SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
[ ] 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: 0-17995
AMTECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-2216818
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
17304 PRESTON ROAD
BUILDING E-100
DALLAS, TEXAS 75252
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(972) 733-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT JULY 31, 1997
- -------------------------------------- ----------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE 14,722,663
INDEX
PART I-FINANCIAL INFORMATION
Page
Number
------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
2
AMTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,037 $ 5,296
Short-term marketable
securities 6,973 11,852
Accounts receivable, net of
allowance for doubtful accounts
of $1,178,000 in 1997 and
$1,006,000 in 1996 31,353 28,030
Inventories 12,284 13,497
Deferred income taxes -- 2,401
Prepaid expenses 790 1,256
-------- --------
Total current assets 53,437 62,332
Property and equipment, at cost 28,617 27,638
Accumulated depreciation (14,997) (12,994)
-------- --------
13,620 14,644
Deferred income taxes -- 1,003
Intangible assets, net 7,156 8,214
Other assets 5,452 4,848
-------- --------
$ 79,665 $ 91,041
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,661 $ 6,815
Note payable -- 1,839
Accrued expenses 8,947 8,391
Deferred revenues 1,618 2,240
-------- --------
Total current liabilities 18,226 19,285
Contingencies
Stockholders' equity:
Preferred stock, $1 par value,
10,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value,
30,000,000 shares authorized;
14,802,663 issued, 14,722,663
outstanding in 1997 and 1996 148 148
Additional paid-in capital 76,212 76,510
Treasury stock, at cost (393) (393)
Accumulated deficit (14,528) (4,509)
-------- --------
Total stockholders' equity 61,439 71,756
-------- --------
$ 79,665 $ 91,041
======== ========
See accompanying notes.
3
AMTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Sales $ 28,877 $ 29,867 $ 53,030 $ 58,143
Operating costs and expenses (a):
Cost of sales 17,790 16,937 33,148 34,216
Research and development 2,954 2,557 5,772 5,121
Marketing, general and
administrative 11,834 10,466 22,123 20,073
-------- -------- -------- --------
32,578 29,960 61,043 59,410
-------- -------- -------- --------
Operating loss (3,701) (93) (8,013) (1,267)
Investment income 438 288 735 2,366
Interest expense -- (61) (65) (170)
-------- -------- -------- --------
Income (loss) before income taxes (3,263) 134 (7,343) 929
Provision for income taxes (a) 3,556 154 2,676 596
-------- -------- -------- --------
Net income (loss) $ (6,819) $ (20) $(10,019) $ 333
======== ======== ======== ========
Earnings (loss) per share $ (0.46) $ 0.00 $ (0.68) $ 0.02
======== ======== ======== ========
Shares used in computing earnings
(loss) per share 14,723 14,613 14,723 14,743
======== ======== ======== ========
(a) The three months and six months ended June 30, 1997 include special charges
of $2,075,000 included in operating costs and expenses related to the
disposition of the IDG and $4,680,000 in provision for income taxes
representing the effect of establishing a valuation allowance for U.S.
deferred tax assets. See Note 3 to Condensed Consolidated Financial
Statements included herein for additional information.
See accompanying notes.
4
AMTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30
-------------
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $(10,019) $ 333
Adjustments to reconcile net
income (loss) to net cash
used by operating activities:
Depreciation and amortization 2,553 2,227
Deferred income taxes 3,404 93
Realized gain on sale of
marketable securities -- (2,150)
Stock option compensation -- 446
Tax benefit from exercise of
stock options -- 13
Change in assets and liabilities:
Increase in accounts
receivable (3,784) (394)
(Increase) decrease in
inventories 1,213 (4,030)
(Increase) decrease in
prepaid expenses 466 (312)
(Increase) decrease in
intangibles and other assets 840 (1,568)
Increase in accounts payable
and accrued expenses 1,402 3,583
Decrease in deferred revenues (622) (331)
-------- --------
Net cash used by operating
activities (4,547) (2,090)
Cash flows from investing activities:
Purchases of property and equipment (1,035) (2,116)
Purchase of Cardkey Systems (1,868) (952)
Purchase of marketable securities (4,916) (5,047)
Sales and maturities of marketable
securities 9,795 7,204
Increase in other assets (851) (125)
Other (44) (350)
-------- --------
Net cash provided (used) by
investing activities 1,081 (1,386)
Cash flows from financing activities:
Proceeds from issuance of common
stock -- 69
Other 46 --
-------- --------
Net cash provided by
financing activities 46 69
Effect of exchange rate changes on cash
and cash equivalents 161 82
-------- --------
Decrease in cash and cash equivalents (3,259) (3,325)
Cash and cash equivalents, beginning of
period 5,296 17,669
-------- --------
Cash and cash equivalents, end of period $ 2,037 $ 14,344
======== ========
See accompanying notes.
5
AMTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements, which should be read in conjunction
with the audited consolidated financial statements included in the Company's
1996 Annual Report to Shareholders and Form 10-K, are unaudited but have been
prepared in the ordinary course of business for the purpose of providing
information with respect to the interim periods. The Condensed Consolidated
Balance Sheet at December 31, 1996 was derived from the audited Consolidated
Balance Sheet at that date which is not presented herein. Management of the
Company believes that all adjustments necessary for a fair presentation for such
periods have been included and are of a normal recurring nature except for the
special charges as explained in Note 3. The results of operations for the six-
month period ended June 30, 1997 are not necessarily indicative of the results
to be expected for the full year.
Earnings per share is computed based on the weighted average number of
shares of common stock and dilutive common equivalent shares outstanding.
2. INVENTORIES
Inventories consist of the following:
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials $ 6,530,000 $ 7,355,000
Work in process 2,324,000 2,307,000
Finished goods 3,430,000 3,835,000
----------- -----------
$12,284,000 $13,497,000
=========== ===========
3. SPECIAL OPERATING AND INCOME TAX CHARGES
In July 1997, the Company announced that it will withdraw from the wireless
LAN terminal market and seek buyers for its Interactive Data Group ("IDG").
Operating results include non-recurring non-cash charges of $2,075,000 in the
quarter ended June 30, 1997 to reduce the assets of the IDG to their estimated
net realizable values, including writedowns of inventories of $800,000, property
and equipment of $350,000 and intangibles of $650,000. Allocation of the charges
to operating costs and expenses are $1,000,000 in cost of sales, $100,000 in
research and development expense and $975,000 in marketing, general and
administrative expense. The Company estimates it will incur additional special
charges up to $1,000,000 in the last half of 1997 for employee severance costs
and winding up of operating activities.
Additionally, the second quarter provision for income taxes includes
$4,680,000, representing the effect of establishing a valuation allowance for
U.S. deferred tax assets, in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes".
Management has concluded that the Company will have three years of cumulative
U.S. losses (1995-1997) and that such "negative evidence" per SFAS No. 109
cannot be presently overcome due to the Company's operating losses and the
uncertainty surrounding the outcome of the Company's previously announced review
of its strategic alternatives.
6
4. CONTINGENCIES
WaveNet International Inc. and certain of its employees are the subject of
a Canadian $11,000,000 (approximately U.S. $8,000,000) suit brought by Teklogix,
Inc., their former employer. The suit alleges improper use of confidential
information in WaveNet International, Inc.'s products, theft of technology,
misappropriation of business opportunities, copyright infringement, and similar
improprieties. In addition to the damages requested, Teklogix seeks to enjoin
the defendants from soliciting customers of Teklogix and from making or selling
any products that use intellectual property of Teklogix. Teklogix also seeks a
declaration that it owns any WaveNet International, Inc. products that use
intellectual property of Teklogix. WaveNet International, Inc. has denied any
wrongdoing by it or its employees and intends to vigorously defend the
litigation. While the final outcome of this matter cannot be predicted with
certainty, the Company believes that the final resolution of this matter will
not have a material adverse effect on the consolidated financial position or
results of operations of the Company.
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is organized into three market-oriented groups. The
Transportation Systems Group ("TSG"), which includes Amtech Systems Corporation,
Amtech World Corporation and Amtech International S.A., develops and provides
high-frequency radio frequency identification (RFID) solutions to the
transportation markets. These markets include electronic toll and traffic
management (ETTM), rail, airport, parking and access control, intermodal, and
motor freight. The Electronic Security Group ("ESG"), which focuses on products
and services for electronic access control applications, includes Amtech Europe
Limited and Cardkey Systems, Inc. The Interactive Data Group ("IDG"), consisting
of WaveNet, Inc. and WaveNet International, Inc. (collectively, "WaveNet"), is a
start-up enterprise that is developing a line of products targeted to the
interactive data marketplace consisting of mobile radio frequency data
communications terminals using wireless local area networks for use in portable
computing, logistics, warehousing, transportation, and medical applications.
In July 1997, the Company announced that it will withdraw from the wireless
LAN terminal market and seek buyers for the IDG. As a result, special provisions
of $2,075,000 were recorded in the quarter ended June 30, 1997 to adjust the
assets of the IDG to their estimated net realizable values. The Company
estimates it will incur additional special charges up to $1,000,000 in the last
half of 1997 for employee severance costs and winding up of operating
activities.
RESULTS OF OPERATIONS
Sales for the three months and six months ended June 30, 1997 decreased
$990,000 or 3% and $5,113,000 or 9%, respectively, from the comparable periods
in 1996. The second quarter 1997 sales increased 20% over the first quarter of
1997, returning to recent historic run rate levels as expected. Sales for the
six months in 1997 were less than expected due to a combination of overall
softness in orders for the Company's products and services, nominal revenue
ramp-up of the IDG, delays in the roll-out of certain new products from the ESG,
and delays in timing of revenue recognition of certain system integration
contracts and European manufacturing delays in the TSG, all occurring primarily
in the first quarter of 1997. TSG sales to a single systems integration services
contract decreased from $3,650,000 in 1996 to $737,000 in 1997 for the three
month periods and from $8,230,000 in 1996 to $1,582,000 in 1997 for the six
month periods as the project nears completion. Sales order backlog at June 30,
1997 was approximately $53,000,000 as compared to $43,000,000 at the end of
1996's second quarter.
Gross profit as a percentage of total sales decreased from 43% in 1996 to
38% in 1997 for the three month periods and from 41% in 1996 to 37% in 1997 for
the six month periods. The decrease in the three month and six month periods is
primarily due to a $1,000,000 provision to adjust certain IDG assets to their
estimated net realizable values. Also affecting the decrease in the six month
period is a reduction in TSG's gross profit margin from 36% in 1996 to 33% in
1997, although gross profit margins in the second quarter of 1997 were 39%
compared to 24% in the first quarter. The ESG's gross profit margin remained
constant at 41% for all periods.
Research and development for the three months and six months ended June 30,
1997 increased $397,000 or 16% and $651,000 or 13% from the comparable periods
in 1996, primarily due to an increase in new product development activities in
the TSG. Expenditures by the TSG increased from $1,289,000 in 1996 to $1,679,000
in 1997 for the three month periods and from $2,550,000 in 1996 to $3,175,000 in
1997 for the six month periods.
Marketing, general and administrative expenses for the three months and six
months ended June 30, 1997 increased $1,368,000 or 13% and $2,050,000 or 10%
from the comparable periods in 1996, primarily due to a second quarter provision
of $975,000 to adjust certain IDG assets to their estimated net realizable
values. Additionally, IDG operating expenses increased from $352,000 in 1996 to
$795,000
8
in 1997 for the three month periods and from $475,000 in 1996 to $1,553,000 in
1997 for the six month periods as the sales and administrative infrastructure
for the IDG was not fully established until late 1996.
Investment income for the three months and six months ended June 30, 1997
increased from $288,000 to $438,000 and decreased from $2,366,000 to $735,000,
respectively. The increase for the three month period is attributable to a gain
realized on the sale of an equity investment. The decrease for the six month
period is primarily attributable to non-recurring gains of $2,150,000 realized
in 1996 from the sale of remaining U.S. corporate equity securities in the
Company's investment portfolio.
The income tax provisions of $3,556,000 and $2,676,000 for the three months
and six months ended June 30, 1997 include $4,680,000, representing the effect
of establishing a valuation allowance for U.S. deferred tax assets, in
accordance with the requirements of Statement of Financial Accounting Standards
(SFAS) No. 109 "Accounting for Income Taxes". Management has concluded that the
Company will have three years of cumulative U.S. losses (1995-1997) and that
such "negative evidence" per SFAS No. 109 cannot be presently overcome due to
the Company's operating losses and the uncertainty surrounding the outcome of
the Company's previously announced review of its strategic alternatives.
Additionally, the Company does not provide tax benefits for losses in foreign
jurisdictions.
As a result of the foregoing, the Company experienced a net loss of
$6,819,000 and $10,019,000 for the three months and six months ended June 30,
1997 as compared to a net loss of $20,000 and net income of $333,000 for the
same periods in 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method it
currently uses to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. These new requirements are
not expected to materially change primary or fully diluted earnings per share
for the three months and six months ended June 30, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 the Company's principal source of liquidity is its net
working capital position of $35,121,000. For the six months ended June 30, 1997
the Company used cash of $4,547,000 for operating activities, primarily to fund
operating losses and the growth in accounts receivable, and $2,217,000 for the
final note payment associated with the acquisition of Cardkey. The IDG recorded
pretax losses of approximately $4,000,000 in the first half of 1997; however,
the Company's decision to withdraw from the wireless LAN market and dispose of
the IDG will benefit future operating results and cash flows. At June 30, 1997
the Company has pledged nearly $5,000,000 of the Company's short-term marketable
securities to support a TSG performance bond for a large systems integration
services contract and a letter of credit in favor of the European-based
manufacturer of the TSG's DYNICOM/TM/ European rail products. The Company
expects to invest up to an additional $1,000,000 in 1997 for property and
equipment and will be required to invest several million dollars in 1997 for
working capital to support large systems integration services contracts of the
TSG.
In the near term, the Company plans to establish a working capital line of
credit for up to $10,000,000. Additional acquisitions, if any, would be financed
by the most attractive alternative available which could be the issuance of debt
or equity securities.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under Part I, Notes to Condensed Consolidated
Financial Statements, Note 4 is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following is a list of exhibits filed as part of this Quarterly
Report on Form 10-Q.
DESCRIPTION OF EXHIBITS
-----------------------
27.1* Financial Data Schedule.
(b) NO REPORTS OF THE REGISTRANT ON FORM 8-K HAVE BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION DURING THE THREE MONTHS ENDED JUNE
30, 1997.
- --------------------------------------------------------------------------------
*Filed herewith.
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMTECH CORPORATION
(Registrant)
Date: August 13, 1997 By: /s/Steve M. York
----------------------------------------
Steve M. York
Senior Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer and
Duly Authorized Officer)
11