is any impairment in its notes receivable. In circumstances where the Company is
aware of a certain customers inability to meet its financial obligation, a specific reserve is
recorded to reduce the receivable to the amount the Company believes will be collected. Material
changes in the allowance for doubtful accounts may occur if the results of managements evaluation
change or if a different method is used to estimate possible losses. The accounts receivable
balance was $29,575, net of an allowance of $900, as of December 31, 2004. The Company also has a loan and interest receivable of $2,871 from the Chief Executive Officer.
The loan documents require that the after-tax proceeds of bonuses payable to the CEO be applied
against the loan and interest. In the second quarter of fiscal 2005, the Company applied the
after-tax proceeds of the CEO retention and performance bonuses of $1,314 to the balance
outstanding. Management periodically evaluates the adequacy of the underlying assets to repay this
loan. The Company believes the loan receivable amount will be realized in accordance with the
terms of loan documents. 20




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Inventory Valuation Reserves The Company values its inventory for accounting purposes at the lower of cost (first-in, first-out
method) or market. In circumstances where the Company is aware of a problem in the valuation of a
certain item, a specific reserve is recorded to reduce the item to its net realizable value. For
all other inventory, the Company records a reserve based on a combination of factors, including
actual usage in recent history and projected usage in the future. If expected circumstances should
change due to general economic or product obsolescence issues resulting in lower-than-expected
usage, managements estimate of the net realizable value could be reduced by a material amount. Valuation of Long-Lived Assets The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity
and adoption of fresh start reporting in accordance with SOP No. 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code. The Companys tangible assets were adjusted
in accordance with SOP 90-7 which resulted in a decrease in the Companys real estate of $11,644
and a decrease in personal property (machinery and equipment and furniture and fixtures) of
$28,790. The Companys identifiable intangible assets were adjusted to $24,675 representing
customer contracts and relationships of $10,000, trademarks and tradenames of $8,635, and
technology of $6,040. In addition to the above, the application of SOP 90-7 and SEC Staff Accounting Bulletin No. 54,
Push Down Basis of Accounting Required in Certain Limited Circumstances, resulted in the
elimination of the existing goodwill and the establishment of a new amount of goodwill of $50,561,
that represents the reorganization value in excess of amounts allocable to identifiable assets.
In accordance with the provisions of Statement of Financial Accounting Standards (FAS) No. 142,
Goodwill and Other Intangible Assets, no amortization of goodwill was recorded in fiscal 2003 or
fiscal 2004. Additionally, the newly-established goodwill will not be amortized. Rather, the
Company will evaluate this asset for impairment at least annually and whenever there is an
impairment indicator using the fair value guidelines of FAS No. 142. The Company evaluates the carrying value of its investment in other long-lived assets for
impairment such as property, plant and equipment whenever there is an impairment indicator,
generally using an undiscounted cash flow methodology. Revenue Recognition The Company has entered into certain contracts with customers for the construction of lighting and
thin-film coating equipment. The Company also has certain contracts related to the further
development and application of lighting and coating technologies for the U.S. government. Revenue
is recognized on these contracts as work on the contract progresses using the percentage of
completion method of accounting, which relies on estimates of total expected contract revenues and
costs. Under this method reasonable estimates of the costs applicable to the various stages of a
contract are made, thus, impacting the level of recognized revenue. Since the financial reporting
of these contracts depends on estimates, which are assessed continually during the term of the
contract, recognized revenues and profit are subject to revisions as the contract progresses toward
completion. Revisions in profit estimates are reflected in the period in which the facts that give
rise to the revision become known. Should estimates indicate a loss is expected to be incurred
under a contract, cost of sales is charged with a provision for such loss. 21




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Deferred Tax Assets and Valuation Allowance The Company had approximately $10,379 of net deferred tax assets related principally to certain
unused tax credits and loss carryforwards as of June 30, 2004. The realization of these assets is
based upon the Company generating future taxable income. Due to the Companys historical results
it is uncertain as to when it will realize taxable income that will allow it to utilize its tax
credits and loss carryforwards and, accordingly, has recorded a valuation allowance of
approximately $10,379. Additionally, on August 15, 2003, Saratoga purchased the preferred and
common shares owned by GE. This transaction caused an ownership change greater than 50% which will
limit the annual net operating loss and tax credit carryforwards the Company can use to offset any
future taxable income pursuant to Section 382 of the Internal Revenue Code. This limitation is
effective with the fiscal year ended June 30, 2004. The Company has net operating losses which, in
accordance with the principles of fresh start accounting, were not recorded. These net operating
losses are available to be utilized, and, to the extent the net operating losses are utilized,
goodwill will be reduced accordingly for the benefit received. Management will continue to
evaluate the realization of these deferred tax assets that are subject to the Companys future
operations. The Companys future operations will be influenced by the general business
environment, which is difficult to predict and beyond the control of the Company. Foreign Currency Approximately 31% of the Companys net sales in fiscal 2004 were denominated in currencies other
than U.S. dollars, principally pounds sterling, Australian dollars, Canadian dollars, Euros and
Japanese yen. A significant weakening of such currencies versus the U.S. dollar could have a
material adverse effect on the Company. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk During the six months ended December 31, 2004, there have been no material changes in the reported
market risks presented in the Companys Annual Report on Form 10-K for the year ended June 30,
2004. 
 Item 4. Controls and Procedures The Company evaluated the design and operation of its disclosure controls and procedures as of
December 31, 2004, to determine whether they are effective in ensuring that the disclosure of
required information is timely made in accordance with the Exchange Act and the rules and forms of
the Securities and Exchange Commission. This evaluation was made under the supervision and with the
participation of management, including the Companys principal executive officer and chief
accounting officer. The principal executive officer and chief accounting officer have concluded,
based on their review, that the Companys disclosure controls and procedures, as defined at
Exchange Act Rules 13a-14(c) and 15d-14(c), are effective to ensure that information required to be
disclosed by the Company in reports that it files under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission
rules and forms. No significant changes were made to the Companys internal controls or other
factors that could significantly affect these controls subsequent to the date of their evaluation. 22




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Part II. Other Information Except as noted below, the items in Part II are inapplicable or, if applicable, would be answered
in the negative. These items have been omitted and no other reference is made thereto. 
 Item 1. Legal Proceedings On February 5, 2003, Advanced Lighting Technologies, Inc. (the Company or ADLT) and six of its
United States subsidiaries, (collectively, the Debtors), filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court).
The cases were jointly administered, under the caption In re Venture Lighting International,
Inc. et al (Case No. O3-05255). As previously reported, the Company emerged from reorganization
in fiscal year 2004, however, the Bankruptcy Court retained jurisdiction over a disputed creditor
claim by Rohm and Haas Company of approximately $2.1 million. The claim related to the payment of
the purchase price for Rohm and Haas Companys interest in Unison Fiber Optic Lighting Systems,
LLC. The Company purchased the Rohm and Haas interest in Unison for cash, a promissory note and
certain other consideration in February 2000. The Company contested Rohm and Haas Companys claim
to the unpaid portions of the consideration and sought repayment of a portion of the approximately
$1.3 million consideration the Company had previously paid. These claims were settled pursuant to
an agreement approved by the Bankruptcy Court on December 15, 2004. Pursuant to the terms of the
settlement, the Company paid Rohm and Haas $1.4 million in full and final settlement of all claims. 
 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit
    
    
    
    IncorporatedNumber
    
    Title
    
    by Reference2.1
    
    Venture Lighting International, Inc. et al. Fourth Amended Chapter 11
Plan of Reorganization confirmed December 8, 2003 effective
December 10, 2003
    
    
    (1
    )3.1
    
    Third Amended and Restated Articles of Incorporation filed
November 12, 2004
    
    
    (2
    )3.2
    
    Amended and Restated Code of Regulations
    
    
    (2
    )4.1
    
    Reference is made to Exhibit 2.112
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Rule 13a-14(a)/15d-14(a) Certification31.2
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 23




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(1)
    Incorporated by reference to Exhibit of same number in Companys Current Report on Form 8-K
dated December 8, 2003, filed December 23, 2003.(2)
    Incorporated by reference to Exhibit of same number in Companys Quarterly Report on Form
10-Q for the period ended September 30, 2004, filed November 12, 2004.(b)
    Reports on Form 8-KNo reports on Form 8-K were filed during the quarter ended December 31, 2004. 24




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized. ADVANCED LIGHTING TECHNOLOGIES, INC.Date: January 21, 2005
    By:
    /s/ Wayne R. HellmanWayne R. HellmanChief Executive OfficerDate: January 21, 2005
    By:
    /s/ Christopher F. ZerullChristopher F. ZerullVice President and Chief Accounting Officer 25




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##### Table of Contents



EXHIBIT INDEX Exhibit
    
    
    
    IncorporatedNumber
    
    Title
    
    by Reference2.1
    
    Venture Lighting International, Inc. et al. Fourth Amended Chapter 11
Plan of Reorganization confirmed December 8, 2003 effective
December 10, 2003
    
    
    (1
    )3.1
    
    Third Amended and Restated Articles of Incorporation filed
November 12, 2004
    
    
    (2
    )3.2
    
    Amended and Restated Code of Regulations
    
    
    (2
    )4.1
    
    Reference is made to Exhibit 2.112
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Rule 13a-14(a)/15d-14(a) Certification31.2
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  (1)
    Incorporated by reference to Exhibit of same number in Companys Current Report on Form 8-K
dated December 8, 2003, filed December 23, 2003.  (2)
    Incorporated by reference to Exhibit of same number in Companys Quarterly Report on Form
10-Q for the period ended September 30, 2004, filed November 12, 2004.