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 December 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 0-26924
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 11,087,049
(Title of Each Class) (Number of Shares Outstanding at January 31, 2002)
1
AMX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001
INDEX
Page Number
Part I. Financial Information (Unaudited)
Item 1. Consolidated Balance Sheets at December 31, 2001 and March 31, 2001 3
Consolidated Statements of Operations for the Three and Nine Months
Ended December 31, 2001 and 2000 5
Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 13
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II. Other Information
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
2001 2001
------------- -------------
Current assets:
Cash and cash equivalents ........................................... $ 1,133,875 $ 1,607,797
Receivables, less allowance for doubtful accounts of $973,000 at
December 31, 2001 and $363,000 at March 31, 2001 ................ 13,722,691 12,604,052
Inventories ......................................................... 12,998,018 14,310,801
Prepaid expenses .................................................... 972,744 1,250,449
Other current assets ................................................ 246,249 533,080
Deferred income taxes ............................................... -- 2,387,611
------------- -------------
Total current assets ................................................... 29,073,577 32,693,790
Property and equipment, at cost, net ................................... 8,943,033 10,386,938
Capitalized software, less accumulated amortization of $755,000 at
December 31, 2001 and $448,000 at March 31, 2001 ................ 63,381 370,166
Deposits and other ..................................................... 470,302 466,556
Deferred income taxes .................................................. -- 1,944,021
Goodwill, less accumulated amortization of $123,000 for December 31,
2001 and $868,000 for March 31, 2001 ............................ 75,048 300,589
------------- -------------
Total assets ........................................................... $ 38,625,341 $ 46,162,060
============= =============
3
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, March 31,
2001 2001
------------- --------------
Current liabilities:
Accounts payable ................................................ $ 8,662,174 $ 11,422,458
Current portion of long-term debt ............................... 2,165,574 1,053,604
Revolving bank debt ............................................. 8,400,000 5,550,000
Accrued compensation ............................................ 1,479,902 1,343,862
Accrued restructuring costs ..................................... 836,102 1,077,917
Accrued sales commissions ....................................... 634,213 708,347
Other accrued expenses .......................................... 3,076,285 2,643,051
------------- --------------
Total current liabilities .......................................... 25,254,250 23,799,239
Long-term debt, net of current portion ............................. -- 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 -- 11,548,858 for December 31, 2001 and
11,258,718 for March 31, 2001 ............................... 115,488 112,587
Additional paid-in capital ...................................... 24,189,168 23,585,287
Accumulated other comprehensive income .......................... -- 1,103
Retained earnings (deficit) ..................................... (6,465,281) 1,167,283
Less treasury stock (496,476 shares) ............................ (4,468,284) (4,468,284)
------------- --------------
Total shareholders' equity ......................................... 13,371,091 20,397,976
------------- --------------
Total liabilities and shareholders' equity ......................... $ 38,625,341 $ 46,162,060
============== ==============
See accompanying notes.
4
AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Commercial system sales ............... $ 17,799,997 $ 18,927,450 $ 55,190,049 $ 54,771,045
Residential system sales .............. 3,485,443 5,302,628 10,824,610 16,527,630
------------- ------------- ------------- -------------
Net sales .......................... 21,285,440 24,230,078 66,014,659 71,298,675
Cost of sales ......................... 10,965,057 11,872,718 35,437,388 34,432,789
------------- ------------- ------------- -------------
Gross profit ....................... 10,320,383 12,357,360 30,577,271 36,865,886
Selling and marketing expenses ........ 6,064,736 8,637,047 21,424,764 24,205,628
Research and development expenses ..... 1,458,865 2,640,676 5,292,123 7,318,740
Restructuring costs ................... 545,933 (224,187) 456,191 (445,561)
General and administrative expenses ... 1,806,208 1,621,028 6,049,307 6,238,604
------------- ------------- ------------- -------------
Operating income (loss) ............ 444,641 (317,204) (2,645,114) (451,525)
Interest expense ...................... 154,225 295,462 563,591 650,006
Other income (expense), net ........... (4,290) 30,716 (91,301) (185,617)
------------- ------------- ------------- -------------
Income (loss) before income taxes ..... 286,126 (581,950) (3,300,006) (1,287,148)
Income tax provision (benefit) ........ (13,063) (196,631) 4,332,558 (436,331)
------------- ------------- ------------- -------------
Net income (loss) ..................... $ 299,189 $ (385,319) $ (7,632,564) $ (850,817)
============= ============= ============= =============
Basic earnings (loss) per share ....... $ 0.03 $ (0.04) $ (0.69) $ (0.09)
============= ============= ============= =============
Diluted earnings (loss) per share ..... $ 0.03 $ (0.04) $ (0.69) $ (0.09)
============= ============= ============= =============
See accompanying notes.
5
AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
December 31,
2001 2000
------------ ------------
Operating Activities
Net loss ................................................... $ (7,632,564) $ (850,817)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation ............................................ 3,088,125 2,291,757
Amortization ............................................ 442,129 492,583
Write-down of demonstration equipment ................... 708,813 --
Write-down of goodwill .................................. 90,197 --
Provision for losses on receivables ..................... 630,322 720,000
Provision for inventory obsolescence .................... 2,735,623 500,000
Loss on sale of property and equipment .................. -- 247,556
Deferred income taxes and valuation allowance ........... 4,331,632 (949,726)
Changes in operating assets and liabilities:
Receivables ......................................... (1,748,961) (5,602,563)
Inventories ......................................... (1,422,840) (4,221,890)
Prepaid expenses and other assets ................... 560,790 1,506,922
Accounts payable .................................... (2,760,284) 3,919,047
Other accrued expenses .............................. 253,325 (733,055)
------------ ------------
Net cash used in operating activities ...................... (723,693) (2,680,186)
Investing Activities
Purchase of property and equipment ......................... (2,353,033) (5,500,331)
Proceeds from sale of property and equipment ............... -- 100,000
------------ ------------
Net cash used in investing activities ...................... (2,353,033) (5,400,331)
Financing Activities
Sale of common stock-- net proceeds ........................ 606,782 527,780
Net increase in line of credit ............................. 2,850,000 9,050,000
Repayments of long-term debt ............................... (852,875) (642,201)
------------ ------------
Net cash provided by financing activities .................. 2,603,907 8,935,579
Effect of exchange rate changes on cash .................... (1,103) (49,154)
------------ ------------
Net increase (decrease) in cash and cash equivalents ....... (473,922) 805,908
Cash and cash equivalents at beginning of period ........... 1,607,797 986,648
------------ ------------
Cash and cash equivalents at end of period ................. $ 1,133,875 $ 1,792,556
============ ============
See accompanying notes.
6
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 nine months ended December 31, 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 Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
------------ ----------- ------------ -------------
Numerator:
Net income (loss) .............................. $ 299,189 $ (385,319) $ (7,632,564) $ (850,817)
============ =========== ============ =============
Denominator:
Denominator for basic earnings per share
Weighted-average shares outstanding ......... 11,049,067 9,445,350 10,982,601 9,407,142
Effect of dilutive securities:
Employee stock options ......................... 6,901 -- -- --
------------ ----------- ------------ -------------
Denominator for diluted earnings per share ..... 11,055,968 9,445,350 10,982,601 9,407,142
============ =========== ============ =============
Basic earnings (loss) per share ................ $ 0.03 $ (0.04) $ (0.69) $ (0.09)
Diluted earnings (loss) per share .............. $ 0.03 $ (0.04) $ (0.69) $ (0.09)
Of the total stock options outstanding at December 31, 2001, 1,462,586 weighted
shares were excluded from the computation of diluted earnings per share for the
quarter ended December 31, 2001 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 quarter ended December 31, 2000, 693,645 potentially dilutive shares
would have been included in the computation of diluted earnings per share. Had
the Company reported net income for the nine month periods ended December 31,
2001 and 2000, 438,585 and 1,619,088 potentially dilutive shares, respectively,
would have been included in the computation of diluted earnings per share.
7
3. Inventories
The components of inventories are as follows:
December 31, March 31,
2001 2001
------------- -------------
Raw materials $ 7,774,995 $ 7,948,025
Work in progress 1,877,639 1,154,669
Finished goods 7,893,391 8,306,561
Less reserve for obsolescence (4,548,007) (3,098,454)
------------- -------------
Total $ 12,998,018 $ 14,310,801
============= =============
The Company recorded additional reserves for inventory obsolescence of
approximately $2.5 million during the nine months ended December 31, 2001. 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 volume discounts available to
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 (loss), net of related tax, are as
follows:
Three Months Ended Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
----------- ----------- ------------ -----------
Net income (loss) $ 299,189 $ (385,319) $ (7,632,564) $ (850,817)
Foreign currency translation
adjustments -- (10,169) (1,103) (49,154)
----------- ----------- ------------ -----------
Comprehensive income (loss) $ 299,189 $ (395,488) $ (7,633,667) $ (899,971)
=========== =========== ============ ===========
8
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 whom worked
at the Company's Salt Lake City location, were impacted by this shutdown. Of the
94 employees, 82 were expected to be terminated or decline the Company's offer
to move to Dallas and thus receive severance, and 12 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.
9
The following is a summary of the Salt Lake City restructuring action from
inception through December 31, 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
Activity through December 31, 2001:
Payment of lease expenses - (3) - (3)
Recovery of lease expense through
sublease - (46) - (46)
-------------------------------------------------------
Reserve at December 31, 2001 $ - $ 165 $ - $ 165
=======================================================
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. In conjunction with this plan, the Company
recorded a charge of $2.2 million, of which $1.2 million was included in
restructuring costs, $0.7 million was included in cost of sales, and $0.2
million was included as a reversal to revenue.
10
The following is a summary of the consumer broadband and corporate-wide
restructuring action from inception through December 31, 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
Activity through December 31, 2001:
Severance payments (75) - - - (75)
Other payments - - - (69) (69)
-----------------------------------------------------------------------
Reserve at December 31, 2001 $ 70 $ - $ - $ 41 $ 311
=======================================================================
In the third quarter of fiscal 2002, the Company announced a restructuring
program that included the realignment of its corporate structure and a reduction
of its workforce. The personnel reductions included 66 positions, which were
primarily Dallas-based personnel. The reduction in workforce was completed prior
to December 31, 2001, although certain severance and other payments will
continue into the fourth quarter of fiscal 2002 and beyond. In conjunction with
this corporate realignment, the Company recorded a charge of $0.6 million, all
of which was included in restructuring costs.
The following is a summary of the corporate realignment from inception through
December 31, 2001 (in thousands):
Severance
---------
Initial Restructuring Reserve $ 600
Activity through December 31, 2001:
Severance payments (233)
Other payments (7)
---------
Reserve at December 31, 2001 $ 360
=========
11
6. One Time Charges
The Company recorded one-time charges of approximately $8.2 million
during the nine months ended December 31, 2001. 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.
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
during the nine months ended December 31, 2001 in order to record a valuation
allowance against its deferred tax assets. Although the Company anticipates
future sustained profitability, generally accepted accounting principles require
that historical operating performance weigh heavily in assessing the
realizability of deferred tax assets.
7. Debt
The Company has a $12.5 million revolving line of credit from Bank One,
Texas, N.A. ("Bank One"). The 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 December 31, 2001, $8.4 million was outstanding under the
revolving line of credit agreement and $3.8 million was available for future
borrowings under the facility's borrowing base limits. This revolving line of
credit expires on September 1, 2002. The Company also has an unsecured term note
with Bank One. The term note provides for quarterly payments of principal and
interest through April 30, 2004.
The line of credit contains various restrictive and financial covenants.
As of December 31, 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 waived such
non-compliance with these covenants for the December 31, 2001 reporting period
as they did 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 noncash charges
recorded in the quarter ended September 30, 2001, no assurance can be given that
a waiver will be obtained. Accordingly, the Company has classified the balance
of the term note as a current liability due to cross-default provisions. Bank
One and the Company had previously agreed to modified terms under the line of
credit which included a reduction in the commitment from $14 million to $12.5
million and $11.5 million at December 31, 2001 and March 30, 2002, respectively.
However, the Company and Bank One have subsequently agreed to continue the line
of credit commitment at $12.5 million without the additional reduction to $11.5
million.
12
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
13
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, 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.
14
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, Belgium, Canada, Mexico, China
and Singapore, the Company relies on an international network of 21 exclusive
distributors serving 54 countries and over 138 dealers serving 25 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.
In April 2001, the Company began a program under which approximately
75% of the Company's products will be outsourced. The program will also reduce
the number of manufacturing vendors producing the Company's products from
sixteen to five. The Company believes that this long-term program will lead to
improved product availability and increased operating efficiencies. As of
January 31, 2002, the Company is approximately 60% complete with this
implementation, and expects to complete this sourcing implementation during the
first half of calendar 2002.
15
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 nine month periods ended December 31, 2001 and 2000:
Three months ended December 31, Nine months ended December 31,
------------------------------- ---------------------------------------
As Excluding one
reported time charges
2001 2000 2001 2001 (a) 2000
----------- ------------ ------------ ------------- --------
Commercial system sales 83.6 78.1 83.6 83.6 76.8
Residential system sales 16.4 21.9 16.4 16.4 23.2
----------- ------------ ------------ ------------- --------
Net sales 100.0 100.0 100.0 100.0 100.0
Cost of sales 51.5 49.0 53.7 50.1 48.3
----------- ------------ ------------ ------------- --------
Gross profit 48.5 51.0 46.3 49.9 51.7
----------- ------------ ------------ ------------- --------
Selling and marketing expenses 28.5 35.6 32.5 31.1 33.9
Research and development
expenses 6.9 10.9 8.0 8.0 10.3
Restructuring costs 2.6 (0.9) 0.6 (0.2) (0.6)
General and administrative
expenses 8.5 6.7 9.2 8.3 8.7
----------- ------------ ------------ ------------- --------
Operating income (loss) 2.0 (1.3) (4.0) 2.7 (0.6)
Interest expense 0.7 1.2 0.9 0.9 0.9
Other income (expense), net - 0.1 (0.1) 0.1 (0.3)
----------- ------------ ------------ ------------- --------
Income (loss) before income
taxes 1.3 (2.4) (5.0) 1.9 (1.8)
Income tax provision (benefit) (0.1) (0.8) 6.6 0.2 (0.6)
----------- ------------ ------------ ------------- --------
Net income (loss) 1.4 (1.6) (11.6) 1.7 (1.2)
=========== ============ ============ ============= ========
(a) Excludes one-time charges of approximately $8.2 million recorded in the
quarter ended September 30, 2001 and the $0.6 million restructuring charge
recorded in the quarter ended December 31, 2001 (see Notes 5 and 6 in the Notes
to Consolidated Financial Statements for additional information).
Three Months Ended December 31, 2001 Results Compared to Three Months Ended
December 31, 2000
The Company recorded sales during the three months ended December 31,
2001 and 2000 as follows:
Three Months Ended December 31,
Market 2001 2000 Change
- ------ ---- ---- ------
Commercial:
Domestic $ 11,553,369 $ 11,180,927 3.3%
International 6,246,628 7,746,523 (19.4)%
------------- ------------- -------
Total Commercial 17,799,997 18,927,450 (6.0)%
------------- ------------- -------
Residential 3,485,443 5,302,628 (34.3)%
------------- ------------- -------
Total Sales $ 21,285,440 $ 24,230,078 (12.2)%
============= ============= =======
16
Domestic commercial revenue growth reflects continued support for the
Company's Netlinx product offering in the commercial market, although this
growth rate has slowed somewhat from the second quarter year over year growth
rate. The Company believes this decrease from the trailing quarter is due to the
general economic downturn as well as the events of September 11, 2001. Revenue
of the Company's subsidiaries in the U.K. and Singapore declined 46% and 36%,
respectively, versus the same quarter of fiscal 2001. The decline in revenues in
the U.K. is primarily related to the fact that the Company's wholly-owned
distributor in the U.K. ceased distribution of all non-AMX product lines in the
current fiscal year to focus all sales efforts on AMX products. In addition,
U.K. revenues for the third quarter of fiscal 2001 included shipments of
approximately $0.7 million for a large non-recurring project. The decline in
revenues in Singapore reflects severe economic challenges in Singapore and
certain other Asian markets. Revenue in all other international markets declined
2% compared to the same quarter of fiscal 2001. The decline in residential sales
is related to the challenging economic environment and increasing availability
of competing residential products. During fiscal 2001, the Company lacked a
focus on its traditional markets due both to the relocation of the Company's
Salt Lake City operations to Dallas and the Company's attempt to enter the
consumer broadband market. This lack of focus has negatively impacted the
Company's market share in the current fiscal year. In order to strategically
refocus the Company on its core business, the Company has recently added and
reassigned a number of key senior management personnel, which include a new
Vice-President of U.S. Sales, a Vice-President of Professional Services, a
Vice-President of Corporate Development, a Vice-President of Marketing, and a
Vice-President of International Sales.
Gross margins for the quarter ended December 31, 2001 declined to 48.5%
from 51% for the year ago quarter. The deterioration of margins is primarily a
result of incremental costs incurred related to the Company's manufacturing
outsourcing program which was initiated in the first quarter of fiscal 2002.
Under this program, the Company plans to outsource approximately 75% of its
products to five key vendors. As of January 31, 2002, the program is
approximately 60% complete. Completion of the program is expected during the
first half of calendar 2002. The Company expects both margins and product
availability to improve as the Company completes this sourcing strategy.
Selling and marketing expenses were $6.1 million or 28.5% of net sales
compared to $8.6 million or 35.6% of net sales in the third quarter of fiscal
2001. This decrease is primarily related to third quarter cost containment
programs including the workforce reduction in November 2001, a $0.3 million
non-recurring benefit for amendments to existing employee benefit plans, and
savings achieved by the elimination of the Company's consumer broadband division
in March 2001.
Research and development expenses were $1.5 million or 6.9% of net
sales compared to $2.6 million or 10.9% of net sales in the third 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, and savings related to the consolidation of
the research and development activities in Salt Lake City to Dallas. The Company
continues to prioritize its research and development investment activities and
has recently recruited a new Vice-President of Engineering who is evaluating all
existing projects and is partnering closely with product marketing on project
prioritization and strategic planning.
The Company recorded $0.6 million of restructuring charges during the
quarter ended December 31, 2001. These restructuring charges resulted from a
corporate realignment and the corresponding workforce reduction that was
implemented in November 2001. In addition, restructuring reversals of
approximately $46,000 were recorded in the quarter ended December 31, 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.
General and administrative expenses were $1.8 million or 8.5% of net
sales compared to $1.6 million or 6.7% of net sales for the third quarter of
fiscal 2001. During the third quarter of fiscal 2001, the Company eliminated
plans to pay fiscal 2001 cash bonuses and reversed the related bonus accruals
which had been recorded in prior periods. This reversal was approximately $0.4
million. Excluding this reversal, general and administrative expenses were
approximately $2.1 million or 8.5% of net sales in the year ago quarter. The
decrease in general and administrative expenses is primarily related to third
quarter cost
17
containment programs including the workforce reduction in November 2001, as well
as a $0.1 million non-recurring benefit for amendments to existing employee
benefit plans.
Interest expense for the quarter declined to $0.2 million or 0.7% of
net sales compared to $0.3 million or 1.2% of net sales in the year ago quarter
as a result of both lower average outstanding balances on the line of credit and
lower interest rates in the current year. Other income (expense) was relatively
unchanged from the year ago quarter.
The Company recorded a tax benefit of $13,000 or 4.5% of income before
taxes for the quarter ended December 31, 2001 compared to a tax benefit of $0.2
million or 33.8% of loss before taxes for the quarter ended December 31, 2000.
The Company has not provided for U.S. income taxes for the quarter ended
December 31, 2001 as a result of the valuation allowance recorded against the
Company's U.S. net deferred tax assets.
Nine Months Ended December 31, 2001 Results Compared to Nine Months Ended
December 31, 2000
The Company recorded sales during the nine months ended December 31,
2001 and 2000 as follows:
Nine Months Ended December 31,
Market 2001 2000 Change
- ------ ---- ---- ------
Commercial:
Domestic $ 37,021,991 $ 33,722,297 9.8%
International 18,168,058 21,048,748 (13.7)%
------------- ------------- -------
Total Commercial 55,190,049 54,771,045 0.8%
------------- ------------- -------
Residential 10,824,610 16,527,630 (34.5)%
------------- ------------- -------
Total Sales $ 66,014,659 $ 71,298,675 (7.4)%
============= ============= =======
Domestic commercial revenue growth reflects continued support for the
Company's Netlinx product offering in the commercial market, although the
overall growth rate has been hindered by general economic conditions. Revenue of
the Company's subsidiaries in the U.K. and Singapore each declined 28% versus
the same period of fiscal 2001. The decline in revenues in the U.K. is primarily
related to the fact that the Company's wholly-owned distributor in the U.K.
ceased distribution of all non-AMX product lines in the current fiscal year to
focus all sales efforts on AMX products. In addition, U.K. revenues for the nine
months ended December 31, 2000 included shipments of approximately $0.9 million
for two large non-recurring projects. 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 increasing availability of
competing residential products. During fiscal 2001, the Company lacked a focus
on its traditional markets due both to the relocation of the Company's Salt Lake
City operations to Dallas and the Company's attempt to enter the consumer
broadband market. This lack of focus has negatively impacted the Company's
market share in the current fiscal year. In order to strategically refocus the
Company on its core business, the Company has recently added and reassigned a
number of key senior management personnel, which include a new Vice-President of
U.S. Sales, a Vice-President of Professional Services, a Vice-President of
Corporate Development, a Vice-President of Marketing, and a Vice-President of
International Sales.
18
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. For additional
information, see Notes 3 and 6 in the Notes to Consolidated Financial
Statements.
Excluding fiscal 2002 one-time charges, gross margins for the nine months
ended December 31, 2001 were 49.9% compared to 51.7% for the comparable year-ago
period. The deterioration of margins is primarily a result of incremental costs
incurred related to the Company's manufacturing outsourcing program which was
initiated in the first quarter of fiscal 2002. Under this program, the Company
plans to outsource approximately 75% of its products to five key vendors. As of
January 31, 2002, the program is approximately 60% complete. Completion of the
program is expected during the first half of calendar 2002. The Company expects
both margins and product availability to improve as the Company completes this
sourcing strategy.
Excluding fiscal 2002 one-time charges, selling and marketing expenses were
$20.6 million or 31.1% of net sales for the nine months ended December 31, 2001
compared to $24.2 million or 33.9% 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, cost reduction
initiatives implemented in the third quarter of fiscal 2002 including a
workforce reduction, and a $0.3 million non-recurring benefit recorded in the
third quarter of fiscal 2002 for amendments to existing employee benefit plans.
Research and development expenses were $5.3 million or 8.0% of net sales
for the nine months ended December 31, 2001 compared to $7.3 million or 10.3% 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 and
savings related to the consolidation of the research and development activities
in Salt Lake City to Dallas.
The Company recorded $0.6 million of restructuring charges during the nine
months ended December 31, 2001. These restructuring charges resulted from a
corporate realignment and the corresponding workforce reduction that was
implemented in November 2001. In addition, restructuring reversals of
approximately $140,000 were recorded in the nine months ended December 31, 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 fiscal 2002 one-time charges, general and administrative expenses
were $5.5 million or 8.3% of net sales compared to $6.2 million or 8.7% 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 $0.6 million or 0.9% of net sales was
relatively unchanged compared to the same period of fiscal 2001. Excluding
fiscal 2002 one-time charges, the Company recorded other income of $42,000 for
the period compared to other expense of $0.2 million for the nine months ended
December 31, 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.
As a result of the aforementioned one-time 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
future sustained profitability, generally accepted accounting principles require
that historical operating performance weigh heavily in assessing the
realizability of deferred tax assets.
19
Liquidity and Capital Resources
In the nine months ended December 31, 2001, the Company used $0.7 million
of cash in operations, including $1.7 million for growth in receivables, $1.4
million for inventory growth, and $2.8 million to reduce accounts payable. In
the nine months ended December 31, 2000, the Company used $2.7 million of cash
in operations, including receivables growth of $5.6 million and inventory growth
of $4.2 million, offset by growth in accounts payable of $3.9 million. Days
sales outstanding were 58 and 53 as of December 31, 2001 and 2000, respectively,
while inventory turns were 3.4 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, as well as the downturn in overall economic
conditions. Capital expenditures for the nine months ended December 31, 2001
were $2.4 million as compared to $5.5 million in the nine months ended December
31, 2000. This decline is primarily a result of high expenditures in fiscal 2001
related to the Company's ERP system and the Company's move into its current
headquarters in Richardson, Texas in September 2000. Capital expenditures
related to the Company's ERP implementation have decreased significantly
following the "go-live" date in June 2001.
The Company has a $12.5 million revolving line of credit from Bank One,
Texas, N.A. ("Bank One"). The 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 December 31, 2001, $8.4 million was outstanding under the
revolving line of credit agreement and $3.8 million was available for future
borrowings under the facility's borrowing base limits. This revolving line of
credit expires on September 1, 2002. The Company also has an unsecured term note
with Bank One. The term note provides for quarterly payments of principal and
interest through April 30, 2004.
The line of credit contains various restrictive and financial covenants. As
of December 31, 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 waived such
non-compliance with these covenants for the December 31, 2001 reporting period
as they did 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 noncash charges
recorded in the quarter ended September 30, 2001, no assurance can be given that
a waiver will be obtained. Accordingly, the Company has classified the balance
of the term note as a current liability due to cross-default provisions. Bank
One and the Company had previously agreed to modified terms under the line of
credit which included a reduction in the commitment from $14 million to $12.5
million and $11.5 million at December 31, 2001 and March 30, 2002, respectively.
However, the Company and Bank One have subsequently agreed to continue the line
of credit commitment at $12.5 million without the additional reduction to $11.5
million.
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 December 31, 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).
20
AMX CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference from Exhibit 3.1 to the Company's
Form S-8 filed March 11, 1996, File No. 333-2202).
3.2 Articles of Amendment to the Articles of Incorporation of the
Company (incorporated by reference from Exhibit 99.1 to the
Company's Current Report on Form 8-K, filed September 10, 1999,
File No. 0-026924).
3.3 Articles of Amendment to the Articles of Incorporation of the
Company (incorporated by reference from Exhibit 3.1 to the
Company's Form 10-Q filed November 14, 2001, File No. 0-026924).
3.4 Amended and Restated Bylaws of AMX Corporation (incorporated by
reference from Exhibit 3.2 to the Company's Form 10-Q filed
November 14, 2001, File No. 0-026924).
+10.1 Amended and Restated Term Note (Corrected) dated as of September
14, 2001.
+10.2 Waiver and Sixth Amendment to Fourth Amended and Restated Loan
Agreement and Related Promissory Notes
b. Reports on Form 8-K
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).
Current Report on Form 8-K dated November 28, 2001, and filed on
November 29, 2001, regarding the appointment of John E. Wilson and
Thomas L. Harrison to the Company's Board of Directors, and regarding
certain restructuring activities (Item 5).
- --------
+ Filed herewith.
21
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: February 14, 2002 By: /s/ Jean M. Nelson
--------------------------------
Jean M. Nelson
Vice President and Chief Financial
Officer (Duly Authorized Officer
and Principal Financial Officer)
22