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, 2002
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, 2002: 2,683,571
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2002 and September 30, 2001 ................... 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended June 30, 2002 and 2001 ..... 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 2002 and 2001 ............... 5
Notes to Condensed Consolidated Financial Statements ..... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Critical Accounting Policies ............................. 10
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
EXHIBIT 99.1 - Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002 ............................... 20
EXHIBIT 99.2 - Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002 ............................... 21
2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
2002 2001
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,576,294 $ 5,998,120
Accounts receivable - net 3,463,214 3,829,867
Inventories 4,312,170 4,804,457
Deferred income taxes 1,525,000 1,525,000
Prepaid expenses 26,013 85,643
------------ ------------
Total current assets 15,902,691 16,243,087
PROPERTY, PLANT AND EQUIPMENT - net 1,546,172 1,484,437
GOODWILL AND OTHER ASSETS - net 792,971 843,046
------------ ------------
TOTAL ASSETS $ 18,241,834 $ 18,570,570
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 901,809 $ 880,006
Accrued compensation and related taxes 600,496 671,075
Accrued warranty expense 425,947 304,228
Deferred profit 952,157 1,777,173
Customer deposits 143,986 367,523
Income taxes payable 241,000 135,000
Other accrued liabilities 191,805 605,547
------------ ------------
Total current liabilities 3,457,200 4,740,552
------------ ------------
LONG-TERM OBLIGATIONS 259,970 246,184
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued and outstanding -- --
Common stock; $0.01 par value; 100,000,000 shares authorized;
2,683,571 and 2,649,171 shares issued and outstanding
as of June 30 and September 30, respectively 26,836 26,492
Additional paid-in capital 12,853,515 12,539,040
Accumulated other comprehensive loss -
Cumulative foreign currency translation adjustment (146,845) (368,242)
Retained earnings 1,791,158 1,386,544
------------ ------------
Total stockholders' equity 14,524,664 13,583,834
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,241,834 $ 18,570,570
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For Three and Nine Months Ended June 30, 2002 and 2001
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net product sales $ 4,446,385 $ 8,022,911 $ 15,319,713 $ 18,428,383
Cost of product sales 3,179,271 5,901,276 11,534,347 12,681,999
------------ ------------ ------------ ------------
Gross margin 1,267,114 2,121,635 3,785,366 5,746,384
Selling, general and administrative 1,002,094 1,333,960 3,014,389 3,826,986
Research and development 84,714 55,727 234,098 302,353
------------ ------------ ------------ ------------
Operating profit 180,306 731,948 536,879 1,617,045
Interest income - net 24,135 53,998 79,735 205,766
------------ ------------ ------------ ------------
Income before income taxes and cumulative
effect of change in accounting principle 204,441 785,946 616,614 1,822,811
Income tax provision 70,000 307,181 212,000 685,624
------------ ------------ ------------ ------------
Income before cumulative effect of change in
accounting principle 134,441 478,765 404,614 1,137,187
Cumulative effect of change in accounting
principle, net of tax benefit of $410,000 -- -- -- (690,211)
------------ ------------ ------------ ------------
NET INCOME $ 134,441 $ 478,765 $ 404,614 $ 446,976
============ ============ ============ ============
EARNINGS PER SHARE:
Earnings per share - basic:
Income before cumulative effect of change in accounting principle $ .05 $ .18 $ .15 $ .43
Cumulative effect of change in accounting principle, net of tax -- -- -- (.26)
------------ ------------ ------------ ------------
Basic earnings per share $ .05 $ .18 $ .15 $ .17
============ ============ ============ ============
Weighted average shares outstanding 2,682,491 2,670,822 2,681,639 2,644,475
Earnings per share - diluted:
Income before cumulative effect of change in accounting principle $ .05 $ .17 $ .15 $ .41
Cumulative effect of change in accounting principle, net of tax -- -- -- (.25)
------------ ------------ ------------ ------------
Diluted earnings per share $ .05 $ .17 $ .15 $ .16
============ ============ ============ ============
Weighted average diluted shares outstanding 2,770,678 2,862,667 2,781,715 2,803,068
The accompanying notes are an integral part of these
consolidated financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
2002 2001
----------- -----------
OPERATING ACTIVITIES:
Net income $ 404,614 $ 446,976
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting principle, net of tax -- 690,211
Depreciation and amortization 324,907 277,474
Provision for write-off of inventory and receivables 86,048 492,208
Deferred income tax (benefit) -- (257,000)
Decrease (increase) in:
Accounts receivable 548,675 (1,527,559)
Inventories, prepaid expenses and other assets 668,039 (880,339)
Increase (decrease) in:
Accounts payable (24,369) (678,151)
Accrued liabilities and customer deposits (535,612) 410,178
Deferred profit (705,158) 911,029
Income taxes payable 53,816 (17,207)
----------- -----------
Net cash provided by (used in) operating activities 820,960 (132,180)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (257,378) (429,872)
----------- -----------
Net cash used in investing activities (257,378) (429,872)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from warrant and stock option exercises 4,991 411,444
Payments on mortgage loan -- (143,540)
----------- -----------
Net cash provided by financing activities 4,991 267,904
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 9,601 577
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase 578,174 (293,571)
Beginning of period 5,998,120 5,784,500
----------- -----------
END OF PERIOD CASH AND CASH EQUIVALENTS $ 6,576,294 $ 5,490,929
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,946 $ 22,194
Income taxes 146,100 1,164,000
The accompanying notes are an integral part of these
consolidated financial statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2002
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 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, 2001.
The consolidated results of operations for the nine months ended June 30,
2002, are not necessarily indicative of the results expected for the full
year.
2. ADOPTION OF SAB 101 DURING FISCAL YEAR 2001
The fiscal 2001 amounts reflect the Company's adoption of Securities and
Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," effective October 1, 2000, as
discussed in the Company's Form 10-K for the fiscal year ended September
30, 2001.
3. REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement
exists; title transfers; the seller's price is fixed or determinable and
collectibility is reasonably assured. Certain of the Company's product
sales are accounted for as multiple-element arrangements. For the
semiconductor equipment segment, if the Company has met defined customer
specifications with similarly situated customers, equipment and processes,
the Company recognizes equipment revenue upon shipment and transfer of
6
title, and the portion of the revenue that is contingent upon installation
and acceptance, generally 10% - 20% of a system's selling price, is
deferred until those activities are completed. Revenues for products that
are shipped but do not meet this criteria are deferred and recognized when
the equipment and processes are proven, generally upon customer acceptance
or upon obtaining customer acceptance on at least two similar systems.
Equipment sold by the polishing supplies segment does not include process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are
recognized upon shipment, as there are no post shipment obligations other
than standard warranties. Service revenues are recognized upon performance
of the services requested by the customer. Revenue related to service
contracts is recognized as the services requested by the customer are
performed.
In accordance with guidance provided in SAB 101, the Company recorded a
non-cash charge of $690,211 (after reduction for income tax benefits of
$410,000), or $0.26 basic earnings per share, on October 1, 2000 to reflect
the cumulative effect of the accounting change.
During the three and nine months ended June 30, 2002, the Company
recognized revenue of $-- and $499,707, respectively, and related gross
profit of $-- and $122,640, respectively, that were included in the
cumulative effect adjustment as of October 1, 2000. During the three and
nine months ended June 30, 2001, the Company recognized revenue of
$1,114,478 and $2,656,746, respectively, and related gross profit of
$314,439 and $796,566, respectively, that were included in the cumulative
effect adjustment as of October 1, 2000.
4. INVENTORIES
The components of inventories are as follows:
June 30, September 30,
2002 2001
---------- ----------
Purchased parts and
raw materials $2,521,030 $2,487,470
Work-in-process 759,087 1,255,676
Finished goods 1,032,053 1,061,311
---------- ----------
Totals $4,312,170 $4,804,457
========== ==========
7
5. EARNINGS PER SHARE
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income $ 134,441 $ 478,765 $ 404,614 $ 446,976
Weighted average shares outstanding
Common shares 2,682,491 2,670,822 2,681,639 2,644,475
Common equivalents 88,187 191,845 100,076 158,593
---------- ---------- ---------- ----------
2,770,678 2,862,667 2,781,715 2,803,068
========== ========== ========== ==========
Earnings Per Share:
Basic $ .05 $ .18 $ .15 $ .17
Diluted $ .05 $ .17 $ .15 $ .16
6. COMPREHENSIVE INCOME
Comprehensive income for each of the three month periods ended June 30,
2002 and 2001 was $.4 million. Comprehensive income for the nine months
ended June 30, 2002 and 2001 was $.6 million and $.3 million, respectively.
7. 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 2002 and 2001 is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------- ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues
Semiconductor equipment $ 2,922,386 $ 6,216,622 $ 11,550,399 $ 12,126,047
Polishing supplies 1,523,999 1,806,289 3,769,314 6,302,336
------------ ------------ ------------ ------------
$ 4,446,385 $ 8,022,911 $ 15,319,713 $ 18,428,383
============ ============ ============ ============
Operating profit (loss)
Semiconductor equipment $ 156,586 $ 605,354 $ 633,518 $ 863,244
Polishing supplies 23,720 126,594 (96,639) 753,801
------------ ------------ ------------ ------------
Total operating profit 180,306 731,948 536,879 1,617,045
Interest income - net 24,135 53,998 79,735 205,766
------------ ------------ ------------ ------------
Income before income taxes
and cumulative effect of
change in accounting
principle $ 204,441 $ 785,946 $ 616,614 $ 1,822,811
============ ============ ============ ============
8
8. LEGAL PROCEEDINGS
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
eleven companies named in a legal action 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 asset 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 business, results of operations or financial position.
9. CONCENTRATION OF CREDIT RISK AND USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates.
As of September 30, 2001, receivables from customers in the optical
component industry comprised 51% of the Company's total receivables, of
which three accounts comprised 39% 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 June 30,
2002, receivables from customers in the optical component industry
comprised 7% of total receivables.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses our consolidated financial statements that have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amount of assets
and liabilities at the date of the financial statements, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
On an on-going basis, we evaluate our estimates and judgments, including
those related to revenue recognition, valuation allowances for inventory and
accounts receivable, warranty and impairment of long-lived assets. We base our
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances. The result of these
estimates and judgments form the basis for making conclusions about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The SEC suggests that all registrants list their most "critical accounting
policies" in Management's Discussion and Analysis. A critical accounting policy
is one which is both important to the portrayal of the Company's financial
condition and results and requires management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. Management believes the
following critical accounting policies affect its more significant judgments and
estimates in the preparation of its consolidated financial statements.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement
exists; title transfers; the seller's price is fixed or determinable and
collectibility is reasonably assured. Certain of the Company's product sales are
accounted for as multiple- element arrangements. For the semiconductor equipment
segment, if the Company has met defined customer specifications with similarly
situated customers, equipment and processes, the Company recognizes equipment
revenue upon shipment and transfer of title, and the holdback portion of the
revenue that is contingent upon installation and acceptance, generally 10% - 20%
of a system's selling price, is deferred until those activities are completed.
Revenues for products that are shipped but do not meet this criteria are
deferred and recognized when the equipment and processes are proven, generally
upon customer acceptance or upon obtaining customer acceptance on at least two
similar systems. Collection of the holdback portion of a system sale is often
based on system acceptance or final installation. We have, on occasion,
experienced longer than expected delays in receiving cash from certain customers
pending system acceptance or final installation. If some of our customers were
to refuse to pay the remaining holdback, or otherwise delay final acceptance or
installation, the deferred revenue would not be recognized, adversely affecting
future operating results.
10
Equipment sold by the polishing supplies segment does not include process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are recognized
upon shipment, as there are no post shipment obligations other than standard
warranties. Service revenues are recognized upon performance of the services
requested by the customer. Revenue related to service contracts is recognized as
the services requested by the customer are performed.
INVENTORY VALUATION
We value our inventory at the lower of cost or the current estimated market
value. We regularly review inventory quantities on hand and record a write-down
for excess and obsolete inventory. The provision is primarily based on our
estimated forecast of product demand and production requirements. However, our
industry is characterized by customers in highly cyclical industries, rapid
technological changes, frequent new product developments and rapid product
obsolescence. During 2001 and 2002, there has been a significant decrease in the
worldwide demand for semiconductor capital equipment. Demand for our products
has fluctuated significantly and may do so in the future, which could result in
an increase in the cost of inventory or an increase in excess inventory
quantities on hand. The Company's ratio of inventories to operating levels is
above, and is expected to remain above, the historic norms due to order
cancellations and the deferral of orders by customers. There can be no assurance
that future developments will not necessitate further write-downs.
VALUATION ALLOWANCE FOR ACCOUNTS RECEIVABLE
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. These allowances
are based on historical experience, credit evaluations and specific customer
collection issues we have identified. Since our accounts receivable are often
concentrated in a relatively few number of customers, a significant change in
the liquidity or financial position of any one of these customers could have a
material adverse impact on the collectibility of our accounts receivable and our
future operating results.
WARRANTY
The Company provides a limited warranty, generally twelve to twenty-four
months, to all purchasers of its new products and systems. A provision for the
estimated cost of warranty is recorded upon shipment of all systems. On
occasion, we have been required and may be required in the future to provide
additional warranty coverage to ensure that the systems are ultimately accepted
or to maintain customer goodwill. While our warranty costs have historically
been within our expectations and management believes that the amounts accrued
for warranty expenditures are sufficient for all systems sold through June 30,
2002, we cannot guarantee that we will continue to experience the same warranty
costs we have in the past. In addition, technological changes or previously
unknown defects in raw materials or components may result in more extensive and
frequent warranty service than anticipated, which could have a material adverse
impact on our operating results for the periods in which such additional costs
materialize.
11
IMPAIRMENT OF LONG-LIVED ASSETS
We evaluate whether events and circumstances have occurred that indicate
the estimated useful lives of long-lived assets or intangible assets may warrant
revision or that the remaining balance may not be recoverable. When factors
indicate that an asset should be evaluated for possible impairment, we use an
estimate of the related undiscounted net cash flows generated by the asset over
the remaining estimated life of the asset in measuring whether the asset is
recoverable. We make judgments and estimates used in establishing the carrying
value of long-lived or intangible assets. Those judgments and estimates could be
modified if adverse changes were to occur in the future resulting in an
inability to recover the carrying value of these assets. We have not experienced
any impairments to long-lived assets during fiscal 2001 or the first nine months
of fiscal 2002. Future adverse changes could be caused by, among other factors,
a continued downturn in the semiconductor industry, a general economic slowdown,
reduced demand for our products in the market place, poor operating results,
inability to protect intellectual property or changing technologies and product
obsolescence.
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,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
Net revenue 100% 100% 100% 100%
Cost of product sales (72) (74) (75) (69)
---- ---- ---- ----
Gross margin 28 26 25 31
Selling, general and
administrative expenses (23) (17) (20) (21)
Research and development (2) (1) (2) (2)
---- ---- ---- ----
Operating profit 4% 9% 4% 9%
==== ==== ==== ====
NET REVENUE. The Company's net revenue for the three months ended June 30,
2002 was $4.4 million, a decrease of $3.6 million, or 45%, compared to net
revenue of $8.0 million for the third quarter of fiscal 2001. Revenue for the
three months ended June 30, 2002 and 2001 included $-- and $1.1 million,
respectively, of revenue that was included in the cumulative effect adjustment
as of October 1, 2000, arising from the Company's adoption of SAB 101.
Approximately 52% of the decline in revenue was due to the lower level of
shipments, while nearly 48% was due to the significantly higher amount of
previously deferred revenue recognized in the third quarter of fiscal 2001.
During the third quarter of fiscal 2002, both segments of the Company showed
significant declines in shipments and revenue recognized, compared to the third
quarter of fiscal 2001, due to the severe industry slowdown. The revenue for the
third quarter of fiscal 2002 was also 18% lower than the second quarter of
fiscal 2002, due to declines in the semiconductor segment. However, the revenue
for the polishing equipment and supplies segment, which tends to be a leading
indicator for the Company, were 30% higher in the third quarter of fiscal 2002
compared to the second quarter of fiscal 2002.
12
Net revenue for the nine months ended June 30, 2002 was $15.3 million, a
decrease of $3.1 million, or 17%, compared to net revenue of $18.4 million for
the same period of fiscal 2001. Revenue for the nine months ended June 30, 2002
and 2001 included $.5 million and $2.7 million, respectively, of revenue that
was included in the cumulative effect adjustment as of October 1, 2000, arising
from the Company's adoption of SAB 101. The year to date decline in revenue is
due to a 37% decline in shipments caused by the severe decline in the
semiconductor industry served by the Company's products. During the nine months
ended June 30, 2001, a portion of the systems sales were new products or
products that otherwise had not yet been demonstrated to meet the customers'
specifications, leading to a net deferral of $1.5 million of revenue during
those nine months. During the nine months ended June 30, 2002, the value of the
systems shipped but deferred in prior periods that were recognized as revenue
exceeded the deferral of shipments to future periods, increasing revenue by $2.8
million.
Pursuant to the guidance provided in SAB 101, at least some portion of each
system sale in the semiconductor equipment segment is deferred. Some of the
factors that can affect the length of time from shipment to full revenue
recognition are customer delays in site preparation, the time it takes for the
customer to obtain local permits and availability of our technicians. Because
the selling price of systems generally range between $150,000 for mid to
high-end automation products and $1.2 million for a fully automated diffusion
furnace, these factors significantly affect the timing of revenue recognition
from customer to customer and system to system, which increases the volatility
in revenue.
GROSS MARGIN. The Company's gross margin decreased by approximately $.8
million, or 38%, to $1.3 million for the three months ended June 30, 2002, from
$2.1 million during the comparable period of the previous fiscal year. The
decrease in gross margin resulted from the 45% decline in revenue discussed
above and a change in product mix. Gross margin was 28% in the third quarter of
fiscal 2002, compared to 26% in the third quarter of fiscal 2001, with the
improvement primarily related to the timing of recognition of the 10-20% of
system revenue that is contingent upon installation and acceptance.
Gross margin decreased by approximately $1.9 million, or 33%, to $3.8
million for the nine months ended June 30, 2002, from $5.7 million for the
comparable period of the previous fiscal year. Approximately 50% of the decline
in gross margin relates to the 17% decline in revenue, with the competitive
pricing pressures and product mix comprising the rest of the decline. Gross
margin decreased to 25% of revenue for the first nine months of fiscal 2002 from
31% in the first nine months of fiscal 2001 due to the spreading of fixed and
semi-fixed costs over the lower sales volume, competitive pricing pressure and
product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the third quarter of fiscal 2002 decreased by $.3
million, or 23%, to $1.0 million, compared to $1.3 million for the third quarter
of fiscal 2001. The decrease in selling, general and administrative expenses is
due primarily to the higher than usual bad debt expense in the third quarter of
fiscal 2001 related to sales into the optical component market.
13
Selling, general and administrative expenses for the nine months ended June
30, 2002 decreased by $.8 million, or 21%, to $3.0 million, compared to $3.8
million for the nine months ended June 30, 2001. The decrease in selling,
general and administrative expenses is due primarily to a decline in commissions
related to the decrease in revenue and a higher percentage of direct sales that
bear lower commissions and to the higher than usual bad debt expense in fiscal
2001. Cost reduction programs also contributed to the lower expense level in
fiscal 2002.
RESEARCH AND DEVELOPMENT. Research and development costs were essentially
the same, $.1 million for the three months ended June 30, 2002 and 2001. For the
first nine months of fiscal 2002, research and development costs declined by $.1
million, to $.2 million, as compared to $.3 million in the same period of fiscal
2001, due to lower product development activity during fiscal 2002.
OPERATING PROFIT. Operating profit for the third quarter of fiscal 2002 was
$.2 million, a decrease of $.5 million, or 71%, compared to an operating profit
of $.7 million in the same quarter of fiscal 2001. The decrease in operating
profit is primarily attributable to the 45% decrease in consolidated revenue.
Operating profit declined to 4% of revenue in the third quarter of fiscal 2002,
compared to 9% of revenue in the third quarter of the prior fiscal year,
primarily due to the spreading of fixed selling, general and administrative
costs over lower revenue.
Operating profit for the nine months ended June 30, 2002 was $.5 million, a
decrease of $1.1 million, or 69%, compared to an operating profit of $1.6
million in the same period of fiscal 2001. The decrease in operating profit is
primarily attributable to the decline in revenue and the related gross margin,
which was only partially offset by lower selling, general and administrative
expenses. Operating profits declined to 4% of revenue in the first nine months
of fiscal 2002, compared to 9% of revenue in the same period of the prior fiscal
year, primarily due to the spreading of fixed and semi-fixed manufacturing costs
over lower revenue.
NET INTEREST INCOME. For the three and nine months ended June 30, 2002, net
interest income decreased compared to the corresponding quarter of fiscal 2001
due to a decline in interest rates.
As a result of the foregoing factors, income before income taxes and the
cumulative effect of change in accounting principle for the third quarter of
fiscal 2002 was $.2 million, a decrease of $.6 million, or 75%, compared to $.8
million in the third quarter of fiscal 2001.
Income before income taxes and the cumulative effect of change in
accounting principle for the nine months ended June 30, 2002 was $.6 million, a
decrease of $1.2 million, or 67%, compared to $1.8 million for the nine months
ended June 30, 2001.
PROVISION FOR INCOME TAXES. Income tax expense of $.1 million, recorded at
an effective tax rate of 34%, resulted in net income for the third quarter of
fiscal 2002 of $.1 million. During the same quarter of fiscal 2001, the Company
recorded income tax expense of $.3 million, reflecting a 39% effective tax rate
and resulting in income before cumulative effect of a change in accounting
principle of $.5 million. The decline in the effective tax rate is primarily due
14
to the fact that most of the fiscal 2002 earnings have been and are expected to
be derived from The Netherlands operation, which has a comparable federal tax
rate, but has no state income taxes. In fiscal 2001, a significant portion of
the net earnings was derived from operations in Pennsylvania and Arizona where
state income taxes apply.
Income tax expense of $.2 million, recorded at an effective tax rate of
34%, resulted in income for the first nine months of fiscal 2002 of $.4 million.
During the same period of fiscal 2001, the Company recorded income tax expense
of $.7 million, reflecting a 38% effective tax rate and resulting in income
before cumulative effect of a change in accounting principle of $1.1 million.
See the previous paragraph for a discussion of the change in effective tax
rates.
NET INCOME. Net income for the third quarter of fiscal 2002 was $.1
million, or $.05 per diluted share, a decrease of $.4 million, or 80%, compared
to net income of $.5 million, or $.17 per diluted share, in the third quarter of
fiscal 2001. The decrease in net income is due primarily to decreased revenues
caused by a severe slowdown in the semiconductor equipment industry, competitive
pricing pressure and a change in the product mix.
Net income for the nine months ended June 30, 2002 was $.4 million, or $.15
per diluted share, essentially unchanged from $.4 million, or $.16 per diluted
share, for the same period of fiscal 2001. Revenues and gross margins were
higher in fiscal 2001, but were partially offset by the charge for the after-tax
cumulative effect of a change in accounting principle (SAB 101) of $.7 million
recorded in the first quarter of fiscal 2001.
BACKLOG. At June 30, 2002, the order backlog was $5.8 million, an increase
of $1.9 million, or 49%, from the $3.9 million backlog at March 31, 2002. In
addition to the backlog and pursuant to SAB 101, as of June 30 and March 31,
2002, the Company had deferred $1.6 million and $1.8 million, respectively, of
revenue, which net of deferred costs represented deferred profit of $1.0 million
for each of the respective periods. As a result, the Company had a total of $7.4
million of projected future revenue under contract as of June 30, 2002. 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, the 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 fiscal period could have a material adverse affect on our
business prospects, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, the Company had $6.6 million of readily available
liquidity in the form of cash and cash equivalents, compared to cash and
equivalents of $6.0 million at September 30, 2001, an increase of approximately
$.6 million. The Company continues to believe that there is sufficient available
liquidity for existing operations and its expansion plans.
15
CASH FLOW. The $.6 million net increase in cash during the nine months
ended June 30, 2002 approximates the $.8 million cash flow provided by
operations offset by $.3 million in capital investments. The $.8 million cash
flow provided by operations was derived from $.4 million of net income, the
addition of $.3 million of depreciation and amortization which do not require
the use of cash, and declines in accounts receivable ($.5 million) and
inventories, prepaid expenses and other assets ($.7 million). These items were
partially offset by a decrease in both accrued liabilities and customer deposits
and in deferred profit ($.5 million and $.7 million, respectively). Investing
activities consisted of $.3 million in purchases of property, plant and
equipment.
At June 30, 2002, working capital was $12.4 million, an increase of $.9
million from $11.5 million of working capital at September 30, 2001. The
Company's current ratio increased slightly to 4.6:1 at the end of the third
quarter of fiscal 2002 from 3.4:1 at the beginning of the 2002 fiscal year. The
Company believes that its current ratio continues to evidence its strong
financial condition. At the end of the third quarter of fiscal 2002, cash and
cash equivalents comprised 36% of total assets and stockholders' equity
accounted for 80% of total capitalization. The Company believes that it
continues to possess the financial strength necessary to achieve continued
growth.
RECENT ACCOUNTING PRONOUNCEMENTS
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 pooling of interest as a method for accounting
for business combinations. SFAS No. 142 requires the discontinuation 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. The Company must
adopt SFAS Nos. 141 and 142 no later than October 1, 2002. Since amortization of
goodwill is currently an estimated $.1 million per year, the discontinuation of
such amortization will not have a material affect on the Company's net income or
financial condition. Management does not expect to incur an impairment charge
related to its recorded goodwill, approximately $.7 million as of June 30, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
amends existing guidance on asset impairment and provides a single accounting
model for long-lived assets to be disposed of. SFAS No. 144 also changes the
criteria for classifying an asset as held-for-sale; and broadens the scope of
businesses to be disposed of that qualify for reporting as discontinued
operations and changes the timing of recognizing losses on such operations. The
Statement is effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS No. 144 is not expected to have a material effect on the
Company's financial statements.
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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, 2001. The Company did not participate in any
derivative (hedging or speculative) activities in fiscal 2001 or 2002. There are
no material changes in reported market risk from September 30, 2001.
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly 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 recover from the current slowdown,
(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 its
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
17
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 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 business, 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
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the
quarterly period ended June 30, 2002.
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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 8, 2002
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Robert T. Hass, Vice-President-Finance and
(Chief Financial and Accounting Officer)