UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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 30, 1995
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, Suunyvale, 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. [X]
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 18,
1995, was approximately $40,347,244. 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 18, 1995 was 4,691,416.
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
1995 Annual Meeting of Shareholders.
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
PART 1
1 Business 1 -7
2 Properties 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 - 32
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
10 Directors and Executive Officers of the Registrant 33
11 Executive Compensation 33
12 Security Ownership of Certain Beneficial Owners
and Management 33
13 Certain Relationships and Related Transactions 33
PART IV
14 Exhibits, Financial Statement Schedule, and Reports
on Form 8-K 34
Signatures 35
PART I
ITEM 1. BUSINESS
GENERAL
ILC Technology, Inc. ("ILC" or the "Company") designs, develops, and
manufactures high intensity lamps and lighting products for medical, industrial,
communication, aerospace, scientific, entertainment, and military industries.
ILC Technology, Inc. was incorporated under the laws of the State of California
on September 15, 1967. Its principal manufacturing and executive facilities are
located at 399 Java Drive, Sunnyvale, California 94089. The Company's telephone
number is (408) 745-7900.
BUSINESS STRATEGY
The Company uses a market focused business strategy. ILC targets selected
high growth markets which most closely match the Company's technological
expertise and manufacturing strengths. With a strong emphasis on research and
development, ILC achieves and maintains a leadership position in these market
segments through advanced technology, engineering design capability and
attentive customer support.
PRODUCTS - FLASHLAMPS
The flashlamp line of products was ILC's founding product line. The Company
makes pulsed and direct current arc lamps that are designed to satisfy a wide
variety of laser and industrial applications requiring rigorous,
high-performance standards. The primary source of sales, of which approximately
80% are for the replacement market, derives from industrial uses such as
materials aging (solar simulation), and laser cutting, drilling, scribing and
marking. Ancillary sales are generated by the medical field where lasers are
utilized in cataract surgery and other exacting procedures. Production is highly
labor-intensive and requires a lengthy training period to achieve a quality
product. The laser market, while somewhat predictable and a steady source of
revenue for the Company, is not expected to grow dramatically. ILC anticipates
that the market for flashlamps in low-energy laser pumping applications will
erode as alternative technologies such as laser diode pumps become increasingly
cost-effective. However, in high-powered laser applications, flashlamps remain
more efficient at less than 50% of the total life cycle cost of laser diodes.
Therefore, ILC continues to investigate high growth arc lamp markets outside of
the laser industry. Some of these include UV sterilization and curing, machine
vision and spectrofluoroscopy.
In August 1991, ILC purchased Q-Arc Ltd., an arc lamp manufacturing company
based in Cambridge, England. In the third quarter of fiscal 1994, ILC invested
$2.7 million to expand Q-Arc's manufacturing capacity and using the new facility
as a base, ILC has begun to broaden its sales effort for all product lines in
key sales locations throughout Europe.
PRODUCTS - CERMAX(R) AND EQUIPMENT
The Company provides short arc xenon lamps that are optically pre-aligned,
encased in a very safe ceramic body bonded to a metallized sapphire window, and
are capable of transmitting the full spectrum from infrared to ultra-violet
wavelengths. In addition, the Company also manufactures fully- encased and open
frame power supplies, lamp holders and other accessories to support the
Cermax(R) product line. Products also include complete fiber-optic lightsources
that are private labelled for manufacturers of medical equipment. Currently, the
primary market is in fiber optic illumination for medical procedures such as
endoscopy.
1
PRODUCTS - CERMAX(R) AND EQUIPMENT (CONTINUED)
The market for Cermax(R) lightsources and related equipment used in
endoscopy is composed of two segments - a high-intensity or critical segment and
a low-intensity or non-critical segment. Critical endoscopy applications require
high-intensity Cermax(R) lightsources with specialized power supplies due to the
small size of the fiberoptic lightguide. Furthermore, as these applications
often use video displays, high-intensity lightsources are required for good
color rendition. The low-intensity market is dominated by manufacturers of
halogen lightsources. Ancillary industrial uses for Cermax(R) lightsources
include illuminating areas that are difficult to inspect such as nuclear
reactors or jet engines. Emerging uses include lamps for analytical instruments
and video projection. The Company has also targeted new non-medical lightsource
markets which include spot UV curing lightsources and Flash-Cermax(R) machine
vision systems.
For several years, ILC has conducted research and development activities
focused on utilizing Cermax(R), with its brightness characteristics, as a light
source for the projection of computer and television video images. Using the
Cermax(R) light source and a new display technology which is based on Texas
Instruments' Digital Micromirror Device ("DMD"), Rank Brimar Limited, a division
of The Rank Organization Plc, demonstrated a bright, large screen, digital video
projector which promises exceptional image quality.
The video projection market, for both computer and television applications,
is expected to expand as new digital projection technology enables bright,
large-screen display of video in a fully lit setting with exceptional image
quality. Companies such as Texas Instruments and Rank Brimar have developed this
technology for applications in leisure, entertainment and business. Digital
projectors are expected to gain acceptance in entertainment venues, corporate
environments, conference centers, concerts, advertising and promotional events,
training and education and data display.
The factors that may adversely affect the Company's Cermax(R) business
include the expected entry of competitors into the market. The Company's primary
patent on the Cermax(R) lightsource expired in 1991 and the Company expects
competition from established and emerging companies. Increased competition could
result in price reductions, which in turn could generate lower net sales on
stable unit volume. Increased competition could also result in fewer customer
orders, reduced gross margins and loss of market share.
PRODUCTS - SHORT ARC LAMPS
MERCURY XENON SHORT ARC LAMPS ("STEPPER LAMPS")
In fiscal 1995, the Company began commercial shipment of a new product, the
mercury xenon short arc lamp ("stepper lamp"), which is used to expose patterns
during the fabrication of semiconductor wafers. ILC is currently shipping a
complete line of 1,000 watt stepper lamps, expects to begin shipping a 2,000
watt stepper lamp by the end of the first quarter of fiscal 1996 and plans to
complete the full family of stepper lamps with power ratings from 1,000 to 2,500
watts. Each lamp, fully utilized, lasts for approximately 1-2 months.
Accordingly, the Company expects that the product will generate a high repeat
business.
The market for stepper lamps is currently dominated by a Japanese
competitor of the Company. ILC has invested heavily in ensuring the quality of
its stepper lamps since end users perceive substantial risk in switching
suppliers. In addition, ILC's stepper lamp does not require the end user to
modify any of its maintenance procedures. The Company has worked over the last
three years with major U.S. end users of stepper equipment, including IBM,
Intel, Texas Instruments, Motorola and Hewlett-Packard to ensure that ILC's
stepper lamps become qualified at each of its customers' plants. ILC's 1,000
watt stepper lamp has also recently been qualified by Sony and Hitachi in Japan.
2
PRODUCTS - SHORT ARC LAMPS (CONTINUED)
MERCURY XENON SHORT ARC LAMPS ("STEPPER LAMPS")
The Company's stepper lamps are engineered to be of equivalent quality and
performance and completely interchangeable with lamps provided by other
qualified suppliers. ILC has established relationships with sales
representatives in Japan, Taiwan and Korea and plans to sell stepper lamps
through distributors to reach a broader manufacturing market in Asia. To
accommodate an increased volume of stepper lamps, ILC purchased a 20,000 square
foot office and manufacturing facility in nearby Santa Clara, California in
October 1994. The failure of the Company's stepper lamp to achieve market
acceptance would have a material adverse effect on the Company's results of
operations.
MERCURY CAPILLARY LAMPS
Mercury capillary lamps are manufactured using technology and processes
that are similar to those developed for stepper lamps. The applications for
capillary lamps range from the photolithography of grid patterns on color TV
screens to printed circuit boards for computers. The total market for capillary
lamps is about $20 million with about 15% annual growth rate.
PRODUCTS - ADVANCED LIGHTING
The Company develops metal halide technologies for a broad range of
commercial and military applications. Advanced Lighting products include:
o DTI-The Company began new product development activities in fiscal 1994 to
commercialize its aerospace and military metal halide technology. The
Company has developed DTI, a series of integral low-power metal halide
lamps (less than 500 watts) for commercial projection, stage and medical
applications.
o DAYMAX(R) LAMPS-Daymax(R) lamps simulate stable daylight conditions.
Originally developed for use in the space program, these products are now
widely used throughout the entertainment business. Applications include:
indoor and outdoor lighting for motion picture and television productions,
high speed and special effects lighting, concert, disco and stadium
lighting, theatrical lighting and lighting for projection systems.
Daymax(R) lamps are also used for solar simulation in certain manufacturing
processes.
o AEROSPACE PRODUCTS-ILC offers standard, modified, and customer systems
covering the visible, infrared, and ultraviolet spectrum to meet each space
lighting requirement. The Company's lighting systems are key elements of
NASA's Space Transportation System. These systems are installed in the
Space Shuttle interior and exterior, on the Manned Maneuvering Unit, on
Spacelab and in several experiments carried aboard the shuttle orbiters.
Other ILC systems are being designed for use on International Space Station
Alpha, in future shuttle experiments and payload packages and space robotic
vehicles. ILC is the only domestic manufacturer of space lighting qualified
to serve NASA and other government agencies in Japan and Europe.
ILC aerospace lighting systems feature efficiency, reliability, ruggedness,
light weight and full space qualification. New systems aimed to meet unique
requirements can often be developed from ILC's large selection of
space-qualified designs and components, substantially reducing development
costs and lead times.
o MILITARY PRODUCTS-These products include infrared lamps used by the
military on tanks and aircraft to deflect offensive heat seeking missiles.
3
PRODUCTS - CONVERTER POWER
ILC acquired Converter Power, Inc. (CPI) in January 1993. CPI is a leading
producer of high efficiency, small form factor lamp power sources built to fit
compactly into a variety of systems. The Company designs and manufactures a full
family of UL and TUV-approved power supplies which can be incorporated into
original equipment manufacturer (OEM) equipment. In addition, CPI maintains a
business relationship with a particular OEM to design custom power supplies for
equipment which services the ion implant sector of the semiconductor
manufacturing industry as well as several medical markets.
CPI also provides power supplies which have been specifically engineered
for ILC's Cermax(R) and metal halide lamps. This effort has enabled CPI to
design power sources which will eventually be sold into the video projection
market.
PRODUCTS - PRECISION LAMP
Precision Lamp, Inc. (PLI), purchased in June 1992, distributes over 1,500
types of miniature to microminiature industrial incandescent lamps, and
manufactures the world's only surface-mount lamp small enough to be
automatically inserted onto a printed circuit board. These lamps can be used in
pagers, watches, camera lenses and many other customized miniature lighting
circumstances. Production of the surface-mount lamp and backlight panel are
semi-automated.
The Company has invested in a liquid crystal display (LCD) backlight panel
incorporating the technology of the surface-mount lamp. It is an innovative
product in that it distributes light uniformly across a panel whereas direct
backlighting or light emitting diodes can result in burn spots or uneven
scattering of light. Furthermore, management believes the newly introduced
backlight panel is an easier and less expensive component to use than
electro-luminescent panels which require drive circuitry. This panel is the
first backlight available for small displays. The LCD backlight panel is used in
pagers, phones, two-way radios, games, toys, calculators and cameras. ILC
received its first order at the end of fiscal 1993 for the backlight panel from
an OEM making TV remote controls. Due to the wide range of consumer-driven
applications, this product should enable ILC to broaden its customer base.
Currently, Precision Lamp is working with major LCD fabricators in Japan, Korea,
Taiwan, Singapore and Europe, all of whom are extremely interested in utilizing
this component in their products. The failure of the backlight panel to achieve
market acceptance would have a material adverse effect on the Company's results
of operations.
MARKETING AND SALES
ILC sells its products through a direct sales force to OEMs and sells to
end users through sales representatives and distributors. In situations where
the Company is entering an existing market, such as the stepper lamp market, ILC
works directly with end users in qualifying the lamps utilizing indirect
distribution channels. In addition, ILC maintains a team of ten people to
provide sales and customer service support to its customer base and network of
foreign and domestic distributors.
A European sales office located at the facilities of Q-Arc in Cambridge,
England, sells and markets the complete line of lamp and equipment products and
provides local support for European customers. With the formation of a joint
venture in Japan, ILC has broadened its sales reach to Asia and established a
local presence for its Asian customers. Sales activities of the Company'
subsidiaries, Q-Arc, CPI and PLI, operate independently with overall
coordination handled by ILC corporate in Sunnyvale.
4
MARKETING AND SALES (CONTINUED)
For fiscal 1995, approximately 34.8% of the Company's net sales represented
international sales, primarily in the Pacific Rim and Europe. Information
regarding the Company's export sales and major customers is incorporated herein
by reference to Note 3 of Notes to Consolidated Financial Statements.
BACKLOG
As of September 30, 1995, ILC's backlog of unfilled orders was
approximately $33,767,000 as compared to approximately $27,730,000 at October 1,
1994. The Company includes in its backlog only orders which have been released
by the customer for shipment within the next 12 months. Due to the possibility
of customer changes in delivery schedules or cancellations of orders, backlog as
of any particular date may not be representative of actual sales for any
succeeding period.
MANUFACTURING
ILC's lamp groups have built substantial expertise in the fields of sealing
technology (ceramic-to- metal, quartz-to-metal, vacuum sealing), materials
research, plasma physics, electrical engineering, optoelectronics, and electrode
technology. With PLI, ILC obtained unique semi-automated manufacturing
capabilities required for high-volume, low-cost manufacturing. With CPI, ILC
obtained the essential power supply expertise necessary for providing OEMs with
integrated solutions. The manufacturing of most of the Company's lamp and power
supply products is labor and capital intensive, and accordingly, the labor force
is highly skilled and experienced with specialty equipment. The combination of
ILC's technical and manufacturing expertise enables ILC to dominate its selected
market niches for specialty lighting.
ILC designs, develops, and manufactures a majority of its products in two
facilities totalling 97,000 square feet. These adjoining buildings include lamp
development laboratories, separate manufacturing facilities for xenon and
krypton arc lamps, Cermax(R) lamps, Daymax(R) metal halide lamps, mercury short
arc ("stepper") lamps, mercury capillary lamps, Cermax(R) equipment and
Aerospace products. The Company also purchased, in October 1994, a facility in
Santa Clara, California totalling approximately 20,000 square feet to
accommodate stepper lamp manufacturing.
The need for more production capacity for the subsidiaries of ILC prompted
expansion of existing manufacturing facilities. Q-Arc Ltd purchased a new
facility of approximately 36,000 square feet in June 1994 and occupied the new
facility in early fiscal 1995. Q-Arc currently occupies approximately 25,000 of
the 36,000 square feet and is seeking a tenant to occupy the balance of the
space. The 10,000 square foot facility which Q-Arc previously occupied was
sublet to a third party. Converter Power, in late fiscal 1995, signed a lease
for a 32,000 square foot facility to satisfy the growing production requirements
of laser power supplies. CPI had previously occupied a 15,000 square foot
facility and is currently seeking a tenant to sublet the property which has one
year left on the lease. Precision Lamp occupies a 24,000 square foot facility in
Cotati, California for the automated manufacture of surface mounted miniature
incandescent lamps and LCD backlight panels. Precision Lamp moved into this
facility in fiscal 1993.
PLI received ISO9001 certification in fiscal 1994 and Q-Arc received
ISO9002 certification in fiscal 1995. ILC Sunnyvale has been recommended for
ISO9001 certification and management excepts CPI to be certified by late 1996.
ISO9001 certification ensures customers that ILC has a quality system that will
result in continuous product quality improvement. It is a recognition of a
commitment to quality throughout all sections of the organization.
5
PATENTS AND TRADEMARKS
The Company holds approximately 42 patents related to the key features of
several of its products and several applications are pending. While these
patents tend to enhance the Company's competitive position, management believes
that the Company's success depends primarily upon its proprietary technological,
engineering, production and marketing skills and the high quality of its
products. The names of two of the Company's products, Cermax(R) and Daymax(R)
are registered as trademarks in the United States Patent and Trademark Office
and in many other countries in which the Company's products are sold.
The Company's patents expire at various dates between 1996 and 2012. There
can be no assurance that any patents held by the Company will not be challenged
and invalidated, that patents will issue from any of the Company's pending
applications or that any claims allowed from existing or pending patents will be
of sufficient scope or strength or be issued in all countries where the
Company's products can be sold to provide meaningful protection or any
commercial advantage to the Company. Competitors of the Company also may be able
to design around the Company's patents.
COMPETITION
ILC competes on the basis of product performance, applications engineering,
customer service, reputation and price. The Company competes in many markets in
which technology develops and improves rapidly, stimulating ILC to enhance the
capability of its products and technologies. Competitors consist of both large
and small companies located in the United States, Japan and Europe. They include
EG&G Inc., Osram, Philips, Ushio, ORC Japan, Koto, Wolfram and GE. In many
market sequents, the competition has established the bench mark for product
acceptance at a very high level, causing ILC to continuously improve all phases
of its processes for customer satisfaction. The Company believes that by
exploiting segmented market areas in which ILC has technological, manufacturing
and marketing strengths, ILC can compete effectively. At the same time, by
focusing its product development and acquisition activities in these areas, the
Company can defend its strengths and maintain its leadership in selected
markets.
ENGINEERING AND RESEARCH
ILC's engineering, research, and development efforts consist of three main
activities. The first area of activity is extensive application engineering in
response to customer requirements. These activities result in customer specific
products and modifications to existing products to satisfy the needs of the
customers. The second area is that of joint engineering and development work
made in connection with customer production contracts. The third area includes
those projects funded by the Company to develop new products and technologies.
In 1995, the Company spent $4,497,000 for Company funded research and
development efforts. This is compared to $3,998,000 and $2,767,000 spent in
fiscal years 1994 and 1993, respectively. The Company's engineering and research
personnel are engineers and scientists, all of whom have technical degrees.
In fiscal 1995, a Corporate Technology Business Unit was formed to provide
ILC Sunnyvale with a focused research capability. This core competency will be
directed and managed to service generic challenges. This newly formed group will
also act as a focus of business opportunities that do not naturally fall within
the strategic plans of an existing product line. Initially, this group will
direct its efforts toward answering some basic questions regarding electrodes,
envelopes and material related processes.
6
EMPLOYEES
As of September 30, 1995, the Company had 584 full-time employees,
comprised of 53 in research and engineering, 21 in marketing and sales, 466 in
manufacturing and 44 in general and administrative positions. ILC believes that
its future success depends upon its continued ability to recruit and maintain
highly skilled employees in all disciplines. Although competition for qualified
personnel is strong, ILC has been successful in attracting and retaining skilled
employees. None of the Company's employees is represented by a labor union. The
Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company owns and leases an aggregate of approximately 153,000 and
56,000 square feet, respectively, of office and manufacturing space in six
separate buildings in Sunnyvale, Santa Clara and Cotati, California; Beverly,
Massachusetts; and Cambridge, England. In Sunnyvale, the Company owns 97,000
square feet in two adjacent buildings. These buildings were constructed by the
Company in 1977 and 1979, sold in 1982 and leased back from the new owners, and
re-purchased from the landlord in August 1993. The Company leases to one tenant
approximately 5,000 square feet of its space in Sunnyvale under a lease which
expires in March 1996. In early October 1994, the Company purchased 20,000
square feet of office and manufacturing space in Santa Clara, California. In
June 1994, the Company purchased 36,000 square feet of office and manufacturing
space in Cambridge, England. Q-Arc currently occupies approximately 25,000
square feet and is currently seeking a tenant to lease the balance of the space.
Q-Arc previously leased a 10,000 square foot facility, which has been sublet to
a third party. Precision Lamp moved into a new facility in July 1993. The lease
for the 24,000 square feet of office and manufacturing space, located in Cotati,
California, expires in 2003. Finally, Converter Power, in late fiscal 1995,
entered into a lease to occupy approximately 32,000 square feet of office and
manufacturing space in Beverly, Massachusetts. This lease expires in September
2000. Converter Power will begin to move into the new facility in the first
quarter of fiscal 1996. CPI previously occupied a 15,000 square foot facility in
Ipswich, Massachusetts, under a lease that expires in December 1996. The Company
is currently seeking a tenant to sublet the property. For a discussion of the
Company's lease commitments, see Note 8 of the Notes to Consolidated Financial
Statements appearing elsewhere herein.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fourth quarter of fiscal 1995.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ILC's common stock is traded in the Nasdaq National Market (symbol ILCT).
The high and low closing sales prices for the common stock on the Nasdaq
National Market, are set forth below for the quarters as indicated:
FISCAL 1995 HIGH LOW
1st Quarter 10 3/8 7 1/2
2nd Quarter 10 3/4 8
3rd Quarter 11 1/8 8 3/4
4th Quarter 11 1/4 9
FISCAL 1994 HIGH LOW
1st Quarter 11 3/4 10
2nd Quarter 11 1/2 8 1/2
3rd Quarter 9 6 5/8
4th Quarter 9 5/8 7 1/4
There were approximately 2,000 institutional and individual stockholders as
of December 18, 1995. The closing sales price of the common stock on December
18, 1995 as reported by Nasdaq was $9.38. The Company intends to retain earnings
for use in its business and does not expect to pay cash dividends in the
foreseeable future. The Company's credit agreement with Union Bank provides that
the Company shall not declare or pay any dividend or other distribution on its
Common Stock (other than a stock dividend) or purchase or redeem any Common
Stock, without the bank's prior written consent.
8
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company 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
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net sales $58,429 $52,022 $51,997 $40,885 $40,208
Net income $ 4,538 $ 191 $ 4,759 $ 4,950 $ 4,524
Net income per share $ .95 $ .04 $ .96 $ 1.00 $ .98
Weighted average
shares outstanding 4,765 4,825 4,980 4,956 4,595
Working capital $11,066 $ 9,428 $11,786 $10,263 $ 9,358
Total assets $47,185 $41,997 $40,440 $29,107 $20,854
Total long-term
debt $ 6,592 $ 6,421 $ 5,805 $ 2,193 $ 332
Total stockholders'
equity $28,802 $23,624 $24,565 $19,578 $14,345
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
During fiscal 1995, 1994 and 1993, the Company derived approximately 34%,
44% and 45%, respectively, of its net sales from the medical market. During
fiscal 1995, 1994 and 1993, the Company's sales in the industrial market
accounted for 40%, 44% and 38%, respectively, of net sales. In each of the
fiscal years 1995, 1994 and 1993, the Company's sales in the aerospace market
accounted for 7% of net sales. Products sold in the medical market are
incorporated into products sold into the health-care and health-care related
industries. These industries have recently been subject to significant
fluctuations in demand which in turn have affected the demand for components
used in these products. The Company expects sales to the medical market to
continue to decrease as a percentage of net sales for the foreseeable future.
Aerospace sales have remained relatively constant over the last two fiscal
years. Due to the continuing slowdown in military and defense spending, the
Company does not expect aerospace sales to grow significantly from fiscal 1995
and 1994 levels. To compensate for this slowdown, the Company began new product
development activities in fiscal 1995 and 1994 for commercial applications for
metal halide lamps used for projection and information display.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 were $58,429,000, an increase of 12.3% over
fiscal 1994 net sales of $52,022,000. The $6,407,000 increase was primarily
attributable to a $4 million sales increase at Converter Power and a $1 million
9
FISCAL 1995 COMPARED TO FISCAL 1994 (CONTINUED)
sales increase at both Precision Lamp and Q-Arc. Although total net sales
at ILC Technology remained unchanged between the two fiscal years, Cermax and
related equipment sales decreased approximately $2.4 million, due to a softness
in the medical market as discussed above. Flash and Quartz lamp sales increased
$1 million and Advanced Lighting sales increased $1.4 million. In the second
quarter of fiscal 1994, Precision Lamp experienced a significant shortfall in
orders from a major customer. Due to this slowdown, sales to this customer are
expected to be significantly lower than previously anticipated. (See Note 11 of
Notes to Consolidated Financial Statements). During fiscal 1995, sales to this
major customer were slightly above the fiscal 1994 sales level. The $1 million
Precision Lamp revenue increase discussed above was primarily the result of new
product sales.
Cost of sales as a percentage of net sales was 67.1% for fiscal 1995
compared to 67.8% for fiscal 1994. The fiscal 1994 percentage was negatively
impacted due to the write off of approximately $500,000 of excess Precision Lamp
inventory relating to the slowdown in the release of shippable product from a
major customer as discussed above. The ratio of the inventory reserve to year
end inventory in fiscal years 1995, 1994 and 1993 was 18.0%, 20.9% and 17.5%,
respectively. The fiscal year 1994 ratio excludes the above mentioned $500,000
reserve addition.
Research and development expenses, 7.7% of net sales in both fiscal 1995
and 1994, increased $499,000 between the two fiscal years. The majority of the
increase was concentrated in the Quartz stepper lamp product.
Marketing expenses, 5.1% of net sales in fiscal 1995 compared to 4.4% of
net sales in fiscal 1994, increased $705,000. The increase between the two
fiscal years was primarily due to the addition of personnel, more travel and
trade show attendance and additional commission expense on an increased sales
volume.
As a percentage of sales, general and administrative expenses were 8.7% in
fiscal 1995 and 10.0% in fiscal 1994. The $139,000 decrease was due to the
accrual in the second quarter of fiscal 1994 for early exit incentives for
various long time ILC employees ($500,000) and the write off of a note
receivable, doubtful of collection ($250,000). This decrease was partially
offset by expenses incurred by Q-Arc in its move to a larger manufacturing
facility and by personnel additions and other expenses at Converter Power,
totalling approximately $600,000, in fiscal 1995.
Amortization of intangibles of $290,000 in fiscal 1995 represents the
amortization of covenants-not-to-compete arising from the acquisitions of
Precision Lamp in 1992 and Q-Arc in 1991. The amortization of intangibles of
$3,765,000 in fiscal 1994 includes a $3,400,000 write down of intangibles
generated from the acquisition of Precision Lamp. As discussed below, Precision
Lamp experienced a significant shortfall in orders from a major customer in the
second quarter of fiscal 1994. In assessing the recoverability of the
unamortized goodwill and covenant-not-to-compete generated from the acquisition,
management determined that an impairment occurred and recorded a $3.4 million
charge.
Interest income was $313,000 in fiscal 1995, which amount included
approximately $235,000 of interest income from an income tax refund in the third
quarter of fiscal 1995. Interest income in fiscal 1994 was $200,000. Interest
expense, $696,000 in fiscal 1995 as compared to $339,000 in fiscal 1994,
increased $357,000 between the two fiscal years. The increase was due to
additional borrowings on the Company's line of credit and equipment purchases.
10
FISCAL 1995 COMPARED TO FISCAL 1994 (CONTINUED)
The Company reported income from operations before provision for income
taxes of $5,978,000 in fiscal 1995 compared to $1,343,000 in fiscal 1994. The
fiscal 1995 provision for income taxes, exclusive of an income tax refund of
$238,000 in the third quarter of fiscal 1995, was 28% of pretax income before
provision for income taxes. This compares with a fiscal 1994 provision for
income taxes of approximately 31% of pretax income before provision for income
taxes, which provision is exclusive of the effect related to the non-deductible
portion of the write down of intangibles discussed above.
The Company believes that inflation and changing prices had no significant
impact on sales or costs during fiscal 1995 and 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales remained relatively constant at $52,022,000 and $51,997,000 in
fiscal 1994 and 1993, respectively. Although the total net sales were unchanged,
Cermax(R) and related equipment sales decreased approximately $2 million, Flash
and Quartz lamp sales increased approximately $1 million and Converter Power
sales increased approximately $3 million between the two fiscal years.
Additionally, in the second quarter of fiscal 1994, Precision Lamp experienced a
significant shortfall in orders from a major customer. This slowdown resulted in
lower sales of approximately $2 million in fiscal 1994 as compared to fiscal
1993. Sales to this customer are now expected to be significantly lower than
previously anticipated. (See Note 11 of Notes to Consolidated Financial
Statements.)
Cost of sales as a percentage of net sales was 67.8% for fiscal 1994
compared to 67.0% for fiscal 1993. The percentage increase was primarily due to
the write off of approximately $500,000 related to excess Precision Lamp
inventory caused by a slowdown in the release of shippable product from a major
customer discussed above. The ratio of the inventory reserve to year end
inventory in fiscal 1994, 1993 and 1992 was 20.9%, 17.5% and 22.8%,
respectively. The fiscal 1994 ratio excludes the above mentioned $500,000
reserve addition.
Spending in the area of research and development, 7.7% of net sales in
fiscal 1994, compared to 5.3% of net sales in fiscal 1993, increased $1,231,000
between the two fiscal years. The increase occurred in Cermax(R) for the
development of lamps for video projection, in Quartz lamps for the development
of the stepper lamp and in Advanced Lighting for the design and development of
lamps used for entertainment applications. Also contributing to the increase was
spending at Precision Lamp for the development of panels to light the entire
rear of a liquid crystal display and spending at Converter Power for the design
of new power supplies.
Marketing expenses were $2,271,000, or 4.4% of net sales in fiscal 1994
compared to $2,642,000, or 5.1% of net sales in fiscal 1993. The $371,000
decrease between the two fiscal years was due primarily to less travel and trade
show attendance coupled with less commission expense associated with lower sales
at Precision Lamp caused by the slowdown in the release of shippable product
from a major Precision Lamp customer.
General and administrative expenses, as a percentage of net sales, were
10.0% in fiscal 1994 compared to 7.6% in fiscal 1993. The $1,282,000 increase
between the two periods was due to a combination of the accrual for early exit
incentives for various long-time ILC employees, the write off of a note
receivable, doubtful of collection, which arose from the United Detector
Technology divestiture in 1990 and increases to general and administrative
expenses at Converter Power and Q- Arc. This increase was partially offset by
the suspension of contributions to the ILC profit sharing plan for the first six
months of fiscal 1994.
11
FISCAL 1994 COMPARED TO FISCAL 1993 (CONTINUED)
Amortization of intangibles of $3,765,000 in fiscal 1994 includes a
$3,400,000 write down of intangibles generated from the acquisition of Precision
Lamp in June 1992. As discussed above, Precision Lamp experienced a significant
shortfall in orders from a major customer in the second quarter of fiscal 1994.
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. Total sales and earnings of Precision Lamp for the
period March 1994 to March 2002 as projected at the time of the intangible
impairment calculation were approximately 50% and 70% lower than sales and
earnings estimates, respectively, at the time of the Precision Lamp acquisition.
These projections represent management's best estimate for future results for
that subsidiary. Precision Lamp is actively seeking to solicit other customers
and alter its products to meet their specifications for the surface mounted
miniature incandescent lamp. However, because of the major customer's dominance
of its market, and because other manufacturers are numerous and small volume,
the Company believes that Precision Lamp will be unable to secure new customers
to make up for the significant shortfall in orders. Accordingly, a $3.4 million
charge was recorded to write down the intangibles to net realizable value. The
writedown was determined based on the currently projected un-discounted cash
flows of Precision Lamp from March 1994 to March 2002, which projected aggregate
cash flows of approximately $900,000 over that period which was based on
projected net income which averaged 9% higher than the net income projection for
fiscal 1994 (with no loss years included in the projection), compared with the
carrying value of the Company's investment in Precision Lamp, including
goodwill, at the date of the writedown. At October 1, 1994, there were net
assets associated with the Precision Lamp acquisition of approximately
$2,270,000, or approximately 5% of total assets, for which recoverability is
primarily dependent upon sales to the major customer discussed above. The
amortization of intangibles of $757,000 in fiscal 1993 represents the
amortization of covenants-not-to- compete plus the amortization of goodwill both
arising from the acquisitions of Precision Lamp in 1992 and Q-Arc in 1991.
Although interest income remained constant between fiscal 1994 and fiscal
1993, interest expense increased by approximately $261,000 during the same
period due to the term loan obtained to purchase the Company's two operating
facilities in Sunnyvale, California in August 1993 and the manufacturing
facility in Cambridge, England in June 1994.
The Company reported income before provision for income taxes of $1,343,000
in fiscal 1994 compared to $7,111,000 in fiscal 1993. The provision for income
taxes, exclusive of the effect related to the non-deductible portion of the
write down of intangibles discussed above, was approximately 31.0% of pretax
income before provision for income taxes in fiscal 1994 compared to 33.1% in
fiscal 1993.
The Company believes that inflation and changing prices had no significant
impact on sales or costs during fiscal 1994 and 1993.
LIQUIDITY AND FINANCIAL POSITION
Cash and cash equivalents decreased to $1,509,000 in fiscal 1995 from
$2,462,000 in fiscal 1994. Cash provided from operations amounted to $3,449,000
in fiscal 1995, a decrease of $3,226,000 from $6,675,000 in fiscal 1994. This
decrease occurred primarily due to an increase in accounts receivable of
$2,767,000 and an increase in inventories of $2,304,000. During fiscal 1995, the
Company used cash of $1,745,000 to purchase land and a new manufacturing
facility in Santa Clara, California and made capital equipment acquisitions of
$3,419,000. In fiscal 1995, the Company increased its net borrowings under its
line of credit by $2,000,000, increased its net borrowings under
12
LIQUIDITY AND FINANCIAL POSITION (CONTINUED)
an equipment line by $670,000 and paid down a term loan by $1,578,000. In fiscal
1994, the Company used cash of $2,701,000 to purchase a new office and
manufacturing facility in Cambridge, England, deposited $1,300,000 for the
purchase of land and a manufacturing facility in Santa Clara, California and
paid $312,000 for land in Cotati, California. Capital equipment acquisitions in
fiscal 1994 amounted to $2,634,000. In fiscal 1994, the Company increased its
net borrowings under a term loan for real estate acquisitions by $800,000 and
increased the net borrowings under an equipment line by $591,000. In addition,
in fiscal 1994, the Company also repurchased, on the open market, 204,000 shares
of its common stock for $1,556,000. In fiscal 1993, the Company used cash of
$7,600,000 to purchase its manufacturing facilities and corporate offices in
Sunnyvale, California. Also in fiscal 1993, the Company used cash of $1,467,000
for capital equipment acquisitions and borrowed $5,000,000 under a term loan to
finance the purchase of the above mentioned facilities in Sunnyvale, California.
The Company has working capital of $11,066,000 and a current ratio of 1.94
to 1.0 at September 30, 1995. This compares with working capital of $9,428,000
and a current ratio of 1.79 to 1.0 at October 1, 1994. As of September 30, 1995,
the Company has $2,000,000 unused on a $4,000,000 bank line of credit with
interest at 2% above the LIBOR rate (London Interbank Offer Rate) (7.8% at
September 30, 1995). The Company also has available approximately $690,000
remaining on a $1,500,000 equipment credit facility at the above interest rate.
This credit facility can be increased to accomodate the capital equipment needs
of the Company. In fiscal 1996, ILC anticipates making capital expenditures of
approximately $3 million. These financial resources, together with anticipated
additional resources to be provided from 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 1996.
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 1996. The provisions of this statement must be
made on a prospective basis. The Company plans to adopt the disclosure
provisions of this statement in 1996, and theefore the effect on its financial
position and results of operations, upon adoption, will not be significant.
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 will
adopt the provision of this statement in fiscal 1996 and believes the effect on
its financial position and result of operations, upon adoption, will not be
significant.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS PAGE
Consolidated Balance Sheets - September 30,
1995 and October 1, 1994 15 - 16
Consolidated Statements of Operations for the Three
Fiscal Years Ended September 30, 1995 17
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended September 30, 1995 18
Consolidated Statements of Cash Flows for the Three
Fiscal Years Ended September 30, 1995 19 - 20
Notes to Consolidated Financial Statements 21 - 30
Form 10-K Schedule 31
Report of Independent Public Accountants 32
14
ILC TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
ASSETS
1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 1,508,971 $ 2,461,549
Marketable securities - 998,129
Accounts receivable, less allowance for
for doubtful accounts of $409,950
and $332,803, respectively 9,834,704 6,956,981
Receivable from long-term contracts 610,122 824,007
Inventories 9,289,207 7,192,197
Deferred tax asset 1,454,000 2,405,000
Prepaid expenses 159,180 542,801
----------- -----------
Total current assets 22,856,184 21,380,664
---------- ----------
Property and equipment, net 22,441,755 17,688,277
Deposit on land and building purchase - 1,300,000
Covenants-not-to-compete, net of
accumulated amortization and
writedown of $2,435,354 and
$2,145,473, respectively 1,116,811 1,406,692
Other assets 770,186 221,789
------------ -------------
$47,184,936 $41,997,422
=========== ===========
The accompanying notes are an integral part of these financial statements.
15
ILC TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
---- ----
Current liabilities:
Accounts payable ...................... $ 4,080,000 $ 3,921,112
Accrued payroll and related items ..... 1,753,303 1,765,605
Other accrued liabilities ............. 1,112,326 1,144,184
Current portion of non-compete obligation . 520,000 520,000
Current portion of long-term debt ..... 2,455,500 2,196,494
Accrued income taxes payable .......... 1,869,494 2,405,000
----------- -----------
Total current liabilities ......... 11,790,623 11,952,395
----------- -----------
Long-term liabilities, net of current portion:
Long-term debt ...................... 5,898,040 5,096,494
Non-compete obligation ............. 390,000 910,000
Other accruals ..................... 304,074 414,844
----------- -----------
Total long-term liabilities ...... 6,592,114 6,421,338
----------- -----------
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized;
4,683,174 shares and 4,522,951
shares outstanding, respectively ..... 6,132,914 5,492,338
Retained earnings .................... 22,669,285 18,131,351
----------- -----------
Total stockholders' equity ........ 28,802,199 23,623,689
----------- -----------
$47,184,936 $41,997,422
=========== ===========
The accompanying notes are an integral part of these financial statements.
16
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 30, 1995
1995 1994 1993
----------- ------------ ------------
Net sales .................... $58,429,214 $ 52,022,328 $ 51,996,509
Costs and expenses:
Cost of sales ............... 39,226,370 35,287,928 34,818,944
Research and development .... 4,497,013 3,998,136 2,767,448
Sales and marketing ......... 2,976,326 2,271,099 2,641,810
General and administrative .. 5,079,500 5,218,701 3,936,940
Amortization and writedown
of intangibles ............. 289,881 3,764,678 756,712
----------- ------------ ------------
52,069,090 50,540,542 44,921,854
----------- ------------ ------------
Income from operations ........ 6,360,124 1,481,786 7,074,655
----------- ------------ ------------
Other (income) expense:
Interest, net ............... 382,190 139,173 (113,598)
Rental operations, net ...... - - 77,582
---------- ----------- ------------
382,190 139,173 (36,016)
---------- ----------- ------------
Income before provision
for income taxes ............. 5,977,934 1,342,613 7,110,671
Provision for income taxes .... 1,440,000 1,152,000 2,352,000
----------- ------------ ------------
Net income .................... $ 4,537,934 $ 190,613 $ 4,758,671
=========== ============ ============
Net income per share .......... $ 0.95 $ 0.04 $ 0.96
=========== ============ ============
Weighted average shares
outstanding used to compute
net income per share ......... 4,764,989 4,825,009 4,979,529
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
17
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 30, 1995
Common
Common Stock Retained
Shares Amount Earnings Total
Balance at October 3, 1992 ....4,574,695 $6,396,232 $13,182,067 $19,578,299
Net income ................. - - 4,758,671 4,758,671
Issuance of common stock
under stock purchase plan .. 14,281 134,283 - 134,283
Exercise of stock options ... 30,500 93,313 - 93,313
-------- ------- --------- ----------
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
========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
18
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 30, 1995
1995 1994 1993
---- ----- -----
Cash flows from operating activities:
Net Income ........................ $ 4,537,934 $ 190,613 $4,758,671
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ... 1,684,122 1,115,236 1,033,104
Provision for doubtful accounts
and note....................... 103,251 383,902 (98,769)
Provision for inventory
obsolescence ................... 206,859 1,772,346 (22,125)
Net loss on property and
equipment sold or retired....... 26,367 3,839 68,687
Amortization and write down
of non-compete agreements ...... 289,881 1,442,309 491,428
Amortization and write down
of goodwill..................... - 2,321,248 265,284
Changes in assets and liabilities:
Decrease in marketable
securities ................... 998,129 438,078 475,704
(Increase) decrease in
accounts receivable........... (2,767,089) 226,209 (1,150,930)
Increase in inventories ....... (2,303,869) (1,639,654) (148,901)
Decrease in deferred tax
asset ........................ 951,000 - -
(Increase) decrease in
prepaid expenses.............. 383,621 (220,922) (198,491)
(Increase) decrease in
other assets ................. (98,397) 182,694 133,572
Increase (decrease) in
accounts payable.............. 158,888 (86,511) 263,444
Increase (decrease) in
accrued liabilities........... (722,015) 545,369 (49,438)
----------- ---------- ----------
Total adjustments ......... (1,089,252) 6,484,143 1,062,569
----------- --------- ---------
Net cash provided by
operating activities....... 3,448,682 6,674,756 5,821,240
----------- ----------- -----------
Cash flows from investing activities:
Purchase of land and real estate ...(3,045,412) (3,012,844) (7,600,000)
(Increase) decrease in deposit
on land and building purchase...... 1,300,000 (1,300,000) -
Investment in joint venture ........ (450,000) - -
Capital expenditures ...............(3,418,555) (2,634,348) (1,466,924)
----------- ------------ ------------
Net cash used in
investing activities....... (5,613,967) (6,947,192) (9,066,924)
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
19
ILC TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 30, 1995
(CONTINUED)
1995 1994 1993
---- ---- ----
Cash flows from financing activities:
Principal borrowings under
line of credit................ $8,450,000 $ - $ -
Principal repayments under
line of credit............... (6,450,000) - -
New borrowings under
equipment line .............. 1,720,089 1,090,702 717,336
Principal repayments under
equipment line............... (1,049,958) (499,225) (453,940)
Principal borrowings under
term loan ................... - 1,333,333 5,000,000
Principal repayments under
term loan ................... (1,578,000) (533,333) -
Payments under non-compete
agreement ................... (520,000) (520,000) (520,000)
Proceeds from issuance of
common stock ................ 717,326 424,010 227,596
Repurchase of common stock ... (76,750) (1,555,500) -
----------- ----------- -----------
Net cash provided by
(used in) financing
activities................. 1,212,707 (260,013) 4,970,992
----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents................ (952,578) (532,449) 1,725,308
Cash and cash equivalents at
beginning of year.............. 2,461,549 2,993,998 1,268,690
----------- ----------- -----------
Cash and cash equivalents at
end of year ................... $1,508,971 $2,461,549 $2,993,998
========== ========== ==========
Supplemental disclosures of cash flow information:
1995 1994 1993
---- ---- ----
Cash paid during the year for:
Interest expense ........... $695,541 $338,751 $77,925
Income taxes ............... 909,000 2,500,539 2,213,100
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.
20
ILC TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
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 for 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, the United Kingdom and
another location in California.
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.
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.
MARKETABLE SECURITIES
Effective October 3, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting For Certain Investments
in Debt and Equity Securities". The adoption of this statement did not
materially impact the Company's results from operations or financial position.
Marketable securities at October 1, 1994 were being accounted for as trading
securities and were therefore valued at fair market value in the accompanying
balance sheet. The change in the net unrealized holding loss, which was included
in fiscal 1994 income, was approximately $80,000 during fiscal 1994. During
fiscal 1995, all marketable securities were liquidated.
21
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 30, 1995 and October 1, 1994, net of inventory reserves of $2,042,813
and $2,533,233, respectively, consisted of:
1995 1994
---- ----
Raw materials .................... $4,846,508 $ 3,393,249
Work-in-process................... 2,609,006 2,556,006
Finished goods ................... 1,833,693 1,242,942
---------- -----------
Total inventories................. $9,289,207 $ 7,192,197
========== ===========
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 1995,
1994 and 1993.
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 PER SHARE
Net income per share is computed based on the weighted average number of
common shares and common equivalent shares (using the treasury stock method and
when such equivalents have a dilutive effect) outstanding during the period.
Fully diluted net income per share is not significantly different from net
income 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 1996. The provisions of this statement must be
made on a prospective basis. The Company plans to adopt the disclosure
provisions of this statement in 1996, and theefore the effect on its financial
position and results of operations, upon adoption, will not be significant.
22
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
The Company has certain intangible assets as a result of its acquisition of
two subsidiaries (see Note 10). Subsequent to these acquisitions, the Company
continually 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.
Covenants-not-to-compete are amortized over the period of the covenant.
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 $89,000 in fiscal 1995
is included in the accompanying consolidated statements of operations.
FORWARD EXCHANGE CONTRACTS
The Company enters into forward exchange contracts to reduce its exposure
to currency exchange risk for purchases from one Japanese vendor. The effect of
this practice is to minimize the impact of foreign exchange rate movements on
the Company's operating results. The Company's hedging activities do not subject
the Company to exchange rate risk, as gains and losses on these contracts offset
losses and gains on the liabilities being hedged.
At September 30, 1995, the Company had forward exchange contracts maturing
from October 1995 to December 1995 to purchase 22,200,000 Japanese yen
($224,000).
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 are geographically summarized as follows (in thousands):
1995 1994 1993
----------- ------------ ------------
United States ................... $ 38,080 $ 31,627 $ 29,994
Europe .......................... 6,062 4,435 5,188
Asia ............................ 14,239 15,794 16,447
Other international ............. 48 166 368
----------- ------------ ------------
Total revenues ...... $ 58,429 $ 52,022 $ 51,997
=========== ============ ============
23
3. REVENUES (CONTINUED)
Customers comprising more than 10% of net sales are as follows:
1995 1994 1993
----------- ------------ ------------
Customer A ............... 10.3% 17.6% 19%
Customer B ............... 12.1% 12.8% 17%
Customer C ............... 10.3% * *
*less than 10% of net sales
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 34% of the Company's sales in fiscal 1995 were to customers
in the health-care 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 forseeable future. Customer C,
referred to above, is in the semi-conducto industry. This industry also can be
subject to significant fluctuations in demand.
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and October 1, 1994 consisted
of:
Property and equipment, at cost:
Machinery and equipment ................ $15,706,092 $11,856,023
Land and buildings ..................... 14,810,768 11,229,341
Furniture and fixtures ................. 670,145 463,910
Equipment under capital lease .......... 174,268 174,268
Leasehold improvements ................. 244,166 209,830
Construction-in-progress ............... 684,693 1,939,963
----------- -----------
32,290,132 25,873,335
Less accumulated depreciation and
amortization ........................... (9,848,377) (8,185,058)
----------- -----------
Property and equipment, net ............... $22,441,755 $17,688,277
=========== ===========
5. BANK BORROWINGS
The Company has a $4 million line of credit available with a bank which
expires in January 1997. Borrowings under this line are at 2% above the LIBOR
rate (London Interbank Offer Rate) (7.8% at September 30, 1995) 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 30,
1995, the Company was in compliance with all bank requirements.
The average balance outstanding (based on month-end balances) under the
line of credit in 1995 was $1,550,000. The maximum borrowings were $2,450,000 at
an average interest rate of 7.8% for 1995. There were no borrowings under the
line of credit in fiscal 1994, nor were there any amounts outstanding as of
October 1, 1994. As of September 30, 1995, $2 million was available for future
borrowings under this line of credit.
24
5. BANK BORROWINGS (CONTINUED)
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) (7.8% at September 30, 1995). 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 $1.5 million equipment line of credit for
100% of the purchase cost of new equipment, which expires in January 1996.
Borrowings under this line bear interest at 2% above the LIBOR rate (7.8% at
September 30, 1995), with principal balances amortized over a 2 year period. At
September 30, 1995, the Company had approximately $690,000 available for future
borrowings under this line of credit.
As of September 30, 1995 and October 1, 1994, borrowings outstanding under
its credit facilities consisted of:
1995 1994
----------- -----------
Term note ............................. $ 4,222,000 $ 5,800,000
Line of credit ........................ 2,000,000 -
Equipment line of credit .............. 2,011,000 1,340,869
Other capital lease ................... 120,540 152,119
----------- -----------
8,353,540 7,292,988
Less: current portion ................. (2,455,500) (2,196,494)
----------- -----------
Long-term debt ........................ $ 5,898,040 $ 5,096,494
=========== ===========
Aggregate maturities for long-term debt during the next five years are
approximately: 1996 - $2,455,500, 1997 - $2,455,500, 1998 - $1,450,000, 1999
none and 2000 - none.
All of the above credit facilities are secured by all of the property of
the Company.
6. INCOME TAXES
Effective October 3, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes", on a prospective basis. SFAS No. 109
requires an asset and liability approach to accounting for income taxes. The
adoption of SFAS No. 109 did not have a material effect on the Company's
consolidated financial statements.
Income before provision for income taxes consists of the following for
fiscal 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
U.S. $5,456,897 $ 971,283 $6,906,493
Foreign 521,037 371,330 204,178
---------- ---------- ----------
$5,977,934 $1,342,613 $7,110,671
========== ========== ==========
25
6. INCOME TAXES (CONTINUED)
The components of the provision for income taxes are as follows:
1995 1994 1993
----------- ------------ ------------
Federal -
Current $833,000 $2,373,000 $1,575,000
Deferred 554,000 (1,361,000) -
-------- ---------- ----------
1,387,000 1,012,000 1,575,000
State -
Current 199,000 493,000 777,000
Deferred 92,000 (353,000) -
--------- --------- ---------
291,000 140,000 777,000
Federal refund received (238,000) - -
--------- --------- ---------
Total provision for income taxes $1,440,000 $1,152,000 $2,352,000
========== ========== ==========
The major components of the deferred tax accounts as computed under SFAS
No. 109, are as follows:
1995 1994
---- ----
Inventory reserve $838,000 $754,000
Bad debt reserve 271,000 258,000
Warranty reserve 105,000 228,000
Accruals not currently deductible for
tax purposes 448,000 1,078,000
Amortization of covenant-not-to-compete 278,000 538,000
Excess of tax over book depreciation (801,000) (710,000)
Other 315,000 259,000
-------- ----------
$1,454,000 $2,405,000
========== ==========
The provisions for income taxes differ from the amounts which would result by
applying the applicable statutory Federal income tax rate to income before taxes
as follows:
1995 1994 1993
---- ---- ----
Computed expected provision $2,092,000 $470,000 $2,418,000
State tax 359,000 81,000 436,000
Amortization and writedown of
goodwill - 812,000 90,000
FSC commission (211,000) (259,000) (254,000)
General business credits (200,000) (72,000) (33,000)
Refund received (238,000) - -
Other (362,000) 120,000 (305,000)
-------- ------- -------
$1,440,000 $1,152,000 $2,352,000
========== ========== ==========
26
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 $212,000, $163,000,
and $145,000 for the fiscal years 1995, 1994 and 1993, respectively.
8. COMMITMENTS AND CONTINGENCIES
In October 1994, Q-Arc Ltd. purchased a new office and manufacturing
facility in Cambridge, England. Prior to this, Q-Arc had leased its
manufacturing facility under an operating lease agreement, which lease agreement
has been assumed by another company.
In August 1993, the Company purchased two buildings, which were its two
principal operating facilities in Sunnyvale, California, from the landlord for
$7,600,000. The Company has leased a small portion of the Sunnyvale facility
under a lease which expires in 1996.
At September 30, 1995, the future minimum rental payments under all
building leases for fiscal 1996 through 2000 are approximately $380,000,
$423,000, $424,000, $444,000 and $444,000, respectively, and $660,000
thereafter. The amounts total $2,775,000.
For fiscal years 1995, 1994 and 1993, rental expense was approximately
$277,000, $318,000 and $934,000 respectively.
9. STOCK OPTION AND PURCHASE PLANS
In 1993, the Company adopted the 1992 Stock Option Plan and reserved
200,000 shares for issuance. The 1992 Option Plan replaced the 1983 Option Plan
which expired in June 1993. Although options granted under the 1983 Stock Option
Plan before such expiration will remain outstanding in accordance with their
terms, no further options will be granted under the 1983 Stock Option Plan after
June 1993. 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. In November 1993, the Company's 1992 Stock Option Plan
was amended to provide for the automatic grant of a nonstatutory stock option to
purchase shares of Common Stock to each outside Director. Subsequent grants will
occur annually during the Company's third fiscal quarter. During fiscal 1995,
each outside Director was granted an automatic option to purchase a total of
5,000 shares of the Company's Common Stock. A summary of the option transactions
is as follows:
27
9. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
Options Outstanding
-------------------
Options Number
Available of Price per
for Grant Shares Share
--------- ------ ---------
Balance at October 3, 1992 11,624 698,500 $2.13-11.50
1992 Option Plan new shares
approved 200,000 - -
Options assumed in Converter
Power Acquisition - 26,027 $1.09
Granted (57,500) 57,500 $9.00-11.50
Canceled 5,500 (5,500) $8.75-11.50
Exercised - (30,500) $ 2.13 -3.75
------- ------- ------------
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
======= ======= ============
Options exercisable at
September 30, 1995 439,715 $1.09 -11.50
======= ============
In February 1985, the Company adopted an employee stock purchase plan.
Under the plan, the Company has reserved 200,000 shares of common stock for
issuance to participating employees who have met certain eligibility
requirements. In 1994, the Board of Directors and shareholders approved an
amendment to the employee stock purchase plan to increase the number of shares
reserved for issuance from 200,000 to 300,000 shares. 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. During fiscal 1995,
1994 and 1993, a total of 37,973, 25,475 and 14,281 shares of common stock
respectively, were purchased by the Company employees under the plan. As of
September 30, 1995, 95,797 shares were available for future purchase.
If all options outstanding at September 30, 1995 were exercised, the total
proceeds to the Company wuld be approximately $4 million (unaudited).
28
10. OTHER INCOME/EXPENSE
Other (income) expense consists of the following:
1995 1994 1993
---- ---- ----
Interest income ................. $(313,351) $(199,578) $(191,941)
Interest expense ................ 695,541 338,751 78,343
Rental and sublease income ...... - - (60,995)
Net rental expense on sublet
property ....................... - - 138,577
--------- --------- -------
$ 382,190 $ 139,173 $(36,016)
========= ========= =========
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 30, 1995, the unamortized
balance of the Q-Arc covenant-not-to-compete is approximately $476,000.
On June 30, 1992, the Company acquired all of the outstanding stock of
Precision Lamp, Inc. located in Cotati, California. Precision Lamp designs,
manufactures and distributes miniature incandescent lamps for various
applications. The Company paid approximately $2,000,000 in cash for all of the
outstanding shares, agreed to pay off approximately $1,100,000 of bank debt and
assumed all liabilities ($1,321,000) of Precision Lamp. The Company also agreed
to pay at least $2,600,000 to the primary selling shareholder as consideration
for a covenant-not-to-compete among the primary selling shareholder, Precision
Lamp and ILC. These payments will be made in equal installments through 1997.
This transaction was accounted for as a purchase and accordingly, all assets
were revalued to their respective fair values. This purchase price allocation
resulted in goodwill of approximately $2,650,000 which is being amortized over a
ten year period. The $2,600,000 covenant- not-to-compete is being amortized over
a seven year period.
In the second quarter of fiscal 1994, management determined that an
impairment occurred in the recoverability of the unamortized goodwill and
covenant-not-to-compete due to a significant shortfall in orders from a major
Precision Lamp customer. Accordingly, a $3.4 million charge was recorded to
write off the intangibles to net realizable value. The writedown was determined
based on the currently projected undiscounted cash flows of Precision Lamp from
March 1994 to March 2004, which projected aggregate cash flows of approximately
$900,000 (unaudited) over that period and was based on projected net income
which averaged 9% higher than the net income projection for fiscal 1994 (with no
loss years included in the projection), compared with the carrying value of the
Company's investment in Precision Lamp, including goodwill, at the date of the
writedown. These projections represented management's best estimate for future
results for that subsidiary. At September 30, 1995, the unamortized balance of
the Precision Lamp covenant-not-to-compete is approximately $641,000.
29
12. RIGHTS AGREEMENT
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 $30.00 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, 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.
13. REPURCHASE OF COMMON STOCK
In March 1994, the Board of Directors authorized the purchase of up to
1,000,000 shares of the Company's common shares outstanding through March 1995.
During 1995 and 1994, the Company repurchased 10,000 and 204,000 shares of
common stock for an aggregate amount of $76,750 and $1,555,500, respectively.
Purchases were made on the open market.
30
SCHEDULE VIII
ILC TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR FISCAL YEARS 1995, 1994 AND 1993
Balance Charged
at (Credited) Addition Deductions Balance
Beginning to Cost and from and at end of
Of Period Expenses Acquisition Write Off Period
--------- ----------- ----------- ---------- --------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
Year ended
October 2, 1993 $341,355 $(98,769) $ 7,258 $ 30,716 $219,128
Year ended $219,128 $383,902 $ - $270,227 $332,803
October 1, 1994
Year ended
September 30, 1995 $332,803 $103,251 $ - $ 26,104 $409,950
RESERVE FOR INVENTORY
OBSOLESCENCE:
Year ended
October 2, 1993 $1,990,256 $ (22,125) $ - $414,672 $1,553,459
Year ended
October 1, 1994 $1,553,459 $1,772,346 $ - $792,572 $2,533,233
Year ended
September 30, 1995 $2,533,233 $ 206,859 $ - $697,279 $2,042,813
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ILC Technology, Inc.
We have audited the accompanying consolidated balance sheets of
ILC Technology, Inc. (a California Corporation) and subsidiaries as of September
30, 1995 and October 1, 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1995. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ILC Technology, Inc. and subsidiaries as of September 30, 1995 and October 1,
1994 and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1995 in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule presented on page 31
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
November 3, 1995
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Certain information required by Part III is omitted from this Report in
that registrant will file a definitive proxy statement pursuant to Regulation
14A (the "Proxy Statement") for its Annual Meeting of Shareholders to be held
February 14, 1996, not later than 120 days after the end of the fiscal year
covered by this Report, and the information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors required by this item
appearing in the Company's 1995 Proxy Statement under the caption "Election of
Directors-Nominees" is incorporated herein by reference.
The information regarding executive officers of the Company
required by this item appearing in the Company's 1995 Proxy Statement under the
caption "Election of Directors- Other Officers" is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appearing in the Company's
1995 Proxy Statement under the captions "Election of Directors-Director
Compensation" and "Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing in the Company's
1995 Proxy Statement under the caption "Election of Directors-Nominees" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appearing in the Company's
1995 Proxy Statement under the captions "Election of Directors-Director
Compensation" and "Executive Compensation" is incorporated herein by reference.
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this 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
report.
Page in
2. FINANCIAL STATEMENT SCHEDULE Form 10-K
Schedule VIII Valuation and Qualifying
Accounts and Reserves 31
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 Report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of fiscal 1995.
.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /S/ HENRY C. BAUMGARTNER
Henry C. Baumgartner
President and Chief Executive Officer
Dated: December 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this 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
Chairman of the Board December , 1995
- -------------------------------
(Wirt D. Walker, III) (Director)
/S/ HENRY C. BAUMGARTNER President and Chief December 22, 1995
- -------------------------------
(Henry C. Baumgartner) Executive Officer
(Principal Executive
Officer and Director)
/S/ RONALD E. FREDIANELLI Chief Financial Officer December 22, 1995
- -------------------------------
Ronald E. Fredianelli) and Secretary
(Principal Financial and
Accounting Officer)
(Richard D. Capra) Director December , 1995
/S/ HARRISON H. AUGUR Director December 22, 1995
- -------------------------------
(Harrison H. Augur)
/S/ ARTHUR L. SCHAWLOW Director December 22, 1995
- -------------------------------
(Arthur L. Schawlow)
35
INDEX TO EXHIBITS
Exhibit
NUMBER DESCRIPTION
3.1 (A) Restated Articles of Incorporation of ILC Technology, Inc. as
filed in the Office of the California Secretary of State on
March 8, 1991.
3.2 (A) Amended and restated Bylaws as of February 8, 1989.
4.1 (C) Certificate evidencing shares of Common Stock without par value,
ILC Technology, Inc.
10.1 (F) ILC Technology, Inc. 1983 Employee Incentive and
Nonstatutory Stock Option Plan, as amended, together with
related form of Stock Option Agreement.
10.2 (B) Rights Agreement between ILC Technology, Inc. and
Security Pacific National Bank
dated as of September 29, 1989.
10.3 (D) Employment Agreement between ILC Technology, Inc. and Richard
E. DuNah dated July 1, 1992.*
10.4 (F) ILC Technology, Inc. 1992 Stock Option Plan, as amended, and
related form of Option Agreement.*
10.5 (D) Form of Officer and Director Indemnification Agreement*
10.6 Credit Agreement dated March 2, 1995, by and between Union Bank
and ILC Technology, Inc.
10.7 (F) Purchase and Sale Agreement dated August 19, 1993, by and
between Cambridge Investors I Limited Partnership and ILC
Technology, Inc.
10.8 (F) Standard Industrial/Commercial Single-Tenant Lease between ILC
Technology, Inc. (720 Portal Street, Cotati, California) and
John Gary Taylor, dated December 29, 1992.
10.9 (E) Agreement and Plan of Reorganization among ILC Technology, Inc.,
ILC Acquisitions, Inc., Converter Power, Inc. and the
shareholders of Converter Power, Inc., dated January 29, 1993.
10.10 (E) Employment Agreement between ILC Technology, Inc. and William
F. O'Brien dated January 29, 1993.*
10.11 (E) Employment Agreement between ILC Technology, Inc. and Dean A.
Mac Farland dated January 29, 1993.*
10.12 (G) Purchase and Sale Agreement dated June 24, 1994, by and
between UCB Bank PLC and Q-Arc, Limited relating to property on
the south side of Saxon Way, Bar Hill, Cambridge, England.
10.13 (G) Asset Purchase Agreement dated September 16, 1994, by and between
ILC Technology, Inc. and UVP, Inc.
INDEX TO EXHIBITS (CONTINUED)
10.14 Lease Agreement between Converter Power, Inc. (150 Sohier
Road, Beverly, Massachusetts) and Communications & Power
Industries, Inc., dated September 15,
1995
21.1 (G) Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
99.1 Proxy Statement for the Company's 1995 Annual Meeting of
Shareholders (to be deemed filed only to the extent required
by General Instructions H to Form 10-K)
- -------------------------------------------------------------------------------
(A) Incorporated by reference from the Exhibits to Registrant's
Annual Report on Form 10-K for the fiscal year ended September
28, 1991.
(B) Incorporated by reference from the Exhibits to Registrant's
Current Report on Form 8-K dated September 19, 1989.
(C) Incorporated by reference from the Exhibits to Registrant's
Annual Report on Form 10-K for the fiscal year ended September
30, 1988.
(D) Incorporated by reference from the Exhibits to Registrants'
Annual Report on Form 10-K for the fiscal year ended October
3, 1992.
(E) Incorporated by reference from the Exhibits to Registrants'
Registration Statement on Form S-3, as amended (File No.
33-59904), effective May 19, 1993.
(F) Incorporated by reference from the Exhibits to Registrants
Annual Report on Form 10-K for the fiscal year ended October
2, 1993.
(G) Incorporated by reference from the Exhibits to Registrants'
Registration Statement on Form 10-K for the year ended October
1, 1994.
* Management Contract or Compenstory Plan or arrangement.