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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR
/ / TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO _______________________
COMMISSION FILE NUMBER 0-16182
AXSYS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-1962029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
910 SYLVAN AVENUE
ENGLEWOOD CLIFFS, NEW JERSEY 07632
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 871-1500
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 / /
3,978,429 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AS OF MAY 5,
2000.
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AXSYS TECHNOLOGIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AXSYS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 21,630 $ 385
Accounts receivable - net ............................... 11,598 11,537
Inventories - net ....................................... 24,508 25,866
Net assets held for sale ................................ -- 7,227
Other current assets .................................... 3,537 2,994
-------- --------
TOTAL CURRENT ASSETS .................................. 61,273 48,009
PROPERTY, PLANT AND EQUIPMENT - net ....................... 12,627 11,949
EXCESS OF COST OVER NET ASSETS ACQUIRED - net ............. 3,848 3,883
OTHER ASSETS .............................................. 305 309
-------- --------
TOTAL ASSETS .......................................... $ 78,053 $ 64,150
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................ $ 6,422 $ 6,207
Accrued expenses and other liabilities .................. 12,769 5,282
Current portion of long-term debt and capital lease
obligations ........................................... 934 5,125
-------- --------
TOTAL CURRENT LIABILITIES ............................. 20,125 16,614
LONG-TERM DEBT & CAPITAL LEASES, less current portion ..... 1,556 1,793
OTHER LONG-TERM LIABILITIES ............................... 2,516 2,042
SHAREHOLDERS' EQUITY:
Common Stock, authorized 30,000,000 shares, issued
4,126,007 shares at March 31, 2000 and 4,122,767
at December 31, 1999 .................................. 41 41
Capital in Excess of Par ................................ 39,471 39,454
Retained Earnings ....................................... 15,974 5,844
Treasury Stock, at cost, 151,578 shares at March 31, 2000
and 152,338 at December 31, 1999 ...................... (1,630) (1,638)
-------- --------
TOTAL SHAREHOLDERS' EQUITY ............................ 53,856 43,701
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $ 78,053 $ 64,150
======== ========
See accompanying notes to condensed consolidated financial statements.
3
AXSYS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
------------- --------------
NET SALES .................................. $ 19,477 $ 20,583
Cost of sales .............................. 18,696 15,336
Selling, general and administrative expenses 5,385 4,327
Research and development expenses .......... 770 972
Restructuring charge ....................... 1,359 --
Amortization of intangible assets .......... 35 100
----------- -----------
OPERATING LOSS ............................. (6,768) (152)
Interest expense, net ...................... 105 127
Special charge ............................. -- 1,000
Other (income) expense ..................... (44) 1
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (6,829) (1,280)
Benefit for income taxes ................... (2,670) (528)
----------- -----------
LOSS FROM CONTINUING OPERATIONS ............ (4,159) (752)
DISCONTINUED OPERATIONS:
Income from operations, net of taxes ..... 513 416
Gain on disposal, net of taxes ........... 13,776 --
----------- -----------
NET INCOME (LOSS) .......................... $ 10,130 $ (336)
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Loss from continuing operations .......... $ (1.04) $ (0.18)
Discontinued operations .................. 3.59 0.10
----------- -----------
TOTAL ...................................... $ 2.55 $ (0.08)
=========== ===========
Weighted average common shares outstanding . 3,975,933 4,106,247
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
AXSYS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 10,130 $ (336)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Gain on disposal of discontinued operations .............. (13,776) --
Deferred income taxes .................................... -- --
Depreciation and amortization ............................ 829 728
Change in net assets of discontinued operation ........... (1,476) (286)
Decrease (increase) in current assets, other than cash ... 754 (483)
Decrease in current liabilities .......................... (554) (261)
Other-net ................................................ 19 (37)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES .................. (4,074) (675)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................... (1,491) --
Net proceeds from sale of discontinued operation ......... 31,223 --
Advance to third party ................................... -- (331)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .... 29,732 (331)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings ............................. -- 1,324
Net repayment of borrowings .............................. (4,428) (257)
Other .................................................... 15 4
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES .... (4,413) 1,071
-------- --------
NET INCREASE IN CASH ................................... 21,245 65
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 385 69
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 21,630 $ 134
======== ========
Supplemental Cash Flow Information:
Cash paid for:
Interest ............................................... $ 144 $ 92
Income Tax ............................................. 180 50
Non-Cash Investing and Financing Activities:
Equipment acquired under capital leases ................ $ -- $ 1,043
See accompanying notes to condensed consolidated financial statements.
5
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Axsys
Technologies, Inc. (the "Company") 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 disclosures required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation (consisting of normal recurring accruals) have been included.
Operating results for the three month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Certain reclassifications have been made to previously reported financial
statements to conform to current classifications.
NOTE 2 - DISCONTINUED OPERATIONS
On March 17, 2000, the Company sold the net assets of its Beau Interconnect
division ("Beau") for $31.2 million for cash, net of expenses, and recorded a
gain of $22.5 million, before a tax provision of $8.4 million in the first
quarter of 2000, subject to a post closing adjustment. Beau has been accounted
for as a discontinued operation and the related net assets and operating results
have been reported separately from continuing operations in all periods
presented. Beau designs and manufactures interconnect devices, barrier terminal
blocks and connectors. Income from discontinued operations was $846 thousand,
before a tax provision of $333 thousand in 2000 and $708 thousand, before a tax
provision of $292 thousand in 1999. Revenues applicable to Beau during each
period of the three months ended March 31, 2000 and 1999 were $4.6 million. The
net assets of Beau at December 31, 1999 have been included in current assets.
Proceeds from the sale were utilized to pay off the Company's credit facility of
$4.2 million at December 31, 1999 which liabilities have been included in
current liabilities.
In the first quarter of 2000, the Company was advised by its environmental
consultants that the costs associated with the remediation of two previously
discontinued operation sites were estimated to be higher than originally
anticipated. The revised estimates to remediate these sites range from
approximately $1.1 million to $1.3 million. Actual costs may be different than
these estimates. Based on this information, the Company increased its reserve
relating to these sites in the first quarter of 2000 to approximately $1.2
million by recording a discontinued operation charge of $500 thousand, before a
tax benefit of $195 thousand.
NOTE 3 - INVENTORIES
Inventories have been determined generally by lower of cost (first-in, first-out
or average) or market. Inventories consist of (in thousands):
MARCH 31, DECEMBER 31,
2000 1999
------------ -------------
Raw materials ................ $ 9,184 $ 9,411
Work-in-process .............. 8,722 8,245
Finished goods ............... 12,046 11,669
-------- --------
29,952 29,325
Less reserves ................ (5,444) (3,459)
-------- --------
$ 24,508 $ 25,866
======== ========
6
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4 - TREASURY STOCK
In August 1998, the Company's Board of Directors authorized the repurchase, from
time to time, on the open market or otherwise, of up to 200,000 shares of the
Company's common stock at prevailing market prices or at negotiated prices.
During July 1999, the Company's Board of Directors authorized an increase in the
share repurchase program from an aggregate of 200,000 shares of common stock to
an aggregate of 700,000 shares. The Company plans to use the repurchased shares
for general corporate purposes, including the satisfaction of commitments under
its employee benefit plans. As of March 31, 2000, the Company has repurchased
262,200 shares for an aggregate purchase price of $3.1 million.
NOTE 5 - INCOME TAXES
The Company has determined, based upon the level of its current taxable income,
it is more likely than not that it will realize the benefit of its deferred tax
assets which previously had been fully reserved with a valuation allowance.
Consequently, during the first quarter of 2000, the Company reversed $728
thousand of its valuation allowance related to net deferred tax assets of its
discontinued operations with the corresponding tax benefit included in the
results of discontinued operations.
As of March 31, 2000, the Company had no tax valuation allowance.
NOTE 6 - SEGMENT DATA
The Company recently announced a strategic realignment whereby the Company's
structure is organized by market segment in two new major groups. The strategic
realignment has resulted in a change in the composition of its reportable
segments and, accordingly, the Company has restated all periods reported. The
Company classifies its businesses under two major groups, the Aerospace and
Defense Group ("ADG") and Commercial Products Group ("CPG"). The ADG offers its
capabilities in magnetics, precision optics, precision machining and subsystems
integration to space and defense original equipment manufacturers ("OEMs")
enabling them to design systems that meet leading-edge performance requirements.
The ADG designs, manufactures and sells high-end components such as precision
sensors, high-performance motors, precision metal optics and airbearings. These
products enable OEMs to improve measurement precision, positioning performance
(accuracy, speed and power) and weight requirements in their systems. The CPG
designs, manufactures and sells components, subsystems and systems to
high-performance OEMs and end users serving the electronic capital equipment,
data storage and digital imaging markets. These products enable OEMs to improve
the accuracy, throughput and yield of their equipment and processes. The CPG
also distributes precision ball bearings, acquired from various domestic and
international sources, to OEMs and Maintenance and Repair Organization
distributors supporting industrial and commercial markets.
As discussed in Note 2, the Company sold its Beau division. The disposal of this
business has been accounted for as a discontinued operation and, accordingly,
its related operating results have been reported separately from continuing
operations. The segment data below excludes its results.
7
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6 - SEGMENT DATA - CONT'D.
The following tables present financial data for each of the Company's segments
(in thousands).
THREE MONTHS ENDED MARCH 31,
2000 1999
------------- -----------
Net sales from continuing operations:
ADG ........................................ $ 6,018 $ 8,997
CPG ........................................ 13,459 11,586
-------- --------
Total Sales ........................ $ 19,477 $ 20,583
======== ========
(Loss) earnings from continuing operations
before amortization, interest and taxes:
ADG ........................................ $ (4,490) $ 378
CPG ........................................ 35 377
Restructuring charge ....................... (1,359) --
Non-allocated expenses ..................... (1,015) (2,035)
-------- --------
Loss from continuing operations
before taxes ................... $ (6,829) $ (1,280)
======== ========
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
Identifiable assets:
ADG ........................................ $ 23,692 $ 24,103
CPG ........................................ 25,971 26,595
Net assets held for sale ................... - 7,227
Non-allocated assets ....................... 28,390 6,225
-------- --------
Total assets ......................... $ 78,053 $ 64,150
======== ========
Included in non-allocated expenses are the following: general corporate expense,
interest expense, amortization of goodwill, special charges and other income and
expense. Identifiable assets by segment consist of those assets that are used in
the segments' operations. Non-allocated assets are comprised primarily of cash
and cash equivalents, goodwill and net deferred tax assets.
NOTE 7 - OTHER INFORMATION (IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
-------------- --------------
Allowance for doubtful accounts .......... $ 358 $ 503
======== =======
Accumulated depreciation and amortization
Of property, plant and equipment ........ $ 10,403 $ 9,793
======== =======
Accumulated amortization of excess of cost
Over net assets acquired ............... $ 1,069 $ 1,034
======== =======
8
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8 - RESTRUCTURING CHARGE AND SPECIAL CHARGE
RESTRUCTURING CHARGE-
On February 11, 2000, Axsys announced a strategic realignment of its businesses.
Specifically, Axsys adopted a plan to improve efficiency and enhance
competitiveness under two new major groups to better serve its markets and
customers. In conjunction with the strategic realignment, Axsys recorded a
non-recurring charge to earnings in the first quarter of 2000 of $4.6
million, before taxes, including $1.4 million that was recorded as a
restructuring charge, $2.5 million that was charged to cost of sales
primarily relating to slow moving and potentially obsolete inventory, and
$688 thousand that was charged to selling, general and administrative
expenses. Included in the $1.4 million restructuring charge was $813 thousand
of severance costs related to personnel reductions and $546 thousand of costs
relating to the relocation of the Company's San Diego, California facility.
Of the $813 thousand in severance costs, $172 thousand has been paid as of
March 31, 2000, leaving accrued severance costs of $641 thousand at March 31,
2000. Approximately 50 employees have been terminated mostly in indirect
labor and management positions.
SPECIAL CHARGE-
On November 20, 1998, the Company's Chairman and CEO (the "Chairman") and the
owner at that date of approximately 31% of the Company's common stock, submitted
an offer to purchase all of the common stock not owned by him for $15.00 per
share in cash (the "Chairman's Proposal"). Shortly thereafter, the Company's
Board of Directors formed a Special Committee to evaluate the Chairman's
Proposal. On January 11, 1999, the Company received an unsolicited offer to
purchase the Company for $20.00 per share in cash. In response to this
unsolicited offer, the Chairman withdrew his proposal, and on January 13, 1999,
the Company publicly announced that the Board of Directors had dissolved the
Special Committee and authorized the retention of investment bankers to explore
various strategic alternatives, including the potential sale of the Company. On
January 29, 1999, the Company publicly announced that the Board of Directors had
instructed its investment bankers to explore the potential sale of the Company.
During the first quarter of 1999, the Company recorded a pre-tax special charge
of $1.0 million for expenses related to a process of exploring the potential
sale of the Company. On June 15, 1999, the Company publicly announced that its
Board of Directors had determined not to pursue a sale of the Company at that
time. During the third quarter of 1999, the Company reduced its first quarter
pre-tax special charge by $216 thousand to reflect actual costs.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
sales for the three month period ended March 31, 2000 and 1999. On March 17,
2000 the Company sold its Beau Interconnect division. This divestiture has been
accounted for as a discontinued operation. The results of the operations of Beau
Interconnect and the gain from the disposal are reflected in discontinued
operations.
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ -------------
Net sales:
ADG ............................................ 30.9% 43.7%
CPG ............................................ 69.1 56.3
----- -----
Total Company .......................... 100.0 100.0
----- -----
Cost of sales ...................................... 96.0 74.5
----- -----
Gross profit ....................................... 4.0 25.5
----- -----
Operating expenses:
Selling, general and administrative expenses ... 27.6 21.0
Research and development expenses .............. 4.0 4.7
Restructuring charge ........................... 7.0 --
Amortization of intangible assets ............... 0.1 0.5
----- -----
38.7 26.2
----- -----
Operating loss ..................................... (34.7) (0.7)
Interest expense, net .......................... 0.5 0.6
Special charge ................................. -- 4.9
Other income ................................... (0.2) --
----- -----
Loss from continuing operations before taxes ....... (35.0) (6.2)
Benefit for income taxes ......................... 13.7 2.6
----- -----
Loss from continuing operations .................... (21.3) (3.6)
Discontinued operations:
Income from operations, net of taxes ............. 2.6 2.0
Gain on disposal, net of taxes ................... 70.7 --
----- -----
Net income (loss) .................................. 52.0% (1.6)%
===== =====
Gross profit (as a percentage of related net sales):
ADG ................................................ (47.5)% 20.7%
CPG ................................................ 27.0 29.2
10
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
NET SALES. Net sales decreased by 5.4%, or $1.1 million, to $19.5 million in the
three month period ended March 31, 2000 from $20.6 million in the same period of
1999. In the ADG, sales decreased by 33.1%, or $3.0 million, to $6.0 million in
2000 from $9.0 million in 1999. The decrease in ADG sales was the result of
softness in orders in the defense market during the latter part of 1999 as well
as product returns and delayed shipments principally caused by quality issues.
This decrease was partially offset by an increase in the commercial space market
due to the shipment of two large space based flight units. The CPG's sales
increased by 16.2%, or $1.9 million to $13.5 million in 2000 from $11.6 million
in 1999. The increase in CPG sales was primarily the result of an increase in
precision ball bearings which were up 12.4% over 1999 due to an improvement in
revenues from the electronics capital equipment market and the identification of
new customer opportunities. In addition, the CPG sales improved due to an
increase in demand in the digital imaging market.
GROSS PROFIT. Axsys' gross profit decreased to $0.8 million in 2000 from $5.2
million in 1999. The decrease was largely due to non-recurring charges of
$2.5 million during the quarter related to slow moving and potentially
obsolete inventory. Before recognizing these one-time charges, gross profit
percentage declined to 14.5% in 2000, compared to 25.5% in 1999. Consolidated
results were also affected by lower sales volume in the ADG, causing
reduced absorption of manufacturing overhead in the quarter, as well as
product returns and product mix. First quarter gross profit for the ADG
decreased to -47.5% for the quarter, or -10.4% before the inventory
write-off, from 20.7% in 1999. Most of the effects of inventory charges,
product returns, and lower sales volume impacted ADG results in the first
quarter of 2000. Introduction of lean manufacturing techniques, combined with
stronger volume and the lack of non-recurring inventory charges, should
restore ADG gross profit margins to healthier levels in future reporting
periods. First quarter gross profit for the CPG decreased to 27.0% for the
quarter, or 29.2% before the inventory write-off, from 29.2% in 1999. The
decline in the CPG gross margin was due to a non-recurring inventory charge
of $0.3 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by 24.5%,
or $1.1 million, to $5.4 million in 2000 from $4.3 million in 1999. The increase
in SG&A expenses was primarily due to a non-recurring charge of $0.7 million
relating to certain non-inventory asset write-offs and the relocation,
recruiting and training of management personnel. In addition, selling expenses
within the precision ball bearings division of the CPG segment increased in
order to meet increased customer demand.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses decreased by 20.8%, or $0.2
million, to $0.7 million in 2000 from $0.9 million in 1999, primarily due to
lower spending on new product development for the defense and electronics
capital equipment markets.
RESTRUCTURING CHARGE. During the first quarter of 2000, Axsys announced a
strategic realignment of its businesses. Specifically, Axsys adopted a plan to
improve efficiency and enhance competitiveness under two new major groups to
better serve its markets and customers. In conjunction with the strategic
realignment, Axsys recorded a non-recurring restructuring charge of $1.4 million
relating to severance pay for approximately 50 employees ($0.8 million) and
costs relating to the relocation of its San Diego, California facility ($0.5
million) (see Note 8 of the Condensed Consolidated Financial Statements).
INTEREST EXPENSE, NET. Net interest expense of $0.1 million in 2000 was
substantially the same as 1999.
SPECIAL CHARGE. Axsys recorded a pre-tax special charge of $1.0 million in the
first quarter of 1999 for expenses related to exploring the potential sale of
Axsys, which process was discontinued during the second quarter of 1999. In the
third quarter of 1999 Axsys reduced its first quarter special charge by $0.2
million, pre-tax, to reflect actual costs (see Note 8 of the Condensed
Consolidated Financial Statements).
TAXES. Axsys' effective tax rate decreased to 39.1% in 2000 from an effective
tax rate of 41.3% in 1999. The decrease in the effective rate is due to the
higher amount of non-deductible amortization expense in 1999.
DISCONTINUED OPERATIONS. In March 2000, Axsys sold its Beau Interconnect
division. Results of operations from the discontinued business have been
reported separately from continuing operations in all periods presented. The
sale of Beau resulted in a gain of $22.5 million, before a tax provision of $8.4
million. Axsys also recorded a discontinued operation charge of $0.5 million,
before a tax benefit of $0.2 million, to increase its environmental reserves for
the remediation of two former operating sites.
11
BACKLOG
A substantial portion of Axsys' business is of a build-to-order nature requiring
various engineering, manufacturing, testing and other processes to be performed
prior to shipment. As a result, Axsys generally has a significant backlog of
orders to be shipped. The total backlog of orders increased by 10% or $4.4
million, to $47.1 million at March 31, 2000 from $42.7 million at December 31,
1999. The increase is primarily in the backlog from the defense and space
markets. The increase in backlog from the defense market is primarily due to an
order booked in the first quarter related to components used in the sighting and
targeting systems for foreign military tanks for approximately $1.5 million. The
increase in backlog in the space market is primarily due to an order booked in
the first quarter related to a beryllium shaft and housing for commercial
satellites of approximately $1.0 million. Axsys believes that a substantial
portion of the backlog of orders at March 31, 2000 will be shipped over the next
twelve months.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations for the three months ended March 31, 2000 and 1999
was $4.1 million and $0.7 million, respectively. The increase in cash used in
operations in 2000 was primarily due to reduced earnings. As a result of the
sale of Beau Interconnect, it is anticipated that Axsys will be paying taxes of
approximately $8.4 million on the pre-tax gain of $22.5 million. The Company's
working capital was $41.1 million and $31.4 million on March 31, 2000 and
December 31, 1999, respectively.
Net cash provided by (used in) investing activities for the three months ended
March 31, 2000 and 1999 was $29.7 million and $(0.3) million, respectively. The
cash provided by investing activities in 2000 was generated from the sale of
Beau for cash consideration of $31.2 million, net of expenses, partially offset
by capital expenditures of $1.5 million. In 1999, all capital expenditures were
funded through capital lease obligations. Axsys is upgrading its voice, video
and data communications infrastructure throughout the company and is committed
to upgrades of approximately $0.6 million, which may be funded through capital
lease obligations. Axsys had no other material commitments for capital
expenditures as of March 31, 2000. Based on an evaluation of available lease
terms and other factors, Axsys may continue to finance a portion of its capital
expenditures through capital leases.
Net cash (used in) provided by financing activities for the three months ended
March 31, 2000 and 1999 was $(4.4) million and $1.1 million, respectively. In
conjunction with the sale of its Beau division, Axsys terminated its credit
facility and paid down the outstanding balance of the credit facility in 2000.
Axsys funds its operations primarily from cash flow generated by operations and,
to a lesser extent, through capital lease transactions. Axsys terminated its
credit facility with the proceeds from the sale of Beau. Cash and cash
equivalents are held in investment grade funds that mature in less than three
months. Axsys believes that its current cash and cash equivalents balance and
the cash generated from operations will be sufficient to finance future capital
expenditures, working capital requirements, cash expenditures related to its
restructuring, tax payments related to the sale of Beau Interconnect and the
potential purchase of additional common stock for at least the next 12 months.
RESTRUCTURING
On February 11, 2000, Axsys announced a strategic realignment of its businesses.
Specifically, Axsys adopted a plan to improve efficiency and enhance
competitiveness under two new major groups to better serve its markets and
customers. In conjunction with the strategic realignment, Axsys recorded a
non-recurring charge to earnings in the first quarter of 2000 of $4.6 million,
before taxes, including $1.4 million that was recorded as a restructuring
charge, $2.5 million that was charged to cost of sales primarily relating to
slow moving and potentially obsolete inventory, and $688 thousand that was
charged to selling, general and administrative expenses. Included in the $1.4
million restructuring charge was $813 thousand of severance costs related to
personnel reductions and $546 thousand of costs relating to the relocation of
the Company's San Diego, California facility. Of the $813 thousand in severance
costs, $172 thousand has been paid as of March 31, 2000, leaving accrued
severance costs of $641 thousand at March 31, 2000. Approximately 50 employees
have been terminated mostly in indirect labor and management positions. In
addition, Axsys anticipates additional restructuring charges up to $750 thousand
to be recorded in the next three quarters.
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YEAR 2000 TRANSITION
Through the date of this report, Axsys did not experience any difficulties
with its computer systems as a result of the transition from 1999 to 2000. Year
2000 compliance issues had no significant impact on the financial condition of
Axsys through March 31, 2000, nor are they expected to have any effect during
the remainder of 2000. The cost of Year 2000 compliance remediation from
continuing operations was approximately $1.1 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS
No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. Management does not believe that the implementation of the
statement will have a material impact on the consolidated financial position or
consolidated results of operations of Axsys.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q provides certain forward-looking statements.
The Company's business is subject to a variety of risks and uncertainties. As a
result, actual future results and developments may be materially different from
those expressed or implied in any forward-looking statement. Disclosure
regarding factors affecting the Company's future results and developments is
contained in the Company's public filings with the Securities and Exchange
Commission, including the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject the Company to
material risk exposures.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable during the quarter ended March 31, 2000.
ITEM 5. OTHER INFORMATION
Not applicable during the quarter ended March 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 (1): Financial Data Schedule (For SEC use only).
Exhibit 27 (2): Restated Financial Data Schedule (For SEC use
only).
b) Reports on Form 8-K
Not applicable.
SIGNATURES
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 indicated this 12th day of May, 2000.
Date: May 12, 2000 AXSYS TECHNOLOGIES, INC.
By: /s/ Stephen W. Bershad
----------------------
Stephen W. Bershad
Chairman of the Board and Chief
Executive Officer
/s/ Mark J. Bonney
------------------
Mark J. Bonney
President and Chief Operating Officer
/s/ John E. Hanley
------------------
John E. Hanley
Vice President-Finance and Chief
Financial Officer
(Principal Financial Officer)
14