-----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, T+W/fBQkx309brUmfbzSeR52/qKE++2SvvlulfyJlc6e0oKtyVLzuuApf9ZWivLa viyCwg322y0mUy9rftOYnw== 0000719625-97-000006.txt : 19970514 0000719625-97-000006.hdr.sgml : 19970514 ACCESSION NUMBER: 0000719625-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970513 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11360 FILM NUMBER: 97602958 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 ILC TECHNOLOGY 2ND QUARTER 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 29, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from TO FROM Commission file number 0-11360 ILC TECHNOLOGY, INC (Exact name of registrant as specified in its charter) CALIFORNIA 94-1655721 (State of other jurisdiction (I.R.S. Employer Incorporation or or organization) Identification No.) 399 JAVA DRIVE, SUNNYVALE, CALIFORNIA 94089 (Address of principal executive offices) (Zip Code) 408-745-7900 Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares: 4,893,673 Date: APRIL 30, 1997 ------------------------------------------------------------------------ ILC TECHNOLOGY, INC. FORM 10-Q For the Quarter Ended March 29, 1997 INDEX PAGE NO. Part I. FINANCIAL INFORMATION ......................................... 2 Item 1 Condensed Consolidated Statements of Operations - Quarters ended March 29, 1997 and March 30, 1996 and six months ended March 29, 1997 and March 30, 1996 ............................. 3 Condensed Consolidated Balance Sheets - March 29, 1997 and September 28, 1996 ......................... 4 Condensed Consolidated Statements of Cash Flows - Six months ended March 29, 1997 and March 30, 1996 ............................................5-6 Notes to Condensed Consolidated Financial Statements ....................................................7-8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ....................................................9-12 Item 3 Quantitative and Qualitative Disclosure about Market Risk ............................................. 12 Part II OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders ....................................................... 13 SIGNATURES .................................................... 14 1 PART I. FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures which are made are adequate to make the information presented not misleading. It is suggested that the condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report/Form 10-K for the year ended September 28, 1996. These financial statements have been prepared in all material respects in conformity with the Standards of Accounting measurements set forth in Accounting Principles Board Opinion No. 28 and reflect, in the opinion of management, all adjustments (that consisted only of normal recurring adjustments) necessary to present fairly the financial information set forth therein. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. 2 ITEM 1. FINANCIAL STATEMENTS ILC TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data) QUARTER ENDED SIX MONTHS ENDED March 29, March 30, March 29, March 30, 1997 1996 1997 1996 ---- ---- ---- ---- (as restated) (as restated) Net sales ...................... $ 14,775 $ 13,943 $ 26,897 $ 26,154 Costs and expenses: Cost of sales ................ 10,564 9,074 19,306 17,086 Research and development ..... 1,205 1,276 2,276 2,501 Marketing .................... 779 741 1,526 1,397 General and administrative ... 1,093 1,212 2,082 2,257 Amortization of intangibles .. 30 30 60 60 -------- -------- -------- -------- 13,671 12,333 25,250 23,301 -------- -------- -------- -------- Income from continuing operations before provision for income taxes and interest expense .............. 1,104 1,610 1,647 2,853 -------- -------- -------- -------- Interest expense, net........... (185) (111) (324) (225) -------- -------- -------- -------- Income from continuing operations before provision for income taxes .............. 919 1,499 1,323 2,628 Provision for income taxes on continuing operations ......... 230 375 327 657 -------- -------- -------- -------- Income from continuing operations .................... $ 689 $ 1,124 $ 996 $ 1,971 Income (loss) from discontinued operations, net of income tax (benefit) provision of ($5) and $5 in the quarter and six months ended March 30, 1996, respectively ................... -- (14) -- 17 -------- -------- -------- -------- Net income ......................$ 689 $ 1,110 $ 996 $ 1,988 ======== ======== ======== ======== Earnings per share: Earnings from continuing operations .....................$ 0.14 $ 0.23 $ 0.20 $ 0.40 Earnings from discontinued operations ...................... -- -- -- $ 0.01 -------- -------- -------- -------- Net income per share ............$ 0.14 $ 0.23 $ 0.20 $ 0.41 ======== ======== ======== ======== Weighted average shares used in computation ............ 5,026 4,895 5,005 4,886 ======== ======== ======== ======== See accompanying notes 3 ILC TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) MARCH 29, 1997 SEPTEMBER 28, 1996 -------------- ------------------ (unaudited) ASSETS Current assets: Cash and cash equivalents ........... $ 1,223 $ 1,829 Accounts receivable, net ............ 11,521 10,356 Inventories: Raw materials ..................... 7,078 4,803 Work-in-process ................... 2,492 2,550 Finished goods .................... 1,417 1,549 ------- ------- Total inventories ............... 10,987 8,902 ------- ------- Deferred tax asset .................... 2,158 2,158 Prepaid expenses ...................... 235 208 Net assets from discontinued operations 3,697 2,178 ------- ------- Total current assets .............. 29,821 25,631 ------- ------- Property and equipment, net ........... 22,138 21,176 Covenant-not-to-compete, net .......... 297 357 Other assets .......................... 765 680 ------- ------- $53,021 $47,844 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................... $ 5,133 $ 3,643 Accrued liabilities ................. 5,544 5,346 Accrued income taxes payable ........ 1,999 1,487 ------- ------- Total current liabilities ......... 12,676 10,476 ------- ------- Long-term debt ........................ 7,409 6,188 Obligations under equipment line ...... 1,340 1,096 Other accruals ........................ 111 206 Capital lease obligation .............. 68 87 Stockholders' equity: Common stock .......................... 7,445 6,815 Retained earnings ..................... 23,972 22,976 ------- ------- Total stockholders' equity ........ 31,417 29,791 ------- ------- $53,021 $47,844 ======= ======= See accompanying notes 4 ILC TECHNOLOGY, INC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) SIX MONTHS ENDED MARCH 29, MARCH 30, 1997 1996 ---- ---- (as restated) Cash flows from operating activities - Net income ............................... $ 996 $ 1,988 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .......... 943 793 Amortization of non-compete agreements.. 60 60 Changes in assets and liabilities from operations: Increase in accounts receivable ........ (1,165) (73) Increase in inventories .............. (2,086) (949) Increase in prepaid expenses ......... (27) (130) Increase in other assets ............. (85) (3) Increase (decrease) in accounts payable ............................. 1,489 (174) Increase (decrease) in accrued liabilities ......................... 353 (130) Net change in assets and liabilities from discontinued operations ........ (1,518) (422) ------- ------- Total adjustments .................. (2,036) (1,028) ------- ------- Net cash provided by (used in) operating activities............... (1,040) 960 ------- ------- Cash flows from investing activities - Capital expenditures ..................... (1,905) (1,114) ------- ------- Net cash used in investing activities ........................ (1,905) (1,114) ------- ------- Cash flows from financing activities - Borrowings under line of credit .......... 5,463 4,500 Repayments under line of credit .......... (3,583) (4,200) Principal borrowings under equipment line .................................... 1,045 751 Principal payments under equipment line .................................... (557) (650) Principal payments under term loan for buildings ............................... (659) (792) Proceeds from issuance of common stock ... 630 181 Payments under non-compete agreement ..... -- (260) ------- ------- Net cash provided by (used in) financing activities............... 2,339 (470) ------- ------- Net decrease in cash ..................... (606) (624) Cash at beginning of period .............. 1,829 1,530 ------- ------- Cash at end of period .................... $ 1,223 $ 906 ======= ======= See accompanying notes 5 ILC TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued) (In thousands) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: SIX MONTHS ENDED MARCH 29, 1997 MARCH 30, 1996 -------------- -------------- Cash paid during the period for: Interest expense ............. $399 $296 Income taxes ................. -- 355 See accompanying notes 6 ILC TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 29, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION --------------------- The condensed consolidated financial statements include the accounts of ILC Technology, Inc., and its subsidiaries, after elimination of intercompany accounts and transactions. The Company's quarter ends on the last Saturday of the fiscal month. The Condensed Consolidated Financial Statements for the quarter and six months ended March 30, 1996 were restated to reflect the Company's decision to discontinue the operations of Precision Lamp, Inc. This restatement had no impact on net income. CASH AND CASH EQUIVALENTS ------------------------- For the purpose of the statement of cash flows, the Company considers all highly liquid investments with a maturity of less than three months at the time of issue to be cash equivalents. INVENTORIES ----------- Inventories are stated at the lower of cost (first in, first out) or market, and include material, labor and manufacturing overhead. 2. EARNINGS PER SHARE ------------------ Earnings per share is computed using the weighted average number of common shares and common equivalent shares (when such equivalents have a dilutive effect) outstanding during the periods using the treasury stock method. Fully diluted earnings per share is not significantly different from earnings per share as reported. In February 1997, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share", which is required to be adopted by the Company in its first quarter of fiscal 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating earnings per share, primary earnings per share will be replaced with basic earnings per share and fully diluted earnings will be replaced with diluted earnings per share. Under basic earnings per share, the dilutive effect of stock options will be excluded. The Company has not yet quantified the effect of adopting SFAS No. 128. 3. COVENANT-NOT-TO-COMPETE ----------------------- The covenant-not-to-compete relates to the Q-Arc acquisition that took place in 1991. This is being amortized over the period of the covenant. Subsequent to this acquisition, the Company quarterly evaluates whether later 7 ILC TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) MARCH 29, 1997 events and circumstances have occurred that indicate the remaining estimated useful life of this intangible may warrant revision or that the remaining balance of the intangible may not be recoverable. When factors indicate that intangibles should be evaluated for possible impairment, the Company uses an estimate of the related subsidiary's undiscounted cash flow over the remaining life of the intangibles in measuring whether the intangibles are recoverable. As part of the Company's decision to discontinue the operations of its Precision Lamp subsidiary, the unamortized balance of the covenant-not-to-compete ($470,000) was written off in the fourth quarter of fiscal 1996. 4. BANK BORROWINGS --------------- In January 1997, the Company negotiated an additional $3,000,000 line of credit available to June 30, 1997 at 2.5% above the LIBOR rate. As of March 29, 1997, the Company had used approximately $2,100,000 of this line of credit. 5. DISCONTINUED OPERATIONS ----------------------- In September 1996, the Company's Board of Directors voted to proceed with the divestiture of the Company's Precision Lamp subsidiary based in Cotati, California (see 1996 Annual Report/10K). For the six months ended March 29, 1997, the loss incurred by this operation of approximately $765,000 was offset against the fourth quarter of fiscal 1996 accrual for anticipated losses during the disposition of discontinued operations. In January 1997, the Company signed an agreement to sell the Precision Lamp subsidiary. The selling price was approximately $3.3 million but was subject to due diligence and the ability of the purchaser to obtain adequate financing no later than March 31, 1997. The purchaser was not able to obtain adequate financing, but through further discussions with the purchaser, the Company agreed to sell the stock of Precision Lamp for a $4 million promissory note at 8% interest per year on any unpaid principal amount. Payments on the promissory note begin in May 1997 and will be completed in April 2000. This transaction will be recorded in the third quarter of fiscal 1997. The purchase price, net of expenses, will approximate book value. 6. CONVERTER POWER, INC. --------------------- In May 1997, the Company announced the sale of Converter Power, Inc. to applied Science and Technology, Inc. (ASTeX) for a purchase price of $6.35 million in cash and 45,000 shares of ASTeX stock. The stock will be held in escrow subject to post-closing adjustments. The sale will result in a gain, the financial details of which will be reported with the results of operations for the quarter ending June 28, 1997. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- GENERAL - ------- In September 1996, the Company's Board of Directors voted to proceed with the divestiture of the Company's Precision Lamp subsidiary located in Cotati, California. Accordingly, the following discussion and analysis of financial condition and results of operations reflects the activities of ILC Technology, Inc., Converter Power, Inc. and Q-Arc Ltd. This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "believes", "future", "may have", "will take place", "are expected" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. CONTINUING OPERATIONS - --------------------- QUARTER ENDED MARCH 29, 1997 COMPARED TO QUARTER ENDED MARCH 30, 1996 - --------------------------------------------------------------------- Net sales increased 6% in the quarter ended March 29, 1997 to $14,775,000 compared to $13,943,000 in the quarter ended March 30, 1996. Although net sales at ILC increased 12.7% between the two quarters, net sales at Converter Power decreased 15.6% between the two quarterly periods. In the fourth quarter of fiscal 1996, Converter Power experienced a significant reduction in orders from a major customer that provides equipment to the semiconductor equipment industry. This order reduction continued into the first quarter of fiscal 1997 and also into the second quarter of fiscal 1997 but to a lesser degree. As discussed in Note 6 of Notes to Condensed Consolidated Financial Statements, the Converter Power subsidiary was sold in May 1997. Net sales at Q-Arc remained constant between the two quarterly periods. The net sales increase at ILC Sunnyvale was the result of a higher volume of products sold primarily in Quartz Lamp and Aerospace products. Cost of sales as a percentage of net sales was 71.5% in the second quarter of fiscal 1997 compared to 65.1% in the same quarter last year. The percentage increase was due partially to the sales decline from Converter Power's major customer as discussed above despite cost reduction initiated in the fourth quarter of fiscal 1996 as well as in the first quarter of fiscal 1997. Additionally, unfavorable yields primarily in Cermax products and to a lesser degree in Flashlamp products, due to production equipment moves to allow for increased production capabilities, contributed to the cost of sales percentage increase between the first quarter of fiscal 1997 and the first quarter of fiscal 1996. The cost of sales percentage associated with Quartz products decreased between the two quarters resulting in a positive gross margin contribution in the quarter ended March 29, 1997. Research and development expenses, 8.2% of net sales in the quarter ended March 29, 1997 compared to 9.2% of net sales in the quarter ended March 30, 1996, decreased $71,000 between the two quarters. Spending declines occurred in Quartz products for the development of lamps used in the processing of semiconductor materials, but increased in the developent of Cermax and Equipment products for the display and projection markets. Marketing expenses for the quarter ended March 29, 1997 and for the quarter ended March 30, 1996, both 5.3% of net sales, were $779,000 and $741,000, respectively. The $38,000 increase between the two quarters was the result of more travel and trade show attendance. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS (CONTINUED) --------------------------------- QUARTER ENDED MARCH 29, 1997 COMPARED TO QUARTER ENDED MARCH 30, 1996(CONTINUED) - -------------------------------------------------------------------------------- As a percentage of net sales, general and administrative expenses were 7.4% in the second quarter of fiscal 1997 and 8.7% in the second quarter of 1996. In absolute dollars, the general and administrative spending level has decreased $119,000 between the two quarters primarily at Converter Power. Amortization of intangibles of $30,000 in the second quarter of fiscal 1997 and 1996 represents the amortization of the covenant-not-to-compete arising from the acquisition of Q-Arc in 1991. Net interest expense, $185,000 in the quarter ended March 29, 1997 compared to $111,000 in the quarter ended March 30, 1996, increased $74,000 between the two quarters. Interest expense associated with continuing operations for the second quarter of fiscal 1997 was $215,000 compared to $145,000 for the second quarter of fiscal 1996. The increase in interest expense between the two quarters is due to higher borrowings under a line of credit for working capital needs and an equipment line of credit for capital equipment acquisitions. The Company reported income from continuing operations before provision for income taxes of $919,000 in the second quarter of fiscal 1997 compared to income from continuing operations before provision for income taxes of $1,499,000 in the second quarter of fiscal 1996. The effective tax rate in the quarter ended March 29, 1997 and in the quarter ended March 30, 1996 was 25%. As previously discussed, the Company's Board of Directors voted to proceed with the divestiture of Precision Lamp located in Cotati, California. The operating loss of Precision Lamp incurred in the second quarter of fiscal 1997 (approximately $564,000) has been offset against an accrual made in the fourth quarter of fiscal 1996 for anticipated losses during the final disposition of the subsidiary. In January 1997, the Company signed an agreement to sell the Precision Lamp subsidiary for approximately $3.3 million subject to due diligence and the purchaser's ability to obtain adequate financing. The closing was set to occur no later than March 31, 1997. The purchaser was not able to secure the required financing, but an agreement was reached in May 1997, between the purchaser and the Company, to sell the stock of Precision Lamp. The Company received a $4 million promissory note together with 8% interest per year on any unpaid principal amount. Payments begin in May 1997 and will be completed in April 2000. SIX MONTHS ENDED MARCH 29, 1997 COMPARED TO SIX MONTHS ENDED MARCH 30, 1996 - --------------------------------------------------------------------------- Net sales for the six months ended March 29, 1997 increased to $26,897,000 from $26,154,000 for the six months ended March 30, 1996. Even though net sales between the two six month periods remained relatively constant, net sales at Converter Power decreased 31.1%. In the fourth quarter of fiscal 1996, Converter Power experienced a significant reduction in orders from a major customer that provides equipment to the semiconductor equipment industry. This order reduction continued into the first and second quarters of fiscal 1997. In May 1997, the Converter Power subsidiary was sold as further discussed in Note 6 of Notes to Condensed Consolidated Financial Statements. Net sales at ILC increased 12.1% and at Q-Arc 18.8% in the six months ended March 29, 1997 from the six months ended March 30, 1996. The net sales increases at both ILC Sunnyvale and at Q-Arc were the result of a higher volume of products sold in all areas except Equipment products, which were lower than the previous year due to the timing of the shipment of orders. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS (CONTINUED) --------------------------------- SIX MONTHS ENDED MARCH 29, 1997 COMPARED TO SIX MONTHS ENDED MARCH 30, 1996 - --------------------------------------------------------------------------- (CONTINUED) ----------- Cost of sales as a percentage of net sales was 71.8% for the six months ended March 29, 1997 compared to 65.3% for the six months ended March 30, 1996. The percentage increase was due primarily to the sales decline from Converter Power's major customer discussed above despite cost reductions initiated in the fourth quarter of fiscal 1996 and the first quarter of fiscal 1997. Unfavorable yields in Cermax, Flashlamp and Infrared lamp products coupled with increases in the provision for inventory reserves and revenue recognition on Aerospace contracts with low or minimal gross margins contributed to the cost of sales percentage increase between the six months ended March 29, 1997 and the six months ended March 30, 1996. Research and development expenses, $2,276,000 or 8.5% of net sales for the six months ended March 29, 1997, decreased $225,000 from $2,501,000, or 9.6% of net sales for the six months ended March 30, 1996. Spending declines occurred in Flashlamp and Quartz lamp products and at Converter Power while spending increases took place in Cermax and Equipment for the display and projection markets. Marketing expenses in the six months ended March 29, 1997 were $1,526,000, or 5.7% of net sales compared to $1,397,000, or 5.3% of net sales in the same six month period a year ago. The $129,000 increase between the two six month periods was the result of personnel additions and more travel and trade show attendance. General and administrative expenses, 7.7% of net sales in the six months ended March 29, 1997 compared to 8.6% of net sales in the six months ended March 30, 1996, decreased $175,000. The majority of the decrease occurred at Converter Power although personnel additions at Q-Arc caused general and administrative expenses to increase at that location. Amortization of intangibles of $60,000 in the six months ended March 29, 1997 and March 30, 1996 represents the amortization of the covenant-not-to- compete arising from the acquisition of Q-Arc in 1991. Net interest expense, $324,000 in the six months ended March 29, 1997 compared to $225,000 in the six months ended March 30, 1996, increased $99,000 between the two six month periods. Interest expense associated with continuing operations for the first six months of fiscal 1997 was $399,000 compared to $296,000 for the first six months of fiscal 1996. The increase in interest expense between the two six month periods is due to higher borrowings under a line of credit for working capital needs and an equipment line of credit for capital equipment acquisitions. The Company reported income from continuing operations before provision for income taxes of $1,323,000 for the six months ended March 29, 1997 compared to income from continuing operations before provision for income taxes of $2,628,000 for the six months ended March 30, 1996. The effective tax rate in the six months ended March 29, 1997 and March 30, 1996 was 25%. As previously discussed, the Company's Board of Directors voted to proceed with the divestiture of Precision Lamp located in Cotati, California. The operating losses of Precision Lamp for the six months ended March 29, 1997 (approximately $765,000) have been offset against an accrual made in the fourth quarter of fiscal 1996 for anticipated losses during the final disposition of the subsidiary. In January 1997, the Company signed an agreement to sell the Precision Lamp subsidiary for approximately $3.3 million subject to due diligence and the purchaser's ability to obtain adequate financing. The closing was set to occur no later than March 31, 1997. The purchaser was not able to secure the required financing, but an agreement was reached in May 1997, between the purchaser and the Company, to sell the stock of Precision Lamp. The Company received a $4 million promissory note together with 8% interest per year on any unpaid principal amount. Payments begin in May 1997 and will be completed in April 2000. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS (CONTINUED) --------------------------------- LIQUIDITY AND FINANCIAL CONDITION - --------------------------------- Net cash used in operating activities for the six months ended March 29, 1997 was $1,040,000, a $2,000,000 change from the $960,000 net cash provided by operating activities for the six months ended March 30, 1996. During the first six months of fiscal 1997, the Company made capital equipment acquisitions of $1,905,000, increased its net borrowings under its line of credit by $1,880,000, increased its net borrowings under an equipment line by $488,000 and paid down a term loan by $659,000. During the first six months of fiscal 1996, the Company made capital equipment acquisitions of $1,114,000, increased its net borrowings under its line of credit by $300,000, paid down a term loan by $792,000 and increased its net borrowings under an equipment line by $101,000. Raw material inventories have increased from September 28, 1996 by approximately $2,275,000. This increase is in anticipation of product demands in the third quarter of fiscal 1997 and to reduce cycle time for customer needs. The Company has working capital of $17,145,581 and a current ratio of 2.35 to 1.0 at March 29, 1997. This compares with working capital of $15,155,000 and a current ratio of 2.45 to 1.0 at September 28, 1996. As of March 29, 1997, the Company had $4,780,000 outstanding on a $6,000,000 bank line of credit at 2% above the LIBOR rate (London Interbank Offer Rate) (7.69% at March 29, 1997). In January 1997, the Company negotiated an additional $3,000,000 line of credit available to June 30, 1997 at 2.5% above the LIBOR rate. The Company has $900,000 unused on this additional line of credit at March 29, 1997. The Company is currently negotiating an equipment credit facility to accommodate the capital equipment needs of the Company. At March 29, 1997, the Company was in compliance with all bank covenants. In fiscal 1997, ILC anticipates making capital equipment expenditures of approximately $2.5 million. These financial resources, together with anticipated additional resources to be provided from continuing operations, are expected to be adequate to meet the Company's working capital needs, capital equipment requirements and debt service obligations at least through fiscal 1997. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Not applicable. 12 PART II OTHER INFORMATION ----------------- Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- (a) The Company held its Annual Meeting of Shareholders on February 12, 1997. (b) The following directors, comprising the entire Board of Directors, were elected at the meeting: Harrison H. Augur Henry C. Baumgartner Richard D. Capra Arthur L. Schawlow (c) The matters voted upon at the meeting and the number of votes cast for, against or withheld, as well as abstentions and broker nonvotes with respect to each are as follows: (i) Election of Directors: Votes Withheld Votes For Votes Against and Broker Nonvotes --------- ------------- ------------------- Harrison H. Augur 3,507,505 313,623 280,281 Henry C. Baumgartner 3,480,706 340,422 280,281 Richard D. Capra 3,507,205 313,923 280,281 Arthur L. Schawlow 3,503,764 317,364 280,281 (ii) Approval of an amendment to the 1992 Employee Stock Option Plan: Votes for: 2,733,491 shares Votes against: 1,234,060 shares Votes withheld and broker nonvotes: 133,858 shares (iii) Approval of an amendment to the 1985 Employee Stock Purchase Plan: Votes for: 3,278,552 shares Votes against: 689,099 shares Votes withheld and broker nonvotes: 133,758 shares (iv) Ratification of the appointment of Arthur Andersen LLP as independent public accountants of the Company for fiscal 1998: Votes for: 3,779,814 shares Votes against: 318,489 shares Votes withheld and broker nonvotes: 3,106 shares (d) Not applicable 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ILC TECHNOLOGY, INC. DATE: May 13, 1997 /S/RONALD E. FREDIANELLI ------------------------ Ronald E.Fredianelli Chief Financial Officer DATE: May 13, 1997 /S/HENRY C. BAUMGARTNER ------------------------ Henry C. Baumgartner Chairman of the Board and Chief Executive Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS SEP-28-1996 MAR-29-1997 1,223 0 11,861 340 10,897 6,090 34,071 11,933 53,021 12,676 0 0 0 7,445 23,972 53,021 14,775 14,775 10,564 10,564 3,107 0 185 919 230 689 0 0 0 689 .14 .14 -----END PRIVACY-ENHANCED MESSAGE-----