SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 29, 1996
Commission file number 0-21294
Aseco Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2816806
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
500 Donald Lynch Boulevard, Marlboro, Massachusetts 01752
(Address of principal executive offices)
(508)481-8896
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of December 29, 1996.
Common Stock, $.01 par value 3,641,300
(Title of each class) (Number of shares)
ASECO CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at December 29, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Income (unaudited)
for the three months and nine months ended
December 29, 1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
December 29, 1996 and December 31, 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data) December 29, March 31,
1996 1996
ASSETS
Current Assets
Cash and cash equivalents $ 14,245 $ 14,083
Accounts receivable, less allowance for
doubtful accounts of $410 at December 29,
1996 and $397 at March 31, 1996 8,474 12,346
Inventories, net 8,999 7,059
Prepaid expenses and other current assets 1,549 864
--------- --------
Total current assets 33,267 34,352
Plant and equipment, at cost 4,825 4,187
Less accumulated depreciation and amortization 2,726 2,176
--------- --------
2,099 2,011
Other assets, net 396 318
--------- --------
$ 35,762 $ 36,681
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,595 $ 3,441
Accrued expenses 2,672 3,923
Income taxes payable 274 476
Current portion of capital lease obligations 13 13
--------- ---------
Total current liabilities 4,554 7,853
Deferred taxes payable 493 370
Long-term capital lease obligations 32 42
Stockholders' equity
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued and outstanding --- ---
Common stock, $.01 par value: Authorized
15,000,000 shares, issued and outstanding
3,641,300 and 3,611,501 shares at December 29,
1996 and March 31, 1996, respectively 36 36
Additional paid in capital 17,456 17,234
Retained earnings 13,191 11,146
-------- --------
Total stockholders' equity 30,683 28,416
-------- --------
$ 35,762 $ 36,681
========= ========
See notes to condensed consolidated financial statements
ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except share and per share data)
Three months ended Nine months ended
------------------------------ -------------------------------
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
- -------------------------------------------------------------------------------
Net sales $ 6,722 $ 10,998 $ 26,712 $ 29,875
Cost of sales 3,595 5,433 14,013 15,047
------- -------- -------- --------
Gross profit 3,127 5,565 12,699 14,828
Research and 1,287 1,228 3,798 3,453
development costs
Selling, general 1,713 2,640 6,381 6,807
and administrative ------- ------- ------- -------
expenses
Income from operations 127 1,697 2,520 4,568
Other income (expense):
Interest income 166 153 489 388
Interest expense (1) (1) (5) (12)
------- ------- ------- -------
165 152 484 376
------- ------- ------- -------
Income before income
taxes 292 1,849 3,004 4,944
Income tax expense 58 684 959 1,800
------- ------- ------- -------
Net income $ 234 $ 1,165 $ 2,045 $ 3,144
======= ======== ======== ========
Earnings per share $ .06 $ .31 $ .55 $ .83
======= ======== ======== ========
Weighted average common
shares and common
equivalent shares
outstanding 3,711,000 3,801,000 3,708,000 3,782,000
See notes to condensed consolidated financial statements
ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months ended
December 29, December 31,
1996 1995
Operating activities
Net income $ 2,045 $ 3,144
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 679 545
Deferred income taxes (162) --
Changes in assets and liabilities:
Accounts receivable 3,872 (1,457)
Inventories, net (1,940) (452)
Prepaid expenses and other current assets (400) (32)
Accounts payable and accrued expenses (3,097) 1,618
Income taxes payable (137) 941
------- -------
Total adjustments (1,185) 1,163
------- -------
Cash provided by operating activities 860 4,307
Investing activities:
Acquisition of plant and equipment (638) (445)
Increase in software development costs and
other assets (207) (40)
------- -------
Cash used in investing activities (845) (485)
Financing activities:
Net proceeds from issuance of common stock 157 476
Reductions of long-term capital lease obligations (10) (8)
------- -------
Cash provided by financing activities 147 468
------- -------
Net increase (decrease) in cash and cash
equivalents 162 4,290
Cash and cash equivalents at the beginning
of period 14,083 9,301
------- -------
Cash and cash equivalents at the
end of period $ 14,245 $ 13,591
======== ========
See notes to condensed consolidated financial statements
ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 29, 1996
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
and nine-month periods ended December 29, 1996 are not necessarily indicative
of the results that may be expected for the year ended March 30, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended March 31, 1996.
2. The computations of earnings per share are based on the weighted
average number of outstanding shares of common stock and common equivalent
shares (using the treasury stock method). Fully diluted earnings per share
have not been separately presented as the amount does not differ significantly
from primary earnings per share.
3. Inventories:
Inventories consisted of:
(in thousands)
December 29, March 31,
1996 1996
Raw Material $ 4,958 $ 3,491
Work in Process 1,409 2,218
Finished Goods 2,632 1,350
-------- --------
$ 8,999 $ 7,059
======== ========
4. On April 1, 1996, the Company adopted Financial Accounting Standard
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which establishes criteria for the recognition and
measurement of impairment loss associated with long-lived assets. Adoption of
this standard did not have a material impact on the Company's financial
position or results of operations.
5. On April 15, 1996, the Company loaned an executive officer of the
Company $140,000. The loan bears interest at the rate of 5.33% per annum,
compounded annually, and is due and payable in full on the earlier of the
termination of the executive officer's employment with the Company or April
15, 1999. The loan is secured by shares of the Company's common stock owned
by the executive officer.
6. On August 15, 1996, the Board of Directors adopted a Stockholder Rights
Plan. Pursuant to the Stockholder Rights Plan, each share of common stock has
an associated right. Under certain circumstances, each right entitles the
holder to purchase from the Company one one-thousandth of a share of junior
preferred stock at an exercise price of $55.00 per one one-thousandth of a
share, subject to adjustment.
The rights are not exercisable and cannot be transferred separately from the
common stock until ten days after a person acquires or obtains the right to
acquire 15% or more or makes a tender offer for 30% or more of the Company's
common stock. Upon exercise, each right will entitle the holder to purchase,
at the right exercise price, common stock having a value of two times the
exercise price of the right. In addition, if the Company is either (i)
acquired in a merger or other business combination in which the Company is not
the surviving entity, or (ii) sells or transfers 50% or more of its assets or
earning power to another party, each right will entitle its holder to
purchase, upon exercise, common stock of the acquiring Company having a value
equal to two times the exercise price of the right.
The rights have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire a
significant interest in the Company on terms not approved by the Board of
Directors. The rights expire on August 15, 2006 but may be redeemed by the
Company for $.01 per right at any time prior to the tenth day following a
person's acquisition of 15% or more of the Company's common stock. So long as
the rights are not separately transferable, the Company will issue one right
with each new share of common stock issued.
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three and Nine months ended December 29, 1996
RESULTS OF OPERATION
Net sales for the first nine months of fiscal 1997 decreased 11% to $26.7
million compared to $29.9 million for the first nine months of fiscal 1996.
Net sales for the third quarter of fiscal 1997 decreased 39% to approximately
$6.7 million versus $11 million for the same quarter last year. The decrease
in net sales between the two third quarter periods resulted from a decline in
the number of units shipped during the third quarter of fiscal 1997 as a
result of an industry wide market downturn. The impact of the unit decrease
was partially offset by higher average selling prices across most models which
was attributable to added automation features and other product enhancements.
International sales represented approximately 50% of net sales for the first
nine months of fiscal 1997 versus 40% in the first nine months of fiscal 1996.
International sales represented approximately 36% of net sales in the third
quarter of fiscal 1997 versus 42% in the third quarter of fiscal 1996.
Approximately 75% of all international sales were to customers located in the
Pacific Rim region.
Gross margin for the first nine months of fiscal 1997 was 48% compared to 50%
in the same period last year. Gross margin in the third quarter of fiscal
1997 was 47% compared to 51% in the third quarter of fiscal 1996. The lower
margin percentages were the result of manufacturing overhead spending
declining at a slower rate than sales reflecting the Company's view that
investments in manufacturing capacity should be based on a long term plan
rather than the operating results of individual quarters.
Research and development expenses increased 10% to $3.8 million in the first
nine months of fiscal 1997 from $3.5 million in the first nine months of
fiscal 1996. Research and development expenses increased 5% in the third
quarter of fiscal 1997 to $1.3 million from $1.2 million in the third quarter
of fiscal 1996. Research and development expenses also increased as a
percentage of sales to 19% in the third quarter of fiscal 1997 from 11% in the
third quarter of fiscal 1996 reflecting the Company's commitment to a long
range research and development program notwithstanding fluctuations in net
sales.
Selling, general and administrative expenses for the first nine months of
fiscal 1997 were $6.4 million, down 6%, versus $6.8 million in the first nine
months of fiscal 1996. Selling, general and administrative expenses for the
third quarter of fiscal 1997 were $1.7 million, down 35% from $2.6 million in
the same quarter last year. The quarterly spending decrease was primarily the
result of a decrease in sales commissions earned during the third quarter of
fiscal 1997 resulting from lower net sales and, to a lesser extent, a decrease
in commission rates resulting from the higher percentage of domestic sales
which earned lower commission rates. The quarterly spending decrease was also
due to a reduction in personnel related expenses undertaken by the Company in
light of the industry-wide market downturn.
Operating income in the first nine months of fiscal 1997 was $2.5 million
compared to $4.6 million in the first nine months of fiscal 1996, a decrease
of approximately 45%. Operating income in the third quarter of fiscal 1997
decreased approximately 93% to $127,000 from $1.7 million in the third
quarter of fiscal 1996.
The tax rate for the first nine months of fiscal 1997 was 32% versus 36% in
the same period last year. The tax rate for the third quarter of fiscal 1997
was 20% versus 37% in the same quarter last year. The decrease in the third
quarter tax rate is primarily due to increased international sales which are
taxed at a lower tax rate coupled with the anticipated benefit to be realized
from research and development tax credits as the Company accelerated spending
on qualified development projects.
As a result of the foregoing, net income for the first nine months of fiscal
1997 was $2.0 million, or $.55 per share, as compared to $3.1 million, or $.83
per share, for the first nine months of fiscal 1996. Net income for the
third quarter of fiscal 1997 was $234,000, or $.06 per share, versus $1.2
million, or $.31 per share, for the third quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the third quarter of fiscal 1997 with a cash position of
approximately $14.2 million. Additionally, the Company has an unsecured line
of credit with a bank in the amount of $5.0 million against which there were
no borrowings at the end of the third quarter of fiscal 1997.
The Company generated approximately $860,000 of cash from operations during
the first nine months of fiscal 1997. Accounts receivable decreased
approximately $3.9 million in the first nine months of fiscal 1997 due to the
decrease in net sales. Inventory increased approximately $1.9 million during
the first nine months of fiscal 1997 and remained relatively consistent
with the prior quarter. The year to date inventory increase is due to the
Company's strategic decision to build machines beyond forecasted demand in
order to be in a position to take advantage of late quarter changes in
customer demand and product mix.
The Company used $638,000 in cash during the first nine months of fiscal 1997
to fund the acquisition of capital equipment and $207,000 to fund internal
software development costs. The Company expects that its investment in
capital equipment in fiscal 1997 will be greater than in fiscal 1996.
The Company generated cash from financing activities in the first nine months
of fiscal 1997 of $147,000, primarily from employee stock purchases under the
Company's employee stock plans.
The Company believes that funds generated from operations, existing cash
balances and available borrowing capacity will be sufficient to meet the
Company's cash requirements for at least the next twelve months.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company's future results are difficult to predict and may be affected by a
number of important risk factors including, but not limited to, the factors
listed in the Company's Annual Report on Form 10K for the fiscal year ended
March 31, 1996. The Company wishes to caution readers that those important
factors, in some cases, have affected, and in the future could affect, the
Company's actual consolidated quarterly or annual operating results and could
cause those actual consolidated quarterly or annual operating results to
differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company.
ASECO CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 2. Changes in Securities:
Effective as of January 2, 1997, the Company appointed American
Stock Transfer & Trust Company to replace State Street Bank and Trust Company
as its Transfer Agent and as the Rights Agent under its shareholder rights
plan. In connection with such appointment, the Company and American Stock
Transfer & Trust Company amended the Rights Agreement dated as of August 15,
1996 to lower the level of capital required for the Rights Agent from $50
million to $10 million.
Item 3. Defaults upon Senior Securities:
None.
Item 4. Submissions of Matters to a Vote of Security Holders:
Item 5. Other Information:
None.
Item 6. Exhibits and reports on Form 8-K:
a. See Exhibit Index
b. There were no reports on Form 8-K filed for the three months
ended December 29, 1996.
EXHIBIT INDEX
Exhibit Number Description
4.2 Rights Agreement dated August 15, 1996 between the Company
and State Street Bank & Trust Company as Rights Agent as
filed on the Company's Registration Statement on Form 8-A
with the Commission on August 28, 1996 and incorporated
herein by reference.
4.3 Amendment Number One to Rights Agreement dated January 2,
1997 between the Company and American Stock Transfer
& Trust Company.
10.14 Promissory Note between the Company and Sebastian J.
Sicari dated April 15, 1996.
10.15 Pledge Agreement between the Company and Sebastian J.
Sicari dated April 15, 1996.
ASECO CORPORATION
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.
Signature Title Date
/s/ Carl S. Archer, Jr. President and Chief Executive February 12, 1997
- ----------------------- Officer (principal executive
Carl S. Archer, Jr. officer)
/s/ Sebastian J. Sicari Vice President, Finance and February 12, 1997
- ----------------------- Administration, Chief Financial
Sebastian J. Sicari Officer, Treasurer (principal
financial and accounting officer)