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 MARCH 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from TO FROM
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: 4,714,850 Date: APRIL 30, 1996
------------------------------------------------------------------------
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ILC TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended March 30, 1996
INDEX PAGE NO.
Part I. FINANCIAL INFORMATION 2
Item 1 Condensed Consolidated Statements of
Operations - Quarters ended March 30, 1996
and April 1, 1995 and six months ended
March 30, 1996 and April 1, 1995 3
Condensed Consolidated Balance Sheets -
March 30, 1996 and September 30, 1995 4
Condensed Consolidated Statements of Cash
Flows - Six months ended March 30, 1996
and April 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
Item 4 Submission of Matters to a Vote of Security
Holders 11
SIGNATURES 12
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 SIX MONTHS ENDED
------------- ---------------
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
---- ---- ---- ----
Net sales ...................... $ 16,049 $ 13,989 $ 30,547 $ 26,673
Costs and expenses:
Cost of sales ................ 10,780 9,210 20,614 17,897
Research and development ..... 1,312 1,205 2,599 2,219
Marketing .................... 881 712 1,687 1,370
General and administrative ... 1,395 1,254 2,588 2,352
Amortization of intangibles .. 73 73 146 146
-------- -------- -------- --------
14,441 12,454 27,634 23,984
-------- -------- -------- --------
Income from operations ......... 1,608 1,535 2,913 2,689
-------- -------- -------- --------
Other income (expense):
Interest, net ................ (128) (164) (263) (293)
-------- -------- -------- --------
Income before provision for
income taxes ................. 1,480 1,371 2,650 2,396
Provision for income taxes ..... 370 384 662 671
-------- -------- -------- --------
Net income ..................... $ 1,110 $ 987 $ 1,988 $ 1,725
======== ======== ======== ========
Earnings per share ............. $ 0.23 $ 0.21 $ 0.41 $ 0.37
======== ======== ======== ========
Weighted average shares
used in computation .......... 4,895 4,769 4,886 4,726
======== ======== ======== ========
See accompanying notes
3
<PAGE>
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
MAR 30, SEPT 30,
1996 1995
-------- ------
(unudited)
ASSETS
Current assets:
Cash and cash equivalents .................... $ 1,029 $ 1,509
Accounts receivable, net ..................... 10,824 10,445
Inventories:
Raw materials .............................. 5,605 4,846
Work-in-process ............................ 2,867 2,609
Finished goods ............................. 1,956 1,834
------- -------
Total inventories ........................ 10,428 9,289
------- -------
Deferred tax asset ............................. 1,454 1,454
Prepaid expenses ............................... 275 159
------- -------
Total current assets ..................... 24,010 22,856
------- -------
Property and equipment, net .................... 22,943 22,442
Covenants-not-to-compete, net .................. 971 1,117
Other assets ................................... 773 770
------- -------
$48,697 $47,185
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 4,352 $ 4,080
Accrued liabilities .......................... 5,463 5,841
Accrued income taxes payable ................. 2,095 1,869
------- -------
Total current liabilities ................ 11,910 11,790
------- -------
Long-term debt ................................. 4,280 4,772
Non-compete obligation ......................... 130 390
Obligations under equipment line ............... 1,056 1,006
Other accruals ................................. 246 304
Capital lease obligation ....................... 104 121
Stockholders' equity:
Common stock ................................. 6,314 6,133
Retained earnings ............................ 24,657 22,669
------- -------
Total stockholders' equity ............... 30,971 28,802
------- -------
$48,697 $47,185
======= =======
See accompanying notes
4
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ILC TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
SIX MONTHS ENDED
----------------
MAR 30, APR 1,
1996 1995
---- ----
Cash flows from operating activities -
Net income ............................................ $ 1,988 $ 1,725
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization ........................ 1,002 772
Amortization of non-compete agreements ............... 146 146
Changes in assets and liabilities from
operations:
Decrease in marketable securities .................. -- 998
Increase in accounts receivable .................... (380) (504)
Increase in inventories ............................ (1,139) (2,032)
Increase (decrease) in prepaid expenses ............ (115) 282
Increase in other assets ........................... (3) (473)
(Increase) decrease in accounts payable ............ 272 (170)
Decrease in accrued liabilities .................... (278) (937)
------- -------
Total adjustments ................................. (495) (1,918)
------- -------
Net cash provided by (used in) operating activities 1,493 (193)
------- -------
Cash flows from investing activities -
Capital expenditures ................................... (1,503) (5,222)
Decrease in deposit on land and building purchase ...... -- 1,300
------- -------
Net cash used in investing activities ............. (1,503) (3,922)
------- -------
Cash flows from financing activities -
Borrowings under line of credit ........................ 4,500 5,850
Repayments under line of credit ........................ (4,200) (3,850)
Principal borrowings under equipment line .............. 751 1,165
Principal payments under equipment line ................ (650) (520)
Principal payments under term loan for buildings ....... (792) (787)
Proceeds from issuance of common stock ................. 181 335
Payments under non-compete agreement ................... (260) (260)
Repurchase of common stock ............................. -- (77)
------- -------
Net cash provided by (used in) financing activities (470) 1,856
------- -------
Net decrease in cash ..................................... (480) (2,259)
Cash at beginning of period .............................. 1,509 2,462
------- -------
Cash at end of period ....................................$ 1,029 $ 203
======= =======
See accompanying notes
5
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ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Continued)
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
SIX MONTHS ENDED
----------------
MARCH 30, 1996 APRIL 1, 1995
-------------- -------------
Cash paid during the period for:
Interest expense ............. $296 $332
Income taxes ................. 355 834
See accompanying notes
6
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 30, 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 MARCH 30, 1996 COMPARED TO QUARTER ENDED APRIL 1, 1995
Net sales increased 14.7% in the quarter ended March 30, 1996 to
$16,049,000 compared to $13,989,000 in the quarter ended April 1, 1995. The
increase was the result of a higher volume of units sold across all products
except Aerospace products.
Cost of sales as a percentage of net sales was 67.2% in the second quarter
of fiscal 1996 compared to 65.8% in the same quarter last year. The percentage
increase was due to increased manufacturing costs in Cermax products due to
yield inefficiencies partially offset by revisions of cost estimates for a fixed
price contract in Aerospace products.
Spending in the area of research and development, 8.2% of net sales in the
second quarter of fiscal 1996, compared to 8.6% of net sales in the second
quarter of fiscal 1995, increased $107,000 between the two quarters. The
increase occurred in Cermax for lamps for video projection and in Quartz for the
development of lamps used in the processing of semiconductor materials. Also
contributing to the increase was spending at Converter Power for the design of
new power supplies.
Marketing expenses for the quarter ended March 30, 1996 were $881,000, or
5.5% of net sales, compared to $712,000, or 5.1% of net sales, in the same
quarter of the prior fiscal year. The $169,000 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 net sales, were
8.7% in the quarter ended March 30, 1996, compared to 9.0% in the quarter ended
April 1, 1995. Even though the percentage comparison between the two quarters
has decreased, the spending in absolute dollars has increased $141,000 from the
1996 to the 1995 period primarily for additions to staff at Converter Power and
for expenses associated with ISO 9001 certification.
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 represented 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 1996 and 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, primarily interest expense and interest
income, decreased $36,000 in the second quarter of fiscal 1996 from the second
quarter of fiscal 1995 due primarily to a declining balance outstanding on the
term loan obtained to purchase the Company's two operating facilities in
Sunnyvale. Interest expense associated with the line of credit for working
capital needs and the line of credit for capital equipment acquisitions remained
relatively constant between the second quarter of fiscal 1996 and the second
quarter of fiscal 1995.
Income before provision for income taxes was $1,480,000 for the quarter
ended March 30, 1996 compared to $1,371,000 for the quarter ended April 1, 1995.
The provision for income taxes was 25% of income before provision for income
taxes for the second quarter of fiscal 1996 compared to 28% of income before
provision for income taxes in the same quarter last year.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
QUARTER ENDED MARCH 30, 1996 COMPARED TO QUARTER ENDED APRIL 1, 1995 (CONTINUED)
The Company believes that inflation and changing prices had no significant
impact on sales or costs during the second quarter of fiscal 1996 or 1995.
SIX MONTHS ENDED MARCH 30, 1996 COMPARED TO SIX MONTHS ENDED APRIL 1, 1995
Net sales for the six months ended March 30, 1996 increased 14.5%
($3,874,000) from the comparable period a year ago. The increase was the
result
of a higher volume of units sold across all products except Aerospace products.
Cost of sales as a percentage of net sales was 67.5% and 67.1% for the six
months ended March 30, 1996 and April 1, 1995, respectively. The percentage
increase was due to higher manufacturing costs at Converter Power partially
offset by revisions of cost estimates for a fixed price contract in Aerospace in
the second quarter of fiscal 1996.
Research and development expenses, $2,599,000 or 8.5% of net sales for the
six months ended March 30, 1996, increased $380,000 from $2,219,000, or 8.3% of
net sales for the six months ended April 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 six months ended March 30, 1996 were $1,687,000,
or 5.5% of net sales compared to $1,370,000, or 5.1% of net sales, in the same
six month period a year ago. The $317,000 increase is primarily due to personnel
additions, more travel and trade show attendance and an increased advertising
program.
General and administrative expenses, 8.5% of net sales in the six months
ended March 30, 1996 compared to 8.8% of net sales in the six months ended April
1, 1995, increased $236,000. The increase between the two six month periods was
the result of additions to staff at Converter Power and expenses associated with
ISO 9001 certification.
In the quarter ended April 2, 1994, Precision Lamp experienced a slowdown
in the release of shippable product from a major customer. 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 March 30, 1996
and 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), net, primarily interest expense and interest income,
decreased $30,000 in the first six months of fiscal 1996 from the first six
months of fiscal 1995 due primarily to a declining balance outstanding on the
term loan obtained to purchase the Company's two operating facilities in
Sunnyvale. Interest expense associated with the line of credit for working
capital needs and the line of credit for capital equipment acquisitions remained
relatively constant between the six months ended March 30, 1996 and the six
month ended April 1, 1995.
Income before provision for income taxes was $2,650,000 for the six months
ended March 30, 1996 compared to $2,396,000 for the six months ended April 1,
1995. The provision for income taxes was 25% of income before provision for
income taxes for the first six months of fiscal 1996 compared to 28% of income
before provision for income taxes in the first six months of fiscal 1995.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED MARCH 30, 1996 COMPARED TO SIX MONTHS ENDED APRIL 1, 1995
(CONTINUED)
The Company believes that inflation and changing prices had no significant
impact on sales or costs during the six months ended March 30, 1996 or April 1,
1995.
LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by operating activities totaled $1,493,000 in the six
months ended March 30, 1996 compared to net cash used in operating activities of
$193,000 in the six months ended April 1, 1995.
During the first six months of fiscal 1996, the Company made capital
equipment acquisitions of $1,503,000, paid down a term loan by $792,000,
increased its net borrowings under a working capital line of credit by $300,000
and increased its net borrowings under a capital equipment line of credit by
$101,000.
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). Also in the first six months of fiscal 1995, the Company
liquidated the balance of marketable securities of $998,000, increased net
borrowings under a capital equipment line of credit by $645,000, made principal
payments of $787,000 under a term loan and increased net borrowings under a
working capital line of credit by $2,000,000.
Raw material, work in process and finished goods inventories have increased
from September 30, 1995 by approximately $758,000, $258,000 and $122,000,
respectively. These increases 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 $12,100,000 and a current ratio of 2.02
to 1.0 at March 30, 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 March 30, 1996, the
Company has $1,700,000 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) (7.6% at March 30, 1996). The Company also has available,
at March 30, 1996, approximately $1,900,000 remaining on a $2,200,000 facility
for capital equipment acquisitions at the same interest rate. At March 30, 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
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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 14, 1996.
(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 VOTES WITHHELD AND
VOTES FOR AGAINST BROKER NONVOTES
Harrison H. Augur ........ 3,837,565 -- 21,409
Henry C. Baumgartner...... 3,835,789 1,776 21,409
Richard D. Capra ......... 3,832,265 5,300 21,409
Arthur L. Schawlow ....... 3,833,424 4,141 21,409
Wirt D. Walker ........... 3,837,380 185 21,409
(ii) Approval of an amendment to the 1992 Employee Stock Option Plan:
Votes for: 3,282,377 shares
Votes against: 311,787 shares
Votes withheld and
broker nonvotes 264,810 shares
(iii Ratification of the appointment of Arthur Andersen LLP as independent
public accountants of the Company for fiscal 1996:
Votes for: 3,843,340 shares
Votes against: 5,234 shares
Votes withheld and
broker nonvotes 10,400 shares
(d) Not applicable
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: May 14, 1996 S/S Ronald E. Fredianelli
-------------------------
Ronald E.Fredianelli
Chief Financial Officer
DATE: May 14, 1996 S/S Henry C. Baumgartner
------------------------
Henry C. Baumgartner
President
12
<PAGE>
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