SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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 NOVEMBER 7, 1997
- -------------------------------------- --------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE 16,934,563
INDEX
PART I-FINANCIAL INFORMATION
Page
Number
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ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 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 2. CHANGES IN SECURITIES 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
2
AMTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, 1997 December 31, 1996
------------------ -----------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 259 $ 5,296
Short-term marketable securities 5,914 11,852
Accounts receivable, net of allowance for doubtful 32,811 28,030
accounts of $989,000 in 1997 and $1,006,000 in 1996
Inventories 13,454 13,497
Deferred income taxes -- 2,401
Prepaid expenses 718 1,256
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Total current assets 53,156 62,332
Property and equipment, at cost 29,002 27,638
Accumulated depreciation (15,910) (12,994)
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13,092 14,644
Deferred income taxes -- 1,003
Intangible assets, net 6,948 8,214
Other assets 5,723 4,848
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$ 78,919 $ 91,041
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,847 $ 6,815
Note payable -- 1,839
Accrued expenses 10,754 8,391
Deferred revenues 1,686 2,240
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Total current liabilities 19,287 19,285
Contingencies
Stockholders' equity:
Preferred stock, $1 par value, 10,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; 14,802,663 issued, 14,722,663
outstanding in 1997 and 1996 148 148
Additional paid-in capital 76,072 76,510
Treasury stock, at cost (393) (393)
Accumulated deficit (16,195) (4,509)
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Total stockholders' equity 59,632 71,756
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$ 78,919 $ 91,041
======= =======
See accompanying notes.
3
AMTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Sales $ 30,185 $ 27,971 $ 83,215 $ 86,114
Operating costs and expenses (a):
Cost of sales 19,363 15,961 52,511 50,177
Research and development 3,008 2,263 8,780 7,384
Marketing, general and administrative 9,603 10,255 31,726 30,328
------ ------ ------- ------
31,974 28,479 93,017 87,889
------ ------ ------- ------
Operating loss (1,789) (508) (9,802) (1,775)
Investment income 159 344 894 2,710
Interest expense --- (49) (65) (219)
------ ------ ------- ------
Income (loss) before income taxes (1,630) (213) (8,973) 716
Provision (benefit) for income taxes (a) 37 (150) 2,713 446
------ ------ ------- ------
Net income (loss) $ (1,667) $ (63) $ (11,686) $ 270
====== ====== ======= ======
Earnings (loss) per share $ (0.11) $ 0.00 $ (0.79) $ 0.02
====== ====== ======= ======
Shares used in computing earnings (loss) per share 14,723 14,622 14,723 14,749
====== ====== ======= ======
(a) The three months ended September 30, 1997 include special charges of
$1,750,000 included in operating costs and expenses related to the
disposition of the IDG. The nine months ended September 30, 1997 include
special charges of $3,825,000 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)
Nine Months
Ended September 30
------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ (11,686) $ 270
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization 3,831 3,413
Deferred income taxes 3,404 (1)
Realized gain on sale of marketable securities -- (2,150)
Stock option compensation -- 446
Tax benefit from exercise of stock options -- 14
Change in assets and liabilities:
(Increase) decrease in accounts receivable (5,369) 1,428
(Increase) decrease in inventories 43 (2,896)
(Increase) decrease in prepaid expenses 538 (420)
(Increase) decrease in intangibles and other assets 832 (2,427)
Increase (decrease) in accounts payable
and accrued expenses 2,395 (618)
Decrease in deferred revenues (554) (631)
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Net cash used by operating activities (6,566) (3,572)
Cash flows from investing activities:
Purchases of property and equipment (1,559) (3,066)
Purchase of Cardkey Systems (1,868) (952)
Purchases of marketable securities (4,916) (9,582)
Sales and maturities of marketable securities 10,854 7,204
Increase in other assets (1,132) (227)
Other (66) (404)
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Net cash provided (used) by investing activities 1,313 (7,027)
Cash flows from financing activities:
Proceeds from issuance of common stock -- 97
Other 69 --
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Net cash provided by financing activities 69 97
Effect of exchange rate changes on cash and cash equivalents 147 88
------- -------
Decrease in cash and cash equivalents (5,037) (10,414)
Cash and cash equivalents, beginning of period 5,296 17,669
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Cash and cash equivalents, end of period $ 259 $ 7,255
======= =======
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 nine-
month period ended September 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:
September 30, 1997 December 31, 1996
------------------ -----------------
Raw materials $ 6,847,000 $ 7,355,000
Work in process 2,813,000 2,307,000
Finished goods 3,794,000 3,835,000
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$13,454,000 $13,497,000
=========== ===========
3. SPECIAL OPERATING AND INCOME TAX CHARGES
In July 1997, the Company announced that it would withdraw from the
wireless LAN terminal market and seek buyers for its Interactive Data Group
("IDG") business. As a result, operating results for the quarter ended June 30,
1997 included non-cash charges of $2,075,000 to reduce the assets of the IDG to
their estimated net realizable values. In the quarter ended September 30, 1997,
as expected, special charges of $900,000 were incurred for employee severance
costs and winding up of operating activities. In addition, further asset
writedowns of $750,000, relating primarily to inventories, were recorded in the
third quarter as a result of concluding a transaction in November 1997 whereby
the IDG business was sold. Allocation of the special charges to operating costs
and expenses for the three months ended September 30, 1997 are $800,000 in cost
of sales, $200,000 in research and development expense and $750,000 in
marketing, general and administrative expense, offset by $100,000 in sales.
Allocation of the special charges to operating costs and expenses for the nine
months ended September 30, 1997 are $1,800,000 in cost of sales, $300,000 in
research and development expense and $1,725,000 in marketing, general and
administrative expense, offset by $100,000 in sales.
Additionally, the nine month provision for income taxes includes
$4,680,000, representing the effect of establishing in the second quarter a
valuation allowance for U.S. deferred tax assets, in
6
accordance with the requirements of Statement of Financial Accounting Standards
(SFAS) No. 109 "Accounting for Income Taxes". Management concluded in the second
quarter that the Company would have three years of cumulative U.S. losses (1995-
1997) and that such "negative evidence" per SFAS No. 109 could not be overcome
due to the Company's operating losses and the uncertainty surrounding the
outcome of the Company's review of its strategic alternatives.
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. The Company sold its interest in WaveNet International, Inc. in
November 1997 and does not expect to incur any material financial liability
associated with this litigation.
5. SUBSEQUENT EVENT
Effective November 3, 1997, the Company and UNOVA, Inc. ("UNOVA") entered
into an agreement whereby UNOVA paid the Company $10,000,000 cash in exchange
for 2,211,900 newly issued unregistered shares of the Company's common stock and
the Company's commitment to negotiate in good faith certain agreements with
UNOVA for future product development.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is organized into two 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 and logistics 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.
In July 1997, the Company announced that it would withdraw from the
wireless LAN terminal market and seek buyers for its Interactive Data Group
("IDG") business, consisting of WaveNet, Inc. and WaveNet International, Inc. As
a result, special charges of $2,075,000 were recorded in the quarter ended June
30, 1997 to adjust the assets of the IDG to their then estimated net realizable
values. In the quarter ended September 30, 1997, as expected, special charges of
$900,000 were incurred for employee severance costs and winding-up of operating
activities. In addition, further asset writedowns of $750,000, relating
primarily to inventories, were recorded in the third quarter as a result of
concluding a transaction in November 1997 whereby the IDG business was sold.
RESULTS OF OPERATIONS
Sales for the three months and nine months ended September 30, 1997
increased $2,214,000 or 8% and decreased $2,899,000 or 3%, respectively, from
the comparable periods in 1996. Sales for the three months in 1997 increased in
both the TSG and ESG by approximately $1,000,000 each with the increase in the
order rate leading to greater sales order backlog amounts at the end of the
quarter. Sales for the nine months in 1997 as compared to the same period in
1996 were unchanged for the ESG and down approximately $2,500,000 for the TSG,
due to delays in timing of revenue recognition of certain system integration
contracts and European manufacturing delays, all occurring primarily in the
first quarter of 1997. Also, TSG sales to a single systems integration services
contract decreased from $10,850,000 in 1996 to $3,656,000 in 1997 as the project
nears completion. Sales order backlog at September 30, 1997 increased 65% to
approximately $61,000,000 as compared to $37,000,000 at the end of 1996's third
quarter.
Gross profit as a percentage of total sales decreased from 43% in 1996 to
36% in 1997 for the three month periods and from 42% in 1996 to 37% in 1997 for
the nine month periods. The decrease in the three month and nine month periods
is primarily due to special charges of $800,000 and $1,800,000, respectively, to
adjust certain IDG assets to their estimated net realizable values. Also
affecting the decrease in both periods is a reduction in TSG's gross profit
margin from 40% in 1996 to 30% in 1997 for the three month periods and from 38%
in 1996 to 32% in 1997 for the nine month periods, primarily due to lower margin
systems integration project work in the ETTM market. The ESG's gross profit
margin remained constant at 42% for all periods.
Research and development for the three months and nine months ended
September 30, 1997 increased $745,000 or 33% and $1,396,000 or 19% from the
comparable periods in 1996, primarily due to an increase in development
activities in the TSG. Expenditures by the TSG increased from $1,124,000 in 1996
to $2,018,000 in 1997 for the three month periods and from $3,674,000 in 1996 to
$5,193,000 in 1997 for the nine month periods.
Marketing, general and administrative expenses for the three months and
nine months ended September 30, 1997 decreased $652,000 or 6% and increased
$1,398,000 or 5% from the comparable
8
periods in 1996. For the three month periods, a $900,000 decrease was
attributable to the TSG and ESG primarily due to certain cost reductions and
overall expense controls affecting discretionary expenditures. The three month
and nine month periods include special charges relating to the IDG of $750,000
and $1,725,000, respectively, for employee severance costs, winding-up of
operating activities and adjusting certain assets to their estimated net
realizable values.
As a result of the foregoing, the Company experienced total operating
losses of $1,789,000 and $9,802,000 for the three months and nine months ended
September 30, 1997, including IDG losses of $1,650,000 and $5,633,000,
respectively. This compares to total operating losses of $508,000 and $1,775,000
for the comparable periods in 1996, including IDG losses of $732,000 and
$1,967,000, respectively.
Investment income for the three months and nine months ended September 30,
1997 decreased from $344,000 to $159,000 and from $2,710,000 to $894,000,
respectively. The decrease for the three month period is attributable to the
reduction in the amount of invested cash and short-term marketable securities.
The decrease for the nine 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 provision of $2,713,000 for the nine months ended September
30, 1997 includes $4,680,000, representing the effect of establishing in the
second quarter 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 concluded in the second quarter
that the Company would have three years of cumulative U.S. losses (1995-1997)
and that such "negative evidence" per SFAS No. 109 could not be overcome due to
the Company's operating losses and the uncertainty surrounding the outcome of
the Company's review of its strategic alternatives. Additionally, the Company's
financial statements do not reflect tax benefits for losses in foreign
jurisdictions.
As a result of the foregoing, the Company experienced a net loss of
$1,667,000 and $11,686,000 for the three months and nine months ended September
30, 1997 as compared to a net loss of $63,000 and net income of $270,000 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 nine months ended September 30, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company's principal source of liquidity is its
net working capital position of $33,869,000. The Company's net working capital
position increased significantly in November 1997 when the Company and UNOVA,
Inc. entered into an agreement whereby UNOVA paid the Company $10,000,000 cash
in exchange for 2,211,900 newly issued unregistered shares of the Company's
common stock and the Company's commitment to negotiate in good faith certain
agreements with UNOVA for future product development. For the nine months ended
September 30, 1997 the Company used cash of $6,566,000 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 $5,600,000 in the first
nine months of 1997; however, the Company's disposition of the IDG will benefit
future operating results and cash flows. During the third quarter 1997, the
Company replaced its pledge of nearly $4,000,000 of the Company's short-term
marketable securities to support a TSG performance bond for a large systems
integration services contract
9
with the pledge of the real property of its manufacturing and engineering
facility in Albuquerque, New Mexico. The Company expects to invest up to an
additional $500,000 in 1997 for property and equipment and will be required to
invest several million dollars during the remainder of 1997 and 1998 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.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Company and UNOVA, Inc. ("UNOVA") entered into an agreement, dated as
of October 31, 1997, whereby UNOVA paid the Company $10,000,000 cash in exchange
for 2,211,900 newly issued unregistered shares of the Company's common stock and
the Company's commitment to negotiate in good faith certain agreements with
UNOVA for future product development. The issuance of these shares, which were
issued on November 3, 1997, was exempt from registration under the Securities
Act of 1933, as amended, by virtue of Section 4(2) thereof and Regulation D
thereunder. UNOVA, the sole purchaser, has advised the Company that it is an
"accredited investor" within the meaning of applicable securities laws, and the
issuance of the shares was effected without any public solicitation.
ITEM 5. OTHER INFORMATION
Effective October 27, 1997 and November 1, 1997, Elmer W. Johnson and Gary
J. Fernandes, respectively, resigned their position as directors of the Company.
Michael E. Keane, a designee of UNOVA, was elected as a director of the Company
effective November 3, 1997.
Effective December 1, 1997, the Company's new address for its Dallas-based
operations will be 19111 Dallas Parkway, Suite 300, Dallas, Texas 75287.
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
-----------------------
10.1* Agreement between Amtech Corporation and UNOVA, Inc.,
dated as of October 31, 1997.
10.2* Press Release dated November 3, 1997 announcing the
UNOVA, Inc. purchase of Amtech Corporation Common
Stock.
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
September 30, 1997.
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*Filed herewith.
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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: November 14, 1997 By: /s/ Steve M. York
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Steve M. York
Senior Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer and
Duly Authorized Officer)
11