1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
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 June 30, 1997
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 July 31, 1997, there were 10,064,920 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
June 30, 1997 and September 30, 1996........................................................ 1 - 2
Condensed Consolidated Income Statement for the
Three Months Ended June 30, 1997 and June 30, 1996......................................... 3
Condensed Consolidated Income Statement for the
Nine Months Ended June 30, 1997 and June 30, 1996.......................................... 4
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended June 30, 1997 and June 30, 1996........................................... 5
Condensed Consolidated Statement of Stockholders' Equity for the
Nine Months Ended June 30, 1997............................................................. 6
Notes to Condensed Consolidated Financial Statements.............................................. 7 - 12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.................................................. 13 - 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................... 18
Item 6. Exhibits and Reports on Form 8-K.................................................... 18
Signatures .................................................................................... 19
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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)
June 30, September 30,
1997 1996
----------------- -----------------
ASSETS (Unaudited) *
CURRENT ASSETS
Cash and cash equivalents $840 $515
Trade accounts receivable 25,737 28,490
Inventories (Note 2) 7,056 4,622
Costs and estimated earnings in excess
of billings on uncompleted contracts 8,574 6,046
Deferred income taxes 1,389 2,042
Prepaid expenses and other current assets 1,238 1,283
----------------- -----------------
TOTAL CURRENT ASSETS 44,834 42,998
PROPERTY, PLANT AND EQUIPMENT
Land 3,768 2,404
Buildings 7,752 6,751
Furniture and office equipment 3,443 2,801
Machinery and equipment 18,902 16,895
Tanks and trucks held for lease 7,855 7,336
----------------- -----------------
41,720 36,187
Less accumulated depreciation and amortization 12,517 10,082
----------------- -----------------
29,203 26,105
OTHER ASSETS
Costs in excess of net assets acquired, net of accumulated
amortization of $4,814 at June 30, 1997 and $4,327 at
September 30, 1996 27,614 17,690
Other assets 2,237 1,571
----------------- -----------------
TOTAL ASSETS $103,888 $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
June 30, September 30,
1997 1996
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) *
CURRENT LIABILITIES
Accounts payable $5,939 $7,621
Note payable - 70
Accrued compensation and benefits 3,628 3,996
Accrued expenses and other current liabilities 6,884 7,959
Earn-outs payable 2,000 1,670
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,364 5,587
Current portion of long-term debt 3,887 3,373
----------------- -----------------
TOTAL CURRENT LIABILITIES 30,702 30,276
LONG-TERM DEBT 28,560 17,544
DEFERRED INCOME TAXES 3,954 3,491
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding
9,960,999 at June 30, 1997 and
9,868,706 shares at September 30, 1996 99 99
Additional capital 59,996 59,734
Retained earnings (deficit) (19,423) (22,780)
----------------- -----------------
40,672 37,053
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $103,888 $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
June 30, June 30,
1997 1996
-------------------- --------------------
(Unaudited) (Unaudited)
Revenues $39,472 $33,008
Cost of revenues 29,594 24,647
Depreciation and amortization expense 1,200 1,024
Selling, general and administrative expenses 5,891 5,332
-------------------- --------------------
OPERATING PROFIT 2,787 2,005
Interest and other income 107 208
Interest expense (556) (344)
-------------------- --------------------
INCOME BEFORE INCOME TAXES 2,338 1,869
Income tax expense:
Current (460) (211)
Deferred (435) (576)
-------------------- --------------------
(895) (787)
-------------------- --------------------
NET INCOME $1,443 $1,082
==================== ====================
Earnings per common and dilutive common equivalent share (Note 3):
Net income $0.14 $0.11
Weighted average shares outstanding 10,331,245 10,178,853
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)
Nine Months Nine Months
Ended Ended
June 30, June 30,
1997 1996
-------------------- --------------------
(Unaudited) (Unaudited)
Revenues $102,694 $82,937
Cost of revenues 76,336 61,093
Depreciation and amortization expense 3,402 2,762
Selling, general and administrative expenses 16,457 14,032
-------------------- --------------------
OPERATING PROFIT 6,499 5,050
Interest and other income 253 269
Interest expense (1,191) (882)
-------------------- --------------------
INCOME BEFORE INCOME TAXES 5,561 4,437
Income tax expense:
Current (1,044) (433)
Deferred (1,160) (1,360)
-------------------- --------------------
(2,204) (1,793)
-------------------- --------------------
NET INCOME $3,357 $2,644
==================== ====================
Earnings per common and dilutive common equivalent share (Note 3):
Net income $0.33 $0.26
Weighted average shares outstanding 10,312,507 10,143,857
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)
Nine Months Nine Months
Ended Ended
June 30, June 30,
1997 1996
-------------------- -------------------
(Unaudited) (Unaudited)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,068 $ 3,504
-------------------- -------------------
Cash flows from investing activities:
Capital expenditures (2,419) (5,044)
Contingent purchase consideration paid (2,270) (544)
Cash paid for acquisition of subsidiary, net of cash acquired (10,958) (2,836)
Proceeds from notes receivable from employee - 613
Cash received from sale of land, buildings and equipment 97 133
-------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (15,550) (7,678)
-------------------- -------------------
Cash flows from financing activities:
Proceeds under revolving lines of credit and notes payable 32,400 33,631
Proceeds from long-term debt 8,950 5,000
Repayments under revolving lines of credit and notes payable (32,159) (31,072)
Repayments of long-term debt (2,596) (3,416)
Checks not yet presented for payment, net - 329
Cash paid for stock repurchase - (293)
Other 212 (5)
-------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,807 4,174
-------------------- -------------------
Increase in cash and cash equivalents $ 325 $ -
==================== ===================
Supplemental cash flow disclosures of noncash investing
and financing activities:
Earn-out payable in connection with the acquisition of BMT (Note 4) $ 2,000 $ -
Long-term debt and notes payable refinanced $ 16,100 -
Details of the TruscoTank, Inc. acquisition follow:
Fair value of assets acquired $ 20,302 -
Fair value of liabilities assumed $ 8,844 -
-------------------- -------------------
Net assets acquired $ 11,458 $ -
==================== ===================
Details of the Graver Tank & Mfg. Co., Inc. acquisition follow:
Fair value of assets acquired $ - $ 12,964
Fair value of liabilities assumed $ - $ 10,064
-------------------- -------------------
Net assets acquired $ - $ 2,900
==================== ===================
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended June 30, 1997
(Dollars in Thousands)
(Unaudited)
Retained
Common Additional Earnings
Stock Capital (Deficit)
---------------- ---------------- ----------------
BALANCE AT SEPTEMBER 30, 1996 $ 99 $ 59,734 $ (22,780)
Net income - - 3,357
Exercise of stock options - 262 -
---------------- ---------------- ----------------
BALANCE AT JUNE 30, 1997 $ 99 $ 59,996 $ (19,423)
================ ================ ================
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 and nine-month periods ended June 30, 1997 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:
June 30, September 30,
1997 1996
------------ ------------
Raw materials and components parts $ 5,553,000 $ 3,589,000
Work in process 424,000 596,000
Finished goods 1,079,000 437,000
------------ ------------
$ 7,056,000 $ 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. ACQUISITIONS
TRUSCO TANK, INC.
On May 1, 1997, the Company acquired all of the issued and outstanding shares of
capital stock of Trusco Tank, Inc. ("Trusco") and two parcels of real property
used in Trusco's business and owned by two of its shareholders. Trusco is a
full-range designer, fabricator and field erector of steel structures, including
storage tanks, pressure vessels and shop-built tanks (both aboveground and
underground). Trusco's customers include municipal water districts, wastewater
treatment facilities, oil companies, industrial facilities, wineries, and
various process industries.
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The base purchase price recorded by the Company of $11,458,000 consisted of
$10,958,000 in cash and $500,000 of acquisition-related expenses. The purchase
price was paid in cash using proceeds from the amended credit facility
discussed below. In addition, the Company repaid Trusco's existing bank
obligations totaling $4,500,000. The acquisition has been accounted for using
the purchase method of accounting. The results of operations of Trusco
commencing May 2, 1997 are included in the condensed consolidated financial
statements.
The following unaudited pro forma information shows the results of operations of
the Company and Trusco for the nine months ended June 30, 1997 and 1996,
assuming the companies had combined as of October 1, 1995.
1997 1996
---- ----
Revenues $115,633,000 $101,478,000
Net income $ 3,663,000 $ 2,882,000
Net income per share $ .36 $ .28
This pro forma information does not purport to be indicative of the results that
actually would have been obtained if the companies had been combined during the
periods presented and is not intended to be a projection of future results.
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. 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. In addition, the Company
repaid Graver's existing bank obligations totaling $2,420,000. 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. For the fiscal
year ended September 30, 1996, the amount earned was $236,000 which was paid
during the second quarter of fiscal 1997.
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.
BROWN-MINNEAPOLIS TANK & FABRICATING CO. ("BMT")
On March 1, 1994, the Company acquired all of the capital stock of BMT. The
consideration paid by the Company to Mr. Jacobs was comprised of the following:
(i) $11,515,000 in cash; (ii) 1,600,000 shares of Common Stock; (iii) a $500,000
unsecured subordinated promissory note; and (iv) contingent annual cash payments
for a period of five years beginning as of October 1, 1993, in an amount equal
to 50% of the BMT Calculated Profit Amount (as defined in the Stock Purchase
Agreement) ("Earn-Out") for each of the fiscal years ended September 30, 1994
through 1998, inclusive; provided, however that in no event shall the
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aggregate contingent payments exceed $9,000,000. For fiscal year 1996, this
contingent purchase consideration amounted to $1,355,000. On February 28, 1997
the parties amended the Stock Purchase Agreement to provide for a complete
settlement of all remaining contingent purchase consideration for a cash payment
of $2,600,000. The Company paid $600,0000 upon signing the amendment and
recorded an additional $2,000,000 of Earn-out payable which is due and payable
by September 30, 1997.
5. CHANGES IN ACCOUNTING AND NEW ACCOUNTING STANDARDS
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.
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share" which is effective for financial statements issued
for periods ending after December 15, 1997. At that time, the Company will be
required to change the methods currently used to compute earnings per share
(EPS) and to restate all prior periods. SFAS No. 128 replaces the current
presentation of "primary" EPS with "basic" EPS, with the principle difference
being that common stock equivalents are not considered in computing "basic" EPS.
The statement also requires the replacement of current "fully diluted" EPS with
"diluted" EPS. "Diluted" EPS will be computed similarly to "fully diluted" EPS.
The adoption of this statement will not have a material impact on the Company's
EPS computation.
In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which is effective for fiscal years beginning after December 15, 1997. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The Company
is currently assessing the impact that adoption of this statement will have on
its financial position and results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for financial statements
for periods beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about
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operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 also requires that a public
business enterprise report descriptive information about the way that the
operating segments were determined, the products and services provided by the
operating segments, differences between the measurements used in reporting
segment information and those used in the enterprises general-purpose financial
statements, and changes in the measurement of segment amounts from period to
period. The Company is currently assessing the impact that adoption of this
statement will have on its financial position and results of operations.
6. CONTINGENCIES
On March 19, 1996, the Company's HMT Inc. subsidiary ("HMT") 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 that the federal
court remand all actions 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 that exist, the Company believes
that its insurance coverages are adequate to address its potential liability, if
any. 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 defend vigorously 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.
7. LONG-TERM DEBT
On April 30, 1997, the Company executed an Amended and Restated Revolving Credit
and Term Loan Agreement (the "Credit Facility") with Bank One, which
consolidated then existing term indebtedness and provided financing to be used
for the acquisition of Trusco, working capital support, capital expenditures,
and other general corporate purposes.
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The Credit Facility, as restated and amended, consists of the following:
(i) A term loan in the original amount of $25,000,000, bearing interest at
the Company's option at either a spread ranging from the bank's base rate
minus 1/2 percent to the bank's base rate plus 1/4 percent or at various
LIBOR rates plus spreads ranging from 1-1/4 percent to 2-3/4 percent. The
applicable spread is based upon the ratio of the Company's total funded
debt to earnings before interest, taxes, depreciation and amortization,
as defined. Interest is payable either quarterly or at certain LIBOR
contract termination dates. The term loan is payable in equal quarterly
installments of $892,857 until February 28, 2004.
(ii) A revolving line of credit of up to $20,000,000, bearing interest at
options equal to those available under the term loan. In addition, the
Company pays a quarterly commitment fee of 1/4 percent per annum on the
average daily unused amount. 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, 2000.
(iii) A $5,000,000 advancing term loan available until February 28, 1998 for
capital expenditures bearing interest at the same options as the term
loan. Beginning on May 28, 1998, any principal amount then outstanding
will be payable in equal quarterly installments until February 28, 2004.
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.
Long-term debt at June 30, 1997 and September 30, 1996 consisted of the
following:
June 30, September 30,
1997 1996
----------- -----------
Term Loan $24,107,000 $ 8,700,000
Revolving line of credit 7,813,000 7,452,000
1995 Advancing term loan - 1,750,000
Acquisition loan - 2,750,000
Other 527,000 265,000
----------- -----------
32,447,000 20,917,000
Less current portion 3,887,000 3,373,000
----------- -----------
$28,560,000 $17,544,000
=========== ===========
Required principal payments on long-term debt to related parties and long-term
debt outstanding at June 30, 1997 for the remainder of fiscal 1997 and the next
five fiscal years are as follows:
1997 $ 995,000
1998 $ 3,751,000
1999 $ 3,667,000
2000 $11,483,000
2001 $ 3,571,000
Thereafter $ 8,980,000
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8. SUBSEQUENT EVENTS
On July 23, 1997, the Board of Directors approved and the Company executed a
Plan and Agreement of Merger ("Merger Agreement") with ITEQ, Inc. ("ITEQ").
Pursuant to the Merger Agreement, the Company will be merged into ITEQ, with
ITEQ being the surviving corporation. The terms of the proposed transaction call
for the Company's shareholders to receive 0.93 shares of ITEQ common stock for
each share of the Company's Common Stock. The Merger Agreement is subject to
shareholder and regulatory approval. The transaction will be accounted for as a
pooling-of-interests and is expected to close in late September or early October
1997.
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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 principally 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 For the Nine Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 75.0 74.7 74.3 73.7
---- ---- ---- ----
Gross profit 25.0 25.3 25.7 26.3
Depreciation and amortization expense 3.0 3.1 3.3 3.3
Selling, general and administrative expense 14.9 16.1 16.0 16.9
---- ---- ---- ----
Operating profit 7.1 6.1 6.4 6.1
Interest and other income .3 .6 .2 .3
Interest expense 1.4 1.0 1.2 1.1
Income tax expense 2.3 2.4 2.1 2.1
--- --- --- ---
Net income 3.7% 3.3% 3.3% 3.2%
=== === === ===
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 nine months of fiscal 1997 and are included in only the third quarter of
fiscal 1996. The Company acquired Trusco on May 1, 1997. The results of
operations of Trusco are included in the condensed consolidated financial
statements for the two months ended June 30, 1997 and are not included in the
first nine months of fiscal 1996.
The Company's revenues increased by $6,464,000 or 20% in the third quarter of
fiscal 1997 and $19,757,000 or 24% in the first nine months of fiscal 1997 as
compared to the same periods a year ago. Approximately 67% of the increase in
the third quarter was a result of the inclusion of Trusco in 1997, coupled with
a change in the revenue mix of the Company's business. Approximately 73% of the
increase in the nine-month period was a result of the inclusion of Graver and
Trusco in fiscal 1997.
The total amounts of contracts in backlog, as of June 30, 1997 and 1996, were
approximately $54,235,000 and $49,556,000, respectively, including both the
uncompleted portion of contracts in progress and contracts awarded but not yet
started. The increase in backlog of $4,679,000 was primarily due to the
addition of Trusco. The majority of the backlog at June 30, 1997 is expected
to be completed within a year.
Gross profit margin on revenues decreased from 26.3% in the first nine months of
fiscal 1996 to 25.7% in the first nine months of fiscal 1997 and decreased from
25.3% in the third quarter of fiscal 1996 to 25.0% in the third quarter of
fiscal 1997. This was primarily a net result of a change in the revenue mix of
the business, coupled with the addition of Trusco and Graver in fiscal 1997.
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Selling, general and administrative expenses increased $2,425,000 or 17% from
the first nine months of fiscal 1996 to fiscal 1997 and increased $559,000 or
10% from the third quarter of fiscal 1996 to the third quarter of fiscal 1997.
Substantially all of the increase for the third quarter was a result of the
inclusion of Trusco's costs in fiscal 1997. Approximately 50% of the increase
for the nine-month period was a result of the inclusion of Graver's and Trusco's
costs in fiscal 1997. 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. However, due to the increase in revenues,
selling, general and administrative expenses, as a percentage of revenues,
decreased from 16.9% in the first nine months of fiscal 1996 to 16.0% in the
first nine months of fiscal 1997 and from 16.1% in the third quarter of fiscal
1996 to 14.9% in the third quarter of fiscal 1996.
The Company had operating profit of $2,787,000 for the third quarter of fiscal
1997 compared to $2,005,000 for the third quarter of fiscal 1996 and $6,499,000
for the first nine months of fiscal 1997 compared to $5,050,000 for the same
period of 1996. The increase resulted primarily from the operating profit
generated by Graver and Trusco and the increase in revenues from repair and
maintenance services.
Interest expense increased by $212,000 or 62% from the third quarter of fiscal
1996 to the third quarter of fiscal 1997 and $309,000 or 35% from the first nine
months of fiscal 1996 to the first nine months of fiscal 1997. This increase was
due to increased debt levels resulting from borrowings to fund the Graver and
Trusco acquisitions.
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% and 40.4% of income before income taxes in
the first nine months of 1997 and 1996, respectively and was 38.3% and 42.1% for
the three months ended June 30, 1997 and 1996, respectively. The rate varied
from the statutory rate primarily due to state taxes and certain nondeductible
goodwill amortization.
The Company had net income of $1,443,000 for the third quarter of fiscal 1997
compared to $1,082,000 for the third quarter of fiscal 1996 and $3,357,000 for
the first nine months of fiscal 1997 compared to $2,644,000 for the same period
of fiscal 1996. The majority of the increase resulted from the inclusion of
Graver and Trusco for a longer period of time in 1997 than 1996 as discussed
above and higher volumes of repair and maintenance revenues.
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.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which is effective for financial statements issued for
periods ending after December 15, 1997. At that time, the Company will be
required to change the methods currently used to compute earnings per share
("EPS") and to
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restate all prior periods. SFAS No. 128 replaces the current presentation of
"primary" EPS with "basic" EPS, with the principle difference being that common
stock equivalents are not considered in computing "basic" EPS. The statement
also requires the replacement of current "fully diluted" EPS with "diluted" EPS.
"Diluted" EPS will be computed similarly to "fully diluted" EPS. The adoption of
this statement will not have any material impact on the Company's EPS
computation.
In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which is effective for fiscal years beginning after December 15, 1997. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The Company
is currently assessing the impact that adoption of this statement will have on
its financial position and results of operation.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for financial statements
for periods beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 also requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprises general-purpose financial statements, and changes
in the measurement of segment amounts from period to period. The Company
is currently assessing the impact that adoption of this statement will have on
its financial position and results of operation.
LIQUIDITY AND SOURCES OF CAPITAL
On April 30, 1997, the Company executed an Amended and Restated Revolving
Credit and Term Loan Agreement (the "Credit Facility") with Bank One, which
consolidated then existing term indebtedness and provided financing to be used
for the acquisition of Trusco, working capital support, capital expenditures,
and other general corporate purposes.
The Credit Facility, as restated and amended, consists of the following:
(i) A term loan in the original amount of $25,000,000, bearing interest at
the Company's option at either a spread ranging from the bank's base
rate minus 1/2 percent to the bank's base rate plus 1/4 percent or at
various LIBOR rates plus spreads ranging from 1-1/4 percent to 2-3/4
percent. The applicable spread is based upon the ratio of the Company's
total funded debt to earnings before interest, taxes, depreciation and
amortization, as defined. Interest is payable either quarterly or at
certain LIBOR contract termination dates. The term loan is payable in
equal quarterly installments of $892,857 until February 28, 2004.
(ii) A revolving line of credit of up to $20,000,000, bearing interest at
options equal to those available under the term loan. In addition, the
Company pays a quarterly commitment fee of 1/4 percent per
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annum on the average daily unused amount. 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, 2000.
(iii) A $5,000,000 advancing term loan available until February 28, 1998 for
capital expenditures bearing interest at the same options as the term
loan. Beginning on May 28, 1998, any principal amount then outstanding
will be payable in equal quarterly installments until February 28,
2004.
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 June 30, 1997, the Company was in
compliance with all such covenants in effect at that time.
Cash provided by operating activities was $9,068,000 for the first nine months
of fiscal 1997, as compared to $3,504,000 for the first nine months of fiscal
1996. Net cash provided by operating activities resulted from net cash inflows
from net income plus non-cash items aggregating $7,919,000 and $6,766,000 in the
first nine months of fiscal 1997 and fiscal 1996, respectively, and net cash
flows due to changes in working capital items.
Cash used in investing activities of $15,550,000 for the first nine months of
fiscal 1997 was primarily used for the acquisition of Trusco. In addition, cash
used in investing activities for the third quarter of fiscal 1997 included
capital expenditures and payments of contingent purchase consideration in
connection with the acquisitions of BMT and Graver. Net cash used in investing
activities of $7,678,000 for the first nine months of fiscal 1996 was primarily
used for capital expenditures and the acquisition of Graver. Capital
expenditures during the first nine months of fiscal 1997 totaled $2,419,000
compared to the prior period's expenditures of $5,044,000. The Company has
currently budgeted an additional $1,000,000 for capital expenditures during the
fourth quarter of fiscal 1997 including $400,000 principally for machinery and
equipment, $200,000 for tanks held for lease, $200,000 for computer hardware and
software and $200,000 for facility improvements. The Company expects to be able
to finance these expenditures with available working capital and credit
facilities.
On March 1, 1994, the Company acquired all of the capital stock of BMT. The
consideration paid by the Company to Mr. Jacobs was comprised of the following:
(i) $11,515,000 in cash; (ii) 1,600,000 shares of Common Stock; (iii) a $500,000
unsecured subordinated promissory note; and (iv) contingent annual cash payments
for a period of five years beginning as of October 1, 1993, in an amount equal
to 50% of the BMT Calculated Profit Amount (as defined in the Stock Purchase
Agreement) ("Earn-Out") for each of the fiscal years ended September 30, 1994
through 1998, inclusive; provided, however that in no event shall the aggregate
contingent payments exceed $9,000,000. For fiscal years 1995 and 1996, this
contingent purchase consideration amounted to $424,000 and $1,355,000,
respectively. On February 28, 1997 the parties amended the Stock Purchase
Agreement to provide for a complete settlement of all remaining contingent
purchase consideration for a cash payment of $2,600,000. The Company paid
$600,0000 upon signing the amendment and recorded an additional $2,000,000 of
Earn-Out payable which is due and payable by September 30, 1997.
On July 23, 1997, the Board of Directors approved and the Company executed a
Plan and Agreement of Merger ("Merger Agreement") with ITEQ. Pursuant to
the Merger Agreement, the Company will be merged into ITEQ, with ITEQ
being the surviving corporation. The terms of the proposed transaction call for
the Company's shareholders to receive 0.93 shares of ITEQ common stock for each
share of the Company's Common Stock. The Merger Agreement is subject to
shareholder and regulatory approval. The transaction will be accounted for as a
pooling-of-interests and is expected to close in late September or early
October 1997.
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The Company is currently focusing on a reengineering effort designed to examine
and improve its core business processes with a goal to better serve customers
and to enhance the future performance of the Company. Costs incurred associated
with the reengineering effort through June 30, 1997 have not been significant.
The Company believes this reengineering effort will be enabled by the Company's
new management information system.
Net cash provided by financing activities of $6,807,000 in the first nine months
of fiscal 1997 was primarily a result of borrowings for the acquisition of
Trusco offset by the payment of Trusco's existing bank obligations totaling
$4,500,000 and regularly scheduled payments on long-term debt. Cash provided by
financing activities of $4,174,000 in the first nine months of fiscal 1996 was
primarily a result of borrowing for the acquisition of Graver and net borrowings
under the Company's revolving line of credit and 1995 capital expenditure
advancing term loan offset by the payment of Graver's existing bank obligations
totaling $2,420,000 and regularly scheduled payments on long-term debt. During
November 1995, the Company completed a program to repurchase small shareholders'
common stock at no cost to the shareholder. Through this program the Company
repurchased and retired 90,109 shares of stock at an aggregate purchase price of
$293,000.
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.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of the Company's management, as
well as assumptions made by and information currently available to the Company's
management. When used herein, words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to the Company or the
Company's management, identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions, relating to the
operations and results of operations of the Company including, but not limited
to, seasonality and level of customer demand, competitive pressures and the
ability to integrate acquisitions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein as
anticipated, estimated, expected or intended.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 19, 1996, the Company's HMT Inc. subsidiary ("HMT") 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 that the federal
court remand all actions 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 that exist, the Company believes
that its insurance coverages are adequate to address its potential liability, if
any. 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 defend vigorously 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:
10 Plan and Agreement of Merger of ITEQ, Inc. and Astrotech International
Corporation dated as of June 30, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K. Form 8-K filed on May 14, 1997 related to the
acquisition of all of the capital stock of Trusco Tank Inc., as amended by
the Company's Form 8-K/A filed on July 11, 1997.
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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
August 14, 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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Exhibit Index
10 Plan and Agreement of Merger of ITEQ, Inc. and Astrotech International
Corporation dated as of June 30, 1997
27 Financial Data Schedule