UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11360
ILC TECHNOLOGY, INC
(Exact name of registrant as specified in its charter)
California 94-1655721
(State of other jurisdiction I.R.S. Employer Incorporation or
or organization) Identification No.)
399 Java Drive, Sunnyvale, California 94089
(Address of principal executive offices) (Zip Code)
408-745-7900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
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 ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares: 4,608,375 Date: April 30, 1995
<PAGE>
ILC TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended April 1, 1995
INDEX Page No.
Part I. Financial Information 2
Item 1 Condensed Consolidated Statements of
Operations - Quarters ended April 1, 1995
and April 2, 1994 and six months ended
April 1, 1995 and April 2, 1994 3
Condensed Consolidated Balance Sheets -
April 1, 1995 and October 1, 1994 4
Condensed Consolidated Statements of Cash
Flows - Six months ended April 1, 1995
and April 2, 1994 5-6
Notes to Condensed Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
Part II Other Information
Item 4 Submission of Matters to a Vote of Security
Holders 12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures which are made are adequate to make the information presented not
misleading. It is suggested that the condensed consolidated financial statements
be read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report/Form 10-K for the year ended
October 1, 1994.
These financial statements have been prepared in all material respects in
conformity with the Standards of Accounting measurements set forth in Accounting
Principles Board Opinion No. 28 and reflect, in the opinion of management, all
adjustments (that consisted only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year.
<PAGE>
<TABLE>
ITEM 1. Financial Statements
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Quarter Ended Six Months Ended
April 1, April 2, April 1, April 2,
------------------- ----------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $13,989 $12,745 $26,673 $24,432
Costs and expenses:
Cost of sales 9,210 9,218 17,897 17,360
Research and development 1,205 990 2,219 1,813
Marketing 712 513 1,370 1,115
General and administrative 1,254 1,716 2,352 2,708
Write down and amortization
of intangibles 73 3,430 146 3,619
-------- ------ ------ --------
12,454 15,867 23,984 26,615
-------- ------ ------ --------
Income (loss) from operations 1,535 (3,122) 2,689 (2,183)
Other income (expense):
Interest, net (164) (34) (293) (80)
--------- ------- ------- ---------
Income (loss) before provision
for (benefit from)
income taxes 1,371 (3,156) 2,396 (2,263)
--------- ------- ------ ---------
Provision for (benefit from)
income taxes 384 (269) 671 -
--------- ------- ------ ---------
Net income (loss) $ 987 $ (2,887) $ 1,725 $ (2,263)
--------- ---------- ------- ---------
Earnings (loss) per share $ 0.21 $ (0.62) $ 0.37 $ (0.49)
--------- --------- --------- ---------
Weighted average shares
used in computation 4,769 4,663 4,726 4,646
--------- -------- --------- --------
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
April 1, 1995 October 1, 1994
(unaudited)
------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 203 $ 2,462
Marketable securities - 998
Accounts receivable, net 8,285 7,781
Inventories:
Raw materials 4,895 3,393
Work-in-process 3,225 2,556
Finished goods 1,104 1,243
--------- -------
Total inventories 9,224 7,192
--------- -------
Deferred tax asset 2,405 2,405
Prepaid expenses 260 543
--------- -------
Total current assets 20,377 21,381
Property and equipment, net 22,138 17,688
Deposit on land and building purchase - 1,300
Covenants-not-to-compete, net 1,262 1,407
Other assets 695 221
--------- --------
$ 44,472 $ 41,997
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,751 $ 3,921
Accrued liabilities 5,588 5,626
Accrued income taxes payable 1,845 2,405
--------- --------
Total current liabilities 11,184 11,952
--------- --------
Long-term debt 5,563 4,350
Non-compete obligation 650 910
Obligations under equipment line 993 595
Other accruals 339 415
Capital lease obligation 137 152
Stockholders' equity:
Common stock 5,750 5,492
Retained earnings 19,856 18,131
--------- --------
Total stockholders' equity 25,606 23,623
--------- --------
$ 44,472 $ 41,997
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
ILC TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
April 1, 1995 April 2, 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities -
Net income (loss) $ 1,725 $ (2,263)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 772 522
Write down and amortization of
non-compete agreements 145 1,297
Write down and amortization of
goodwill - 2,321
Changes in assets and liabilities
from operations:
(Increase) decrease in marketable securities 998 (730)
(Increase) decrease in accounts receivable (504) 1,176
(Increase) decrease in inventories (2,032) 562
(Increase) decrease in prepaid expenses 282 (243)
(Increase) decrease in other assets (473) 173
Decrease in accounts payable (170) (838)
Decrease in accrued liabilities (936) (363)
--------- ---------
Total adjustments (1,918) 3,877
--------- ---------
Net cash provided by (used in) operating
activities (193) 1,614
Cash flows from investing activities -
Capital expenditures (5,222) (1,220)
Decrease in deposit on land and building purchase 1,300 -
--------- ----------
Net cash used in investing activities (3,922) (1,220)
--------- ----------
Cash flows from financing activities -
Borrowings under line of credit 5,850 -
Repayments under line of credit (3,850) -
Principal borrowings under equipment line 1,165 174
Principal payments under equipment line (520) (210)
Principal payments under term loan for buildings (787) (500)
Proceeds from issuance of common stock 335 209
Payments under non-compete agreement (260) (260)
Repurchase of common stock (77) -
--------- -----------
Net cash provided by (used in)
financing activities 1,856 (587)
--------- -----------
Net decrease in cash (2,259) (193)
Cash at beginning of period 2,462 2,994
--------- -----------
Cash at end of period $ 203 $ 2,801
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(Continued)
(In thousands)
<CAPTION>
Supplemental disclosures of cash flow information:
Six Months Ended
April 1, 1995 April 2, 1994
------------- -------------
Cash paid during the period for:
<S> <C> <C>
Interest expense $ 332 $ 162
Income taxes 834 975
Supplemental disclosures of non-cash financing activities:
A capital lease obligation of $174,000 was incurred during the first quarter of
fiscal 1994 when the Company entered into a lease for new computer equipment.
See accompanying notes
</TABLE>
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
April 1, 1995
1. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of ILC
Technology, Inc., and its subsidiaries, after elimination of intercompany
accounts and transactions. The Company's quarter ends on the last Saturday of
the fiscal month.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of less than three months at the time of
issue to be cash equivalents.
Marketable Securities
Marketable securities are accounted for as trading securities under the
provisions of SFAS No. 115, and are therefore valued at fair market value.
Inventories
Inventories are stated at the lower of cost (first in, first out) or market, and
include material, labor and manufacturing overhead.
2. Earnings (Loss) Per Share
Earnings per share is computed using the weighted average number of common
shares and common equivalent shares (when such equivalents have a dilutive
effect) outstanding during the periods using the treasury stock method. Primary
and fully diluted earnings per share are substantially the same for the periods
presented. Loss per share for the quarter and six months ended April 2, 1994 is
computed using the weighted average number of common shares outstanding only.
3. Goodwill and Covenants-Not-To-Compete
The Company assesses the realizability of its intangible assets resulting from
acquisitions on a quarterly basis by comparing estimated undiscounted future
cash flows to the book value of such intangibles.
During the quarter ended April 2, 1994, the Company's Precision Lamp subsidiary
experienced a significant slowdown in the release of shippable product from a
major customer due to the qualification of a second source by that customer.
This customer represents approximately 85% of Precision Lamp's revenue. This
slowdown resulted in significantly lower sales in fiscal 1994 and is expected to
result in significantly lower sales over the remaining life of the goodwill and
covenant-not-to-compete generated from the purchase of Precision Lamp in June
1992. In assessing the recoverability of the above intangibles, management
determined that an impairment occurred in the second quarter of fiscal 1994 and
recorded a $3.4 million charge.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Quarter Ended April 1, 1995 Compared to Quarter Ended April 2, 1994
Net sales increased 9.8% in the quarter ended April 1, 1995 to $13,989,000
compared to $12,745,000 in the quarter ended April 2, 1994. The increase was the
result of a higher volume of units sold in the Flash, Quartz and Aerospace
product groups and at Converter Power, Q-Arc and Precision Lamp. In the quarter
ended April 2, 1994, Precision Lamp experienced a significant shortfall in the
release of shippable products from a major customer. This shortfall resulted in
significantly lower sales in fiscal 1994 than previously anticipated. Even
though Precision Lamp sales in the quarter ended April 1, 1995 have increased
over sales in the quarter ended April 2, 1994, sales to this major customer are
still expected to be lower than previously expected.
Cost of sales as a percentage of net sales was 65.8% in the second
quarter of fiscal 1995 compared to 72.3% in the same quarter last year. The
percentage decrease was due primarily to improved manufacturing yields coupled
with an increase in sales volume. The quarter ended April 2, 1994 was negatively
impacted by the write-off of approximately $500,000 related to excess Precision
Lamp inventory caused by the slowdown in the release of shippable product from a
major customer as discussed above.
Spending in the area of research and development, 8.6% of net sales in
the second quarter of fiscal 1995, compared to 7.8% of net sales in the second
quarter of fiscal 1994, increased $215,000 between the two quarters. The
increase occurred in the Flashlamp product group for the development of
non-laser flashlamp applications, in the Cermax product group for lamps for
video projection, in the Quartz product group for the development of lamps used
in the processing of semiconductor materials and in the Equipment product group
for the design of new lightsources. Also contributing to the increase was
spending at Precision Lamp for the development of backlight panels and spending
at Converter Power for the design of new power supplies.
Marketing expenses for the quarter ended April 1, 1995 were $712,000,
or 5.1% of net sales, compared to $513,000, or 4.0% of net sales, in the same
quarter of the prior fiscal year. The $199,000 increase in spending between the
two quarters was primarily the result of more travel and trade show attendance
coupled with additional commission expense on an increased sales volume.
General and administrative expenses, as a percentage of sales, were
9.0% in the quarter ended April 1, 1995, compared to 13.5% in the quarter ended
April 2, 1994. In the second quarter of fiscal 1994, an accrual of $500,000 was
made for early exit incentives for various long-time ILC employees. In addition,
a $250,000 note receivable, doubtful of collection, which arose from the United
Detector Technology divestiture in 1990, was written off in the same quarter.
These fiscal 1994 second quarter expenses were partially offset by additions to
staff at Converter Power and by expenses at Q-Arc associated with the move into
a new manufacturing facility.
In the second quarter of fiscal 1994, Precision Lamp experienced a
significant shortfall in orders from a major customer due to the qualification
of a second source by that customer. This customer represents approximately 85%
of Precision Lamp's revenue. In assessing the recoverability of the unamortized
goodwill and covenant-not-to-compete generated from the acquisition, management
determined that an impairment occurred in that quarter and recorded a $3.4
million charge. The amortization of intangibles of $73,000 in the second quarter
of fiscal 1995 represents the revised amortization of the remaining balance of
the Precision Lamp covenant-not-to-compete plus the amortization of the Q-Arc
Ltd.covenant-not-to-compete.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations Continued)
Quarter Ended April 1, 1995 Compared to Quarter Ended April 2, 1994 (Continued)
Other income (expense), net, primarily interest income and interest
expense decreased $130,000 in the second quarter of fiscal 1995 from the second
quarter of fiscal 1994. Interest income decreased approximately $30,000 due to
the liquidation of the balance of marketable securities in the second quarter of
fiscal 1995. Additionally, interest expense increased approximately $100,000 in
the same quarter due to the increase in the equipment line of credit for capital
equipment acquisitions and borrowings under the Company's line of credit for
working capital requirements.
Income before provision for income taxes was $1,371,000 for the quarter
ended April 1, 1995 compared to a loss before benefit from income taxes of
$3,156,000 for the quarter ended April 2, 1994. The provision for income taxes
was 28% of income before provision for income taxes for the second quarter of
fiscal 1995. The benefit for income taxes of $269,000 in the second quarter of
fiscal 1994 reflected the reversal of previously provided fiscal 1994 tax
provision so that the fiscal 1994 year-to-date provision for income taxes
reflected the anticipated effective tax rate for that year.
The Company believes that inflation and changing prices had no
significant impact on sales or costs during the second quarter of fiscal 1995 or
1994.
Six months Ended April 1, 1995 Compared to Six Months Ended April 2, 1994
Net sales for the six months ended April 1, 1995 increased 9.2%
($2,241,000) from the comparable period a year ago. The increase was the result
of a higher volume of units sold in the Flash, Quartz and Aerospace product
groups and at Converter Power and Q-Arc. Additionally, even though net sales at
Precision Lamp, for the six months ended April 1, 1995, have increased slightly
from the prior six month period, sales to its major customer are still expected
to be lower than previously expected due to a shortfall in the release of
shippable product as previously discussed.
Cost of sales as a percentage of net sales was 67.1% and 71.1% for the
six months ended April 1, 1995 and April 2, 1994, respectively. The percentage
decrease was due primarily to improved manufacturing yields coupled with an
increased sales volume. In the second quarter of fiscal 1994, cost of sales was
charged approximately $500,000 for the write off of excess inventory related to
the slowdown in the release of shippable product from a major Precision Lamp
customer.
Research and development expenses, $2,219,000 or 8.3% of net sales for
the six months ended April 1, 1995, increased $406,000 from $1,813,000, or 7.4%
of net sales for the six months ended April 2, 1994. The majority of the
increase occurred in the Quartz product group for the development of lamps used
in the processing of semiconductor materials and at Converter Power for the
design of new power supplies. Also contributing to increase was spending at
Precision Lamp for the development of the backlight panel.
Marketing expenses in the six months ended April 1, 1995 were
$1,370,000, or 5.1% of net sales compared to $1,115,000, or 4.6% of net sales,
in the same six month period a year ago. The $255,000 increase is primarily due
to personnel additions, more travel and trade show attendance and an increased
advertising program.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations Continued)
Six months Ended April 1, 1995 Compared to Six Months Ended
April 2, 1994 (Continued)
General and administrative expenses, 8.8% of net sales in the six
months ended April 1, 1995 compared to 11.1% of net sales in the six months
ended April 2, 1994, decreased $356,000. In the quarter ended April 2, 1994, a
$500,000 early exit incentive accrual for various long-time ILC employees plus
the write off of a doubtful $250,000 note receivable, which arose from the
United Detector Technology divestiture in 1990, contributed to the increased
general and administrative expenses in that quarter. This decrease between the
two six month periods was partially offset by additions to staff at Converter
Power and by expenses associated with the Q-Arc move to a new manufacturing
facility during the six months ended April 1, 1995.
Amortization of intangibles of $3,619,000, for the six months ended
April 2, 1994, represents the write down of intangibles generated from the
acquisition of Precision Lamp ($3,430,000), recorded in the second quarter of
fiscal 1994, plus the normal amortization ($189,000) of the covenants-not-to-
compete plus the goodwill amortization arising from the acquisition of Precision
Lamp and of Q-Arc Ltd, recorded in the first quarter of fiscal 1994. In the
quarter ended April 2, 1994, Precision Lamp experienced a slowdown in the
release of shippable product from a major customer. Sales to this customer are
now expected to be significantly lower than previously anticipated. In assessing
the recoverability of the unamortized goodwill and covenant-not-to-compete
generated from the acquisition, management determined that an impairment
occurred in the second quarter of fiscal 1994 and recorded a $3.4 million
charge. The amortization of intangibles of $146,000 in the six months ended
April 1, 1995 represents the revised amortization of the remaining balance of
the Precision Lamp covenant-not- to-compete plus the amortization of the Q-Arc
Ltd. covenant-not-to-compete.
Other income (expense), primarily interest income and interest expense,
decreased $213,000 in the first six months of fiscal 1995 from the first six
months of fiscal 1994. Interest income decreased approximately $54,000 due to
the liquidation of the balance of marketable securities during the first half of
fiscal 1995. Additionally, interest expense increased approximately $159,000 in
the same six month period due to the increase in the equipment line of credit
for capital equipment acquisitions and borrowings under the Company's line of
credit for working capital requirements.
The Company reported income before provision for income taxes of
$2,396,000 for the six months ended April 1, 1995. The provision for income
taxes was 28% of income before provision for income taxes for the six months
ended April 1, 1995. Due to the operating loss for the six months ended April 2,
1994, a benefit for income taxes of $269,000 was recorded which was a reversal
of the first quarter of fiscal 1994 tax provision.
The Company believes that inflation and changing prices had no
significant impact on sales or costs during the six months ended April 1, 1995
or April 2, 1994.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Liquidity and Financial Condition
Net cash used in operating activities totaled $193,000 in the six
months ended April 1, 1995 compared to net cash provided by operating activities
of $1,614,000 in the six months ended April 2, 1994.
During the first six months of fiscal 1995, the Company purchased land
and a manufacturing facility in Santa Clara, California for approximately
$3,200,000 (cash of approximately $1,900,000, plus a deposit made in the fourth
quarter of fiscal 1994). Capital equipment acquisitions in the six months ended
April 1, 1995 were $2,022,000. Also, during the first six months of fiscal 1995,
the Company liquidated the balance of marketable securities of $998,000,
increased net borrowings under an equipment line by $645,000, made principal
payments of $787,000 under a term loan for real estate acquisitions and
increased net borrowings under a working capital line of credit by $2,000,000.
During the first six months of fiscal 1994, the Company had capital
equipment expenditures of $1,220,000 and purchased $730,000 of marketable
securities. The Company also made principal payments of $500,000 under a term
loan for real estate acquisitions during the six months ended April 2, 1994.
Raw material and work in process inventories have increased from
October 1, 1994 by approximately $1,502,000 and $669,000, respectively. The
majority of the raw material increase is located at Precision Lamp and is
anticipated to be consumed, over the balance of the 1995 fiscal year, in the
manufacture of product for its major customer and in the manufacture of
backlight panels. The work in process inventory increase is spread over various
Company locations and is in anticipation of product shipments in the third
quarter of fiscal 1995 and to reduce cycle time for customer needs.
The Company has working capital of $9,193,000 and a current ratio of
1.82 to 1.0 at April 1, 1995. This compares with working capital of $9,429,000
and a current ratio of 1.79 to 1.0 at October 1, 1994. As of April 1, 1995, the
Company has $2,000,000 available under a $4,000,000 bank line of credit for
working capital requirements with interest at 2% above the LIBOR rate (London
Interbank Offer Rate) (8.1% at April 1, 1995). The company also has available,
at April 1, 1995, approximately $1,245,000 remaining on a $1,500,000 equipment
facility for equipment acquisitions at the same interest rate. At April 1, 1995,
the Company was in compliance with all bank covenants. These financial
resources, together with anticipated additional resources to be provided from
operations, are expected to be adequate to meet the Company's anticipated
financial needs at least through fiscal 1995.
<PAGE>
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on February 8,
1995.
(b) The following directors, comprising the entire Board of Directors,
were elected at the meeting:
Harrison H. Augur
Henry C. Baumgartner
Richard D. Capra
Arthur L. Schawlow
Wirt D. Walker
(c) The matters voted upon at the meeting and the number of votes cast for,
against or withheld, as well as abstentions and broker nonvotes with
respect to each are as follows:
(i) Election of Directors:
Votes For Votes Against Votes Withheld and
Broker and Nonvotes
Harrison H. Angur 3,644,412 - 139,243
Henry C. Baumgartner 3,642,477 1,935 139,243
Richard D. Capra 3,644,012 400 139,243
Arthur L. Schawlow 3,628,787 5,625 139,243
Wirt D. Walker 3,644,012 400 139,243
(ii) Approval of an amendment to the 1985 Employee Stock
Purchase Plan:
Votes for: 3,508,662 shares
Votes against: 70,578 shares
Votes withheld and
broker nonvotes 204,415 shares
(iii) Ratification of the appointment of Arthur Andersen LLP as
independent public accountants of the Company for fiscal 1995:
Votes for: 3,754,489 shares
Votes against: 7,855 shares
Votes withheld and
broker nonvotes 21,311 shares
(d) Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILC TECHNOLOGY, INC.
DATE: May 12, 1995 /s/Ronald E. Fredianelli
Ronald E.Fredianelli
Chief Financial Officer
DATE: May 12, 1995 /s/Henry C. Baumgartner
Henry C. Baumgartner
President
