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: June 30, 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)
Registrant's telephone number, including area code: 480-967-5146
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 June 30, 2001: 2,649,171
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets -
June 30, 2001 and September 30, 2000........................... 3
Consolidated Statements of Operations -
Three and Nine months ended June 30, 2001 and 2000............. 4
Consolidated Statements of Stockholders' Equity-
Three and Nine months ended June 30, 2001 and 2000............. 5
Consolidated Statements of Cash Flows -
Three and Nine months ended June 30, 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............................................ 12
Liquidity and Capital Resources.................................. 15
Recent Accounting Pronouncements................................. 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 17
Forward-Looking Statements....................................... 17
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings ............................................ 18
Item 4. Submission of Matters to a Vote of Security Holders ......... 18
Item 6. Exhibits and Reports on Form 8-K. ............................ 18
SIGNATURE.................................................................. 19
2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2001 2000
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,490,929 $ 5,784,500
Accounts receivable - net 5,999,323 4,929,948
Inventories 4,929,190 4,229,546
Deferred income taxes 834,000 577,000
Prepaid expenses 43,450 79,476
------------ ------------
Total current assets 17,296,892 15,600,470
PROPERTY, PLANT AND EQUIPMENT - net 1,286,259 1,093,707
GOODWILL AND OTHER ASSETS - net 754,429 789,083
------------ ------------
Total assets $ 19,337,580 $ 17,483,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,429,496 $ 2,144,197
Accrued compensation and related taxes 780,214 635,354
Accrued warranty expense 340,525 218,693
Accrued installation expense 204,169 266,101
Customer deposits 696,702 245,663
Income taxes payable 785,000 670,000
Other accrued liabilities 396,709 486,779
------------ ------------
Total current liabilities 4,632,815 4,666,787
------------ ------------
LONG-TERM OBLIGATIONS 94,454 236,590
------------ ------------
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;
2,649,171 (2,571,808 in 2000) shares issued and outstanding 26,492 25,718
Additional paid-in capital 12,543,728 12,133,058
Accumulated other comprehensive loss -
Cumulative foreign currency translation adjustment (595,212) (502,356)
Retained earnings 2,635,303 923,463
------------ ------------
Total stockholders' equity 14,610,311 12,579,883
------------ ------------
Total liabilities and stockholders' equity $ 19,337,580 $ 17,483,260
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For Three and Nine Months Ended June 30, 2001 and 2000
Three Months Ended June 30, Nine Months Ended June 30,
-------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net product sales $6,053,533 $4,693,430 $19,960,847 $13,105,042
Cost of product sales 4,061,890 3,020,817 13,303,434 8,524,967
---------- ---------- ----------- -----------
Gross margin 1,991,643 1,672,613 6,657,413 4,580,075
Selling, general and administrative 1,333,960 1,144,149 3,826,986 3,184,250
Research and development 55,727 84,107 302,353 333,689
---------- ---------- ----------- -----------
Operating profit 601,956 444,357 2,528,074 1,062,136
Interest income - net 53,998 21,138 205,766 42,356
---------- ---------- ----------- -----------
Income before income taxes 655,954 465,495 2,733,840 1,104,492
Income tax provision 254,000 173,000 1,022,000 414,000
---------- ---------- ----------- -----------
NET INCOME $ 401,954 $ 292,495 $ 1,711,840 $ 690,492
========== ========== =========== ===========
EARNINGS PER SHARE:
Basic $ .15 $ .14 $ .65 $ .32
Weighted average shares outstanding 2,670,822 2,163,808 2,644,475 2,131,992
Diluted $ .14 $ .13 $ .61 $ .31
Weighted average shares outstanding 2,862,667 2,269,558 2,803,068 2,237,236
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For Three and Nine Months Ended June 30, 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 -- -- -- -- 690,492 690,492
Translation adjustment -- -- -- (97,548) -- (97,548)
------------
Comprehensive income -- -- -- -- -- 592,944
------------
Warrants and stock options exercised 55,129 551 1,891 -- -- 2,442
--------- ------- ------------ --------- ----------- ------------
BALANCE AT JUNE 30, 2000 2,163,808 $21,638 $ 7,402,043 $(406,612) $ 288,534 $ 7,305,603
========= ======= ============ ========= =========== ============
BALANCE AT SEPTEMBER 30, 2000 2,571,808 $25,718 $ 12,133,058 $(502,356) $ 923,463 $ 12,579,883
Net income -- -- -- -- 1,711,840 1,711,840
Translation adjustment -- -- -- (92,856) -- (92,856)
------------
Comprehensive income 1,618,984
------------
Warrants and stock options exercised 77,363 774 410,670 -- -- 411,444
--------- ------- ------------ --------- ----------- ------------
BALANCE AT JUNE 30, 2001 2,649,171 $26,492 $ 12,543,728 $(595,212) $ 2,635,303 $ 14,610,311
========= ======= ============ ========= =========== ============
BALANCE AT MARCH 31, 2000 2,110,729 $21,107 $ 7,402,572 $(407,880) $ (3,961) $ 7,011,838
Net income -- -- -- -- 292,495 292,495
Translation adjustment -- -- -- 1,268 -- 1,268
------------
Comprehensive income -- -- -- -- -- 293,763
------------
Warrants and stock options exercised 53,079 531 (529) -- -- 2
--------- ------- ------------ --------- ----------- ------------
BALANCE AT JUNE 31, 2000 2,163,808 $21,638 $ 7,402,043 $(406,612) $ 288,534 $ 7,305,603
========= ======= ============ ========= =========== ============
BALANCE AT MARCH 31, 2001 2,632,471 $26,325 $ 12,462,049 $(510,701) $ 2,233,349 $ 14,211,022
Net income -- -- -- -- 401,954 401,954
Translation adjustment -- -- -- (84,511) -- (84,511)
------------
Comprehensive income 317,443
------------
Warrants and stock options exercised 16,700 167 81,679 -- -- 81,846
--------- ------- ------------ --------- ----------- ------------
BALANCE AT JUNE 30, 2001 2,649,171 $26,492 $ 12,543,728 $(595,212) $ 2,635,303 $ 14,610,311
========= ======= ============ ========= =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended June 30, 2001 and 2000
2001 2000
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 1,711,840 $ 690,492
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 277,474 219,432
Provision for writeoff of inventory and receivables 492,208 20,266
Loss on disposals of long-lived assets -- 432
Deferred income taxes (257,000) (87,000)
Decrease (increase) in:
Accounts receivable (1,527,559) 28,893
Inventories, prepaid expenses and other assets (880,339) (416,763)
Increase (decrease) in:
Accounts payable (678,151) 192,931
Accrued liabilities and deposits 614,347 322,742
Income taxes payable 115,000 235,355
----------- -----------
Net Cash Provided By (Used In) Operating Activities (132,180) 1,206,780
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (429,872) (148,205)
----------- -----------
Net Cash Used In Investing Activities (429,872) (148,205)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from warrant and stock option exercises 411,444 2,442
Payments on mortgage loan (143,540) (8,128)
----------- -----------
Net Cash Provided By (Used In) Financing Activities 267,904 (5,686)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 577 49,243
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) (293,571) 1,102,132
Beginning of year 5,784,500 1,124,685
----------- -----------
END OF PERIOD CASH AND CASH EQUIVALENTS $ 5,490,929 $ 2,226,817
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 22,194 $ 9,562
Income taxes paid 1,164,000 263,000
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 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 three and nine months ended
June 30, 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. See
Note 5 - Recent Accounting Pronouncements.
7
3. INVENTORIES
The components of inventories are as follows:
June 30, September 30,
2001 2000
---------- ----------
Purchased parts and raw materials $2,927,797 $1,931,524
Work-in-process 1,624,771 1,874,818
Finished goods 376,622 423,204
---------- ----------
Totals $4,929,190 $4,229,546
========== ==========
4. EARNINGS PER SHARE
Three Months Ended Nine months ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income $ 401,954 $ 292,495 $1,711,840 $ 690,492
Weighted average
Shares outstanding:
Common shares 2,670,822 2,163,808 2,644,475 2,131,992
Common equivalents (1) 191,845 105,750 158,593 105,244
---------- ---------- ---------- ----------
2,862,667 2,269,558 2,803,068 2,237,236
========== ========== ========== ==========
Earnings Per Share:
Basic $ .15 $ .14 $ .65 $ .32
Diluted $ .14 $ .13 $ .61 $ .31
- ----------
(1) Number of shares calculated using the treasury stock method and the average
market price during the period. Options and warrants on a total of 45,700
shares in fiscal 2001 periods and on 84,000 shares in fiscal 2000 periods
had an exercise price greater than the average market price and therefore
did not enter into the calculation.
8
5. RECENT ACCOUNTING PRONOUNCEMENTS
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 will 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, when
the Company changes its revenue recognition policies in order to comply
with SAB No. 101, it will be treated as a change in an accounting
principles and the cumulative effect of the change as of October 1, 2000,
which may be a significant charge, will be excluded from operating income
and reported as a separate component of net income. 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.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141"), and No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). SFAS No. 141 eliminates poolings of interest as a
method for accounting for business combinations. SFAS No. 142 requires the
discontinuance of the amortization of goodwill and intangible assets with
indefinite lives and at least an annual assessment of whether there has
been an impairment of such assets that needs to be recognized as an
impairment charge. SFAS Nos. 141 and 142 must be adopted by the Company no
later than October 1, 2002, with early adoption permitted on October 1,
2001. Since amortization of goodwill is currently an estimated $69,000 per
year, the discontinuance of such amortization will not have a material
affect on the Company's net income or financial condition. While the
Company does not expect to incur an impairment charge related to its
recorded goodwill, currently $700,000, there can be no assurance that such
an impairment charge will not occur at some time in the future.
On October 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 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 No. 133 did not
have a material impact on the Company's consolidated financial position or
operating results.
9
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:
Three Months Ended Nine months ended
June 30, June 30,
------------------------- --------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Revenues
Semiconductor equipment $4,247,244 $ 2,587,020 $13,658,511 $ 7,293,316
Polishing supplies 1,806,289 2,106,410 6,302,336 5,811,726
---------- ----------- ----------- -----------
$6,053,533 $ 4,693,430 $19,960,847 $13,105,042
========== =========== =========== ===========
Operating profit
Semiconductor equipment $ 475,362 $ 216,015 $ 1,774,273 $ 400,944
Polishing supplies 126,594 228,342 753,801 661,192
---------- ----------- ----------- -----------
Total operating profit 601,956 444,357 2,528,074 1,062,136
Interest income - net 53,998 21,138 205,766 42,356
---------- ----------- ----------- -----------
Income before income taxes $ 655,954 $ 465,495 $ 2,733,840 $ 1,104,492
========== =========== =========== ===========
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 Company's costs, if any, to
10
resolve this matter will not be material to the its results of operations
or financial position.
8. CONCENTRATION OF CREDIT RISK
As of June 30, 2001, receivables from customers in the optical component
industry comprised 52% of total receivables, of which three accounts
comprised 38% of total receivables, representing a concentration of credit
risk as defined by SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk." As of September 30, 2000, receivables from
two customers comprised 40% of accounts receivable, one of which was from
the optical component industry and accounted for 12% of receivables.
In July 2001, one of these optical component customers filed a petition for
protection from creditors under Chapter 11 of the U.S. bankruptcy code,
while owing the Company approximately $815,000. Before that optical
customer filed for bankruptcy, the Company had collected $794,000 of the
original balance. Based upon information provided by the customer,
management estimates that all but approximately $333,000 of that amount
should be collectible. As of June 30, 2001, the allowance for doubtful
accounts has been increased by the amount estimated to be uncollectible.
There can be no assurance that the provision for doubtful accounts will be
sufficient.
11
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of
net revenue for the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
2001 2000 2001 2000
----- ----- ----- -----
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of product sales (67.1) (64.4) (66.6) (65.1)
----- ----- ----- -----
Gross margin 32.9 35.6 33.4 34.9
Selling, general and
administrative expenses (22.1) (24.3) (19.2) (24.3)
Research and development (.9) (1.8) (1.5) (2.5)
----- ----- ----- -----
Operating profit 9.9% 9.5% 12.7% 8.1%
===== ===== ===== =====
NET REVENUE. The Company's net revenue for the three months ended June 30,
2001 was $6,054,000, an increase of $1,361,000, or 29%, compared to net revenue
of $4,693,000 for the third quarter of fiscal 2000. Sales in the semiconductor
equipment segment increased by 64% primarily due to shipments of diffusion
furnace systems to optical component manufacturers, a new market for the
Company's products. The Company's first system shipment to an optical component
manufacturer occurred in June 2000. The Company's semiconductor segment also had
significant sales from its new automation products, which were more than offset
by a decrease in sales of its higher priced automation products. The sales
increase in the semiconductor equipment segment was partially offset by a 14%
decline in sales of polishing supplies caused by the downturn in the
semiconductor industry.
Net revenue for the nine months ended June 30, 2001 was $19,961,000, an
increase of $6,856,000, or 52%, compared to net revenue of $13,105,000 for the
same period of fiscal 2000. Sales in the semiconductor equipment segment and
polishing supplies segment increased by 87% and 8%, respectively. Shipments of
furnace systems to optical component manufacturers, as discussed above, account
for most of that increase. Sales of new automation products announced last
fiscal year account for $1,416,000 of that increase, with the balance of the
increase attributable higher sales of the polishing supplies segment.
GROSS MARGIN. The Company's gross margin increased by approximately
$319,000, or 19%, to $1,992,000 for the three months ended June 30, 2001, from
$1,673,000 during the comparable period of the previous fiscal year. The
increase in gross margin resulted from the 29% increase in revenue discussed
above, which was partially offset by the effect of a lower gross margin
percentage. Gross margin as a percentage of sales was 33% in the third quarter
of fiscal 2001, compared to 36% in the third quarter of fiscal 2000, with the
erosion resulting from competitive pricing pressure, a less favorable product
mix and increased warranty costs. In the polishing supplies segment, gross
margin declined to 26% of revenues in the third quarter of fiscal 2001, compared
12
to 30% in the prior year, as a result of fixed costs being spread over a lower
sales volume. The gross margin of the semiconductor equipment segment declined
to 36% of sales in the third quarter of fiscal 2001, compared to 40% of sales in
the third quarter of fiscal 2000, as a result of competitive pricing pressure,
product mix and increased warranty costs.
Gross margin increased by approximately $2,077,000, or 45%, to $6,657,000
for the nine months ended June 30, 2001, from $4,580,000 during the comparable
period of the previous fiscal year. This increase resulted primarily from the
52% increase in revenue discussed above. As a percentage of sales, margins for
the nine months ended June 30, 2001 declined slightly to 33% from 35% in the
comparable period of fiscal year 2000, primarily due to the same factors
discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the third quarter of fiscal 2001 increased by
$190,000, or 17%, to $1,334,000, compared to $1,144,000 spent in the third
quarter of fiscal 2000. The provision for doubtful accounts receivable was
increased by $333,000 primarily due to a customer in the optical component
industry filing for protection from creditors under Chapter 11 of the U.S.
bankruptcy code, while owing the Company approximately $815,000. Before that
optical customer filed for bankruptcy, the Company had collected $794,000 of the
original balance. Based upon information provided by the customer, management
estimates that all but approximately $333,000 of that amount should be
collectible. There can be no assurance that the provision for doubtful accounts
will be sufficient. The increased expenses caused by that provision were
partially offset by lower commissions, as a larger percentage of sales were
represented by in-house accounts. Also, approximately $66,000 of grants for
research and development were received from various agencies in The Netherlands
and credited to miscellaneous income and netted against general and
administrative expenses. Consolidated expenses declined to 22% of revenues for
the three months ended June 30, 2001, as compared to 24% for the same period in
fiscal 2000, due to fixed costs being spread over higher revenues.
Selling, general and administrative expenses for the nine months ended June
30, 2001, increased by $643,000, or 20%, to $3,827,000, compared to $3,184,000
spent in the same period of fiscal 2000. The increase in the provision for bad
debts, discussed above, was the most significant factor contributing to the
higher level of selling, general and administrative expenses. Although selling,
general and administrative expenses increased significantly, they declined to
19% of revenue in fiscal 2001 from 24% in fiscal 2000.
RESEARCH AND DEVELOPMENT. Research and development costs declined by
$28,000, to $56,000, during the third quarter of fiscal 2001, as compared to
$84,000 spent in the third quarter of fiscal 2000, primarily due to the reversal
in the most recent quarter of an over accrual of such expenses that occurred in
the second quarter of the current fiscal year.
For the first nine months of fiscal 2001, research and development costs
declined by $32,000, to $302,000, as compared to $334,000 spent in the same
period of fiscal 2000. Increased development expenditures for furnaces in the
current fiscal year were more than offset by the decline in asher related costs.
OPERATING PROFIT. Operating profit for the third quarter of fiscal 2001 was
$602,000, an increase of $158,000, or 36%, compared to an operating profit of
$444,000 in the same period of fiscal 2000. The increase in operating profit is
primarily attributable to the 29% increase in consolidated revenue and continued
cost control. Operating profit for the polishing supplies segment declined by
$101,000, or 44%, to $127,000, compared to $228,000 in the third quarter of
fiscal 2000, as a result of the 14% decline in that segments sales volume,
without a similar reduction in fixed costs. In the semiconductor equipment
13
segment, operating profit increased by $259,000, or 120%, to $475,000, compared
to $216,000 in the third quarter of fiscal 2000. The increase in the third
quarter operating profit of the semiconductor equipment segment is primarily due
to the 64% increase in sales and continued cost control. On a consolidated
basis, operating profits in the third quarter of both fiscal 2001 and 2000
represented approximately 10% of revenue.
Operating profit for the nine months ended June 30, 2001 was $2,528,000, an
increase of $1,466,000, or 138%, compared to an operating profit of $1,062,000
in the same period of fiscal 2000. The increase in operating profit is primarily
attributable to the 52% increase in consolidated revenue and continued cost
control. Operating profit for the polishing supplies segment increased by
$93,000 to $754,000, from $661,000 in the comparable period of fiscal 2000,
primarily as a result of continued cost controls. For the semiconductor
equipment segment, operating profit was $1,774,000, an increase of $1,373,000,
or 342%, compared to $401,000 in the first nine months of fiscal 2000. The
increase in the operating profit of the semiconductor equipment segment is due
to the 87% increase in sales of that segment and continued cost control. On a
consolidated basis, operating profits grew to 13% of revenue in the first nine
months of fiscal 2001, compared to 8% of revenue in the same period of the prior
fiscal year, as fixed costs were spread over the higher sales volume.
NET INTEREST INCOME. During the third quarter of fiscal 2001, net interest
income increased by $33,000 to $54,000, compared to $21,000 in the corresponding
period 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. As a result of the foregoing factors, income before income taxes for
the third quarter of fiscal 2001 was $656,000, an increase of 41%, compared to
$465,000 in the third quarter of fiscal 2000.
For the nine months ended June 30, 2001, net interest income increased
$164,000 to $206,000, compared to $42,000 in the corresponding period of fiscal
2000 for the reasons discussed above. Income before income taxes for the first
nine months of fiscal 2001 was $2,734,000, an increase of 148%, compared to
$1,104,000 in the first nine months of fiscal 2000.
PROVISION FOR INCOME TAXES. Income tax expense of $254,000, recorded at an
effective tax rate of 39%, resulted in net income for the third quarter of
fiscal 2001 of $402,000. During the same quarter of fiscal 2000, the Company
recorded income tax expense of $173,000, reflecting a 37% effective tax rate and
resulting in net income of $292,000. The higher effective tax rate in the most
recent quarter is due to having fully utilized certain state net operating loss
carryforwards during the first two quarters of the current fiscal year.
Income tax expense of $1,022,000, recorded at an effective tax rate of 37%,
resulted in net income for the first nine months of fiscal 2001 of $1,712,000.
During the same period of fiscal 2000, the Company recorded income tax expense
of $414,000, reflecting a 37% effective tax rate, resulting in net income of
$690,000.
NET INCOME. Net income for the third quarter of fiscal 2001 was $402,000,
or $.14 per diluted share, representing an increase of $110,000, or 38%,
compared to net income of $292,000, or $.13 per diluted share, in the third
quarter of fiscal 2000.
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Net income for the nine months ended June 30, 2001 was $1,712,000, or $.61
per diluted share, representing an increase of $1,022,000, or 148%, compared to
net income of $690,000, or $.31 per diluted share, for the same period of fiscal
2000.
BACKLOG. At June 30, 2001, the order backlog was $9,433,000, a decrease of
$3,303,000, or 26%, from the $12,736,000 backlog at March 31, 2001. New orders
net of cancellations were only 45% of shipments during the third fiscal quarter
and resulted in the significant decline in orders. The new orders for both
business segments were significantly lower during the third quarter of the
current fiscal year than any quarter since the quarter ended March 31, 1999, the
end of the previous industry slowdown. The Company can not reasonably estimate
the duration of the industry slowdown or the extent to which it will adversely
affect its future results of operations. Despite the significant decline in
orders and the backlog, the backlog remains significantly higher than anytime
prior to the June 2000 quarter and is more than 100% higher than it was as
recently as March 31, 2000. Also, several large system orders received since
June 30, 2001 have been encouraging.
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.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had $5,491,000 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, a decrease of approximately $294,000. The
Company's current cash position is primarily a result of the $4,616,000 of net
cash proceeds received from a private placement of the Company's Common Stock in
September 2000. 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 $294,000 net decrease in cash during the nine months ended
June 30, 2001, approximates the cash flow used by the operations and the
payments on the mortgage loan. The $132,000 cash flow used in the operations is
comprised of $1,712,000 of net income, depreciation and amortization ($277,000),
non-cash write-offs of inventories and receivables ($492,000), and approximately
a $451,000 increase in customer deposits. These items were partially offset by
increased investments in inventories ($880,000) and receivables ($1,528,000) and
reductions in accounts payable ($678,000). Proceeds from the exercise of
outstanding warrants and options provided approximately $411,000 in cash, almost
the same amount invested in purchases of property, plant and equipment
($430,000), 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 for system components and parts that were being experienced
in the fourth quarter of fiscal 2000 and customer cancellations and delayed
delivery schedules in the first and third quarter of the current fiscal year.
While inventory may remain at higher than historical levels for several more
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.
Accounts receivable have also increased significantly during the nine
months since the being of the fiscal year. While management believes that the
increased provision for bad debt is sufficient, there can be no assurance that
the remaining net receivables will be fully collectible. See Note 8 -
Concentration Of Credit Risk.
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At June 30, 2001, working capital was $12,664,000, up $1,730,000 from
$10,934,000 at September 30, 2000. The Company's current ratio increased
slightly to 3.7:1 at the end of the third 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
third quarter of fiscal 2001, cash and cash equivalents comprised 28% of total
assets and stockholders' equity accounted for 76% of total capitalization. The
Company believes that it continues to possess the financial strength necessary
to achieve continued growth.
RECENT ACCOUNTING PRONOUNCEMENTS
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 will 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, when the Company changes its revenue recognition policies in order to
comply with SAB No. 101, it will be treated as a change in an accounting
principles and the cumulative effect of the change as of October 1, 2000, which
may be a significant charge, will be excluded from operating income and reported
as a separate component of net income. 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.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141"), and No. 142, "Goodwill and Other Intangibles Assets" ("SFAS
No. 142"). SFAS No. 141 eliminates poolings of interest as a method for
accounting for business combinations. SFAS No. 142 requires the discontinuance
of the amortization of goodwill and intangible assets with indefinite lives and
at least an annual assessment of whether there has been an impairment of such
assets that needs to be recognized as an impairment charge. SFAS Nos. 141 and
142 must be adopted by the Company no later than October 1, 2002, with early
adoption permitted on October 1, 2001. Since amortization of goodwill is
currently an estimated $69,000 per year, the discontinuance of such amortization
will not have a material affect on the Company's net income or financial
condition. While the Company does not expect to incur an impairment charge
related to its recorded goodwill, currently $700,000, there can be no assurance
that such an impairment charge will not occur at some time in the future.
On October 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 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
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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 No. 133
did not have a material impact on the Company's consolidated financial position
or operating results.
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 Company will be able to adapt to the current slowdown in the
semiconductor and optical component markets it serves and that the slowdown will
not last longer than in other recent industry cycles, (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, (o) the effects of adopting SAB No. 101 will largely be offset by
increased sales and (p) collection of receivables will not become more difficult
than anticipated and write-offs with respect to uncollectible accounts will not
materially increase. 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
17
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.
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.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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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: August 14, 2001
------------------------------------------ -----------------------
Robert T. Hass, Vice-President-Finance and
(Chief Financial and Accounting Officer)
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