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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, 2001 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)
175 CAPITAL BOULEVARD, SUITE 103
ROCKY HILL, CONNECTICUT 06067
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 257-0200
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
--- ---
4,684,841 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AS OF
MAY 14, 2001.
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AXSYS TECHNOLOGIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 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 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 share data)
(Unaudited)
MARCH 31, DECEMBER 31,
2001 2000
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,774 $ 14,850
Accounts receivable - net 14,471
13,937
Inventories - net 27,406
25,435
Other current assets 3,365
3,293
----------------- -----------------
TOTAL CURRENT ASSETS 56,016
57,515
PROPERTY, PLANT AND EQUIPMENT - net 13,458
12,816
EXCESS OF COST OVER NET ASSETS ACQUIRED - net 3,063
3,062
OTHER ASSETS 166
199
----------------- -----------------
TOTAL ASSETS $ 72,703 $ 73,592
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,212 $ 7,009
Accrued expenses and other liabilities 6,717
8,172
Current portion of capital lease obligations 728
814
----------------- -----------------
TOTAL CURRENT LIABILITIES 15,657
15,995
CAPITAL LEASES, less current portion 1,312
1,485
OTHER LONG-TERM LIABILITIES 2,545
2,691
SHAREHOLDERS' EQUITY:
Common stock, authorized 30,000,000 shares, issued 4,792,674 shares
at March 31, 2001 and December 31, 2000 47
47
Capital in excess of par 39,673
39,675
Retained earnings 14,628
14,965
Treasury stock, at cost, 107,833 shares at March 31, 2001 and
108,553 at December 31, 2000 (1,159)
(1,266)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 53,189
53,421
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 72,703 $ 73,592
================= =================
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,
--------------------------------------------
2001 2000
---------------- ------------------
NET SALES $ 24,202 $ 19,686
Cost of sales 18,121 18,794
Selling, general and administrative expenses 5,482 5,452
Research and development expenses 1,261 770
Restructuring charge -- 1,359
Amortization of intangible assets (1) 35
---------------- ------------------
OPERATING LOSS (661) (6,724)
Interest income (expense), net 87 (105)
Other income 20 44
---------------- ------------------
LOSS FROM CONTINUING OPERATIONS (554) (6,785)
BEFORE TAXES.
Benefit from income taxes 217 2,653
---------------- ------------------
INCOME FROM CONTINUING OPERATIONS (337) (4,132)
DISCONTINUED OPERATIONS:
Income from operations, net of taxes -- 513
Gain on disposal, net of taxes -- 13,776
---------------- ------------------
NET (LOSS)/INCOME $ (337) $ 10,157
---------------- ------------------
---------------- ------------------
BASIC EARNINGS PER SHARE:
Loss from continuing operations $ (0.07) $ (0.89)
Income from discontinued operations -
3.08
---------------- ------------------
TOTAL $ (0.07) $ 2.19
================ ==================
Weighted average basic common shares outstanding (1) 4,684,841 4,642,586
================ ==================
DILUTED EARNINGS PER SHARE:
Loss from continuing operations $ (0.07) $ (0.89)
Income from discontinued operations -
3.08
----------------
------------------
TOTAL $ (0.07) $ 2.19
================ ==================
Weighted average diluted common shares outstanding (1) 4,684,841 4,642,586
================ ==================
(1) As per generally accepted accounting principles, the computation of the net
loss per share is based on the weighted average basic shares outstanding when
there is an operating loss from continuing operations.
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,
---------------------------------------------
2001 2000
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (337) $ 10,157
Adjustments to reconcile net income to cash used in operating activities:
Gain on disposal of discontinued operations -- (13,776)
Depreciation and amortization 723 868
Change in net assets of discontinued operations -- (1,476)
(Increase) decrease in current assets, other than cash (2,505) 497
Decrease in current liabilities (293) (350)
Other-net (39) 19
------------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (2,451) (4,061)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,413) (1,491)
Capital divestiture 47
Net proceeds from sale of discontinued operations -- 31,223
------------------- -------------------
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES (1,366) 29,732
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings --
Net repayment of borrowings (259) (4,428)
Other -- 15
------------------- -------------------
NET CASH USED IN BY FINANCING ACTIVITIES (259) (4,413)
------------------- -------------------
NET (DECREASE)/INCREASE IN CASH (4,076) 21,258
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,850 385
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,774 $ 21,643
=================== ===================
Supplemental cash flow information:
Cash (received)/paid for:
Interest (income)/expense $ (103) $ 144
Income tax (refund)/payment
(1,102) 180
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, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. 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, 2000.
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. 138, is effective for fiscal
years beginning after June 15, 2000. The implementation of the statement did
not have a material impact on the consolidated financial position or
consolidated results of operations of Axsys. Axsys adopted the standard on
January 1, 2001.
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 in 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. 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 through the date of disposal on March 17, 2000. Through the date
of disposal on March 17, 2000 revenues were $4.2 million. Proceeds from the sale
were utilized to pay off the Company's credit facility of $4.2 million at
December 31, 1999.
In the first quarter of 2000, environmental consultants advised the
Company 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 accruals
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,
2001 2000
---------------- -----------------
Raw materials $ 8,757 $ 7,830
Work-in-process 7,920 7,552
Finished Goods 10,729 10,053
---------------- -----------------
Total Inventory $ 27,406 $ 25,435
================ =================
6
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4 - TREASURY STOCK
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, 2001, 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, 2001, the Company had no tax valuation allowance.
NOTE 6 - SEGMENT DATA
In February 2001, Axsys announced a strategic realignment whereby the
Company was reorganized by market segment in three major groups. The strategic
realignment resulted in a change in the composition of Axsys' reportable
segments and, accordingly, all periods reported have been restated. Axsys
classifies its businesses under three major groups, the Precision Components
Group, the Distributed Products Group and the Automation Group.
The Precision Components Group designs, manufactures and sells
high-end components such as precision position sensors, high-performance motors,
precision metal optics, and laser-based airbearing scanners and marking engines
and electro-mechanical subassemblies. Axsys' products enable original equipment
manufacturers ("OEM"s) to improve measurement precision, imaging, positional
performance (accuracy, resolution, speed and power), and weight requirements in
their systems. Principal markets for these products include OEMs serving the
aerospace, defense, high-end graphic arts, semiconductor, data storage, fiber
optics/photonics, and other related electronics capital equipment markets.
The Automation Group designs, manufactures and sells automated
production and test systems and nano-positioning subsystems to high technology
customers who produce semiconductor, data storage, fiber optics/photonics
component products and other high technology products. These production and test
systems integrate many of the precision optical and positioning components and
subsystems produced by the Precision Components Group with vision systems,
robotics and electronic controls produced by third party companies. Axsys
integrates these products into automation systems using its proprietary
FlexAutoTM software. These tools are designed to enable customers to more
accurately and repeatedly produce their component products, thereby increasing
the yield and throughput of their production and test processes.
The Distributed Products Group distributes precision ball bearings,
acquired from various domestic and international sources, to OEMs and
maintenance and repair operations distributors. The ball bearings are used in a
variety of industrial automation and commercial markets. Additionally, the
Distributed Products Group designs, manufactures and sells mechanical bearing
subassemblies for a variety of customers.
As discussed in Note 2, the Company sold its Beau Interconnect
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,
-----------------------------------
2001 2000
--------------- ----------------
Net sales from continuing operations:
Precision Components Group $ 14,518 $ 10,601
Automation Group 2,933 1,735
Distributed Products Group 6,751 7,350
-------------- ---------------
Total sales 24,202 19,686
============== ===============
Earnings (loss) from continuing operations
before amortization, interest and taxes:
Precision Components Group 362 (1,937)
Automation Group (642) (329)
Distributed Products Group 894 1,046
Restructuring charge -- (1,359)
Non-allocated expenses (1,168) (4,206)
-------------- ---------------
Income (loss) from
operations before taxes $ (554) $ (6,785)
============== ===============
MARCH 31, DECEMBER 31,
2001 2000
------------- ---------------
Identifiable assets:
Precision Components Group $ 36,339 $ 31,608
Automation Group 5,763 6,491
Distributed Products Group 14,495 14,540
Non-allocated assets 16,106 20,953
------------- ---------------
Total assets $ 72,703 $ 73,592
============= ===============
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,
2001 2000
-------------- ---------------
Allowance for doubtful accounts $ 539 $ 527
============== ===============
Accumulated depreciation and amortization
Of property, plant and equipment $ 12,524 $ 11,801
============== ===============
Accumulated amortization of excess of cost
Over net assets acquired $ 1,137 $ 1,138
============== ===============
8
AXSYS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8 - RESTRUCTURING CHARGE
RESTRUCTURING CHARGE-
On February 11, 2000, Axsys announced a strategic realignment of its
businesses. Specifically, Axsys adopted a plan designed to improve efficiency
and enhance competitiveness in order to better serve its markets and customers.
This plan anticipated a workforce reduction from various locations, relocation
or consolidation of two of its facilities and the write down of potentially
obsolete inventory.
Restructuring charges included costs directly related to the plan of
reorganization associated with employee termination benefits and other exit
costs, in accordance with generally accepted accounting principles.
During 2000, Axsys recorded the following amounts in the Consolidated
Statements of Operations in connection with the restructuring plan:
Selling, General
Cost of Goods & Administrative Restructuring
Sold Expense Charge Total
--------------- ------------------- ------------------- ------------------
Work force reductions $ -- $ -- $ 915 $ 915
Facilities 260 392 740 1,392
Inventory write-downs 2,301 -- -- 2,301
Other costs 786 -- 786
--------------- ------------------- ------------------- ------------------
Total $ 2,561 $ 1,178 $ 1,655 $ 5,394
=============== ============== =================== ==================
During the first quarter of 2000, the Company charged $2.5 million to
cost of goods sold, $1.4 million to restructuring charges and $478 thousand to
selling, general and administrative expenses.
As of March 31, 2001, Axsys had an accrued balance of $445 thousand
for costs related to the strategic realignment included in current liabilities.
The remaining costs will be expended during 2001.
Other costs directly related to the reorganization of the Company
which are not eligible for recognition at the commitment date, such as
relocation and other integration costs, are expensed as incurred. For the three
months ended March 31, 2000, Axsys incurred $404 thousand of these costs. The
Company does not anticipate any further charges.
Total cash expenditures related to the restructuring charge during
the first quarter of 2001 were $306 thousand and during the first quarter of
2000 were $1.2 million.
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, 2001 and 2000. 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,
------------------------------
2001 2000
------------- -----------
Net sales:
Precision Components Group 60.0 % 53.9 %
Automation Group 12.1 8.9
Distributed Products Group 27.9 37.2
------------ ----------
Total Company 100.0 100.0
------------ ----------
Cost of sales 74.9 95.5
------------ ----------
Gross profit 25.1 4.5
------------ ----------
Operating expenses:
Selling, general and administrative expenses 22.7 27.7
Research and development expenses 5.2 3.9
Restructuring charge -- 6.9
Amortization of intangible assets 0.0 0.2
------------ ----------
27.9 38.7
------------ ----------
Operating loss (2.8) (34.2)
Interest income (expense), net 0.4 (0.5)
Other income 0.1 0.2
------------ ----------
Loss from continuing operations before taxes (2.3) (34.5)
Benefit from income taxes 0.9 13.5
------------ ----------
Loss from continuing operations (1.4) (21.0)
Discontinued operations:
Income from operations, net of taxes -- 2.6
Gain on disposal, net of taxes -- 70.0
------------ ----------
Net income (loss) (1.4) % 51.6 %
============ ==========
Gross profit (as a percentage of related net sales):
Precision Components Group 21.1 % 7.3 %
Automation Group 27.2 22.2
Distributed Products Group 32.6 31.4
10
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
NET SALES. In the three-month period ended March 31, 2001, our net sales
increased by $4.5 million, or 23 percent, to $24.2 million from $19.7 million in
the first fiscal quarter of 2000. Sales of the Precision Components Group
totaled $14.5 million in 2001, compared to $10.6 million, an increase of 37
percent over the comparable period in 2000. Shipments to aerospace and defense
markets increased substantially over the prior year period based on the strong
bookings that we recorded over the course of 2000. First quarter 2000 sales were
negatively impacted by the weak bookings rate in the second half of 1999. Sales
of our high speed digital imaging scanners to graphic arts equipment
manufacturers were also higher year over year. Automation Group sales were $2.9
million in the first quarter of 2001, compared to $1.7 million in 2000, an
increase of $1.2 million, or 69 percent. The increase in sales was attributable
to higher shipments of fiber optic automation systems as well as strong sales of
test equipment and laser-based positioning products to electronics capital
equipment markets, including semiconductor and data storage. Sales of the
Distributed Products Group were $6.8 million in the first quarter of 2001,
compared to $7.4 million in 2000, a decrease of $600 thousand, or 8 percent. The
sales decline largely resulted from softer orders from semiconductor capital
equipment manufacturers and other commercial customers for industrial automation
products.
GROSS PROFIT. Our gross profit increased by $5.2 million, or 582 percent, to
$6.1 million from $892 thousand in the first quarter of 2000. The significant
margin improvement was due to a combination of factors including higher sales
volume, better productivity and a mix of product with higher margins. Margin
performance in the first quarter of 2000 was also impacted by $2.5 million of
charges that we recorded for inventory write-offs, severance costs, and costs to
exit two facilities as part of a significant strategic reorganization that we
undertook. Margins as a percent of sales were 25.1 percent in the first quarter
of 2001 compared to 4.5 percent in the comparable period in the previous year.
In 2000, in addition to the above-mentioned items, our margins were also
negatively affected by quality-related returns within the Precision Components
Group. We have invested substantial effort and expense in continuous quality
improvement programs that we refer to as Lean manufacturing. While we continue
to introduce these programs, effects such as more consistent and improved
quality, higher productivity and reduced scrap rates contributed to our improved
margins in 2001 as compared to the first quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $5.5 million in
both the first quarter of 2001 and the comparable period in 2000. In the first
quarter of 2001, we spent $310 thousand to expand our facilities at Axsys
Automation Engineering, the Fiber Automation Division, and our Integrated
Systems Division. Incentive compensation accruals were also higher year over
year. Included in SG&A expenses in the first quarter of 2000 were approximately
$700 thousand of asset write-offs and expenses to relocate, recruit and train
management personnel related to the strategic reorganization.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses increased by $491 thousand,
or 64 percent, to $1.3 million in the first quarter of 2001 compared to $0.8
million in the first quarter of 2000. Substantially all of the increase in
R&D expenses was recorded in our Automation Group for the design and
development of a six-axis nano-positioning stage system, the Fiber Attach
System Technology ("FAST") product line, to be used in our semi-automated and
fully automated production and test equipment for manufacturers of fiber
optic and photonics components. We expect to continue to invest heavily in
new product development for this growth market.
RESTRUCTURING CHARGE. As mentioned above, during the first quarter of 2000, we
announced a strategic reorganization plan. In conjunction with this plan, we
recorded a non-recurring restructuring charge of $1.4 million relating to
severance pay for approximately fifty employees and exit costs relating to the
closing or relocation of two facilities. There were no restructuring charges in
2001.
INTEREST INCOME AND EXPENSE, NET. Net interest income in the first quarter of
2001 was $87 thousand, compared to net interest expense of $105 thousand in
2000. We have invested excess cash in high quality short-term investments since
the divestment of a non-strategic business late in the first quarter of 2000.
See Discontinued Operations. Prior to the divestment, we were paying interest on
a bank credit facility in 2000.
TAXES. Our effective tax rate in both periods was 39.1 percent.
11
DISCONTINUED OPERATIONS. In March 2000, we sold our Beau Interconnect division.
Results of operations from the discontinued business have been reported
separately from continuing operations in the first quarter of 2000. The sale of
Beau resulted in a gain of $22.5 million, before a tax provision of $8.4
million. We also recorded a discontinued operation charge of $0.5 million,
before a tax benefit of $0.2 million, to increase our environmental accruals for
the remediation of two sites that we formerly operated. There was no effect from
discontinued operations in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Axsys funds its operations primarily from cash flow generated by
operations and cash on hand as a result of the divestment of Beau in the first
quarter of 2000. Prior to the Beau divestment, we also relied on an $11.0
million bank credit facility as a major source of funds. The bank credit
facility was paid off and terminated in the first quarter of 2000.
Net cash used in operating activities was $2.4 million in the quarter
ended March 31, 2001 and $4.1 million in the quarter ended March 31, 2000. The
reduction in cash in 2001 was due to the net loss for the quarter, an increase
in inventories of $2.0 million, an increase in receivables of $0.5 million, and
a net decrease in current liabilities of $0.3 million. These negative effects
were partially offset by depreciation and amortization expenses of $0.7 million.
Inventory levels rose due to two primary causes - timing issues and the slowdown
of the economy. We increased inventories by approximately $0.6 million for
several long lead-time defense programs that will not ship until later this
year, and also experienced a delay in finishing services for precision-machined
components that resulted in a $0.4 million inventory increase. A temporary parts
shortage delayed a shipment of data storage systems, resulting in a $0.3 million
increase in inventory. The slowing economy caused our finished goods inventory
of imported precision bearings to increase by $0.6 million, as slowing customer
demand immediately impacted shipments in this relatively short turnaround
business.
Accrued liabilities decreased by $0.3 million in the quarter ended March
31, 2001. The decrease was caused primarily by $1.0 million of incentive
compensation payments that were accrued over the course of 2000, plus $0.3
million of payments to substantially complete the restructuring announced in the
first quarter of 2000. Offsetting these decreases was a net increase in trade
payables of $1.2 million that included a $0.7 million increase in beryllium
purchases to meet customer demand later this year. Customer deposits also
declined the first quarter by $0.4 million. We received net refunds of federal
and state income taxes amounting to $0.9 million for the quarter. The tax
receivable was included in the balance sheet at year-end as an offset to current
taxes payable. When the refunds were received, the net effect was to increase
current liabilities by the same amount.
In the quarter ended March 31, 2000, cash used in operating activities
included a net loss from continuing operations of $4.1 million, which excludes
the non-operating gain on the divestment of Beau Interconnect of $13.8 million.
Depreciation expense and a decrease in current assets offset a decrease in the
net assets of Beau and a decrease in current liabilities in 2000.
Net cash used in investing activities was $1.4 million in the quarter
ended March 31, 2001, representing capital expenditures for the quarter.
Significant capital expenditures included $0.4 million of investments in the
Automation Group for necessary infrastructure associated with the start-up
nature of two facilities, and the completion of our voice and data
communications infrastructure for $0.2 million in the first quarter. For the
quarter ended March 31, 2000, net cash provided by investing activities was
$29.7. We sold Beau Interconnect for $31.2 million in cash, and we also expended
$1.5 million for capital expenditures. The major capital expenditures in the
first quarter of 2000 related to the relocation of the Motion Control facility
in San Diego, California.
Net cash used in financing activities was $0.3 million in the quarter
ended March 31, 2001 for the repayment of capital lease obligations. In the
quarter ended March 31, 2000, we used a portion of the proceeds from the sale of
Beau Interconnect to repay bank borrowings of $4.4 million and subsequently
terminated the related bank credit facility.
We have funded our operations primarily from cash on hand and, to a
small extent, through capital lease transactions. We believe that our current
cash and cash equivalents balances will be sufficient to finance our operations,
capital expenditures, and working capital requirements for the foreseeable
future. We are currently negotiating a capital lease financing arrangement for a
portion of 2001 capital expenditures.
12
BACKLOG
A substantial portion of our 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, we generally have a significant
backlog of orders to be shipped. We recorded new orders of $21.5 million in
the first quarter of 2001, compared to orders of $24.3 million in the first
quarter of 2000. We also recorded an order cancellation and other adjustments
to orders recorded in prior periods of $1.5 million. We ended the first
quarter with a backlog of $60.7 million, compared to a backlog of $47.5
million at March 31, 2000, an increase of $13.2 million or 28 percent. Our
backlog was $64.9 million at December 31, 2000. We believe that a substantial
portion of our backlog of orders at March 31, 2001 will be shipped over the
next twelve months.
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. The implementation of this statement did
not 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, including the effect of order backlog on operations, the impact
of competition in the aerospace and defense industry, the effects of legal
proceedings and regulatory matters on our business, and the impact of general
economic conditions, as well as other factors discussed in filings that Axsys
makes with the Securities and Exchange Commission. 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,
2000.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 10(28) Employment and Severance Agreement for John Hanley
b) Reports on Form 8-K
Report on Form 8-K filed on May 2, 2001 regarding the first quarter 2001
earnings release
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 14th day of May, 2001.
Date: May 14, 2001 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