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, 2000
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, 2000: 2,163,808
<PAGE>
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and September 30, 1999.................................. 3
Consolidated Statements of Operations -
Three and Nine Months Ended June 30, 2000 and 1999.................... 4
Consolidated Statements of Stockholders' Equity-
Three and Nine Months Ended June 30, 2000 and 1999.................... 5
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 2000 and 1999.............................. 6
Notes to Condensed Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations................................................. 11
Liquidity and Financial Condition ...................................... 14
Accounting Pronouncements Not Yet Adopted............................... 14
Year 2000 Compliance ................................................... 15
Quantitative and Qualitative Disclosures about Market Risk.............. 15
Forward-Looking Statements.............................................. 17
PART II. OTHER INFORMATION.
Item 2. Change in Securities ............................................. 18
Item 4. Submission of Matters to a Vote of Securities Holders............. 18
SIGNATURES.................................................................. 18
2
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2000 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,226,817 $ 1,124,685
Accounts receivable - net 3,064,462 3,208,488
Inventories 2,616,991 2,259,657
Deferred income taxes 508,000 421,000
Income taxes refundable -- 34,000
Prepaid expenses 24,765 73,914
----------- -----------
Total current assets 8,441,035 7,121,744
PROPERTY, PLANT AND EQUIPMENT - net 1,018,622 1,098,313
GOODWILL AND OTHER ASSETS - net 504,862 524,501
----------- -----------
TOTAL ASSETS $ 9,964,519 $ 8,744,558
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 803,526 $ 627,445
Accrued compensation and related taxes 629,576 458,277
Accrued warranty expense 194,509 146,590
Accrued installation expense 167,115 196,349
Customer deposits 271,360 83,242
Income taxes payable 204,000 --
Other accrued liabilities 128,846 235,610
----------- -----------
Total current liabilities 2,398,932 1,747,513
----------- -----------
LONG-TERM OBLIGATIONS 259,984 286,828
----------- -----------
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; 2,163,808 (2,108,679
in 1999) shares issued and outstanding 21,638 21,087
Additional paid-in capital 7,402,043 7,400,152
Accumulated other comprehensive loss -
Cumulative foreign currency translation
adjustment (406,612) (309,064)
Retained Earnings 288,534 (401,958)
----------- -----------
Total stockholders' equity 7,305,603 6,710,217
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,964,519 $ 8,744,558
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three and Nine Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net product sales $4,693,430 $3,403,801 $13,105,042 $10,375,713
Cost of product sales 3,020,817 2,448,938 8,524,967 7,487,651
---------- ---------- ----------- -----------
Gross margin 1,672,613 954,863 4,580,075 2,888,062
Selling, general and administrative 1,144,149 884,902 3,184,250 2,488,522
Research and development 84,107 23,084 333,689 187,244
---------- ---------- ----------- -----------
Operating profit 444,357 46,877 1,062,136 212,296
Interest income, net 21,138 12,121 42,356 32,206
---------- ---------- ----------- -----------
Income before income taxes 465,495 58,998 1,104,492 244,502
Income tax provision 173,000 31,000 414,000 102,000
---------- ---------- ----------- -----------
NET INCOME $ 292,495 $ 27,998 $ 690,492 $ 142,502
========== ========== =========== ===========
EARNINGS PER SHARE:
Basic $ .14 $ .01 $ .32 $ .07
Weighted average shares outstanding 2,163,808 2,109,736 2,131,992 2,110,198
Diluted $ .13 $ .01 $ .31 $ .07
Weighted average shares outstanding 2,269,558 2,204,528 2,237,236 2,173,504
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three and Nine Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Common Stock Accumulated
--------------------- Additional Other Total
Number Paid-in Comprehensive Retained Stockholders'
of Shares Amount Capital Income (Loss) Earnings Equity
--------- ------ ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1998 2,110,303 $ 21,103 $ 7,406,589 $(216,338) $(764,265) $ 6,447,089
Net Income -- -- -- -- 142,502 142,502
Translation adjustment -- -- -- (132,889) -- (132,889)
-----------
Comprehensive income 9,613
-----------
Repurchases of Stock
and other items (1,624) (16) (6,437) -- -- (6,453)
---------- -------- ----------- --------- --------- -----------
BALANCE AT
JUNE 30, 1999 2,108,679 $ 21,087 $ 7,400,152 $(349,227) $(621,763) $ 6,450,249
========== ======== =========== ========= ========= ===========
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
-----------
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
MARCH 31, 1999 2,111,279 $ 21,113 $ 7,406,579 $(302,293) $(649,761) $ 6,475,638
Net income -- -- -- -- 27,998 27,998
Translation adjustment -- -- -- (46,934) -- (46,934)
-----------
Comprehensive loss (18,936)
-----------
Employee stock bonus -
net of repurchases (2,600) (26) (6,427) -- -- (6,453)
---------- -------- ----------- --------- --------- -----------
BALANCE AT
JUNE 30, 1999 2,108,679 $ 21,087 $ 7,400,152 $(349,227) $(621,763) $ 6,450,249
========== ======== =========== ========= ========= ===========
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
-----------
Stock Options Exercised 53,079 531 (529) -- -- 2
---------- -------- ----------- --------- --------- -----------
BALANCE AT
JUNE 30, 2000 2,163,808 $ 21,638 $ 7,402,043 $(406,612) $ 288,534 $ 7,305,603
========== ======== =========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Nine Months Ended June 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 690,492 $ 142,502
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 219,432 241,545
Provision for inventory and accounts
receivable write-offs 20,266 69,239
Loss on disposals of long-lived assets 432 --
Deferred income taxes (87,000) 159,000
(Increase) decrease in:
Accounts receivable 28,893 90,164
Inventories, prepaid expenses and other assets (416,763) (512,816)
Increase (decrease) in:
Accounts payable 192,931 (251,136)
Accrued liabilities and customer deposits 322,742 (349,750)
Income taxes payable 235,355 39,598
----------- -----------
Net Cash Provided By (Used In) Operating Activities 1,206,780 (371,654)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (148,205) (154,311)
----------- -----------
Net Cash Used In Investing Activities (148,205) (154,311)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 2,442 --
Stock Repurchases -- (6,453)
Payments on mortgage loan (8,128) (9,184)
----------- -----------
Net Cash Used In Financing Activities (5,686) (15,637)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 49,243 80,789
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) 1,102,132 (460,813)
Beginning of year 1,124,685 1,351,542
----------- -----------
END OF YEAR CASH AND CASH EQUIVALENTS $ 2,226,817 $ 890,729
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,562 $ 11,425
Income taxes paid (refunded) 263,000 (53,000)
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2000
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 generally accepted accounting principles,
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, 1999, which are incorporated herein by
reference.
The consolidated results of operations for the three and nine months ended
June 30, 2000, 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, which usually precedes final customer
acceptance, provided that final customer acceptance and collection of the
related receivable is probable. 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 that led
the customer to request delayed shipment of the product, the product is
complete, ready for shipment and is segregated from existing inventory and
there are no material contingencies.
7
<PAGE>
3. INVENTORIES
The components of inventories are as follows:
June 30, September 30,
2000 1999
---------- ----------
Purchased parts and
raw material $1,359,162 $1,237,348
Work-in-process 873,303 605,769
Finished goods 384,526 416,540
---------- ----------
Totals $2,616,991 $2,259,657
========== ==========
4. EARNINGS PER SHARE
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net income $ 292,495 $ 27,998 $ 690,492 $ 142,502
Weighted average
Shares outstanding:
Common shares 2,163,808 2,109,736 2,131,992 2,110,198
Common equivalents
issuable upon
exercise of warrants
and stock options(1) 105,750 94,792 105,244 63,306
---------- ---------- ---------- ----------
2,269,558 2,204,528 2,237,236 2,173,504
========== ========== ========== ==========
Earnings Per Share: Share:
Basic $ .14 $ .01 $ .32 $ .07
========== ========== ========== ==========
Diluted $ .13 $ .01 $ .31 $ .07
========== ========== ========== ==========
----------
(1) Number of shares calculated using the treasury stock method and the average
market price during the period. Options and warrants to purchase 84,000 and
1,492,500 shares had an exercise price greater than the average market
price during the three and nine months ended June 30, 2000 and 1999,
respectively, and therefore did not enter into the calculation. On December
15, 1999 and January 14, 2000, warrants to purchase 210,000 shares and
1,207,500 shares, respectively, expired.
8
<PAGE>
5. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the FASB issued SFAS No. 137 -
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133". This statement defers the effective
date of SFAS No. 133 to the Company's quarter ending December 31, 2000. The
Company does not expect the adoption of SFAS Nos. 133 and 137 to have a
material impact on its future results of operations or financial position.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which provides
the SEC staff's views on selected revenue recognition issues. Based upon
the prevailing interpretations of SAB No. 101, the Company may be required
to delay recognition of at least a portion of its sales of semiconductor
production systems until installation has been completed and customer
acceptance. 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 obtained customer acceptance. The Company believes its
current accounting policies on revenue recognition are consistent with
those generally used in its industry and have been consistently applied
since the inception of the Company. Therefore, if the Company is required
to change its revenue recognition policies in order to comply with SAB No.
101, a significant cumulative charge related to a change in an accounting
principle may be required. The guidance in SAB 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 year.
Management has not completed its evaluation of the effects, if any, that
SAB 101 will have on the Company's income statement presentation, operating
results or financial position.
9
<PAGE>
6. BUSINESS SEGMENT INFORMATION
The Company classifies its products into two core business segments: (1)
the semiconductor production equipment segment which designs, manufactures
and markets semiconductor wafer processing equipment used in the
fabrication of integrated circuits, and (2) the polishing supplies and
equipment 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 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Semiconductor production equipment $2,587,020 $ 1,880,516 $ 7,293,316 $ 6,523,398
Polishing supplies and equipment 2,106,410 1,523,285 5,811,726 3,852,315
---------- ------------ ----------- -----------
$4,693,430 $ 3,403,801 $13,105,042 $10,375,713
========== ============ =========== ===========
Operating profit (loss):
Semiconductor production equipment -
see notes (1) and (2) $ 216,015 $ (42,640) $ 400,944 $ 117,122
Polishing supplies and equipment 228,342 89,517 661,192 95,174
---------- ------------ ----------- -----------
Total operating profit 444,357 46,877 1,062,136 212,296
Interest income - net 21,138 12,121 42,356 32,206
---------- ------------ ----------- -----------
Income before income taxes $ 465,495 $ 58,998 $ 1,104,492 $ 244,502
========== ============ =========== ===========
</TABLE>
----------
(1) Includes the Company's share of the research and development on a new
technology asher in the amount of $56,000 and $34,000 for the quarters
ended June 30, 2000 and 1999, respectively, and $224,000 and $106,000
incurred during the nine month periods ended June 30, 2000 and 1999,
respectively.
(2) The semiconductor production equipment segment also includes $71,000 and
$190,000 of corporate expenses in excess of allocations in the quarter and
nine month period ended June 30, 2000, respectively, compared to corporate
expenses in excess of allocations of $13,000 in the quarter ended June 30,
1999 and corporate allocations in excess of corporate expenses of $12,000
in the nine month period ended June 30, 1999.
10
<PAGE>
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
----------------- -----------------
2000 1999 2000 1999
----- ----- ----- -----
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of product sales 64.4 71.9 65.1 72.2
----- ----- ----- -----
Gross margin 35.6 28.1 34.9 27.8
Selling, general and
administrative expenses 24.3 26.0 24.3 24.0
Research and development 1.8 .7 2.5 1.8
----- ----- ----- -----
Operating profit 9.5% 1.4% 8.1% 2.0%
===== ===== ===== =====
NET REVENUE. The Company's net revenue for the three months ended June 30,
2000 was $4,693,000, an increase of $1,289,000, or 38%, compared to net revenue
of $3,404,000 for the third quarter of the previous fiscal year. Sales in both
segments, the polishing supplies and equipment segment and the semiconductor
production equipment segment, increased by 38%, primarily due to the continued
strong performance of the semiconductor industry, which the Company serves. The
increase in the semiconductor production equipment segment revenue was achieved
through a 214% increase in the volume of IBAL Automation and Atmoscan systems,
which was partially offset by a 24% decline in the sales of diffusion furnaces.
Sales for the quarter were only slightly greater than in the immediately
preceding quarter, partially due to delays in shipping one system order.
However, the value of the orders booked during the quarter were three (3) times
the amount of the orders shipped. This includes two large orders, one for five
(5) fully automated diffusion furnaces and the other for eleven (11) diffusion
furnace systems, that are to be shipped over the next twelve months. Because of
the recent increase in orders, the Company expects to achieve significantly
higher revenue over the next several quarters. See backlog and trends for
further information on these matters.
Consolidated revenue for the first nine months of fiscal 2000 was
$13,105,000, an increase of $2,729,000, or 26%, compared to $10,376,000 in the
previous fiscal year. The increase in revenue for the nine months ended June 30,
2000, was due primarily to increased capital spending by the semiconductor
industry. The polishing supplies and equipment segment sales increased by 51%,
with the increase in equipment sales outpacing that of consumables. The
semiconductor production equipment segment sales increased by 12%. A 128%
increase in sales of IBAL Automation and Atmoscan(R) processing equipment was
partially offset by a 30% decline in the sales of diffusion furnaces. In the
third quarter of fiscal 1999, the global semiconductor equipment industry began
to recover as a result of increased sales and profitability of semiconductor
manufacturers. This upturn in the industry was a significant factor contributing
to the increase in sales volume of the Company's capital equipment and
consumable parts during the quarter and nine months ended June 30, 2000.
11
<PAGE>
GROSS MARGIN. The Company's gross margin increased by approximately
$718,000, or 75%, to $1,673,000 for the three months ended June 30, 2000, from
$955,000 during the comparable period of the previous fiscal year. The majority
of that increase resulted from the increase in revenue discussed above. Gross
margin as a percentage of sales increased to 36% from 28% in the prior year. The
decrease in the cost of sales as a percentage of revenue accounted for
approximately one-third of the increase in gross margin. The improvement in
gross margin as a percentage of revenue is due primarily to an improved product
mix that included a higher percentage of IBAL Automation and Atmoscan sales in
the third quarter of the prior fiscal year.
For the nine months ended June 30, 2000, gross margin increased by
$1,692,000, or 59%, to $4,580,000 from $2,888,000 in the comparable period of
fiscal 1999. The polishing supplies and equipment segment accounted for
$813,000, or 48%, of the increase in consolidated gross margin in the first nine
months of fiscal 2000, and primarily resulted from that segment's revenue
increase, discussed above. Despite the relatively small 12% increase in
semiconductor production equipment segment revenue, gross margin from that
segment increased $879,000, or 46%, primarily due to a more favorable product
mix that included a higher percentage of IBAL Automation products, which
generally have higher gross margins. Gross margin as a percentage of sales was
35% for the first nine months of fiscal 2000, an improvement of seven percentage
points, compared to 28% for the first nine months of fiscal 1999. The increase
in the gross margin percentage primarily resulted from the improved product mix,
discussed above, and increased labor efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the third quarter of fiscal 2000 increased by
$259,000, or 29%, to $1,144,000, compared to $885,000 spent in the third quarter
of fiscal 1999. Commissions, royalties and incentive compensation, which vary
with changes in sales volume or profitability accounted for $209,000 of this
increase. Commission expense was significantly higher in absolute terms and as a
percentage of sales, as a greater proportion of sales was derived from
territories where the Company utilizes outside sales representatives. Other
selling expenses, primarily personnel and advertising costs related to the IBAL
Automation product line, increased $69,000.
For the first nine months of fiscal 2000, selling, general and
administrative expenses increased by $695,000, or 28%, to $3,184,000, compared
to $2,489,000 incurred in the first nine months of fiscal 1999. Higher
commissions, royalties and incentive compensation, which vary with changes in
sales volume or profitability, accounted for $444,000, or 64%, of the total
increase. Commissions is the most significant of those increases as the Company
derived a higher percentage of its sales from territories where the Company
utilizes outside sales representatives. Other selling expenses, primarily
personnel and advertising, increased by $183,000.
RESEARCH AND DEVELOPMENT. Research and development costs increased by
$61,000, to $84,000, during the third quarter of fiscal 2000 as compared to the
third quarter of fiscal 1999, due to development work on a new technology asher,
which, if successful, will be a new class of products within the semiconductor
production equipment segment. As announced in November 1999, the Company is
actively engaged in the joint development of a new technology asher. The
Company's share of expenses associated with the asher development accounted for
$22,000 of the increase in total research and development. The remainder of the
12
<PAGE>
increase was primarily attributable to the development of new IBAL Automation
products.
For the nine months ended June 30, 2000, research and development costs
increased by $147,000, to $334,000, compared to $187,000 during the comparable
quarter of fiscal 1999. Most of the increase was related to the asher
development project discussed above.
OPERATING PROFIT. Operating profit for the third quarter of fiscal 2000
increased by $397,000, or 845%, to $444,000, compared to an operating profit of
$47,000 in the same period of fiscal 1999. The increase in operating profit is
primarily attributable to the 38% increase in consolidated revenue and a product
mix with a higher average mark-up. Operating profit for the polishing supplies
and equipment segment increased by $138,000 to $228,000, compared to $90,000 in
the third quarter of fiscal 1999, as a result of the 38% increase in sales
volume. In the semiconductor production equipment segment, operating profit was
$216,000, an increase of $259,000, compared to an operating loss of $43,000 in
the third quarter of fiscal 1999. The increase in the third quarter operating
profit of the semiconductor equipment segment is due to the increase in sales of
IBAL Automation products and the more profitable product mix discussed above.
For the nine months ended June 30, 2000, operating profit increased
$850,000, or 401%, to $1,062,000 from $212,000 in fiscal 1999. The increase in
the operating profit is primarily attributable to increases in revenues and
gross margins discussed above.
NET INCOME. Net income includes operating profit, discussed above, net
interest income and the provision for income taxes. During the third quarter of
fiscal 2000, net interest income increased $9,000 to $21,000, compared to
$12,000 of net interest income for the corresponding quarter of fiscal 1999. As
a result of the above factors, income before income taxes for the third quarter
of fiscal 2000 was $465,000, an increase of 688%, compared to $59,000 in the
third quarter of fiscal 1999.
Interest income for the nine months ended June 30, 2000 was $42,000, or
$10,000 higher than the same period in fiscal 1999. Income before income taxes
for the first nine months of fiscal 2000 increased by $859,000, or 351%, to
$1,104,000 in fiscal 2000, compared to $245,000 for the first nine months of
fiscal 1999.
Income tax expense of $173,000, recorded at an effective tax rate of 37%,
resulted in net income for the third quarter of fiscal 2000 of $292,000, or $.13
per diluted share. During the third quarter of fiscal 1999, the Company recorded
income tax expense of $31,000, reflecting a 53% effective tax rate, resulting in
net income of $28,000, or $.01 per share.
For the nine months ended June 30, 2000, the Company recorded income tax
expense of $414,000, at an effective tax rate of 37%, compared to $102,000, at
an effective tax rate of 42%, for the comparable period in fiscal 1999. The
decrease in the effective tax rate in fiscal 2000 is due to reduction in the
valuation of allowance for state deferred income taxes, resulting from realizing
the benefit of certain state net operating loss carryforwards, and an increase
in the proportion of taxable income arising in jurisdictions with lower tax
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rates. The resulting net income for the first nine months of fiscal 2000 was
$690,000, or $.31 per diluted share, an increase of 383%, compared to the net
income of $143,000, or $.07 per share, in the first nine months of the previous
fiscal year.
BACKLOG. At June 30, 2000, the order backlog was $14,151,000, an increase
of 204% from the $4,655,000 backlog at June 30, 1999. The backlog as of June 30,
2000 was approximately $9,707,000 higher than at March 31, 2000, an increase of
218%, and approximately $10,393,000 higher than at the end of fiscal 1999, an
increase of 277%. The June 30, 2000 backlog includes two recent large orders,
one for five (5) fully automated diffusion furnaces and the other for eleven
(11) diffusion furnace systems, that are to be shipped over the next twelve
months. Because of the recent increase in orders, the Company expects to achieve
significantly higher revenue over the next several quarters.
Due to the possibility of customer changes in delivery schedules,
cancellation of orders, 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, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had $2,227,000 of readily available liquidity
in the form of cash and cash equivalents, compared to cash and equivalents of
$1,125,000 at September 30, 1999, an increase of approximately $1,102,000. The
increase in liquidity corresponds to the $1,207,000 net cash provided by
operating activities as reflected in the condensed consolidated statements of
cash flow for the nine months ended June 30, 2000. The Company continues to
believe that there is sufficient liquidity for existing operations.
At March 31, 2000, working capital was $6,042,000, up $668,000 from
$5,374,000, at September 30, 1999. While the Company's current ratio declined to
3.5:1 at the end of the third quarter of fiscal 2000 from 4.1:1 at the beginning
of the year, the Company believes that its current ratio continues to indicate a
strong financial condition. At the end of the third quarter of fiscal 2000, cash
and cash equivalents comprised 22% of total assets and stockholders' equity
accounted for 73% of total capitalization. The Company believes that it
continues to posses the financial strength necessary to achieve continued
growth.
If June 30, 2000 were the fiscal year end, the Company would owe $105,000
to the former owner of P.R. Hoffman Machine Products, Inc. as contingent
consideration under the terms of the 1997 purchase agreement. If the earnings
for the fourth quarter of fiscal 2000 are the same as earnings of the third
quarter, the amount owed will increase to $279,000. Any contingent consideration
earned will be treated as goodwill and, as such, will be a use of capital
resources. The Company has the option to pay this obligation in cash or with its
$.01 par value Common Stock.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137 - "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133". This statement defers the effective date of SFAS No. 133 to the Company's
quarter ending December 31, 2000. The Company does not expect the adoption of
SFAS Nos. 133 and 137 to have a material impact on its future results of
operations or financial position.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which provides the
SEC staff's views on selected revenue recognition issues. Based upon the
prevailing interpretations of SAB No. 101, the Company may be required to delay
recognition of at least a portion of its sales of semiconductor production
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systems until installation has been completed and customer acceptance. 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 obtained customer acceptance. The
Company believes its current accounting policies on revenue recognition are
consistent with those generally used in its industry and have been consistently
applied since the inception of the Company. Therefore, if the Company is
required to change its revenue recognition policies in order to comply with SAB
No. 101, a significant cumulative charge related to a change in an accounting
principle may be required. The guidance in SAB 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 year. Management has not
completed its evaluation of the effects, if any, that SAB 101 will have on the
Company's income statement presentation, operating results or financial
position.
YEAR 2000 COMPLIANCE
Certain computer systems and software products are coded to accept two
digit entries in the date code field. Date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. Any
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in the computer
shutting down or performing incorrect computations. As a result, many companies
needed to upgrade their computer systems and software to comply with such "Year
2000" requirements. Certain of the Company's systems, including information and
computer systems and automated equipment, could have been affected by the Year
2000 issue.
As of the date of this report, the Company has not experienced any
significant Year 2000 problems with the hardware and software components of its
systems and products. While there can be no assurance, the Company does not
anticipate that the resolution of Year 2000 problems will require it to devote
any material amount of resources.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, including changes in
foreign currency exchange rates and interest rates. Its operations in the United
States are conducted in United States dollars. The Company's operation in The
Netherlands, a component of the semiconductor production equipment segment,
conducts business primarily in The Netherlands' guilder and, to a lesser extent,
the United States dollar and other European currencies. As of January 1, 1999,
the European Union, of which The Netherlands is a member, established a fixed
conversion rate between their existing sovereign currencies and the Euro and
adopted the Euro as their common legal currency. Most of the other European
currencies in which the Company's Netherlands operation conducts business also
have fixed exchange rates with the Euro. Currently, the functional currency of
the Company's Netherlands operation is The Netherlands guilder. Thus, by the end
of the three-year transition period, the functional currency of that operation
will be the Euro.
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Based upon its fiscal 1999 information, the Company estimates that more
than 95% of its transactions are denominated in one of its two functional
currencies, the United States dollar and The Netherlands guilder, or currencies
that have fixed exchange rates with The Netherlands guilder. As of June 30,
2000, the Company did not hold any derivative securities. The Company incurred
net foreign currency transaction losses of $1,000 and $98,000 in the first nine
months of fiscal 2000 and 1999, respectively. As of June 30, 2000, a 10% change
in the foreign currency rates would not have a material impact on the Company's
financial condition. However, the Company's investment in and advances to its
Netherlands' operation, which total $1,458,000, are recorded in The Netherland
guilder, the currency used to purchase those net assets, and then translated to
United States dollars, the reporting currency, at the end of each accounting
period. As a result, the significant decline in the value of The Netherlands
guilder relative to the United States dollar caused a negative foreign currency
translation adjustment during the first nine months of fiscal 2000 of $98,000.
This adjustment is a component of comprehensive income and recorded as a direct
adjustment to stockholders' equity. While the backlog includes approximately
$6.5 million of orders denominated in British pounds, the contract terms limits
the Company's Exchange rate risk to approximately $200,000.
When the value of The Netherlands guilder declines relative to the value of
the United States dollar, operations in The Netherlands can be more competitive
against the United States based equipment suppliers and the cost of purchases
denominated in United States dollars become more expensive. When the value of
The Netherlands guilder increases relative to the value of the United States
dollar, operations in The Netherlands must raise prices to those customers that
normally make purchases in United States dollars, in order to maintain the same
profit margins. When this occurs, this operation attempts to have transactions
denominated in The Netherlands guilder or the Euro and to increase its purchases
denominated in United States dollars. Based upon fiscal year 1999 information,
the Company estimates that the annual purchases and sales of this operation that
are denominated in currencies not linked to its functional currency, including
United States dollars, British pounds and Swiss francs, are approximately
$600,000 and $800,000, respectively. Most of those purchases and sales are
denominated in United States dollars and those purchases equal approximately 75%
of those sales, providing a partial hedge against fluctuations in exchange
rates. Because it is difficult to predict the volume of dollar denominated
transactions arising from The Netherlands operations, the Company does not hedge
against the effects of exchange rate changes on future transactions, such as
sales for which the Company has not yet received a purchase order. The
Netherlands guilder is near its historically low value relative to the United
States dollar, giving the Company's operation based in The Netherlands a
competitive advantage over other suppliers based in the United States. However,
a future increase in the relative value of The Netherlands guilder could have a
materially adverse effect on the Company's future results of operations.
Based upon its fiscal 1999 information, the Company estimates that its
polishing supplies and equipment segment makes annual purchases of approximately
$650,000 through direct or indirect sources from Japan or Germany. While these
purchases are denominated in United States dollars, the price of materials
purchased from Japan is directly affected by the value of the yen relative to
the dollar. The Company believes the price of steel produced in Germany is
relatively unaffected by fluctuations in the value of German mark, as the
supplier sets the price based on an average exchange rate. However, assuming the
price of German sourced steel also fluctuated with currency exchange rates, a
10% change in the value of Japanese yen and the German mark relative to the
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United States dollar would affect the cost of this segment's purchases by
approximately $65,000.
The Company also has fixed rate debt denominated in The Netherlands
guilder, which has no interest rate risk. At June 30, 2000, fixed rate debt
obligations totaled $158,000 with a fixed interest rate of 6.95% through June
2001. Due to the relatively insignificant principal balance of outstanding debt,
the Company does not actively manage the foreign exchange risk associated with
these obligations. The impact of interest rate changes would not have a material
impact on the Company's results of operations.
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," or "anticipates," 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 continue to recover from the
recent slowdown, (l) the condition in the Asian markets will continue to
improve, (m) the Company will be able to continue to control costs, (n) the
Company will not, either directly or indirectly, incur any material Year 2000
issues and (o) 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. Assumptions related to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions, all
of which are beyond the control of the Company. Although the Company believes
that the assumptions underlying the forward-looking statements are reasonable,
any of the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in forward-looking statements will be
realized. In addition, the business and operations of the Company are subject to
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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 2. CHANGE IN SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /s/ Robert T. Hass Dated: August 14, 2000
-------------------------------- ---------------------------------
Robert T. Hass, Vice-President-
Finance and (Chief Financial
and Accounting Officer)
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