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 JUNE 29, 1996
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ------------------------
Commission file number 0-11360
ILC TECHNOLOGY, INC
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1655721
(State of other jurisdiction (I.R.S. Emp4444loyer Incorporation or
or organization) Identification No.)
399 JAVA DRIVE, SUNNYVALE, CALIFORNIA 94089
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(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: 4,742,260 Date: JULY 30, 1996
- -------------------------------------------------------------------------------
<PAGE>
ILC TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended June 29, 1996
INDEX PAGE NO.
Part I. FINANCIAL INFORMATION 2
---------------------
Item 1 Condensed Consolidated Statements of
Operations - Quarters ended June 29, 1996
and July 1, 1995 and nine months ended
June 29, 1996 and July 1, 1995 3
Condensed Consolidated Balance Sheets -
June 29, 1996 and September 30, 1995 4
Condensed Consolidated Statements of Cash
Flows - Nine months ended June 29, 1996
and July 1, 1995 5-6
Notes to Condensed Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
PART II OTHER INFORMATION 11
-----------------
SIGNATURES 12
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1
<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
September 30, 1995.
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>
ITEM 1. FINANCIAL STATEMENTS
ILC TECHNOLOGY, INC.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------
(In thousands, except per share data)
QUARTER ENDED NINE MONTHS ENDED
------------- -----------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
---- ---- ---- ----
Net sales ....................... $ 16,535 $ 15,277 $ 47,082 $ 41,950
Costs and expenses:
Cost of sales ................ 11,359 10,415 31,972 28,312
Research and development ..... 994 1,163 3,594 3,383
Marketing .................... 702 821 2,390 2,191
General and administrative ... 1,275 1,300 3,864 3,652
Amortization of intangibles .. 73 73 218 218
-------- -------- -------- --------
14,403 13,772 42,038 37,756
-------- -------- -------- --------
Income from operations .......... 2,132 1,505 5,044 4,194
-------- -------- -------- --------
Other income (expense):
Interest, net ................ (126) 65 (388) (228)
-------- -------- -------- --------
Income before provision for
income taxes ................. 2,006 1,570 4,656 3,966
Provision for income taxes ...... 502 205 1,164 876
-------- -------- -------- --------
Net income ...................... $ 1,504 $ 1,365 $ 3,492 $ 3,090
======== ======== ======== ========
Earnings per share .............. $ 0.30 $ 0.28 $ 0.71 $ 0.65
======== ======== ======== ========
Weighted average shares
used in computation .......... 4,984 4,825 4,917 4,759
======== ======== ======== ========
See accompanying notes
3
<PAGE>
ILC TECHNOLOGY, INC.
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands)
JUNE 29, 1996 SEPTEMBER 30,
(unaudited) 1995
----------- ----
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 924 $ 1,509
Accounts receivable, net ...................... 12,369 10,445
Inventories:
Raw materials ............................... 5,858 4,846
Work-in-process ............................. 3,086 2,609
Finished goods .............................. 2,013 1,834
------- -------
Total inventories .......................... 10,957 9,289
------- -------
Deferred tax asset ............................. 1,454 1,454
Prepaid expenses ............................... 135 159
------- -------
Total current assets ..................... 25,839 22,856
------- -------
Property and equipment, net .................... 23,762 22,442
Covenants-not-to-compete, net .................. 899 1,117
Other assets ................................... 750 770
------- -------
$51,250 $47,185
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 4,639 $ 4,080
Accrued liabilities .......................... 5,175 5,841
Accrued income taxes payable ................. 2,308 1,869
------- -------
Total current liabilities ................ 12,122 11,790
------- -------
Long-term liabilities:
Long-term debt ............................... 5,084 4,772
Non-compete obligation ........................ - 390
Obligations under equipment line ............. 1,043 1,006
Other accruals ............................... 218 304
Capital lease obligation ..................... 95 121
------- -------
Total liabilities ........................ 18,562 18,383
------- -------
Stockholders' equity:
Common stock .................................. 6,527 6,133
Retained earnings ............................. 26,161 22,669
------- -------
Total stockholders' equity ............... 32,688 28,802
------- -------
$51,250 $47,185
======= =======
See accompanying notes
4
<PAGE>
ILC TECHNOLOGY, INC
-------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
(In thousands)
NINE MONTHS ENDED
-----------------
JUNE 29, 1996 JULY 1, 1995
------------- ------------
Cash flows from operating activities -
Net income ......................................... $ 3,492 $ 3,090
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 1,456 1,205
Amortization of non-compete agreements ........... 218 218
Changes in assets and liabilities from operations:
Decrease in marketable securities .............. - 998
Increase in accounts receivable .................. (1,924) (965)
Increase in inventories ........................ (1,668) (2,011)
Decrease in prepaid expenses ................... 24 407
Decrease (increase) in other assets ............ 20 (518)
Increase (decrease) in accounts payable ........ 559 (153)
Decrease in accrued liabilities ................ (379) (619)
------- -------
Total adjustments ......................... (1,694) (1,438)
------- -------
Net cash provided by operating activities.. 1,798 1,652
------- -------
Cash flows from investing activities -
Decrease in deposit on land and building purchase.. - 1,300
Capital expenditures .............................. (2,775) (5,947)
------- -------
Net cash used in investing activities ...... (2,775) (4,647)
------- -------
Cash flows from financing activities -
Borrowings under line of credit ................... 7,100 6,550
Repayments under line of credit ................... (5,600) (5,200)
Principal borrowings under equipment line ......... 1,111 1,530
Principal payments under equipment line ........... (1,035) (815)
Principal payments under term loan for buildings .. (1,188) (1,200)
Proceeds from issuance of common stock ............ 394 451
Payments under non-compete agreement .............. (390) (390)
Repurchase of common stock ........................ - (77)
------- -------
Net cash provided by financing activities .. 392 849
------- -------
Net decrease in cash .............................. (585) (2,146)
Cash at beginning of period ....................... 1,509 2,462
------- -------
Cash at end of period ............................. $ 924 $ 316
======= ========
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
JUNE 29, 1996 JULY 1, 1995
------------- ------------
Cash paid during the period for:
Interest expense $ 451 $ 517
Income taxes 425 874
See accompanying notes
6
<PAGE>
ILC TECHNOLOGY, INC.
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
JUNE 29, 1996
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.
INVENTORIES
-----------
Inventories are stated at the lower of cost (first in, first out) or
market, and include material, labor and manufacturing overhead.
2. EARNINGS 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. Fully
diluted earnings per share is not significantly different from earnings per
share as reported.
3. INTANGIBLE ASSETS
-----------------
The Company has certain intangible assets as a result of its acquisition of
two subsidiaries. Subsequent to these acquisitions, the Company quarterly
evaluates whether later events and circumstances have occurred that indicate the
remaining estimated useful lives of these intangibles may warrant revision or
that the remaining balances of intangibles may not be recoverable. When factors
indicate that intangibles should be evaluated for possible impairment, the
Company uses an estimate of the related subsidiary's undiscounted cash flow over
the remaining life of the intangibles in measuring whether the intangibles are
recoverable.
Covenants-not-to-compete are amortized over the period of the covenant.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED JUNE 29, 1996 COMPARED TO QUARTER ENDED JULY 1, 1995
- ------------------------------------------------------------------
Net sales increased 8.2% in the quarter ended June 29, 1996 to $16,535,000
compared to $15,277,000 in the quarter ended July 1, 1995. The increase was the
result of a higher volume of units sold in Flash, Cermax, Quartz and Equipment.
Unit volume in Advanced Lighting products, in the quarter ended June 29, 1996,
was lower than the unit volume in the quarter ended July 1, 1995 due to a
decrease in the level of government contracts. Unit volume at Precision Lamp was
lower in the current quarter from the same quarter in the prior year due to a
further slowdown in the release of shippable product to a major customer, while
unit volume at Converter Power and at Q-Arc remained relatively constant between
the two quarters. Converter Power has experienced a softening in orders from
major customer that provides equipment to the semiconductor industry. Converter
Power will continue to reduce reliance on this major customer through additional
sales of new products to other customers. This change in customer base and mix
may have an unfavorable impact on gross margin in future quarters. The previous
two sentences contain forward looking statements. Actual results culd differ
materially due to factors such as, customer base and mix, product mix, timely
introduction and market acceptance of new products, price and competitive
factors.
Cost of sales as a percentage of net sales was 68.7% in the third quarter
of fiscal 1996 compared to 68.2% in the same quarter last year. The slight
percentage increase was due primarily to the lower sales volume at Precision
Lamp, due to the slowdown in the release of shippable product to a major
customer.
Spending in the area of research and development, 6.0% of net sales in the
third quarter of fiscal 1996, compared to 7.6% of net sales in the third quarter
of fiscal 1995, decreased $169,000 between the two quarters. The majority of the
decrease occurred in Cermax for lamps for video projection and at Converter
Power for the design of new power supplies to compliment the lamps for video
projection since this development effort has been substantially completed during
the current quarter.
Marketing expenses for the quarter ended June 29, 1996 were $702,000, or
4.2% of net sales, compared to $821,000, or 5.4% of net sales, in the same
quarter of the prior fiscal year. The $119,000 decrease between the two quarters
was the result of less travel and trade show attendance and less commission
expense on a decreased sales volume at Precision Lamp as previously discussed
above.
General and administrative expenses, as a percentage of net sales, were
7.7% in the quarter ended June 29, 1996, compared to 8.5% in the quarter ended
July 1, 1995. In absolute dollars, the general and administrative expense
spending level has remained relatively constant, having decreased $25,000
between the two quarters.
Other income (expense), net, primarily interest expense and interest
income, increased $191,000 in the third quarter of fiscal 1996 from the third
quarter of fiscal 1995. In the quarter ended July 1, 1995, interest income
increased approximately $221,000 due to interest received from an income tax
refund, while interest expense decreased approximately $30,000 due to a slightly
lower interest rate. Interest expense is associated with the term loan obtained
to purchase the Company's two operating facilities in Sunnyvale, the line of
credit for working capital needs and the equipment line of credit for capital
equipment acquisitions.
Income before provision for income taxes was $2,006,000 for the quarter
ended June 29, 1996 compared to $1,570,000 for the quarter ended July 1, 1995.
The provision for income taxes was 25% of income before provision for income
taxes for the third quarter of fiscal 1996 compared to 13% 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 refund related to taxes previously paid on
tax returns which were under review by the Internal Revenue Service and
favorably settled by the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
QUARTER ENDED JUNE 29, 1996 COMPARED TO QUARTER ENDED JULY 1, 1995 (CONTINUED)
- ------------------------------------------------------------------------------
The Company believes that inflation and changing prices had no significant
impact on sales or costs during the third quarter of fiscal 1996 or 1995.
NINE MONTHS ENDED JUNE 29, 1996 COMPARED TO NINE MONTHS ENDED JULY 1, 1995
- --------------------------------------------------------------------------
Net sales for the nine months ended June 29, 1996 increased 12.2%
($5,132,000) from the comparable period a year ago. The increase was the result
of a higher volume of units sold in all products except Advanced Lighting
products, due to less government contract work and at Precision Lamp due to a
further slowdown in the release of shippable product to a major customer in the
third quarter of fiscal 1996. Converter Power, in the third quarter of fiscal
1996, has experienced a softening in orders from a major customer that provides
equipment to the semiconductor industry. Converter Power will continue to reduce
reliance on this major customer through additional sales of new products to
other customers. This change in customer base and mix may have an unfavorable
impact on gross margin in future quarters. The previous two sentences contain
forward looking statements. Actual results could differ materially due to
factors such as, customer base and mix, product mix. timely introduction and
market acceptance of new products, price and competitive factors.
Cost of sales as a percentage of net sales was 67.9% and 67.5% for the nine
months ended June 29, 1996 and July 1, 1995, respectively. The percentage
increase was due primarily to the lower sales volume at Precision Lamp due to
the slowdown in the release of shippable product by a major customer as
previously discussed.
Research and development expenses, $3,594,000 or 7.6% of net sales for the
nine months ended June 29, 1996, increased $211,000 from $3,383,000, or 8.1% of
net sales for the nine months ended July 1, 1995. The majority of the increase
occurred in Quartz 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 June 29, 1996 were $2,390,000,
or 5.1% of net sales compared to $2,191,000, or 5.2% of net sales in the same
nine month period a year ago. The $199,000 increase is primarily due to
personnel additions, more travel and trade show attendance and an increased
advertising program.
General and administrative expenses, 8.2% of net sales in the nine months
ended June 29, 1996 compared to 8.7% of net sales in the nine months ended July
1, 1995, increased $212,000. The increase between the two nine month periods was
the result of additions to staff at Converter Power and expenses associated with
ISO 9001 Certification.
Other income (expense), net, primarily interest expense and interest
income, increased $160,000 in the first nine months of fiscal 1996 from the
first nine months of fiscal 1995. Interest income, for the first nine months of
fiscal 1996, increased approximately $226,000 due mainly to $239,000 of interest
associated with an income tax refund. Interest expense, for the nine months
ended June 29, 1996, decreased approximately $66,000 from the nine months ended
July 1, 1995 due to lower outstanding balances on the Company's term loan
obtained to purchase the Company's two operating facilities in Sunnyvale coupled
with a slightly lower interest rate.
Income before provision for income taxes was $4,656,000 for the nine months
ended June 29, 1996 compared to $3,966,000 for the nine months ended July 1,
1995. The provision for income taxes was 25% of income before provision for
income taxes for the first nine months of fiscal 1996 compared to 22% of income
before provision for income taxes for the first nine months of fiscal 1995. The
22% provision for income taxes for the first nine months of fiscal 1995 reflects
a $238,000 income tax refund received in the third quarter of fiscal 1995.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
NINE MONTHS ENDED JUNE 29, 1996 COMPARED TO NINE MONTHS ENDED JULY 1, 1995
(CONTINUED)
- --------------------------------------------------------------------------
The Company believes that inflation and changing prices had no significant
impact on sales or costs during the nine months ended June 29, 1996 or July 1,
1995.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Net cash provided by operating activities totaled $1,798,000 in the nine
months ended June 29, 1996 compared to $1,652,000 in the nine months ended July
1, 1995.
During the first nine months of fiscal 1996, the Company made capital
equipment acquisitions of $2,775,000, increased net borrowings under a working
capital line of credit by $1,500,000, increased net borrowings under an
equipment line of credit by $76,000 and made principal payments of $1,188,000
under a term loan for real estate acquisitions.
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.
Raw materials, work in process and finished goods have increased from
September 30, 1995 by approximately $1,011,000, $477,000 and $179,000,
respectively. The majority of the raw material increase is located at Precision
Lamp and is anticipated to be consumed over the balance of calendar 1996 in the
manufacture of product for its major customer. The work in process and finished
goods inventory increases are spread over the various Company locations and are
in anticipation of product shipments for the balance of fiscal 1996 and to
reduce cycle time for customer needs.
The Company has working capital of $13,717,000 and a current ratio of 2.13
to 1.0 at June 29, 1996. This compares with working capital of $11,066,000 and a
current ratio of 1.94 to 1.0 at September 30, 1995. As of June 29, 1996, the
Company has $500,000 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) (7.45% at June 29, 1996). This bank line of credit was
increased to $6,000,000 subsequent to the quarter end at the same rate of
interest. The Company also has available, at June 29, 1996, approximately
$1,540,000 remaining on a $2,200,000 facility for capital equipment acquisitions
at the same interest rate. At June 29, 1996, 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 1996.
10
<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
11
<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 9, 1996 /S/ RONALD E. FREDIANELLI
-------------------------
Ronald E.Fredianelli
Chief Financial Officer
DATE: August 9, 1996 /S/ HENRY C. BAUMGARTNER
------------------------
Henry C. Baumgartner
Chairman and Chief Executive Officer
12
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 924
<SECURITIES> 0
<RECEIVABLES> 12,724
<ALLOWANCES> 355
<INVENTORY> 10,957
<CURRENT-ASSETS> 1,589
<PP&E> 35,599
<DEPRECIATION> 11,837
<TOTAL-ASSETS> 51,250
<CURRENT-LIABILITIES> 12,122
<BONDS> 0
0
0
<COMMON> 6,527
<OTHER-SE> 26,161
<TOTAL-LIABILITY-AND-EQUITY> 51,250
<SALES> 47,082
<TOTAL-REVENUES> 47,082
<CGS> 31,972
<TOTAL-COSTS> 31,972
<OTHER-EXPENSES> 10,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 388
<INCOME-PRETAX> 4,656
<INCOME-TAX> 1,164
<INCOME-CONTINUING> 3,492
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