-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TW0EYgzEQceThDwQ92EJnmLLQYZEAxnND6aM9OV9dfLElcCVBh9AEWoPoGDbX7IS zBg3bGYJkZi4ALKSAfSDXw== 0000719625-97-000001.txt : 19970109 0000719625-97-000001.hdr.sgml : 19970109 ACCESSION NUMBER: 0000719625-97-000001 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19970108 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILC TECHNOLOGY INC CENTRAL INDEX KEY: 0000719625 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 941655721 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11360 FILM NUMBER: 97502222 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-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 1 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended SEPTEMBER 28, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number 0-11360 ILC TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-1655721 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 399 JAVA DRIVE, SUNNYVALE, CALIFORNIA 94089 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 745-7900 -------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock on December 16, 1996, was approximately $50,929,417. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrant's Common Stock on December 16, 1996 was 4,782,508. Parts of the following documents are incorporated by reference into Part III of this Annual Report and Form 10-K: (1) Proxy Statement for registrant's 1996 Annual Meeting of Shareholders. TABLE OF CONTENTS ITEM DESCRIPTION PAGE PART I 1 Business 1 - 6 2 Properties 6 - 7 3 Legal Proceedings 7 4 Submission of Matters to a Vote of Security Holders 7 PART II 5 Market for the Registrant's Common Equity and Related Stockholder Matters 8 6 Selected Financial Data 9 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 13 8 Financial Statements and Supplementary Data 14 - 33 __ 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 34 __ PART III 10 Directors and Executive Officers of the Registrant 34 __ 11 Executive Compensation 34 __ 12 Security Ownership of Certain Beneficial Owners and Management 34 __ 13 Certain Relationships and Related Transactions 34 __ PART IV 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K 35 __ Signatures 36 __ 1 ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The following selected consolidated financial data of the Company, which has been reclassified to reflect the continuing operations of ILC and the discontinuted operations of PLI, should be read in conjunction with the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. FISCAL YEAR ENDED (in thousands except per share data) 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Net sales ................$ 54,206 $ 49,496 $ 44,331 $ 42,250 $ 38,727 Income from continuing operations .............. 4,546 4,637 3,727 4,509 4,757 Income (loss) from discontinued operations . (4,239) (99) (3,536) 250 193 Net income ............... 307 4,538 191 4,759 4,950 Earnings (loss) per share: Continuing operations ... .92 .97 .77 .91 .96 Discontinued operations (.86) (.02) (.73) .05 .04 ------- ------- ------ ------ ------- Net income per share $ .06 $ .95 $ .04 $ .96 $ 1.00 Weighted average shares outstanding ..... 4,923 4,765 4,825 4,980 4,956 Working capital ..........$ 15,155 $ 14,618 $ 11,366 $ 17,543 $ 16,399 Total assets ............. 47,844 46,726 41,312 39,703 28,645 ______ Total long-term debt ..... 7,576 6,592 6,421 5,805 2,193 Total stockholders' equity .................$ 29,791 $ 28,802 $ 23,624 $ 24,565 $ 19,578 2 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- ------------------------------------------- TABLE OF CONTENTS PAGE ----------------- ---- Consolidated Balance Sheets - September 28, 1996 and September 30, 1995 15 - 16 Consolidated Statements of Operations for the Three Fiscal Years Ended September 28, 1996 17 Consolidated Statements of Stockholders' Equity for the Three Fiscal Years Ended September 28, 1996 18 Consolidated Statements of Cash Flows for the Three Fiscal Years Ended September 28, 1996 19 - 20 Notes to Consolidated Financial Statements 21 - 30 Form 10-K Schedule 31 Report of Independent Public Accountants 32 Quarterly Results of Operations (Unaudited) 33 ___________________________________________ __ 3 ILC TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
ASSETS ------ 1996 1995 ---- ---- Current assets: Cash and cash equivalents ..................... $ 1,828,807 $ 1,529,863 Accounts receivable, less allowance for doubtful accounts of $312,358 and $409,440, respectively ................... 9,494,246 8,450,977 Receivable from long-term contracts ........... 861,427 610,122 Inventories ................................... 8,901,528 7,533,090 Deferred tax asset ............................ 2,158,000 1,454,000 Prepaid expenses .............................. 208,320 122,244 Net assets from discontinued operations ....... 2,178,383 6,249,401 ----------- ----------- Total current assets ................... 25,630,711 25,949,697 ----------- ----------- Property and equipment, net .................... 21,176,431 19,560,683 Covenants-not-to-compete, net of accumulated amortization and writedown of $3,195,524 and $2,435,354, respectively ...................... 356,641 475,521 Other assets ................................... 680,013 739,836 ----------- ----------- $47,843,796 $46,725,737 =========== =========== ___________ The accompanying notes are an integral part of these financial statements. 4
ILC TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
1996 1995 ---- ---- Current liabilities: Accounts payable ................................ $ 3,643,496 $ 3,763,998 Accrued payroll and related items ............... 1,263,741 1,601,111 Other accrued liabilities ....................... 1,146,822 1,121,321 Current portion of non-compete obligation ....... 390,000 520,000 Current portion of long-term debt ............... 2,545,600 2,455,500 Accrued income taxes payable .................... 1,486,518 1,869,494 ----------- ----------- Total current liabilities ................. 10,476,177 11,331,424 ----------- ----------- Long-term liabilities, net of current portion: Long-term debt .................................. 7,370,164 5,898,040 Non-compete obligation .......................... -- 390,000 Other accruals .................................. 206,235 304,074 ----------- ----------- Total long-term liabilities ............... 7,576,399 6,592,114 ----------- ----------- Commitments and contingencies (Note 7) Stockholders' equity: Common stock, no par value; 10,000,000 shares authorized; 4,782,508 shares and 4,683,174 shares outstanding, respectively .... 6,815,109 6,132,914 Retained earnings ............................... 22,976,111 22,669,285 ----------- ----------- Total stockholders' equity ................ 29,791,220 28,802,199 ----------- ----------- $47,843,796 $46,725,737 =========== =========== ___________ The accompanying notes are an integral part of these financial statements.
5 ILC TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996
1996 1995 1994 ---- ---- ---- Net sales .................................$54,206,424 $49,496,029 $44,331,237 Costs and expenses: Cost of sales ........................... 36,180,448 31,799,916 28,654,362 Research and development ................ 4,319,650 4,278,697 3,694,392 Sales and marketing ..................... 2,645,952 2,404,856 1,795,930 General and administrative .............. 4,417,446 4,459,726 4,546,290 Amortization of intangibles ............. 120,000 120,000 120,000 ----------- ---------- ----------- 47,683,496 43,063,195 38,810,974 Income from continuing operations before provision for income taxes and interest expense .................................. 6,522,928 6,432,834 5,520,263 Interest expense, net ..................... 461,898 323,757 118,597 ---------- ---------- ---------- Income from continuing operations before provision for income taxes ............... 6,061,030 6,109,077 5,401,666 Provision for income taxes on continuing operations ............................... 1,515,000 1,472,000 1,675,000 ---------- ----------- ---------- Income from continuing operations ......... 4,546,030 4,637,077 3,726,666 Discontinued operations: Operating loss net of tax benefit of $280,004, $32,000 and $523,000 in 1996, 1995 and 1994, respectively ...... (840,217) (99,143) (3,536,053) Estimated loss on disposal, including $500,000 for operating losses during the phase out, net of tax benefit of $1,132,996 (3,398,987) -- -- ----------- ---------- --------- Loss from discontinued operations ....... (4,239,204) (99,143) (3,536,053) ----------- ----------- ----------- Net income ............................... $ 306,826 $4,537,934 $ 190,613 =========== ========== =========== Earnings (loss) per share: Earnings from continuing operations ......$ 0.92 $ 0.97 $ 0.77 Loss from discontinued operations ........ (0.86) (0.02) (0.73) ----------- ---------- ----------- Net income per share $ 0.06 $ 0.95 $ 0.04 =========== ========= =========== Weighted average shares outstanding used to compute net income (loss) per share ... 4,923,132 4,764,989 4,825,009 =========== ========= ========= The accompanying notes are an integral part of these financial statements. 6
ILC TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996
Common Common Stock Retained Shares Amount Earnings Total Balance at October 2, 1993 .. 4,619,476 $ 6,623,828 $17,940,738 $24,564,566 Net income ................ - - 190,613 190,613 Issuance of common stock under stock purchase plan 25,475 196,590 - 196,590 Exercise of stock options . 82,000 227,420 - 227,420 Repurchase of common stock (204,000) (1,555,500) - (1,555,500) ---------- ----------- ---------- ----------- Balance at October 1, 1994 .. 4,522,951 5,492,338 18,131,351 23,623,689 Net income ................ - - 4,537,934 4,537,934 Issuance of common stock under stock purchase plan 37,973 266,575 - 266,575 Exercise of stock options . 132,250 450,751 - 450,751 Repurchase of common stock (10,000) (76,750) - (76,750) ---------- ----------- ---------- ------------ Balance at September 30, 1995 4,683,174 6,132,914 22,669,285 28,802,199 Net income ................ - - 306,826 306,826 Issuance of common stock under stock purchase plan 34,209 279,068 - 279,068 Exercise of stock options . 65,125 403,127 - 403,127 ---------- ---------- ---------- ---------- Balance at September 28, 1996 4,782,508 $6,815,109 $22,976,111 $29,791,220 ========== ========== =========== =========== The accompanying notes are an integral part of these financial statements. 7
ILC TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net Income ....................... $ 306,826 $4,537,934 $ 190,613 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................. 1,570,809 1,450,597 948,313 Provision for doubtful accounts and note ....................... 38,804 102,861 383,902 Provision for inventory obsolescence ................... 520,006 169,034 1,772,346 Net loss on property and equipment sold or retired ................. - 26,367 - Amortization of non-compete agreements ...................... 118,880 118,881 118,880 Changes in assets and liabilities: Decrease in marketable securities .................... - 998,129 438,078 (Increase) decrease in accounts receivable .................... (1,333,378) (2,467,329) 167,344 Increase in inventories ........ (1,888,444) (1,685,743) (1,846,314) (Increase) decrease in deferred tax asset ..................... (704,000) 951,000 (1,016,000) (Increase) decrease in prepaid expenses ...................... (86,076) 406,556 (229,338) (Increase) decrease in other assets ........................ 59,823 (98,397) 183,044 Increase (decrease) in accounts payable ....................... (120,502) 300,709 21,467 Increase (decrease) in accrued liabilities ................... (956,660) (637,731) 1,657,530 Net changes in assets and liabilities from discontinued operations ..................... 4,071,018 (1,623,516) 2,850,679 ----------- ----------- ---------- Total adjustments ........... 1,290,280 (1,988,582) 5,449,931 ----------- ----------- ---------- Net cash provided by operating activities ....... 1,597,106 2,549,352 5,640,544 ----------- ----------- ---------- Cash flows from investing activities: Purchase of land and real estate ............................ - (3,045,412) (3,012,844) (Increase) decrease in deposit on land and building purchase ........ - 1,300,000 (1,300,000) Investment in joint venture ........ - (450,000) - Capital expenditures ............... (3,186,557) (2,517,541) (1,671,942) ----------- ----------- ---------- Net cash used in investing activities ....... (3,186,557) (4,712,953) (5,984,786) ----------- ----------- ----------- The accompanying notes are an integral part of these financial statements. 8
ILC TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996 (CONTINUED)
1996 1995 1994 ---- ---- ---- Cash flows from financing activities: Principal borrowings under line of credit ........................$ 9,500,000 $ 8,450,000 $ - Principal repayments under line of credit ........................ (6,500,000) (6,450,000) - New borrowings under equipment line ............................. 1,555,000 1,720,089 1,090,702 Principal repayments under equipment line ................... (1,374,800) (1,049,958) (499,225) Principal borrowings under term loan ........................ - - 1,333,333 Principal repayments under term loan ........................ (1,584,000) (1,578,000) (533,333) Payments under non-compete agreement ........................ (390,000) (520,000) (520,000) Proceeds from issuance of common stock ..................... 682,195 717,326 424,010 Repurchase of common stock ........ - (76,750) (1,555,500) ---------- ----------- ----------- Net cash provided by (used in) financing activities............ 1,888,395 1,212,707 (260,013) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents....... 298,944 (950,894) (604,255) Cash and cash equivalents at beginning of year .................. 1,529,863 2,480,757 3,085,012 ----------- ----------- ----------- Cash and cash equivalents at end of year ........................$ 1,828,807 $ 1,529,863 $ 2,480,757 =========== =========== =========== 1996 1995 1994 ---- ---- ---- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest - continuing operations . $ 542,061 $589,200 $ 288,669 Interest - discontinued operations 77,714 106,341 50,082 Income taxes ..................... 1,055,000 909,000 2,500,539 Supplemental disclosures of noncash investing and financing activities: A capital lease obligation of $174,268 was incurred in fiscal 1994 when the Company entered into a capital lease for new computer equipment. The accompanying notes are an integral part of these financial statements. 9
ILC TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996 1. THE COMPANY ----------- ILC Technology, Inc. (the "Company") was incorporated on September 15, 1967. The Company designs, develops and manufactures high intensity lamps and lighting products the medical, industrial, communication, aerospace, scientific, entertainment and military industries. The Company develops and manufactures the majority of its products at its headquarter facilities in California and the remainder at its subsidiary facilities in Massachusetts and the United Kingdom. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION - --------------------- The financial statements include the accounts of ILC Technology, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Fiscal years 1995 and 1994 were restated to reflect the Company's decision to discontinue the operations of Precision Lamp, Inc. (see Note 12). None of these restatements had any impact on net income in any of the prior years. The Company's fiscal year end is the Saturday closest to September 30. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - ------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS - ------------------------- For the purpose of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less at the time of issue to be cash equivalents. INVENTORIES - ----------- Inventories are stated at the lower of cost (first-in, first-out) or market, and include material, labor and manufacturing overhead. Inventories at September 28, 1996 and September 30, 1995, net of inventory reserves of $2,034,258 and $1,881,026, respectively, consisted of: 10 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------------------ INVENTORIES (CONTINUED) ----------------------- 1996 1995 ---- ---- Raw materials ........................ $4,802,839 $4,398,553 Work-in-process ...................... 2,549,805 1,981,414 Finished goods ....................... 1,548,884 1,153,123 ---------- ---------- Total inventories..................... $8,901,528 $7,533,090 ========== ========== DEVELOPMENTAL AND MANUFACTURING CONTRACTS - ----------------------------------------- The Company contracts with the U.S. Government and other customers for the development and manufacturing of various products under both cost-plus-fixed-fee and fixed-price contracts. Revenues are recognized under these contracts using the percentage of completion method, whereby revenues are reported in the proportion that costs incurred bear to the total estimated costs for each contract. Periodic reviews of estimated total costs during the performance of such contracts may result in revisions of contract estimates in subsequent periods. Any loss contracts are reserved at the time such losses are determined. Revenues from these contracts were less than 10% of net revenues during 1996, 1995 and 1994. DEPRECIATION AND AMORTIZATION - ----------------------------- Depreciation and amortization on property and equipment are provided on a straight-line basis over estimated useful lives of 3 to 31.5 years, except for leasehold improvements which are amortized over the terms of the leases. NET INCOME (LOSS) PER SHARE - --------------------------- Net income (loss) per share is computed based on the weighted average number of common shares and common equivalent shares (using the treasury stock) outstanding during the period. Fully diluted net income (loss) per share is not significantly different from net income (loss) per share as reported. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The Company is not required to adopt the provisions of this statement until its fiscal year 1997. The provisions of this statement must be made on a prospective basis. The Company plans to adopt the disclosure provisions of this statement in 1997, and therefore the effect on its financial position and results of operations, upon adoption, will not be significant. COVENANTS-NOT-TO-COMPETE - ------------------------ The covenant-not-to-compete relates to the Q-Arc acquisition that took place in 1991. This is being amortized over the period of the covenant. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company adopted the provisions of this statement in fiscal 1996. The effect on its financial position and results of operations were not significant. The Company 11 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------------------ COVENANTS-NOT-TO-COMPETE (CONTINUED) ------------------------------------ quarterly evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful lives of these intangibles may warrant revision or that the remaining balances of intangibles may not be recoverable. When factors indicate that intangibles should be evaluated for possible impairment, the Company uses an estimate of the related subsidiary's undiscounted cash flow over the remaining life of the intangibles in measuring whether the intangibles are recoverable. As part of the Company's decision to discontinue the operations of its Precision Lamp subsidiary, the unamortized balance of the covenant-not-to-compete ($470,000) was written off in the fourth quarter of fiscal 1996. INVESTMENT IN JOINT VENTURE - --------------------------- In February 1995, the Company invested $450,000 in a lamp manufacturer located in Japan. The Company's investment represents a 49% ownership interest in the equity of the investee, consequently the Company accounts for its investment using the equity method of accounting. The Company's investment is included in Other Assets in the accompanying consolidated balance sheets and its proportionate interest in the income of the investee of $20,000 and $89,000 in fiscal 1996 and 1995, respectively, is included in the accompanying consolidated statements of operations. 3. REVENUES -------- The Company recognizes revenue on all product sales upon shipment of the product. The Company accrues for estimated warranty obligations at the time of the sale of the related product based upon its past history of claims experience and costs to discharge its obligations. The Company operates in a single industry segment, the designing, developing, manufacturing and marketing of high performance light source products. Revenues from continuing operations are geographically summarized as follows (in thousands): 1996 1995 1994 ---- ---- ---- United States .................... $34,088 32,533 $26,966 Europe ........................... 6,920 5,964 4,380 Asia ............................. 12,700 10,951 12,819 Other international............... 498 48 166 ------- ------- ------- $54,206 $49,496 $44,331 ======= ======= ======= Customers comprising more than 10% of net sales from continuing operations are as follows: 1996 1995 1994 ---- ---- ---- Customer A..................... 15.0% 12.2% 17.8% Customer B..................... 11.5% 12.0% * *less than 10% of net sales 12 3. REVENUES (CONTINUED) -------------------- The Company provides credit in the form of trade accounts receivable to its customers. The Company does not generally require collateral to support customer receivables. The Company performs ongoing credit evaluations of its customers and maintains allowances which management believes are adequate for potential credit losses. Approximately 39%, 40% and 52% of the Company's sales in fiscal 1996, 1995 and 1994, respectively, were to customers in the medical industry. This industry has experienced significant fluctuations in demand and the Company expects sales to the medical market to decrease as a percentage of net sales in the foreseeable future. Customer B, referred to above, is in the semiconductor equipment industry and is a major customer of Converter Power. In the fourth quarter of fiscal 1996, Converter Power experienced a significant reduction in orders from this customer. Management believes that inventory at Converter Power is stated at the lower of cost or net realizable value. 4. PROPERTY AND EQUIPMENT ---------------------- Property and equipment at September 28, 1996 and September 30, 1995 consisted of: 1996 1995 ---- ---- Property and equipment, at cost: Machinery and equipment ...... $ 15,047,138 $ 13,705,702 Land and buildings ........... 14,955,738 14,504,768 Furniture and fixtures ....... 601,822 617,800 Equipment under capital lease 174,268 174,268 Leasehold improvements ....... 598,814 95,536 Construction-in-progress ..... 1,011,601 172,951 ------------ ------------ 32,389,891 29,271,025 Less accumulated depreciation and amortization ................. (11,212,950) (9,710,342) ------------ ------------ Property and equipment, net ..... $ 21,176,431 $ 19,560,683 ============ ============ 5. BANK BORROWINGS --------------- As of September 28, 1996 and September 30, 1995, borrowings outstanding under the Company's credit facilities consisted of: 1996 1995 ---- ---- Line of credit ......... $ 5,000,000 $ 2,000,000 Term note .............. 2,638,000 4,222,000 Equipment line of credit 2,191,200 2,011,000 Other capital lease .... 86,564 120,540 ----------- ----------- 9,915,764 8,353,540 Less: current portion .. (2,545,600) (2,455,500) ----------- ----------- Long-term debt ......... $ 7,370,164 $ 5,898,040 =========== =========== 13 5. BANK BORROWINGS (CONTINUED) --------------------------- Aggregate maturities for long-term debt during the next five years are approximately: 1997 - $2,545,600, 1998 - $2,283,600, and none in 1999, 2000 and 2001. All of the above credit facilities are secured by all of the property of the Company. The Company has a $6 million line of credit available with a bank which expires in March 1998. Borrowings under this line are at 2% above the LIBOR rate (London Interbank Offer Rate) (7.4% at September 28, 1996) and are limited to 75% of eligible accounts receivable. Under the covenants of the loan agreement, unless written approval from the bank is obtained, the Company is restricted from entering into certain transactions and is required to maintain certain specified financial covenants and profitability. As of September 28, 1996, the Company was not in compliance with all covenants but has obtained a waiver from the bank. The average balance outstanding (based on month-end balances) under the line of credit in 1996 was $2,595,833. The maximum borrowings were $5,000,000 at an average interest rate of 7.4% for 1996. At September 30, 1995, $2 million was outstanding under the line of credit. As of September 28, 1996, $1 million was available for future borrowings under this line of credit. In addition, in connection with the purchase of its Sunnyvale manufacturing facilities, the Company entered into a term note with a bank for $5,000,000 in 1993, which was subsequently increased to $6,333,333 in 1994. The note matures in August 1998. The term loan requires monthly principal payments equal to one-forty-eighth of the principal amount plus interest at 2% above the LIBOR rate (London Interbank Offer Rate) (7.4% at September 28, 1996). The term loan is a reducing revolving credit facility which allows for principal pre-payments and the flexibility for re-borrowing up to the maximum amount that would be outstanding under the term loan given normal amortization to the date of re-borrowing. The Company also has available a $2.2 million equipment line of credit for 100% of the purchase cost of new equipment, which expires in March 1997. Borrowings under this line bear interest at 2% above the LIBOR rate (7.4% at September 28, 1996), with principal balances amortized over a 2 year period. At September 28, 1996, the Company had approximately $1,096,000 available for future borrowings under this line of credit. 6. INCOME TAXES ------------ The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires an asset and liability approach to accounting for income taxes. Income from continuing operations before provision for income taxes consists of the following for fiscal 1996, 1995 and 1994, respectively: 1996 1995 1994 ---- ---- ---- U.S. ...................... $4,897,389 $5,588,040 $5,030,336 Foreign.................... 1,163,641 521,037 371,330 ---------- ---------- ---------- $6,061,030 $6,109,077 $5,401,666 ========== ========== ========== 14 6. INCOME TAXES (CONTINUED) ------------------------ The components of the provision for income taxes on continuing operations are as follows: 1996 1995 1994 ---- ---- ---- Federal - Current ............... $ 1,559,000 $ 833,000 $ 2,373,000 Deferred .............. (600,000) 581,500 (902,000) ----------- ----------- ----------- 959,000 1,414,500 1,471,000 ----------- ----------- ----------- Foreign - Current ............... 384,000 -- -- State - Current ............... 276,000 199,000 493,000 Deferred .............. (104,000) 96,500 (289,000) ----------- ----------- ----------- 172,000 295,500 204,000 ----------- ----------- ----------- Federal refund received ........ -- (238,000) -- ----------- ----------- ----------- Total provision for income taxes on continuing operations ...... $ 1,515,000 $ 1,472,000 $ 1,675,000 =========== =========== =========== The major components of the deferred tax account, as computed under SFAS No. 109, are as follows: 1996 1995 ---- ---- Reserve for loss on disposal of discontinued operations, not currently deductible for tax purposes ................................... $ 1,133,000 $ - Inventory reserve ............................ 877,000 838,000 Bad debt reserve ............................. 92,000 271,000 Warranty reserve ............................. 128,000 105,000 Accruals not currently deductible for tax purposes ............................... 381,000 448,000 Amortization of covenant-not-to-compete ...... 202,000 278,000 Excess of tax over book depreciation ......... (988,000) (801,000) Other items, individually insignificant ...... 333,000 315,000 ----------- ----------- $ 2,158,000 $ 1,454,000 =========== =========== The provision for income taxes on continuing operations differs from the amounts which would result by applying the applicable statutory Federal income tax rate to income from continuing opertions before taxes as follows: 1996 1995 1994 ---- ---- ---- Computed expected provision $ 2,121,000 $ 2,138,000 $ 1,891,000 State tax ................. 364,000 367,000 324,000 FSC commission ............ (181,000) (216,000) (259,000) General business credits .. (218,000) (203,000) (72,000) Refund received ........... -- (238,000) -- Other items, individually insignificant ............ (571,000) (376,000) (209,000) ----------- ----------- ----------- $ 1,515,000 $ 1,472,000 $ 1,675,000 =========== =========== =========== 15 6. INCOME TAXES (CONTINUED) ------------------------ During the second quarter of fiscal 1995, the Company received a refund of $238,000 from the Internal Revenue Service (IRS) related to tax returns filed in previous years, which were examined by the IRS. This amount was recorded as a reduction of the fiscal 1995 tax provision upon receipt of the refund. An additional $235,000 of interest related to the refund amount was received and was included in interest income in fiscal 1995. 7. EMPLOYEE RETIREMENT PLAN ------------------------ On January 1, 1984, the Company adopted a thrift incentive savings plan (the "Plan"). The Plan is qualified under section 401(k) of the Internal Revenue Code and is available to all full-time employees with one or more years of employment with the Company. Under the terms of the Plan, participating employees must contribute at least 2% of their salary to the Plan, and the Company contributes (as a matching contribution) 100% of this amount. Employees may also contribute an additional amount up to 13% of their salary to the Plan, with no further contributions by the Company. The Company's contributions vest at a rate of 20% per year, commencing on the first anniversary of employment. Total employer matching contributions under the Plan were $226,000, $212,000, and $163,000 for the fiscal years 1996, 1995 and 1994, respectively. The expense to continuing operations was $188,000, $171,000 and $138,000 for fiscal years 1996, 1995 and 1994, respectively. 8. COMMITMENTS AND CONTINGENCIES ----------------------------- At September 28, 1996, the future minimum rental payments under all building leases for fiscal 1997 through 2001 are approximately $423,000, $424,000, $444,000, $444,000 and $226,000, respectively, and $434,000 thereafter. The amounts total $2,395,000. The future minimum rental payments for continuing operations, under all building leases for fiscal 1997 through 2001, are approximately $207,000, $207,000, $218,000, $218,000 and none in 2001. The amounts total $850,000. For fiscal years 1996, 1995 and 1994, rental expense was approximately $442,000, $277,000 and $318,000 respectively. Rental expense for continuing operations was $226,000, $61,000 and $102,000 for fiscal years 1996, 1995 and 1994, respectively. 9. STOCK OPTION AND PURCHASE PLANS ------------------------------- Under the 1992 Stock Option Plan ("Plan"), the Company may grant options to employees and directors. The Company has reserved 400,000 shares for issuance under the Plan. In November 1996, the Board of Directors authorized an additional 175,000 shares for issuance under the Plan, subject to shareholder approval. The exercise price per share for stock options cannot be less than the fair market value on the date of grant. Options granted are for a ten-year term and generally vest ratably over a period of four years commencing one year after the date of grant. The Plan provides for the automatic grant of a nonstatutory stock option to purchase shares of Common Stock to each outside Director annually during the Company's third fiscal quarter. During fiscal 1996, each outside Director was granted an automatic option to purchase a total of 5,000 shares of the Company's Common Stock. The Company's 1983 Stock Option Plan expired in 1993 and no further options have been granted under this Plan since then. A summary of the option transactions is as follows: 16 9. STOCK OPTION AND PURCHASE PLANS (CONTINUED) -------------------------------------------
OPTIONS OUTSTANDING ------------------- Options Number Available of Price per For Grant Shares Share Balance at October 2, 1993 .. 159,624 746,027 $ 1.09-11.50 Granted .................... (74,000) 74,000 $ 7.38-11.00 Canceled ................... 18,000 (18,000) $ 3.75-11.50 Exercised .................. - (82,000) $ 1.09 -8.75 -------- -------- ------------ Balance at October 1, 1994 .. 103,624 720,027 $ 1.09-11.50 Granted .................... (28,000) 28,000 $ 9.50 Canceled ................... 34,000 (34,000) $ 8.75-11.50 Exercised .................. - (132,250) $ 2.13 -8.75 -------- -------- ------------ Balance at September 30, 1995 109,624 581,777 $1.09 -11.50 Additional shares approved . 200,000 - - Granted .................... (205,000) 205,000 $ 9.00-11.25 Canceled ................... 92,125 (92,125) $ 8.75-11.50 Exercised .................. - (65,125) $ 1.09-11.50 -------- -------- ------------ Balance at September 28, 1996 196,749 629,527 $ 1.09-11.50 ======== ======== ============ Options exercisable at September 28, 1996 ......... 416,965 $ 1.09-11.50 ======== ============
If all options outstanding at September 28, 1996 were exercised, the total proceeds to the Company would be approximately $4.7 million (unaudited). Under the Company's Employee Stock Purchase Plan, the Company has reserved 300,000 shares of common stock for issuance to participating employees who have met certain eligibility requirements. In November 1996, the Board of Directors authorized an additional 50,000 shares for issuance under the Plan, subject to shareholder approval. The number of shares available for purchase by each participant is based upon annual base earnings and at a purchase price equal to 85% of the fair market value at the beginning or the end of the quarter of purchase, whichever is lower. As of September 28, 1996, 61,588 shares were available for future purchase. 10. OTHER INCOME/EXPENSE -------------------- Other (income) expense consists of the following: 1996 1995 1994 ---- ---- ---- Interest income ............... $ (80,163) $(265,443) $(170,072) Interest expense .............. 542,061 589,200 288,669 --------- --------- --------- Net interest expense related to continuing operations ........ $ 461,898 $ 323,757 $ 118,597 ========= ========= ========= 17 11. ACQUISITIONS ------------ In August 1991, the Company acquired all the outstanding stock of Q-Arc Ltd. of Cambridge, England for $1,400,000 in cash and the assumption of certain liabilities. Q-Arc is a manufacturer of specialty lamps for laser and non-laser applications. This transaction was accounted for as a purchase and accordingly, all assets were revalued to their respective fair values. The acquisition price was equal to the fair value of net assets acquired. Net assets included a covenant-not-to-compete of approximately $951,000. The covenant is being amortized over an eight year period. At September 28, 1996, the unamortized balance of the Q-Arc covenant-not-to-compete is approximately $357,000. 12. DISCONTINUED OPERATIONS ----------------------- In September 1996, the Company's Board of Directors voted to proceed with the divestiture of the Company's Precision Lamp subsidiary based in Cotati, California. The Company plans to dispose of Precision Lamp either through a sale to a qualified buyer or by an orderly liquidation of the business if no buyer is located within one year. As a result of the Company's plan, an estimated loss on disposal of $3,399,000, net of a tax benefit of $1,133,000, was recorded in the fourth quarter of fiscal 1996. This loss on disposal included $500,000 as the estimated operating losses through the final disposition of the subsidiary and the write off of the unamortized balance of the Precision Lamp covenant-not-to- compete of approximately $470,000. Continuing operations, as reclassified for fiscal years 1996, 1995 and 1994, consist of the activities of ILC Technology, Inc. based in Sunnyvale, California, Converter Power, Inc. based in Beverly, Massachusetts and Q-Arc based in Cambridge, England. The Consolidated Statements of Operations have been reclassified to report separately the activities of Precision Lamp as discontinued operations. Revenues from Precision Lamp were $7,772,000, $8,933,000 and $7,691,000 for fiscal 1996, 1995 and 1994, respectively. The net loss after tax from the discontinued operations of Precision Lamp was $840,000, $99,000 and $3,536,000 for fiscal 1996, 1995 and 1994, respectively. The net loss from discontinued operations of $3,536,000 in fiscal 1994 is net of a $523,000 income tax benefit and includes a $3.4 million write down of intangibles generated from the Precision Lamp acquisition. A portion of net interest expense of approximately $66,000, $58,000 and $21,000 for fiscal years 1996, 1995 and 1994, respectively, has been allocated to the discontinued operations. Net interest has been allocated to discontinued operations based on the ratio of the net assets to be discontinued to the consolidated net assets plus consolidated debt other than debt which is directly attributable to continuing operations. The net assets of Precision Lamp of $2,178,383 as of September 28, 1996 are shown in the accompanying balance sheet as net assets from discontinued operations. These assets were written down to a value that represents management's best estimate of the amount that could be realized upon disposition. 13. RIGHTS AGREEMENT AND OTHER MATTERS ---------------------------------- On September 19, 1989, the Company's Board of Directors declared a dividend of one common share purchase right for each outstanding share of common stock, no par value, of the Company. The dividend was payable on October 2, 1989 to the shareholders of record on that date. Each right entitles the registered holder to purchase from the Company one share of common stock of the Company at a price of $15.00 per common share. The rights will not be exercisable until a party either acquires beneficial ownership of 20% of the Company's common stock or makes a tender offer for at least 30% of its common stock. In the event the rights become exercisable and thereafter a person or group acquires 30% or more of the Company's stock, a 20% shareholder ("Acquiring Person") engages in any specified self-dealing transaction, or, as a result of a recapitalization or reorganization, 18 13. RIGHTS AGREEMENT AND OTHER MATTERS (CONTINUED) ---------------------------------------------- an Acquiring Person's shareholdings are increased by more than 3%, each right will entitle the holder to purchase from the Company, for the exercise price, common stock having a market value of twice the exercise price of the right. In the event the rights become exercisable and thereafter the Company is acquired in a merger or other business combination, each right will enable the holder to purchase from the surviving corporation, for the exercise price, common stock having a market value of twice the exercise price of the right. At the Company's option, the rights are redeemable in their entirety, prior to becoming exercisable, at $.01 per right. The rights are subject to adjustment to prevent dilution and expire September 29, 1999. In November 1996, the Board of Directors authorized severance agreements for certain key managers in the event that a change of control occurs at the Company. 14. REPURCHASE OF COMMON STOCK -------------------------- In November 1996, the Board of Directors authorized the Company to repurchase up to 1,000,000 shares of the Company's issued and outstanding common stock. Purchases can be made for up to two years from the date of authorization. 19 SCHEDULE VIII ILC TECHNOLOGY, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR FISCAL YEARS 1996, 1995 AND 1994
Balance Charged at (Credited) Deductions Balance Beginning to Cost and and at end of Of Period Expenses Write Offs Period --------- -------- ---------- ------ ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year ended October 1, 1994..............$ 208,787 $ 383,902 $260,017 $ 332,672 Year ended September 30, 1995....... $ 332,672 $ 102,861 $ 26,093 $ 409,440 Year ended September 28, 1996....... $ 409,440 $ 38,804 $135,886 $ 312,358 RESERVE FOR INVENTORY OBSOLESCENCE: Year ended October 1, 1994 .......... $1,177,080 $1,772,346 $807,434 $2,141,992 Year ended September 30, 1995........ $2,141,992 $ 169,034 $430,000 $1,881,026 Year ended September 28, 1996........ $1,881,026 $ 520,006 $366,774 $2,034,258 20
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) Year Ended September 28, 1996 (First, second and third quarters restated for discontinued operations) ------------------------------------------------------------------------------
First Second Third Fourth QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenues ................ $ 12,211 $ 13,943 $ 14,860 $ 13,192 Gross profit ............ 4,199 4,869 4,995 3,963 Net income from continuing operations ............. 847 1,123 1,626 948 Net income (loss) from discontinued operations ............. 31 (13) (122) (4,134) Net income per share from continuing operations ............. $ 0.17 $ 0.23 $ 0.33 $ 0.19 Net income (loss) per share from discontinued operations ............. $ 0.01 $ (0.01) $ (0.03) $ (0.83) Year Ended September 30, 1995 (as restated for discontinued operations) ------------------------------------------------------------------------------- First Second Third Fourth QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenues ................ $ 10,736 $ 12,011 $ 12,870 $ 13,879 Gross profit ............ 3,482 4,396 4,558 5,260 Net income from continuing operations ............. 663 1,017 1,429 1,534 Net income (loss) from discontinued operations ............. 75 (30) (63) (86) Net income per share from continuing operations ............. $ 0.14 $ 0.21 $ 0.30 $ 0.32 Net income (loss) per share from discontinued operations ............. $ 0.02 $ (0.01) $ (0.01) $ (0.02) 21
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this amended report: _______ 1. FINANCIAL STATEMENTS The Consolidated Financial Statements, notes thereto, and Report of Independent Public Accountants thereon are included in Part II, Item 8 of this amended report. _______ Page in 2. FINANCIAL STATEMENT SCHEDULE FORM 10-K Schedule VIII Valuation and Qualifying Accounts and Reserves 33 All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or notes thereto. 3. EXHIBITS The exhibits listed in the Index to Exhibits following the signature page are filed as part of this Amended Report. _______ (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the last quarter of fiscal 1996. . 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to Report to ______________ be signed on its behalf by the undersigned, thereunto duly authorized. ILC TECHNOLOGY, INC. By: /S/ HENRY C. BAUMGARTNER Henry C. Baumgartner (Chairman of the Board and Chief Executive Officer) Dated: January 7, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this ____ Amendment to report has been signed below by the following persons on behalf of _________ the registrant and in the capacities and on the dates indicated. SIGNATURES TITLE DATE ---------- ----- ---- /S/ HENRY C. BAUMGARTNER Chairman of the Board and January 7, 1997 - ------------------------- Chief Executive Officer (Henry C. Baumgartner) (Principal Executive Officer and Director) /S/ RICHARD D. CAPRA President and Chief January 7, 1997 - ------------------------- Operating Officer (Richard D. Capra) /S/ RONALD E. FREDIANELLI Chief Financial Officer January 7, 1997 - ------------------------- and Secretary (Ronald E. Fredianelli) (Principal Financial and Accounting Officer) /S/ HARRISON H. AUGUR Director January 7, 1997 - ------------------------- (Harrison H. Augur) - -------------------- Director January , 1997 (Arthur L. Schawlow) - --------------------- Director January , 1997 (Wirt D. Walker, III) 23 INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 27.1 Financial Data Schedule EX-27 2 FDS
5 ILC Technology, Inc., Financial Data Sheet 0000719625 ILC Technology, Inc. 1,000 12-MOS SEP-28-1996 SEP-28-1996 1,829 0 10,667 312 8,902 4,545 32,389 11,213 47,844 10,476 0 0 0 6,815 22,976 47,844 54,206 54,206 36,180 36,180 11,503 0 462 6,061 1,515 4,546 (4,239) 0 0 307 .06 .06
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