1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Mark One
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For Quarterly Period Ended December 31, 1996
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 1-10011
ASTROTECH INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 25-1570579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
960 Penn Avenue, Suite 800, Pittsburgh, PA 15222
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 391-1896
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No___
As of January 31, 1997, there were 9,922,206 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Pages
-----
Condensed Consolidated Balance Sheet at
December 31, 1996 and September 30, 1996.................................................... 1 - 2
Condensed Consolidated Income Statement for the
Three Months Ended December 31, 1996 and December 31, 1995................................. 3
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended December 31, 1996 and December 31, 1995.................................. 4
Condensed Consolidated Statement of Stockholders' Equity for the
Three Months Ended December 31, 1996........................................................ 5
Notes to Condensed Consolidated Financial Statements.............................................. 6 - 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................................................ 9 - 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................................................... 13
Signatures .................................................................................... 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, Except Share Data)
December 31, September 30,
1996 1996
----------- ------------
ASSETS (Unaudited) *
CURRENT ASSETS
Cash $ - $ 515
Trade accounts receivable 23,236 28,490
Inventories (Note 2) 5,435 4,622
Costs and estimated earnings in excess
of billings on uncompleted contracts 6,275 6,046
Deferred income taxes 1,637 2,042
Prepaid expenses and other current assets 1,432 1,283
------- -------
TOTAL CURRENT ASSETS 38,015 42,998
PROPERTY, PLANT AND EQUIPMENT
Land 2,404 2,404
Buildings 6,738 6,751
Furniture and office equipment 2,874 2,801
Machinery and equipment 17,486 16,895
Tanks and trucks held for lease 7,576 7,336
------- -------
37,078 36,187
Less accumulated depreciation and amortization 10,892 10,082
------- -------
26,186 26,105
OTHER ASSETS
Costs in excess of net assets acquired, net of accumulated
amortization of $4,513 at December 31, 1996 and $4,327 at
September 30, 1996 17,658 17,690
Other assets 1,551 1,571
------- -------
TOTAL ASSETS $83,410 $88,364
======= =======
* Summarized from audited balance sheet included in the Company's 1996 Annual
Report on Form 10-K.
See Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
December 31, September 30,
1996 1996
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) *
CURRENT LIABILITIES
Accounts payable $ 6,446 $ 7,621
Notes payable 35 70
Accrued compensation and benefits 3,134 3,996
Accrued expenses and other current liabilities 8,144 7,959
Earn-Outs payable 1,590 1,670
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,572 5,587
Current portion of other long-term debt 3,373 3,373
------- -------
TOTAL CURRENT LIABILITIES 29,294 30,276
OTHER LONG-TERM DEBT 12,092 17,544
DEFERRED INCOME TAXES 3,686 3,491
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding
9,902,206 at December 31, 1996 and
9,868,706 shares at September 30, 1996 99 99
Additional capital 59,837 59,734
Retained earnings (deficit) (21,598) (22,780)
------- -------
38,338 37,053
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $83,410 $88,364
======= =======
* Summarized from audited balance sheet included in the Company's 1996 Annual
Report on Form 10-K.
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Except Share Data)
Three Months Three Months
Ended Ended
December 31, December 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
Revenues $ 33,804 $ 25,910
Cost of revenues 25,279 19,095
Depreciation and amortization expense 1,139 872
Selling, general and administrative expenses 5,218 4,269
----------- ----------
OPERATING PROFIT 2,168 1,674
Interest and other income 87 35
Interest expense (298) (275)
----------- ----------
INCOME BEFORE INCOME TAXES 1,957 1,434
Income tax expense:
Current (175) (133)
Deferred (600) (435)
----------- ----------
NET INCOME $ 1,182 $ 866
=========== ==========
Earnings per common and dilutive common equivalent
share (Note 3):
Net income $ 0.12 $ 0.09
Weighted average shares outstanding 10,150,154 9,990,383
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Three Months Three Months
Ended Ended
December 31, December 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 5,887 $ (1,434)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,070) (1,187)
Contingent purchase consideration paid (80) (544)
Cash received from sale of land, buildings and equipment 15 36
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,135) (1,695)
-------- --------
Cash flows from financing activities:
Proceeds under revolving lines of credit and other notes payable 7,950 13,610
Proceeds from long-term debt - 651
Repayments under revolving lines of credit and other notes payable (12,637) (10,978)
Repayments of other long-term debt (800) (550)
Checks not yet presented for payment, net 180 689
Cash paid for stock repurchase - (293)
Other 40 -
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (5,267) 3,129
-------- --------
Decrease in cash $ (515) $ -
======== ========
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three months ended December 31, 1996
(Dollars in Thousands)
(Unaudited)
Retained
Common Additional Earnings
Stock Capital (Deficit)
------ ---------- ---------
BALANCE AT SEPTEMBER 30, 1996 $99 $59,734 $(22,780)
Net income 1,182
Exercise of stock options 103
--- ------- --------
BALANCE AT DECEMBER 31, 1996 $99 $59,837 $(21,598)
=== ======= ========
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information for commercial and industrial companies and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three-month period ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1996.
The condensed consolidated financial statements include the accounts of
Astrotech International Corporation and its subsidiaries (the "Company").
Intercompany accounts and transactions have been eliminated in consolidation.
2. INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method and consisted of the following:
December 31, September 30,
1996 1996
------------ ------------
Raw materials and components parts $ 4,596,000 $ 3,589,000
Work in process 552,000 596,000
Finished goods 287,000 437,000
------------ ------------
$ 5,435,000 $ 4,622,000
============ ============
3. EARNINGS PER COMMON SHARE
Earnings per share are computed by dividing the respective income statement
caption by the weighted average number of common and dilutive common equivalent
shares outstanding during the period.
4. ACQUISITION OF GRAVER TANK & MFG. CO., INC.
On March 28, 1996, the Company acquired Graver Holding Company and its
wholly-owned subsidiary, Graver Tank & Mfg. Co., Inc. (collectively "Graver").
Graver designs, manufactures and erects storage tanks and pressure vessels for
the petroleum and process industries. Graver also provides nickel-clad
installations for the power generation and air pollution industries, providing
fabrication and erection of scrubbers, chimneys, and stack liners.
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The base purchase price recorded by the Company of $2,900,000 consisted of
$2,750,000 in cash and $150,000 of acquisition-related expenses. The seller is
entitled to receive additional cash proceeds of up to $1,250,000 pursuant to
the terms of an earn-out arrangement based on future profits (as defined) of
Graver during each of the three fiscal years ending September 30, 1998. In
addition, the Company repaid Graver's existing bank obligations totaling
$2,420,000.
The acquisition has been accounted for using the purchase method of accounting.
The results of operations of Graver commencing March 29, 1996 are included in
the consolidated financial statements. Costs of the acquisition in excess of
net assets of the business acquired were approximately $1,154,000.
5. CHANGES IN ACCOUNTING
Effective October 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long Lived Assets to be Disposed Of." The adoption of SFAS No.121 did
not have a material effect on the Company's financial position or results of
operations.
Effective October 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This new standard defines a fair value based method
of accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principles Board (APB)
Opinion No. 25, the former standard. The Company has elected to continue using
the measurement prescribed by APB Opinion No. 25, and accordingly, the adoption
of this pronouncement did not affect the Company's financial position or
results of operations. Management plans to include the required disclosures
under SFAS No. 123 in the notes to its fiscal year 1997 consolidated financial
statements.
6. CONTINGENCIES
On March 19, 1996, the Company's HMT Inc. subsidiary was served with a
Complaint filed in Superior Court of California, County of Contra Costa. This
matter arises out of a tank fire which occurred in June of 1995, at a refinery
in northern California, where Company employees were replacing seals on an
aboveground storage tank. This Complaint, filed by Valerie Vega-Wright, seeks
to certify a class of persons affected by the fire under theories of
negligence, nuisance, battery, trespass and strict liability. The Complaint
seeks damages for, among other things, personal injuries and loss of property
value, and is requesting unspecified compensatory and punitive damages. The
Company has removed this litigation to the U.S. District Court for the Northern
District of California. On October 22, 1996, HMT was served with a Complaint in
Allison v. Unocal et al, which was simultaneously filed in the Contra Costa
Superior Court. The Complaint seeks damages for alleged personal injuries,
property damage and punitive damages. Two hundred sixteen plaintiffs contend
that they were injured as a result of the tank fire and seek damages against
HMT as well as the owner of the refinery. The Company is currently attempting
to request the federal court that all actions be remanded back to the state
court based on this second Complaint. The Company's insurance carriers (both
primary and excess) have been notified and both the Company and its insurance
carriers are assessing the claims and related policy coverages. This matter is
in its initial stages and investigative activities are continuing. While the
ultimate outcome cannot now be determined because of the uncertainties which
exist, the Company believes that its insurance coverages are adequate to
address
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its potential liability, if any; and any unfavorable result not covered by
insurance could result in a material charge which has not been reflected in
the accompanying financial statements. The Company intends to vigorously
defend this action.
The Company is a party to certain other legal proceedings occurring in the
ordinary course of business. Based upon information presently available to it,
the Company does not believe that the final outcome of any of these other
matters will have a materially adverse effect on the consolidated financial
position, results of operations or liquidity of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion provides information which management believes is
relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with the
condensed consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
The Company's revenues are recognized on the percentage-of-completion method.
The following table presents, as a percentage of revenues, certain selected
financial data for the Company for the periods indicated:
For the Three Months
Ended December 31,
------------------
1996 1995
---- ----
Revenues 100.0% 100.0%
Cost of revenues 74.8 73.7
----- -----
Gross profit 25.2 26.3
Depreciation and amortization expense 3.4 3.3
Selling, general and administrative expense 15.4 16.5
----- -----
Operating profit 6.4 6.5
Other income .3 .1
Interest expense (.9) (1.1)
Income tax expense (2.3) (2.2)
----- -----
Net income 3.5% 3.3%
===== =====
The Company acquired Graver on March 28, 1996. The results of operations of
Graver are included in the condensed consolidated financial statements for the
first quarter of fiscal 1997 and are not included in the first quarter of
fiscal 1996.
The Company's revenues increased by $7,894,000 or 30% in the first quarter of
fiscal 1997 as compared to the same period a year ago. Approximately 70% of the
increase was a result of the inclusion of Graver in the first quarter of fiscal
1997. The remainder of the increase was primarily a result of an increase in
demand for the Company's repair and maintenance services.
The total amounts of contracts in backlog, as of December 31, 1996 and 1995,
were approximately $40,247,000 and $32,355,000, respectively, including both
the uncompleted portion of contracts in progress and contracts awarded but not
yet started. The increase was principally attributable to the addition of
Graver's backlog offset by a decrease in construction backlog. The majority of
the backlog at December 31, 1996 is expected to be completed within a year.
Gross profit margin on revenues decreased from 26.3% in the first quarter of
fiscal 1996 to 25.2% in the first quarter of fiscal 1997. This was primarily a
net result of a change in the revenue mix of the business.
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Selling, general and administrative expenses increased $949,000 or 22% from the
first quarter of fiscal 1996 to the first quarter of fiscal 1997. Approximately
47% of the increase was a result of the acquisition of Graver. The remainder of
the increase was primarily a result of increased costs associated with the
Company's investment in a corporate-wide management information system and the
addition of new offices to serve expanded geographic markets. However, due to
the increase in revenues, selling, general and administrative expenses, as a
percentage of revenues, decreased from 16.5% in the first quarter of fiscal
1996 to 15.4% in the first quarter of fiscal 1997.
The Company had operating profit of $2,168,000 for the first quarter of fiscal
1997 compared to $1,674,000 for the first quarter of fiscal 1997, a 30%
increase, as a result of the items discussed above. The increase resulted
primarily from the acquisition of Graver and the increase in revenues from
repair and maintenance services.
Interest expense increased by $23,000 or 8% from the first quarter of fiscal
1996 to the first quarter of fiscal 1997. This increase was moderate despite
increased debt levels as a result of decreased interest rates negotiated
pursuant to the amendment to the Credit Facility in March 1996.
Current income tax expense consists of federal, state and foreign income taxes.
Deferred income taxes consist principally of federal income taxes. The
Company's effective income tax rate was 39.6% of income before income taxes in
the first quarters of 1997 and 1996. The rate varied from the statutory rate
primarily due to state taxes and goodwill amortization, which is not
deductible for tax purposes.
The Company had net income of $1,182,000 for the first quarter of fiscal 1997
compared to $866,000 for the first quarter of fiscal 1996. The majority of the
increase resulted from higher volumes of repair and maintenance revenues and
the inclusion of Graver in 1997.
Effective October 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long Lived Assets to be Disposed Of." The adoption of SFAS No.121 did
not have a material effect on the Company's financial position or results of
operations.
Effective October 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This new standard defines a fair value based method
of accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principles Board (APB)
Opinion No. 25, the former standard. The Company has elected to continue using
the measurement prescribed by APB Opinion No. 25, and accordingly, the adoption
of this pronouncement did not affect the Company's financial position or
results of operations.
LIQUIDITY AND SOURCES OF CAPITAL
The Company maintains a Revolving Credit and Term Loan Agreement (the "Credit
Facility") with Bank One. The Credit Facility consists of the following:
(i) A term loan in the original amount of $12,000,000, payable in
equal quarterly installments of $550,000 until February 28, 2000,
when the remaining outstanding balance will be due. At December
31, 1996, the outstanding balance on this loan was $8,150,000.
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(ii) A revolving line of credit of up to $14,000,000. The borrowing
amount is based on the Company's eligible accounts receivable and
inventory, as defined. The principal amount outstanding plus all
accrued and unpaid interest is due on February 28, 1998.
Outstanding letters of credit, which totaled $2,876,000 at
December 31, 1996, reduce the amount available for borrowing. On
December 31, 1996, the outstanding balance on this loan was
$2,800,000 and $8,324,000 was available for borrowing.
(iii) An advancing term loan which was available until February 28, 1996
for capital expenditures. During fiscal 1996, the Company borrowed
$2,000,000 under this loan which is payable in equal quarterly
installments of $125,000 until February 28, 2000. At December 31,
1996, the outstanding balance on this loan was $1,625,000.
(iv) A $3,000,000 acquisition loan used to purchase Graver. This loan
is payable in equal quarterly installments of $125,000 until
February 28, 2000 when the remaining outstanding balance will be
due. At December 31, 1996, the outstanding balance on this loan
was $2,625,000.
(v) A $2,000,000 advancing term loan available until February 28, 1997
for capital expenditures. Beginning on May 28, 1997, any principal
amount then outstanding will be payable in equal quarterly
installments until February 28, 2001. At December 31, 1996, no
amounts were outstanding under this loan.
All obligations of the Company under the Credit Facility are collateralized by
substantially all of the assets of the Company and the pledge by the Company of
the Common Stock of each of its direct subsidiaries. The obligations of the
Company are guaranteed by each direct and indirect subsidiary. The Credit
Facility contains certain covenants which provide for, among other things,
maintenance of various financial ratios. At December 31, 1996, the Company was
in compliance with all such covenants.
Cash provided by operating activities was $5,887,000 for the first fiscal
quarter of 1997, as compared to cash used of $1,434,000 during the same period
of the prior year. The net cash provided operating activities in the current
quarter resulted from net cash inflows from net income plus non-cash items
aggregating $2,921,000 offset by net cash outflows due to changes in working
capital items.
Cash used in investing activities of $1,135,000 for the first fiscal quarter of
1997 was primarily used for capital expenditures. Net cash used in investing
activities of $1,695,000 for the first quarter of fiscal 1996 was primarily
used for capital expenditures and required contingent purchase consideration
paid. Capital expenditures during the first quarter of fiscal 1997 totaled
$1,070,000 compared to last year's expenditures of $1,187,000. The Company has
currently budgeted an additional $4 million for capital expenditures during the
remainder of fiscal 1997 including $2.1 million principally for machinery and
equipment, $500,000 for tanks held for lease, $900,000 for computer hardware
and software and $500,000 for facility improvements. The Company expects to be
able to finance these expenditures with available working capital and credit
facilities.
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Net cash used in financing activities of $5,267,000 in the first quarter of
fiscal 1997 was primarily a result of net repayments under the Company's
revolving line of credit and regularly scheduled payments on long-term debt.
Cash provided by financing activities of $3,129,000 in the first quarter of
fiscal 1996 was primarily a result of net borrowing of the Company's revolving
line of credit and capital expenditure advancing term loan offset by regularly
scheduled payments on long-term debt.
The Company believes that its existing funds, amounts generated by operations,
and amounts available for borrowing under its credit facility with Bank One
will be sufficient to meet its working capital needs through fiscal 1997.
Management continues to review acquisition opportunities. It is anticipated
that any significant acquisition will require acquisition financing and will
require the consent of Bank One. No assurances can be made that any such
acquisition will be made, or that any such financing will be obtained on terms
and conditions satisfactory to the Company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 19, 1996, the Company's HMT Inc. subsidiary was served with a
Complaint filed in Superior Court of California, County of Contra Costa. This
matter arises out of a tank fire which occurred in June of 1995, at a refinery
in northern California, where Company employees were replacing seals on an
aboveground storage tank. This Complaint, filed by Valerie Vega-Wright, seeks
to certify a class of persons affected by the fire under theories of
negligence, nuisance, battery, trespass and strict liability. The Complaint
seeks damages for, among other things, personal injuries and loss of property
value, and is requesting unspecified compensatory and punitive damages. The
Company has removed this litigation to the U.S. District Court for the Northern
District of California. On October 22, 1996, HMT was served with a Complaint in
Allison v. Unocal et al, which was simultaneously filed in the Contra Costa
Superior Court. The Complaint seeks damages for alleged personal injuries,
property damage and punitive damages. Two hundred sixteen plaintiffs contend
that they were injured as a result of the tank fire and seek damages against
HMT as well as the owner of the refinery. The Company is currently attempting
to request the federal court that all actions be remanded back to the state
court based on this second Complaint. The Company's insurance carriers (both
primary and excess) have been notified and both the Company and its insurance
carriers are assessing the claims and related policy coverages. This matter is
in its initial stages and investigative activities are continuing. While the
ultimate outcome cannot now be determined because of the uncertainties which
exist, the Company believes that its insurance coverages are adequate to
address its potential liability, if any; and any unfavorable result not covered
by insurance could result in a material charge which has not been reflected in
the accompanying financial statements. The Company intends to vigorously defend
this action.
The Company is a party to certain other legal proceedings occurring in the
ordinary course of business. Based upon information presently available to it,
the Company does not believe that the final outcome of any of these other
matters will have a materially adverse effect on the consolidated financial
position, results of operations or liquidity of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended December 31, 1996.
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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 officers thereunto duly authorized.
ASTROTECH INTERNATIONAL CORPORATION
February __, 1997 By: /s/ RAYMOND T. ROYKO
-----------------------------
Raymond T. Royko
Vice President and Secretary
By: /s/ HELEN VARDY GRICKS
-----------------------------
Helen Vardy Gricks
Treasurer and
Principal Accounting Officer
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