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 JANUARY 3, 1998
------------------------------------------------
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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1655721
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(State or other jurisdiction of (IRS Employer ID Incorportion 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: 4,895,390 Date: January 31, 1998
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<PAGE>
ILC TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended January 3, 1998
INDEX PAGE NO.
----- --------
Part I FINANCIAL INFORMATION 2
Item 1 Condensed Consolidated Statements of
Operations - Quarters ended January 3, 1998
and December 28, 1996 3
Condensed Consolidated Balance Sheets -
January 3, 1998 and September 27, 1997 4
Condensed Consolidated Statements of Cash
Flows - Quarters ended January 3, 1998
and December 28, 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 - 12
Part II OTHER INFORMATION 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 27, 1997.
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
JANUARY 3, 1998 DECEMBER 28, 1996
--------------- -----------------
Net Sales ........................ $ 13,414 $ 12,121
Costs and expenses:
Cost of sales .................. 10,196 8,741
Research and development ....... 767 1,072
Marketing ...................... 726 747
General and administrative ..... 1,040 988
Special charges ................ 4,656 --
Amortization of intangibles .... 30 30
-------- --------
17,415 11,578
-------- --------
Income (loss) from operations
before provision for (benefit
from) income taxes and interest
expense .......................... (4,001) 543
-------- --------
Interest expense, net ............. 73 139
-------- --------
Income (loss) from operations
before provision for (benefit
from) income taxes ............... (4,074) 404
Provision for (benefit from)
income taxes ..................... (824) 97
-------- --------
Net income (loss) ................. $(3,250) $ 307
======== ========
Basic earnings (loss) per share:
Net income (loss) ............... $(0.67) $0.06
======== ========
Weighted average shares
outstanding .................... 4,887 4,792
======== ========
Diluted earnings (loss) per share:
Net income (loss) ............... $(0.67) $0.06
======== ========
Weighted average shares
outstanding ...................... 4,887 5,042
======== ========
See accompanying notes
3
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ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
JANUARY 3, 1998 SEPTEMBER 27, 1997
--------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........... $1,248 $1,114
Accounts receivable, net ............ 9,928 10,535
Inventories:
Raw materials ...................... 5,787 5,459
Work-in-process .................... 4,586 3,974
Finished goods ..................... 1,445 1,283
------- -------
Total inventories ................ 11,818 10,716
------- -------
Deferred tax asset .................. 1,836 836
Prepaid expenses .................... 290 344
Current portion of note receivable
from sale of PLI, net............... -- 1,150
------ -------
Total current assets ............. 25,120 24,696
------- -------
Property and equipment, net ......... 21,520 21,653
Note receivable from sale of
PLI, net of current portion, net..... -- 2,197
Covenant-not-to-compete, net ........ 208 238
Other assets ........................ 97 765
------- -------
$46,945 $49,548
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................... $3,840 $4,362
Accrued liabilities ................. 3,195 3,219
Current portion of long-term debt.... 1,825 2,535
Accrued income taxes payable ........ 1,370 1,243
------- -------
Total current liabilities ........ 10,230 11,359
------- -------
Long-term debt ...................... 3,500 2,500
Obligations under equipment line .... 1,167 568
Other accruals ...................... 67 78
Capital lease obligation ............ 40 50
Stockholders' equity:
Common stock ........................ 7,376 7,178
Retained earnings ................... 24,565 27,815
------ ------
Total stockholders' equity ....... 31,941 34,993
------ ------
$46,945 $49,548
======= =======
See accompanying notes
4
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ILC TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
QUARTER ENDED
JAN 3, 1998 DEC 28, 1996
----------- ------------
Cash flows from operating activities -
Net income (loss) ............................... $(3,250) $307
Adjustment to reconcile net income (loss) to net
cash used in operating activities:
Special charges............................... 4,656 --
Depreciation and amortization ................ 479 503
Amortization of non-compete agreement ........ 30 30
Changes in assets and liabilities from operations:
(Increase) decrease in accounts receivable.. 357 (591)
Increase in inventories .................... (1,102) (829)
Increase in deferred tax asset ............. (1,000) --
(Increase) decrease in prepaid expenses .... 4 (50)
(Increase) decrease in other assets ........ 3 (34)
Increase (decrease) in accounts payable .... (522) 762
Decrease in accrued liabilities .......... (263) (289)
Net change in assets and liabilities from
discontinued operations .................... -- (515)
------- -------
Total adjustments ......................... 2,642 (1,013)
------- -------
Net cash used in operating activities...... (608) (706)
------- -------
Cash flows from investing activities -
Capital expenditures........................... (346) (1,229)
------ ------
Net cash used in investing activities....... (346) (1,229)
------- ------
Cash flows from financing activities -
Principal borrowings under line of credit ..... 2,700 2,963
Principal repayments under line of credit ..... (1,700) (2,100)
Principal borrowings under equipment line ..... 934 667
Principal payments under equipment line ....... (516) (340)
Principal payments under term loan for
buildings .................................... (528) (263)
Proceeds from issuance of common stock ........ 198 136
------- -------
Net cash provided by financing
activities ............................... 1,088 1,063
------- -------
Net increase (decrease) in cash and
cash equivalents ............................. 134 (872)
Cash and cash equivalents at beginning
of period .................................... 1,114 1,829
------- -------
Cash and cash equivalents at end of
period ....................................... $1,248 $957
======= ======
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:
- --------------------------------------------------
QUARTER ENDED
-------------
JANUARY 3, 1998 DECEMBER 28, 1996
--------------- -----------------
Cash paid during the period for:
Interest expense ............... $115 $184
Income taxes ................... 50 --
See accompanying notes
6
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 3, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
---------------------
The condensed consolidated financial statements include the accounts of ILC
Technology, Inc., and its subsidiaries (the "Company" or "ILC"), after
elimination of intercompany accounts and transactions. The Company's quarter
ends on the last Saturday of the fiscal month.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's 1997 Form 10-K and quarterly
report on Form 10-Q for the quarter ended December 28, 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. NET INCOME (LOSS) PER SHARE
- -- ---------------------------
Basic earnings per common share were computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the period.
Diluted earnings per common share for the quarters ended January 3, 1998 and
December 26, 1996 were determined using the weighted-average number of shares of
common stock and common equivalent shares outstanding during the period using
the treasury stock method. As the Company reported a net loss in the quarter
ended January 3, 1998, common equivalent shares are anti-dilutive in that period
and are therefore not included in the computation of diluted earning per share.
In the quarter ended Janary 3, 1998, the Company adoped Financial
Accounting Standards No. 128, "Earnings per Share", effective December 15, 1997.
As a result, the Company's reported earnings per share for the quarter ended
December 28, 1996 were restated. There was no material effect on the previously
reported earnings per share as a result of this accounting change.
7
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ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 3, 1998
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. INVESTMENT IN JOINT VENTURE
---------------------------
In February 1995, ILC invested $450,000 in a lamp manufacturer located in
Japan. ILC's investment represents a 49% ownership interest in the equity of the
investee, consequently ILC accounts for its investment using the equity method
of accounting. For the quarter ended January 3, 1998, no income of the investee
is included in the accompanying condensed consolidated statement of operations.
ILC's proportionate interest in the income of the investee from fiscal years
1995 through the second quarter of fiscal 1997 amounted to $215,000 and resulted
in a total ILC investment of $665,000 at the end of fiscal year 1997. In
addition, ILC has made advances to the investee of approximately $249,000 which
resulted in a total investment in and advances to the joint venture of $914,000.
Subsequent to fiscal 1997, ILC's venture partner has made certain claims and
taken certain actions that have made ILC's management re-evaluate ILC's ongoing
participation in and realization of its investment and advances to the joint
venture. Accordingly, the accompanying financial statements for the period ended
January 3, 1998 reflect a provision of $914,000 to fully reserve for realization
of ILC's investment in and advances to the joint venture. The provision is
included in special charges on the accompanying condensed consolidated statement
of operations for the quarter ended January 3, 1998.
5. DISCONTINUED OPERATIONS
-----------------------
In September 1996, ILC's Board of Directors voted to proceed with the
divestiture of Precision Lamp, Inc. (PLI) which is a subsidiary based in Cotati,
California. As a result of ILC'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 estimated operating
losses through the final disposition of the subsidiary and the write off of the
unamortized balance of the PLI covenant-not-to-compete of approximately
$470,000. For the quarter ended December 28, 1996, the loss incurred by this
operation of approximately $201,000 was netted against the accrual for
discontinued operations recorded in the fourth quarter of fiscal 1996.
In January 1997, ILC signed an agreement to sell PLI. 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, ILC agreed to
sell the stock of PLI to PLI Acquisition Corp. for a promissory note with a face
value of $4 million bearing 8% interest per year on any unpaid principal amount.
Payments on the promissory note began in May 1997 and were scheduled to be
completed in April 2000. This transaction was recorded in the third quarter of
fiscal 1997. The purchase price, net of expenses and reserves, approximated the
book value and therefore, no gain or loss was recorded.
8
<PAGE>
ILC TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNaudited)
JANUARY 3, 1998
5. DISCONTINUED OPERATIONS (continued)
----------------------------------
PLI Acquisition Corp. has not made the scheduled October 1997 through
January 1998 payments on the note payable to ILC. ILC management has been in
egotiations with PLI Acquisition Corp. with a view toward restructuring the
terms of the note in contemplation of improvement in PLI Acquisition Corp.'s
cash flow and anticipated ability to meet its obligations in the future.
However, recent discussions with PLI Acquisition Corp. indicate that PLI
Acquisition Corp.'s primary customer has not placed the anticipated orders with
PLI Acquisition Corp. and, in fact has qualified product from two vendors other
than PLI Acquisition Corp. Based upon these recent developments, ILC's
management has re-evaluated PLI Acquisition Corp.'s ability to repay the note
and has determined that it is more likely than not that impairment of the note
exists. Accordingly, the accompanying financial statements for the period ended
January 3, 1998 reflect a provision of $3,447,000 to fully reserve for
realization of ILC's note receivable from PLI Acquisition Corp. The provision is
included in special charges on the accompanying condensed consolidated statement
of operations for the quarter ended January 3, 1998.
6. CONVERTER POWER, INC.
---------------------
In May 1997, ILC completed the sale of CPI to Applied Science and
Technology, Inc. (ASTeX) for $6.35 million in cash and 45,000 shares of ASTeX
common stock. The total sale price was $7.35 million, subject to adjustments
related to warranties. ILC has estimated that $500,000 of potential warranties
could be paid and has reduced the gain on sale accordingly. In August 1997,
ASTeX removed approximately 4,900 shares from escrow based on post-closing audit
adjustments. The remaining shares will be held in escrow subject to any further
post-closing adjustments, with a final settlement in May 1998. The sale, net of
expenses, resulted in a gain of $2,378,683 and was reported in the results of
operations for the third quarter ended June 28, 1997. The net amount due from
ASTeX of $500,000 (to be satisfied by the release to ILC of the ASTeX shares
held in escrow) is reflected in accounts receivable in the accompanying balance
sheet as of January 3, 1998.
7. MERGER WITH BEC GROUP, INC.
----------------
On October 30, 1997, ILC entered into a definitive Agreement and Plan of
Merger by and among ILC, BEC Group, Inc. ("BEC") and BILC Acquisition Corp.
("Acquisition Corp."), a wholly owned subsidiary of BEC, pursuant to which ILC
will merge (the "Merger") with and into Acquisition Corp. Upon consummation of
the Merger, each outstanding share of ILC will be converted into the right to
receive 2.18 shares (reflecting the completion of BEC's contemplated one-for two
reverse stock split) of BEC's common stock. The Merger is subject to the
approval of both ILC's shareholders and BEC's stockholders, and to certain
regulatory approvals and other customary closing conditions. The respective
chairmen of ILC and BEC have executed voting agreements in favor of the Merger.
Final approval of the merger is pending approval by the respective shareholders
of ILC and BEC. These shareholder meetings are both scheduled for March 11,
1998.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GENERAL
- -------
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements which
reflect ILC'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: ILC's ability to manufacture products efficiently and
reliably; the ability of ILC to deliver new products on time; market acceptance
of ILC's products; the introduction, marketing and commercial viability of
products and systems that use ILC'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 ILC 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.
In September 1996, ILC's Board of Directors voted to proceed with the
divestiture of ILC's Precision Lamp, Inc. subsidiary based in Cotati,
California. In May 1997, ILC completed the sale of Converter Power, Inc. (CPI)
and the results of operations for this subsidiary are included in the Condensed
Consolidated Statement of Operations for the quarter ended December 28, 1996.
Refer to Notes 5 and 6 of Notes to Condensed Consolidated Financial Statements
for a further discussion of the discontinued operations and the sale of CPI.
Accordingly, the following discussion and analysis of financial condition and
results of operations reflect the activities of ILC Technology, Inc., CPI and Q-
Arc, Ltd. (Q-Arc).
QUARTER ENDED JANUARY 3, 1998 COMPARED TO QUARTER ENDED DECEMBER 28, 1996
- -------------------------------------------------------------------------
Net sales for the quarter ended January 3, 1998 were $13,414,000 compared
to $12,121,000 for the quarter ended December 28, 1996. Included in the year ago
quarter were sales at CPI of $1,635,000. Net sales at ILC Sunnyvale and at Q-Arc
increased 27.6% and 30.6%, respectively, between the two quarterly periods. The
net sales increases at both ILC Sunnyvale and at Q-Arc were the result of a
higher volume of products sold in all product areas.
Cost of sales as a percentage of net sales was 76.0% in the first quarter
of fiscal 1998 compared to 72.1% in the first quarter of fiscal 1997. The
percentage increase was due primarily to lower gross margins on Cermax lamps
sold into the display and projection market and a negative gross margin on
quartz lamp products. Although the gross margin on quartz lamp products was
negative in both quarters, the negative gross margin in the quarter ended
January 3, 1998 was 32.7% or $398,000 compared to 12.3% or $133,000 in the
quarter ended December 28, 1996.
Research and development expenses, $767,000 or 5.7% of net sales in the
quarter ended January 3, 1998 compared to $1,072,000 or 8.8% of net sales in the
quarter ended December 28, 1996, decreased $305,000 between the two quarters.
After excluding $277,000 of research and development expenses incurred at CPI in
the quarter ended December 28, 1996, the spending in this area remained
relatively constant between the two quarterly periods. In both fiscal quarters,
the research and development spending was concentrated in Cermax and Equipment
products for the display and projection markets and in Quartz products for lamps
used in the processing of semiconductor materials.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
--------------------------------
QUARTER ENDED JANUARY 3, 1998 COMPARED TO QUARTER ENDED DECEMBER 28, 1996
- -------------------------------------------------------------------------
(CONTINUED)
- ----------
Marketing expenses for the quarter ended January 3, 1998 were $726,000 or
5.4% of net sales compared to $747,000 or 6.2% of net sales in the same quarter
of the prior fiscal year. Included in the December 28, 1996 quarter were
marketing expenses of $85,000 incurred at CPI. After excluding these expenses
from the comparison, marketing expenses increased by $64,000 between the two
quarters due to personnel additions, increased travel and additional commission
expense.
General and administrative expenses, 7.8% of net sales in the first quarter
of fiscal 1998 compared to 8.2% of net sales in the first quarter of fiscal
1997, increased $52,000. After excluding general and administrative expenses of
$155,000 incurred at CPI in the quarter ended December 28, 1996, the increase
between the two quarterly periods was $207,000. This increase was due primarily
to personnel additions at Q-Arc, salary increases and increased travel expenses
in the quarter ended January 3, 1998 over the quarter ended December 28, 1996.
As discussed in Note 5 of notes to condensed consolidated financial
statements, ILC has not received scheduled payments on the note receivable from
PLI Acquisition Corp. (purchaser of Precision Lamp) since September 1997. ILC
management has been in negotiations with PLI Acquisition Corp. with a view
toward restructuring the terms of the note in contemplation of improvement in
PLI Acquisition Corp.'s cash flow and anticipated ability to meet its
obligations in the future. However, recent discussions with PLI Acquisition
Corp. indicate that PLI Acquisition Corp's primary customer has not placed the
anticipated orders with PLI Acquisition Corp. and, in fact has qualified product
from two vendors other than PLI Acquisition Corp. Based upon these recent
developments, ILC's management has re-evaluated PLI Acquisition Corp.'s ability
to repay the note and has determined that it is more likely than not that
impairment of the note exists. Accordingly, the accompanying financial
statements for the period ended January 3, 1998 reflect a provision of
$3,447,000 to fully reserve for realization of ILC's note receivable from PLI
Acquisition Corp. The provision is included in special charges on the
accompanying condensed consolidated statement of operations for the quarter
ended January 3, 1998. As discussed in Note 4 of notes to condensed consolidated
financial statements, ILC has an investment in a Japanese joint venture which
totalled $665,000 at the end of fiscal 1997. ILC has also advanced this joint
venture approximately $249,000 which resulted in a total investment in and
advances to the joint venture of $914,000. Subsequent to fiscal 1997, ILC's
venture partner has made certain claims and taken certain actions that have made
ILC's management re-evaluate ILC's ongoing participation in and realization of
its investment and advances to the joint venture. Accordingly, the accompanying
financial statements for the period ended January 3, 1998 reflect a provision of
$914,000 to fully reserve for realization of ILC's investment in and advances to
the joint venture. The provision is included in special charges on the
accompanying condensed consolidated statement of operations for the quarter
ended January 3, 1998. In addition, in the quarter ended January 3, 1998,
accruals were made for severance benefits for an ILC employee for $233,000 and
for relocation expenses for another employee for $162,000. These charges are
also included in special charges on the accompanying condensed consolidated
statement of operations for the quarter ended January 3, 1998. Total special
charges in the first quarter of fiscal 1998 were $4,656,000.
Amortization of intangibles of $30,000 in the first quarter of fiscal 1998
and 1997 represents the amortization of the covenant-not-to-compete arising from
the acquisition of Q-Arc in 1991.
Net interest expense, $73,000 in the quarter ended January 3, 1998 compared
to $139,000 in the quarter ended December 28, 1996, decreased $66,000 between
the two quarters. Interest expense associated with operations for the first
quarter of fiscal 1998 was $115,000 compared to $166,000 for the first quarter
of fiscal 1997. The decrease in interest expense between the two quarters is due
to lower balances outstanding under a term loan and lower borrowings under a
line of credit which was reduced from proceeds from the sale of CPI in May 1997.
The Company reported a loss from operations before benefit from income
taxes of $4,074,000 in the first quarter of fiscal 1998 compared to income from
operations before provision for income taxes of $404,000 in the first quarter of
fiscal 1997. The income tax benefit in the quarter ended January 3, 1998 was 20%
compared to an effective tax rate of 24% in the quarter ended December 28, 1996.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
QUARTER ENDED JANUARY 3, 1998 COMPARED TO QUARTER ENDED DECEMBER 28, 1996
- -------------------------------------------------------------------------
(CONTINUED)
-----------
The Company believes that inflation and changing prices had no significant
impact on sales or costs during the first quarter of fiscal 1998 or 1997.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
Net cash used in operating activities for the quarter ended January 3, 1998
was $608,000, a decrease of $98,000 from the $706,000 net cash used in operating
activities for the quarter ended December 28, 1996. During the first quarter of
fiscal 1998, the Company made capital equipment acquisitions of $346,000,
increased its net borrowings under its line of credit by $1,000,000, increased
its net borrowings under an equipment line by $418,000 and paid down a term loan
by $528,000. During the first quarter of fiscal 1997, the Company made capital
equipment acquisitions of $1,229,000, increased its net borrowings under its
line of credit by $863,000, increased its net borrowings under an equipment line
by $327,000 and paid down a term loan by $263,000.
Raw material and work in process inventories have increased from the
preceding quarter by approximately $328,000 and $612,000, respectively. This
increase is in anticipation of product shipments in the second quarter of fiscal
1998 and to reduce cycle time for customer needs.
The Company has working capital of $14,890,000 and a current ratio of 2.46
to 1.0 at January 3, 1998. This compares with working capital of $13,337,000 and
a current ratio of 2.17 to 1.0 at September 27, 1997. As of January 3, 1998, the
Company's credit facilities are as follows:
AMOUNT OUTSTANDING
AT JANUARY 3, 1998
------------------
Bank line of credit ...................................$3,500,000
Equipment line of credit .............................. 2,333,000
Term loan ............................................. 659,000
----------
6,492,000
Less current portion ..................................(1,825,000)
Long-term debt ........................................$4,667,000
The Company has available an additional $2,500,000 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) (7.97% at January 3,
1998). The Company also has an unused $2,000,000 equipment credit facility at
the above interest rate. This credit facility can be increased to accommodate
the capital equipment needs of the Company. At January 3, 1998, the Company was
in compliance with, or had obtained waivers for, all bank covenants. In fiscal
1998, the Company anticipates making capital expenditures of approximately $2.5
million. As of January 3, 1998, ILC did not have any outstanding material
commitments for capital expenditures. ILC's current financial resources,
together with anticipated additional resources to be provided from operations,
are expected to be adequate to meet ILC's working capital needs, capital
equipment requirements and debt service obligations at least through fiscal
1998.
12
<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 Financial Data Schedule
(b) Report on Form 8-K
None.
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: February 17, 1998 /S/ RONALD E. FREDIANELLI
-------------------------
Ronald E. Fredianelli
Chief Financial Officer
DATE: February 17, 1998 /S/ HENRY C. BAUMGARTNER
------------------------
Henry C. Baumgartner
Chairman of the Board and
Chief Executive Officer
14
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> JAN-03-1998
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0
0
<COMMON> 7,376
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<SALES> 13,414
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<INCOME-PRETAX> (4,074)
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<NET-INCOME> (3,250)
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