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 September 30, 1996
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 No. 0-20292
AMPEX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13--3667696
(State of Incorporation) (I.R.S. Employer Identification Number)
500 Broadway
Redwood City, California 94063-3199
(Address of principal executive offices, including zip code)
(415) 367-2011
(Registrant's telephone number, including area code)
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 (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
As of October 15, 1996, the aggregate number of outstanding shares of the
Registrant's Class A Common Stock, $.01 par value, was 45,007,817. There were
no outstanding shares of the Registrant's Class C Common Stock, $0.01 par
value.
1
<PAGE>
AMPEX CORPORATION
FORM 10-Q
Quarter Ended September 30, 1996
<TABLE>
INDEX
<CAPTION>
Page
<S> <C>
PART I -- FINANCIAL INFORMATION............................................................2
Item 1. Financial Statements........................................................2
Consolidated Balance Sheets (unaudited) at September 30, 1996 and
December 31, 1995...........................................................3
Consolidated Statements of Operation (unaudited) for the
three months and nine months ended September 30, 1996 and 1995..............4
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1996 and 1995...........................................5
Notes to Unaudited Consolidated Financial Statements........................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................9
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6(a). Exhibits...................................................................19
Item 6(b). Reports on Form 8-K 19
Signatures 20
</TABLE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 3-8.
2
<PAGE>
<TABLE>
<CAPTION>
AMPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 30, December 31,
1996 1995
--------------- ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,148 $ 6,765
Short-term investments 18,716 12,885
Notes receivable 8,476 -
Accounts receivable (net of allowances of $2,078 and $2,541) 17,741 15,394
Inventories 16,702 12,512
Other current assets 2,745 2,915
--------------- ------------------
Total current assets 69,528 50,471
Property, plant and equipment 8,288 37,759
Other assets 9,626 421
--------------- ------------------
Total assets $ 87,442 $ 88,651
=============== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Curent liabilities:
Notes payable $ 1,075 $ 2,246
Accounts payable 9,528 9,745
Income taxes payable 398 1,334
Accrued restructuring costs 1,752 2,464
Other accrued liabilities 22,675 23,940
--------------- ------------------
Total current liabilities 35,428 39,729
Long-term debt 1,139 31,585
Other liabilities 65,478 65,080
Deferred income taxes 1,375 1,379
Accrued restructuring costs 6,377 8,265
--------------- ------------------
Total liabilities 109,797 146,038
--------------- ------------------
Commitments and contingencies (Note 6)
Redeemable nonconvertible preferred stock, $1,000
liquidation value:
Authorized: 69,970 shares 1996 and 1995
Issued and outstanding - 69,970 shares 1996 and 1995 69,970 69,970
Stockholders' deficit:
Preferred stock, $1.00 par value:
Authorized: 842,838 shares 1996 and 1995
Issued and outstanding - none 1996 and 1995 - -
Common stock, $.01 par value:
Class A:
Authorized: 125,000,000 shares 1996 and 1995
Issued and outstanding - 45,007,817 shares 1996; 32,309,662 shares 1995 450 323
Class C:
Authorized: 50,000,000 shares 1996 and 1995
Issued and outstanding - none 1996; 2,107,807 shares 1995 - 21
Other additional capital 379,206 355,172
Note receivable from stockholder (1,779) (2,053)
Accumulated deficit (457,064) (467,612)
Cumulative translation adjustments 515 445
Minimum pension liability adjustment (13,653) (13,653)
--------------- ------------------
Total stockholders' deficit (92,325) (127,357)
--------------- ------------------
Total liabilities and stockholders' deficit $ 87,442 $ 88,651
=============== ==================
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three months ended Nine months ended
-------------------------------- --------------------------------
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 23,604 $ 23,431 $ 72,256 $ 71,589
Cost of sales 12,582 12,192 39,471 39,281
------------- ---------------- -------------- ---------------
Gross profit 11,022 11,239 32,785 32,308
Selling and administrative 7,511 5,553 19,329 16,741
Research, development and engineering 3,961 3,504 11,785 11,670
Royalty income (3,023) (928) (7,584) (13,587)
Restructuring charges (credits) (453) (1,087) (453) (1,087)
------------- ---------------- -------------- ---------------
Operating income 3,026 4,197 9,708 18,571
Interest expense 26 957 729 2,835
Amortization of debt financing costs - 23 85 103
Interest income (824) (264) (2,400) (854)
Other (income) expense, net 216 10 (422) 58
------------- ---------------- -------------- ---------------
Income before income taxes 3,608 3,471 11,716 16,429
Provision for income taxes 505 110 1,168 1,483
------------- ---------------- -------------- ---------------
Net income $ 3,103 $ 3,361 $ 10,548 $ 14,946
============= ================ ============== ===============
Primary income per share :
Income per share $ 0.07 $ 0.09 $ 0.24 $ 0.41
============= ================ ============== ===============
Weighted average number of common shares outstanding 46,227,048 36,971,923 44,082,092 34,376,239
============= ================ ============== ===============
Fully diluted income per share :
Income per share $ 0.07 $ 0.09 $ 0.24 $ 0.35
============= ================ ============== ===============
Weighted average number of common shares outstanding 46,280,192 45,665,048 46,152,259 47,786,546
============= ================ ============== ===============
The accompanying notes are an integral part of the unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months ended
---------------------------------
September 30,
1996 1995
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,548 $ 14,946
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion 2,298 5,149
Net gain on sale of assets 927 -
Net increase in notes receivable (892) -
Net increase in accounts receivable (2,744) (3,523)
Net increase in inventories (4,190) (2,034)
Net (increase) decrease in other assets (1,560) 121
Net increase (decrease) in accounts payable (143) 2,038
Net decrease in accrued liabilities and
income taxes payable (1,434) (3,630)
Net (increase) decrease in long-term receivables (133) 226
Net decrease in other non-current obligations (6,087) (4,982)
Net decrease in accrued restructuring costs (2,600) (5,609)
-------------- ---------------
Net cash provided by (used in) operating activities (6,010) 2,702
-------------- ---------------
Cash flows from investing activities:
Purchases of short-term investments (55,430) (24,420)
Proceeds received on the maturity of short-term investments 45,661 19,396
Proceeds from the sale of short-term investments 3,938 5,890
Additions to notes receivable (15,107) -
Additions to property, plant and equipment (801) (268)
Disposals of property, plant and equipment 27,715 120
Deferred gain on sale of assets 5,930 -
-------------- ---------------
Net cash provided by investing activities 11,906 718
-------------- ---------------
Cash flows from financing activities:
Borrowings under working capital facilities 35,687 34,026
Repayments under working capital facilities (36,742) (34,691)
Repayment of secured note payable (7,333) (750)
Repayment of notes payable-affiliates (80) (666)
Proceeds from issuance of common stock 984 366
Proceeds from issuance of warrants 17 13
Costs associated with preferred stock exchange - (136)
-------------- ---------------
Net cash used in financing activities (7,467) (1,838)
-------------- ---------------
Effect of exchange rates on cash (46) 166
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (1,617) 1,748
Cash and cash equivalents, beginning of period 6,765 12,058
-------------- ---------------
Cash and cash equivalents, end of period $ 5,148 $ 13,806
============== ===============
The accompanying notes are an integral part of the unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Ampex Corporation
Ampex Corporation ("Ampex" or the "Company") is engaged in the design,
development, production and distribution of high-performance mass data storage
systems, instrumentation recorders and professional video recording products.
The Company operates in one industry segment for financial reporting purposes:
the design, development, production and distribution of high-speed,
high-capacity magnetic recording products and systems.
Note 2 -- Basis of Presentation
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In addition,
certain reclassifications have been made to the prior period financial
statements to conform to the current period's presentation. The statements
should be read in conjunction with the Company's report on Form 10-K for the
year ended December 31, 1995 and the Audited Consolidated Financial Statements
included therein.
In the opinion of management, the financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position, results of operations and cash flows
for the interim periods presented. The results of operations for the
three-month and nine-month periods ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
Note 3 -- Income Per Common Share
Primary income per common share for the three-month and nine-month
periods ended September 30, 1996 and 1995 is calculated by dividing net income,
as adjusted for accretion on the redeemable convertible preferred stock prior
to its redemption in February 1995, by the weighted average common shares
outstanding during the respective periods. The calculation of weighted average
common shares assumes the exercise of common stock equivalent warrants and
stock options in periods when their exercise would be dilutive. Fully diluted
income per common share for the three-month and nine-month periods ended
September 30, 1996 and 1995 is calculated by dividing net income, as adjusted
for interest on outstanding convertible notes, by the weighted average common
shares outstanding, including shares issuable upon conversion of the
potentially dilutive convertible notes, and the convertible preferred stock in
periods prior to its redemption in February 1995.
Note 4 -- Supplemental Schedule of Cash Flow Information
Cash payments for interest and income taxes (net of refunds received)
from continuing operations were as follows:
Nine months ended
--------------------------------
September 30, September 30,
1996 1995
------------- -------------
(in thousands)
Interest ............................ $ 237 $ 1732
Income taxes paid ................... 730 (775)
6
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 -- Inventories
September 30, December 31,
1996 1995
------------- ------------
(in thousands)
Raw materials ............................ $ 5,604 $ 6,435
Work in process .......................... 7,960 4,375
Finished goods .......................... 3,138 1,702
------- ---------
Total................................. $16,702 $ 12,512
======= =========
Note 6 -- Commitments and Contingencies
The Company is currently a defendant in lawsuits that have arisen in
the ordinary course of its business. In addition, the Company initiated a
lawsuit for patent infringement against a manufacturer of consumer video
products. The costs of such litigation, including costs incurred to defend a
countersuit, may be material to results of operations.
The Company currently is involved in various stages of monitoring and
cleanup relative to environmental protection matters, some of which relate to
past disposal practices. Some of these matters are being overseen by state or
federal agencies. Management has provided reserves for certain amounts related
to investigation and cleanup costs and believes that the final disposition of
these matters will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
Note 7 -- Preferred Stock
In February 1995, the Company completed a financing in which all
outstanding 8% Redeemable Cumulative Convertible Preferred Stock (which had an
aggregate book value on the date of exchange of approximately $84.8 million)
was exchanged for shares of a new series of 8% Noncumulative Redeemable
Preferred Stock with an aggregate liquidation value of $70.0 million and 11
million shares of Common Stock. The transaction eliminated the obligation of
the Company to accrue dividends on preferred stock unless dividends are
declared on Common Stock and eliminated the right of the holders of the
preferred stock to convert their shares into up to 27.9 million shares of
Common Stock.
The 8% Noncumulative Redeemable Preferred Stock is subject to optional
redemption by the Company at any time and mandatory redemption on December 31,
1997, out of funds legally available therefor. Mandatory or optional redemption
payments are payable in cash or, at the option of the Company, in shares of
Common Stock, provided that, as a condition to redemption in shares, the
average market price of the Company's Common Stock must have been at least $4
per share during the 10 trading days preceding the notice of redemption. Common
Stock issued to redeem the Preferred Stock shall be valued at 90% of fair
market value. The Company has no current plans to redeem the Preferred Stock
prior to 1997. As of September 30, 1996, the Company did not have sufficient
funds legally available to redeem the Preferred Stock in full. In the event the
Company has insufficient funds legally available to redeem the Preferred Stock
on the scheduled redemption date, the Company would be required to redeem such
shares thereafter to the extent funds become legally available therefor, and
would be precluded from declaring dividends on its Common Stock until the
Preferred Stock has been redeemed in full.
7
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 -- Income Taxes
The provisions for income taxes for the three-month and nine-month
periods ended September 30, 1996 and 1995 consist primarily of foreign income
taxes and withholding taxes on royalty income. The Company was not required to
include any provision for U.S. federal taxes in these periods because of
certain timing differences in the recognition of expense for tax and financial
reporting purposes.
As of December 31, 1995, the Company had net operating loss
carryforwards for income tax purposes of $99.9 million, expiring in the years
2005 through 2009. As a result of certain financing transactions that were
completed in April 1994 and February 1995, the Company's ability to utilize its
net operating losses and credit carryforwards against future consolidated
federal income tax liabilities will be restricted in their application, which
will result in a material amount of the net operating loss never being utilized
by the Company.
Note 9 -- Zero-Coupon Notes and Warrants
In February, March and April 1996, holders of all of the Company's
three year convertible zero-coupon notes (with an aggregate face amount at
maturity of $27.3 million) converted such notes into approximately 8.5 million
shares of Common Stock, thereby eliminating future accrual of interest on the
notes. In addition, all outstanding warrants were exercised.
Note 10 -- Shelf Registration
In June 1996, the Company filed a shelf registration statement with
the Securities and Exchange Commission covering 1,150,000 shares of Common
Stock which may be offered from time to time by the Company. To date none of
this Common Stock has been issued.
8
<PAGE>
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which involve certain risks and uncertainties. The Company's actual results or
outcomes may differ materially from those anticipated. The forward-looking
statements relate to various aspects of the Company's operations, including but
not limited to: its keepered media development program and other product
development efforts; the development and availability of application software
for its DST products; possible future patent license agreements and royalty
income; the costs involved pursuing its patent enforcement program; the impact
of its Redwood City, California relocation on manufacturing operations and
future facility operating costs; future sales levels, net income and gross
profit; the Company's liquidity; and potential issuances of additional debt or
equity securities. Each forward-looking statement that the Company believes is
material is accompanied by a cautionary statement or statements identifying
important factors that could cause actual results to differ materially from
those described in the forward-looking statement. The cautionary statements are
set forth following the forward-looking statement, and/or elsewhere in this
Form 10-Q and the Company's other documents filed with the Securities and
Exchange Commission, whether or not such documents are incorporated herein by
reference. In assessing the forward-looking statements contained in this Form
10-Q, readers are urged to read carefully all cautionary statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the results of operations and
financial condition of Ampex Corporation and its subsidiaries (collectively,
"Ampex" or the "Company") should be read in conjunction with the unaudited
Consolidated Financial Statements included elsewhere in this Report, and the
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with
the Securities and Exchange Commission (File No. 0-20292) (the "1995 Form
10-K").
Overview
Ampex is one of the world's leading innovators in the fields of
magnetic recording, digital image processing and high-performance digital
storage for the visual information age. In recent years, the Company has
directed substantial resources to developing products for the emerging
commercial mass data storage market. Ampex provides data storage solutions that
serve a wide range of customer needs, including scientific and technical
applications such as aerospace testing, oil exploration and entertainment.
The Company's principal products are its DST(R) tape drives and
robotic library systems for computer mass data storage, its DIS(TM) and
DCRsi(TM) instrumentation recorders, and its DCT(R) professional video
recorders and image processing systems. The Company's DST products for the mass
data storage market offer superior data access times, rapid data transfer rates
and extremely low cost per megabyte of storage. Ampex DIS instrumentation
recorders allow users to record instrumentation data on DST tape cartridges, so
that the data can be used in a computer environment as well as in an
instrumentation environment. Ampex DCRsi instrumentation recorders are designed
for demanding aeronautical applications such as commercial and military flight
testing, as well as other applications involving comparable data-gathering
challenges in extreme environments. The Company's DCT video recording products
have been developed for high-end digital component recording applications in
entertainment and imaging markets.
During its 52-year history, Ampex has developed extensive technical
expertise in the storage, processing and retrieval of digital images. The
Company commits substantial resources to the research, development and
engineering of new products that capitalize on its knowledge, experience and
patent portfolio. As an example of this strategy, since the last quarter of
1994 the Company has been exploring the feasibility of commercializing its
patented "keepered media" technology. This project, which is still in the
research and development stage, has the
9
<PAGE>
potential to increase significantly the capacity of hard disk drives with
nominal incremental cost. At present, there can be no assurance that the
keepered media program, or any other efforts by the Company to develop new
products from its intellectual property portfolio, will be a commercial or
technical success. See "Keepered Media Research and Development," below.
Product Groups
The Company currently has three product groups: mass data storage and
instrumentation products (including related after-market products);
professional video recording products; and other products, consisting
principally of after-market equipment for the Company's current video products
as well as television products supported but no longer sold by the Company. No
other class of similar products accounted for more than 10% of net sales during
the comparison periods discussed below. The Company operates in one industry
segment for financial reporting purposes: the design, development, production
and distribution of high-speed, high-capacity magnetic recording products and
systems.
Results of Operations for the Three Months and Nine Months Ended September 30,
1996 and 1995
Net Sales. Net sales increased slightly to $23.6 million in the third
quarter of 1996 from $23.4 million in the third quarter of 1995, and to $72.3
million in the first nine months of 1996 from $71.6 million in the first nine
months of 1995. Increased sales of data storage and instrumentation products
more than offset declines in sales of professional video recording products and
other products. The Company expects that sales of its data storage and
instrumentation products, which represented approximately 76% of total net
sales for the third quarter of 1996, will continue to account for the majority
of net sales for current product categories over the next several years.
Mass Data Storage and Instrumentation Products. Sales of mass
data storage and instrumentation products increased to $18.0 million in the
third quarter of 1996 from $16.6 million in the third quarter of 1995 (an
increase of approximately 8.8%), and to $53.2 million in the first nine months
of 1996 from $48.4 million in the first nine months of 1995 (an increase of
approximately 9.8%). Sales of 19 millimeter data storage products (including
DIS instrumentation versions of DST products) more than doubled in the three
and nine month periods ended September 30, 1996. These increases were partially
offset by declines in sales of DCRsi instrumentation recorders, as discussed
below.
As indicated in the 1995 Form 10-K, in order for DST product
sales to increase significantly, the Company believes that it will be necessary
for the products to gain broader acceptance in commercial markets, in addition
to the specialized technical markets from which most of the Company's revenue
from 19 millimeter products is currently derived. In this regard, the Company
currently expects that its DST 810, a large robotic library system with a
storage capacity of up to 6.4 terabytes of data, will be available for shipment
during the fourth quarter of 1996. Late in the third quarter of 1996, the
Company shipped a beta version of its DST 810 robotic library system. The
Company has also announced that its DST product line is now supported by Legato
Systems' NetWorker 4.2.5, a UNIX based data transfer module, in addition to
certain other software products previously announced. However, while all of
these software products currently support the DST 310 tape drive and the DST
410 library, it is anticipated that they will not support the DST 810 library
until 1997. The integration of these software products with the DST 810 library
system is not within the Company's control, and if delayed could adversely
affect DST product sales for the next several quarters. In addition, the
third-party software currently runs on only a limited number of UNIX
workstations. There may be technical or other difficulties, some of which will
be outside of Ampex's control, in expanding support to other DST products and
computer platforms. Accordingly, the Company cannot predict the extent to which
the integration of such software with DST products might result in increased
sales of those products, or the timing of such increases, if any.
The Company's DST products are subject to competition from
disk and tape based storage systems that are manufactured by larger companies
with greater financial and technological resources. Recently, IBM Corporation
announced the general availability of its new high capacity, high speed tape
storage product, "Magstar". Also, Sony Corporation has developed its DTF tape
drive, which is tailored for the mass data storage industry.
10
<PAGE>
Although Ampex believes that its DST products are generally competitive with
these and other offerings, competition from such companies could adversely
impact Ampex's future sales levels and profitability.
In the fourth quarter of 1996, the Company expects to
announce a new version of its 19 millimeter mass data storage products that
will double the amount of data that can be stored on a single cartridge.
Although the availability of this new version is intended to enhance the
Company's competitive position, it could cause a decline in sales of the
Company's existing 19 millimeter products. As with any new product, there could
also be delays in delivering this new version.
The decline in sales of the Company's DCRsi recorders during
the three and nine month periods ended September 30, 1996 primarily reflected
lower direct and indirect sales to the federal government. As indicated in the
1995 Form 10-K, the Company had anticipated that sales of instrumentation
products to government customers might decline. Fluctuations in sales to U.S.
and foreign government customers as a result of declines in defense spending
and other factors could continue to have an adverse impact on sales of
instrumentation products in future periods.
Professional Video Recording Products. Sales of professional
video products decreased to $2.2 million in the third quarter of 1996 from $2.3
million in the third quarter of 1995 (a decrease of approximately 7.0%), and to
$7.4 million in the first nine months of 1996 from $8.6 million in the first
nine months of 1995 (a decrease of approximately 13.8%). The Company has
streamlined its video product line to concentrate on its DCT products, which
utilize the Company's proprietary digital compression and image processing
technology. Substantially all sales during the comparison periods consisted of
DCT product sales. The Company has closed a significant number of domestic and
international sales offices in recent years, as many video products have been
discontinued. This reduced distribution network continues to have a negative
impact on sales of DCT products.
Other Products. Sales of other products (consisting primarily
of television after-market products) decreased to $3.4 million in the third
quarter of 1996 from $4.5 million in the second quarter of 1995 (a decrease of
approximately 24.9%), and to $11.7 million in the first nine months of 1996
from $14.6 million in the first nine months of 1995 (a decrease of
approximately 19.9%). The decline in net sales for these products reflects the
Company's narrower professional television product line, the shrinking of the
installed base of older equipment still being supported by the Company, and the
Company's reduced distribution network for these products.
Backlog. The Company's backlog of firm orders at September
30, 1996 was $5.4 million, compared to $7.5 million at June 30, 1996 and $13.8
million at December 31, 1995. The Company has experienced a decline in backlog
in all product categories, with the decline in DCRsi instrumentation recorders
and data after-market products accounting for most of that decline. The decline
in backlog for DCRsi instrumentation recorders is attributable to lower sales
to government customers resulting from reduced defense spending, as described
in "Mass Data Storage and Instrumentation Products," above. A substantial
portion of the Company's backlog at any given time is normally shipped within
one or two quarters thereafter. Therefore, sales in any quarter are heavily
dependent on orders received in that quarter and the immediately preceding
quarter. Many of the Company's products are relatively new to the market, so
the Company does not have a prior sales history upon which it can develop a
reliable sales forecast for these products. Although the Company believes its
products offer significant benefits, the purchase price of the Company's
products represents a major capital expenditure for its customers. In addition,
as discussed below, the Company has not yet completed the relocation of its
Redwood City facilities, and expects that the relocation of certain of these
facilities in the fourth quarter of 1996 will be the most potentially
disruptive to its manufacturing and engineering operations. See "Selling and
Administrative Expenses," below. For all of these reasons, the Company believes
it is possible that sales levels for the fourth quarter of 1996 may be lower
than sales levels realized in the fourth quarter of 1995.
Gross Profit. Gross profit as a percentage of net sales decreased to
46.7% in the third quarter of 1996 from 48.0% in the third quarter of 1995, and
was relatively unchanged at 45.4% in the first nine months of 1996 from 45.1%
in the first nine months of 1995. The gross margin decline in the third quarter
reflects lower sales of DCRsi instrumentation recorders, which typically
generate higher margins than the Company's 19 millimeter DST and DIS products.
Also, the Company's DST and DIS products are currently being offered for sale
at lower prices in
11
<PAGE>
order to expand their potential market. While the Company has taken a number of
design and other steps to reduce manufacturing costs of these products, unless
sales levels increase significantly, the Company's gross margins could be
negatively impacted by these price reductions. In addition, the Company's gross
profit percentage for the fourth quarter of 1996 could be negatively impacted
by the mix of DCRsi and 19 millimeter product sales, as discussed above.
Selling and Administrative Expenses. Selling and administrative
expenses increased to $7.5 million in the third quarter of 1996 (31.8% of net
sales), from $5.6 million in the third quarter of 1995 (23.7% of net sales),
and increased to $19.3 million in the first nine months of 1996 (26.8% of net
sales) from $16.7 million in the first nine months of 1995 (23.4% of net
sales). The increase in selling and administrative expenses during the third
quarter and nine months of 1996 is primarily due to additional expenses of $2.1
million (8.9% of net sales) and $2.9 million (4.0% of net sales), respectively,
related to the Company's ongoing patent infringement litigation with a foreign
manufacturer of VHS video recorders and television receivers (see "Legal
Proceedings," below). The Company did not incur any patent infringement
litigation costs during 1995. Increased expenses relating to the Company's
expansion of its direct sales and marketing organization to target specific
mass data storage applications, and additional costs resulting from the
termination of certain cost sharing arrangements with the Company's former
magnetic media subsidiaries (collectively, "Media") upon the sale of Media
during the fourth quarter of 1995, have been offset by administrative cost
reductions. The Company anticipates that it will complete its Redwood City move
in the fourth quarter of 1996, at which time it should begin to realize savings
in facility operating costs from levels incurred in 1995 and the first nine
months of 1996. However, a variety of unanticipated events (such as property
tax increases, uninsured property damage losses, unexpected maintenance
problems or other occurrences) could reduce or eliminate anticipated cost
savings. See "Liquidity and Capital Resources -- Sales of Real Estate," below.
Research, Development and Engineering Expenses. Research, development
and engineering expenses increased to $4.0 million in the third quarter of 1996
(16.8% of net sales) from $3.5 million in the third quarter of 1995 (15.0% of
net sales), and increased to $11.8 million in the first nine months of 1996
(16.3% of net sales) from $11.7 million in the first nine months of 1995 (16.3%
of net sales). The increase in RD&E spending in the third quarter of 1996 was
due to the Company's keepered media development program and its efforts to
increase the performance of its 19 millimeter mass data storage products, as
described above. See "Net Sales -- Mass Data Storage and Instrumentation
Products," above, and "Keepered Media Research and Development," below. The
majority of RD&E expenses during all comparison periods was used to enhance the
price-performance levels of the Company's mass storage products, as well as to
integrate the Company's mass storage systems with various computer
manufacturers' servers, workstations and other computer systems. As indicated
above, the Company's DST products are now supported by certain third-party
software. The Company expects that RD&E expenses will remain at approximately
current levels during the remainder of 1996. In addition to funding future
generations of its mass data storage and instrumentation recorders, the Company
anticipates that a growing percentage of its research and development budget
may be directed toward commercializing its proprietary keepered media
technology and to researching other new product opportunities that capitalize
on its expertise and patented technology in magnetic recording, digital image
processing and channel electronics.
Royalty Income. The Company's royalty income derives from patent
licenses, and the Company receives most of its royalty income from licenses
with companies that manufacture consumer video products (such as VCRs and
camcorders) and, in certain cases, professional video tape recorders. Royalty
income increased to $3.0 million in the third quarter of 1996 from $0.9 million
in the third quarter of 1995, but decreased to $7.6 million in the first nine
months of 1996 from $13.6 million in the first nine months of 1995. Royalty
income in the third quarter of 1996 included $1.1 million of non-recurring
income recognized from negotiated settlements relating to prior sales of
products by licensees. No non-recurring settlements were recognized in the
third quarter of 1995. Similarly, royalty income in the first nine months of
1996 included $2.0 million of non-recurring royalty payments, compared to $10.4
million for the same period in 1995. Historically, most royalty income has been
attributable to VHS video recorders. However, during the 1996 and 1995
comparison periods, a substantial portion of royalty income related to 8
millimeter video recorders and camcorders.
Royalty income has historically fluctuated widely due to a number of
factors that the Company cannot
12
<PAGE>
predict, such as the extent of use of the Company's patented technology by
third parties, the extent to which the Company must pursue litigation in order
to enforce its patents, and the ultimate success of its licensing and
litigation activities. During the fourth quarter of 1995, the Company initiated
a lawsuit against a major foreign manufacturer of VHS video recorders and
television receivers in which the Company alleges patent infringement. See
"Legal Proceedings," below. If additional lawsuits are brought against other
manufacturers of VHS video recorders, litigation costs will increase. The
Company is also attempting to negotiate license agreements with manufacturers
of 8 millimeter camcorders. There can be no assurance that such licensing
efforts will not require further litigation.
Restructuring Charges (Credits). The Company recorded restructuring
credits of $0.5 million in the quarter and nine months ended September 30,
1996, compared to $1.1 million in the comparable periods in 1995. Restructuring
credits are primarily due to the Company's ability to enter into favorable
sublease or other arrangements for facilities that were vacated as part of the
1993 restructuring of operations.
Operating Income. The Company had operating income of $3.0 million in
the third quarter of 1996, compared to $4.2 million in the third quarter of
1995. This decline is attributable to higher patent infringement litigation
costs, reduced restructuring credits, higher RD&E costs and lower gross margins
in the third quarter of 1996, which were offset in part by the $1.1 million
increase in the non-recurring component of royalty income described above in
"Royalty Income." In the first nine months of 1996, the Company had operating
income of $9.7 million, compared to $18.6 million in the first nine months of
1995. This decline is due to the decrease in the non-recurring component of
royalty income described above in "Royalty Income," and to lower restructuring
credits in the 1996 period.
Interest Expense. Interest expense declined to $0.03 million in the
third quarter of 1996 from $1.0 million in the third quarter of 1995, and to
$0.7 million in the first nine months of 1996 from $2.8 million in the first
nine months of 1995. The declines reflect the Company's repayment of $7.4
million in mortgage debt in connection with the sale of its Redwood City,
California real estate in January 1996, and the conversion into common stock of
all of the Company's outstanding zero coupon convertible notes in the first and
second quarters of 1996, as previously reported. These events will continue to
result in lower interest expense through the remainder of 1996. See "Liquidity
and Capital Resources," below.
Amortization of Debt Financing Costs. These amounts reflect periodic
amortization of financing costs over the remaining term of the debt. In the
second quarter of 1996, the Company completed the conversion of all of its
outstanding zero coupon convertible notes, and wrote off all unamortized
financing costs that would have continued to be amortized through June 30,
1997.
Interest Income. Interest income increased between the comparison
periods primarily as a result of higher cash and short term investment balances
and imputed interest on promissory notes received by the Company in connection
with the sale of its Redwood City property in January 1996. See "Liquidity and
Capital Resources -- Sales of Real Estate," below.
Other (Income) Expense, Net. Other (income) expense, net, during the
third quarter of 1995 consisted primarily of foreign currency transaction gains
and losses. As the percentage of the Company's total assets represented by
foreign assets has declined, the Company's exposure to fluctuations in foreign
currencies has also declined. For the third quarter of 1996, in addition to
foreign currency transaction gains and losses, other (income) expense, net,
consisted primarily of the cost of moving into the Company's new facilities in
Redwood City, California. As indicated below, the Company has incurred $1.3
million in relocation and moving expenses in the first nine months of 1996, of
which $0.6 million was included in other (income) expense, net, for that period
and $0.7 has been capitalized. See "Liquidity and Capital Resources -- Sales of
Real Estate." For the nine months ended September 30, 1996, other (income)
expense, net, includes a gain on the sale of a portion of the facilities in
Colorado Springs, Colorado totaling $0.9 million. Beginning in the second
quarter of 1996, the Company classified costs associated with patent litigation
as a component of selling and administrative expenses, whereas such costs were
included as a component of other (income) expense, net, in the first quarter of
1996. The accompanying financial statements have been reclassified to conform
the presentation of such costs.
13
<PAGE>
Provision for Income Taxes. The provisions for income taxes in all
comparison periods consist primarily of foreign income taxes and withholding
taxes on royalty income. The Company was not required to include any provision
for U.S. federal tax in any of the comparison periods because of certain timing
differences in the recognition of expenses for tax and financial reporting
purposes. The Company is restricted in the amount of its net operating loss
carry forwards that are available to offset its future consolidated federal
income tax liabilities. See Note 8 of Notes to Unaudited Consolidated Financial
Statements.
Net Income. The Company reported net income of $3.1 million in the
third quarter of 1996, compared to $3.4 million in the third quarter of 1995,
and net income of $10.5 million in the first nine months of 1996, compared to
$14.9 million in the first nine months of 1995. The principal factors
contributing to these declines were the declines in operating income between
the comparison periods, which were primarily due to higher patent litigation
and relocation costs, and which were partially offset by such non-operating
factors as decreased interest expense, higher interest income and a gain from
the sale of property in Colorado Springs in May 1996. See "Operating Income,"
above.
Liquidity and Capital Resources
Cash Flow. At September 30, 1996, the Company had cash and short-term
investments of $23.9 million and working capital of $34.1 million. At December
31, 1995, the Company had cash and short-term investments of $19.7 million and
working capital of $10.7 million. The improvement in working capital primarily
resulted from cash and short-term notes received in January 1996 in connection
with the Company's sale of its Redwood City, California real estate. See "Sales
of Real Estate," below. The Company's operating activities used cash of $6.0
million in the first nine months of 1996, while operating activities generated
$2.7 million in the first nine months of 1995. The decline in operating cash
flow for the first nine months of 1996 was primarily attributable to the
factors discussed above in "Net Income," to other moving-related expenditures,
and to a net increase in inventories resulting from the implementation of the
Company's previously announced strategy of increasing inventories during 1996
in anticipation of increased DST product sales and to offset possible
disruptions in manufacturing and engineering operations due to the relocation
of its Redwood City, California facilities. The Company expects that its
investment in inventories will continue to remain at levels higher than those
in 1995 in order to support its expanded line of mass data storage products.
The Company expects shipments of its DST 810 libraries to commence in the
fourth quarter of 1996, but presently has no material backlog of orders for
this product. These increases in inventories, particularly with respect to its
DST 810 product, which has no sales history, may expose the Company to an
increased risk of inventory write-offs. Cash flows from investing activities
and financing activities for the first nine months of 1996 reflect the
Company's sale of its Redwood City, California real estate in January 1996. See
"Sales of Real Estate," below.
The Company currently has a working capital facility that allows it to
borrow up to $7.0 million through May 1998 based on eligible accounts
receivable. As of September 30, 1996, the Company had no material borrowings
outstanding under this facility. The Company anticipates that it has sufficient
liquidity, when coupled with cash flow budgeted to be generated, to enable it
to fund all anticipated operating expenditures for the next twelve months.
However, the Company's cash flows from operations could be less than budgeted
because of lower sales, a shift in product mix toward lower-margin products,
the failure of licensees to pay royalties owed or other reasons. Operating
expenses could be higher as a result of unanticipated relocation or
lease-related expenses, higher-than-expected litigation costs associated with
enforcement of the Company's patents or for other reasons. The Company's
liquidity could also be negatively affected during 1996 by any delay in payment
of the portion of the notes received on the sale of the Redwood City property
that is due in December 1996 ($8.7 million).
Financing Activities. During February 1995 the Company exchanged its
outstanding cumulative preferred stock for approximately $70.0 million of 8%
noncumulative nonconvertible redeemable preferred stock ("Noncumulative
Preferred Stock") and 11 million shares of common stock. In December 1997, the
Company is scheduled to redeem the outstanding Noncumulative Preferred Stock
out of funds legally available therefor (generally, the excess of the value of
assets over liabilities). In certain instances the Company may redeem the
Noncumulative Preferred Stock by issuing common stock at 90% of fair market
value. As of September 30, 1996, the Company
14
<PAGE>
did not have sufficient funds legally available to redeem the Noncumulative
Preferred Stock in full. In the event the Company does not have sufficient
funds legally available to redeem the Noncumulative Preferred Stock in full on
the redemption date, the Company would remain obligated to redeem such shares
from time to time thereafter to the extent funds become legally available for
redemption, and would generally be precluded from declaring any cash dividends
on, or repurchasing shares of, its common stock, until the Noncumulative
Preferred Stock has been redeemed in full. See Note 7 of Notes to Unaudited
Consolidated Financial Statements. There can be no assurance that the Company
will have adequate liquidity or have funds legally available to redeem the
Noncumulative Preferred Stock on the redemption date. Although the Company has
no current plans for redemption of the Noncumulative Preferred Stock prior to
1997, it will continue to evaluate this possibility in light of market
conditions, its liquidity and other factors. Any such redemption could include
issuance of additional debt or equity securities or other actions that might
result in dilution of current stockholders' equity interests in the Company.
In the second quarter of 1996, the Company filed a shelf registration
statement with the Securities and Exchange Commission covering 1,150,000 shares
of common stock which may be offered from time to time by the Company, the
proceeds of which would be used for general corporate purposes, including, if
required, the acquisition of specialized production and testing equipment for
use in the Company's keepered media research and development program. See
"Keepered Media Research and Development." The sale of common stock covered by
the shelf registration statement could adversely affect the market price for
the common stock, and would dilute current stockholders' interests by
approximately 2.6% if all such shares were to be issued.
In October 1996, the Company's Board of Directors approved the sale of
400,000 shares of common stock to the Company's Chairman and Chief Executive,
Edward J. Bramson, in order to provide him with an equity incentive for his
continued service to the Company. The purchase price for these shares was
$6.875 per share, which represented the fair market value of the shares on the
date the transaction was approved by the Board. Mr. Bramson acquired the shares
through a limited liability company formed and controlled by him, which
purchased the shares by paying $550,000 in cash and by issuing a five-year
promissory note for the balance. The promissory note bears interest at the
applicable federal rate, and is collateralized by the shares. The cash portion
of the purchase price was added to the Company's working capital in the fourth
quarter of 1996. A portion of the shares is subject to repurchase by the
Company in the event that Mr. Bramson ceases to serve as an officer and
director of the Company within certain periods expiring three years after the
date of sale.
Sales of Real Estate. In January 1996, the Company completed the sale
of its real property in Redwood City, California, for $36 million, consisting
of $18.5 million in cash and $17.5 million face amount of non-interest-bearing
notes secured by liens on the property (the "Secured Notes"). Of the cash
proceeds of sale, $7.4 million was used to repay the balance of a mortgage loan
on the property and the balance will be used for general corporate purposes.
The Company has leased back a portion of the property. In the first nine months
of 1996, the Company incurred $1.3 million of relocation and moving costs, of
which $0.7 million has been capitalized. The Company expects that it will
continue to incur relocation and other moving-related expenses in the fourth
quarter of 1996, some of which will also be capitalized. In addition, the
Company will fund up to $4.1 million of leasehold improvements (primarily
during 1996), which will be refunded by the property owner through rent
credits. The Company has funded $3.1 million of such leasehold improvements
through September 30, 1996. After payment of relocation and moving-related
expenses (most of which will occur during 1996), the Company expects that the
sale and lease-back arrangement will result in lower ongoing facility operating
costs in the future. However, a variety of unanticipated events (such as
property tax increases, uninsured property damage losses, unexpected
maintenance problems or other occurrences) could reduce or eliminate
anticipated cost savings. See "Properties" and Note 23 of Notes to Consolidated
Financial Statements in the 1995 Form 10-K for a more detailed discussion of
this transaction, including the risks associated with repayment of the Secured
Notes.
In May 1996, the Company completed the sale of the smaller of its two
manufacturing facilities on adjacent parcels of property in Colorado Springs,
Colorado for $3.6 million, and realized a gain of $0.9 million on the sale,
which was included as a component of other (income) expense, net, in the second
quarter of 1996. None of the Company's manufacturing operations were conducted
in the smaller facility, and the Company presently intends to retain ownership
of the larger facility and to sublease a portion of it. Accordingly, the
Company's listing agreement to sell the larger facility, which was previously
reported in its Quarterly Report on Form 10-Q for the fiscal quarter
15
<PAGE>
ended September 30, 1995, has been canceled, and the Company intends to enter
into a new listing agreement to sublease the property. There can be no
assurance that the Company will be able to find a suitable tenant or tenants to
sublease a portion of the larger facility, or to agree on the terms of any such
sublease. The Company expects that any such sublease will require certain
modifications and/or improvements to the subleased property, for which the
Company will be responsible.
Keepered Media Research and Development
Ampex has previously disclosed that it has been engaged in a research
and development program to attempt to commercialize its "keepered media"
technology for use in the hard disk drives that are attached to most computers.
A description of this technology and certain developments and uncertainties
related to the development program are set forth in the 1995 Form 10-K and the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996 (the "March and June 1996 Forms 10-Q"). In order to
understand properly the following information, it is necessary to refer to
these earlier reports.
During the third quarter of 1996, Ampex participated with certain hard
disk drive and head manufacturers in tests of new generations of
high-performance inductive heads with keepered media. The Company believes that
all of the disk drive manufacturers with which it has been actively evaluating
keepered media are considering incorporating such heads into product programs
that have target introduction dates in 1997. These heads could be used with or
without keepered media. Therefore, the performance of keepered media with such
heads may significantly affect the commercial prospects of keepered media for
the near future. Initial tests with this generation of heads have indicated a
post-channel linear density gain of approximately 20%. Ampex believes that
additional capacity gains can be achieved by using the keepered media to
increase track density, in addition to linear density, and also by optimizing
read-channel electronics. However, pending completion of further testing and
development, there can be no assurance that additional improvements in capacity
can, in fact, be achieved. Additionally, it is not possible to forecast whether
the performance improvement afforded by keepered media will be of sufficient
magnitude to cause one or more disk drive manufacturers to adopt keepered media
for future production. (The terms "post-channel" and "linear and track density"
are explained in the March and June 1996 Forms 10-Q, respectively.)
In response to a request from a hard disk drive manufacturer, Ampex
submitted, during the third quarter, a number of keepered media disk platters
for testing of long-term stability and durability. To date, no results have
been received from this testing and it is not possible to forecast what the
results of such tests will be. The Company arranged to have these platters,
including the keeper layer, manufactured by a commercial vendor of disk
platters with which it has a non-disclosure agreement. The platters were
manufactured by the vendor using the same equipment that it uses in its normal
volume production of disk platters, which indicates that it is likely that
keepered media could be manufactured in commercial quantities, if required.
Ampex is assuming that it will be able, at least initially, to fill
any orders that it may receive for keepered media by purchasing complete
keepered disk platters from existing platter manufacturers. While it has
identified several potential suppliers of keepered disk platters, the Company
does not currently have a commitment from any of them to make platters
available nor any agreement as to the price or other terms on which Ampex could
obtain them, if requested.
Ampex believes that, at present, the major potential benefit of
keepered media would be to permit the attainment of leading edge performance at
a lower cost than would be possible using alternative technologies. The Company
also believes that lower disk drive component costs may be especially critical
in the high-volume, low price market segment for desktop disk drives, in which
manufacturers' gross profit margins are relatively low. Accordingly, Ampex has
now approached three manufacturers of hard disk drives that have significant
shares of the desktop disk drive market to determine their interest in
commencing a commercial product program incorporating keepered media. Ampex is
currently holding discussions and negotiations with these and other disk drive
manufacturers, but it is not possible at present to forecast whether any of
these companies, or others that Ampex may approach in the future, will, in
fact, undertake such a commercial product program.
Even if Ampex and a hard disk drive manufacturer were to agree to
begin to utilize keepered media in a
16
<PAGE>
product program, there can be no assurance that Ampex would generate any
revenues, because programs can be canceled at any time for technical or
commercial reasons, and firm orders for disk platters are not typically placed
until shortly before the disk drive is introduced to the market, which normally
occurs from six to 12 months after a program is initiated. There is also a risk
that any disk drive new to the market might not sell successfully due to the
customary risks associated with the introduction of a new product. Such an
outcome would negatively affect any revenues that Ampex could generate. Ampex
intends to offer especially favorable terms, including a low price, as an
inducement to the first disk drive manufacturer to institute a keepered media
disk drive program. Therefore, sales to the first such customer, if any, might
generate a relatively low profit margin compared to the margin that the Company
hopes to achieve if it is able to attract subsequent customers.
The Company believes that in order for it to generate material revenue
from keepered media during 1997, it will be necessary for a hard disk drive
manufacturer to commence a product development program incorporating keepered
disk platters by approximately the end of 1996. This belief is based on Ampex's
current understanding as to the time typically required to develop a new hard
disk drive and to introduce it to the market in volume. It is not possible to
forecast when, or if, keepered media may be included in any such program.
However, in order to minimize a potential delay that could result form the lead
time necessary to produce commercial volumes of suitable pre-amplifier chips,
Ampex is evaluating the funding of a design for such components from its own
resources. The expenditure required is estimated to be up to $1 million. The
Company has not yet committed to develop such a pre-amplifier chip, but if it
were to do so, there is a risk that the cost of developing the chip would be of
no benefit to Ampex if the Company had no alternative use for this component.
Ampex has previously disclosed that there are other technologies that
potential customers might prefer over keepered media, and that other competing
technologies of which Ampex is unaware could be under development or developed
in the future. (See the 1995 Form 10-K and March and June 1996 Forms 10-Q.) Any
such technologies could materially affect the commercial prospects for keepered
media. The development of keepered media could also divert the Company's
technical resources, which could negatively affect the Company's other research
and development programs, including improvements to the Company's mass data
storage product lines.
Significant expenditures and commitments for the development of
keepered media have already been incurred by the Company, and the Company will
be required to continue such expenditures in the future for as long as the
development program for keepered media continues. There can be no assurance of
financial return from these expenditures or commitments, and they could
negatively affect the Company's liquidity or require it to issue debt or equity
securities which would increase the Company's financial leverage or dilute the
earnings attributable to current shareholders of the Company.
While the Company believes that keepered media has the potential to
expand its business, in view of the uncertainties associated with its
development (some of which are described above), as stated in the 1995 Form
10-K and the March and June 1996 Forms 10-Q, it is impossible to forecast when
or if any commercial benefit will be realized by the Company. Since the
prospects for keepered media are highly speculative, there is a risk that the
market price of the Company's securities may experience increased volatility,
in addition to the volatility that may result from other factors affecting the
Company, such as changes in financial performance, analysts' estimates, or
product or technology announcements by the Company or its competitors.
17
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to routine litigation incidental to its
business. In the opinion of management, no such current or pending lawsuits,
either individually or in the aggregate, are likely to have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
In addition, as reported in the Company's Quarterly Reports on Form
10-Q for the fiscal quarters ended March 31, 1996 and June 30, 1996, on
September 22, 1995, the Company filed a lawsuit against Mitsubishi Electric
Corporation and Mitsubishi Electric America Inc. in the U.S. District Court for
the District of Delaware, alleging patent infringement and breach of a license
agreement in connection with the manufacture of VHS video recorders and
television receivers. The Company is seeking damages and injunctive relief. In
response to the Company's lawsuit, on December 12, 1995, Mitsubishi filed a
lawsuit against Ampex in the U.S. District Court for the Central District of
California, alleging patent infringement and seeking unspecified damages and
injunctive relief. The Company's lawsuit has been deferred until March 31,
1997, and the Mitsubishi countersuit is expected to go to trial on December 3,
1996. The Company originally estimated that its legal fees in connection with
this litigation would be approximately $3 million. However, the Company has
already incurred approximately $2.9 million in the first nine months of 1996
(including approximately $2.1 million in the third quarter of 1996) in
connection with these lawsuits, in large part because of the significant costs
of discovery incurred in preparing for the patent countersuit brought against
the Company. Accordingly, the Company expects that its original estimate will
be significantly exceeded, and that the level of such costs may be material to
results of operations. However, due to various factors such as the timing of
and strategies employed in these lawsuits, it is not possible to predict the
level of such costs in any future periods. In addition, if lawsuits are brought
against additional manufacturers, litigation costs would increase. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations for the Three Months and Nine Months Ended
September 30, 1996 and 1995 -- Royalty Income," above.
The Company's facilities are subject to numerous federal, state and
local laws and regulations designed to protect the environment from waste
emissions and hazardous substances. The Company is also subject to the federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in its facilities. Management believes that the
Company is generally in compliance in all material respects with all applicable
environmental and occupational safety laws and regulations or has a plan to
bring operations into compliance.
Owners and occupiers of sites containing hazardous substances, as well
as generators and transporters of hazardous substances, are subject to broad
liability under various federal and state environmental laws and regulations.
See the 1995 Form 10-K for a more detailed discussion. The Company has been
named as a potentially responsible party by the United States Environmental
Protection Agency with respect to six contaminated sites that have been
designated as "Superfund" sites, and the Company is engaged in various
environmental remediation and/or monitoring activities at several sites located
both on and off Company facilities. Five sites involved with these activities
(including four of the Superfund sites) are associated with the operations of
Media. Although the Company sold Media in November 1995, the Company may have
continuing liability with respect to environmental contamination at certain of
these sites.
Because of the inherent uncertainty as to various aspects of
environmental matters, including the extent of environmental damage, the most
desirable remediation techniques and the time period during which cleanup costs
may be incurred, it is not possible for the Company to estimate with any degree
of certainty the ultimate costs that it may incur with respect to the currently
pending environmental matters referred to above. However, based on facts
currently known to management, management believes it is only remotely likely
that the liability of the Company in connection with such pending matters,
either individually or in the aggregate, will be material to the Company's
financial condition or results of operations or material to investors, or that
the Company's liability will materially exceed the amounts already accrued for
potential environmental liabilities.
18
<PAGE>
While the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has a plan to bring operations
into compliance, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Furthermore, because the Company conducts its business in foreign
countries as well as in the U.S., it is not possible to predict the effect that
future domestic or foreign regulation could have on the Company's business,
operating results or cash flow.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6(a). Exhibits
The Exhibits to this Quarterly Report on Form 10-Q are listed in the
Exhibit Index which appears elsewhere herein and is incorporated herein by
reference.
Item 6(b). Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during its
fiscal quarter ended September 30, 1996.
19
<PAGE>
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.
AMPEX CORPORATION
Date: November 6, 1996 /s/ EDWARD J. BRAMSON
---------------------
Edward J. Bramson
Chairman and Chief Executive Officer
Date: November 6, 1996 /s/ CRAIG L. McKIBBEN
---------------------
Craig L. McKibben
Vice President, Chief Financial Officer and
Treasurer
20
<PAGE>
AMPEX CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
EXHIBIT INDEX
Exhibit
Number Description
11.1 Statement re Computation of Per Share Earnings.
27.1 Financial Data Schedule.
21
<TABLE>
<CAPTION>
Exhibit 11.1
Ampex Corporation
Computation of Per Share Earnings
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Weighted average common stock 45,004,661 33,310,705 42,624,871 31,147,757
Plus: Common stock equivalent warrants - 2,790,792 245,553 2,828,757
Plus: Common stock equivalent stock options 1,222,387 870,426 1,211,668 399,725
------------- ------------ -------------- -------------
Adjusted weighted average common stock 46,227,048 36,971,923 44,082,092 34,376,239
------------- ------------ -------------- -------------
Net income 3,103,000 3,361,000 10,548,000 14,946,000
Less: Redeemable convertible preferred stock accretion - - - (783,248)
------------- ------------ -------------- -------------
Adjusted net income 3,103,000 3,361,000 10,548,000 14,162,752
------------- ------------ -------------- -------------
Primary income per share $0.07 $0.09 $0.24 $0.41
============= ============ ============== =============
Weighted average common stock 45,004,661 33,310,705 42,624,871 31,147,757
Plus: Common stock equivalent warrants - 2,792,314 245,893 2,834,847
Plus: Common stock equivalent stock options 1,275,531 1,039,431 1,275,531 477,799
Plus: Weighted average shares on conversion of notes - 8,522,598 2,005,964 8,522,598
Plus: Weighted average shares on conversion of preferred stock - - - 4,803,545
------------- ------------ -------------- -------------
Adjusted weighted average common stock 46,280,192 45,665,048 46,152,259 47,786,546
------------- ------------ -------------- -------------
Net income 3,103,000 3,361,000 10,548,000 14,946,000
Add: Interest on notes - 656,347 491,618 1,893,863
------------- ------------ -------------- -------------
Adjusted net income 3,103,000 4,017,347 11,039,618 16,839,863
------------- ------------ -------------- -------------
Fully diluted income per share $0.07 $0.09 $0.24 $0.35
============= ============ ============== =============
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,148
<SECURITIES> 18,716
<RECEIVABLES> 28,269
<ALLOWANCES> (2,078)
<INVENTORY> 16,702
<CURRENT-ASSETS> 69,501
<PP&E> 58,444
<DEPRECIATION> 50,156
<TOTAL-ASSETS> 87,415
<CURRENT-LIABILITIES> 34,615
<BONDS> 0
69,970
0
<COMMON> 450
<OTHER-SE> (92,140)
<TOTAL-LIABILITY-AND-EQUITY> 87,415
<SALES> 23,604
<TOTAL-REVENUES> 23,604
<CGS> 12,582
<TOTAL-COSTS> 24,054 <F1>
<OTHER-EXPENSES> (3,260) <F2>
<LOSS-PROVISION> 0
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 798 <F3>
<INCOME-PRETAX> 3,608
<INCOME-TAX> 505
<INCOME-CONTINUING> 3,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,103
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
<FN>
<F1> INCLUDES S&A AND RD&E OF 7,511 AND 3,961
RESPECTIVELY
<F2> INCLUDES ROYALTY INCOME OF 3,023 AND
RESTRUCTURING CREDITS OF 453
<F3> NETS INTEREST INCOME OF 824 AND INTEREST
EXPENSE OF 26
</FN>
</TABLE>
