<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
Mark One
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarterly Period Ended March 31, 1997
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 1-10011
ASTROTECH INTERNATIONAL CORPORATION
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 25-1570579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
960 Penn Avenue, Suite 800, Pittsburgh, PA 15222
------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 391-1896
--------------
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 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of April 30, 1997, there were 9,934,999 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
<PAGE> 2
ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Pages
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<S> <C>
Condensed Consolidated Balance Sheet at
March 31, 1997 and September 30, 1996....................................................... 1 - 2
Condensed Consolidated Income Statement for the
Three Months Ended March 31, 1997 and March 31, 1996....................................... 3
Condensed Consolidated Income Statement for the
Six Months Ended March 31, 1997 and March 31, 1996......................................... 4
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended March 31, 1997 and March 31, 1996.......................................... 5
Condensed Consolidated Statement of Stockholders' Equity for the
Six Months Ended March 31, 1997............................................................. 6
Notes to Condensed Consolidated Financial Statements.............................................. 7 - 10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition...................................................... 11 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 15
Item 6. Exhibits and Reports on Form 8-K........................................................ 15
Signatures .................................................................................... 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
--------- -------------
<S> <C> <C>
ASSETS (Unaudited) *
CURRENT ASSETS
Cash and cash equivalents $ 1,706 $ 515
Trade accounts receivable 21,267 28,490
Inventories (Note 2) 5,488 4,622
Costs and estimated earnings in excess
of billings on uncompleted contracts 6,165 6,046
Deferred income taxes 1,726 2,042
Prepaid expenses and other current assets 902 1,283
------- -------
TOTAL CURRENT ASSETS 37,254 42,998
PROPERTY, PLANT AND EQUIPMENT
Land 2,404 2,404
Buildings 6,759 6,751
Furniture and office equipment 2,927 2,801
Machinery and equipment 17,951 16,895
Tanks and trucks held for lease 7,717 7,336
------- -------
37,758 36,187
Less accumulated depreciation and amortization 11,760 10,082
------- -------
25,998 26,105
OTHER ASSETS
Costs in excess of net assets acquired, net of accumulated
amortization of $4,636 at March 31, 1997 and $4,327 at
September 30, 1996 20,059 17,690
Other assets 2,150 1,571
------- -------
TOTAL ASSETS $85,461 $88,364
======= =======
</TABLE>
* Summarized from audited balance sheet included in the Company's 1996 Annual
Report on Form 10-K.
See Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
--------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) *
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 5,358 $ 7,621
Note payable -- 70
Accrued compensation and benefits 3,401 3,996
Accrued expenses and other current liabilities 6,598 7,959
Earn-Outs payable 2,000 1,670
Billings in excess of costs and estimated
earnings on uncompleted contracts 7,944 5,587
Current portion of long-term debt 3,380 3,373
-------- --------
TOTAL CURRENT LIABILITIES 28,681 30,276
LONG-TERM DEBT 13,710 17,544
DEFERRED INCOME TAXES 3,900 3,491
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding
9,934,999 at March 31, 1997 and
9,868,706 shares at September 30, 1996 99 99
Additional capital 59,937 59,734
Retained earnings (deficit) (20,866) (22,780)
-------- --------
39,170 37,053
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,461 $ 88,364
======== ========
</TABLE>
* Summarized from audited balance sheet included in the Company's 1997 Annual
Report on Form 10-K.
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $29,418 $24,019
Cost of revenues 21,463 17,351
Depreciation and amortization expense 1,063 866
Selling, general and administrative expenses 5,348 4,431
---------- ----------
OPERATING PROFIT 1,544 1,371
Interest and other income 59 34
Interest expense (337) (271)
---------- ----------
INCOME BEFORE INCOME TAXES 1,266 1,134
Income tax expense:
Current (409) (89)
Deferred (125) (349)
---------- ----------
(534) (438)
---------- ----------
NET INCOME $ 732 $ 696
========== ==========
Earnings per common and dilutive common equivalent share (Note 3):
Net income $ 0.07 $ 0.07
Weighted average shares outstanding 10,251,420 10,014,059
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
1997 1996
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $63,222 $49,929
Cost of revenues 46,742 36,446
Depreciation and amortization expense 2,202 1,738
Selling, general and administrative expenses 10,566 8,700
---------- ----------
OPERATING PROFIT 3,712 3,045
Interest and other income 146 61
Interest expense (635) (538)
---------- ----------
INCOME BEFORE INCOME TAXES 3,223 2,568
Income tax expense:
Current (584) (222)
Deferred (725) (784)
---------- ----------
(1,309) (1,006)
---------- ----------
NET INCOME $ 1,914 $1,562
========== ==========
Earnings per common and dilutive common equivalent share (Note 3):
Net income $ 0.19 $0.16
Weighted average shares outstanding 10,231,777 10,027,689
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
1997 1996
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 8,996 $ 4,221
-------- --------
Cash flows from investing activities:
Capital expenditures (1,817) (3,342)
Contingent purchase consideration paid (2,270) (544)
Cash paid for acquisition of subsidiary, net of cash acquired -- (2,836)
Proceeds from notes receivable from employee -- 613
Cash received from sale of land, buildings and equipment 26 72
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,061) (6,037)
-------- --------
Cash flows from financing activities:
Proceeds under revolving lines of credit and notes payable 19,450 24,560
Proceeds from long-term debt -- 5,000
Repayments under revolving lines of credit and notes payable (21,662) (23,733)
Repayments of long-term debt (1,685) (2,617)
Checks not yet presented for payment, net -- (443)
Cash paid for stock repurchase -- (293)
Other 153 --
-------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (3,744) 2,474
-------- --------
Increase in cash and cash equivalents $ 1,191 $ 658
======== ========
Supplemental cash flow disclosures of noncash investing and
financing activities:
Earn-Out payable in connection with the acquisition of BMT (Note 4) $ 2,000 $ --
Details of the Graver Tank & Mfg. Co., Inc. acquisition follow:
Fair value of assets acquired $ -- $ 12,773
Fair value of liabilities assumed $ -- $ 9,873
-------- --------
Net assets acquired $ -- $ 2,900
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended March 31, 1997
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Retained
Common Additional Earnings
Stock Capital (Deficit)
------ ---------- ---------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 $99 $59,734 $(22,780)
Net income 1,914
Exercise of stock options 203
--- ------- --------
BALANCE AT MARCH 31, 1997 $99 $59,937 $(20,866)
=== ======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 9
ASTROTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information for commercial and industrial companies and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three and six-month periods ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1996.
The condensed consolidated financial statements include the accounts of
Astrotech International Corporation and its subsidiaries (the "Company").
Intercompany accounts and transactions have been eliminated in consolidation.
2. INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method and consisted of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials and components parts $4,632,000 $3,589,000
Work in process 314,000 596,000
Finished goods 542,000 437,000
---------- ----------
$5,488,000 $4,622,000
========== ==========
</TABLE>
3. EARNINGS PER COMMON SHARE
Earnings per share are computed by dividing the respective income statement
caption by the weighted average number of common and dilutive common equivalent
shares outstanding during the period.
4. ACQUISITIONS
GRAVER TANK & MFG. CO., INC.
On March 28, 1996, the Company acquired Graver Holding Company and its
wholly-owned subsidiary, Graver Tank & Mfg. Co., Inc. (collectively "Graver").
Graver designs, manufactures and erects storage tanks and pressure vessels for
the petroleum and process industries. Graver also provides nickel-clad
installations for the power generation and air pollution industries, providing
fabrication and erection of scrubbers, chimneys, and stack liners.
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<PAGE> 10
The base purchase price recorded by the Company of $2,900,000 consisted of
$2,750,000 in cash and $150,000 of acquisition-related expenses. In addition,
the Company repaid Graver's existing bank obligations totaling $2,420,000. The
seller is entitled to receive additional cash proceeds of up to $1,250,000
pursuant to the terms of an earn-out arrangement based on future profits (as
defined) of Graver during each of the three fiscal years ending September 30,
1998. For the fiscal year ended September 30, 1996, the amount earned was
$236,000 which was paid during the second quarter of fiscal 1997.
The acquisition has been accounted for using the purchase method of accounting.
The results of operations of Graver commencing March 29, 1996 are included in
the consolidated financial statements. Costs of the acquisition in excess of
net assets of the business acquired were approximately $1,154,000.
BROWN-MINNEAPOLIS TANK & FABRICATING CO. ("BMT")
On March 1, 1994, the Company acquired all of the capital stock of BMT. The
consideration paid by the Company to Mr. Jacobs was comprised of the following:
(i) $11,515,000 in cash; (ii) 1,600,000 shares of Common Stock; (iii) a
$500,000 unsecured subordinated promissory note; and (iv) contingent annual
cash payments for a period of five years beginning as of October 1, 1993, in an
amount equal to 50% of the BMT Calculated Profit Amount (as defined in the
Stock Purchase Agreement) ("Earn-Out") for each of the fiscal years ended
September 30, 1994 through 1998, inclusive; provided, however that in no event
shall the aggregate contingent payments exceed $9,000,000. For fiscal year 1995
and 1996, this contingent purchase consideration amounted to $424,000 and
$1,355,000, respectively. On February 28, 1997 the parties amended the Stock
Purchase Agreement to provide for a complete settlement of all remaining
contingent purchase consideration for a cash payment of $2,600,000. The Company
paid $600,0000 upon signing the amendment and recorded an additional $2,000,000
of Earn-Out payable which is due and payable by September 30, 1997.
5. CHANGES IN ACCOUNTING AND NEW ACCOUNTING STANDARDS
Effective October 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long Lived Assets to be Disposed Of." The adoption of SFAS No.121 did
not have a material effect on the Company's financial position or results of
operations.
Effective October 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This new standard defines a fair value based method
of accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principles Board (APB)
Opinion No. 25, the former standard. The Company has elected to continue using
the measurement prescribed by APB Opinion No. 25, and accordingly, the adoption
of this pronouncement did not affect the Company's financial position or
results of operations. Management plans to include the required disclosures
under SFAS No. 123 in the notes to its fiscal year 1997 consolidated financial
statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which is effective for financial statements issued for
periods ending after December 15, 1997. At that time, the Company will be
required to change the methods currently used to compute earnings per share
(EPS) and to restate all prior periods. SFAS No. 128 replaces the current
presentation of "primary" EPS with "basic"
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<PAGE> 11
EPS, with the principle difference being that common stock equivalents are not
considered in computing "basic" EPS. The statement also requires the
replacement of current "fully diluted" EPS with "diluted" EPS. "Diluted" EPS
will be computed similarly to "fully diluted" EPS. The adoption of this
statement will not have a material impact on the Company's EPS computation.
6. CONTINGENCIES
On March 19, 1996, the Company's HMT Inc. subsidiary ("HMT") was served with a
Complaint filed in Superior Court of California, County of Contra Costa. This
matter arises out of a tank fire which occurred in June of 1995, at a refinery
in northern California, where Company employees were replacing seals on an
aboveground storage tank. This Complaint, filed by Valerie Vega-Wright, seeks
to certify a class of persons affected by the fire under theories of
negligence, nuisance, battery, trespass and strict liability. The Complaint
seeks damages for, among other things, personal injuries and loss of property
value, and is requesting unspecified compensatory and punitive damages. The
Company has removed this litigation to the U.S. District Court for the Northern
District of California. On October 22, 1996, HMT was served with a Complaint in
Allison v. Unocal et al, which was simultaneously filed in the Contra Costa
Superior Court. The Complaint seeks damages for alleged personal injuries,
property damage and punitive damages. Two hundred sixteen plaintiffs contend
that they were injured as a result of the tank fire and seek damages against
HMT as well as the owner of the refinery. The Company is currently attempting
to request the federal court that all actions be remanded back to the state
court based on this second Complaint. On March 4, 1997, the Company received
tender by Unocal of the defense and indemnity of certain litigation matters
arising out of the tank fire. The Company's insurance carriers (both primary
and excess) have been notified and both the Company and its insurance carriers
are assessing the claims and related policy coverages. This matter is in its
initial stages and investigative activities are continuing. While the ultimate
outcome cannot now be determined because of the uncertainties which exist, the
Company believes that its insurance coverages are adequate to address its
potential liability, if any; and any unfavorable result not covered by
insurance could result in a material charge which has not been reflected in the
accompanying financial statements. The Company intends to vigorously defend
this action.
The Company is a party to certain other legal proceedings occurring in the
ordinary course of business. Based upon information presently available to it,
the Company does not believe that the final outcome of any of these other
matters will have a materially adverse effect on the consolidated financial
position, results of operations or liquidity of the Company.
7. SUBSEQUENT EVENTS
On May 1, 1997, the Company acquired all of the issued and outstanding shares
of capital stock of Trusco Tank, Inc. ("Trusco") and two parcels of real
property used in Trusco's business and owned by two of its shareholders. Trusco
is a full-range designer, fabricator and field erector of steel structures,
including storage tanks, pressure vessels and shop-built tanks (both
aboveground and underground). Trusco's customers include municipal water
districts, wastewater treatment facilities, oil companies, industrial
facilities, wineries, and various process industries.
The purchase price of $10,944,000 was paid in cash using proceeds from the
amended debt facility discussed below. In addition, the Company repaid Trusco's
existing bank obligations totaling $4,500,000. The acquisition has been
accounted for using the purchase method of accounting. The results of
operations of Trusco commencing May 2, 1997 will be included in the
consolidated financial statements.
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<PAGE> 12
On April 30, 1997, the Company executed an Amended and Restated Revolving
Credit and Term Loan Agreement (the "Credit Facility") with Bank One, which
consolidated then existing term indebtedness and provided financing to be used
for the acquisition of Trusco, working capital support, capital expenditures,
and other general corporate purposes.
The Credit Facility, as restated and amended, consists of the following:
(i) A term loan in the original amount of $25,000,000, bearing
interest at the Company's option at either a spread ranging from
the bank's base rate minus 1/2 percent to the bank's base rate
plus 1/4 percent or at various LIBOR rates plus spreads ranging
from 1-1/4 percent to 2-3/4 percent. The applicable spread is
based upon the ratio of the Company's total funded debt to
earnings before interest, taxes, depreciation and amortization, as
defined. Interest is payable either quarterly or at certain LIBOR
contract termination dates. The term loan is payable in equal
quarterly installments of $892,857 until February 28, 2004.
(ii) A revolving line of credit of up to $20,000,000, bearing interest
at options equal to those available under the term loan. In
addition, the Company pays a quarterly commitment fee of 1/4
percent per annum on the average daily unused amount. The
borrowing amount is based on the Company's eligible accounts
receivable and inventory, as defined. The principal amount
outstanding plus all accrued and unpaid interest is due on
February 28, 2000.
(iii) A $5,000,000 advancing term loan available until February 28, 1998
for capital expenditures bearing interest at the same options as
the term loan. Beginning on May 28, 1998, any principal amount
then outstanding will be payable in equal quarterly installments
until February 28, 2004.
All obligations of the Company under the Credit Facility are collateralized by
substantially all of the assets of the Company and the pledge by the Company of
the Common Stock of each of its direct subsidiaries. The obligations of the
Company are guaranteed by each direct and indirect subsidiary. The Credit
Facility contains certain covenants which provide for, among other things,
maintenance of various financial ratios.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion provides information which management believes is
relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with the
condensed consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
Historically, the Company's second fiscal quarter results have tended to
fluctuate, principally due to climatic conditions affecting some of the
Company's operations and the timing of maintenance budgets at some of the
Company's customers. Consequently, the Company's second quarter ending March 31
typically includes lower revenues than the other three quarters.
The Company's revenues are recognized principally on the
percentage-of-completion method. The following table presents, as a percentage
of revenues, certain selected financial data for the Company for the periods
indicated:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended March 31, Ended March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 73.0 72.2 73.9 73.0
----- ----- ----- -----
Gross profit 27.0 27.8 26.1 27.0
Depreciation and amortization expense 3.6 3.6 3.5 3.5
Selling, general and administrative expense 18.2 18.5 16.7 17.4
----- ----- ----- -----
Operating profit 5.2 5.7 5.9 6.1
Interest and other income .2 .1 .2 .1
Interest expense 1.1 1.1 1.0 1.1
Income tax expense 1.8 1.8 2.1 2.0
----- ----- ----- -----
Net income 2.5% 2.9% 3.0% 3.1%
===== ===== ===== =====
</TABLE>
The Company acquired Graver on March 28, 1996. The results of operations of
Graver are included in the condensed consolidated financial statements for the
first six months of fiscal 1997 and are not included in the first six months of
fiscal 1996.
The Company's revenues increased by $5,399,000 or 22% in the second quarter of
fiscal 1997 and $13,293,000 or 27% in the first six months of fiscal 1997 as
compared to the same periods a year ago. Substantially all of the increase in
the second quarter and 83% of the increase in the six month period was a result
of the inclusion of Graver in fiscal 1997.
The total amounts of contracts in backlog, as of March 31, 1997 and 1996, were
approximately $46,522,000 and $46,743,000, respectively, including both the
uncompleted portion of contracts in progress and contracts awarded but not yet
started. The majority of the backlog at March 31, 1997 is expected to be
completed within a year.
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<PAGE> 14
Gross profit margin on revenues decreased from 27.0% in the first six months of
fiscal 1996 to 26.1% in the first six months of fiscal 1997 and decreased from
27.8% in the second quarter of fiscal 1996 to 27.0% in the second quarter of
fiscal 1997. This was primarily a net result of a change in the revenue mix of
the business.
Selling, general and administrative expenses increased $1,866,000 or 21% from
the first six months of fiscal 1996 to fiscal 1997 and increased $917,000 or
21% from the second quarter of fiscal 1996 to the second quarter of fiscal
1997. Approximately one-half of the increases for both periods was a result of
the inclusion of Graver's costs in fiscal 1997. The remainder of the increase
was primarily a result of increased costs associated with the Company's
investment in a corporate-wide management information system and the addition
of new offices to serve expanded geographic markets. However, due to the
increase in revenues, selling, general and administrative expenses, as a
percentage of revenues, decreased from 17.4% in the first six months of fiscal
1996 to 16.1% in the first six months of fiscal 1997.
The Company had operating profit of $1,544,000 for the second quarter of fiscal
1997 compared to $1,371,000 for the second quarter of fiscal 1996 and
$3,712,000 for the first six months of fiscal 1997 compared to $3,045,000 for
the same period of 1996. The increase resulted primarily from the operating
profit generated by Graver and the increase in revenues from repair and
maintenance services.
Interest expense increased by $66,000 or 24% from the second quarter of fiscal
1996 to the second quarter of fiscal 1997 and $97,000 or 18% from the first six
months of fiscal 1996 to the first six months of fiscal 1997. This increase was
due to increased debt levels resulting from borrowings to fund the Graver
acquisition.
Current income tax expense consists of federal, state and foreign income taxes.
Deferred income taxes consist principally of federal income taxes. The
Company's effective income tax rate was 40.6% and 39.2% of income before income
taxes in the first six months of 1997 and 1996, respectively. The rate varied
from the statutory rate primarily due to state taxes and goodwill amortization,
which is not deductible for tax purposes.
The Company had net income of $732,000 for the second quarter of fiscal 1997
compared to $696,000 for the second quarter of fiscal 1996 and $1,914,000 for
the first six months of fiscal 1997 compared to $1,562,000 for the same period
of fiscal 1996. The majority of the increase resulted from higher volumes of
repair and maintenance revenues and the inclusion of Graver in 1997.
Effective October 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long Lived Assets to be Disposed Of." The adoption of SFAS No.121 did
not have a material effect on the Company's financial position or results of
operations.
Effective October 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This new standard defines a fair value based method
of accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principles Board (APB)
Opinion No. 25, the former standard. The Company has elected to continue using
the measurement prescribed by APB Opinion No. 25, and accordingly, the adoption
of this pronouncement did not affect the Company's financial position or
results of operations.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which is effective for financial statements issued for
periods ending after December 15, 1997. At that time, the
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<PAGE> 15
Company will be required to change the methods currently used to compute
earnings per share (EPS) and to restate all prior periods. SFAS No. 128
replaces the current presentation of "primary" EPS with "basic" EPS, with the
principle difference being that common stock equivalents are not considered in
computing "basic" EPS. The statement also requires the replacement of current
"fully diluted" EPS with "diluted" EPS. "Diluted" EPS will be computed
similarly to "fully diluted" EPS. The adoption of this statement will not have
any material impact on the Company's EPS computation.
LIQUIDITY AND SOURCES OF CAPITAL
On April 30, 1997, the Company executed an Amended and Restated Revolving
Credit and Term Loan Agreement (the "Credit Facility") with Bank One, which
consolidated then existing term indebtedness and provided financing to be used
for the acquisition of Trusco, working capital support, capital expenditures,
and other general corporate purposes.
The Credit Facility, as restated and amended, consists of the following:
(i) A term loan in the original amount of $25,000,000, bearing
interest at the Company's option at either a spread ranging from
the bank's base rate minus 1/2 percent to the bank's base rate
plus 1/4 percent or at various LIBOR rates plus spreads ranging
from 1-1/4 percent to 2-3/4 percent. The applicable spread is
based upon the ratio of the Company's total funded debt to
earnings before interest, taxes, depreciation and amortization, as
defined. Interest is payable either quarterly or at certain LIBOR
contract termination dates. The term loan is payable in equal
quarterly installments of $892,857 until February 28, 2004.
(ii) A revolving line of credit of up to $20,000,000, bearing interest
at options equal to those available under the term loan. In
addition, the Company pays a quarterly commitment fee of 1/4
percent per annum on the average daily unused amount. The
borrowing amount is based on the Company's eligible accounts
receivable and inventory, as defined. The principal amount
outstanding plus all accrued and unpaid interest is due on
February 28, 2000.
(iii) A $5,000,000 advancing term loan available until February 28, 1998
for capital expenditures bearing interest at the same options as
the term loan. Beginning on May 28, 1998, any principal amount
then outstanding will be payable in equal quarterly installments
until February 28, 2004.
All obligations of the Company under the Credit Facility are collateralized by
substantially all of the assets of the Company and the pledge by the Company of
the Common Stock of each of its direct subsidiaries. The obligations of the
Company are guaranteed by each direct and indirect subsidiary. The Credit
Facility contains certain covenants which provide for, among other things,
maintenance of various financial ratios. At March 31, 1997, the Company was in
compliance with all such covenants in effect at that time.
Cash provided by operating activities was $8,996,000 for the first six months
of fiscal 1997, as compared to $4,221,000 for the first six months of fiscal
1996. The net cash provided by operating activities in the current year
resulted from net cash inflows from net income plus non-cash items aggregating
$4,841,000 and net cash inflows due to changes in working capital items.
Cash used in investing activities of $4,061,000 for the first six months of
fiscal 1997 was primarily used for capital expenditures and payments of
contingent purchase consideration in connection with the acquisitions of BMT
and Graver. Net cash used in investing activities of $6,037,000 for the first
six months of fiscal 1996 was
-13-
<PAGE> 16
primarily used for capital expenditures and the acquisition of Graver. Capital
expenditures during the first six months of fiscal 1997 totaled $1,817,000
compared to last year's expenditures of $3,342,000. The Company has currently
budgeted an additional $3.2 million for capital expenditures during the
remainder of fiscal 1997 including $1.9 million principally for machinery and
equipment, $300,000 for tanks held for lease, $500,000 for computer hardware
and software and $500,000 for facility improvements. The Company expects to be
able to finance these expenditures with available working capital and credit
facilities.
On March 1, 1994, the Company acquired all of the capital stock of BMT. The
consideration paid by the Company to Mr. Jacobs was comprised of the following:
(i) $11,515,000 in cash; (ii) 1,600,000 shares of Common Stock; (iii) a
$500,000 unsecured subordinated promissory note; and (iv) contingent annual
cash payments for a period of five years beginning as of October 1, 1993, in an
amount equal to 50% of the BMT Calculated Profit Amount (as defined in the
Stock Purchase Agreement) ("Earn-Out") for each of the fiscal years ended
September 30, 1994 through 1998, inclusive; provided, however that in no event
shall the aggregate contingent payments exceed $9,000,000. For fiscal year 1995
and 1996, this contingent purchase consideration amounted to $424,000 and
1,355,000, respectively. On February 28, 1997 the parties amended the Stock
Purchase Agreement to provide for a complete settlement of all remaining
contingent purchase consideration for a cash payment of $2,600,000. The Company
paid $600,0000 upon signing the amendment and recorded an additional $2,000,000
of Earn-Out payable which is due and payable by September 30, 1997.
Net cash used in financing activities of $3,744,000 in the first six months of
fiscal 1997 was primarily a result of net repayments under the Company's
revolving line of credit and regularly scheduled payments on long-term debt.
Cash provided by financing activities of $2,474,000 in the first six months of
fiscal 1996 was primarily a result of borrowing for the acquisition of Graver
and net borrowings under the Company's revolving line of credit and 1995
capital expenditure advancing term loan offset by the payment of Graver's
existing bank obligations totaling $2,420,000 and regularly scheduled payments
on long-term debt. During November 1995, the Company completed a program to
repurchase small shareholders' common stock at no cost to the shareholder.
Through this program the Company repurchased and retired 90,109 shares of stock
at an aggregate purchase price of $293,000.
The Company believes that its existing funds, amounts generated by operations,
and amounts available for borrowing under its credit facility with Bank One
will be sufficient to meet its working capital needs through fiscal 1997.
Management continues to review acquisition opportunities. It is anticipated
that any significant acquisition will require acquisition financing and will
require the consent of Bank One. No assurances can be made that any such
acquisition will be made, or that any such financing will be obtained on terms
and conditions satisfactory to the Company.
-14-
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 19, 1996, the Company's HMT Inc. subsidiary ("HMT") was served with a
Complaint filed in Superior Court of California, County of Contra Costa. This
matter arises out of a tank fire which occurred in June of 1995, at a refinery
in northern California, where Company employees were replacing seals on an
aboveground storage tank. This Complaint, filed by Valerie Vega-Wright, seeks
to certify a class of persons affected by the fire under theories of
negligence, nuisance, battery, trespass and strict liability. The Complaint
seeks damages for, among other things, personal injuries and loss of property
value, and is requesting unspecified compensatory and punitive damages. The
Company has removed this litigation to the U.S. District Court for the Northern
District of California. On October 22, 1996, HMT was served with a Complaint in
Allison v. Unocal et al, which was simultaneously filed in the Contra Costa
Superior Court. The Complaint seeks damages for alleged personal injuries,
property damage and punitive damages. Two hundred sixteen plaintiffs contend
that they were injured as a result of the tank fire and seek damages against
HMT as well as the owner of the refinery. The Company is currently attempting
to request the federal court that all actions be remanded back to the state
court based on this second Complaint. On March 4, 1997, the Company received
tender by Unocal of the defense and indemnity of certain litigation matters
arising out of the tank fire. The Company's insurance carriers (both primary
and excess) have been notified and both the Company and its insurance carriers
are assessing the claims and related policy coverages. This matter is in its
initial stages and investigative activities are continuing. While the ultimate
outcome cannot now be determined because of the uncertainties which exist, the
Company believes that its insurance coverages are adequate to address its
potential liability, if any; and any unfavorable result not covered by
insurance could result in a material charge which has not been reflected in the
accompanying financial statements. The Company intends to vigorously defend
this action.
The Company is a party to certain other legal proceedings occurring in the
ordinary course of business. Based upon information presently available to it,
the Company does not believe that the final outcome of any of these other
matters will have a materially adverse effect on the consolidated financial
position, results of operations or liquidity of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10(i) Amendment No. 2, as of February 28, 1997, to the Stock Purchase
Agreement dated February 7, 1994 by and among Astrotech International
Corporation, Brown-Minneapolis Tank & Fabricating Company and Irwin Jacobs.
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended March 31, 1997.
-15-
<PAGE> 18
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 officers thereunto duly authorized.
ASTROTECH INTERNATIONAL CORPORATION
April 15, 1997 By: /s/ RAYMOND T. ROYKO
------------------------------
Raymond T. Royko
Vice President and Secretary
By: /s/ HELEN VARDY GRICKS
------------------------------
Helen Vardy Gricks
Treasurer and
Principal Accounting Officer
-16-
<PAGE> 19
Exhibit Index
10(i) Amendment No. 2, as of February 28, 1997, to the Stock Purchase
Agreement dated February 7, 1994 by and among Astrotech International
Corporation, Brown-Minneapolis Tank & Fabricating Company and Irwin Jacobs.
27 Financial Data Schedule
<PAGE> 1
Exhibit 10(i)
AMENDMENT NO. 2
as of February 28, 1997
Irwin Jacobs ("Jacobs"), Astrotech International Corporation
("Astrotech") and Brown-Minneapolis Tank & Fabrication Co. ("BMT") are parties
to a Stock Purchase Agreement dated February 7, 1994, and as amended on March
6, 1996, by and among the undersigned (the "BMT Agreement").
The parties of the BMT Agreement have agreed to amend certain
provisions relating to Contingent Payments to be made by Astrotech to Jacobs
under the BMT Agreement. All defined terms not otherwise defined herein will
have the meanings assigned in the BMT Agreement. All currently disputed and
future Contingent Payments as described in section 1.02 and 1.03 of the BMT
Agreement will be terminated and satisfied in consideration of Astrotech making
additional payments in 1997 to Jacobs, as follows:
1). A $600,000 initial payment upon signing of this
amendment
2). A final payment to be made with the amount to be
determined as follows:
a) If paid on or before April 30,
1997, the amount will be
$1,930,000;
b) If paid on or after May 1, 1997 but
before July 31, 1997, the amount
will be $1,970,000
c) If paid on or after August 1, 1997
but before September 30, 1997, the
amount will be $2,000,000. In any
event, the final payment will be
made no later than September 30,
1997.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of the
date first above written.
/s/ IRWIN L. JACOBS
-------------------
Irwin L. Jacobs
Astrotech International Corporation
by: /s/ HELEN VARDY GRICKS
------------------------
its: Treasurer
-----------
Brown-Minneapolis Tank & Fabricating Co.
by: /s/ HELEN VARDY GRICKS
------------------------
its: Treasurer
-----------
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,267
<ALLOWANCES> 0
<INVENTORY> 5,488
<CURRENT-ASSETS> 37,254
<PP&E> 37,758
<DEPRECIATION> 11,760
<TOTAL-ASSETS> 85,461
<CURRENT-LIABILITIES> 28,681
<BONDS> 13,710
0
0
<COMMON> 99
<OTHER-SE> 39,071
<TOTAL-LIABILITY-AND-EQUITY> 85,461
<SALES> 0
<TOTAL-REVENUES> 63,222
<CGS> 0
<TOTAL-COSTS> 46,742
<OTHER-EXPENSES> 14,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 635
<INCOME-PRETAX> 3,223
<INCOME-TAX> 1,309
<INCOME-CONTINUING> 1,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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