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 July 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: 4,632,811 Date: July 28, 1995
<PAGE>
ILC TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended July 1, 1995
INDEX Page No.
Part I. Financial Information 2
Item 1 Condensed Consolidated Statements of
Operations - Quarters ended July 1, 1995
and July 2, 1994 and nine months ended
July 1, 1995 and July 2, 1994 3
Condensed Consolidated Balance Sheets -
July 1, 1995 and October 1, 1994 4
Condensed Consolidated Statements of Cash
Flows - Nine months ended July 1, 1995
and July 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 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.
-2-
<PAGE>
<TABLE>
ITEM 1. Financial Statements
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
<CAPTION>
Quarter Ended Nine Months Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------- -------- ------- ------
<S> <C>
Net sales $ 15,277 $ 13,355 $ 41,950 $ 37,787
Costs and expenses:
Cost of sales 10,415 8,696 28,312 26,056
Research and development 1,163 1,030 3,383 2,843
Marketing 821 634 2,191 1,749
General and administrative 1,300 1,208 3,652 3,917
Write down and amortization
of intangibles 73 83 218 3,702
------- -------- -------- -------
13,772 11,651 37,756 38,267
------- -------- -------- -------
Income (loss) from
operations 1,505 1,704 4,194 (480)
-------- ------- ------- --------
Other income (expense):
Interest, net 65 (26) (228) (105)
------- -------- -------- --------
Income (loss) before provision
for income taxes 1,570 1,678 3,966 (585)
Provision for income taxes 205 535 876 535
------- ------ ------ ------
Net income (loss) $ 1,365 $ 1,143 $ 3,090 $(1,120)
======== ======= ======= ========
Earnings (loss) per share $ 0.28 $ 0.23 $ 0.65 $ (0.24)
======== ======= ======== =========
Weighted average shares
used in computation 4,825 4,869 4,759 4,664
======== ======= ======= =======
See accompanying note
-3-
<PAGE>
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 1, 1995 October 1, 1994
------------ ---------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 316 $ 2,462
Marketable securities - 998
Accounts receivable, net 8,746 7,781
Inventories:
Raw materials 4,780 3,393
Work-in-process 2,811 2,556
Finished goods 1,613 1,243
------- -------
Total inventories 9,204 7,192
------- -------
Deferred tax asset 2,405 2,405
Prepaid expenses 136 543
------- -------
Total current assets 20,807 21,381
------- -------
Property and equipment, net 22,429 17,688
Deposit on land and building - 1,300
Covenants-not-to-compete, net 1,189 1,407
Other assets 740 221
------- -------
$45,165 $41,997
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,769 $ 3,921
Accrued liabilities 5,688 5,626
Accrued income taxes payable 2,128 2,405
-------- --------
Total current liabilities 11,585 11,952
-------- --------
Long-term liabilities:
Long-term debt 4,500 4,350
Non-compete obligation 520 910
Obligations under equipment
line 1,028 595
Other accruals 315 415
Capital lease obligation 129 152
------- --------
Total long-term liablilities 6,492 6,422
------- --------
Stockholders' equity:
Common stock 5,867 5,492
Retained earnings 21,221 18,131
------- -------
Total stockholders' equity 27,088 23,623
------- -------
$ 45,165 $ 41,997
======== ========
See accompanying notes
-4-
<PAGE>
ILC TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended
July 1, 1995 July 2, 1994
------------ ------------
Cash flows from operating activities -
Net income (loss) $ 3,090 $(1,120)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 1,205 764
Write down and amortization of non-compete
agreements 218 1,370
Write down and amortization of goodwill - 2,321
Changes in assets and liabilities from
operations:
Decrease (increase) in marketable securities 998 (649)
Decrease (increase) in accounts receivable (965) 980
Decrease (increase) in inventories (2,011) 573
Decrease (increase) in prepaid expenses 407 (197)
Decrease (increase) in other assets (518) 199
Decrease in accounts payable (153) (563)
Increase (decrease) in accrued liabilities (619) 84
------- -------
Total adjustments (1,438) 4,882
------- -------
Net cash provided by operating activities 1,652 3,762
------ ------
Cash flows from investing activities -
Purchase of Q-Arc building - (2,383)
Capital expenditures (4,647) (1,920)
------- -------
Net cash used in investing activities (4,647) (4,303)
------- -------
Cash flows from financing activities -
Borrowings under line of credit 6,550 -
Repayments under line of credit (5,200) -
Principal borrowings under equipment line 1,530 534
Principal payments under equipment line (815) (358)
Principal payments under term loan for
buildings (1,200) (750)
Proceeds from issuance of common stock 451 370
Payments under non-compete agreement (390) (390)
Repurchase of common stock (77) -
-------- --------
Net cash provided by (used in)
financing activities 849 (594)
-------- --------
Net decrease in cash (2,146) (1,135)
Cash at beginning of period 2,462 2,994
------- -------
Cash at end of period $ 316 $ 1,859
======== ========
See accompanying notes
-5-
<PAGE>
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Continued)
(In thousands)
Supplemental disclosures of cash flow information:
Nine Months Ended
July 1, 1995 July 2, 1994
------------ ------------
Cash paid during the period for:
Interest expense $ 517 $ 245
Income taxes 874 1,771
See accompanying notes
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</TABLE>
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
July 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 nine months ended July 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.
-7-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Quarter Ended July 1, 1995 Compared to Quarter Ended July 2, 1994
Net sales increased 14.4% in the quarter ended July 1, 1995 to
$15,277,000 compared to $13,355,000 in the quarter ended July 2, 1994. The
increase was the result of a higher volume of units sold in the Advanced
Lighting Products group (formerly the Aerospace product group) and at Converter
Power, Precision Lamp and Q-Arc. In the quarter ended April 2, 1994, Precision
Lamp experienced a significant shortfall in the release of shippable product
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 July 1, 1995 have increased over sales in the quarter ended July
2, 1994, sales to this major customer are still expected to be lower than
originally expected.
Cost of sales as a percentage of net sales was 68.2% in the third
quarter of fiscal 1995 compared to 65.1% in the same quarter last year. The
percentage increase was due to lower manufacturing yields on the newly
introduced backlight panel product at Precision Lamp, coupled with a lower than
expected sales volume on higher margin products. Also, increased overhead
expenses in the Quartz product group, in anticipation of potential increases in
future sales of lamps used in the processing of semiconductor materials,
contributed to the overall increase.
Spending in the area of research and development, 7.6% of net sales in
the third quarter of fiscal 1995, compared to 7.7% of net sales in the third
quarter of fiscal 1994, increased $133,000. The increase occurred 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 additional spending at
Converter Power for the design of new power supplies.
Marketing expenses for the quarter ended July 1, 1995 were $821,000, or
5.4% of net sales, compared to $634,000, or 4.7% of net sales, in the same
quarter of the prior fiscal year. The $187,000 increase in spending between the
two quarters was primarily the result of more travel and trade show attendance,
an increased advertising effort and the purchase of new product brochures and
literature.
General and administrative expenses, as a percentage of sales, were
8.5% in the quarter ended July 1, 1995, compared to 9.0% in the quarter ended
July 2, 1994. Even though the percentage comparison between the two quarters has
decreased, the spending in absolute dollars has increased $92,000 from the 1994
to the 1995 period.
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 third 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.
Other income (expense), net, comprised of interest income and interest
expense, increased $91,000 in the third quarter of fiscal 1995 from the third
quarter of fiscal 1994. In the quarter ended July 1, 1995, interest income
increased approximately $183,000 due to interest received from an income tax
refund while interest expense increased approximately $92,000 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.
-8-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Quarter Ended July 1, 1995 Compared to Quarter Ended July 2, 1994 (continued)
Income before provision for income taxes was $1,570,000 for the quarter
ended July 1, 1995 compared to $1,678,000 for the quarter ended July 2, 1994.
The provision for income taxes was 13% of income before provision for income
taxes for the third quarter of fiscal 1995 compared to 32% of income before
provision for income taxes in the same quarter last year. The quarter ended July
1, 1995 reflects an income tax refund of approximately $238,000 which reduced
the overall income tax rate. The tax refun relates to taxes previusly paid on
tax returns which were under review by the Internal Revenue Service and
favorably settled by the Company.
The Company believes that inflation and changing prices had no
significant impact on sales or costs during the third quarter of fiscal 1995 or
1994.
Nine Months Ended July 1, 1995 Compared to Nine Months Ended July 2, 1994
Net sales for the nine months ended July 1, 1995 increased 11.0%
($4,163,000) from the comparable period a year ago. The increase was the result
of a higher volume of units sold in the Flash, Quartz and Advanced Lighting
Products (formerly Aerospace) groups and at Converter Power, Q-Arc and Precision
Lamp. Additionally, even though net sales at Precision Lamp, for the nine months
ended April 1, 1995, have increased slightly from the prior nine 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 67.5% and 69.0% for the
nine months ended July 1, 1995 and July 2, 1994, respectively. 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. Without this charge, the
cost of sales percentage would have been approximately the same for the two nine
month periods.
Research and development expenses, $3,383,000 or 8.1% of net sales for
the nine months ended July 1, 1995, increased $540,000 from $2,843,000, or 7.5%
of net sales for the nine months ended July 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.
Marketing expenses in the nine months ended July 1, 1995 were
$2,191,000, or 5.2% of net sales compared to $1,749,000, or 4.6% of net sales,
in the same nine month period a year ago. The $442,000 increase is primarily due
to personnel additions, more travel and trade show attendance and the purchase
of product brochures and literature.
General and administrative expenses, 8.7% of net sales in the nine
months ended July 1, 1995 compared to 10.4% of net sales in the nine months
ended July 2, 1994, decreased $265,000. 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 nine 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 nine months ended July 1, 1995.
Amortization of intangibles of $3,702,000, for the nine months ended
July 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 ($272,000) 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 and third quarters of fiscal 1994.
-9-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Nine Months Ended July 1, 1995 Compared to Nine Months Ended July 2, 1994
(continued)
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 originally 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 $218,000 in the nine months ended
July 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), net, comprised of interest income and interest
expense, increased $123,000 in the first nine months of fiscal 1995 from the
first nine months of fiscal 1994. Interest income, for the first nine months of
fiscal 1995, increased approximately $130,000 due mainly to $239,000 of interest
associated with an income tax refund. Interest expense, for the nine months
ended July 1, 1995, increased approximately $253,000 from the nine months ended
July 2, 1994 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
$3,966,000 for the nine months ended July 1, 1995. The provision for income
taxes was 22% of income before provision for income taxes for the nine months
ended July 1, 1995 and reflects the $238,000 income tax refund received in the
third quarter of fiscal 1995. The Company reported a loss before provision for
income taxes of $585,000 for the nine months ended July 2, 1994. The tax
provision of $535,000, for the first nine months of fiscal 1994, reflected the
expected tax rate of 32% for fiscal 1994, which excluded the non-deductible
write down of intangibles as previously discussed.
The Company believes that inflation and changing prices had no
significant impact on sales or costs during the nine months ended July 1, 1995
or July 2, 1994.
Liquidity and Financial Condition
Net cash provided by operating activities totaled $1,652,000 in the
nine months ended July 1, 1995 compared to $3,762,000 in the nine months ended
July 2, 1994.
During the first nine 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 nine months ended
July 1, 1995 were $2,747,000. Also, during the first nine months of fiscal 1995,
the Company liquidated the balance of marketable securities of $998,000,
increased net borrowings under an equipment line by $715,000, made principal
payments of $1,200,000 under a term loan for real estate acquisitions and
increased net borrowings under a working capital line of credit by $1,350,000.
During the first nine months of fiscal 1994, the Company had capital
equipment expenditures of $1,920,000, purchased a new building for its Q-Arc
operations for approximately $2,400,000 and purchased $649,000 of marketable
securities. The Company also made principal payments of $750,000 under a term
loan for real estate acquisitions during the nine months ended July 2, 1994.
Raw material, work in process and finished goods inventories have
increased from October 1, 1994 by approximately $1,387,000, $255,000 and
$370,000, respectively. The majority of the raw material increase is located at
Precision Lamp and is anticipated to be consumed, over the balance of calendar
1995, in the manufacture of product for its major customer and in the
-10-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Financial Condition (continued)
manufacture of backlight panels. The work in process and finished goods
inventory increases are spread over various Company locations and are in
anticipation of product shipments in the fourth quarter of fiscal 1995 and to
reduce cycle time for customer needs.
The Company has working capital of $9,222,000 and a current ratio of
1.80 to 1.0 at July 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 July 1, 1995, the
Company has $2,650,000 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) (7.8% at July 1, 1995). The company also has available, at
July 1, 1995, approximately $881,000 remaining on a $1,500,000 equipment
facility for equipment acquisitions at the same interest rate. At July 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.
-11-
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed as part of this report:
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-12-
<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: August 10, 1995 /s/ Ronald E. Fredianelli
-------------------------
Ronald E.Fredianelli
Chief Financial Officer
DATE: August 10, 1995 /s/ Henry C. Baumgartner
------------------------
Henry C. Baumgartner
President
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUL-1-1995
<CASH> 316
<SECURITIES> 0
<RECEIVABLES> 9,130
<ALLOWANCES> 384
<INVENTORY> 9,204
<CURRENT-ASSETS> 2,541
<PP&E> 32,378
<DEPRECIATION> 9,949
<TOTAL-ASSETS> 45,165
<CURRENT-LIABILITIES> 11,585
<BONDS> 0
<COMMON> 5,867
0
0
<OTHER-SE> 21,221
<TOTAL-LIABILITY-AND-EQUITY> 45,165
<SALES> 41,950
<TOTAL-REVENUES> 41,950
<CGS> 28,312
<TOTAL-COSTS> 28,312
<OTHER-EXPENSES> 9,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> 3,966
<INCOME-TAX> 876
<INCOME-CONTINUING> 3,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,090
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
