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 28, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11360
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ILC TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1655721
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(State of other jurisdiction (I.R.S. Employer 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
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Registrant's telephone number, including area code)
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(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: 4,866,402 Date: JULY 31, 1997
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ILC TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended June 28, 1997
INDEX PAGE NO.
Part I. FINANCIAL INFORMATION 2
Item 1 Condensed Consolidated Statements of
Operations - Quarters ended June 28, 1997
and June 29, 1996 and nine months ended
June 28, 1997 and June 29, 1996 3
Condensed Consolidated Balance Sheets -
June 28, 1997 and September 28, 1996 4
Condensed Consolidated Statements of Cash
Flows - Nine months ended June 28, 1997
and June 29, 1996 5-6
Notes to Condensed Consolidated Financial
Statements 7-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-14
Item 3 Quantitative and Qualitative Disclosure
about Market Risk 14
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
1
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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 28, 1996.
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
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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 28, June 29, June 28, June 29,
1997 1996 1997 1996
(as restated) (as restated)
Net sales .................. $ 13,911 $ 14,860 $ 40,808 $ 41,014
Costs and expenses:
Cost of sales ............ 9,806 9,865 29,112 26,951
Research and development . 1,047 950 3,324 3,451
Marketing ................ 837 593 2,363 1,990
General and administrative 910 1,140 2,991 3,398
Amortization of intangibles 30 30 90 90
-------- -------- -------- --------
12,630 12,578 37,880 35,880
-------- -------- -------- --------
Income from operations ...... 1,281 2,282 2,928 5,134
Interest expense, net ....... (99) (113) (423) (337)
Gain on sale of Converter Power 2,379 -- 2,379 --
-------- -------- -------- --------
Income before provision for
income taxes and discontinued
operations ................... 3,561 2,169 4,884 4,797
Provision for income taxes .... 890 543 1,217 1,200
-------- -------- -------- --------
Income before discontinued
operations ................... 2,671 1,626 3,667 3,597
Loss from discontinued
operations, net of income tax
benefit of $41 and $36 in
the quarter and nine months
ended June 29, 1996,
respectively ................. -- (122) -- (105)
-------- -------- -------- --------
Net income .................... $ 2,671 $ 1,504 $ 3,667 $ 3,492
======== ======== ======== ========
Earnings per share:
Earnings from continuing
operations ................... $ 0.53 $ 0.33 $ 0.73 $ 0.73
Earnings from discontinued
operations .................... -- (0.03) -- (0.02)
-------- -------- -------- --------
Net income per share ...........$ 0.53 $ 0.30 $ 0.73 $ 0.71
======== ======== ======== ========
Weighted average shares
used in computation ......... 5,049 4,984 5,043 4,917
======== ======== ======== ========
See accompanying notes
3
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ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
JUNE 28, 1997 SEPTEMBER 28, 1996
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............... $ 1,220 $ 1,829
Accounts receivable, net ................ 10,391 10,356
Inventories:
Raw materials ......................... 4,959 4,803
Work-in-process ....................... 3,262 2,550
Finished goods ........................ 1,505 1,549
------- -------
Total inventories ................... 9,726 8,902
------- -------
Deferred tax asset ........................ 1,484 2,158
Prepaid expenses .......................... 261 208
Net assets from discontinued operations ... -- 2,178
Note receivable from sale of Precision Lamp 1,400 --
------- -------
Total current assets .................. 24,482 25,631
------- -------
Property and equipment, net ............... 21,347 21,176
Note receivable from sale of Precision Lamp 2,197 --
Covenant-not-to-compete, net .............. 268 357
Other assets .............................. 768 680
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$49,062 $47,844
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................ $ 4,030 $ 3,643
Accrued liabilities ..................... 2,696 2,853
Current portion of long-term debt ....... 2,620 2,493
Accrued income taxes payable ............ 2,013 1,487
------- -------
Total current liabilities ............. 11,359 10,476
------- -------
Long-term debt ............................ 2,633 6,188
Obligations under equipment line .......... 1,171 1,096
Other accruals ............................ 89 206
Capital lease obligation .................. 59 87
------- -------
Total liabilities ..................... 15,311 18,053
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Stockholders' equity:
Common stock .............................. 7,108 6,815
Retained earnings ......................... 26,643 22,976
------- -------
Total stockholders' equity ............ 33,751 29,791
------- -------
$49,062 $47,844
======= =======
See accompanying notes
4
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ILC TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
NINE MONTHS ENDED
JUNE 28, JUNE 29,
1997 1996
-------- --------
(as restated)
Cash flows from operating activities -
Net income .................................. $ 3,667 $ 3,492
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization ............. 860 1,143
Amortization of non-compete agreements .... 90 90
Gain on sale of Converter Power ........... (2,379) --
Changes in assets and liabilities from
operations:
Increase in accounts receivable ........... (763) (1,600)
Increase in inventories ................. (2,520) (988)
Increase in prepaid expenses ............ (53) (2)
Decrease in deferred tax asset .......... 674 --
(Increase) decrease in other assets ..... (88) 20
Increase in accounts payable ............ 386 262
Increase (decrease) in accrued liabilities .. (638) (134)
Net change in assets and liabilities from
discontinued operations ................. 2,178 (1,039)
-------- --------
Total adjustments ..................... (2,253) (2,248)
-------- --------
Net cash provided by operating
activities ........................... 1,414 1,244
-------- --------
Cash flows from investing activities -
Capital expenditures ......................... (1,665) (2,187)
Net change in note receivable from sale of
Precision Lamp .............................. (3,596) --
Proceeds from the sale of Converter Power .... 6,350 --
-------- --------
Net cash provided by (used in)
investing activities................... 1,089 (2,187)
-------- --------
Cash flows from financing activities -
Borrowings under line of credit .............. 9,713 7,100
Repayments under line of credit .............. (12,213) (5,600)
Principal borrowings under equipment line .... 1,045 1,111
Principal payments under equipment line ...... (895) (1,035)
Principal payments under term loan for
buildings ................................... (1,055) (1,188)
Proceeds from issuance of common stock ....... 718 394
Repurchase of common stock ................... (425) --
Payments under non-compete agreement ......... -- (390)
-------- --------
Net cash provided by (used in)
financing activities.................. (3,112) 392
-------- --------
Net decrease in cash ......................... (609) (551)
Cash at beginning of period .................. 1,829 1,530
-------- --------
Cash at end of period ........................ $ 1,220 $ 979
======== ========
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:
NINE MONTHS ENDED
JUNE 28, 1997 JUNE 29, 1996
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Cash paid during the period for:
Interest expense $ 542 $ 451
Income taxes 29 425
See accompanying notes
6
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ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 28, 1997
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.
The Condensed Consolidated Financial Statements for the quarter and nine
months ended June 29, 1996 were restated to reflect the Company's decision to
discontinue the operations of Precision Lamp, Inc. This restatement had no
impact on net income. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company's 1996 Form
10-K and quarterly report on Form 10-Q for the nine months ended June 29, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
on Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share",
which is required to be adopted by the Company in its first quarter of fiscal
1998. The effective date of SFAS No. 128 is December 15, 1997 and early adoption
is not permitted. The Company intends to adopt SFAS No. 128 during the quarter
ended December 27, 1997. Had the provisions of SFAS No. 128 been applied to the
Company's results of operations for the nine months ended June 28, 1997 and June
29, 1996, the Company's basic earnings per share from continuing operations
would have been $0.76 per share for both periods, and its diluted earnings per
share would have been $0.73 per share for both periods.
7
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ILC TECHNOLOGY, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
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JUNE 28, 1997
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3. COVENANT-NOT-TO-COMPETE
-----------------------
The covenant-not-to-compete relates to the Q-Arc acquisition that took
place in 1991. This is being amortized over the period of the covenant.
Subsequent to this acquisition, the Company quarterly evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of this intangible may warrant revision or that the remaining
balance of the intangible 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.
4. BANK BORROWINGS
---------------
In January 1997, the Company negotiated an additional $3,000,000 line of
credit available to June 30, 1997 at 2.5% above the LIBOR rate. As of June 28,
1997, this facility expired and all amounts outstanding were repaid with
proceeds from the sale of Converter Power.
5. DISCONTINUED OPERATIONS
-----------------------
In September 1996, the Company's Board of Directors voted to proceed with
the divestiture of the Company's Precision Lamp subsidiary based in Cotati,
California. For the six months ended March 29, 1997, the loss incurred by this
operation of approximately $765,000 was offset against an accrual for
anticipated losses during the disposition of discontinued operations that was
established in the fourth quarter of fiscal 1996.
In January 1997, the Company signed an agreement to sell the Precision Lamp
subsidiary. The original selling price was approximately $3.3 million but was
subject to due diligence and the ability of PLI Acquisition Corp., the
purchaser, to obtain adequate financing no later than March 31, 1997. The
purchaser was not able to obtain adequate financing, but through further
discussions with the purchaser, the Company agreed to sell the stock of
Precision Lamp to PLI Acquisition Corp. for a $4 million promissory note bearing
8% interest per year on any unpaid principal amount. Payments on the promissory
note began in May 1997 and will be completed in April 2000. This transaction was
recorded in the third quarter ended June 28, 1997. The purchase price, net of
expenses, approximated book value and therefore, no gain or loss was recorded.
6. CONVERTER POWER, INC.
---------------------
In May 1997, the Company announced the sale of Converter Power, Inc. to
Applied Science and Technology, Inc. (ASTeX) for a purchase price of $6.35
million in cash and 45,000 shares of ASTeX stock. The total purchase price is
guaranteed to be $7.35 million, subject to adjustments related to warranties
provided by the Company at the time of sale. The Company has made an estimate of
the expected warranties that could be paid of approximately $500,000 and has
reduced the gain on sale accordingly. The 45,000 shares received will be held in
escrow subject to any post-closing adjustments. The sale, net of expenses,
resulted in a gain of $2,379,000 and is reported in the results of operations
for the quarter ended June 28, 1997. The net amount due from ASTeX of $500,000
is reflected in accounts receivable on the accompanying condensed consolidated
balance sheet.
8
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ILC TECHNOLOGY, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
---------------------------------------------------------------------------
JUNE 28, 1997
-------------
7. REPURCHASE OF COMMON STOCK
--------------------------
In November 1996, the Board of Directors authorized the Company to
repurchase up to 1,000,000 shares of the Company's issued and outstanding common
stock. During the third quarter of fiscal 1997, and since inception of the
repurchase program, the Company repurchased 37,000 shares of common stock for an
aggregate amount of $425,000. Purchases were made on the open market and can be
made for up to two years from the date of authorization.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GENERAL
- -------
In September 1996, the Company's Board of Directors voted to proceed with
the divestiture of the Company's Precision Lamp subsidiary located in Cotati,
California. Accordingly, the following discussion and analysis of financial
condition and results of operations reflects the activities of ILC Sunnyvale,
Converter Power, Inc. and Q-Arc Ltd.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In addition to the factors discussed
below, among the factors that could cause actual results to differ materially
are the following: the Company's ability to manufacture products efficiently and
reliably; the ability of the Company to deliver new products on time; market
acceptance of the Company's products; the introduction, marketing and commercial
viability of products and systems that use the Company's products; competition;
changes in pricing; the timing of, or delay in, large customer orders; quality
control of products sold; and the factors contained from time to time in the
reports that the Company files with the Securities and Exchange Commission. In
this report, the words "anticipates", "believes", "future", "may have", "will
take place", "are expected" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
CONTINUING OPERATIONS
- ---------------------
QUARTER ENDED JUNE 28, 1997 COMPARED TO QUARTER ENDED JUNE 29, 1996
- -------------------------------------------------------------------
Net sales in the quarter ended June 28, 1997 were $13,911,000 compared to
$14,860,000 in the quarter ended June 29, 1996. Although net sales at ILC
Sunnyvale and Q-Arc increased by 11.1% between the two quarters, net sales at
Converter Power decreased 79.4% between the two quarterly periods. In May 1997,
Converter Power was sold and, accordingly, the quarter ended June 28, 1997
includes only one month of sales as compared to a full quarter of sales in the
quarter ended June 29, 1996. The net sales increase at ILC and at Q-Arc was the
result of a higher volume of products sold primarily in Flashlamp, Quartz and
Aerospace products.
Cost of sales as a percentage of net sales was 70.5% in the third quarter
of fiscal 1997 compared to 66.4% in the same quarter last year. The percentage
increase was due to unfavorable yields in Cermax products due to production
equipment moves to allow for increased production capabilities. In addition,
revenue recognition on Aerospace contracts with low or minimal gross margins
contributed to the cost of sales percentage increase between the third quarter
of fiscal 1997 and the third quarter of fiscal 1996. The cost of sales
percentage associated with Quartz products decreased between the two quarters
resulting in a positive gross margin contribution in the quarter ended June 28,
1997.
Research and development expenses, 7.5% of net sales in the quarter ended
June 28, 1997 compared to 6.4% of net sales in the quarter ended June 29, 1996,
increased $97,000 between the two quarters. Spending declines occurred in Quartz
products for the development of lamps used in the processing of semiconductor
materials, but increased in the development of Cermax and Equipment products for
the display and projection markets.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS CONTINUED)
--------------------------------
QUARTER ENDED JUNE 28, 1997 COMPARED TO QUARTER ENDED JUNE 29, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
Marketing expenses for the quarter ended June 28, 1997 were $837,000, or
6.0% of net sales compared to $593,000, or 4.0% of net sales in the same quarter
of the prior fiscal year. The $244,000 increase between the two quarters was the
result of personnel additions, more travel and trade show attendance, more
advertising and a higher commission expense.
As a percentage of net sales, general and administrative expenses were 6.5%
in the third quarter of fiscal 1997 and 7.7% in the third quarter of fiscal
1996. In absolute dollars, the general and administrative spending level
decrease of $230,000 between the two quarters is attributable to the inclusion
of a full quarter of expenses for Converter Power in the quarter ended June 29,
1996 as compared to only one month of expenses in the quarter ended June 28,
1997.
Amortization of intangibles of $30,000 in the third quarter of fiscal 1997
and 1996 represents the amortization of the covenant-not-to-compete arising from
the acquisition of Q-Arc in 1991.
Net interest expense, $99,000 in the quarter ended June 28, 1997 compared
to $113,000 in the quarter ended June 29, 1996, decreased $14,000 between the
two quarters. Interest expense associated with continuing operations for the
third quarter of fiscal 1997 was $143,000 compared to $155,000 for the third
quarter of fiscal 1996. The decrease in interest expense between the two
quarters is due to lower outstanding balances under the Company's line of credit
as cash proceeds from the sale of Converter Power were used to reduce bank
borrowings.
As discussed in Note 6 of Notes to Condensed Consolidated Financial
Statements, the Converter Power subsidiary was sold in May 1997. This
transaction resulted in a pre-tax gain, net of expenses, of $2,379,000.
The Company reported income before provision for income taxes and
discontinued operations of $3,561,000 in the third quarter of fiscal 1997
compared to income before provision for income taxes and discontinued operations
of $2,169,000 in the third quarter of fiscal 1996. The effective tax rate in the
quarter ended June 28, 1997 and in the quarter ended June 29, 1996 was 25%.
As previously discussed, the Company's Board of Directors voted to proceed
with the divestiture of Precision Lamp located in Cotati, California. In January
1997, the Company signed an agreement to sell the Precision Lamp subsidiary for
approximately $3.3 million subject to due diligence and the purchaser's ability
to obtain adequate financing. The closing was set to occur no later than March
31, 1997. The purchaser, PLI Acquisition Corp., was not able to secure the
required financing, but an agreement was reached in May 1997, between PLI
Acquisition Corp. and the Company, to sell the stock of Precision Lamp. The
Company received a $4 million promissory note together with 8% interest per year
on any unpaid principal amount. Payments began in May 1997 and will be completed
in April 2000.
NINE MONTHS ENDED JUNE 28, 1997 COMPARED TO NINE MONTHS ENDED JUNE 29, 1996
- ---------------------------------------------------------------------------
Net sales for the nine months ended June 28, 1997 were $40,808,000 compared
to $41,014,000 for the nine months ended June 29, 1996. Net sales at ILC
Sunnyvale and at Q-Arc increased 10.8% and 24.8%, respectively, between the two
nine month periods while net sales at Converter Power decreased 46.9% between
the same time periods. In the fourth quarter of fiscal 1996, Converter Power
experienced a significant reduction in orders from a major customer that
provides equipment to
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
NINE MONTHS ENDED JUNE 28, 1997 COMPARED TO NINE MONTHS ENDED JUNE 29, 1996
- ---------------------------------------------------------------------------
(CONTINUED)
-----------
the semiconductor equipment industry. This order reduction continued into the
first and second quarters of fiscal 1997. In May 1997, the Converter Power
subsidiary was sold and therefore net sales for the nine months ended June 28,
1997 reflect only seven months of Converter Power sales activity as opposed to
nine months of sales activity in the nine months ended June 29, 1996. The net
sales increases at both ILC Sunnyvale and at Q-Arc were the result of a higher
volume of products sold in all areas except Equipment products, which were lower
than the previous year due to the timing of the shipment of orders.
Cost of sales as a percentage of net sales was 71.3% for the nine months
ended June 28, 1997 compared to 65.7% for the nine months ended June 29, 1996.
The percentage increase was due primarily to the sales decline from Converter
Power's major customer discussed above. In addition, unfavorable yields in
Cermax, Flashlamp and Infrared lamp products coupled with increases in the
provision for inventory reserves and revenue recognition on Aerospace contracts
with low or minimal gross margins, contributed to the cost of sales percentage
increase between the nine months ended June 28, 1997 and the nine months ended
June 29, 1996.
Research and development expenses, $3,324,000 or 8.1% of net sales for the
nine months ended June 28, 1997, decreased $127,000 from $3,451,000, or 8.4% of
net sales for the nine months ended June 29, 1996. Spending declines occurred in
Flashlamp and Quartz lamp products while spending increases took place in Cermax
and Equipment for the display and projection markets.
Marketing expenses in the nine months ended June 28, 1997 were $2,363,000,
or 5.8% of net sales compared to $1,990,000, or 4.9% of net sales in the same
nine month period a year ago. The $373,000 increase between the two nine month
periods was the result of personnel additions, more travel and trade show
attendance and additional commission expense.
General and administrative expenses, 7.3% of net sales in the nine months
ended June 28, 1997 compared to 8.3% of net sales in the nine months ended June
29, 1996, decreased $407,000. The majority of the decrease occurred at Converter
Power although personnel additions at Q-Arc caused general and administrative
expenses to increase at that location.
Amortization of intangibles of $90,000 in the nine months ended June 28,
1997 and June 29, 1996 represents the amortization of the
covenant-not-to-compete arising from the acquisition of Q-Arc in 1991.
Net interest expense, $423,000 in the nine months ended June 28, 1997
compared to $337,000 in the nine months ended June 29, 1996, increased $86,000
between the two nine month periods. Interest expense associated with continuing
operations for the first nine months of fiscal 1997 was $525,000 compared to
$451,000 for the first nine months of fiscal 1996. The increase in interest
expense between the two nine month periods is due to higher borrowings prior to
the May 1997 sale of Converter Power under a line of credit for working capital
needs and an equipment line of credit for capital equipment acquisitions.
As discussed in Note 6 of Notes to Condensed Consolidated Financial
Statements, the Converter Power subsidiary was sold in May 1997. The transaction
resulted in a pre-tax gain, net of expenses, of $2,379,000. The results of
operations for Converter Power for the nine months ended June 28, 1997 include
sales activity through April 1997.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
NINE MONTHS ENDED JUNE 28, 1997 COMPARED TO NINE MONTHS ENDED JUNE 29, 1996
- ---------------------------------------------------------------------------
(CONTINUED)
-----------
The Company reported income before provision for income taxes and
discontinued operations of $4,884,000 for the nine months ended June 28, 1997
compared to income before provision for income taxes and discontinued operations
of $4,797,000 for the nine months ended June 29, 1996. The effective tax rate in
the nine months ended June 28, 1997 and June 29, 1996 was 25%.
As previously discussed, the Company's Board of Directors voted to proceed
with the divestiture of Precision Lamp located in Cotati, California. The
operating losses of Precision Lamp for the six months ended March 29, 1997
(approximately $765,000) have been offset against an accrual made in the fourth
quarter of fiscal 1996 for anticipated losses during the final disposition of
the subsidiary. In January 1997, the Company signed an agreement to sell the
Precision Lamp subsidiary for approximately $3.3 million subject to due
diligence and the purchaser's ability to obtain adequate financing. The closing
was set to occur no later than March 31, 1997. The purchaser, PLI Acquisition
Corp. was not able to secure the required financing, but an agreement was
reached in May 1997, between PLI Acquisition Corp. and the Company, to sell the
stock of Precision Lamp. The Company received a $4 million promissory note
together with 8% interest per year on any unpaid principal amount. Payments
began in May 1997 and will be completed in April 2000. The activities of
Precision Lamp for the nine months ended June 29, 1996 have been restated to
reflect a loss from discontinued operations.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Net cash provided by operating activities for the nine months ended June
28, 1997 was $1,414,000, an increase of $170,000 from the $1,244,000 net cash
provided by operating activities for the nine months ended June 29, 1996. During
the first nine months of fiscal 1997, the Company made capital equipment
acquisitions of $1,665,000, decreased its net borrowings under its line of
credit by $2,500,000, increased its net borrowings under an equipment line by
$150,000, paid down a term loan by $1,055,000 and repurchased common stock for
$425,000. During the first nine months of fiscal 1996, the Company made capital
equipment acquisitions of $2,187,000, increased its net borrowings under its
line of credit by $1,500,000, increased its net borrowings under an equipment
line by $76,000 and paid down a term loan by $1,188,000.
The Company has working capital of $13,123,000 and a current ratio of 2.16
to 1.0 at June 28, 1997. This compares with working capital of $15,155,000 and a
current ratio of 2.45 to 1.0 at September 28, 1996. As of June 28, 1997, the
Company's credit facilities are as follows:
AMOUNT OUTSTANDING
AT JUNE 28, 1997
Bank line of credit ....................... $ 2,500,000
Equipment line of credit................... 2,341,000
Term loan ................................. 1,583,000
-----------
6,424,000
Less current portion ..................... (2,620,000)
----------
Long-term debt ........................... $ 3,804,000
The Company has available an additional $3,500,000 under the bank line of credit
($6 million total). All of the above credit facilities bear interest at 2% above
the LIBOR rate (London Interbank Offer Rate) (7.69% at June 28, 1997). In
January 1997, the Company negotiated an additional $3,000,000 line of credit
available through June 30, 1997 at 2.5% above the LIBOR rate. During the quarter
ended June 28, 1997, this facility expired and all outstanding balances under
this additional line of credit were repaid with proceeds from the sale of
Converter Power. The Company is currently negotiating an
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
LIQUIDITY AND FINANCIAL CONDITION (CONTINUED)
- ---------------------------------------------
equipment credit facility to accommodate the capital equipment needs of the
Company. At June 28, 1997, the Company was in compliance with all bank
covenants. In fiscal 1997, the Company anticipates working capital equipment
expenditures of approximately $2 million (including equipment expenditures made
at Converter Power prior to the sale). In the fourth quarter of fiscal 1997,
capital equipment expenditures are expected to be approximately $350,000. These
financial resources, together with anticipated additional resources to be
provided from continuing operations, are expected to be adequate to meet the
Company's working capital needs, capital equipment acquisitions and debt service
obligations at least through fiscal 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
14
<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
Form 8-K filed on May 22, 1997 to report the disposition of
Converter Power, Inc.
15
<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 12, 1997 /S/RONALD E. FREDIANELLI
------------------------
Ronald E.Fredianelli
Chief Financial Officer
DATE: August 12, 1997 /S/HENRY C. BAUMGARTNER
-----------------------
Henry C. Baumgartner
Chairman of the Board and
Chief Executive Officer
16
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