Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 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 0-26924
AMX Corporation
(Exact name of registrant as specified in its charter)
Texas 75-1815822
(State of Incorporation) (I.R.S. Employer
Identification No.)
3000 Research Drive
Richardson, Texas 75082
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (469) 624-8000
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 [ ]
Common Stock, $0.01 Par Value 11,047,382
(Title of Each Class) (Number of Shares Outstanding
at October 31, 2001)
AMX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
INDEX
Page Number
Part I. Financial Information (Unaudited)
Item 1. Consolidated Balance Sheets at September 30, 2001 and March 3
31, 2001
Consolidated Statements of Operations for the Three and Six 5
Months Ended September 30, 2001 and 2000
Consolidated Statements of Cash Flows for the Six Months 6
Ended September 30, 2001 and 2000
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Part II. Other Information
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 24
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, March 31,
2001 2001
------------- -----------
Current assets:
Cash and cash equivalents....................................... $ 821,041 $ 1,607,797
Receivables, less allowance for doubtful accounts of $906,000
at September 30, 2001 and $363,000 at March 31, 2001........... 14,603,533 12,604,052
Inventories..................................................... 13,333,880 14,310,801
Prepaid expenses................................................ 1,577,709 1,250,449
Other current assets............................................ 436,049 533,080
Deferred income taxes........................................... -- 2,387,611
------------- -----------
Total current assets............................................... 30,772,212 32,693,790
Property and equipment, at cost, net............................... 9,741,157 10,386,938
Capitalized software, less accumulated amortization of $652,000 at
September 30, 2001 and $448,000 at March 31, 2001................. 165,643 370,166
Deposits and other................................................. 396,987 466,556
Deferred income taxes.............................................. -- 1,944,021
Goodwill, less accumulated amortization of $117,000 for September
30, 2001 and $868,000 for March 31, 2001.......................... 80,935 300,589
------------- -----------
Total assets....................................................... $ 41,156,934 $46,162,060
============= ===========
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, March 31,
2001 2001
------------- -----------
Current liabilities:
Accounts payable............................................. $ 13,442,988 $11,422,458
Current portion of long-term debt............................ 881,869 1,053,604
Revolving bank debt.......................................... 7,250,000 5,550,000
Accrued compensation......................................... 1,325,006 1,343,862
Accrued restructuring costs.................................. 669,178 1,077,917
Accrued sales commissions.................................... 619,276 708,347
Other accrued expenses....................................... 2,365,752 2,643,051
------------- -----------
Total current liabilities....................................... 26,554,069 23,799,239
Long-term debt, net of current portion.......................... 1,545,964 1,964,845
Commitments and contingencies
Shareholders' equity :
Preferred stock, $0.01 par value:
Authorized shares - 10,000,000
Issued shares - none..................................... -- --
Common stock, $0.01 par value:
Authorized shares -- 40,000,000
Issued shares -- 11,543,858 for September 30, 2001 and
11,258,718 for March 31, 2001........................... 115,438 112,587
Additional paid-in capital................................... 24,174,218 23,585,287
Accumulated other comprehensive income (loss)................ -- 1,103
Retained earnings (deficit).................................. (6,764,471) 1,167,283
Less treasury stock (496,476 shares)......................... (4,468,284) (4,468,284)
------------- -----------
Total shareholders' equity...................................... 13,056,901 20,397,976
------------- -----------
Total liabilities and shareholders' equity...................... $ 41,156,934 $46,162,060
============= ===========
See accompanying notes.
AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Commercial system sales............. $19,970,481 $20,102,918 $37,390,054 $35,843,598
Residential system sales............ 3,035,753 5,761,213 7,339,165 11,225,000
----------- ------------------------------- -----------
Net sales........................ 23,006,234 25,864,131 44,729,219 47,068,598
Cost of sales....................... 13,978,097 12,746,129 24,649,143 22,560,071
----------- ------------------------------- -----------
Gross profit..................... 9,028,137 13,118,002 20,080,076 24,508,527
Selling and marketing expenses...... 8,264,220 7,612,806 15,360,028 15,568,581
Research and development expenses... 1,874,379 2,352,652 3,717,869 4,678,064
Restructuring costs................. (46,463) (202,872) (89,742) (221,374)
General and administrative expenses. 2,511,714 2,594,972 4,181,676 4,617,576
----------- ------------------------------- -----------
Operating income (loss).......... (3,575,713) 760,444 (3,089,755) (134,320)
Interest expense.................... 223,509 220,861 409,367 354,544
Other income (expense), net......... (96,662) (235,560) (87,011) (216,333)
----------- ------------------------------- -----------
Income (loss) before income taxes... (3,895,884) 304,023 (3,586,133) (705,197)
Income tax provision (benefit)...... 4,237,208 103,293 4,345,621 (239,699)
----------- ------------------------------- -----------
Net income (loss)................... $(8,133,092) $ 200,730 $(7,931,754) $ (465,498)
=========== =============================== ===========
Basic earnings (loss) per share..... $(0.74) $0.02 $(0.72) $(0.05)
=========== =============================== ===========
Diluted earnings (loss) per share... $(0.74) $0.02 $(0.72) $(0.05)
=========== =============================== ===========
See accompanying notes.
AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
September 30,
2001 2000
----------- -----------
Operating Activities
Net loss........................................................... $(7,931,754) $ (465,498)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation.................................................... 2,126,736 1,477,034
Amortization.................................................... 333,980 328,387
Write-down of demonstration equipment........................... 708,813 --
Write-down of goodwill.......................................... 90,197 --
Provision for losses on receivables............................. 515,322 516,000
Provision for inventory obsolescence............................ 2,502,723 244,850
Loss on sale of property and equipment.......................... -- 247,556
Deferred income taxes and valuation allowance................... 4,331,632 (112,460)
Changes in operating assets and liabilities:
Receivables................................................. (2,514,803) (4,453,866)
Inventories................................................. (1,525,802) (5,090,297)
Prepaid expenses and other assets........................... (160,660) 199,003
Accounts payable............................................ 2,020,530 5,026,378
Other accrued expenses...................................... (793,965) (848,485)
----------- -----------
Net cash used in operating activities.............................. (297,051) (2,931,398)
Investing Activities
Purchase of property and equipment................................. (2,189,768) (4,473,388)
Proceeds from sale of property and equipment....................... -- 100,000
----------- -----------
Net cash used in investing activities.............................. (2,189,768) (4,373,388)
Financing Activities
Sale of common stock -- net proceeds............................... 591,782 463,225
Net increase in line of credit..................................... 1,700,000 7,650,000
Repayments of long-term debt....................................... (590,616) (476,023)
----------- -----------
Net cash provided by financing activities.......................... 1,701,166 7,637,202
Effect of exchange rate changes on cash............................ (1,103) (38,985)
----------- -----------
Net increase (decrease) in cash and cash equivalents............... (786,756) 293,431
Cash and cash equivalents at beginning of period................... 1,607,797 986,648
----------- -----------
Cash and cash equivalents at end of period......................... $ 821,041 $ 1,280,079
=========== ===========
See accompanying notes.
AMX Corporation
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements, which should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the AMX Corporation ("AMX" or the "Company") Annual Report on Form
10-K for the fiscal year ended March 31, 2001, are unaudited (except for the
March 31, 2001 consolidated balance sheet, which was derived from the Company's
audited financial statements), but have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments except for those
adjustments discussed in Note 6) considered necessary for a fair presentation
have been included. Certain prior period amounts have been reclassified to
conform to the current year presentation.
Operating results for the three months and six months ended September 30, 2001
are not necessarily indicative of the results that may be expected for the
entire fiscal year ending March 31, 2002.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- ---------- ----------- ----------
Numerator:
Net income (loss)............................ $(8,133,092) $ 200,730 $(7,931,754) $ (465,498)
=========== ========== =========== ==========
Denominator:
Denominator for basic earnings per share
Weighted-average shares outstanding........ 11,035,819 9,408,865 10,949,186 9,387,934
Effect of dilutive securities:
Employee stock options....................... -- 575,503 -- --
----------- ---------- ----------- ----------
Denominator for diluted earnings per share... 11,035,819 9,984,368 10,949,186 9,387,934
=========== ========== =========== ==========
Basic earnings (loss) per share.............. $ (0.74) $ 0.02 $ (0.72) $ (0.05)
Diluted earnings (loss) per share............ $ (0.74) $ 0.02 $ (0.72) $ (0.05)
Had the Company reported net income for the quarter ended September 30, 2001,
320,003 potentially dilutive shares would have been included in the computation
of diluted earnings per share. Of the total stock options outstanding at
September 30, 2000, 531,750 weighted shares were excluded from the computation
of diluted earnings per share for the quarter ended September 30, 2000 because
the option exercise price was greater than the average market price of the
common shares for the period, and therefore the effect would have been anti-
dilutive. Had the Company reported net income for the six month periods ended
September 30, 2001 and 2000, 449,037 and 1,824,876 potentially dilutive shares
would have been included in the computation of diluted earnings per share.
3. Inventories
The components of inventories are as follows:
September 30, March 31,
2001 2001
------------- -----------
Raw materials $ 8,184,981 $ 7,948,025
Work in progress 2,475,675 1,154,669
Finished goods 7,494,856 8,306,561
Less reserve for obsolescence (4,821,632) (3,098,454)
------------- -----------
Total $ 13,333,880 $14,310,801
============= ===========
During the three months ended September 30, 2001, the Company recorded
additional reserves for inventory obsolescence of approximately $2.5 million.
The additional inventory charges were recorded as a result of an adjusted
revenue forecast based on current trends in the market and the economy, as well
as faster than anticipated demand for the Company's Netlinx product offerings
which is resulting in lower than anticipated demand for certain of the Company's
earlier product offerings. In addition, as a result of the continued movement
toward the make-to-buy sourcing strategy, the Company's on-hand raw material
quantities are in excess of the current production requirements. Where possible,
the Company is actively seeking to sell such raw materials to the turnkey
vendors that produce the Company's finished products. However, in many cases the
Company must discount this inventory due to the superior purchasing power of
such vendors. Lastly, the Company experienced software issues related to the
Company's ERP implementation. Specifically, the ERP system was not updating
forecasts properly, and as a result the Company was purchasing the wrong mix
and/or quantities of certain products. The Company believes it has corrected
this software issue and does not anticipate further problems with this function
of the system.
4. Comprehensive Income
The components of comprehensive income, net of related tax, are as follows:
Three Months Ended Six Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- -------- ----------- ---------
Net income (loss) $(8,133,092) $200,730 $(7,931,754) $(465,498)
Foreign currency
translation adjustments -- (31,942) (1,103) (38,985)
----------- -------- ----------- ---------
Comprehensive income (loss) $(8,133,092) $168,788 $(7,932,857) $(504,483)
=========== ======== =========== =========
5. Restructuring Costs
During the third quarter of 2000, the Company announced plans to shutdown its
operations located in Salt Lake City and move those operations to its corporate
headquarters in Dallas. The Salt Lake City location included a majority of the
Company's residential operations. Approximately 94 employees, all of who worked
at the Company's Salt Lake City location, were impacted by this shutdown, of
which 82 were expected to be terminated or decline the Company's offer to move
to Dallas and thus receive severance, and 12 of which were expected to accept
positions with the Company in Dallas. Employees that ended their employment
prior to their termination date and employees that opted to move to Dallas, as
offered under the plan, forfeited their termination benefits. Of the 94
employees, approximately 57 employees received severance benefits totaling
$914,000. Of the remaining employees, 11 employees forfeited their severance
benefit by leaving the Company prior to vesting in the severance benefit, and 26
employees forfeited their severance by accepting positions with the Company in
Dallas. Total forfeitures were $390,000. The asset impairment charge was
recorded to write-down the carrying value of the fixed assets to their estimated
fair market value. Leasehold cancellation charges represented estimated costs to
terminate leasehold agreements for the Company's Salt Lake City facilities. The
move was completed in the third quarter of fiscal year 2001. However, the
Company continues to hold a lease on certain property in Salt Lake City, a
portion of which is subleased to a third party. The Company is reversing the
leasehold cancellation reserve as sublease income is received from the
sublessee. The reserve is also reduced for lease payments made to the landlord
in excess of the sublease income received.
The following is a summary of the Salt Lake City restructuring action from
inception through September 30, 2001(in thousands):
Leashold
cancellation Write down
Severance charges of fixed assets Total
-------------------------------------------------------------
Initial Restructuring Reserve $1,304 $ 649 $ 655 $2,608
Activity through March 31, 2001:
Severance payments (914) (914)
Severance forfeitures (390) (390)
Payment of lease expenses (117) (117)
Recovery of lease expense through sublease (86) (86)
Correction of leasehold cancellation reserve (118) (118)
Non-cash write down of assets (655) (655)
-------------------------------------------------------------
Reserve at March 31, 2001 - 328 - 328
Activity through June 30, 2001:
Payment of lease expenses (14) (14)
Recovery of lease expense through sublease (44) (44)
-------------------------------------------------------------
Reserve at June 30, 2001 - 270 - 270
Activity through September 30, 2001:
Payment of lease expenses (10) (10)
Recovery of lease expense through sublease (46) (46)
-------------------------------------------------------------
Reserve at September 30, 2001 $ - $ 214 $ - $ 214
=============================================================
In the fourth quarter of fiscal 2001, the Company initiated a corporate-wide
restructuring plan that included the discontinuation of its Consumer Broadband
Division and retail distribution strategy and a reduction of approximately 10%
of the Company workforce or 44 employees. This severance action affected
employees across the Company, although many of the terminated employees were
from either the Company's Consumer Broadband Division or information systems
department. The severance of the 44 employees and discontinuance of the Consumer
Broadband Division was completed prior to March 31, 2001, although certain
commitments continued into fiscal 2002, and certain severance payments will
continue through December 2002.
The following is a summary of the consumer broadband and corporate-wide
restructuring action from inception through September 30, 2001 (in thousands):
Inventory Write down of Non-cancelable
related receivables and commitments
Severance charges intangible assets and other Total
------------------------------------------------------------------------------
Initial Restructuring Reserve $ 859 $ 715 $ 452 $145 $2,171
Activity through March 31, 2001:
Severance payments (315) (315)
Write down of inventory (654) (654)
Write down of receivables and
intangible assets (452) (452)
------------------------------------------------------------------------------
Reserve at March 31, 2001 544 61 - 145 750
Activity through June 30, 2001:
Severance payments (69) (69)
Other payments (35) (35)
------------------------------------------------------------------------------
Reserve at June 30, 2001 475 61 - 110 646
Activity through September 30, 2001:
Severance payments (130) (130)
Inventory conversion costs (61) (61)
------------------------------------------------------------------------------
Reserve at September 30, 2001 $ 345 $ - $ - $110 $ 455
==============================================================================
6. One Time Charges
During the quarter ended September 30, 2001, the Company recorded one-time
charges of approximately $8.2 million. These one-time charges included reserves
for inventory obsolescence of $2.5 million (see Note 3), a charge of $0.7
million taken to write off certain assets, additional receivable related
reserves of $0.5 million, a write off of miscellaneous intangibles of $0.3
million, and a valuation allowance against deferred tax assets of $4.2 million.
See MD&A for further discussion of the reasons for the charges.
As a result of the aforementioned charges and historical operating
performance, the Company recorded a tax provision of approximately $4.2 million
for the quarter ended September 30, 2001 in order to record a valuation
allowance against its deferred tax assets. Although the Company anticipates
returning to profitability, generally accepted accounting principles require
that historical operating performance weigh heavily in assessing the
realizability of deferred tax assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the AMX
Corporation ("AMX" or the "Company") Annual Report on Form 10-K. Quarterly
operating results have varied significantly in the past and can be expected to
vary in the future. Results of operations for any particular period are not
necessarily indicative of results of operations for a full year.
Forward-Looking Information
Certain information included herein contains forward-looking statements (as
defined in the Private Securities Litigation Reform Act of 1995) regarding
future events or the future financial performance of the Company, and are
subject to a number of risks and other factors which could cause the actual
results of the Company to differ materially from those contained in and
anticipated by the forward-looking statements. These risks, assumptions and
uncertainties include: our strategic alliances; the ability to develop
distribution channels for new products; our dependence on suppliers, dealers and
distributors; reliance on the functionality of systems or equipment, whether our
own systems and equipment or those of our customers, dealers, distributors, or
manufacturers; domestic and international economic conditions; the financial
condition of our key customers and suppliers; the complexity of new products;
ongoing research and development; our reliance on third party manufacturers; the
ability to realize operating efficiencies; dependence on key personnel; the lack
of an industry standard; reliance on others for technology; our ability to
protect our intellectual property; the quick product life cycle; the resources
necessary to compete; the possible effect of government regulations; possible
liability for copyright violations on the Internet with the use of our products
and other risks referenced from time to time in the Company's filings with the
Securities and Exchange Commission. The forward-looking statements contained
herein are necessarily dependent upon assumptions, estimates and data that may
be incorrect or imprecise. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized. Forward-looking statements contained herein include, but
are not limited to, forecasts, projections and statements relating to inflation,
future acquisitions and anticipated capital expenditures. All forecasts and
projections in the report are based on management's current expectations of the
Company's near term results, which are based on current information available,
including the aforementioned risk factors. Actual results could differ
materially.
OVERVIEW
AMX designs, develops, and markets integrated control systems that enable
end users to operate as a single system a broad range of electronic and
programmable equipment in a variety of corporate, educational, industrial,
entertainment, governmental, and residential settings. The Company's hardware
and software products provide the operating system, machine control, and user
interface necessary to operate, as an integrated network, electronic devices
from different manufacturers through easy-to-use control panels. The Company's
systems provide centralized control for over 20,000 different electronic
devices, including video systems, audio systems, teleconferencing equipment,
educational media, lighting equipment, environmental control systems, and
security systems. The Company's systems have readily accommodated evolving
technologies. In particular, the Company has integrated its control systems with
the Internet. The Company's technology allows end users to communicate with
their control system, as well as send and receive commands or information,
through the Internet.
Commercial
Corporate. In the corporate setting, the Company's systems are used in
board rooms, conference and meeting rooms, convention centers, auditoriums,
training centers, and teleconferencing facilities. Typical applications include
integrated control of a wide variety of audio and visual presentation equipment,
such as video projectors, VCRs, DVD players, computers, and sound systems, as
well as lighting and temperature controls and window coverings. The Company
believes that an increasing percentage of the board, conference,
meeting, and training rooms constructed or remodeled are being designed to
include integrated remote control systems. The Company also believes that it is
one of the largest providers of integrated control systems to this market, which
represents a significant opportunity. AMX estimates that its control systems are
used in the facilities of over 80% of the Fortune 100 companies, including
Intel, Enron, AT&T, Exxon Mobil, Coca Cola, Lucent Technologies, and Motorola.
Sports. The Company's systems are currently being used in stadiums and
other sports facilities across the United States, including BankOne Ballpark,
Camden Yards, The Ballpark in Arlington, the Georgia Dome, the MCI Center, and
the United Center in Chicago. Applications typically include controlling audio
and video systems, switchers and routers, and surveillance cameras.
Entertainment. The Company's systems are used in various museums and
amusement parks across the United States, including Disney World, EPCOT Center,
Sea World, Virginia Air and Space Museum, JFK Museum, Universal Studios, Busch
Gardens, and the Rock and Roll Hall of Fame. Applications typically include
controlling audio and visual systems and electronic and mechanical equipment
used in exhibits and special effects.
Industrial. The Company's systems are currently used in decision support
centers in industrial settings such as the Network Emergency Response Assistance
Center of Bell South Services, Inc., the Decision Command Center of Burlington
Northern Railroad, and the Network Operations Center of EDS. Typical
applications include control of large screen video displays and video routing
equipment.
Government. The Company's systems are being used by federal, state, and
local government entities such as the State of Maryland Intelligent Highway
Vehicle Control System, the California Senate, the Louisiana House of
Representatives, the Library of Congress in Washington, D.C., and war rooms at
the U.S. Army War College. Typical applications include audio visual equipment
control, video routing and distribution, video teleconferencing, and voting and
request-to-speak systems.
Education. In this market, the Company provides audio-visual and multimedia
controls for lecture halls, auditoriums and classrooms. The Company's systems
can be found around the world in such schools as the Singapore American School,
the University of Notre Dame, the University of Texas at Dallas, the Dallas
Independent School District, and the Edina School District of Minnesota located
in the Minneapolis metropolitan area.
Residential
The residential market remains a very fragmented marketplace with numerous
providers and a wide range of products and services. The Company's products
enable individuals to create an integrated home automation system which can
control such items as audio, video, and telecommunication equipment, home
theater systems, lighting, motorized drapes, heating and air conditioning units,
closed circuit cameras, security systems, and other home electronic equipment.
The Company's quarterly operating results have varied significantly in the
past, and can be expected to vary in the future. These quarterly fluctuations
have been the result of a number of factors. These factors include seasonal
purchasing of the Company's dealers and distributors, particularly from
international distributors, OEMs, and other large customers; sales and marketing
expenses related to entering new markets; the timing of new product
introductions by the Company and its competitors; fluctuations in commercial and
residential construction and remodeling activity; changes in domestic and
international economic conditions; and changes in product or distribution
channel mix.
The Company's system sales are made through dealers and distributors who
are supported by Company sales and support offices in various geographic areas.
In addition, the Company utilizes independent manufacturers' representatives in
areas not served by Company offices. The Company principally relies on
approximately 1,500 specialized third-party dealers of electronic and audio-
visual equipment to sell, install, support, and service its products in the
United States. In addition to maintaining customer training, technical support
and sales offices in the United Kingdom, Canada, Mexico, China and Singapore,
the Company relies on an international network of 21 exclusive distributors
serving 26 countries and over 190 dealers serving 27 additional countries to
distribute its products. Dealers and distributors can use the AMX software to
tailor the Company's control system for each installation. The Company also
sells various customized products, primarily user interface devices, to OEMs and
other large customers.
The Company's U. S. dealers pursue a wide variety of projects that can
range from small conference rooms/boardrooms to very large projects in
universities, government facilities, amusement parks, or corporate training
facilities. The Company's international distributors tend to order in large
quantities to take advantage of volume discounts the Company offers and to
economize on shipping costs. These international orders are not received at the
same time each year. Notwithstanding the difficulty in forecasting future sales
and the relatively small level of backlog at any given time, the Company
generally must plan production, order components, and undertake its development,
selling and marketing activities, and other commitments months in advance.
Accordingly, any shortfall in revenues in a given quarter may impact the
Company's results of operations.
The Company continues to implement its outsourcing strategy, whereby almost
all manufacturing operations will be outsourced to third party manufacturers
rather than performed in-house. The Company believes that this strategy will
lead to improved product quality, and will allow the Company to minimize future
capital expenditures, reduce inventory levels, quickly adjust to changes in
demand, and take advantage of the purchasing power of our turnkey partners. As
of October 31, 2001, the Company is approximately 40% complete with this
implementation, and expects to complete this sourcing implementation by March
2002.
Results of Operations
The following table contains certain amounts, expressed as a percentage of
net sales, reflected in the Company's consolidated statements of income for the
three and six month periods ended September 30, 2001 and 2000:
Three months ended September 30, Six months ended September 30,
-------------------------------- --------------------------------
Excluding Excluding
As one time As one time
reported charges reported charges
2001 2001 2000 2001 2001 2000
-------- --------- ----- -------- --------- -----
Commercial system sales 86.8 86.8 77.7 83.6 83.6 76.2
Residential system sales 13.2 13.2 22.3 16.4 16.4 23.8
-------- --------- ----- -------- --------- -----
Net sales 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales 60.8 50.4 49.3 55.1 49.8 47.9
-------- --------- ----- -------- --------- -----
Gross profit 39.2 49.6 50.7 44.9 50.2 52.1
-------- --------- ----- -------- --------- -----
Selling and marketing expenses 35.9 32.2 29.4 34.3 32.5 33.2
Research and development expenses 8.1 8.1 9.1 8.3 8.3 9.9
Restructuring costs (0.2) (0.2) (0.7) (0.1) (0.1) (0.5)
General and administrative expenses 10.9 8.4 10.0 9.3 7.8 9.8
-------- --------- ----- -------- --------- -----
Operating income (loss) (15.5) 1.1 2.9 (6.9) 1.7 (0.3)
Interest expense 1.0 1.0 0.8 0.9 0.9 0.8
Other income (expense), net (0.4) 0.2 (0.9) (0.2) 0.1 (0.4)
-------- --------- ----- -------- --------- -----
Income (loss) before income taxes (16.9) 0.3 1.2 (8.0) 0.9 (1.5)
Income tax provision (benefit) 18.5 0.1 0.4 9.7 0.3 (0.5)
-------- --------- ----- -------- --------- -----
Net income (loss) (35.4) 0.2 0.8 (17.7) 0.6 (1.0)
======== ========= ===== ======== ========= =====
Three Months Ended September 30, 2001 Results Compared to Three Months Ended
September 30, 2000
We recorded sales during the three months ended September 30, 2001 and 2000
as follows:
Three Months Ended September 30,
Market 2001 2000 Change
- ------ ----------- ----------- ------
Commercial:
Domestic $13,861,265 $12,524,065 10.7%
International 6,109,216 7,578,853 (19.4)%
----------- ----------- ------
Total Commercial 19,970,481 20,102,918 (0.7)%
----------- ----------- ------
Residential 3,035,753 5,761,213 (47.3)%
----------- ----------- ------
Total Sales $23,006,234 $25,864,131 (11.0)%
=========== =========== ======
Domestic commercial revenue growth reflects continued support for the
Company's Netlinx product offering in the commercial market. The decline in
international commercial revenue reflects softening demand in certain key
international markets due to deteriorating economic conditions. Revenue of
the Company's subsidiaries in the U.K. and Singapore each declined 32% versus
the same quarter of fiscal 2001. The decline in revenues in the U.K. is
primarily related to the fact that our wholly-owned distributor in the U.K.
ceased distribution of all non-AMX product lines in the current fiscal year. The
decline in revenues in Singapore reflects severe economic challenges in
Singapore and certain other Asian markets. Revenue in all other international
markets declined 4% for the same quarter of fiscal 2001. The decline in
residential sales is related to the challenging economic environment, as well as
increasing availability of competing residential products. During fiscal 2001,
as the Company attempted to enter the consumer broadband market, the Company
lacked a focus on its traditional residential market. This lack of focus has
negatively impacted the Company's market share in recent months. The Company has
refocused on the residential market, and is pursuing new product development
that is expected to allow the Company to compete more aggressively in the
residential channel.
During the quarter ended September 30, 2001, the Company recorded one-time
charges of approximately $8.2 million. These one-time charges included reserves
for inventory obsolescence of $2.5 million, a charge of $0.7 million taken to
write-off certain assets, additional receivable related reserves of $0.5
million, a write off of miscellaneous intangibles of $0.3 million, and a
valuation allowance against deferred tax assets of $4.2 million.
The additional inventory charges were recorded as a result of an adjusted
revenue forecast based on current trends in the market and the economy, as well
as faster than anticipated demand for the Company's Netlinx product offerings
which is resulting in lower than anticipated demand for certain of the Company's
earlier product offerings. In addition, as a result of the continued movement
toward the make-to-buy sourcing strategy described earlier, the Company's on-
hand raw material quantities are in excess of the current production
requirements. Where possible, the Company is actively seeking to sell such raw
materials to the turnkey vendors that produce the Company's finished products.
However, in many cases, the Company must discount this inventory due to the
superior purchasing power of such vendors. Lastly, the Company experienced
software issues related to the Company's ERP implementation. Specifically, the
ERP system was not updating forecasts properly, and as a result the Company was
purchasing the wrong mix and/or quantities of certain products. The Company
believes it has corrected this software issue and does not anticipate further
problems with this function of the system.
The charge of $0.7 million was taken to write-off certain product
demonstration equipment assets as a result of increasing demand for the
Company's next generation product offerings and the resulting downward revision
to the forecast for certain of the Company's existing product offerings. The
additional receivable reserves of $0.5 million were recorded due to
deteriorating general economic conditions and resulting collectibility concerns.
The $0.3 million charge to write-off intangibles was primarily a factor of
expensing certain patent related expenses as the related patent applications
were abandoned during the quarter, and the write-off of goodwill related to the
Company's residential product line, which has seen a decline in revenue over
prior year levels.
As a result of the aforementioned charges and historical operating
performance, the Company recorded a tax provision of approximately $4.2 million
for the quarter ended September 30, 2001 in order to record a valuation
allowance against its deferred tax assets. Although the Company anticipates
returning to profitability, generally accepted accounting principles require
that historical operating performance weigh heavily in assessing the
realizability of deferred tax assets.
Excluding one time charges, gross margins for the quarter ended September
30, 2001 remained near 50%. The Company expects margins to improve as the
Company progresses with its new sourcing strategy and other operational
improvements.
Excluding one-time charges, selling and marketing expenses were $7.4
million or 32.2% of net sales compared to $7.6 million or 29.4% of net sales in
the second quarter of fiscal 2001. This decrease is primarily related to savings
achieved by the elimination of the Company's consumer broadband division, offset
by increased costs of maintaining regional sales offices. Research and
development expenses were $1.9 million or 8.1% of net sales compared to $2.4
million or 9.1% of net sales in the second quarter of fiscal 2001. The decline
in research
and development expense is primarily related to savings generated from the
elimination of the consumer broadband research and development activities.
Restructuring reversals were approximately $46,000 in the quarter ended
September 30, 2001. The Company continues to hold a lease on certain property in
Salt Lake City that the Company has subleased to a third party. The Company is
reversing the related leasehold cancellation reserve as such sublease income is
received.
Excluding one-time charges, general and administrative expenses were $1.9
million or 8.4% of net sales compared to $2.6 million or 10.0% of net sales for
the second quarter of fiscal 2001. The decline in general and administrative
expenses is related to charges incurred in the year ago period as a result of a
customer that filed bankruptcy, as well as savings created by the elimination of
the Company's Salt Lake City facilities which were closed in the third quarter
of fiscal 2001.
Interest expense for the quarter of $0.2 million or 1% of net sales was
relatively unchanged compared to the second quarter of fiscal 2001. Excluding
one-time charges, the Company recorded other income of $37,000 for the period
compared to other expense of $0.2 million for the quarter ended September 30,
2000. This improvement is primarily a factor of a $247,000 loss incurred on the
sale of furniture from the Company's previous facilities that was incurred in
the second quarter of fiscal 2001.
Six Months Ended September 30, 2001 Results Compared to Six Months Ended
September 30, 2000
We recorded sales during the six months ended September 30, 2001 and 2000
as follows:
Six Months Ended September 30,
Market 2001 2000 Change
- ------ ----------- ----------- ------
Commercial:
Domestic $25,468,622 $22,541,370 13.0%
International 11,921,432 13,302,228 (10.4)%
----------- ----------- ------
Total Commercial 37,390,054 35,843,598 4.3%
----------- ----------- ------
Residential 7,339,165 11,225,000 (34.6)%
----------- ----------- ------
Total Sales $44,729,219 $47,068,598 (5.0)%
=========== =========== ======
Domestic commercial revenue growth reflects continued support for the
Company's Netlinx product offering in the commercial market. The decline in
international commercial revenue reflects softening demand in certain key
international markets due to deteriorating economic conditions. Revenue of the
Company's subsidiaries in the U.K. and Singapore declined 16% and 25% versus the
same period of fiscal 2001, respectively. The decline in revenues in the U.K. is
primarily related to the fact that our wholly-owned distributor in the U.K.
ceased distribution of all non-AMX product lines in the current fiscal year. The
decline in revenues in Singapore reflects severe economic challenges in
Singapore and certain other Asian markets. Revenue in all other international
markets declined 4% from the same period of fiscal 2001. The decline in
residential sales is related to the challenging economic environment, as well as
from the wide availability of competing residential products. During fiscal
2001, as the Company attempted to enter the consumer broadband market, the
Company lacked a focus on its traditional residential market. This lack of focus
has negatively impacted the Company's market share in recent months. The Company
has refocused on the residential market, and is pursuing new product development
that is expected to allow the Company to compete more aggressively in the
residential channel.
See the section "Three Months Ended September 30, 2001 Results Compared to
Three Months Ended September 30, 2000" for a discussion of one-time charges
taken in the period ended September 30, 2001.
Excluding one time charges, gross margins for the six months ended
September 30, 2001 were 50.2% compared to 52.1% for the comparable year-ago
period. This decline is related to increased cost of certain component parts.
The Company expects margins to improve as the Company progresses with its new
sourcing strategy and other operational improvements.
Excluding one-time charges, selling and marketing expenses were $14.5
million or 32.5% of net sales for the six months ended September 30, 2001
compared to $15.6 million or 33.2% of net sales in the comparable period of the
prior year. This decrease is primarily related to savings achieved by the
elimination of the Company's consumer broadband division, offset by increased
costs of maintaining regional sales offices. Research and development expenses
were $3.7 million or 8.3% of net sales for the six months ended September 30,
2001 compared to $4.7 million or 9.9% of net sales in the comparable period of
fiscal 2001. The decline in research and development expense is primarily
related to savings generated from the elimination of the consumer broadband
research and development activities. Restructuring reversals were approximately
$90,000 in the six months ended September 30, 2001. The Company continues to
hold a lease on certain property in Salt Lake City that the
Company has subleased to a third party. The Company is reversing the related
leasehold cancellation reserve as such sublease income is received.
Excluding one-time charges, general and administrative expenses were $3.5
million or 7.8% of net sales compared to $4.6 million or 9.8% of net sales for
the same period of fiscal 2001. The decline in general and administrative
expenses is related to charges incurred in the year ago period as a result of a
customer that filed bankruptcy, as well as savings created by the elimination of
the Company's Salt Lake City facilities which were closed in the third quarter
of fiscal 2001.
Interest expense for the period of $0.4 million or 0.9% of net sales was
relatively unchanged compared to the same period of fiscal 2001. Excluding one-
time charges, the Company recorded other income of $46,000 for the period
compared to other expense of $0.2 million for the six months ended September 30,
2000. This improvement is primarily a factor of a $247,000 loss incurred on the
sale of furniture from the Company's previous facilities that was incurred in
fiscal 2001.
Liquidity and Capital Resources
In the six months ended September 30, 2001, the Company used $0.3 million
of cash in operations, including $2.5 million for growth in receivables and $1.5
million for inventory growth, compared to cash used in operations of $2.9
million for the comparable period of prior year, including receivables growth of
$4.5 million and inventory growth of $5.1 million. Days sales outstanding were
57 and 47 as of September 30, 2001 and 2000, respectively, while inventory turns
were 4.2 and 3.0 for the same periods. The increase in days sales outstanding is
due principally to a slow-down in collection efforts as a result of conversion
and reporting issues related to the implementation of the Company's ERP system.
Capital expenditures for the six months ended September 30, 2001 were $2.2
million as compared to $4.5 million in the six months ended September 30, 2000.
This decline is primarily a result of slowing expenditures related to the
Company's ERP system, as well as capital expenditures during the six months
ended September 30, 2000 related to the Company's move into its current
headquarters in Richardson, Texas.
Effective September 14, 2001, the Company obtained a new $14 million
revolving line of credit from Bank One, Texas, N.A. ("Bank One") that replaced
and increased the previous $10 million revolving line of credit. The new line of
credit provides for interest at varying rates of the Company's choice based on
the prime lending rate or the London Inter-Bank Offered Rate. The line of credit
is secured by receivables and inventory. At September 30, 2001, $7.25 million
was outstanding under the revolving line of credit agreement and $6.75 million
was available for future borrowings under the facility's borrowing base limits.
This revolving line of credit expires on September 1, 2002. In connection with
the execution of the new revolving line of credit, the Company executed an
amended and restated term note which is unsecured. Under the original term note,
principal and interest were payable monthly, with the unpaid principal balance
due in full in April 2002. The amended term note provides for quarterly payments
of principal and interest through April 30, 2004.
The new line of credit contains various restrictive and financial
covenants. As of September 30, 2001, the Company was in violation of the
quarterly financial operating covenants solely as a result of the one-time
charges recorded during the quarter ended September 30, 2001. However, Bank One
has waived such non-compliance with these covenants for the September 30, 2001
reporting period, and the Company expects that Bank One will continue to allow
for exclusion of the one-time charges in future reporting periods. While the
Company believes Bank One will waive non-compliance in future periods as a
result of the one-time non-cash charges recorded in the quarter ended September
30, 2001, no assurance can be given that a waiver will be obtained.
Additionally, Bank One and the Company have agreed to modified terms under the
line of credit which include a reduction in the commitment to $12.5 million as
of December 31, 2001 and a further reduction to $11.5 million as of March 30,
2002.
The Company believes that cash flow from operations and the funding
available under the modified revolving loan facility will be adequate to fund
working capital and capital expenditure requirements for at least the next 12
months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
From March 31, 2001 until September 30, 2001, there were no material
changes from the information concerning market risk contained in the Company's
Annual Report on Form 10-K for the year ended March 31, 2001, as filed with the
Securities and Exchange Commision on June 29, 2001 (file no. 0-26924).
AMX CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
Information pertaining to this item has been previously reported on Current
Report on Form 8-K dated August 23, 2001, and filed on September 5, 2001.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
+3.1 Articles of Amendment to the Articles of Incorporation of Panja Inc.
+3.2 Amended and Restated Bylaws of AMX Corporation.
+10.1 Third Amendment to Fourth Amended and Restated Loan Agreement dated
as of September 1, 2001
+10.2 Fourth Amendment to Fourth Amended and Restated Loan Agreement dated
as of September 14, 2001
+10.3 Amended and Restated Term Note dated as of September 14, 2001
+10.4 Waiver and Fifth Amendment to Fourth Amended and Restated Loan
Agreement and Related Promissory Notes
+10.5 First Amendment to AMX Corporation 1996 Employee Stock Purchase Plan
+10.6 Second Amendment to AMX Corporation 1996 Employee Stock Purchase
Plan
b. Reports on Form 8-K
Current report on Form 8-K dated August 23, 2001, and filed on September 5,
2001, regarding the change of the Company's name from "Panja Inc." to "AMX
Corporation", and regarding the results of the Annual Meeting of
Shareholders held on August 22, 2001 (Item 5).
______________
+ Filed herewith.
Current report on Form 8-K dated September 20, 2001, and filed on October
5, 2001, regarding the resignation of Casey Cowell as a director of the
Company (Item 5).
Current report on Form 8-K dated November 2, 2001, and filed on November 9,
2001, regarding the resignation of Scott Miller as Chairman, President, and
CEO of the Company, and the appointment of Robert Carroll as Chairman,
President, and CEO of the Company (Item 5).
AMX 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.
AMX Corporation
Date: November 14, 2001 By: /s/ Jean M. Nelson
------------------------------------------
Jean M. Nelson
Vice President and Chief Financial Officer (Duly
Authorized Officer and Principal Financial
Officer)