UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0411215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
(Address of principal executive offices) (Zip Code)
480-967-5146
(Registrant's telephone number, including area code)
Indicate by a 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. [X] Yes [ ] No
Shares of Common Stock outstanding as of March 31, 2001: 2,632,471
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets -
March 31, 2001 and September 30, 2000........................ 3
Consolidated Statements of Operations -
Three and Six Months Ended March 31, 2001 and 2000........... 4
Consolidated Statements of Stockholders' Equity-
Three and Six Months Ended March 31, 2001 and 2000........... 5
Consolidated Statements of Cash Flows -
Three and Six Months Ended March 31, 2001 and 2000........... 6
Notes to Condensed Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations....................................... 11
Liquidity and Capital Resources............................. 14
Recent Accounting Pronouncements............................ 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 15
Forward-Looking Statements.................................... 15
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings ............................................ 17
Item 4. Submission of Matters to a Vote of Security Holders........... 17
Item 6. Exhibits and Reports on Form 8-K.............................. 17
SIGNATURE............................................................... 18
2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2001 2000
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,280,412 $ 5,784,500
Accounts receivable - net 5,217,348 4,929,948
Inventories 5,110,310 4,229,546
Deferred income taxes 704,000 577,000
Prepaid expenses 68,332 79,476
------------ ------------
Total current assets 17,380,402 15,600,470
PROPERTY, PLANT AND EQUIPMENT - net 1,311,594 1,093,707
GOODWILL AND OTHER ASSETS - net 765,319 789,083
------------ ------------
TOTAL ASSETS $ 19,457,315 $ 17,483,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,522,676 $ 2,144,197
Accrued compensation and related taxes 873,652 635,354
Accrued warranty expense 270,914 218,693
Accrued installation expense 225,196 266,101
Customer Deposits 1,308,104 245,663
Income taxes payable 416,000 670,000
Other accrued liabilities 396,801 486,779
------------ ------------
Total current liabilities 5,013,343 4,666,787
------------ ------------
LONG-TERM OBLIGATIONS 232,950 236,590
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued -- --
Common stock; $0.01 par value; 100,000,000 shares authorized;
2,632,471 (2,571,808 in 2000) shares issued and outstanding 26,325 25,718
Additional paid-in capital 12,462,049 12,133,058
Accumulated other comprehensive loss -
Cumulative foreign currency translation adjustment (510,701) (502,356)
Retained earnings 2,233,349 923,463
------------ ------------
Total stockholders' equity 14,211,022 12,579,883
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,457,315 $ 17,483,260
============ ============
The accompanying notes are an integral part of
these consolidate balance sheets.
3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For Three and Six Months Ended March 31, 2001 and 2000
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
----------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net product sales $ 7,025,583 $ 4,549,100 $13,907,314 $ 8,411,612
Cost of product sales 4,486,317 2,868,232 9,241,544 5,504,150
----------- ----------- ----------- -----------
Gross margin 2,539,266 1,680,868 4,665,770 2,907,462
Selling, general and administrative 1,297,996 1,080,420 2,493,026 2,040,101
Research and development 140,004 196,336 246,626 249,582
----------- ----------- ----------- -----------
Operating profit 1,101,266 404,112 1,926,118 617,779
Interest income - net 78,106 12,058 151,768 21,218
----------- ----------- ----------- -----------
Income before income taxes 1,179,372 416,170 2,077,886 638,997
Income tax provision 431,000 149,000 768,000 241,000
----------- ----------- ----------- -----------
NET INCOME $ 748,372 $ 267,170 $ 1,309,886 $ 397,997
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ .28 $ .13 $ .50 $ .19
Weighted average shares outstanding 2,657,886 2,109,154 2,631,302 2,108,915
Diluted $ .27 $ .12 $ .47 $ .18
Weighted average shares outstanding 2,792,835 2,274,526 2,767,070 2,257,517
The accompanying notes are an integral part of
these consolidated financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THREE AND SIX MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
COMMON STOCK ACCUMULATED RETAINED
-------------------- ADDITIONAL OTHER EARNINGS TOTAL
NUMBER PAID-IN COMPREHENSIVE (ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT) EQUITY
--------- ------ ------- ------------- -------- ------
BALANCE AT SEPTEMBER 30, 1999 2,108,679 $21,087 $ 7,400,152 $(309,064) $ (401,958) $ 6,710,217
Net income -- -- -- -- 397,997 397,997
Translation adjustment -- -- -- (98,816) -- (98,816)
-----------
Comprehensive income -- -- -- -- -- 299,181
-----------
Warrants and stock options
exercised 2,050 20 2,420 -- -- 2,440
--------- ------- ------------ --------- ---------- -----------
BALANCE AT MARCH 31, 2000 2,110,729 $21,107 $ 7,402,572 $(407,880) $ (3,961) $ 7,011,838
========= ======= ============ ========= ========== ===========
BALANCE AT SEPTEMBER 30, 2000 2,571,808 $25,718 $ 12,133,058 $(502,356) $ 923,463 $12,579,883
Net income -- -- -- -- 1,309,886 1,309,886
Translation adjustment -- -- -- (8,345) -- (8,345)
-----------
Comprehensive income 1,301,541
-----------
Warrants and stock options
exercised 60,663 607 328,991 -- -- 329,598
--------- ------- ------------ --------- ---------- -----------
BALANCE AT MARCH 31, 2001 2,632,471 $26,325 $ 12,462,049 $(510,701) $2,233,349 $14,211,022
========= ======= ============ ========= ========== ===========
BALANCE AT DECEMBER 31, 1999 2,108,679 $21,087 $ 7,400,152 $(360,518) $ (271,131) $ 6,789,590
Net income -- -- -- -- 267,170 267,170
Translation adjustment -- -- -- (47,362) -- (47,362)
-----------
Comprehensive income -- -- -- -- -- 219,808
-----------
Warrants and stock options
exercised 2,050 20 2,420 -- -- 2,440
--------- ------- ------------ --------- ---------- -----------
BALANCE AT MARCH 31, 2000 2,110,729 $21,107 $ 7,402,572 $(407,880) $ (3,961) $ 7,011,838
========= ======= ============ ========= ========== ===========
BALANCE AT DECEMBER 31, 2000 2,621,621 $26,216 $ 12,410,574 $(392,083) $1,484,977 $13,529,684
Net income -- -- -- -- 748,372 748,372
Translation adjustment -- -- -- (118,618) -- (118,618)
-----------
Comprehensive income 629,754
-----------
Warrants and stock options
exercised 10,850 109 51,475 -- -- 51,584
--------- ------- ------------ --------- ---------- -----------
BALANCE AT MARCH 31, 2001 2,632,471 $26,325 $ 12,462,049 $(510,701) $2,233,349 $14,211,022
========= ======= ============ ========= ========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 1,309,886 $ 397,997
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 186,973 148,427
Provision for writeoff of inventory and receivables 203,236 46,876
Loss on disposals of long-lived assets -- 432
Deferred income taxes (127,000) (61,000)
Increase in:
Accounts receivable (299,742) (249,067)
Inventories, prepaid expenses and other assets (1,060,434) (412,669)
Increase (decrease) in:
Accounts payable (632,687) 382,859
Accrued liabilities and deposits 1,229,003 501,359
Income taxes payable (254,000) 21,366
----------- -----------
Net Cash Provided By Operating Activities 555,235 776,580
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (363,068) (67,778)
----------- -----------
Net Cash Used In Investing Activities (363,068) (67,778)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from warrant and stock option exercises 329,598 2,440
Payments on mortgage loan (4,929) (5,569)
----------- -----------
Net Cash Provided By (Used In) Financing Activities 324,669 (3,129)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (20,924) 38,673
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase 495,912 744,346
Beginning of year 5,784,500 1,124,685
----------- -----------
END OF PERIOD CASH AND CASH EQUIVALENTS $ 6,280,412 $ 1,869,031
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 14,908 $ 6,148
Income taxes paid 1,149,000 280,000
The accompanying notes are an integral part of
these consolidated financial statements.
6
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 31, 2001
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries, Tempress
Systems, Inc., based in Heerde, The Netherlands, and P. R. Hoffman Machine
Products, Inc. (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"), and are unaudited. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations,
and cash flows for the periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and
regulations of the SEC. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2000.
The consolidated results of operations for the six months ended March 31,
2001, are not necessarily indicative of the results to be expected for the
full year.
2. REVENUE RECOGNITION
Revenue is recognized on the accrual basis when the customer takes title to
the product, generally upon shipment. On occasion, the Company will recognize
revenue prior to shipment. When this occurs, the Company ensures that title
has passed, the customer has committed to take delivery of the goods in a
reasonable period of time, there is a legitimate business purpose requested
by the customer to not ship the product, the product is complete and ready
for shipment and is segregated from existing inventory and there are no
material contingencies. Upon shipment, the Company recognizes all revenue and
accrues the estimated costs of installation.
7
3. INVENTORIES
The components of inventories are as follows:
March 31, September 30,
2001 2000
---------- ----------
Purchased parts and
raw materials $2,395,255 $1,931,524
Work-in-process 2,338,935 1,874,818
Finished goods 376,120 423,204
---------- ----------
Totals $5,110,310 $4,229,546
========== ==========
4. EARNINGS PER SHARE
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income $ 748,372 $ 267,170 $1,309,886 $ 397,997
Weighted average Shares outstanding:
Common shares 2,657,886 2,109,154 2,631,302 2,108,915
Common equivalents (1) 134,949 165,372 135,768 148,602
---------- ---------- ---------- ----------
2,792,835 2,274,526 2,767,070 2,257,517
========== ========== ========== ==========
Earnings Per Share:
Basic $ .28 $ .13 $ .50 $ .19
Diluted $ .27 $ .12 $ .47 $ .18
- ----------
(1) Number of shares calculated using the treasury stock method and the average
market price during the period. Options and warrants on 59,300 shares and
84,000 shares had an exercise price greater than the average market price
in fiscal 2001 and fiscal 2000, respectively, and therefore did not enter
into the calculation.
8
5. RECENT ACCOUNTING PRONOUNCEMENTS
On October 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities"("SFAS 133"). SFAS 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that do not
qualify as hedges must be adjusted to fair value through income. If the
derivative qualifies for hedge treatment, depending on the nature of the
hedge, changes in the fair value of the derivative are either offset against
the change in the fair value of assets, liabilities, or through earnings
(fair value hedges) or recognized in other comprehensive income until the
hedged item is recognized in earnings (cash flow hedges). The ineffective
portion of a derivative's change in fair value is immediately recognized in
earnings. The adoption of SFAS 133 did not have a material impact on the
Company's consolidated financial position or operating results.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition," which sets forth the SEC Staff's views on selected
revenue recognition issues. Based upon the prevailing interpretations of SAB
No. 101, the Company may be required to delay recognition of at least a
portion of its sales of semiconductor production systems until installation
has been completed and customer acceptance has occurred. The Company's
current policy is to recognize revenue at the time the customer takes title
to the product, generally at the time of shipment, because the Company has
routinely met its installation obligations and installation costs represent
an insignificant percentage of total costs. The Company believes its current
accounting policies on revenue recognition are consistent with those
generally used in its industry and have been consistently applied since the
inception of the Company. Therefore, if the Company is required to change its
revenue recognition policies in order to comply with SAB No. 101, a
significant cumulative charge related to a change in an accounting principle
may be required. The guidance in SAB No. 101 must be adopted no later than
the fourth quarter of the Company's fiscal year 2001, ending September 30,
2001, with a restatement of the first three quarters of that fiscal year. In
October 2000, the SEC issued implementation guidance in the form of
"Frequently Asked Questions." The Company is in the process of assessing the
impact that SAB No. 101 will have on its consolidated financial statements
based on the SEC's most recently issued guidance.
6. BUSINESS SEGMENT INFORMATION
The Company classifies its products into two core business segments: (1) the
semiconductor equipment segment which designs, manufactures and markets
semiconductor wafer processing equipment used in the fabrication of
integrated circuits, and (2) the polishing supplies segment, which designs,
manufactures and markets carriers, templates and equipment used in the
lapping and polishing of wafer thin materials, including silicon wafers used
in the production of semiconductors. Information concerning the Company's
business segments in fiscal years 2001 and 2000 is as follows:
9
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
Semiconductor equipment $ 4,698,579 $ 2,540,822 $ 9,411,267 $ 4,706,296
Polishing supplies 2,327,004 2,008,278 4,496,047 3,705,316
----------- ----------- ----------- -----------
$ 7,025,583 $ 4,549,100 $13,907,314 $ 8,411,612
=========== =========== =========== ===========
Operating profit
Semiconductor equipment $ 766,538 $ 119,753 $ 1,298,911 $ 184,929
Polishing supplies 334,728 284,359 627,207 432,850
----------- ----------- ----------- -----------
Total operating profit 1,101,266 404,112 1,926,118 617,779
Interest income - net 78,106 12,058 151,768 21,218
----------- ----------- ----------- -----------
Income before income taxes $ 1,179,372 $ 416,170 $ 2,077,886 $ 638,997
=========== =========== =========== ===========
a
7. LEGAL PROCEEDINGS.
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of 11
companies named in a legal action being brought by North Middleton Township
in Carlisle, Pennsylvania, the owner of a landfill allegedly found to be
contaminated. No detailed allegations have been filed as part of this legal
action, which appears to have been filed to preserve the right to file claims
for contribution to the clean-up of the landfill at a later date. The Company
acquired the assets of P.R. Hoffman Machine Products Corporation in an asset
transaction consummated on July 1, 1997. The landfill was closed and has not
been used by P.R. Hoffman since sometime prior to completion of the Company's
acquisition. Therefore, the Company believes that the named company is the
prior owner of the acquired assets. Under the terms of the Asset Purchase
Agreement governing the acquisition, the prior owner, P.R. Hoffman Machine
Products Corporation, is obligated to indemnify the Company for any breaches
of P.R. Hoffman's representations and warranties in the Asset Purchase
Agreement, including representations relating to environmental matters. In
accordance with the terms of the Asset Purchase Agreement, the Company has
provided notice to the prior owner of P.R. Hoffman Machine Products
Corporation of the Company's intent to seek indemnification from such owner
for any liabilities resulting from this legal action. Based on information
available to the Company as of the date of this report, management believes
the costs, if any, to resolve this matter will not be material to the
Company's results of operations or financial position.
10
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
2001 2000 2001 2000
------ ------ ------ ------
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of product sales (63.9) (63.1) (66.5) (65.4)
------ ------ ------ ------
Gross margin 36.1 36.9 33.5 34.6
Selling, general and
administrative expenses (18.4) (23.7) (17.9) (24.3)
Research and development (2.0) (4.3) (1.8) (3.0)
------ ------ ------ ------
Operating profit 15.7% 8.9% 13.8% 7.3%
====== ====== ====== ======
The following table sets forth certain operational data as a percentage of
net revenue for the periods indicated:
NET REVENUE. The Company's net revenue for the three months ended March 31,
2001 was $7,026,000, an increase of $2,477,000, or 54%, compared to net revenue
of $4,549,000 for the second quarter of fiscal 2000. Sales in the semiconductor
equipment segment and polishing supplies segment increased by 85% and 16%,
respectively, primarily due to shipments of systems to optical component
manufacturers, a new market for the Company's products, and increased sales to
the semiconductor industry, which the Company serves. The Company's first system
shipment to an optical component manufacturer occurred in June 2000.
Net revenue for the six months ended March 31, 2001 was $13,907,000, an
increase of $5,495,000, or 65%, compared to net revenue of $8,412,000 for the
same period of fiscal 2000. Sales in the semiconductor equipment segment and
polishing supplies segment increased by 100% and 21%, respectively. Shipments of
furnace systems to optical component manufacturers, as discussed above, account
for approximately 70% of the increase, with the remaining 30% represented by
increased sales of the Company's IBAL Automation products and polishing
supplies.
GROSS MARGIN. The Company's gross margin increased by approximately
$858,000, or 51%, to $2,539,000 for the three months ended March 31, 2001, from
$1,681,000 during the comparable period of the previous fiscal year. The
increase in gross margin resulted from the 54% increase in revenue discussed
above. Gross margin as a percentage of sales was 36% in the second quarter of
fiscal 2001, compared to 37% in the second quarter of fiscal 2000, with the
slight erosion resulting from the product mix. In the polishing supplies
segment, gross margin declined to 30% of revenues from 33% in the prior year.
Inventory write-offs were $109,000 higher in the second quarter of fiscal 2001,
than in the comparable period of fiscal 2000, as a result of certain
semiconductor equipment order cancellations, which contributed to the decline in
consolidated gross margins. The gross margin of the semiconductor equipment
segment declined to 39% of sales in fiscal 2001, compared to 40% of sales in the
second quarter of fiscal 2000.
11
Gross margin increased by approximately $1,759,000, or 60%, to $4,666,000
for the six months ended March 31, 2001, from $2,907,000 during the comparable
period of the previous fiscal year. This increase resulted primarily from the
65% increase in revenue discussed above. As a percentage of sales, margins
remained relatively constant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of fiscal 2001 increased by
$218,000, or 20%, to $1,298,000, compared to $1,080,000 spent in the second
quarter of fiscal 2000. Approximately $128,000 of the increase is due to
commissions, incentive pay and other costs associated with the increased revenue
and profitability. Other increases in expenses totaling $90,000 resulted from a
number of factors including costs related to the expansion of facilities.
Consolidated expenses declined to 18% of revenues for the three months ended
March 31, 2001, as compared to 24% for the same period in fiscal 2000, due to a
significant increase in revenues.
Selling, general and administrative expenses for the six months ended March
31, 2001 increased by $453,000, or 22%, to $2,493,000, compared to $2,040,000
spent in the same period of fiscal 2000. Selling expenses, including
commissions, account for $188,000 of the cost increases, while costs of added
administrative personnel increased by $64,000. Other administrative costs
account for the remaining increase in these expenses. Although selling, general
and administrative expenses increased significantly, they declined to 18% of
revenue in fiscal 2001 from 24% in fiscal 2000.
RESEARCH AND DEVELOPMENT. Research and development costs declined by
$56,000, to $140,000, during the second quarter of fiscal 2001, as compared to
$196,000 spent in the second quarter of fiscal 2000, due to non-recurring
purchases of supplies for the Company's asher research project in fiscal 2000.
For the first six months of fiscal 2001, research and development costs
declined by $3,000, to $247,000, as compared to $250,000 spent in the same
period of fiscal 2000. Increased expenditures in development expenditures for
furnaces in the current fiscal year nearly offset the decline in Asher related
costs discussed above.
OPERATING PROFIT. Operating profit for the second quarter of fiscal 2001
was $1,101,000, an increase of $697,000, or 173%, compared to an operating
profit of $404,000 in the same period of fiscal 2000. The increase in operating
profit is primarily attributable to the 54% increase in consolidated revenue and
continued cost control. Operating profit for the polishing supplies segment
increased by $51,000, or 18%, to $335,000, compared to $284,000 in the second
quarter of fiscal 2000, as a result of the 16% increase in sales volume. In the
semiconductor equipment segment, operating profit increased by $647,000 to
$767,000, compared to $120,000 in the second quarter of fiscal 2000. The
increase in the second quarter operating profit of the semiconductor equipment
segment is due to the 85% increase in sales and continued cost control. On a
consolidated basis, operating profits grew to 16% of revenue in the second
quarter of fiscal 2001, compared to 9% of revenue in the second quarter of the
prior fiscal year.
Operating profit for the six months ended March 31, 2001 was $1,926,000, an
increase of $1,308,000, or 212%, compared to an operating profit of $618,000 in
the same period of fiscal 2000. The increase in operating profit is primarily
attributable to the 65% increase in consolidated revenue. Operating profit for
the polishing supplies segment increased by $194,000, or 45%, to $627,000,
compared to $433,000 in the same period of fiscal 2000, as a result of the 21%
increase in sales volume. In the semiconductor equipment segment, operating
12
profit increased by $1,114,000 to $1,299,000, compared to $185,000 in the first
six months of fiscal 2000. The increase in the second quarter operating profit
of the semiconductor equipment segment is due to the 85% increase in sales and
continued cost control. On a consolidated basis, operating profits grew to 14%
of revenue in the first six months of fiscal 2001, compared to 7% of revenue in
the same period of the prior fiscal year.
NET INTEREST INCOME. During the second quarter of fiscal 2001, net interest
income increased $66,000 to $78,000, compared to $12,000 in the corresponding
quarter of fiscal 2000, due to interest earned on the portion of the equity
capital raised in the fourth quarter of fiscal 2000 that has not yet been
deployed and cash generated from operations. As a result of the foregoing
factors, income before income taxes for the second quarter of fiscal 2001 was
$1,179,000, an increase of 183%, compared to $416,000 in the second quarter of
fiscal 2000.
For the six months ended March 31, 2001, net interest income increased
$131,000 to $152,000, compared to $21,000 in the corresponding period of fiscal
2000 for the reasons discussed above. Income before income taxes for the first
six months of fiscal 2001 was $2,078,000, an increase of 225%, compared to
$639,000 in the first six months of fiscal 2000.
PROVISION FOR INCOME TAXES. Income tax expense of $431,000, recorded at an
effective tax rate of 37%, resulted in net income for the second quarter of
fiscal 2001 of $748,000. During the same quarter of fiscal 2000, the Company
recorded income tax expense of $149,000, reflecting a 36% effective tax rate and
resulting in net income of $267,000.
Income tax expense of $768,000, recorded at an effective tax rate of 37%,
resulted in net income for the first six months of fiscal 2001 of $1,310,000.
During the same period of fiscal 2000, the Company recorded income tax expense
of $241,000, reflecting a 38% effective tax rate, resulting in net income of
$398,000.
NET INCOME. The resulting net income for the second quarter of fiscal 2001
was $748,000, or $.27 per diluted share, an increase of $481,000, or 180%,
compared to the net income of $267,000, or $.12 per share, in the second quarter
of fiscal 2000.
Net income for the six months ended March 31, 2001 was $1,310,000, or $.47
per diluted share, an increase of $912,000, or 229%, compared to the net income
of $398,000, or $.18 per share, for the same period of fiscal 2000.
BACKLOG. At March 31, 2001, the order backlog was $12,736,000, an increase
of $758,000, or 6%, from the $11,978,000 backlog at December 31, 2000. New
orders net of cancellations in the second quarter of fiscal 2001 exceeded
shipments during the period. Despite significant declines in the backlog of
orders for automation products and polishing supplies and equipment during the
second quarter of fiscal 2001, this was more than offset by the increase in the
backlog of orders for diffusion furnaces. The March 31, 2001 backlog declined by
$1,763,000, or 12%, from the $14,499,000 backlog at September 30, 2000. While
new orders nearly equaled shipments for the first quarter of fiscal 2001,
cancellations of four system orders accounted for the reduction in the backlog
since September 30, 2000. The backlog as of March 31, 2001, was approximately
$8,292,000 higher than at March 31, 2000, an increase of 187%.
Due to the possibility of customer changes in delivery schedules, order
cancellations, potential delays in product shipments, delays in obtaining
inventory parts from suppliers, failure to satisfy customer acceptance
requirements and changes in product mix, our backlog as of any point in time may
not be representative of actual sales and profitability in any future period. A
reduction in backlog during any particular period could have a material adverse
affect on our business prospects, financial condition and results of operations.
13
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had $6,280,000 of readily available
liquidity in the form of cash and cash equivalents, compared to cash and
equivalents of $5,785,000 at September 30, 2000, an increase of approximately
$495,000. The Company's current cash position is primarily a result of the
$4,616,000 of net cash proceeds from a private placement of the Company's Common
Stock in September 2000 and the positive cash flow during fiscal 2001. An
additional $2 million line of credit secured in October 2000 further enhances
the Company's liquidity position. The Company continues to believe that there is
sufficient liquidity for existing operations and its expansion plans.
CASH FLOW. The $495,000 net increase in cash during the six months ended
March 31, 2001, approximates the cash flow provided by the operations. The
$555,000 cash flow provided by operations is comprised of $1,310,000 of net
income, depreciation and amortization ($187,000), non-cash write-offs of
inventories and receivables ($203,000), and approximately a $1 million increase
in customer deposits. These items were partially offset by increased investments
in inventories ($1,060,000) and receivables ($300,000) and reductions in
accounts payable and income taxes payable. Proceeds from exercise of outstanding
warrants and options provided approximately $330,000 in cash, nearly enough to
finance capital expenditures totaling $363,000, which primarily were for the
expansion of plant capacity in the semiconductor equipment segment.
This large increase in inventories occurred primarily in the first quarter
of fiscal 2001, as a result of volume purchase commitments made to offset
growing lead times that were being experienced in the fourth quarter of
fiscal 2000 and customer cancellations and delayed delivery schedules in the
first and second quarter of the current fiscal year. While inventory may remain
at higher than historical levels for several quarters, the Company believes that
it will not increase further and does not expect any significant losses to occur
in the disposing of excess inventory.
At March 31, 2001, working capital was $12,367,000, up $1,433,000 from
$10,934,000 at September 30, 2000. The Company's current ratio increased
slightly to 3.5:1 at the end of the second quarter of fiscal 2001 from 3.3:1 at
the beginning of the 2001 fiscal year. The Company believes that its current
ratio continues to indicate a strong financial condition. At the end of the
second quarter of fiscal 2001, cash and cash equivalents comprised 32% of total
assets and stockholders' equity accounted for 73% of total capitalization. The
Company believes that it continues to possess the financial strength necessary
to achieve continued growth.
RECENT ACCOUNTING PRONOUNCEMENTS
On October 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities"("SFAS 133"). SFAS 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that do not qualify
as hedges must be adjusted to fair value through income. If the derivative
qualifies for hedge treatment, depending on the nature of the hedge, changes in
the fair value of the derivative are either offset against the change in the
fair value of assets, liabilities, or through earnings (fair value hedges) or
recognized in other comprehensive income until the hedged item is recognized in
earnings (cash flow hedges). The ineffective portion of a derivative's change in
fair value is immediately recognized in earnings. The adoption of SFAS 133 did
not have a material impact on the Company's consolidated financial position or
operating results.
14
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition," which sets forth the SEC Staff's views on selected
revenue recognition issues. Based upon the prevailing interpretations of SAB No.
101, the Company may be required to delay recognition of at least a portion of
its sales of semiconductor production systems until installation has been
completed and customer acceptance has occurred. The Company's current policy is
to recognize revenue at the time the customer takes title to the product,
generally at the time of shipment, because the Company has routinely met its
installation obligations and installation costs represent an insignificant
percentage of total costs. The Company believes its current accounting policies
on revenue recognition are consistent with those generally used in its industry
and have been consistently applied since the inception of the Company.
Therefore, if the Company is required to change its revenue recognition policies
in order to comply with SAB No. 101, a significant cumulative charge related to
a change in an accounting principle may be required. The guidance in SAB No. 101
must be adopted no later than the fourth quarter of the Company's fiscal year
2001, ending September 30, 2001, with a restatement of the first three quarters
of that fiscal year. In October 2000, the SEC issued implementation guidance in
the form of "Frequently Asked Questions." The Company is in the process of
assessing the impact that SAB No. 101 will have on its consolidated financial
statements based on the SEC's most recently issued guidance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rates and foreign
currency exchange rates, refer to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2000. There are no material changes in
reported market risk from September 30, 2000.
FORWARD-LOOKING STATEMENTS
The statements contained in this report on Form 10-Q that are not
historical fact are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These statements can be
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," or "possible," or the
negative thereof or other written variations thereof or comparable terminology.
The forward-looking statements contained herein are based on current
expectations that involve a number of risks and uncertainties. Among others,
these forward-looking statements are based on assumptions that (a) the Company
will not lose a significant customer or customers, (b) the Company will not
experience significant reductions in demand or rescheduling or cancellation of
customer purchase orders, (c) the Company's products will remain accepted within
their respective markets and will not be significantly further replaced by newer
technology equipment, (d) competitive conditions within the Company's markets
will not materially deteriorate, (e) the Company's efforts to improve its
products and maintain its competitiveness in the markets in which it competes
will continue to progress and that the savings associated with these
expenditures and/or the increased product demand resulting therefrom justifies
such development costs, (f) the Company will be able to retain, and when needed,
add key technical and management personnel, (g) business or product
acquisitions, if any, will be successfully integrated and the results of
operations therefrom will support the acquisition price, (h) the Company's
forecasts will accurately anticipate market demand, (i) there will be no
material adverse changes in the Company's existing operations, (j) the Company
will be able to obtain sufficient equity or debt funding to increase its capital
resources by the amount needed for new business or product acquisitions, if any,
(k) the semiconductor equipment industry will not enter a period of slowdown
15
during fiscal 2001, (l) the condition in the Asian markets will continue to
improve, (m) the Company will be able to continue to control costs, (n) demand
for the Company's products will not be adversely and significantly influenced by
trends within the semiconductor industries, including consolidation of
semiconductor manufacturing operations through mergers and the subcontracting
out of the production of semiconductors to foundries, and (o) the effects of
adopting SAB No. 101 will largely be offset by increased sales. Assumptions
related to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, all of which are beyond the
control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, the business and operations of the Company are subject to substantial
risks, which increase the uncertainty inherent in such forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, such information should not be
regarded as a representation by the Company, or any other person, that the
objectives or plans for the Company will be achieved.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
11 companies named in a legal action being brought by North Middleton Township
in Carlisle, Pennsylvania, the owner of a landfill allegedly found to be
contaminated. No detailed allegations have been filed as part of this legal
action, which appears to have been filed to preserve the right to file claims
for contribution to the clean-up of the landfill at a later date. The Company
acquired the assets of P.R. Hoffman Machine Products Corporation in an asset
transaction consummated on July 1, 1997. The landfill was closed and has not
been used by P.R. Hoffman since sometime prior to completion of the Company's
acquisition. Therefore, the Company believes that the named company is the prior
owner of the acquired assets. Under the terms of the Asset Purchase Agreement
governing the acquisition, the prior owner, P.R. Hoffman Machine Products
Corporation, is obligated to indemnify the Company for any breaches of P.R.
Hoffman's representations and warranties in the Asset Purchase Agreement,
including representations relating to environmental matters. In accordance with
the terms of the Asset Purchase Agreement, the Company has provided notice to
the prior owner of P.R. Hoffman Machine Products Corporation of the Company's
intent to seek indemnification from such owner for any liabilities resulting
from this legal action. Based on information available to the Company as of the
date of this report, management believes the costs, if any, to resolve this
matter will not be material to the Company's results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 15, 2001, the Company held its annual meeting of shareholders at
which 2,180,175, or 83% of the 2,628,871 shares outstanding were represented by
proxy or in person. The following persons where elected to the board of
directors with shares voted as follows:
Election of Directors For Withheld
--------------------- --------- --------
Jong S. Whang 2,174,237 5,938
Robert T. Hass 2,174,365 5,810
Donald F. Johnston 2,174,333 5,842
Alvin Katz 2,174,208 6,967
Bruce R. Thaw 2,174,365 5,810
At the annual meeting the shareholders approved an amendment to the Amtech
Systems, Inc. 1998 Stock Option Plan to increase the number of shares available
for issuance thereunder by 250,000 from 50,000 to 300,000. Of the shares voted
on the proposal, 402,202 voted for, 169,972 voted against and 7,614 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Employment Agreement between Amtech System, Inc. and Jong S.
Whang, its President and Chief Executive Officer.
(b) Reports on Form 8-K
None.
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /s/ Robert T. Hass Dated: May 15, 2001
------------------------------------------
Robert T. Hass, Vice-President-Finance and
(Chief Financial and Accounting Officer)
18