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, 1998
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)
(650) 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, 1998, the aggregate number of outstanding shares of the
Registrants Class A Common Stock, $.01 par value, was 49,782,547. There were no
outstanding shares of the Registrant's Class C Common Stock, $0.01 par value.
<PAGE>
AMPEX CORPORATION
FORM 10-Q
Quarter Ended September 30, 1998
INDEX
Page
----
PART I -- FINANCIAL INFORMATION.............................................. 2
Item 1. Financial Statements................................................. 2
Consolidated Balance Sheets (unaudited) at September 30, 1998 and
December 31, 1997................................................ 3
Consolidated Statements of Operations (unaudited) for the
three months and nine months ended September 30, 1998 and 1997... 4
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1998 and 1997......................... 5
Notes to Unaudited Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................... 19
Item 2. Changes in Securities and Use of Proceeds........................... 20
Item 3. Defaults Upon Senior Securities..................................... 20
Item 4. Submission of Matters to a Vote of Security Holders................. 20
Item 5. Other Information................................................... 20
Item 6(a). Exhibits.................................................... 20
Item 6(b). Reports on Form 8-K......................................... 21
Signatures ............................................................ 22
2
<TABLE>
<CAPTION>
AMPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,703 24,076
Shortterm investments 53,537 17,685
Accounts receivable (net of allowances of $2,114 and $1,484) 17,492 13,246
Inventories 20,676 16,380
Other current assets 1,394 1,347
-------- ------
Total current assets 100,802 72,734
Property, plant and equipment 9,882 8,892
Intangible assets, net 4,599 -
Other assets 1,842 45
--------- --------
Total assets $ 117,125 $ 81,671
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 365 $ 933
Accounts payable 5,561 5,173
Income taxes payable 334 373
Accrued restructuring costs 3,088 1,706
Other accrued liabilities 17,219 19,942
--------- -------
Total current liabilities 26,567 28,127
Long-term debt 44,590 2
Other liabilities 52,826 70,708
Deferred income taxes 1,236 1,267
Accrued restructuring costs 980 1,612
--------- -------
Total liabilities 126,199 101,716
--------- -------
Commitments and contingencies (Note 6)
Redeemable preferred of subsidiary 1,045 -
Redeemable nonconvertible preferred stock, $1,000 liquidation value:
Authorized: 69,970 shares 1998 and 1997
Issued and outstanding none 1998; 69,970 shares 1997 - 69,970
Redeemable preferred stock, $2,000 liquidation value:
Authorized: 21,859 shares 1998 and none 1997
Issued and outstanding 21,859 shares 1998; none 1997 43,718 -
Convertible preferred stock, $2,000 liquidation value:
Authorized: 10,000 shares 1998 and none 1997
Issued and outstanding 10,000 shares 1998; none 1997 20,000 -
Stockholders' deficit:
Preferred stock, $1.00 par value:
Authorized: 898,171 shares 1998 and 1997
Issued and outstanding none 1998 and 1997 - -
Common stock, $.01 par value:
Class A:
Authorized: 125,000,000 shares 1998 and 1997
Issued and outstanding 49,782,547 shares 1998;
45,936,707 shares 1997 498 459
Class C:
Authorized: 50,000,000 shares 1998 and 1997
Issued and outstanding none 1998 and 1997 - -
Other additional capital 391,880 383,513
Note receivable from stockholder (4,994) (4,818)
Accumulated deficit (432,039) (440,068)
Accumulated other comprehensive income (29,182) (29,101)
------------ -----------
Total stockholders' deficit (73,837) (90,015)
------------ -----------
Total liabilities and stockholders' deficit $ 117,125 $ 81,671
============ ============
The accompanying notes are an integral part of these unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 16,001 $ 18,182 $ 48,021 $ 60,562
Cost of sales 10,624 9,950 28,223 31,193
----------- ----------- ----------- ----------
Gross profit 5,377 8,232 19,798 29,369
Selling and administrative 7,011 5,043 17,119 19,106
Research, development and engineering 2,899 3,841 9,060 11,479
Royalty income (2,234) (1,786) (5,738) (9,130)
Restructuring charges (credits) (274) (950) 2,526 (950)
Acquisition of in-process research and development - - 2,940 -
----------- ----------- ----------- ----------
Operating income (loss) (2,025) 2,084 (6,109) 8,864
Interest expense 1,393 19 2,968 73
Amortization of debt financing costs 133 - 230 -
Interest income (836) (733) (2,572) (2,246)
Other (income) expense, net 4 (2) 14 53
----------- ----------- ----------- ----------
Income (loss) before income taxes (2,719) 2,800 (6,749) 10,984
Provision for (benefit of) income taxes (4,944) 196 (14,778) 1,100
----------- ----------- ----------- ----------
Net income 2,225 2,604 8,029 9,884
----------- ----------- ----------- ----------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (76) 24 (81) (8)
----------- ----------- ----------- ----------
Comprehensive income $ 2,149 $ 2,628 $ 7,948 $ 9,876
=========== =========== =========== ==========
Basic income per share :
Income per share $ 0.05 $ 0.06 $ 0.17 $ 0.22
=========== =========== =========== ===========
Weighted average number of common shares outstanding 49,062,547 45,588,498 47,075,450 45,542,917
=========== =========== =========== ===========
Diluted income per share :
Income per share $ 0.04 $ 0.06 $ 0.16 $ 0.21
=========== =========== =========== ==========
Weighted average number of common shares outstanding 59,782,547 46,368,024 50,976,537 46,509,963
=========== =========== =========== ==========
The accompanying notes are an integral part of these unaudited consolidated financial statements.
</TABLE>
4
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30, September 30,
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,029 $ 7,280
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation, amortization and accretion 1,885 1,068
Acquisition of in-process research and development 2,940 -
Loss on disposal of assets 450 -
Net increase in notes receivable - (426)
Net increase in accounts receivable (2,587) (10)
Net increase in inventories (3,757) (3,642)
Net decrease in long-term receivable 8 132
Net decrease in other assets 1,557 430
Net increase (decrease) in accounts payable (2,377) 613
Net decrease in accrued liabilities and
income taxes payable (4,202) (3,474)
Net decrease in other non-current obligations (17,271) (3,076)
Net increase (decrease) in accrued restructuring costs 751 (919)
------------- -------------
Net cash used in operating activities (14,574) (2,024)
------------- -------------
Cash flows from investing activities:
Purchase of company, net of cash acquired (331) -
Purchases of short-term investments (70,632) (42,953)
Proceeds received on the maturity of short-term investments 22,791 39,890
Proceeds from sale of short-term investments 11,989 -
Additions to property, plant and equipment (2,487) (719)
Deferred gain on sale of assets (611) (407)
------------- -------------
Net cash used in investing activities (39,281) (4,189)
------------- -------------
Cash flows from financing activities:
Borrowings under working capital facilities 28,960 27,235
Repayments under working capital facilities (33,741) (27,664)
Issuance of senior notes and warrants 44,000 -
Financing costs (1,831) -
Proceeds from issuance of common stock 136 359
------------- -------------
Net cash provided by (used in) financing activities 37,524 (70)
------------- -------------
Effect of exchange rates on cash (42) (210)
------------- -------------
Net decrease in cash and cash equivalents (16,373) (6,493)
Cash and cash equivalents, beginning of period 24,076 13,410
------------- -------------
Cash and cash equivalents, end of period $ 7,703 $ 6,917
============= =============
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.
On June 30, 1998 Ampex acquired MicroNet Technology, Inc.
("MicroNet"). MicroNet designs and manufactures high-performance disk arrays for
the use in digital image applications, primarily digital pre-press and video.
The Consolidated Balance Sheet includes the acquired value of assets and
liabilities of MicroNet as more fully described in Note 11. The Consolidated
Statements of Operations and Comprehensive Income include a one-time, $2.9
million charge for acquired in-process research and development related to
MicroNet.
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 year financial statements
to conform to the current year's presentation. The statements should be read in
conjunction with the Company's report on Form 10-K for the year ended December
31, 1997 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 and
nine-month periods ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income, which specifies the computation, presentation and
disclosure requirements for comprehensive income. The Company implemented SFAS
130 during the first quarter of 1998.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosure
about Segments of an Enterprise and Related Information. SFAS 131 requires
publicly-held companies to report financial and other information about
revenue-producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker. Specific information to
be reported for the individual segments includes profit or loss, certain revenue
and expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
SFAS 131 is effective for the Company's fiscal year ending December 31, 1998 and
the impact of its adoption has not been determined.
Note 3 -- Income per Common Share
The Company has adopted the provisions of Statement of Financial
Accounting Standards No.128 ("SFAS 128"), Earnings Per Share. SFAS 128 requires
the presentation of basic and diluted income per common share. Basic income per
common share is computed by dividing net income available to common stockholders
by the
6
777938.1
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
weighted average number of common shares outstanding for the period. Diluted
income per common share is computed giving effect to all potentially dilutive
common shares that were outstanding during the period.
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted income per
common share is provided as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
Sept 30, Sept 30, Sept 30, Sept 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator - Basic
Net income............................................... $2,225 $2,604 $8,029 $9,884
====== ====== ====== ======
Denominator - Basic
Weighted average common stock outstanding................ 49,063 45,588 47,075 45,543
------ ------ ------ -------
Basic income per share........................................ $ 0.05 $ 0.06 $ 0.17 $ 0.22
======= ======== ======== ======
Numerator - Diluted
Net income............................................... $ 2,225 $ 2,604 $ 8,029 $9,884
======== ======== ======== ======
Denominator - Diluted
Weighted average common stock outstanding................ 49,063 45,588 47,075 45,543
Contingent shares due to acquisition..................... 720 - 253 -
Effect of dilutive securities:
Stock options........................................ - 780 205 967
Redeemable preferred stock........................... 5,000 - 1,722 -
Convertible preferred stock.......................... 5,000 - 1,722 -
------ ------ ------ ------
59,783 46,368 50,977 46,510
------ ------ ------ ------
Diluted income per share...................................... $ 0.04 $ 0.06 $ 0.16 $ 0.21
======== ======= ======== ======
</TABLE>
In connection with the acquisition of MicroNet, the Company issued 720,000
shares of Common Stock. Such shares are held in escrow subject to completion of
an audit of the closing balance sheet and resolution of certain contingencies
but have been included in the computation of diluted weighted average common
stock outstanding only from June 30, 1998. See Note 11.
Note 3 -- Income per Common Share (cont'd.)
In connection with the redemption of the 8% Noncumulative Preferred Stock,
the Company issued 3,000,000 shares of Common Stock and $20,000,000 face amount
of Convertible Preferred Stock which may be converted into 5,000,000 shares of
CommonStock at a price of $4.00 per share. The 3,000,000 common shares have been
included in the computation of weighted average common stock outstanding. The
5,000,000 shares potentially issuable on conversion of Convertible Preferred
Stock have been included in the computation of diluted weighted average common
stock outstanding. See Note 7.
As more fully described in Note 7, the Company is obligated to redeem the
Redeemable Preferred Stock in quarterly installments over a 10-year period
beginning June 1999. The Company at its election may make redemption payments in
shares of Common Stock or in cash, subject to certain statutory requirements. In
the third quarter of 1998, the Company adopted a policy on the proportion of
redemption payments to be made in cash and in common stock, resulting in the
anticipated issuance of 5,000,000 shares over the 10-year redemption period.
Accordingly, such shares have been included in the computation of diluted
weighted average common stock outstanding used for financial reporting purposes.
If the Company was to make all redemption payments in common
7
777938.1
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
stock, an additional 12,487,200 shares of common stock would be issued, based on
the floor conversion price, over the number of common shares included in the
diluted income per share computation, and diluted income per share for the three
and nine-month periods ended September 30, 1998 would be $0.03 and $0.15,
respectively.
Stock options to purchase 2,449,327 shares of common stock at prices
ranging from $1.50 to $10.50 per share were outstanding at September 30, 1998,
but were not included in the computation of diluted income per share because the
exercise price was greater than the average market value of the common shares.
Stock options to purchase 909,841 shares of common stock at prices ranging
from $5.75 to $10.50 per share were outstanding at September 30, 1997, but were
not included in the computation of diluted income per share because the exercise
price was greater than the average market value of the common shares.
Warrants to purchase 1,020,000 shares of common stock at a price of $2.25
per share were outstanding at September 30, 1998, but were not included in the
computation of diluted income per share because the exercise price was greater
than the average market value of the common shares. There were no outstanding
warrants at September 30, 1997.
Note 4 -- Supplemental Schedule of Cash Flow Information
Nine months ended
September 30, September 30,
1998 1997
------------- -------------
(in thousands)
Cash payments (net of refunds received) were as follows:
Interest............................................. $ 2,595 $ 73
Income taxes paid.................................... 693 1,443
Non-cash transactions were as follows:
Issuance of common stock to acquire MicroNet 1,224
-
Note 5 -- Inventories
September 30, December 31,
1998 1997
------------- ------------
(in thousands)
Raw materials................................. $ 8,307 $ 6,686
Work in process............................... 6,682 5,424
Finished goods................................ 5,687 4,270
---------- ----------
Total..................................... $ 20,676 $ 16,380
========== ==========
Note 6 -- Commitments and Contingencies
The Company is currently a defendant in lawsuits that have arisen in the
ordinary course of its business. Management does not believe that any such
lawsuits or unasserted claims will have a material adverse effect on the
Company's financial position, results of operations or cash flows.
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.
8
777938.1
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 7 -- Preferred Stock
As of December 31, 1997, the Company became required to redeem the 69,970
outstanding shares of its 8% Noncumulative Preferred Stock with an aggregate
liquidation value of $70.0 million (the "Old Preferred Stock"), to the extent of
funds legally available therefor (generally, the excess of the value of assets
over liabilities) at the redemption price of $1,000 per share. Effective in the
second quarter of 1998, the Company completed the redemption of the Old
Preferred Stock in exchange for the following securities (a) 3,000,000 shares of
its Class A Common Stock, par value $0.01 per share (the "Class A Stock"); (b)
10,000 shares of a new series of 8% Noncumulative Convertible Preferred Stock,
par value $1.00, with an aggregate liquidation value of $20.0 million (the
"Convertible Preferred Stock"); and (c) 21,859 shares of a new series of 8%
Noncumulative Redeemable Preferred Stock, par value $1.00 per share, with an
aggregate liquidation value of $43.7 million (the "Redeemable Preferred Stock").
Each share of Convertible Preferred Stock and Redeemable Preferred Stock
(together, the "New Preferred Stock") will entitle the holder thereof to receive
noncumulative dividends at the rate of 8% per annum, if declared by the
Company's Board of Directors. Each share of Convertible Preferred Stock may be
converted, at the option of the holder thereof, into 500 shares of Class A
Stock, at a conversion price of $4.00 per share, subject to adjustment under
certain circumstances. Beginning in June 2001, the Company will become obligated
to redeem the Convertible Preferred Stock in quarterly installments through
March 2008. Beginning in June 1999, the Company will become obligated to redeem
the Redeemable Preferred Stock in quarterly installments through December 2008.
The Company will have the option to redeem the Redeemable Preferred Stock at any
time and the Convertible Preferred Stock beginning in June 2001, and may at its
election make optional or mandatory redemption payments either in cash or in
shares of Common Stock. In the event that the Company does not have sufficient
funds legally available to make any mandatory redemption payment in cash, the
Company will be required to make such redemption payment by issuing shares of
Common Stock. Shares of Common Stock issued to make any optional or mandatory
redemption payments will be valued at the higher of $2.50 or fair market value
per share of Common Stock. The issuance of Common Stock upon conversion or
redemption of the New Preferred Stock could have a significant dilutive effect
on the equity interests of the Common Stockholders in future periods. See Note
3.
Note 8 -- Income Taxes
In the first quarter of 1998, the Company reversed $5.2 million previously
reserved in connection with disputed state income taxes for the prior years,
following the favorable settlement of that dispute in March 1998. In the second
and third quarter of 1998, the Company recognized a tax benefit of $4.9 and $5.2
million by eliminating previously established tax reserves from prior years as a
result of the finalization of the liquidation of its subsidiary in Italy. The
provisions for income taxes in the three-month and nine-month periods ended
September 30,1997 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 the first nine months of 1998 and 1997 because of
certain timing differences in the recognition of expense for tax and financial
reporting purposes.
As of December 31, 1997, the Company had net operating loss carryforwards
for income tax purposes of $100.0 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 -- Accumulated Other Comprehensive Income
The balances of each classification within accumulated other
comprehensive income are as follows:
Minimum Accumulated
Foreign Pension Other
Currency Liability Comprehensive
Items Adjustment Income
--------- ---------- --------------
(in thousands)
December 31, 1997............... $ 507 $ (29,608) $ (29,101)
Year-to-date change (81) - (81)
_______ ___________ ____________
September 30, 1998............... $ 426 $ (29,608) $ (29,182)
======= =========== ============
9
777938.1
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 10 -- Senior Notes
The Company issued $30.0 million in January 1998 and issued $14.0M in July
1998 of 12% Senior Notes due March 15, 2003. The January issuance included
warrants to purchase 1,020,000 Common Shares. The warrants are exercisable at
$2.25 per share at any time on or prior to March 15, 2003. The warrants have
been assigned a value of $0.8 million and charged to other additional capital
and will be amortized to long-term debt over the term of the Notes. The
indenture under which the Notes were issued contains customary affirmative and
negative restrictive covenants that limit, among other things, the incurrence of
additional senior debt, the payment of dividends, the sale of assets and other
actions by the Company and certain restricted subsidiaries.
10
777938.1
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - MicroNet Acquisition
During the second quarter of 1998, the Company completed the acquisition of
MicroNet, (the "MicroNet Acquisition"). The MicroNet Acquisition has been
accounted for as a purchase, effective as of June 30, 1998, and the Company has
been managing the affairs of MicroNet since that date. In connection with the
MicroNet Acquisition, the Company has issued 720,000 shares of its Common Stock,
and has acquired MicroNet subject to MicroNet preferred stock valued at
approximately $1.0 million, notes payable of $5.5 million and other liabilities
estimated at approximately $4.3 million. Assets acquired consisted of $4.3
million of current assets, $0.4 million of plant and equipment and $2.9 million
of in-process research and development and other intangibles of $4.7 million.
The Company has charged operations in the second quarter of 1998 with the
acquired in-process research and development and intends to amortize
intangibles, including goodwill, on a straight-line basis over 8 years. The
shares of Common Stock and MicroNet preferred stock are being held in escrow
pending completion of the closing date balance sheet and the resolution of other
contingencies.
Pro forma combined results of operations of the Company and MicroNet as if
the acquisition had been completed at the beginning of the periods presented are
as follows:
Year ended Nine months ended
December 31, 1997 September 30, 1998
----------------- ------------------
Net sales............................... $ 112,537 $ 59,182
Income (loss) before income taxes....... $ 2,463 $ (5,321)
Net income.............................. $ 956 $ 9,457
Income per share
Basic............................... $ 0.02 $ 0.20
Diluted............................. $ 0.02 $ 0.19
Pro forma operating results for the year ended December 31, 1997 exclude
the one-time charge to operations for acquired in-process research and
development which was charged against historical operating results for the
nine-month period ended September 30, 1998. Pro forma operating results for all
periods include an adjustment to record goodwill amortization.
11
777938.1
<PAGE>
This Form 10-Q contains predictions, projections and other statements about
the future that are intended to be forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Company, or industry results, to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: declining sales to the government; declining sales of professional video
products; potential inaccuracy of future sales and expense forecasts; effects of
increased inventories; potential inability of the Company to execute its
acquisition, investment, licensing and other strategies; potential inability of
the Company to integrate acquired businesses, including the business of MicroNet
Technology, Inc.; industry conditions; negotiation of definitive sales contracts
with government agencies; future broadcast, cable and government market sales;
the development of application software for its 19-millimeter products; effects
of the Companys relocation of its DCRsi( manufacturing facilities to its
Colorado Springs facility; possible future issuances of debt or equity
securities; and potential dilution of current stockholders equity interests; and
the Companys liquidity; anticipated interest expenses and yields and risks on
its invested funds. These forward-looking statements speak only as of the date
of this Report. The Company disclaims any obligation or undertaking to
disseminate updates or revisions of any forward-looking statements contained or
incorporated herein to reflect any change in the Companys expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based. Each forward-looking statement that the Company
believes is material is accompanied by one or more cautionary 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, in other
sections of this Form 10-Q, and/or in the Companys other documents filed with
the Securities and Exchange Commission, whether or not such documents are
incorporated herein by reference. IN ASSESSING FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS FORM 10-Q, READERS ARE URGED TO READ CAREFULLY ALL SUCH
CAUTIONARY STATEMENTS.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of the financial condition and
results of operations of Ampex Corporation and its subsidiaries (collectively,
Ampex or the Company) should be read in conjunction with the unaudited
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Report, and the Consolidated Financial Statements and the Notes thereto,
and Managements Discussion and Analysis of Financial Condition and Results of
Operations, included in the Companys Annual Report on Form 10-K for the year
ended December 31, 1997, as filed with the Securities and Exchange Commission
(file no. 0-20292) (the 1997 Form 10-K), and its Quarterly Report on Form 10-Q
for the quarters ended March 31, 1998 and June 30, 1998.
Results of Operationsfor the Three Months and Nine Months Ended
September 30, 1998 and 1997
Net Sales. Net sales declined by 12.1% to $16.0 million in the third
quarter of 1998 from $18.2 million in the third quarter of 1997, and by 20.8% to
$48.0 million in the first nine months of 1998 from $60.6 million in the first
nine months of 1997. This decrease was due to a decline in shipments of
instrumentation recorders and 19-millimeter data storage products, partially
offset by the inclusion of sales by MicroNet Technology, Inc. ("MicroNet"), an
acquisition completed as of June 30, 1998. See
12
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"Mass Data Storage Products, Instrumentation Recorders and MicroNet," below. The
Companys backlog of firm orders was $3.3 million at September 30, 1998. The
Company typically operates with low levels of backlog, requiring it to obtain
most of each periods orders in the same period that they must be shipped to
customers. Historically, a small number of large orders, particularly for
instrumentation products, have significantly impacted sales levels. In the first
nine months of 1998, the Company responded to proposals on several large
programs that have not yet been awarded. However, the Company has recently
received a letter of intent and a memorandum of understanding pertaining to two
government programs (see Mass Data Storage Products and Instrumentation
Recorders below). As previously reported, the Company intends to increase net
sales by introducing new products and by acquiring new businesses and making
investments in companies. Because of the risks and uncertainties inherent in
making acquisitions and investments, there can be no assurance that the Company
will successfully be able to integrate or complete any other acquisitions or
investments or that the Company will realize any financial benefit therefrom.
Management believes that sales in the remainder of the year will continue to be
negatively affected by the factors discussed below. Accordingly, the Company
intends to control expenses to minimize the impact on the Companys results of
operations.
Mass Data Storage Products and Instrumentation Recorders. Sales of mass
data storage products and instrumentation recorders and related after-market
products totaled $9.8 million for the third quarter of 1998 and $35.7 million
for the first nine months of 1998, and declined from the comparable periods in
1997 when sales of such products totaled $13.6 million and $48.0 million,
respectively. A significant portion of the Companys product sales reflects
purchases by government agencies and defense contractors pursuant to federal
government procurement programs. These sales fluctuate as a result of changes in
government spending programs (including defense programs), and seasonal
procurement practices of government agencies. Sales of the Companys DST( and
DIS( products decreased in the first nine-month period of 1998, compared to the
comparable period of 1997. Broader acceptance of the Companys DST products in
its target markets will depend significantly on the integration and vendor
support of third party application software, factors which are not within the
Companys control and which, if delayed, may adversely affect DST product sales
in future quarters. Additionally, to preserve competitiveness, the Company will
be required to invest in improving the capabilities of its products. For
example, the maximum capacity per cartridge of the initial DST tape drive was
165 gigabytes. The Company is currently delivering products with a maximum
capacity of 330 gigabytes per cartridge (double density) and is accepting orders
for future delivery of products with a maximum capacity of 660 gigabytes per
cartridge (quadruple density).
In October 1998, the Company received a memorandum of understanding for the
purchase, subject to the exercise of certain customer options, of up to an
estimated $18.4 million of DST double density and quadruple density storage
systems for a government program on which the Company had previously submitted
proposals. Separately, also in October 1998, the Company received a letter of
intent relating primarily to the purchase of several of the Companys recently
introduced DST 712 automated tape libraries for approximately $7.2 million for
another government program. In both cases, deliveries would occur during the
period 1999-2001. Sales of the above products are subject to the negotiation of
definitive agreements and terms and conditions with the respective customers,
and there can be no assurance that satisfactory contracts will be completed or
that any firm orders will result.
The Company continues to propose on additional domestic and foreign
government programs. Additionally, the Company is experiencing an increase in
proposal activity to customers in the broadcast and cable markets. Typically
such proposals are part of larger capital projects, which involve risks or
delays beyond the Companys control. Since such orders often are relatively
large, the receipt or loss of a significant order can materially affect
quarterly sales and results of operations. Additionally, larger
13
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programs frequently schedule deliveries of the Companys products over an
extended period. The Company does not currently anticipate that such new large
programs will generate material revenue in the fourth quarter of 1998.
MicroNet Products. Since the end of the second fiscal quarter, the Company
has included the operations of MicroNet, a manufacturer of disk arrays and
network attached storage products for image-based markets, including the video
and commercial pre-press markets. Sales for the third quarter of 1998 totaled
$3.2 million. Subsequent to the acquisition, the Company has focused MicroNets
sales and marketing efforts on its DataDock 7000(, a data storage product based
upon redundant arrays of independent drives (RAID). The DataDock 7000 permits
users to configure their disk drives to store up to 128 gigabytes of data. The
addition of the DataDock 7000 complements Ampexs image-based storage products
expertise by offering disk, as well as tape-based, storage solutions. The
Company has begun to phase out lower-priced product lines which, in prior years,
accounted for the majority of MicroNets sales. The Company is developing a new
generation of disk arrays that offer substantially improved capacity,
performance and features, such as fiber channel connectivity. These products are
scheduled for shipment in the first half of 1999.
Professional Video Recording and Other Products. As anticipated, sales of
professional video recording products and all other products (consisting
primarily of television after-market products) continued to decrease to $2.9
million in the third quarter of 1998 from $4.6 million in the third quarter of
1997, and to $9.1 million in the first nine months of 1998 from $12.5 million in
the first nine months of 1997. The Companys discontinued analog and current DCT(
digital products are designed for existing broadcast transmission standards. The
Company anticipates that sales of such products and related after-market
products will continue to decline due to the establishment of new digital
standards. The Company has recently made material sales of DST mass data storage
products to the broadcast and cable markets and has issued proposals to several
additional customers. In addition to its direct sales programs, the Company is
discussing strategic marketing relationships with certain manufacturers of
broadcast servers. Management believes its DST mass data storage products will
in future periods comprise the majority of its sales in the broadcast and cable
markets.
Gross Profit. Gross profit as a percentage of net sales decreased to 33.6%
in the third quarter of 1998 from 45.3% in the third quarter of 1997, and to
41.2% in the first nine months of 1998 from 48.5% in the first nine months of
1997. The decline in gross profit margin results from the inclusion of MicroNet
product sales that have lower margins than Ampex product sales, a lower
proportion of instrumentation product sales which have higher gross profit
margins than other sales, and an overall decline in sales volume that resulted
in lower absorption of fixed manufacturing costs.
Selling and Administrative Expenses. Selling and administrative expenses
increased to $7.0 million in the third quarter of 1998 from $5.0 million in the
third quarter of 1997, and decreased to $17.1 million in the first nine months
of 1998 from $19.1 million in the first nine months of 1997. Expenses increased
by $2.0 million in the third quarter of 1998 due to the inclusion of selling and
administrative expenses of MicroNet in the consolidated results. Also an
actuarial valuation of certain supplemental pension plans resulted in a charge
of $0.9 million in the third quarter of 1998. The decline in the nine months of
1998 compared to the nine months of 1997 is a result of reduced patent
infringement litigation expenses, as well as continued implementation of cost
controls. The Company incurred $0.3 million of patent infringement litigation
expenses in the first nine months of 1998, compared to $1.9 million, $1.7
million and $0.3 million of such expenses in the first, second and third
quarters of 1997.
14
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<PAGE>
Research, Development and Engineering Expenses. Research, development and
engineering expenses decreased to $2.9 million in the third quarter of 1998 from
$3.8 million in the third quarter of 1997, and decreased to $9.1 million in the
first nine months of 1998 from $11.5 million in the first nine months of 1997.
Reduced expense levels are largely attributable to the Companys keepered media
development program, which was substantially completed in 1997. The Company is
committed to investing in research, development and engineering programs at
levels that management believes can be supported by current sales levels.
Acquisition of In-process Research and Development. In connection with the
acquisition of MicroNet, the independent appraisal of the in-process research
and development resulted in the recording of a one-time $2.9 million charge in
the second quarter of 1998.
Royalty Income. Royalty income was $2.2 million and $1.8 million in the
third quarters of 1998 and 1997, respectively and $5.7 million and $9.1 million
in the first nine months of 1998 and 1997, respectively. The decline in royalty
income of $3.4 million during the nine-month period in 1998 resulted from the
Companys receipt of approximately $3.7 million of nonrecurring royalties
resulting from a negotiated settlement related to sales of products by the
manufacturer prior to the negotiation of a license from the Company. The Company
did not receive any nonrecurring royalty payments in the first nine months of
1998. The Company is currently assessing whether its patented technology is
being used by manufacturers of video games, DVD recorders and digital television
receivers. There can be no assurance that the manufacturers of these products
are utilizing the Companys technology or, if used, whether the Company will be
able to negotiate license agreements with the manufacturers.
Royalty income has historically fluctuated widely due to a number of
factors that the Company cannot predict or control, such as the extent of use of
the Company's patented technology by third parties, the materiality of any
nonrecurring royalties received as the result of negotiated settlements for
products sold by manufacturers prior to entering licensing agreements with the
Company, 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. The costs of patent litigation can be material, and the institution
of patent enforcement litigation may also increase the risk of counterclaims
alleging infringement by the Company of patents held by third parties or seeking
to invalidate patents held by the Company. See Legal Proceedings, below.
Restructuring Charges (Credits). The Company recorded a net restructuring
credit in the third quarter of 1998 of $0.3 million and net restructuring
expense of $2.5 million in the first nine months of 1998. The Company recorded a
restructuring credit of $1.0 million in the third quarter and first nine months
of 1997. The charge of $2.5 million in the first nine months of 1998 includes a
charge of $3.3 million incurred in connection with the Companys relocation of a
portion of its DCRsi manufacturing operations from its Redwood City, California
facility to its Colorado Springs, Colorado facility and concurrent workforce
reduction, offset by a credit of $0.8 million related to the termination of the
lease of one of its buildings at its Redwood City, California facility. The
relocation is expected to reduce operating costs by up to $5.0 million annually.
These savings may be offset in whole or in part by increases in marketing
expenses or other factors. The Company expects to implement the relocation in
various phases through the first half of 1999 and may record additional charges
in connection with these plans.
Operating Income (Loss). The Company incurred an operating loss of $2.0
million in the third quarter of 1998 (which included an operating loss by
MicroNet of $0.4 million), and reported operating income of $2.1 million in the
third quarter of 1997. The operating loss in the third quarter of 1998 was
15
777938.1
<PAGE>
primarily due to the decline in sales of Ampex products, and an additional
provision resulting from an actuarial valuation of certain supplemental pension
plans. The Company generated an operating loss of $6.1 million in the first nine
months of 1998, and reported operating income of $8.9 million in the first nine
months of 1997. The decline in operating income in the first nine months of 1998
resulted from a reduction in nonrecurring royalty income of $3.7 million, a
charge of $2.9 million for acquired in-process research and development, a
provision for restructuring of $2.5 million and an actuarial valuation reserve
of $0.9 million. In addition, in the first nine months of 1998, operating income
was negatively affected by a decline in net sales, offset by reduced patent
infringement litigation and other operating expenses from 1997 levels.
Interest Expense. Interest expense increased between the comparison periods
due to the issuance of the Companys outstanding 12% Senior Notes due 2003 (the
12% Senior Notes) in January and July 1998. See Liquidity and Capital Resources
- -- Financing Transactions and Note 10 of Notes to Unaudited Consolidated
Financial Statements.
Interest Income. Interest income increased slightly between the comparison
periods, resulting primarily from higher cash balances due to the proceeds of
the 12% Senior Notes in the first nine months of 1998, offset in part by the
prepayment of notes issued to the Company in connection with the 1996 sale of
the Companys Redwood City property.
Other Expense, Net. Other expense, net, in both periods consisted primarily
of foreign currency transaction gains and losses.
Provision for Income Taxes. In the first quarter of 1998, the Company
reversed $5.2 million previously reserved in connection with disputed state
income taxes for the prior years, following the favorable settlement of that
dispute in March 1998. In the second and third quarter of 1998, the Company
reversed $4.9 and $5.2 million, respectively, previously reserved in connection
with the liquidation of its subsidiary in Italy. The Company derives pretax
foreign income from its international operations, which are conducted
principally by its foreign subsidiaries. In addition, the Company's royalty
income is subject, in certain cases, to foreign tax withholding. Such income is
taxed by foreign taxing authorities, and the Companys domestic tax timing
differences and operating losses, if any, are not deductible in computing such
foreign taxes. The provision for income taxes in the first nine months of 1997
consisted primarily of foreign income taxes and withholding taxes on royalty
income.
Net Income. The Company reported net income of $8.0 million in the first
nine months of 1998 compared to $9.9 million in the first nine months of 1997,
primarily as a result of the factors discussed above under "Operating Income
(Loss)" and Provision for Income Taxes.
Liquidity and Capital Resources
Cash Flow. At September 30, 1998, the Company had cash and short-term
investments of $61.2 million and working capital of $74.2 million. At December
31, 1997, the Company had cash and short-term investments of $41.8 million and
working capital of $44.6 million. The increase in cash and short-term
investments in the 1998 period reflects the receipt of approximately $42.2
million of net proceeds from the Companys January and July 1998 issuance of its
12% Senior Notes, offset primarily by an investment of $8.4 million in working
capital for MicroNet, increased accounts receivable and inventories of $2.6
million and $3.8 million, respectively, and cash payments of accrued liabilities
and accrued restructuring of $7.0 million. The Companys operating activities
utilized cash of $14.6 million during the nine months of 1998 and utilized cash
of $2.0 million during the first nine months of 1997,
16
777938.1
<PAGE>
primarily for the reasons discussed above. The increase in inventories over
year-end 1997 levels arose primarily in anticipation of disruptions that may
result from the phased relocation of manufacturing operations to its Colorado
Springs facility. The Company expects that 1998 inventory levels will remain
higher than in 1997 periods until this relocation has been completed. Any
increased investment in inventories may expose the Company to an increased risk
of inventory write-offs in future periods. The increase in accounts receivable
during the first nine months of 1998 over year-end 1997 levels primarily was due
to the sales of Ampex products to government agencies in the United Kingdom and
Germany, which are not due for payment until the fourth quarter of 1998.
Major items impacting net income in 1998, which did not generate or use
cash included a $5.2 million favorable settlement of disputed state income
taxes, $10.1 million favorable resolution of prior years' foreign contingencies
and the recording of $2.9 million for acquired in-process research and
development as a result of the acquisition of MicroNet and $0.9 million for an
actuarial revaluation reserve.
The Company has available, through a subsidiary, a working capital facility
that allows it to borrow or obtain letters of credit totaling $7.0 million,
based on eligible accounts receivable, through May 2000. At September 30, 1998,
the Company had borrowings outstanding of $1.3 million and had letters of credit
issued against the facility totaling $1.1 million.
Financing Transactions. As at December 31, 1997, the Company became
required to redeem the 69,970 outstanding shares of its 8% Noncumulative
Preferred Stock with an aggregate liquidation value of $70.0 million (the Old
Preferred Stock), to the extent of funds legally available therefor (generally,
the excess of the value of assets over liabilities) at the redemption price of
$1,000 per share. Pursuant to an agreement in the second quarter of 1998, the
Company completed the redemption of the Old Preferred Stock in exchange for the
following securities (a) 3,000,000 shares of its Class A Common Stock, par value
$0.01 per share (the Class A Stock); (b) 10,000 shares of a new series of 8%
Noncumulative Convertible Preferred Stock, par value $1.00, with an aggregate
liquidation value of $20.0 million (the Convertible Preferred Stock); and (c)
21,859 shares of a new series of 8% Noncumulative Redeemable Preferred Stock,
par value $1.00 per share, with an aggregate liquidation value of $43.7 million
(the Redeemable Preferred Stock).
Each share of Convertible Preferred Stock and Redeemable Preferred Stock
(together, the New Stock) will entitle the holder thereof to receive
noncumulative dividends at the rate of 8% per annum, if declared by the Companys
Board of Directors. Each share of Convertible Preferred Stock may be converted,
at the option of the holder thereof, at a conversion price of $4.00 per share,
into 500 shares of Class A Stock, subject to adjustment under certain
circumstances. Beginning in June 2001, the Company will become obligated to
redeem the Convertible Preferred Stock in quarterly installments through
December 2008. Beginning in June 1999, the Company will become obligated to
redeem the Redeemable Preferred Stock in quarterly installments through March
2008. The Company will have the option to redeem the Redeemable Preferred Stock
at any time and the Convertible Preferred Stock beginning in June 2001, and will
have the option to make mandatory redemption payments either in cash or in
shares of Common Stock. In the event that the Company does not have sufficient
funds legally available to make any mandatory redemption payment in cash, the
Company will be required to make such redemption payment by issuing shares of
Common Stock. Shares of Common Stock issued to make any optional or mandatory
redemption payments will be valued at the higher of $2.50 or fair market value
per share of Common Stock. See Note 3 and 7 of Notes to Unaudited Consolidated
Financial Statements.
17
In January 1998, the Company issued $30.0 million of its 12% Senior Notes,
together with Warrants to purchase 1.02 million shares of its Class A Common
Stock (the "Class A Stock"). The Warrants are exercisable at $2.25 per share at
any time on or prior to March 15, 2003. At the end of the second quarter of
1998, the Company issued an additional $14.0 million of 12% Senior Notes. As a
result of the issuance of the 12% Senior Notes, the Company's total indebtedness
and future debt service obligations have increased significantly from prior
levels. A portion of the net proceeds of the offering have been invested to
repay short-term debt and trade accounts payable of MicroNet, and the balance
has been invested in short-term government securities. The yield on short-term
investments is substantially lower than the interest charges on the 12% Senior
Notes. The Company has wide discretion as to how the proceeds may be invested,
including for acquisitions of and investments in new businesses. Any such
investments or acquisitions, if made, are not expected to pay a current return,
which could require the Company to fund debt service obligations on the 12%
Senior Notes out of its liquidity and cash flow from existing operations. In
order to minimize the difference between the interest the Company currently
receives on its investments and the interest payable on the Senior Notes, the
Company may invest a significant portion of the Senior Note proceeds in
securities with higher yields, longer terms or lower credit quality, and the
Company may also engage in various transactions in derivative securities. In
connection with the acquisition strategy, the Company may purchase in the open
market securities issued by companies that the Company is considering acquiring
or in which the Company is considering making a larger investment. Investments
in any securities could expose the Company to a risk of trading losses due to
market or interest rate fluctuations or other factors that are not within the
Company's control. The Indenture under which the 12% Senior Notes were issued
contains customary affirmative and negative restrictive covenants that limit,
among other things, the incurrence of additional senior debt, the payment of
dividends, the sale of assets and other actions by the Company and certain
restricted subsidiaries.
Readiness for Year 2000
Many currently installed computer systems, software applications and other
control devices (collectively, "Systems") are coded to accept only two digit
entries in the date code field. As the year 2000 approaches, these code fields
will need to accept four digit entries to distinguish years beginning with " 1
9" from those beginning with "20". As a result, in just over one year the
Systems used by many companies may need to be modified to comply with year 2000
requirements. The Company relies on its internal Systems in operating and
monitoring all major aspects of its business, including its manufacturing
processes, engineering management controls, financial systems (such as general
ledger, accounts payable and payroll modules), customer services,
infrastructure, embedded computer chips, networks and telecommunications
equipment and products. The Company also relies on the external Systems of its
suppliers and other organizations with which it does business.
The Company is currently reviewing all of its products, as well as its
internal use of Systems, in order to identify and modify those products and
Systems that are not year 2000 compliant. To accomplish this the Company has
established a Year 2000 Compliance Committee that is investigating the impact of
the year 2000 on the Company's business. The Committee's membership includes
representatives involved in all major functions of the Company. Its charter is
to identify all Systems that, if not in compliance, could adversely affect the
Company's business. For critical Systems that are found not to be in compliance,
the Committee will develop a plan, including a budget for associated costs, to
ensure compliance before the year 2000. The Committee has nearly completed its
assessment and it has determined that many of the Company's Systems, such as its
manufacturing Systems, are in compliance as are all of the products currently
offered for sale by the Company. Other Systems, such as its financial Systems
and some engineering management Systems, currently do not comply but are
expected to be
777949.1
<PAGE>
18
modified in early 1999 so that they are compliant. There can be no assurance,
however, that the Company will not be required to reevaluate its assessments
should it become evident that any Systems previously determined to be in
compliance are not yet fully compliant. The Company has also sent questionnaires
to major suppliers to assess the status of its year 2000 compliance, as it
relates to the Company. To date, no material issue has been identified in any of
the other Systems used or relied upon by the Company and the cost of bringing
the non-compliant Systems into compliance by early 1999 has not been, and is not
expected to be, greater than $1.0 million.
The Company believes the most reasonably likely worse-case scenario is that the
required modifications will not be completed until late 1999. Under this
scenario, the Company does not believe that there would be any material impact
on its business. Accordingly, the Company has not developed a contingency plan
in the event the required modifications are not made in 1999. The Company's
current insurance programs do not specifically exclude losses attributed to year
2000 non-compliance, but these programs are subject to change as they are
renewed for future periods. Despite the Company's efforts thus far to address
the year 2000 impact, the Company cannot guarantee that all internal and
external Systems will be compliant, or that its business will not be materially
adversely affected by any such noncompliance.
PART 11 -- 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.
Ampex has previously reported that it has been engaged since late 1995 in
patent infringement litigation with Mitsubishi Electric Corporation and
Mitsubishi Electric America Inc. regarding the manufacture of certain video and
data recording products and television receivers. A description of this I
itigation is included under the caption "Legal Proceedings" in the 1997 Form I
O-K. Since the filing of that report, the Court of Appeals for the Federal
Circuit has issued a decision denying Ampex's appeal of the adverse ruling of
the United States District Court in Delaware. As previously disclosed, no income
from the jury's earlier damage award has been recorded in the company's
financial statements.
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 plans to bring
operations into compliance. Management does not anticipate that capital
expenditures for pollution control equipment for fiscal 1998 or 1999 will be
material.
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,
including liability for investigative and cleanup costs and damages arising out
of past disposal activities. The Company has been named as a potentially
responsible party by the United States Environmental Protection Agency with
respect to five contaminated sites that have
19
777949.1
<PAGE>
been designated as Superfund sites on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.
The Company is engaged in seven environmental investigation, remediation and/or
monitoring activities at sites located off Company facilities, including the
removal of solvent contamination from subsurface aquifers at a site in
Sunnyvale, California, and one Superfund site in Monterey, California where the
Company has already entered into a deminimis settlement agreement with the EPA.
Some of these activities involve the participation of state and local government
agencies. The other five sites (including the four remaining Superfund sites)
are associated with the operations of the Company's former magnetic tape
subsidiaries (collectively, "Media"). Although the Company sold Media in
November 1995, the Company may have continuing liability with respect to
environmental contamination at these sites if Media fails to discharge its
responsibilities with respect to such 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. Nevertheless, at September 30,
1998, the Company had an accrued liability of $2.0 million for pending
environmental liabilities associated with the Sunnyvale site and certain other
sites currently owned or leased by the Company. The Company has not accrued for
any contingent liabilities it may incur with respect to the former Media sites
discussed above. 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.
Although the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has plans 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. There can be no assurance that the Company will
not ultimately incur liability in excess of amounts currently reserved for
pending environmental matters, or that additional liabilities with respect to
environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital equipment
or other requirements. Such liabilities or regulations could have a material
adverse effect on the Company in the future.
Item 2. Changes in Securities and Use of Proceeds
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
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777949.1
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Not applicable.
Item 6(a). Exhibits
The Exhibits to this Quarterly Report on Form I O-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
1. The Company filed a Current Report on Form 8-K on or about July 15,
1998 to report, pursuant to Item 5 of Form 8-K, the redemption of its 8%
Noncumulative Preferred Stock in exchange for securities of the Company.
2. The Company filed a Current Report on Form 8-K on or about July 30,
1998 to report, pursuant to Items 2 and 5, respectively, of Form 8-K, the
acquisition of MicroNet Technology, Inc. and the issuance of $14,000,000
principal amount of additional 12% Senior Notes due 2003.
3. The Company filed Current Reports on Form 8-K/A on or about
September 25, 1998 and October 16, 1998 to file certain financial statements of
MicroNet Technology, Inc. pursuant to Item 7 of Form 8-K.
21
777949.1
<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 13, 1998 /s/ EDWARD J. BRAMSON
------------------------------
Edward J. Bramson
Chairman and Chief Executive
Officer
Date: November 13, 1998 /s/ CRAIG L. McKIBBEN
-------------------------------
Craig L. McKibben
Vice President, Chief Financial
Officer and Treasurer
22
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<PAGE>
AMPEX CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30,1998
EXHIBIT INDEX
Exhibit
Number Description
1.1 Purchase Agreement, dated July 17, 1998, between the
Registrant and First Albany Corporation, as Initial
Purchaser, relating to the Company's 12% Senior Notes due
2003 (filed as Exhibit 1. I to the Company's Form 8-K filed
on July 30, 1998 and incorporated herein by reference).
3.1 Certificate of Designations, Preferences and Rights of the
Registrant's 8% Noncumulative Convertible Preferred Stock and
8% Noncumulative Redeemable Preferred Stock, as filed with
the Secretary of Delaware on July 2, 1998. (filed as Exhibit
3.1 to the Company's Form 8-K filed on July 15, 1998 and
incorporated herein by reference).
4.1 Exchange Agreement for 8% Noncumulative Preferred Stock,
dated as of June 22, 1998, among the Registrant and Holders
named therein (filed as Exhibit 4.1 to the Company's Form 8-K
filed on July 15, 1998 and incorporated herein by reference).
4.2 First Amendment to Indenture, dated as of July 2, 1998,
between the Registrant and IBJ Schroder Bank & Trust Company,
as trustee (filed as Exhibit 4.1 to the Company's Form 8-K
filed on July 30, 1998 and incorporated herein by reference).
4.3 Exchange and Registration Rights Agreement, dated as of July
2, 1998, between the Registrant and the Initial Purchaser
(filed as Exhibit 4.2 to the Company's Form 8-K filed on July
30, 1998 and incorporated herein by reference).
4.4 Acquisition Agreement, dated as of June 24, 1998, among the
Registrant Ampex Holdings Corporation ("Holdings") and the
several selling shareholders named therein ("Sellers") (filed
as Exhibit 4.3 to the Company's Form 8-K filed on July 30,
1998 and incorporated herein by reference).
4.5 Supplement to Acquisition Agreement, dated June 30, 1998,
among the Registrant, Holdings and the Sellers (filed as
Exhibit 4.4 to the Company's Form 8-K filed on July 30, 1998
and incorporated herein by reference).
4.6 Second Supplement to Acquisition Agreement, dated July 16,
1998, among the Registrant, Holdings and the Sellers (filed
as Exhibit 4.5 to
23
777949.1
<PAGE>
the Company's Form 8-K filed on July 30,
1998 and incorporated herein by
reference).
27.1 * Financial Data Schedule.
*Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED SEP 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,703
<SECURITIES> 53,537
<RECEIVABLES> 19,606
<ALLOWANCES> (2,114)
<INVENTORY> 20,676
<CURRENT-ASSETS> 100,802
<PP&E> 41,407
<DEPRECIATION> 31,525
<TOTAL-ASSETS> 117,125
<CURRENT-LIABILITIES> 26,567
<BONDS> 43,339
63,718
1,045
<COMMON> 498
<OTHER-SE> (74,335)
<TOTAL-LIABILITY-AND-EQUITY> 117,125
<SALES> 16,001
<TOTAL-REVENUES> 16,001
<CGS> 10,624
<TOTAL-COSTS> 20,534
<OTHER-EXPENSES> (2,504)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,393
<INCOME-PRETAX> (2,719)
<INCOME-TAX> (4,944)
<INCOME-CONTINUING> 2,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,225
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
