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 29, 1997
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: 4,893,673 Date: APRIL 30, 1997
------------------------------------------------------------------------
<PAGE>
ILC TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended March 29, 1997
INDEX PAGE NO.
Part I. FINANCIAL INFORMATION ......................................... 2
Item 1 Condensed Consolidated Statements of
Operations - Quarters ended March 29, 1997
and March 30, 1996 and six months ended
March 29, 1997 and March 30, 1996 ............................. 3
Condensed Consolidated Balance Sheets -
March 29, 1997 and September 28, 1996 ......................... 4
Condensed Consolidated Statements of Cash
Flows - Six months ended March 29, 1997
and March 30, 1996 ............................................5-6
Notes to Condensed Consolidated Financial
Statements ....................................................7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................................9-12
Item 3 Quantitative and Qualitative Disclosure
about Market Risk ............................................. 12
Part II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security
Holders ....................................................... 13
SIGNATURES .................................................... 14
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 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
<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 29, March 30, March 29, March 30,
1997 1996 1997 1996
---- ---- ---- ----
(as restated) (as restated)
Net sales ...................... $ 14,775 $ 13,943 $ 26,897 $ 26,154
Costs and expenses:
Cost of sales ................ 10,564 9,074 19,306 17,086
Research and development ..... 1,205 1,276 2,276 2,501
Marketing .................... 779 741 1,526 1,397
General and administrative ... 1,093 1,212 2,082 2,257
Amortization of intangibles .. 30 30 60 60
-------- -------- -------- --------
13,671 12,333 25,250 23,301
-------- -------- -------- --------
Income from continuing
operations before provision
for income taxes and
interest expense .............. 1,104 1,610 1,647 2,853
-------- -------- -------- --------
Interest expense, net........... (185) (111) (324) (225)
-------- -------- -------- --------
Income from continuing
operations before provision
for income taxes .............. 919 1,499 1,323 2,628
Provision for income taxes on
continuing operations ......... 230 375 327 657
-------- -------- -------- --------
Income from continuing
operations .................... $ 689 $ 1,124 $ 996 $ 1,971
Income (loss) from discontinued
operations, net of income tax
(benefit) provision of ($5)
and $5 in the quarter and six
months ended March 30, 1996,
respectively ................... -- (14) -- 17
-------- -------- -------- --------
Net income ......................$ 689 $ 1,110 $ 996 $ 1,988
======== ======== ======== ========
Earnings per share:
Earnings from continuing
operations .....................$ 0.14 $ 0.23 $ 0.20 $ 0.40
Earnings from discontinued
operations ...................... -- -- -- $ 0.01
-------- -------- -------- --------
Net income per share ............$ 0.14 $ 0.23 $ 0.20 $ 0.41
======== ======== ======== ========
Weighted average shares
used in computation ............ 5,026 4,895 5,005 4,886
======== ======== ======== ========
See accompanying notes
3
<PAGE>
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 29, 1997 SEPTEMBER 28, 1996
-------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........... $ 1,223 $ 1,829
Accounts receivable, net ............ 11,521 10,356
Inventories:
Raw materials ..................... 7,078 4,803
Work-in-process ................... 2,492 2,550
Finished goods .................... 1,417 1,549
------- -------
Total inventories ............... 10,987 8,902
------- -------
Deferred tax asset .................... 2,158 2,158
Prepaid expenses ...................... 235 208
Net assets from discontinued operations 3,697 2,178
------- -------
Total current assets .............. 29,821 25,631
------- -------
Property and equipment, net ........... 22,138 21,176
Covenant-not-to-compete, net .......... 297 357
Other assets .......................... 765 680
------- -------
$53,021 $47,844
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................... $ 5,133 $ 3,643
Accrued liabilities ................. 5,544 5,346
Accrued income taxes payable ........ 1,999 1,487
------- -------
Total current liabilities ......... 12,676 10,476
------- -------
Long-term debt ........................ 7,409 6,188
Obligations under equipment line ...... 1,340 1,096
Other accruals ........................ 111 206
Capital lease obligation .............. 68 87
Stockholders' equity:
Common stock .......................... 7,445 6,815
Retained earnings ..................... 23,972 22,976
------- -------
Total stockholders' equity ........ 31,417 29,791
------- -------
$53,021 $47,844
======= =======
See accompanying notes
4
<PAGE>
ILC TECHNOLOGY, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
SIX MONTHS ENDED
MARCH 29, MARCH 30,
1997 1996
---- ----
(as restated)
Cash flows from operating activities -
Net income ............................... $ 996 $ 1,988
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization .......... 943 793
Amortization of non-compete agreements.. 60 60
Changes in assets and liabilities from
operations:
Increase in accounts receivable ........ (1,165) (73)
Increase in inventories .............. (2,086) (949)
Increase in prepaid expenses ......... (27) (130)
Increase in other assets ............. (85) (3)
Increase (decrease) in accounts
payable ............................. 1,489 (174)
Increase (decrease) in accrued
liabilities ......................... 353 (130)
Net change in assets and liabilities
from discontinued operations ........ (1,518) (422)
------- -------
Total adjustments .................. (2,036) (1,028)
------- -------
Net cash provided by (used in)
operating activities............... (1,040) 960
------- -------
Cash flows from investing activities -
Capital expenditures ..................... (1,905) (1,114)
------- -------
Net cash used in investing
activities ........................ (1,905) (1,114)
------- -------
Cash flows from financing activities -
Borrowings under line of credit .......... 5,463 4,500
Repayments under line of credit .......... (3,583) (4,200)
Principal borrowings under equipment
line .................................... 1,045 751
Principal payments under equipment
line .................................... (557) (650)
Principal payments under term loan for
buildings ............................... (659) (792)
Proceeds from issuance of common stock ... 630 181
Payments under non-compete agreement ..... -- (260)
------- -------
Net cash provided by (used in)
financing activities............... 2,339 (470)
------- -------
Net decrease in cash ..................... (606) (624)
Cash at beginning of period .............. 1,829 1,530
------- -------
Cash at end of period .................... $ 1,223 $ 906
======= =======
See accompanying notes
5
<PAGE>
ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Continued)
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
SIX MONTHS ENDED
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
Cash paid during the period for:
Interest expense ............. $399 $296
Income taxes ................. -- 355
See accompanying notes
6
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 29, 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 six
months ended March 30, 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.
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. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating earnings per share, primary earnings per share
will be replaced with basic earnings per share and fully diluted earnings will
be replaced with diluted earnings per share. Under basic earnings per share, the
dilutive effect of stock options will be excluded. The Company has not yet
quantified the effect of adopting SFAS No. 128.
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
7
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
MARCH 29, 1997
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. 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.
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 March 29,
1997, the Company had used approximately $2,100,000 of this line of credit.
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 (see 1996 Annual Report/10K). For the six months ended March 29,
1997, the loss incurred by this operation of approximately $765,000 was offset
against the fourth quarter of fiscal 1996 accrual for anticipated losses during
the disposition of discontinued operations.
In January 1997, the Company signed an agreement to sell the Precision Lamp
subsidiary. The selling price was approximately $3.3 million but was subject to
due diligence and the ability of 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 for a $4 million promissory note at
8% interest per year on any unpaid principal amount. Payments on the promissory
note begin in May 1997 and will be completed in April 2000. This transaction
will be recorded in the third quarter of fiscal 1997. The purchase price, net of
expenses, will approximate book value.
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 stock will be held in
escrow subject to post-closing adjustments. The sale will result in a gain, the
financial details of which will be reported with the results of operations for
the quarter ending June 28, 1997.
8
<PAGE>
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 Technology,
Inc., 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, including those discussed below that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "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 MARCH 29, 1997 COMPARED TO QUARTER ENDED MARCH 30, 1996
- ---------------------------------------------------------------------
Net sales increased 6% in the quarter ended March 29, 1997 to $14,775,000
compared to $13,943,000 in the quarter ended March 30, 1996. Although net sales
at ILC increased 12.7% between the two quarters, net sales at Converter Power
decreased 15.6% between the two quarterly periods. In the fourth quarter of
fiscal 1996, Converter Power experienced a significant reduction in orders from
a major customer that provides equipment to the semiconductor equipment
industry. This order reduction continued into the first quarter of fiscal 1997
and also into the second quarter of fiscal 1997 but to a lesser degree. As
discussed in Note 6 of Notes to Condensed Consolidated Financial Statements, the
Converter Power subsidiary was sold in May 1997. Net sales at Q-Arc remained
constant between the two quarterly periods. The net sales increase at ILC
Sunnyvale was the result of a higher volume of products sold primarily in Quartz
Lamp and Aerospace products.
Cost of sales as a percentage of net sales was 71.5% in the second quarter
of fiscal 1997 compared to 65.1% in the same quarter last year. The percentage
increase was due partially to the sales decline from Converter Power's major
customer as discussed above despite cost reduction initiated in the fourth
quarter of fiscal 1996 as well as in the first quarter of fiscal 1997.
Additionally, unfavorable yields primarily in Cermax products and to a lesser
degree in Flashlamp products, due to production equipment moves to allow for
increased production capabilities, contributed to the cost of sales percentage
increase between the first quarter of fiscal 1997 and the first 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 March 29, 1997.
Research and development expenses, 8.2% of net sales in the quarter ended
March 29, 1997 compared to 9.2% of net sales in the quarter ended March 30,
1996, decreased $71,000 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 developent of Cermax and Equipment
products for the display and projection markets.
Marketing expenses for the quarter ended March 29, 1997 and for the quarter
ended March 30, 1996, both 5.3% of net sales, were $779,000 and $741,000,
respectively. The $38,000 increase between the two quarters was the result of
more travel and trade show attendance.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
QUARTER ENDED MARCH 29, 1997 COMPARED TO QUARTER ENDED MARCH 30, 1996(CONTINUED)
- --------------------------------------------------------------------------------
As a percentage of net sales, general and administrative expenses were 7.4%
in the second quarter of fiscal 1997 and 8.7% in the second quarter of 1996. In
absolute dollars, the general and administrative spending level has decreased
$119,000 between the two quarters primarily at Converter Power.
Amortization of intangibles of $30,000 in the second 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, $185,000 in the quarter ended March 29, 1997 compared
to $111,000 in the quarter ended March 30, 1996, increased $74,000 between the
two quarters. Interest expense associated with continuing operations for the
second quarter of fiscal 1997 was $215,000 compared to $145,000 for the second
quarter of fiscal 1996. The increase in interest expense between the two
quarters is due to higher borrowings under a line of credit for working capital
needs and an equipment line of credit for capital equipment acquisitions.
The Company reported income from continuing operations before provision for
income taxes of $919,000 in the second quarter of fiscal 1997 compared to income
from continuing operations before provision for income taxes of $1,499,000 in
the second quarter of fiscal 1996. The effective tax rate in the quarter ended
March 29, 1997 and in the quarter ended March 30, 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 loss of Precision Lamp incurred in the second quarter of fiscal 1997
(approximately $564,000) has 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 was not able to
secure the required financing, but an agreement was reached in May 1997, between
the purchaser 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 begin in May 1997 and will be completed in
April 2000.
SIX MONTHS ENDED MARCH 29, 1997 COMPARED TO SIX MONTHS ENDED MARCH 30, 1996
- ---------------------------------------------------------------------------
Net sales for the six months ended March 29, 1997 increased to $26,897,000
from $26,154,000 for the six months ended March 30, 1996. Even though net sales
between the two six month periods remained relatively constant, net sales at
Converter Power decreased 31.1%. In the fourth quarter of fiscal 1996, Converter
Power experienced a significant reduction in orders from a major customer that
provides equipment to 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 as further discussed in Note 6 of Notes to
Condensed Consolidated Financial Statements. Net sales at ILC increased 12.1%
and at Q-Arc 18.8% in the six months ended March 29, 1997 from the six months
ended March 30, 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.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
SIX MONTHS ENDED MARCH 29, 1997 COMPARED TO SIX MONTHS ENDED MARCH 30, 1996
- ---------------------------------------------------------------------------
(CONTINUED)
-----------
Cost of sales as a percentage of net sales was 71.8% for the six months
ended March 29, 1997 compared to 65.3% for the six months ended March 30, 1996.
The percentage increase was due primarily to the sales decline from Converter
Power's major customer discussed above despite cost reductions initiated in the
fourth quarter of fiscal 1996 and the first quarter of fiscal 1997. 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 six months ended March 29, 1997 and the six
months ended March 30, 1996.
Research and development expenses, $2,276,000 or 8.5% of net sales for the
six months ended March 29, 1997, decreased $225,000 from $2,501,000, or 9.6% of
net sales for the six months ended March 30, 1996. Spending declines occurred in
Flashlamp and Quartz lamp products and at Converter Power while spending
increases took place in Cermax and Equipment for the display and projection
markets.
Marketing expenses in the six months ended March 29, 1997 were $1,526,000,
or 5.7% of net sales compared to $1,397,000, or 5.3% of net sales in the same
six month period a year ago. The $129,000 increase between the two six month
periods was the result of personnel additions and more travel and trade show
attendance.
General and administrative expenses, 7.7% of net sales in the six months
ended March 29, 1997 compared to 8.6% of net sales in the six months ended March
30, 1996, decreased $175,000. 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 $60,000 in the six months ended March 29,
1997 and March 30, 1996 represents the amortization of the covenant-not-to-
compete arising from the acquisition of Q-Arc in 1991.
Net interest expense, $324,000 in the six months ended March 29, 1997
compared to $225,000 in the six months ended March 30, 1996, increased $99,000
between the two six month periods. Interest expense associated with continuing
operations for the first six months of fiscal 1997 was $399,000 compared to
$296,000 for the first six months of fiscal 1996. The increase in interest
expense between the two six month periods is due to higher borrowings under a
line of credit for working capital needs and an equipment line of credit for
capital equipment acquisitions.
The Company reported income from continuing operations before provision for
income taxes of $1,323,000 for the six months ended March 29, 1997 compared to
income from continuing operations before provision for income taxes of
$2,628,000 for the six months ended March 30, 1996. The effective tax rate in
the six months ended March 29, 1997 and March 30, 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 was not able to
secure the required financing, but an agreement was reached in May 1997, between
the purchaser 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 begin in May 1997 and will be completed in
April 2000.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Net cash used in operating activities for the six months ended March 29,
1997 was $1,040,000, a $2,000,000 change from the $960,000 net cash provided by
operating activities for the six months ended March 30, 1996. During the first
six months of fiscal 1997, the Company made capital equipment acquisitions of
$1,905,000, increased its net borrowings under its line of credit by $1,880,000,
increased its net borrowings under an equipment line by $488,000 and paid down a
term loan by $659,000. During the first six months of fiscal 1996, the Company
made capital equipment acquisitions of $1,114,000, increased its net borrowings
under its line of credit by $300,000, paid down a term loan by $792,000 and
increased its net borrowings under an equipment line by $101,000.
Raw material inventories have increased from September 28, 1996 by
approximately $2,275,000. This increase is in anticipation of product demands in
the third quarter of fiscal 1997 and to reduce cycle time for customer needs.
The Company has working capital of $17,145,581 and a current ratio of 2.35
to 1.0 at March 29, 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 March 29, 1997, the
Company had $4,780,000 outstanding on a $6,000,000 bank line of credit at 2%
above the LIBOR rate (London Interbank Offer Rate) (7.69% at March 29, 1997). 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. The Company has
$900,000 unused on this additional line of credit at March 29, 1997. The Company
is currently negotiating an equipment credit facility to accommodate the capital
equipment needs of the Company. At March 29, 1997, the Company was in compliance
with all bank covenants. In fiscal 1997, ILC anticipates making capital
equipment expenditures of approximately $2.5 million. 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 requirements and debt service obligations at least
through fiscal 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
12
<PAGE>
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 12, 1997.
(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
(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 Withheld
Votes For Votes Against and Broker Nonvotes
--------- ------------- -------------------
Harrison H. Augur 3,507,505 313,623 280,281
Henry C. Baumgartner 3,480,706 340,422 280,281
Richard D. Capra 3,507,205 313,923 280,281
Arthur L. Schawlow 3,503,764 317,364 280,281
(ii) Approval of an amendment to the 1992 Employee Stock Option Plan:
Votes for: 2,733,491 shares
Votes against: 1,234,060 shares
Votes withheld and
broker nonvotes: 133,858 shares
(iii) Approval of an amendment to the 1985 Employee Stock Purchase Plan:
Votes for: 3,278,552 shares
Votes against: 689,099 shares
Votes withheld and
broker nonvotes: 133,758 shares
(iv) Ratification of the appointment of Arthur Andersen LLP as
independent public accountants of the Company for fiscal 1998:
Votes for: 3,779,814 shares
Votes against: 318,489 shares
Votes withheld and
broker nonvotes: 3,106 shares
(d) Not applicable
13
<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 13, 1997 /S/RONALD E. FREDIANELLI
------------------------
Ronald E.Fredianelli
Chief Financial Officer
DATE: May 13, 1997 /S/HENRY C. BAUMGARTNER
------------------------
Henry C. Baumgartner
Chairman of the Board and
Chief Executive Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> MAR-29-1997
<CASH> 1,223
<SECURITIES> 0
<RECEIVABLES> 11,861
<ALLOWANCES> 340
<INVENTORY> 10,897
<CURRENT-ASSETS> 6,090
<PP&E> 34,071
<DEPRECIATION> 11,933
<TOTAL-ASSETS> 53,021
<CURRENT-LIABILITIES> 12,676
<BONDS> 0
0
0
<COMMON> 7,445
<OTHER-SE> 23,972
<TOTAL-LIABILITY-AND-EQUITY> 53,021
<SALES> 14,775
<TOTAL-REVENUES> 14,775
<CGS> 10,564
<TOTAL-COSTS> 10,564
<OTHER-EXPENSES> 3,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 919
<INCOME-TAX> 230
<INCOME-CONTINUING> 689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
