<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999 Commission File Number 0-8623
------
ROBOTIC VISION SYSTEMS, INC.
(Exact name of Registrant as specified in charter)
DELAWARE 11-2400145
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (781) 821-0830
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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.
Yes X No
Number of shares of Common Stock outstanding
as of May 10, 1999 26,202,461
No of Pages 14
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
--------------- ----------------
(In thousands, except per share data)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,779 $ 2,421
Accounts receivable, net 32,611 32,367
Inventories 31,464 36,213
Other current assets 1,367 1,226
--------------- ----------------
Total current assets 68,221 72,227
Plant and equipment, net 14,084 17,591
Deferred income taxes 8,820 8,820
Goodwill 5,538 5,847
Software development costs, net 13,303 11,812
Other assets 5,193 5,274
--------------- ----------------
Total assets $ 115,159 $ 121,571
--------------- ----------------
--------------- ----------------
LIABILITIES, PREPAID WARRANTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt $ 35,894 $ 38,038
Accounts payable 18,675 21,388
Accrued expenses 17,534 22,289
--------------- ----------------
Total current liabilities 72,103 81,715
Long-term debt 2,945 3,059
--------------- ----------------
Total liabilities 75,048 84,774
Prepaid warrants 8,643 -
Stockholders' equity:
Common stock, authorized 50,000 shares,
$0.01 par value; issued and outstanding
24,902 at March 31, 1999 and 24,870 at
September 30, 1998 249 249
Additional paid-in capital 169,625 168,493
Accumulated deficit (138,423) (131,962)
Cumulative translation adjustment 17 17
--------------- ----------------
Total stockholders' equity 31,468 36,797
--------------- ----------------
Total liabilities, prepaid warrants and stockholders' equity $ 115,159 $ 121,571
--------------- ----------------
--------------- ----------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
----------- ---------- ---------- ---------
(Unaudited)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 27,294 $ 47,727 $ 56,699 $ 101,515
Cost of revenues 15,433 26,686 32,267 54,431
--------- --------- --------- ---------
Gross profit 11,861 21,041 24,432 47,084
Research and development expenses 4,882 7,390 10,472 14,019
Selling, general and administrative expenses 10,654 15,657 21,870 30,551
Merger expenses -- -- -- 623
Non-recurring charges -- 3,184 -- 3,184
--------- --------- --------- ---------
Loss from operations (3,675) (5,190) (7,910) (1,293)
Gain on sale of product line (250) -- (3,048) --
Interest expense, net 687 482 1,522 728
--------- --------- --------- ---------
Loss before provision for income taxes (4,112) (5,672) (6,384) (2,021)
Provision for income taxes -- -- -- 108
--------- --------- --------- ---------
Net loss (4,112) (5,672) (6,384) (2,129)
Premium on prepaid warrant 77 77
--------- --------- --------- ---------
Net loss attributable to common shareholders $ (4,189) $ (5,672) $ (6,461) $ (2,129)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share:
Basic $ (0.17) $ (0.23) $ (0.26) $ (0.09)
Diluted $ (0.17) $ (0.23) $ (0.26) $ (0.09)
Weighted average shares:
Basic 24,885 24,517 24,881 24,497
Diluted 24,885 24,517 24,881 24,497
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
March 31, March 31,
1999 1998
--------------- ----------------
(Unaudited)
OPERATING ACTIVITIES: (In thousands)
<S> <C> <C>
Net loss $ (6,461) $ (2,129)
Adjustments to reconcile net loss to net cash from operating activities:
Gain on sale of product line (3,048) -
Depreciation and amortization 5,277 3,554
Changes in assets and liabilities:
Accounts receivable (244) 959
Inventories 4,301 (17,255)
Other current assets (141) (933)
Capitalized software development costs and other assets (2,864) (4,980)
Accounts payable (2,713) 6,451
Accrued expenses (4,912) 1,917
Other long-term liabilities - (407)
--------------- ----------------
Net cash used in operating activities (10,805) (12,823)
--------------- ----------------
INVESTING ACTIVITIES:
Additions to plant and equipment (593) (5,887)
Proceeds from sale of product line 4,300 -
--------------- ----------------
Net cash provided by (used in) investing activities 3,707 (5,887)
--------------- ----------------
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and
warrants 12 276
Proceeds from issuance of prepaid and incentive warrants 11,000 -
Expenses of issuing prepaid and incentive warrants (1,237) -
Borrowings (repayments) of bank debt (2,112) 15,978
Proceeds from long-term debt - 259
Repayments of long-term debt (207) (1,019)
--------------- ----------------
Net cash provided by financing activities 7,456 15,494
--------------- ----------------
Effect of exchange rate changes on cash and cash
equivalents - 11
Net increase (decrease) in cash and cash equivalents 358 (3,205)
Cash and cash equivalents - beginning of period 2,421 8,811
--------------- ----------------
Cash and cash equivalents - end of period $ 2,779 $ 5,606
--------------- ----------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 822 $ 794
Income taxes paid $ - $ 240
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Condensed Consolidated
Balance Sheet of Robotic Vision Systems, Inc. and Subsidiaries (the
"Company") as of March 31, 1999, the Condensed Consolidated Statements of
Operations for the three month and six month periods ended March 31, 1999 and
1998 and the Condensed Consolidated Statements of Cash Flows for the and six
month periods ended March 31, 1999 and 1998 have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial condition, results of operations and cash flows at March 31, 1999
and for all periods presented have been made.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K and Form 10-K/A for the year ended September
30, 1998. The results of operations for the period ended March 31, 1999 are not
necessarily indicative of the operating results for the full year.
2. INVENTORIES
Inventories at March 31, 1999 and September 30, 1998 consisted of the following;
<TABLE>
<CAPTION>
MARCH 31, 1999 SEPTEMBER 30, 1998
(In thousands)
<S> <C> <C>
Raw materials $14,814 $17,124
------- -------
Work-in-process 6,702 10,429
Finished goods 9,948 8,660
------- -------
Total $31,464 $36,213
------- -------
------- -------
</TABLE>
3. NOTES PAYABLE: The Company has a revolving credit agreement with three
domestic banks which is collateralized by substantially all of the domestic
tangible and intangible assets of the Company. The agreement has a term which
expires in March 2000 and borrowings under the agreement currently bear
interest at the prime rate plus two percent. At March 31, 1999, the Company
had borrowings of $35,388,000 outstanding which reflect the maximum
commitment under the agreement. Subsequent to March 31, 1999, the Company
amended the credit agreement with its banks to waive compliance with certain
fincial covenants through March 31, 1999 and establish new financial
covenants for the balance of the term of the agreement. The amended agreement
contains certain financial covenants, including minimum levels of
profitability, liquidity and net worth and maximum capital expenditures. In
conjunction with the amendment to the credit agreement, the Company issued
warrants to its lending banks totaling 750,000 shares, at an exercise price
of $4.02 per share, of which 250,000 shares are immediately exercisable. All,
or a portion, of the remaining 500,000 shares are only exercisable if the
lending banks extend the credit agreement beyond the original maturity date
for a pre-determined period.
5
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. SALE OF PRODUCT LINE
In December 1998, the Company sold its Aircraft Safety product line
("Aircraft Safety") to a subsidiary of B.F. Goodrich ("Goodrich") for
$4,500,000, consisting of $4,050,000 in cash paid on closing and $450,000
payable upon the resolution of two items as noted in the next paragraph. The
Company no longer considered this technology a key component of its product
portfolio or future strategic direction. The Company sold certain inventory,
equipment and intellectual property in the transaction. The transaction resulted
in an initial gain of $2,798,000 in the first quarter of fiscal 1999 and an
additional gain of $250,000 in the second quarter of fiscal 1999.
In the third quarter of fiscal 1999, the remaining contingency relating
to employee retention ($125,000) was resolved and will be recorded as
additional gain in that quarter. As of May 17, 1999, the contingency
($75,000) related to the novation of a certain government contract held by
Aircraft Safety to Goodrich had not been completed. Any additional gain will
be recognized upon resolution of this contingency.
5. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average
number of shares outstanding during each period. Diluted net income per share
reflects the effect of the Company's outstanding stock options and warrants
(using the treasury stock method), except where such options would be
anti-dilutive.
For the three months and six months ended March 31, 1999 and 1998, any
such potential common shares related to the Company's outstanding stock
options and warrants were anti-dilutive due to the net loss in the periods.
At March 31, 1999, the Company had 3,233,000 shares of unexercised stock
options, 1,573,000 shares of unexercised warrants as well as $11.000,000 in
stated value of prepaid warrants for an indeterminate number of shares.
6. COMPREHENSIVE INCOME (LOSS) Effective October 1, 1998, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income". Currently, in addition to net income
or loss, the only item that the Company currently records as other
comprehensive income or loss is the change in the cumulative translation
adjustment resulting from the changes in exchange rates and the effect of
those changes upon translation of the financial statements of the Company's
foreign operations. For the three month ended March 31, 1999 and 1998, the
components of comprehensive income (loss) included net loss attributable to
common shareholders of $(4,189,000) and $(5,672,000), respectively, foreign
currency translation adjustment of $0 and $9,000, respectively, for total
comprehensive loss of $(4,189,000) and $(5,663,000), respectively. For the
six months ended March 31, 1999 and 1998, the components of comprehensive
income (loss) included net loss of $(6,461,000) and $(2,129,000),
respectively, foreign currency translation adjustment of $0 and $(11,000),
respectively, for total comprehensive loss of $(6,461,000) and $(2,140,000),
respectively.
6
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. PREPAID AND INCENTIVE WARRANTS On February 23, 1999, the Company
completed a private placement of its equity securities consisting of 5-year
prepaid common stock purchase warrants ("prepaid warrants") with a stated
value of $11,000,000 and 5-year incentive common stock purchase warrants
("incentive warrants") to purchase 592,307 shares of the Company's common
stock upon payment of an exercise price of $4.02 per share. These securities
were sold to four institutional investors. At the closing, the Company
received gross proceeds of $11,000,000 from the issuance of the prepaid
warrants and incentive warrants, and net proceeds of $9,763,000 after
placement agent fees and other expenses of the transaction. The Company also
issued to the placement agent 5-year incentive warrants to purchase 629,915
shares of common stock at an exercise price of $4.02 per share. The market
price of the Company's common stock on the placement closing date was $3.03
per share. As of March 31, 1999, there were issued and outstanding
$11,000,000 in stated value of prepaid warrants, plus accrued premimum of
$77,000, and a total of 1,222,222 shares of incentive warrants. Proceeds from
the transaction were used to meet working capital requirements.
Each prepaid warrant is exercisable at the lower of $4.02 per share or 95% of
the average of the three lowest closing bid prices of the Company's common stock
during the 20-day trading period ending on the date of notice of exercise. The
prepaid warrants bear an annual premium of 7% per annum, payable in cash or, at
the Company's option, in shares of the Company's common stock, and are initially
exercisable, to the extent of 25% of the total number of shares issuable,
commencing on the 180th day (August 19, 1999) following their issuance,
increasing by increments of 25% every 90 days thereafter so that after the
passage of 450 days following the date of original issuance, the prepaid
warrants will have become fully exercisable. The incentive warrants are
exercisable at any time during their 5-year term.
The prepaid warrants are subject to call at the Company's option if both,
during the 20-day trading day period immediately preceding the date of the
Company's notice of redemption the average closing bid price, and on the date of
the Company's notice of redemption the closing bid price, of the Company's
common stock is less than $4.02 per share, subject to anti-dilution adjustment,
at a cash price equal to 120% of the exercise amount of the prepaid warrants,
inclusive of earned premium, called for redemption. Such call right may be
exercised by the Company up to four times during the term of the prepaid
warrants. The prepaid warrants are also subject to redemption by the Company, at
the Company's option, if their exercise price falls below $2.50 per share.
The incentive warrants have been included in stockholders' equity in the
amount of $1,120,000, which reflects their estimated fair value. The prepaid
warrants have been recorded at $8,643,000, which reflects the amount of the
net proceeds received for the issuance of the prepaid warrants and incentive
warrants, less the value assigned to the incentive warrants. The premium of
7% on the prepaid warrant is included in the net loss attributable to all
common stockholders.
8. PRIVATE PLACEMENT SALE OF COMMON STOCK AND INCENTIVE WARRANTS - SUBSEQUENT
EVENT
In April, 1999, the Company sold 1,309,850 shares of its common stock at
$2.25 per share, in a private placement with a U.S. corporation. Net proceeds
were approximately $2,900,000, after expenses. In conjunction with the sale
of common stock, the Company issued 5-year incentive warrants for 327,462
shares of the Company's common stock at an exercise price of $4.02 per share.
The incentive warrants are exercisable, beginning 18 months after closing, at
any time during their 5-year term. Proceeds from the sale of common stock
will be used to meet working capital requirements.
7
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
RESULTS OF OPERATIONS
Revenues were $27.3 million in the three months ended March 31, 1999 compared to
$47.7 million in the three months ended March 31, 1998, a decline of 43%. The
lower revenues year-to-year largely reflect the effect of the severe
semiconductor industry downturn which began in early calender 1998. In the three
months ended March 31, 1999, revenues for the Company's Semiconductor Equipment
Group were approximately half the level of the year earlier period. Revenues for
the Company's Acuity CiMatrix division for 1-D and 2-D barcode reading and
machine vision products were also down 16% from the year earlier period. The
year-to-year decline in revenues for the Company's Acuity CiMatrix division was
almost entirely a result of lower revenues from European customers. In the three
months ended March 31, 1999, revenues for the Company's Semiconductor Equipment
Group represented 61% of total revenues, compared to 73% of total revenues in
the three months ended March 31, 1998.
For the six months ended March 31, 1999, revenues were $56.7 million compared to
$101.5 million in the six months ended March 31, 1998, a decline of 44%.
Revenues for the Company's Semiconductor Equipment Group were down 55% and
revenues for the Company's Acuity CiMatrix division were down 13% from the year
earlier periods.
On a sequential basis, revenues of $27.3 million in the three months ended March
31, 1999 were $2.1 million lower than revenues of $29.4 million in the three
months ended December 31, 1998. A significant level of orders were received at
the end of March that the Company was unable to ship against until April, due to
a combination of the timing of the orders received and lack of all the necessary
inventory required to satisfy the customer order.
The gross profit margin was 43.5% of revenues in the three months ended March
31, 1999 compared to 44.1% of revenues in the three months ended March 31, 1998.
The gross profit margin, as a percentage of revenues, for the Company's
Semiconductor Equipment Group was approximately the same, while the gross profit
margin, as a percentage of revenues for the Company's Acuity CiMatrix division
was down slightly year-to-year.
For the six months ended March 31, 1999, the gross profit margin was 43.1% of
revenues compared to 46.4% of revenues in the six months ended March 31, 1998.
The lower gross margin largely reflects proportionately higher fixed
manufacturing and support costs on the substantially lower level of revenues.
Research and development expenses were $4.9 million, or 17.9% of revenues, in
the three months ended March 31, 1999, compared to $7.4 million, or 15.5% of
revenues, in the three months ended March 31, 1998. The lower level of expenses
reflects the combination of workforce reductions and other expense reductions
implemented by the Company over the past twelve months. The Company is
continuing to invest significant resources into new product development in both
its Semiconductor Equipment Group and it Acuity CiMatrix division. New product
development efforts include expansion of the Company's new machine
8
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
vision platform, Visionscape, on-going development on the recently announced MXi
hand-held imager for reading digital 2-D barcodes, as well as next generation
semiconductor inspection and component handling equipment. In the three months
ended March 31, 1999, the Company capitalized $1.2 million in software
development costs under Statement of Financial Accounting Standards No. 86.,
compared to $2.1 million in the three months ended March 31, 1998.
Research and development expenses were $10.5 million, or 18.4% of revenues, in
the six months ended March 31, 1999 compared to $14.0 million, or 13.8% of
revenues, in the three months ended March 31, 1998. Capitalized software
development costs in the six months ended March 31,1999 were $2.7 million
compared to $3.8 million in the six months ended March 31, 1998.
Selling, general and administrative expenses were $10.7 million, or 39.0% of
revenues, in the three months ended March 31, 1999, compared to $15.7 million,
or 32.8% of revenues, in the three months ended March 31, 1998. The lower level
of expenses largely reflects the combination of the cost reduction steps taken
by the Company over the past twelve months, together with lower variable selling
costs on the lower level of revenues. In addition, the absence of significant
litigation costs in the three months ended March 31,1999, compared to the year
earlier period, contributed to the decline in of expenses.
Selling, general and administrative expenses were $21.9 million, or 38.6% of
revenues, in the six months ended March 31, 1999, compared to $30.6 million, or
30.1% of revenues, in the six months ended March 31, 1998. The year-to-year
reduction in expenses reflects the Company's cost reduction steps taken over the
past twelve months, lower variable selling costs on lower revenues and the
absence of significant litigation costs which were incurred in the six months
ended March 31, 1998.
The combination of research and development and selling, general and
administrative expenses were $15.5 million in the three months ended March 31,
1999, compared to $16.8 million in the three months ended December 31, 1998, a
reduction of $1.3 million in expenses sequentially. The lower level of expenses
were achieved through a combination of limited workforce reductions, forced
vacation and continued curtailment of discretionary spending.
Net interest expense was $0.7 million in the three months ended March 31, 1999,
compared to $0.5 million in the three months ended March 31, 1998. The increase
in interest expense primarily reflects the higher level of bank borrowings in
the three months ended March 31, 1999.
The Company recorded an additional gain of $0.3 million on the sale of its
Aircraft Safety division during the three months ended March 31, 1999, as a
result of a contingency relating to employee retention being resolved. The total
gain on the sale in the six months ended March 31, 1999 was $3.0 million.
There was no tax provision in the three months ended March 31, 1999 or March
31,1998 due to the loss for the periods.
9
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
The Company reported a net loss of $4.2 million, or $(0.17) per share, for the
three months ended March 31, 1999, compared to a net loss of $5.7 million, or
$(0.23) per share, for the three months ended March 31, 1998. The net for the
three months ended March 31, 1999 included a gain of $0.3 million relating to
the sale of the Aircraft Safety. In the three months ended March 31, 1998, the
net loss of $5.7 million included non-recurring charges of $3.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased $0.4 million, to $2.8 million, in the six
months ended March 31, 1999, as a result of $10.8 million of net cash used in
operating activities, $0.6 million of net cash used for additions to plant and
equipment, $4.3 million of net cash provided by the sale of a product line and
$7.5 million of net cash provided by financing activities.
The $10.8 million of net cash used in operating activities was largely a result
of the operating loss for the six month period, after non-cash depreciation and
amortization charges, combined with the reduction in accounts payable and
accrued expenses. Accounts receivable increased $0.2 million in the six months
ended March 31,1999. Inventories declined $4.3 million in the six months ended
March 31, 1999, primarily as a result of further inventory reductions in the
Company's Semiconductor Equipment Group.
Additions to plant and equipment were $0.6 million in the six months ended March
31, 1999, which were substantially below depreciation charges of $3.6 million in
the period.
The reductions in accounts payable and accrued expenses, combined, of $7.6
million in the six months ended March 31, 1999, reflects the combination of
lower inventory purchases, cash paid for severance and other non-recurring
charges of $1.5 million, as well as a reduction of past due vendor balances.
At March 31, 1999, the Company had borrowings of $35.4 million outstanding
under its revolving credit agreement with its domestic banks, compared to
$37.5 million in borrowings outstanding at September 30, 1998. Subsequent to
March 31, 1999, the Company amended its credit agreement with its banks to
waive compliance with certain financial covenants through March 31, 1999 and
the establish new financial covenants for the balance of the term of the loan.
In February 1999, the Company completed a private placement of its equity
securities consisting of 5-year prepaid warrants with a stated value of $11.0
million and 5-year incentive warrants totaling 1,222,222 shares of the Company's
common stock with an exercise price of $4.02 per share. These securities were
sold to a group of institutional investors. Net proceeds from the financing were
$9.8 million. Proceeds from the private placement were used for working capital
requirements (see Note 7). In April 1999, the Company sold 1,309,850 shares of
its common stock at $2.25 per share, in a private placement with a U.S.
corporation. The Company received $2.9 million in net proceeds on the closing
date of the sale. Proceeds from the sale will be used for working capital
requirements (see Note 8).
10
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Management believes that through a combination of cash flow from operations,
cash received from the recent sale of common stock, and obtaining additional
external capital, the Company will have sufficient liquidity through at least
September 30, 1999 to fund its cash requirements.
EFFECT OF INFLATION
Management believes that during the three months ended March 31, 1999 the effect
of inflation was not material.
YEAR 2000 STATUS
The Company is aware of the potential for business disruption due to the Year
2000 issue, and has taken steps to assess and address these issues. The Company
is addressing Y2K compliance in three major areas: internal operating systems,
including sales, purchasing, production, engineering, and finance; products,
including installed base and new products; and third parties, vendors. Based on
current internal audits, management believes that it has established a Y2K plan
which will address these issues. Based on the results of testing to date, it is
estimated that about 75% of these are Y2K compliant. All non-compliant systems
will be brought into compliance by July 1999, either by upgrades or replacement.
The area of Y2K compliance which poses the greatest risk to the Company is its
vendors, because of the Company's lack of control over their products and
operations. The Company is currently in the process of surveying all major
vendors. We expect this process to be completed by June 1999 and any compliance
issues to be addressed by September 1999.
While the Company believes that its Y2K compliance program is on plan for
assessing and addressing any Y2K issues, full compliance can not be assured
until this effort is complete. In particular, despite the Company's best
efforts, it may be unable to establish with certainty the compliance of third
party vendors, including those outside the United States. It is possible that
the non-compliance of a key vendor could have a material, adverse effect on the
Company's operations.
As this program progresses, the Company will be better able to assess its Y2K
status in all of the areas outlined above, and focus its efforts on any Y2K
issues which become identified. By June 1999, the Company will also develop
contingency plans to be put in place in the event that any of our corrective
actions fail to fully address the Y2K issues.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS This report contains
forward-looking statements including statements regarding, among other items,
financing activities and anticipated trends in the Company's business, which
are made pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These statements are based largely on the
Company's expectations and are subject to a number of risks and
uncertainties, some of which cannot be predicted or quantified and are beyond
the Company's control. Future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements. Statements in this report describe factors and
uncertainties, among others, that could contribute to or cause such
differences. Readers are specifically referred to the risk factors detailed
in the Company's most recent registration statement, annual report on Form
10-K and 10-K/A, and other filings with the Securities and Exchange
Commission.
11
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
RISK FACTORS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash equivalents and trade receivables. The Company
places its cash equivalents with high quality financial institutions, limits the
amount of credit exposure to any one institution and has established investment
guidelines relative to diversification and maturities designed to maintain
safety and liquidity. The Company's trade receivables result primarily from
sales to semiconductor manufacturers located in North America , Japan, the
Pacific Rim and Europe. Receivables are mostly from major corporations,
distributors or are supported by letters of credit. The Company maintains
reserves for potential credit losses and such losses have been immaterial.
The fair value of the Company's notes payable and long-term liabilities is
estimated based on quoted market prices for the same or similar issues or on
current rates offered to the Company for debt of the same remaining maturities.
For all other balance sheet financial instruments, the carrying amount
approximates fair value.
The Company is exposed to the impact of fluctuation in interest rates, primarily
through its borrowing activities. The Company's policy has been to use U.S.
dollar denominated borrowings to fund our working capital requirements. The
interest rate on the Company's borrowings fluctuate with current market rates.
The extent of risk associated with an increase in the interest rate on the
Company's borrowings is not quantifiable or predictable because of t he
variability of future interest rates and the Company's future financing
requirements. At March 31, 1999, the Company had bank borrowings outstanding of
$35.4 million and a long-term note of $2.3 million which have a variable
interest rate. Using a yield to maturity analysis and assuming an increase in
the interest rate on these borrowings of 78 basis points (10% fluctuation in the
rate), interest rate variability on these borrowings would not have a material
effect on the Company's financial results.
The Company is also exposed to the impact of foreign currency fluctuations.
During the first six months of fiscal 1999, most local currencies of our
international subsidiaries weakened slightly against the U.S. dollar. Since we
translate foreign currencies into U.S. dollars for reporting purposes, these
weakened currencies have a negative, though immaterial, impact on the Company's
results. The Company also believes that its exposure to currency exchange
fluctuation risk is insignificant because its international subsidiaries sell to
customers in their local currencies, and satisfy their financial obligations,
almost exclusively, in their local currencies. During the first six months of
fiscal 1999, the Company did not engage in foreign currency hedging activities.
Based on a hypothetical ten percent adverse movement in foreign currency
exchange rates, the potential losses in future earnings, fair value of
risk-sensitive instruments, and cash flows are immaterial, although the actual
effects may differ materially from the hypothetical analysis.
12
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 3. Exhibits and Reports on Form 8-K
(a) A report on Form 8-K was filed on February 24, 1999.
(b) Exhibit 27 - Financial Data Schedule
13
<PAGE>
ROBOTIC VISION SYSTEMS, INC AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROBOTIC VISION SYSTEMS, INC.
Registrant
Dated: May 14, 1999 /s/ PAT V. COSTA
------------------------------
PAT V. COSTA
President and CEO
(Principal Executive Officer)
Dated: May 14, 1999 /s/ FRANK D. EDWARDS
-------------------------------
FRANK D. EDWARDS
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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<NAME> ROBOTIC VISION SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<COMMON> 249
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