UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended SEPTEMBER 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
399 JAVA DRIVE, SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 745-7900
--------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on December 16,
1996, was approximately $50,929,417. Shares of Common Stock held by each officer
and director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes. The number of outstanding shares of the
registrant's Common Stock on December 16, 1996 was 4,782,508.
Parts of the following documents are incorporated by reference into Part
III of this Annual Report and Form 10-K: (1) Proxy Statement for registrant's
1996 Annual Meeting of Shareholders.
<PAGE>
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
PART I
1 Business 1 - 6
2 Properties 6 - 7
3 Legal Proceedings 7
4 Submission of Matters to a Vote of Security Holders 7
PART II
5 Market for the Registrant's Common Equity and
Related Stockholder Matters 8
6 Selected Financial Data 9
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 13
8 Financial Statements and Supplementary Data 14 - 33
__
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 34
__
PART III
10 Directors and Executive Officers of the Registrant 34
__
11 Executive Compensation 34
__
12 Security Ownership of Certain Beneficial Owners
and Management 34
__
13 Certain Relationships and Related Transactions 34
__
PART IV
14 Exhibits, Financial Statement Schedule, and Reports
on Form 8-K 35
__
Signatures 36
__
1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following selected consolidated financial data of the Company, which
has been reclassified to reflect the continuing operations of ILC and the
discontinuted operations of PLI, should be read in conjunction with the
Consolidated Financial Statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
herein.
FISCAL YEAR ENDED
(in thousands except per share data)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Net sales ................$ 54,206 $ 49,496 $ 44,331 $ 42,250 $ 38,727
Income from continuing
operations .............. 4,546 4,637 3,727 4,509 4,757
Income (loss) from
discontinued operations . (4,239) (99) (3,536) 250 193
Net income ............... 307 4,538 191 4,759 4,950
Earnings (loss) per share:
Continuing operations ... .92 .97 .77 .91 .96
Discontinued operations (.86) (.02) (.73) .05 .04
------- ------- ------ ------ -------
Net income per share $ .06 $ .95 $ .04 $ .96 $ 1.00
Weighted average
shares outstanding ..... 4,923 4,765 4,825 4,980 4,956
Working capital ..........$ 15,155 $ 14,618 $ 11,366 $ 17,543 $ 16,399
Total assets ............. 47,844 46,726 41,312 39,703 28,645
______
Total long-term debt ..... 7,576 6,592 6,421 5,805 2,193
Total stockholders'
equity .................$ 29,791 $ 28,802 $ 23,624 $ 24,565 $ 19,578
2
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
TABLE OF CONTENTS PAGE
----------------- ----
Consolidated Balance Sheets - September 28,
1996 and September 30, 1995 15 - 16
Consolidated Statements of Operations for the Three
Fiscal Years Ended September 28, 1996 17
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended September 28, 1996 18
Consolidated Statements of Cash Flows for the Three
Fiscal Years Ended September 28, 1996 19 - 20
Notes to Consolidated Financial Statements 21 - 30
Form 10-K Schedule 31
Report of Independent Public Accountants 32
Quarterly Results of Operations (Unaudited) 33
___________________________________________ __
3
<PAGE>
<TABLE>
ILC TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
<CAPTION>
ASSETS
------
<S> <C> <C>
1996 1995
---- ----
Current assets:
Cash and cash equivalents ..................... $ 1,828,807 $ 1,529,863
Accounts receivable, less allowance
for doubtful accounts of $312,358
and $409,440, respectively ................... 9,494,246 8,450,977
Receivable from long-term contracts ........... 861,427 610,122
Inventories ................................... 8,901,528 7,533,090
Deferred tax asset ............................ 2,158,000 1,454,000
Prepaid expenses .............................. 208,320 122,244
Net assets from discontinued operations ....... 2,178,383 6,249,401
----------- -----------
Total current assets ................... 25,630,711 25,949,697
----------- -----------
Property and equipment, net .................... 21,176,431 19,560,683
Covenants-not-to-compete, net of
accumulated amortization and
writedown of $3,195,524 and
$2,435,354, respectively ...................... 356,641 475,521
Other assets ................................... 680,013 739,836
----------- -----------
$47,843,796 $46,725,737
=========== ===========
___________
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
ILC TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Current liabilities:
Accounts payable ................................ $ 3,643,496 $ 3,763,998
Accrued payroll and related items ............... 1,263,741 1,601,111
Other accrued liabilities ....................... 1,146,822 1,121,321
Current portion of non-compete obligation ....... 390,000 520,000
Current portion of long-term debt ............... 2,545,600 2,455,500
Accrued income taxes payable .................... 1,486,518 1,869,494
----------- -----------
Total current liabilities ................. 10,476,177 11,331,424
----------- -----------
Long-term liabilities, net of current portion:
Long-term debt .................................. 7,370,164 5,898,040
Non-compete obligation .......................... -- 390,000
Other accruals .................................. 206,235 304,074
----------- -----------
Total long-term liabilities ............... 7,576,399 6,592,114
----------- -----------
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, no par value; 10,000,000
shares authorized; 4,782,508 shares and
4,683,174 shares outstanding, respectively .... 6,815,109 6,132,914
Retained earnings ............................... 22,976,111 22,669,285
----------- -----------
Total stockholders' equity ................ 29,791,220 28,802,199
----------- -----------
$47,843,796 $46,725,737
=========== ===========
___________
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
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<TABLE>
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Net sales .................................$54,206,424 $49,496,029 $44,331,237
Costs and expenses:
Cost of sales ........................... 36,180,448 31,799,916 28,654,362
Research and development ................ 4,319,650 4,278,697 3,694,392
Sales and marketing ..................... 2,645,952 2,404,856 1,795,930
General and administrative .............. 4,417,446 4,459,726 4,546,290
Amortization of intangibles ............. 120,000 120,000 120,000
----------- ---------- -----------
47,683,496 43,063,195 38,810,974
Income from continuing operations before
provision for income taxes and interest
expense .................................. 6,522,928 6,432,834 5,520,263
Interest expense, net ..................... 461,898 323,757 118,597
---------- ---------- ----------
Income from continuing operations before
provision for income taxes ............... 6,061,030 6,109,077 5,401,666
Provision for income taxes on continuing
operations ............................... 1,515,000 1,472,000 1,675,000
---------- ----------- ----------
Income from continuing operations ......... 4,546,030 4,637,077 3,726,666
Discontinued operations:
Operating loss net of tax benefit of
$280,004, $32,000 and $523,000 in
1996, 1995 and 1994, respectively ...... (840,217) (99,143) (3,536,053)
Estimated loss on disposal, including
$500,000 for operating losses during the
phase out, net of tax benefit of
$1,132,996 (3,398,987) -- --
----------- ---------- ---------
Loss from discontinued operations ....... (4,239,204) (99,143) (3,536,053)
----------- ----------- -----------
Net income ............................... $ 306,826 $4,537,934 $ 190,613
=========== ========== ===========
Earnings (loss) per share:
Earnings from continuing operations ......$ 0.92 $ 0.97 $ 0.77
Loss from discontinued operations ........ (0.86) (0.02) (0.73)
----------- ---------- -----------
Net income per share
$ 0.06 $ 0.95 $ 0.04
=========== ========= ===========
Weighted average shares outstanding used
to compute net income (loss) per share ... 4,923,132 4,764,989 4,825,009
=========== ========= =========
The accompanying notes are an integral part of these financial statements.
6
</TABLE>
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<TABLE>
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996
<CAPTION>
<S> <C> <C> <C> <C>
Common
Common Stock Retained
Shares Amount Earnings Total
Balance at October 2, 1993 .. 4,619,476 $ 6,623,828 $17,940,738 $24,564,566
Net income ................ - - 190,613 190,613
Issuance of common stock
under stock purchase plan 25,475 196,590 - 196,590
Exercise of stock options . 82,000 227,420 - 227,420
Repurchase of common stock (204,000) (1,555,500) - (1,555,500)
---------- ----------- ---------- -----------
Balance at October 1, 1994 .. 4,522,951 5,492,338 18,131,351 23,623,689
Net income ................ - - 4,537,934 4,537,934
Issuance of common stock
under stock purchase plan 37,973 266,575 - 266,575
Exercise of stock options . 132,250 450,751 - 450,751
Repurchase of common stock (10,000) (76,750) - (76,750)
---------- ----------- ---------- ------------
Balance at September 30, 1995 4,683,174 6,132,914 22,669,285 28,802,199
Net income ................ - - 306,826 306,826
Issuance of common stock
under stock purchase plan 34,209 279,068 - 279,068
Exercise of stock options . 65,125 403,127 - 403,127
---------- ---------- ---------- ----------
Balance at September 28, 1996 4,782,508 $6,815,109 $22,976,111 $29,791,220
========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
7
</TABLE>
<PAGE>
<TABLE>
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net Income ....................... $ 306,826 $4,537,934 $ 190,613
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and
amortization .................. 1,570,809 1,450,597 948,313
Provision for doubtful accounts
and note ....................... 38,804 102,861 383,902
Provision for inventory
obsolescence ................... 520,006 169,034 1,772,346
Net loss on property and equipment
sold or retired ................. - 26,367 -
Amortization of non-compete
agreements ...................... 118,880 118,881 118,880
Changes in assets and liabilities:
Decrease in marketable
securities .................... - 998,129 438,078
(Increase) decrease in accounts
receivable .................... (1,333,378) (2,467,329) 167,344
Increase in inventories ........ (1,888,444) (1,685,743) (1,846,314)
(Increase) decrease in deferred
tax asset ..................... (704,000) 951,000 (1,016,000)
(Increase) decrease in prepaid
expenses ...................... (86,076) 406,556 (229,338)
(Increase) decrease in other
assets ........................ 59,823 (98,397) 183,044
Increase (decrease) in accounts
payable ....................... (120,502) 300,709 21,467
Increase (decrease) in accrued
liabilities ................... (956,660) (637,731) 1,657,530
Net changes in assets and
liabilities from discontinued
operations ..................... 4,071,018 (1,623,516) 2,850,679
----------- ----------- ----------
Total adjustments ........... 1,290,280 (1,988,582) 5,449,931
----------- ----------- ----------
Net cash provided by
operating activities ....... 1,597,106 2,549,352 5,640,544
----------- ----------- ----------
Cash flows from investing activities:
Purchase of land and real
estate ............................ - (3,045,412) (3,012,844)
(Increase) decrease in deposit on
land and building purchase ........ - 1,300,000 (1,300,000)
Investment in joint venture ........ - (450,000) -
Capital expenditures ............... (3,186,557) (2,517,541) (1,671,942)
----------- ----------- ----------
Net cash used in
investing activities ....... (3,186,557) (4,712,953) (5,984,786)
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
8
</TABLE>
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<TABLE>
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996
(CONTINUED)
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Cash flows from financing activities:
Principal borrowings under line
of credit ........................$ 9,500,000 $ 8,450,000 $ -
Principal repayments under line
of credit ........................ (6,500,000) (6,450,000) -
New borrowings under equipment
line ............................. 1,555,000 1,720,089 1,090,702
Principal repayments under
equipment line ................... (1,374,800) (1,049,958) (499,225)
Principal borrowings under
term loan ........................ - - 1,333,333
Principal repayments under
term loan ........................ (1,584,000) (1,578,000) (533,333)
Payments under non-compete
agreement ........................ (390,000) (520,000) (520,000)
Proceeds from issuance of
common stock ..................... 682,195 717,326 424,010
Repurchase of common stock ........ - (76,750) (1,555,500)
---------- ----------- -----------
Net cash provided by (used in)
financing activities............ 1,888,395 1,212,707 (260,013)
----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents....... 298,944 (950,894) (604,255)
Cash and cash equivalents at
beginning of year .................. 1,529,863 2,480,757 3,085,012
----------- ----------- -----------
Cash and cash equivalents at
end of year ........................$ 1,828,807 $ 1,529,863 $ 2,480,757
=========== =========== ===========
1996 1995 1994
---- ---- ----
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest - continuing operations . $ 542,061 $589,200 $ 288,669
Interest - discontinued operations 77,714 106,341 50,082
Income taxes ..................... 1,055,000 909,000 2,500,539
Supplemental disclosures of noncash investing and financing activities:
A capital lease obligation of $174,268 was incurred in fiscal 1994 when the
Company entered into a capital lease for new computer equipment.
The accompanying notes are an integral part of these financial statements.
9
</TABLE>
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
1. THE COMPANY
-----------
ILC Technology, Inc. (the "Company") was incorporated on September 15,
1967. The Company designs, develops and manufactures high intensity lamps and
lighting products the medical, industrial, communication, aerospace, scientific,
entertainment and military industries. The Company develops and manufactures the
majority of its products at its headquarter facilities in California and the
remainder at its subsidiary facilities in Massachusetts and the United Kingdom.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The financial statements include the accounts of ILC Technology, Inc. and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Fiscal years 1995 and 1994 were restated to reflect the Company's decision
to discontinue the operations of Precision Lamp, Inc. (see Note 12). None of
these restatements had any impact on net income in any of the prior years.
The Company's fiscal year end is the Saturday closest to September 30.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
- -------------------------------------------------------
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 and
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 an original maturity of three months or less 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. Inventories at
September 28, 1996 and September 30, 1995, net of inventory reserves of
$2,034,258 and $1,881,026, respectively, consisted of:
10
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
INVENTORIES (CONTINUED)
-----------------------
1996 1995
---- ----
Raw materials ........................ $4,802,839 $4,398,553
Work-in-process ...................... 2,549,805 1,981,414
Finished goods ....................... 1,548,884 1,153,123
---------- ----------
Total inventories..................... $8,901,528 $7,533,090
========== ==========
DEVELOPMENTAL AND MANUFACTURING CONTRACTS
- -----------------------------------------
The Company contracts with the U.S. Government and other customers for the
development and manufacturing of various products under both cost-plus-fixed-fee
and fixed-price contracts. Revenues are recognized under these contracts using
the percentage of completion method, whereby revenues are reported in the
proportion that costs incurred bear to the total estimated costs for each
contract. Periodic reviews of estimated total costs during the performance of
such contracts may result in revisions of contract estimates in subsequent
periods. Any loss contracts are reserved at the time such losses are determined.
Revenues from these contracts were less than 10% of net revenues during 1996,
1995 and 1994.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization on property and equipment are provided on a
straight-line basis over estimated useful lives of 3 to 31.5 years, except for
leasehold improvements which are amortized over the terms of the leases.
NET INCOME (LOSS) PER SHARE
- ---------------------------
Net income (loss) per share is computed based on the weighted average
number of common shares and common equivalent shares (using the treasury stock)
outstanding during the period. Fully diluted net income (loss) per share is not
significantly different from net income (loss) per share as reported.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company is not required to adopt the provisions of this
statement until its fiscal year 1997. The provisions of this statement must be
made on a prospective basis. The Company plans to adopt the disclosure
provisions of this statement in 1997, and therefore the effect on its financial
position and results of operations, upon adoption, will not be significant.
COVENANTS-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.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company
adopted the provisions of this statement in fiscal 1996. The effect on its
financial position and results of operations were not significant. The Company
11
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
COVENANTS-NOT-TO-COMPETE (CONTINUED)
------------------------------------
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. As part of the Company's decision to
discontinue the operations of its Precision Lamp subsidiary, the unamortized
balance of the covenant-not-to-compete ($470,000) was written off in the fourth
quarter of fiscal 1996.
INVESTMENT IN JOINT VENTURE
- ---------------------------
In February 1995, the Company invested $450,000 in a lamp manufacturer
located in Japan. The Company's investment represents a 49% ownership interest
in the equity of the investee, consequently the Company accounts for its
investment using the equity method of accounting. The Company's investment is
included in Other Assets in the accompanying consolidated balance sheets and its
proportionate interest in the income of the investee of $20,000 and $89,000 in
fiscal 1996 and 1995, respectively, is included in the accompanying consolidated
statements of operations.
3. REVENUES
--------
The Company recognizes revenue on all product sales upon shipment of the
product. The Company accrues for estimated warranty obligations at the time of
the sale of the related product based upon its past history of claims experience
and costs to discharge its obligations.
The Company operates in a single industry segment, the designing,
developing, manufacturing and marketing of high performance light source
products. Revenues from continuing operations are geographically summarized as
follows (in thousands):
1996 1995 1994
---- ---- ----
United States .................... $34,088 32,533 $26,966
Europe ........................... 6,920 5,964 4,380
Asia ............................. 12,700 10,951 12,819
Other international............... 498 48 166
------- ------- -------
$54,206 $49,496 $44,331
======= ======= =======
Customers comprising more than 10% of net sales from continuing operations are
as follows:
1996 1995 1994
---- ---- ----
Customer A..................... 15.0% 12.2% 17.8%
Customer B..................... 11.5% 12.0% *
*less than 10% of net sales
12
<PAGE>
3. REVENUES (CONTINUED)
--------------------
The Company provides credit in the form of trade accounts receivable to its
customers. The Company does not generally require collateral to support customer
receivables. The Company performs ongoing credit evaluations of its customers
and maintains allowances which management believes are adequate for potential
credit losses.
Approximately 39%, 40% and 52% of the Company's sales in fiscal 1996, 1995
and 1994, respectively, were to customers in the medical industry. This industry
has experienced significant fluctuations in demand and the Company expects sales
to the medical market to decrease as a percentage of net sales in the
foreseeable future. Customer B, referred to above, is in the semiconductor
equipment industry and is a major customer of Converter Power. In the fourth
quarter of fiscal 1996, Converter Power experienced a significant reduction in
orders from this customer. Management believes that inventory at Converter Power
is stated at the lower of cost or net realizable value.
4. PROPERTY AND EQUIPMENT
----------------------
Property and equipment at September 28, 1996 and September 30, 1995
consisted of:
1996 1995
---- ----
Property and equipment, at cost:
Machinery and equipment ...... $ 15,047,138 $ 13,705,702
Land and buildings ........... 14,955,738 14,504,768
Furniture and fixtures ....... 601,822 617,800
Equipment under capital lease 174,268 174,268
Leasehold improvements ....... 598,814 95,536
Construction-in-progress ..... 1,011,601 172,951
------------ ------------
32,389,891 29,271,025
Less accumulated depreciation and
amortization ................. (11,212,950) (9,710,342)
------------ ------------
Property and equipment, net ..... $ 21,176,431 $ 19,560,683
============ ============
5. BANK BORROWINGS
---------------
As of September 28, 1996 and September 30, 1995, borrowings outstanding
under the Company's credit facilities consisted of:
1996 1995
---- ----
Line of credit ......... $ 5,000,000 $ 2,000,000
Term note .............. 2,638,000 4,222,000
Equipment line of credit 2,191,200 2,011,000
Other capital lease .... 86,564 120,540
----------- -----------
9,915,764 8,353,540
Less: current portion .. (2,545,600) (2,455,500)
----------- -----------
Long-term debt ......... $ 7,370,164 $ 5,898,040
=========== ===========
13
<PAGE>
5. BANK BORROWINGS (CONTINUED)
---------------------------
Aggregate maturities for long-term debt during the next five years are
approximately: 1997 - $2,545,600, 1998 - $2,283,600, and none in 1999, 2000 and
2001.
All of the above credit facilities are secured by all of the property of
the Company.
The Company has a $6 million line of credit available with a bank which
expires in March 1998. Borrowings under this line are at 2% above the LIBOR rate
(London Interbank Offer Rate) (7.4% at September 28, 1996) and are limited to
75% of eligible accounts receivable. Under the covenants of the loan agreement,
unless written approval from the bank is obtained, the Company is restricted
from entering into certain transactions and is required to maintain certain
specified financial covenants and profitability. As of September 28, 1996, the
Company was not in compliance with all covenants but has obtained a waiver from
the bank.
The average balance outstanding (based on month-end balances) under the
line of credit in 1996 was $2,595,833. The maximum borrowings were $5,000,000 at
an average interest rate of 7.4% for 1996. At September 30, 1995, $2 million was
outstanding under the line of credit. As of September 28, 1996, $1 million was
available for future borrowings under this line of credit.
In addition, in connection with the purchase of its Sunnyvale manufacturing
facilities, the Company entered into a term note with a bank for $5,000,000 in
1993, which was subsequently increased to $6,333,333 in 1994. The note matures
in August 1998. The term loan requires monthly principal payments equal to
one-forty-eighth of the principal amount plus interest at 2% above the LIBOR
rate (London Interbank Offer Rate) (7.4% at September 28, 1996). The term loan
is a reducing revolving credit facility which allows for principal pre-payments
and the flexibility for re-borrowing up to the maximum amount that would be
outstanding under the term loan given normal amortization to the date of
re-borrowing.
The Company also has available a $2.2 million equipment line of credit for
100% of the purchase cost of new equipment, which expires in March 1997.
Borrowings under this line bear interest at 2% above the LIBOR rate (7.4% at
September 28, 1996), with principal balances amortized over a 2 year period. At
September 28, 1996, the Company had approximately $1,096,000 available for
future borrowings under this line of credit.
6. INCOME TAXES
------------
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes". SFAS No. 109 requires an asset and liability approach to
accounting for income taxes.
Income from continuing operations before provision for income taxes
consists of the following for fiscal 1996, 1995 and 1994, respectively:
1996 1995 1994
---- ---- ----
U.S. ...................... $4,897,389 $5,588,040 $5,030,336
Foreign.................... 1,163,641 521,037 371,330
---------- ---------- ----------
$6,061,030 $6,109,077 $5,401,666
========== ========== ==========
14
<PAGE>
6. INCOME TAXES (CONTINUED)
------------------------
The components of the provision for income taxes on continuing operations are as
follows:
1996 1995 1994
---- ---- ----
Federal -
Current ............... $ 1,559,000 $ 833,000 $ 2,373,000
Deferred .............. (600,000) 581,500 (902,000)
----------- ----------- -----------
959,000 1,414,500 1,471,000
----------- ----------- -----------
Foreign -
Current ............... 384,000 -- --
State -
Current ............... 276,000 199,000 493,000
Deferred .............. (104,000) 96,500 (289,000)
----------- ----------- -----------
172,000 295,500 204,000
----------- ----------- -----------
Federal refund received ........ -- (238,000) --
----------- ----------- -----------
Total provision for income taxes
on continuing operations ...... $ 1,515,000 $ 1,472,000 $ 1,675,000
=========== =========== ===========
The major components of the deferred tax account, as computed under SFAS No.
109, are as follows:
1996 1995
---- ----
Reserve for loss on disposal of discontinued
operations, not currently deductible for tax
purposes ................................... $ 1,133,000 $ -
Inventory reserve ............................ 877,000 838,000
Bad debt reserve ............................. 92,000 271,000
Warranty reserve ............................. 128,000 105,000
Accruals not currently deductible for
tax purposes ............................... 381,000 448,000
Amortization of covenant-not-to-compete ...... 202,000 278,000
Excess of tax over book depreciation ......... (988,000) (801,000)
Other items, individually insignificant ...... 333,000 315,000
----------- -----------
$ 2,158,000 $ 1,454,000
=========== ===========
The provision for income taxes on continuing operations differs from the amounts
which would result by applying the applicable statutory Federal income tax rate
to income from continuing opertions before taxes as follows:
1996 1995 1994
---- ---- ----
Computed expected provision $ 2,121,000 $ 2,138,000 $ 1,891,000
State tax ................. 364,000 367,000 324,000
FSC commission ............ (181,000) (216,000) (259,000)
General business credits .. (218,000) (203,000) (72,000)
Refund received ........... -- (238,000) --
Other items, individually
insignificant ............ (571,000) (376,000) (209,000)
----------- ----------- -----------
$ 1,515,000 $ 1,472,000 $ 1,675,000
=========== =========== ===========
15
<PAGE>
6. INCOME TAXES (CONTINUED)
------------------------
During the second quarter of fiscal 1995, the Company received a refund of
$238,000 from the Internal Revenue Service (IRS) related to tax returns filed in
previous years, which were examined by the IRS. This amount was recorded as a
reduction of the fiscal 1995 tax provision upon receipt of the refund. An
additional $235,000 of interest related to the refund amount was received and
was included in interest income in fiscal 1995.
7. EMPLOYEE RETIREMENT PLAN
------------------------
On January 1, 1984, the Company adopted a thrift incentive savings plan
(the "Plan"). The Plan is qualified under section 401(k) of the Internal Revenue
Code and is available to all full-time employees with one or more years of
employment with the Company. Under the terms of the Plan, participating
employees must contribute at least 2% of their salary to the Plan, and the
Company contributes (as a matching contribution) 100% of this amount. Employees
may also contribute an additional amount up to 13% of their salary to the Plan,
with no further contributions by the Company. The Company's contributions vest
at a rate of 20% per year, commencing on the first anniversary of employment.
Total employer matching contributions under the Plan were $226,000, $212,000,
and $163,000 for the fiscal years 1996, 1995 and 1994, respectively. The expense
to continuing operations was $188,000, $171,000 and $138,000 for fiscal years
1996, 1995 and 1994, respectively.
8. COMMITMENTS AND CONTINGENCIES
-----------------------------
At September 28, 1996, the future minimum rental payments under all
building leases for fiscal 1997 through 2001 are approximately $423,000,
$424,000, $444,000, $444,000 and $226,000, respectively, and $434,000
thereafter. The amounts total $2,395,000. The future minimum rental payments for
continuing operations, under all building leases for fiscal 1997 through 2001,
are approximately $207,000, $207,000, $218,000, $218,000 and none in 2001. The
amounts total $850,000.
For fiscal years 1996, 1995 and 1994, rental expense was approximately
$442,000, $277,000 and $318,000 respectively. Rental expense for continuing
operations was $226,000, $61,000 and $102,000 for fiscal years 1996, 1995 and
1994, respectively.
9. STOCK OPTION AND PURCHASE PLANS
-------------------------------
Under the 1992 Stock Option Plan ("Plan"), the Company may grant options to
employees and directors. The Company has reserved 400,000 shares for issuance
under the Plan. In November 1996, the Board of Directors authorized an
additional 175,000 shares for issuance under the Plan, subject to shareholder
approval. The exercise price per share for stock options cannot be less than the
fair market value on the date of grant. Options granted are for a ten-year term
and generally vest ratably over a period of four years commencing one year after
the date of grant. The Plan provides for the automatic grant of a nonstatutory
stock option to purchase shares of Common Stock to each outside Director
annually during the Company's third fiscal quarter. During fiscal 1996, each
outside Director was granted an automatic option to purchase a total of 5,000
shares of the Company's Common Stock. The Company's 1983 Stock Option Plan
expired in 1993 and no further options have been granted under this Plan since
then. A summary of the option transactions is as follows:
16
<PAGE>
<TABLE>
9. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
-------------------------------------------
<CAPTION>
OPTIONS OUTSTANDING
-------------------
<S> <C> <C> <C>
Options Number
Available of Price per
For Grant Shares Share
Balance at October 2, 1993 .. 159,624 746,027 $ 1.09-11.50
Granted .................... (74,000) 74,000 $ 7.38-11.00
Canceled ................... 18,000 (18,000) $ 3.75-11.50
Exercised .................. - (82,000) $ 1.09 -8.75
-------- -------- ------------
Balance at October 1, 1994 .. 103,624 720,027 $ 1.09-11.50
Granted .................... (28,000) 28,000 $ 9.50
Canceled ................... 34,000 (34,000) $ 8.75-11.50
Exercised .................. - (132,250) $ 2.13 -8.75
-------- -------- ------------
Balance at September 30, 1995 109,624 581,777 $1.09 -11.50
Additional shares approved . 200,000 - -
Granted .................... (205,000) 205,000 $ 9.00-11.25
Canceled ................... 92,125 (92,125) $ 8.75-11.50
Exercised .................. - (65,125) $ 1.09-11.50
-------- -------- ------------
Balance at September 28, 1996 196,749 629,527 $ 1.09-11.50
======== ======== ============
Options exercisable at
September 28, 1996 ......... 416,965 $ 1.09-11.50
======== ============
</TABLE>
If all options outstanding at September 28, 1996 were exercised, the total
proceeds to the Company would be approximately $4.7 million (unaudited).
Under the Company's Employee Stock Purchase Plan, the Company has reserved
300,000 shares of common stock for issuance to participating employees who have
met certain eligibility requirements. In November 1996, the Board of Directors
authorized an additional 50,000 shares for issuance under the Plan, subject to
shareholder approval. The number of shares available for purchase by each
participant is based upon annual base earnings and at a purchase price equal to
85% of the fair market value at the beginning or the end of the quarter of
purchase, whichever is lower. As of September 28, 1996, 61,588 shares were
available for future purchase.
10. OTHER INCOME/EXPENSE
--------------------
Other (income) expense consists of the following:
1996 1995 1994
---- ---- ----
Interest income ............... $ (80,163) $(265,443) $(170,072)
Interest expense .............. 542,061 589,200 288,669
--------- --------- ---------
Net interest expense related to
continuing operations ........ $ 461,898 $ 323,757 $ 118,597
========= ========= =========
17
<PAGE>
11. ACQUISITIONS
------------
In August 1991, the Company acquired all the outstanding stock of Q-Arc
Ltd. of Cambridge, England for $1,400,000 in cash and the assumption of certain
liabilities. Q-Arc is a manufacturer of specialty lamps for laser and non-laser
applications. This transaction was accounted for as a purchase and accordingly,
all assets were revalued to their respective fair values. The acquisition price
was equal to the fair value of net assets acquired. Net assets included a
covenant-not-to-compete of approximately $951,000. The covenant is being
amortized over an eight year period. At September 28, 1996, the unamortized
balance of the Q-Arc covenant-not-to-compete is approximately $357,000.
12. 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. The Company plans to dispose of Precision Lamp either through a sale
to a qualified buyer or by an orderly liquidation of the business if no buyer is
located within one year. As a result of the Company's plan, an estimated loss on
disposal of $3,399,000, net of a tax benefit of $1,133,000, was recorded in the
fourth quarter of fiscal 1996. This loss on disposal included $500,000 as the
estimated operating losses through the final disposition of the subsidiary and
the write off of the unamortized balance of the Precision Lamp covenant-not-to-
compete of approximately $470,000.
Continuing operations, as reclassified for fiscal years 1996, 1995 and
1994, consist of the activities of ILC Technology, Inc. based in Sunnyvale,
California, Converter Power, Inc. based in Beverly, Massachusetts and Q-Arc
based in Cambridge, England. The Consolidated Statements of Operations have been
reclassified to report separately the activities of Precision Lamp as
discontinued operations. Revenues from Precision Lamp were $7,772,000,
$8,933,000 and $7,691,000 for fiscal 1996, 1995 and 1994, respectively. The net
loss after tax from the discontinued operations of Precision Lamp was $840,000,
$99,000 and $3,536,000 for fiscal 1996, 1995 and 1994, respectively. The net
loss from discontinued operations of $3,536,000 in fiscal 1994 is net of a
$523,000 income tax benefit and includes a $3.4 million write down of
intangibles generated from the Precision Lamp acquisition. A portion of net
interest expense of approximately $66,000, $58,000 and $21,000 for fiscal years
1996, 1995 and 1994, respectively, has been allocated to the discontinued
operations. Net interest has been allocated to discontinued operations based on
the ratio of the net assets to be discontinued to the consolidated net assets
plus consolidated debt other than debt which is directly attributable to
continuing operations.
The net assets of Precision Lamp of $2,178,383 as of September 28, 1996 are
shown in the accompanying balance sheet as net assets from discontinued
operations. These assets were written down to a value that represents
management's best estimate of the amount that could be realized upon
disposition.
13. RIGHTS AGREEMENT AND OTHER MATTERS
----------------------------------
On September 19, 1989, the Company's Board of Directors declared a dividend
of one common share purchase right for each outstanding share of common stock,
no par value, of the Company. The dividend was payable on October 2, 1989 to the
shareholders of record on that date. Each right entitles the registered holder
to purchase from the Company one share of common stock of the Company at a price
of $15.00 per common share. The rights will not be exercisable until a party
either acquires beneficial ownership of 20% of the Company's common stock or
makes a tender offer for at least 30% of its common stock. In the event the
rights become exercisable and thereafter a person or group acquires 30% or more
of the Company's stock, a 20% shareholder ("Acquiring Person") engages in any
specified self-dealing transaction, or, as a result of a recapitalization or
reorganization,
18
<PAGE>
13. RIGHTS AGREEMENT AND OTHER MATTERS (CONTINUED)
----------------------------------------------
an Acquiring Person's shareholdings are increased by more than 3%, each right
will entitle the holder to purchase from the Company, for the exercise price,
common stock having a market value of twice the exercise price of the right. In
the event the rights become exercisable and thereafter the Company is acquired
in a merger or other business combination, each right will enable the holder to
purchase from the surviving corporation, for the exercise price, common stock
having a market value of twice the exercise price of the right. At the Company's
option, the rights are redeemable in their entirety, prior to becoming
exercisable, at $.01 per right. The rights are subject to adjustment to prevent
dilution and expire September 29, 1999.
In November 1996, the Board of Directors authorized severance agreements
for certain key managers in the event that a change of control occurs at the
Company.
14. REPURCHASE OF COMMON STOCK
--------------------------
In November 1996, the Board of Directors authorized the Company to
repurchase up to 1,000,000 shares of the Company's issued and outstanding common
stock. Purchases can be made for up to two years from the date of authorization.
19
<PAGE>
<TABLE>
SCHEDULE VIII
ILC TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR FISCAL YEARS 1996, 1995 AND 1994
<CAPTION>
<S> <C> <C> <C> <C>
Balance Charged
at (Credited) Deductions Balance
Beginning to Cost and and at end of
Of Period Expenses Write Offs Period
--------- -------- ---------- ------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
Year ended
October 1, 1994..............$ 208,787 $ 383,902 $260,017 $ 332,672
Year ended
September 30, 1995....... $ 332,672 $ 102,861 $ 26,093 $ 409,440
Year ended
September 28, 1996....... $ 409,440 $ 38,804 $135,886 $ 312,358
RESERVE FOR INVENTORY
OBSOLESCENCE:
Year ended
October 1, 1994 .......... $1,177,080 $1,772,346 $807,434 $2,141,992
Year ended
September 30, 1995........ $2,141,992 $ 169,034 $430,000 $1,881,026
Year ended
September 28, 1996........ $1,881,026 $ 520,006 $366,774 $2,034,258
20
</TABLE>
<PAGE>
<TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Year Ended September 28, 1996
(First, second and third quarters restated for discontinued
operations)
------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
First Second Third Fourth
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues ................ $ 12,211 $ 13,943 $ 14,860 $ 13,192
Gross profit ............ 4,199 4,869 4,995 3,963
Net income from
continuing
operations ............. 847 1,123 1,626 948
Net income (loss)
from discontinued
operations ............. 31 (13) (122) (4,134)
Net income per
share from
continuing
operations ............. $ 0.17 $ 0.23 $ 0.33 $ 0.19
Net income (loss)
per share from
discontinued
operations ............. $ 0.01 $ (0.01) $ (0.03) $ (0.83)
Year Ended September 30, 1995
(as restated for discontinued operations)
-------------------------------------------------------------------------------
First Second Third Fourth
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues ................ $ 10,736 $ 12,011 $ 12,870 $ 13,879
Gross profit ............ 3,482 4,396 4,558 5,260
Net income from
continuing
operations ............. 663 1,017 1,429 1,534
Net income (loss)
from discontinued
operations ............. 75 (30) (63) (86)
Net income per
share from
continuing
operations ............. $ 0.14 $ 0.21 $ 0.30 $ 0.32
Net income (loss)
per share from
discontinued
operations ............. $ 0.02 $ (0.01) $ (0.01) $ (0.02)
21
</TABLE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this amended report:
_______
1. FINANCIAL STATEMENTS
The Consolidated Financial Statements, notes thereto, and Report
of Independent Public Accountants thereon are included in Part II, Item 8 of
this amended report.
_______
Page in
2. FINANCIAL STATEMENT SCHEDULE FORM 10-K
Schedule VIII Valuation and Qualifying
Accounts and Reserves 33
All other schedules have been omitted since the required information is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial
Statements or notes thereto.
3. EXHIBITS
The exhibits listed in the Index to Exhibits following the signature
page are filed as part of this Amended Report.
_______
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of fiscal 1996. .
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment to Report to
______________
be signed on its behalf by the undersigned, thereunto duly authorized.
ILC TECHNOLOGY, INC.
By: /S/ HENRY C. BAUMGARTNER
Henry C. Baumgartner
(Chairman of the Board and
Chief Executive Officer)
Dated: January 7, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
____
Amendment to report has been signed below by the following persons on behalf of
_________
the registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/S/ HENRY C. BAUMGARTNER Chairman of the Board and January 7, 1997
- ------------------------- Chief Executive Officer
(Henry C. Baumgartner) (Principal Executive
Officer and Director)
/S/ RICHARD D. CAPRA President and Chief January 7, 1997
- ------------------------- Operating Officer
(Richard D. Capra)
/S/ RONALD E. FREDIANELLI Chief Financial Officer January 7, 1997
- ------------------------- and Secretary
(Ronald E. Fredianelli) (Principal Financial and
Accounting Officer)
/S/ HARRISON H. AUGUR Director January 7, 1997
- -------------------------
(Harrison H. Augur)
- -------------------- Director January , 1997
(Arthur L. Schawlow)
- --------------------- Director January , 1997
(Wirt D. Walker, III)
23
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ILC Technology, Inc., Financial Data Sheet
</LEGEND>
<CIK> 0000719625
<NAME> ILC Technology, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,829
<SECURITIES> 0
<RECEIVABLES> 10,667
<ALLOWANCES> 312
<INVENTORY> 8,902
<CURRENT-ASSETS> 4,545
<PP&E> 32,389
<DEPRECIATION> 11,213
<TOTAL-ASSETS> 47,844
<CURRENT-LIABILITIES> 10,476
<BONDS> 0
0
0
<COMMON> 6,815
<OTHER-SE> 22,976
<TOTAL-LIABILITY-AND-EQUITY> 47,844
<SALES> 54,206
<TOTAL-REVENUES> 54,206
<CGS> 36,180
<TOTAL-COSTS> 36,180
<OTHER-EXPENSES> 11,503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 462
<INCOME-PRETAX> 6,061
<INCOME-TAX> 1,515
<INCOME-CONTINUING> 4,546
<DISCONTINUED> (4,239)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
