-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qT51TckzKUcuguQwOgihvY1bRjyZdwiKhX8uCi3DJuShLAD21JRxsLRl2wHPztNw UYh3dFFU4pE6I3yCE1Pgeg== 0000719625-95-000018.txt : 19950814 0000719625-95-000018.hdr.sgml : 19950814 ACCESSION NUMBER: 0000719625-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950701 FILED AS OF DATE: 19950811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILC TECHNOLOGY INC CENTRAL INDEX KEY: 0000719625 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 941655721 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11360 FILM NUMBER: 95560926 BUSINESS ADDRESS: STREET 1: 399 JAVA DR CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087457900 MAIL ADDRESS: STREET 1: 399 JAVA DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 10-Q 1 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 July 1, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 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: 4,632,811 Date: July 28, 1995 ILC TECHNOLOGY, INC. FORM 10-Q For the Quarter Ended July 1, 1995 INDEX Page No. Part I. Financial Information 2 Item 1 Condensed Consolidated Statements of Operations - Quarters ended July 1, 1995 and July 2, 1994 and nine months ended July 1, 1995 and July 2, 1994 3 Condensed Consolidated Balance Sheets - July 1, 1995 and October 1, 1994 4 Condensed Consolidated Statements of Cash Flows - Nine months ended July 1, 1995 and July 2, 1994 5-6 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II Other Information 12 Signatures 13 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 October 1, 1994. 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- ITEM 1. Financial Statements ILC TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
Quarter Ended Nine Months Ended July 1, July 2, July 1, July 2, 1995 1994 1995 1994 ------- -------- ------- ------ Net sales $ 15,277 $ 13,355 $ 41,950 $ 37,787 Costs and expenses: Cost of sales 10,415 8,696 28,312 26,056 Research and development 1,163 1,030 3,383 2,843 Marketing 821 634 2,191 1,749 General and administrative 1,300 1,208 3,652 3,917 Write down and amortization of intangibles 73 83 218 3,702 ------- -------- -------- ------- 13,772 11,651 37,756 38,267 ------- -------- -------- ------- Income (loss) from operations 1,505 1,704 4,194 (480) -------- ------- ------- -------- Other income (expense): Interest, net 65 (26) (228) (105) ------- -------- -------- -------- Income (loss) before provision for income taxes 1,570 1,678 3,966 (585) Provision for income taxes 205 535 876 535 ------- ------ ------ ------ Net income (loss) $ 1,365 $ 1,143 $ 3,090 $(1,120) ======== ======= ======= ======== Earnings (loss) per share $ 0.28 $ 0.23 $ 0.65 $ (0.24) ======== ======= ======== ========= Weighted average shares used in computation 4,825 4,869 4,759 4,664 ======== ======= ======= ======= See accompanying note -3- ILC TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) July 1, 1995 October 1, 1994 ------------ --------------- (unaudited) Assets Current assets: Cash and cash equivalents $ 316 $ 2,462 Marketable securities - 998 Accounts receivable, net 8,746 7,781 Inventories: Raw materials 4,780 3,393 Work-in-process 2,811 2,556 Finished goods 1,613 1,243 ------- ------- Total inventories 9,204 7,192 ------- ------- Deferred tax asset 2,405 2,405 Prepaid expenses 136 543 ------- ------- Total current assets 20,807 21,381 ------- ------- Property and equipment, net 22,429 17,688 Deposit on land and building - 1,300 Covenants-not-to-compete, net 1,189 1,407 Other assets 740 221 ------- ------- $45,165 $41,997 ======= ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,769 $ 3,921 Accrued liabilities 5,688 5,626 Accrued income taxes payable 2,128 2,405 -------- -------- Total current liabilities 11,585 11,952 -------- -------- Long-term liabilities: Long-term debt 4,500 4,350 Non-compete obligation 520 910 Obligations under equipment line 1,028 595 Other accruals 315 415 Capital lease obligation 129 152 ------- -------- Total long-term liablilities 6,492 6,422 ------- -------- Stockholders' equity: Common stock 5,867 5,492 Retained earnings 21,221 18,131 ------- ------- Total stockholders' equity 27,088 23,623 ------- ------- $ 45,165 $ 41,997 ======== ======== See accompanying notes -4- ILC TECHNOLOGY, INC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended July 1, 1995 July 2, 1994 ------------ ------------ Cash flows from operating activities - Net income (loss) $ 3,090 $(1,120) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,205 764 Write down and amortization of non-compete agreements 218 1,370 Write down and amortization of goodwill - 2,321 Changes in assets and liabilities from operations: Decrease (increase) in marketable securities 998 (649) Decrease (increase) in accounts receivable (965) 980 Decrease (increase) in inventories (2,011) 573 Decrease (increase) in prepaid expenses 407 (197) Decrease (increase) in other assets (518) 199 Decrease in accounts payable (153) (563) Increase (decrease) in accrued liabilities (619) 84 ------- ------- Total adjustments (1,438) 4,882 ------- ------- Net cash provided by operating activities 1,652 3,762 ------ ------ Cash flows from investing activities - Purchase of Q-Arc building - (2,383) Capital expenditures (4,647) (1,920) ------- ------- Net cash used in investing activities (4,647) (4,303) ------- ------- Cash flows from financing activities - Borrowings under line of credit 6,550 - Repayments under line of credit (5,200) - Principal borrowings under equipment line 1,530 534 Principal payments under equipment line (815) (358) Principal payments under term loan for buildings (1,200) (750) Proceeds from issuance of common stock 451 370 Payments under non-compete agreement (390) (390) Repurchase of common stock (77) - -------- -------- Net cash provided by (used in) financing activities 849 (594) -------- -------- Net decrease in cash (2,146) (1,135) Cash at beginning of period 2,462 2,994 ------- ------- Cash at end of period $ 316 $ 1,859 ======== ======== See accompanying notes -5- ILC TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) (In thousands) Supplemental disclosures of cash flow information: Nine Months Ended July 1, 1995 July 2, 1994 ------------ ------------ Cash paid during the period for: Interest expense $ 517 $ 245 Income taxes 874 1,771 See accompanying notes -6-
ILC TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 1, 1995 1. Summary of Significant Accounting Policies Basis of Presentation The condensed consolidated financial statements include the accounts of ILC Technology, Inc., and its subsidiaries, after elimination of intercompany accounts and transactions. The Company's quarter ends on the last Saturday of the fiscal month. Cash and Cash Equivalents For the purpose of the statement of cash flows, the Company considers all highly liquid investments with a maturity of less than three months at the time of issue to be cash equivalents. Marketable Securities Marketable securities are accounted for as trading securities under the provisions of SFAS No. 115, and are therefore valued at fair market value. Inventories Inventories are stated at the lower of cost (first in, first out) or market, and include material, labor and manufacturing overhead. 2. Earnings (Loss) 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. Primary and fully diluted earnings per share are substantially the same for the periods presented. Loss per share for the nine months ended July 2, 1994 is computed using the weighted average number of common shares outstanding only. 3. Goodwill and Covenants-Not-To-Compete The Company assesses the realizability of its intangible assets resulting from acquisitions on a quarterly basis by comparing estimated undiscounted future cash flows to the book value of such intangibles. During the quarter ended April 2, 1994, the Company's Precision Lamp subsidiary experienced a significant slowdown in the release of shippable product from a major customer due to the qualification of a second source by that customer. This customer represents approximately 85% of Precision Lamp's revenue. This slowdown resulted in significantly lower sales in fiscal 1994 and is expected to result in significantly lower sales over the remaining life of the goodwill and covenant-not- to-compete generated from the purchase of Precision Lamp in June 1992. In assessing the recoverability of the above intangibles, management determined that an impairment occurred in the second quarter of fiscal 1994 and recorded a $3.4 million charge. -7- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter Ended July 1, 1995 Compared to Quarter Ended July 2, 1994 Net sales increased 14.4% in the quarter ended July 1, 1995 to $15,277,000 compared to $13,355,000 in the quarter ended July 2, 1994. The increase was the result of a higher volume of units sold in the Advanced Lighting Products group (formerly the Aerospace product group) and at Converter Power, Precision Lamp and Q-Arc. In the quarter ended April 2, 1994, Precision Lamp experienced a significant shortfall in the release of shippable product from a major customer. This shortfall resulted in significantly lower sales in fiscal 1994 than previously anticipated. Even though Precision Lamp sales in the quarter ended July 1, 1995 have increased over sales in the quarter ended July 2, 1994, sales to this major customer are still expected to be lower than originally expected. Cost of sales as a percentage of net sales was 68.2% in the third quarter of fiscal 1995 compared to 65.1% in the same quarter last year. The percentage increase was due to lower manufacturing yields on the newly introduced backlight panel product at Precision Lamp, coupled with a lower than expected sales volume on higher margin products. Also, increased overhead expenses in the Quartz product group, in anticipation of potential increases in future sales of lamps used in the processing of semiconductor materials, contributed to the overall increase. Spending in the area of research and development, 7.6% of net sales in the third quarter of fiscal 1995, compared to 7.7% of net sales in the third quarter of fiscal 1994, increased $133,000. The increase occurred in the Quartz product group for the development of lamps used in the processing of semiconductor materials and in the Equipment product group for the design of new lightsources. Also contributing to the increase was additional spending at Converter Power for the design of new power supplies. Marketing expenses for the quarter ended July 1, 1995 were $821,000, or 5.4% of net sales, compared to $634,000, or 4.7% of net sales, in the same quarter of the prior fiscal year. The $187,000 increase in spending between the two quarters was primarily the result of more travel and trade show attendance, an increased advertising effort and the purchase of new product brochures and literature. General and administrative expenses, as a percentage of sales, were 8.5% in the quarter ended July 1, 1995, compared to 9.0% in the quarter ended July 2, 1994. Even though the percentage comparison between the two quarters has decreased, the spending in absolute dollars has increased $92,000 from the 1994 to the 1995 period. In the second quarter of fiscal 1994, Precision Lamp experienced a significant shortfall in orders from a major customer due to the qualification of a second source by that customer. This customer represents approximately 85% of Precision Lamp's revenue. In assessing the recoverability of the unamortized goodwill and covenant-not-to-compete generated from the acquisition, management determined that an impairment occurred in that quarter and recorded a $3.4 million charge. The amortization of intangibles of $73,000 in the third quarter of fiscal 1995 represents the revised amortization of the remaining balance of the Precision Lamp covenant-not-to-compete plus the amortization of the Q-Arc Ltd. covenant-not-to-compete. Other income (expense), net, comprised of interest income and interest expense, increased $91,000 in the third quarter of fiscal 1995 from the third quarter of fiscal 1994. In the quarter ended July 1, 1995, interest income increased approximately $183,000 due to interest received from an income tax refund while interest expense increased approximately $92,000 due to the increase in the equipment line of credit for capital equipment acquisitions and borrowings under the Company's line of credit for working capital requirements. -8- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Quarter Ended July 1, 1995 Compared to Quarter Ended July 2, 1994 (continued) Income before provision for income taxes was $1,570,000 for the quarter ended July 1, 1995 compared to $1,678,000 for the quarter ended July 2, 1994. The provision for income taxes was 13% of income before provision for income taxes for the third quarter of fiscal 1995 compared to 32% of income before provision for income taxes in the same quarter last year. The quarter ended July 1, 1995 reflects an income tax refund of approximately $238,000 which reduced the overall income tax rate. The tax refun relates to taxes previusly paid on tax returns which were under review by the Internal Revenue Service and favorably settled by the Company. The Company believes that inflation and changing prices had no significant impact on sales or costs during the third quarter of fiscal 1995 or 1994. Nine Months Ended July 1, 1995 Compared to Nine Months Ended July 2, 1994 Net sales for the nine months ended July 1, 1995 increased 11.0% ($4,163,000) from the comparable period a year ago. The increase was the result of a higher volume of units sold in the Flash, Quartz and Advanced Lighting Products (formerly Aerospace) groups and at Converter Power, Q-Arc and Precision Lamp. Additionally, even though net sales at Precision Lamp, for the nine months ended April 1, 1995, have increased slightly from the prior nine month period, sales to its major customer are still expected to be lower than previously expected due to a shortfall in the release of shippable product as previously discussed. Cost of sales as a percentage of net sales was 67.5% and 69.0% for the nine months ended July 1, 1995 and July 2, 1994, respectively. In the second quarter of fiscal 1994, cost of sales was charged approximately $500,000 for the write off of excess inventory related to the slowdown in the release of shippable product from a major Precision Lamp customer. Without this charge, the cost of sales percentage would have been approximately the same for the two nine month periods. Research and development expenses, $3,383,000 or 8.1% of net sales for the nine months ended July 1, 1995, increased $540,000 from $2,843,000, or 7.5% of net sales for the nine months ended July 2, 1994. The majority of the increase occurred in the Quartz product group for the development of lamps used in the processing of semiconductor materials and at Converter Power for the design of new power supplies. Marketing expenses in the nine months ended July 1, 1995 were $2,191,000, or 5.2% of net sales compared to $1,749,000, or 4.6% of net sales, in the same nine month period a year ago. The $442,000 increase is primarily due to personnel additions, more travel and trade show attendance and the purchase of product brochures and literature. General and administrative expenses, 8.7% of net sales in the nine months ended July 1, 1995 compared to 10.4% of net sales in the nine months ended July 2, 1994, decreased $265,000. In the quarter ended April 2, 1994, a $500,000 early exit incentive accrual for various long-time ILC employees plus the write off of a doubtful $250,000 note receivable, which arose from the United Detector Technology divestiture in 1990, contributed to the increased general and administrative expenses in that quarter. This decrease between the two nine month periods was partially offset by additions to staff at Converter Power and by expenses associated with the Q-Arc move to a new manufacturing facility during the nine months ended July 1, 1995. Amortization of intangibles of $3,702,000, for the nine months ended July 2, 1994, represents the write down of intangibles generated from the acquisition of Precision Lamp ($3,430,000), recorded in the second quarter of fiscal 1994, plus the normal amortization ($272,000) of the covenants-not-to- compete plus the goodwill amortization arising from the acquisition of Precision Lamp and of Q-Arc Ltd,recorded in the first and third quarters of fiscal 1994. -9- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Nine Months Ended July 1, 1995 Compared to Nine Months Ended July 2, 1994 (continued) In the quarter ended April 2, 1994, Precision Lamp experienced a slowdown in the release of shippable product from a major customer. Sales to this customer are now expected to be significantly lower than originally anticipated. In assessing the recoverability of the unamortized goodwill and covenant-not-to- compete generated from the acquisition, management determined that an impairment occurred in the second quarter of fiscal 1994 and recorded a $3.4 million charge. The amortization of intangibles of $218,000 in the nine months ended July 1, 1995 represents the revised amortization of the remaining balance of the Precision Lamp covenant-not- to-compete plus the amortization of the Q-Arc Ltd. covenant-not-to-compete. Other income (expense), net, comprised of interest income and interest expense, increased $123,000 in the first nine months of fiscal 1995 from the first nine months of fiscal 1994. Interest income, for the first nine months of fiscal 1995, increased approximately $130,000 due mainly to $239,000 of interest associated with an income tax refund. Interest expense, for the nine months ended July 1, 1995, increased approximately $253,000 from the nine months ended July 2, 1994 due to the increase in the equipment line of credit for capital equipment acquisitions and borrowings under the Company's line of credit for working capital requirements. The Company reported income before provision for income taxes of $3,966,000 for the nine months ended July 1, 1995. The provision for income taxes was 22% of income before provision for income taxes for the nine months ended July 1, 1995 and reflects the $238,000 income tax refund received in the third quarter of fiscal 1995. The Company reported a loss before provision for income taxes of $585,000 for the nine months ended July 2, 1994. The tax provision of $535,000, for the first nine months of fiscal 1994, reflected the expected tax rate of 32% for fiscal 1994, which excluded the non-deductible write down of intangibles as previously discussed. The Company believes that inflation and changing prices had no significant impact on sales or costs during the nine months ended July 1, 1995 or July 2, 1994. Liquidity and Financial Condition Net cash provided by operating activities totaled $1,652,000 in the nine months ended July 1, 1995 compared to $3,762,000 in the nine months ended July 2, 1994. During the first nine months of fiscal 1995, the Company purchased land and a manufacturing facility in Santa Clara, California for approximately $3,200,000 (cash of approximately $1,900,000, plus a deposit made in the fourth quarter of fiscal 1994). Capital equipment acquisitions in the nine months ended July 1, 1995 were $2,747,000. Also, during the first nine months of fiscal 1995, the Company liquidated the balance of marketable securities of $998,000, increased net borrowings under an equipment line by $715,000, made principal payments of $1,200,000 under a term loan for real estate acquisitions and increased net borrowings under a working capital line of credit by $1,350,000. During the first nine months of fiscal 1994, the Company had capital equipment expenditures of $1,920,000, purchased a new building for its Q-Arc operations for approximately $2,400,000 and purchased $649,000 of marketable securities. The Company also made principal payments of $750,000 under a term loan for real estate acquisitions during the nine months ended July 2, 1994. Raw material, work in process and finished goods inventories have increased from October 1, 1994 by approximately $1,387,000, $255,000 and $370,000, respectively. The majority of the raw material increase is located at Precision Lamp and is anticipated to be consumed, over the balance of calendar 1995, in the manufacture of product for its major customer and in the -10- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Financial Condition (continued) manufacture of backlight panels. The work in process and finished goods inventory increases are spread over various Company locations and are in anticipation of product shipments in the fourth quarter of fiscal 1995 and to reduce cycle time for customer needs. The Company has working capital of $9,222,000 and a current ratio of 1.80 to 1.0 at July 1, 1995. This compares with working capital of $9,429,000 and a current ratio of 1.79 to 1.0 at October 1, 1994. As of July 1, 1995, the Company has $2,650,000 available under a $4,000,000 bank line of credit for working capital requirements with interest at 2% above the LIBOR rate (London Interbank Offer Rate) (7.8% at July 1, 1995). The company also has available, at July 1, 1995, approximately $881,000 remaining on a $1,500,000 equipment facility for equipment acquisitions at the same interest rate. At July 1, 1995, the Company was in compliance with all bank covenants. These financial resources, together with anticipated additional resources to be provided from operations, are expected to be adequate to meet the Company's anticipated financial needs at least through fiscal 1995. -11- PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibit is filed as part of this report: Exhibit 27.1 Financial Data Schedule (b) Reports on Form 8-K None -12- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ILC TECHNOLOGY, INC. DATE: August 10, 1995 /s/ Ronald E. Fredianelli ------------------------- Ronald E.Fredianelli Chief Financial Officer DATE: August 10, 1995 /s/ Henry C. Baumgartner ------------------------ Henry C. Baumgartner President -13- EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1995 JUL-1-1995 316 0 9,130 384 9,204 2,541 32,378 9,949 45,165 11,585 0 5,867 0 0 21,221 45,165 41,950 41,950 28,312 28,312 9,444 0 228 3,966 876 3,090 0 0 0 3,090 .65 .65
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