<PAGE>
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 MARCH 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File 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 March 31, 2000, the aggregate number of outstanding shares of the
Registrant's Class A Common Stock, $.01 par value, was 56,616,572. 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 MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements...................................................................2
Consolidated Balance Sheets (unaudited) at March 31, 2000 and
December 31, 1999......................................................................3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 2000 and 1999.............................................4
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 2000 and 1999...................................................5
Notes to Unaudited Consolidated Financial Statements...................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................12
Item 3. Quantitative and Qualitative Disclosure about Market Risk.............................25
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................25
Item 2. Changes in Securities and Use of Proceeds.............................................27
Item 3. Defaults Upon Senior Securities.......................................................27
Item 4. Submission of Matters to a Vote of Security Holders...................................27
Item 5. Other Information.....................................................................27
Item 6(a).Exhibits..............................................................................27
Item 6(b).Reports on Form 8-K...................................................................27
Signatures......................................................................................28
</TABLE>
2
<PAGE>
AMPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,392 $ 10,598
Short-term investments 18,709 31,067
Accounts receivable (net allowances of $274 in 2000 and $358 in 1999) 1,665 1,236
Inventories 2,089 2,261
Other current assets 1,522 4,951
-------- ---------
Total current assets 38,377 50,113
Property, plant and equipment 6,336 5,363
Intangible assets, net 8,928 9,806
Investment in unconsolidated companies 1,786 1,786
Deferred pension asset 6,777 5,571
Other assets 1,508 1,620
Net assets of business held for disposition 16,053 13,060
-------- ---------
Total assets $ 79,765 $ 87,319
======== =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 898 $ 1,103
Accounts payable 2,347 2,569
Accrued restructuring costs 57 67
Other accured liabilities 7,849 7,913
-------- ---------
Total current liabilities 11,151 11,652
Long-term debt 43,870 43,914
Other liabilities 21,423 21,634
Deferred income taxes 1,213 1,213
-------- ---------
Total liabilities 77,657 78,413
-------- ---------
Commitments and contingencies (Note 7)
Mandatorily redeemable junior preferred stock (Note 8) - -
Mandatorily redeemable nonconvertible preferred stock, $1,000 liquidation value:
Authorized: 69,970 shares in 2000 and in 1999
Issued and outstanding - none in 2000 and in 1999 - -
Mandatorily redeemable preferred stock, $2,000 liquidation value:
Authorized: 21,859 shares in 2000 and in 1999
Issued and outstanding - 18,784 shares in 2000, 19,321 in 1999 37,568 38,642
Convertible preferred stock, $2,000 liquidation value:
Authorized: 10,000 shares in 2000 and in 1999
Issued and outstanding - 1,125 shares in 2000; 1,885 in 1999 2,250 3,770
Shareholders' deficit:
Preferred stock, $1.00 par value:
Authorized: 898,171 shares in 2000 and in 1999
Issued and outstanding - none in 2000 and in 1999 - -
Common stock, $.01 par value:
Class A:
Authorized: 175,000,000 shares in 2000 and in 1999
Issued and outstanding - 56,616,572 shares in 2000; 55,941,854 in 1999 566 559
Class C:
Authorized: 50,000,000 shares in 2000 and in 1999
Issued and outstanding - none in 2000 and in 1999 - -
Other additional capital 418,059 415,437
Notes receivable from stockholders (4,642) (4,642)
Accumulated deficit (451,714) (445,001)
Accumulated other comprehensive income 21 141
-------- ---------
Total stockholders' deficit (37,710) (33,506)
-------- ---------
Total liabilities, redeemable preferred stock and stockholders' deficit $ 79,765 $ 87,319
======== =========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Royalty income $ 3,119 $ 2,662
Internet revenue 575 -
Product sales 3,261 2,825
----------- -----------
Total revenue 6,955 5,487
----------- -----------
Intellectual property costs 370 377
Internet video programming and site development 3,249 -
Cost of product sales 2,255 2,592
Research, development and engineering 444 184
Selling and administrative 5,794 2,231
Amortization of goodwill 877 303
----------- -----------
Total costs and operating expenses 12,989 5,687
----------- -----------
Operating loss (6,034) (200)
Interest expense 1,364 1,352
Amortization of debt financing costs 88 86
Interest income (547) (739)
Other (income) expense, net (1) (2)
----------- -----------
Loss from continuing operations
before income taxes (6,938) (897)
Provision for income taxes 323 260
----------- -----------
Loss from continuing operations (7,261) (1,157)
Income (loss) of business held for disposition
(net of taxes of none in 2000 and 1999) 548 (790)
----------- -----------
Net loss available for common stockholders (6,713) (1,947)
Other comprehensive loss, net of tax:
Unrealized gain (loss) on marketable securities (130) 199
Foreign currency translation adjustments 10 -
----------- -----------
Comprehensive loss $ (6,833) $ (1,748)
=========== ===========
Basic and diluted income (loss) per share:
Loss per share from continuing operations $ (0.13) $ (0.02)
Income (loss) per share from discontinued
operations $ 0.01 $ (0.02)
Loss per share available to common stockholders $ (0.12) $ (0.04)
----------- -----------
Weighted average number of common shares outstanding 55,518,445 50,618,092
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE>
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three months
ended
------------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,713) $ (1,947)
Loss (income) from discontinued operations (548) 790
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation, amortization and accretion 1,359 567
Net loss on disposal of assets 155 -
Changes in operating assets and liabilities:
Accounts receivable (429) (359)
Inventories 172 (491)
Deferred pension asset (1,206) -
Other assets 3,466 973
Accounts payable (223) 123
Other accrued liabilities and income taxes payable (65) (1,419)
Accrued restructuring costs (10) (652)
Other liabilities (203) (396)
--------- ---------
Net cash used in continuing operations (4,245) (2,811)
Net cash used in discontinued operations (2,904) (3,223)
--------- ---------
Net cash used in operating activities (7,149) (6,034)
--------- ---------
Cash flows from investing activities:
Purchases of short-term investments (15,552) (29,265)
Proceeds received on the maturity of short-term investments 25,621 32,854
Proceeds from the sale of short-term investments 2,140 4,224
Additions to property, plant and equipment (1,475) (60)
Investments to unconsolidated companies - (5,000)
--------- ---------
Net cash provided by continuing operations 10,734 2,753
Net cash used in discontinued operations (378) (210)
--------- ---------
Net cash provided by investing activities 10,356 2,543
--------- ---------
Cash flows from financing activities:
Repayments under working facilities (288) -
Repayment of notes payable affiliates - (6)
Debt financing costs - (5)
Proceeds from issuance of common stock 37 32
--------- ---------
Net cash provided by (used in) continuing operations (251) 21
Net cash provided by discontinued operations 950 12
--------- ---------
Net cash provided by financing activities 699 33
--------- ---------
Effects of exchange rates on discontinued operations (112) (36)
--------- ---------
Net increase (decrease) in cash and cash equivalents 3,794 (3,494)
Cash and cash equivalents, beginning of period 10,598 23,357
-------- ---------
Cash and cash equivalents, end of period $ 14,392 $ 19,863
======== =========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - AMPEX CORPORATION
Ampex Corporation ("Ampex" or the "Company") is one of the world's
leading innovators of technologies for the visual information age. Beginning in
1999, the Company embarked to strategically reposition the Company by building a
network of Internet video businesses, focused on programming, services and
technology. During 1999, the Company, through its subsidiary, iNEXTV Corporation
("iNEXTV"), acquired equity interests in various Internet video businesses and
started to assemble its internal organization to support the iNEXTV network and
to develop additional Internet video-based websites.
In February 2000, in order to focus more sharply on its Internet video
businesses, the Company announced plans to sell Ampex Data Systems Corporation,
("Data Systems"), its subsidiary that makes high performance tape-based mass
data storage products. The results of operations of Data Systems have been
classified as Discontinued Operations in the Statements of Operations for all
periods presented. The book value of the net assets to be sold is reflected in
net assets of business held for disposition in the Consolidated Balance Sheet
for March 31, 2000 and December 31, 1999. The Company expects to report a gain
on the sale of Data Systems. However, at the date of these financial statements,
the Company has not yet entered into a contract to sell Data Systems. Upon
consummation of a successful sale, the Company intends to use the proceeds for
investment in iNEXTV and other Internet initiatives, as well as to retire debt.
Following the planned sale of Data Systems, the Company's continuing
operations will include iNEXTV, its non-Internet technology licensing group, the
newly-formed Internet Technology Group ("ITG") and MicroNet Technology, Inc.
("MicroNet"), its wholly-owned subsidiary that makes high performance disk
arrays and Storage Area Network products.
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, 1999 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
period ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. The
Company believes that adoption of this pronouncement will have no material
impact on the Company's financial position and results of operations.
In December 1999, the Securities Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The Company believes that adopting SAB 101 will not have a material impact
on the Company's financial position and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Opinion No. 25. FIN 44
clarifies the application of Opinion 25 for (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
Management believes that that the impact of FIN 44 will not have a material
effect on the financial position or results of operations of the Company.
6
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - BUSINESS HELD FOR DISPOSITION
In February 2000, the Board of Directors of the Company authorized
management to pursue a sale of Data Systems, its wholly-owned subsidiary that
manufacturers and sells high performance, tape-based mass data storage products.
A summary of the operating results of Data Systems is as follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------- --------
(in thousands)
<S> <C> <C>
Revenues...................................................... $ 11,739 $ 12,195
Costs and operating expenses.................................. 11,290 13,047
Operating income (loss)....................................... 449 (852)
Other (income) expense........................................ (68) 10
Income (loss) of business held for disposition................ 548 (790)
</TABLE>
A summary of the assets and liabilities of Data Systems is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- -----------
(in thousands)
<S> <C> <C>
Current assets................................................ $ 27,286 26,328
Property, plant and equipment, net............................ 6,702 6,796
Other assets.................................................. 89 134
Current liabilities........................................... (14,724) (17,527)
Long-term debt................................................ (1,702) (752)
Other liabilities............................................. (731) (1,038)
Other......................................................... (867) (881)
------------- -------------
Net assets of segment to be sold.............................. $ 16,053 13,060
============= =============
</TABLE>
Prospective buyers have only recently been approached by the Company's
advisors. However, the Company believes that it will recognize a gain on the
sale of Data Systems some time in fiscal 2000.
NOTE 4 - COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted loss per
common share is provided as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Numerator
Loss from continuing operations........................ $ (7,261) $ (1,157)
============= =============
Net loss available for common stockholders............. $ (6,713) $ (1,947)
============= =============
Denominator
Weighted average common stock outstanding.............. 55,518 50,618
------------ -------------
Basic and diluted loss per share from continuing operations. $ (0.13) $ (0.02)
============= =============
Basic and diluted loss per share............................ $ (0.12) $ (0.04)
============= =============
</TABLE>
7
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE (CONT'D.)
In connection with the acquisition of MicroNet, the Company issued
720,000 shares of Common Stock which are being held in escrow pending the
resolution of certain contingencies. These shares have been included in the
computation of diluted weighted average common stock outstanding from their
issue date in periods when their inclusion is dilutive.
In the three months ended March 31, 2000, holders of 760 shares of
Convertible Preferred Stock converted their holdings into 380,000 shares of
Common Stock and holders of 537 shares of Redeemable Preferred Stock were
redeemed for 260,679 shares of Common Stock which are included in the weighted
average common stock outstanding since the date of exchange. In the three months
ended March 31, 1999, holders of 5,640 shares of Convertible Preferred Stock
converted their holdings into 2,815,000 shares of Common Stock which are
included in the weighted average common stock outstanding since the date of
exchange. The remaining shares of Common Stock potentially issuable on
conversion of Convertible Preferred Stock and redemption of the Redeemable
Preferred Stock have not been included in the computation of diluted weighted
average common stock outstanding for the three months ended March 31, 2000 and
1999, respectively, since they are anti-dilutive. If the Company were to make
all remaining redemption payments in Common Stock based on the floor conversion
price, an additional 15,589,700 shares of Common Stock would be issued over the
number of common shares included in the diluted income per share computation. At
March 31, 2000 such additional shares of Common Stock would be anti-dilutive to
the diluted loss per share reported.
Stock options to purchase 3,340,118 shares of Common Stock at prices
ranging from $1.06 to $6.00 per share were outstanding at March 31, 2000, but
were not included in the computation of diluted loss per share as they are
anti-dilutive.
Stock options to purchase 2,800,179 shares of Common Stock at prices
ranging from $1.0625 to $10.50 per share were outstanding at March 31, 1999, but
were not included in the computation of diluted loss per share as they are
anti-dilutive.
In January 1998, Warrants to purchase 1,020,000 shares of Common Stock
at $2.25 per share were issued in connection with the issuance of the Senior
Notes. See Note 11. The Warrants were not included in the computation of diluted
weighted average common stock outstanding at March 31, 1999 because the exercise
price was greater than the average market value of the common shares. On May 10,
1999, Warrants were exercised for 204,000 shares of Common Stock, which are
included in the weighted average common stock outstanding since the date of the
exchange. The remaining outstanding warrants are excluded from the computation
of weighted average common stock outstanding at March 31, 2000 as they are
anti-dilutive.
NOTE 5 - SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
2000 1999
------------- -------------
(in thousands)
<S> <C> <C>
Interest paid.......................................... $ 2,641 $ 2,640
Income taxes paid...................................... 260 330
Redeemable preferred stock............................. (1,520) -
Convertible preferred stock............................ (1,074) (11,260)
Issuance of common stock............................... 2,594 11,260
</TABLE>
8
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INVENTORIES
March 31, December 31,
2000 1999
------------- --------------
(in thousands)
Raw materials...................... $ 338 $ 313
Work in process.................... 140 57
Finished goods..................... 1,611 1,891
------------- --------------
Total.......................... $ 2,089 $ 2,261
============= ==============
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is currently a defendant in lawsuits that have arisen in
the ordinary course of its business. Certain subsidiaries have been assessed
income and value-added taxes together with penalties and interest. 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.
On January 7, 2000, a suit was filed against the Company and others by
Information Super Station ("ISS"), the majority stockholder of Executive Branch
Webcasting Corporation, in which the Company's Internet subsidiary, iNEXTV, held
a minority interest. The suit seeks an injunction or recovery of damages in the
amount of $600 million. The Company believes that the suit is without merit. On
February 1, 2000, the Company filed suit against ISS and others under the
Federal securities laws seeking contract recission and damages in connection
with activities related to the Company's investment.
ENVIRONMENTAL MATTERS
Ampex's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. 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. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites located
off Company facilities. Management has provided reserves, which have not been
discounted, 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.
The Company has not accrued any liability for costs that might be
assessed against it by federal or state environmental agencies involving sites
owned by the Company's former subsidiary Media. Media is primarily responsible
for the cleanup at its facilities and at off site locations. The Company
believes that it has no material contingent liability in connection with the
Media properties.
NOTE 8 - PREFERRED STOCK
Each share of Convertible Preferred Stock and Redeemable Preferred
Stock entitles 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, at a conversion price of $4.00 per share, into 500 shares of Common
Stock, subject to adjustment under certain circumstances. In the three months
ended March 31, 2000, the holders of 760 shares of Convertible Preferred Stock
converted their holdings into 380,000 shares of Common Stock. In the three
months ended March 31, 1999, the holders of 5,630 shares of Convertible
Preferred Stock converted their holdings into 2,815,000 shares of Common Stock.
Beginning in June 2001, the Company will become obligated to redeem any
remaining Convertible Preferred Stock in quarterly installments through December
2008. Beginning in June 1999, the Company became obligated to redeem the
Redeemable Preferred Stock in quarterly installments through March 2008. In the
three months ended March 31, 2000, the Company issued 260,679 shares of its
Common Stock to satisfy the quarterly redemption
9
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PREFERRED STOCK (CONT'D.)
requirements. The Company is obligated to redeem approximately $4.2 million face
amount of the security over the next twelve months. The Company has the option
to redeem the Redeemable Preferred Stock at any time and the Convertible
Preferred Stock beginning in June 2001, and has 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. The Company
intends to issue shares of Common Stock to satisfy its redemption obligation on
the Redeemable Preferred Stock through December 31, 2000.
The MicroNet Redeemable Junior Preferred Stock has a liquidation value
of $5.0 million and is redeemable out of a percentage of earnings of MicroNet
beginning in fiscal 1999. No redemption payments have been made because MicroNet
has reported losses since its date of acquisition. Due to the contingent nature
of the redemption provision, no value has been ascribed to the MicroNet
Redeemable Junior Preferred Stock in determination of the purchase price. The
shares of the MicroNet Redeemable Junior Preferred Stock are being held in
escrow, pending resolution of certain contingencies for which the Company has
been indemnified by the former stockholders of MicroNet.
NOTE 9 - INCOME TAXES
As of December 31, 1999, the Company had net operating loss
carryforwards for income tax purposes of $130.4 million expiring in the years
2005 through 2014. As a result of the financing transactions that were completed
in April 1994 and February 1995, the Company's ability to utilize its net
operating losses and credit carryforwards as an offset against future
consolidated federal income tax liabilities will be restricted in its
application, which will result in a material amount of the net operating loss
never being utilized by the Company.
NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The balances of each classification within accumulated other
comprehensive income are as follows:
<TABLE>
<CAPTION>
Unrealized Accumulated
Foreign Gain on Other
Currency Marketable Comprehensive
Items Securities Income
------------- ------------- --------------
(in thousands)
<S> <C> <C> <C>
December 31, 1999......................... $ - $ 141 $ 141
Current period change..................... 10 (130) (120)
------------- ------------- --------------
March 31, 2000............................ $ 10 $ 11 $ 21
============= ============= ==============
</TABLE>
NOTE 11 -- SENIOR NOTES
In January 1998, the Company issued $30.0 million of its 12% Senior
Notes ("Notes"), together with Warrants to purchase 1.02 million shares of
Common Stock. The Warrants are exercisable at $2.25 per share at any time on or
prior to March 15, 2003. At the time of issuance, the Warrants were valued using
the Black-Scholes model. The value assigned to the Warrants was $765,000, which
is being amortized against interest expense over the term of the Notes. At the
end of June 1998, the Company issued an additional $14.0 million Senior Notes.
Interest on the Notes is payable semi-annually on March 15 and September 15 of
each year. The Notes will mature on March 15, 2003. The Company may redeem the
Notes, in whole or in part, at any time after March 15, 2000, at redemption
prices expressed as percentages of the principal amount of the Notes ranging
from 100% to 106% depending on the redemption date, together with accrued and
unpaid interest, if any, to the date of redemption. The Notes are senior
unsecured obligations of the Company and rank pari passu in right of payment
with all existing and future subordinated indebtedness of the Company.
10
<PAGE>
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SEGMENT REPORTING
The Company has the following operating segments: high-performance
magnetic disk arrays; licensing of intellectual property and Internet video
programming and services. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.
The Company evaluates segment performance based on return on operating
assets employed. Profitability is measured as income or loss from operations
before income taxes, excluding restructuring charges (credits), foreign exchange
gains and losses and goodwill amortization and related acquisition charges.
Intersegment sales and transfers are accounted for at current market
prices but they were not significant to revenues.
<TABLE>
<CAPTION>
Three months ended March 31, 2000
-------------------------------------------------------------------------
Licensing of Eliminations
Internet Disk Intellectual and
Video Arrays Property Corporate Totals
----------- ----------- ----------- ---------------- ------
<S> <C> <C> <C> <C> <C>
Revenues from external customers.......... $ 575 $ 3,261 $ 3,119 $ - $ 6,955
Interest income........................... 22 - - 525 547
Interest expense.......................... 9 413 - 942 1,364
Depreciation, amortization and accretion.. 241 37 1 201 480
Segment income (loss)..................... (6,422) (884) 2,749 (1,504) (6,061)
Segment assets............................ 12,305 8,226 1 59,233 79,765
Expenditures for segment assets........... 1,435 40 - - 1,475
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1999
--------------------------------------------------------------------------
Licensing of Eliminations
Internet Disk Intellectual and
Video Arrays Property Corporate Totals
----------- ----------- ----------- ---------------- ------
<S> <C> <C> <C> <C> <C>
Revenues from external customers.......... $ - $ 2,825 $ 2,662 $ - $ 5,487
Interest income........................... - - - 739 739
Interest expense.......................... - 279 - 1,073 1,352
Depreciation, amortization and accretion.. - 23 1 240 264
Segment income (loss)..................... (60) (1,377) 2,285 (1,442) (594)
Segment assets............................ - 8,761 2 66,334 75,097
Expenditures for segment assets........... - 74 - 60 60
</TABLE>
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FORWARD-LOOKING STATEMENTS
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, THOSE DESCRIBED UNDER "RISK FACTORS," BELOW.
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 COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS
BASED. 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 the Company and its subsidiaries 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 Management's Discussion and Analysis of
Financial Condition and Results of Operations, included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, as filed with the
Securities and Exchange Commission (file no. 0-20292) (the "1999 Form 10-K").
STRATEGIC REPOSITIONING OF THE COMPANY
Beginning in 1999, the Company began a strategic repositioning of its
business by building a network of Internet video businesses, focusing on
programming, services and technology. During 1999 the Company, through its
subsidiary, iNEXTV, acquired equity interests in various Internet video
businesses and started to assemble an internal organization to support the
iNEXTV network and to develop additional Internet video-based websites.
In February 2000, in order to focus more sharply on its Internet video
businesses, the Company announced plans to sell Ampex Data Systems Corporation
("Data Systems"), its subsidiary which makes high performance tape-based mass
data storage products. The results of operations of Data Systems have been
classified as Discontinued Operations in the Statements of Operations for all
periods presented. The book value of the net assets to be sold of this segment
have been reflected in net assets of business held for disposition in the
Consolidated Balance Sheet as of December 31, 1999. Upon consummation of a
successful sale, the Company intends to use the proceeds for investment in
iNEXTV and other Internet initiatives, as well as to retire debt.
Following the planned sale of Data Systems, the Company's continuing
operations will include iNEXTV; its non-Internet technology licensing group; the
newly-formed Internet Technology Group; and MicroNet, its wholly-owned
subsidiary that makes high performance disk arrays and storage area networks
products (principally DataDock, Genesis and SANcube products). No other class of
similar products, services or royalty arrangements accounted for more than 10%
of continuing revenues during the comparison periods discussed below.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Total Revenue. Total revenue increased by 27.2% to $7.0 million for the
three months ended March 31, 2000 compared to $5.5 million for the three months
ended March 31,1999. In the three months ended March 31, 2000, the revenue
increase over the three months ended March 31,1999 was primarily due to the
increased royalty income and the inclusion of the Company's Internet video
businesses. In addition, product sales from MicroNet increased in the comparable
three-month periods due to increased sales of the Genesis product line in 2000.
Royalty Income. Royalty income was $3.1 million in the three months
ended March 31, 2000 compared to $2.7 million in the three months ended March
31, 1999, reflecting a previously disclosed long-term license agreement
extending through the year 2001. 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 videotape recorders. During
this period, a growing portion of royalty income related to 6-mm and 8-mm video
recorders and camcorders. The Company is assessing whether manufacturers of
video games, DVD recorders and digital television receivers are using its
patented technology. There can be no assurance that the manufacturers of these
products are utilizing the Company's 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 into licensing agreements with the Company, the
extent 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.
Internet Revenue. The Company's Internet video programming and services
business began in early 1999, and in June 1999 were consolidated under its
subsidiary, iNEXTV. iNEXTV recorded revenue of $0.6 million in the three months
ended year March 31, 2000, principally from Internet video services conducted by
TV onthe WEB. Due to the growth in web-based services, subsequent to the end of
the quarter, the Company discontinued the traditional video production business
conducted by a subsidiary of TV onthe WEB, which accounted for approximately 20%
of Internet revenue in the quarter ended March 31, 2000. Internet revenues do
not include revenues of TV1, which provides Internet video services to European
businesses, as TV1 is not a majority-owned affiliate. iNEXTV currently
anticipates that Internet video revenues will grow in future quarters of 2000,
but that revenues from advertising and e-commerce are not expected to become
significant before the second half of 2000. The Company's two new websites,
EXBTV.com and istyletv.com, (anticipated to be launched in the second quarter of
2000), are expected to rely significantly on advertising and e-commerce
revenues. Additionally, AENTV.com's new programming, on which the Company will
be primarily dependent for revenue, was introduced in the fourth quarter of
1999. There was no significant Internet revenue in the three months ended March
31, 1999.
Product Sales. Sales of MicroNet products for the three months ended
March 31, 2000 totaled $3.3 million compared to $2.8 million for the three
months ended March 31, 1999. The Company believes that MicroNet sales levels
have been adversely impacted by the decision to withdraw from lower priced
product lines, and MicroNet is refocusing on higher performance disk-array
products such as the DataDock 7000 and Genesis, which was introduced in 1999.
MicroNet has introduced SANcube which it expects to ship in the second quarter
of 2000 and is anticipated to further enhance MicroNet's position in the market
for storage area network products.
Intellectual Property Costs. Intellectual property costs relate to
those expenditures incurred by the Company's in-house patent department in
procuring royalty income and expenditures associated with patent enforcement
litigation.
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Internet Video Programming and Site Development. Internet video
programming and site development costs of $3.2 million in the three months ended
March 31, 2000 represent costs incurred for services rendered to customers, as
well as costs incurred for the development of made-for-the-Internet video
programming and website hardware and software purchases in support of iNEXTV's
websites and infrastructure. The Company anticipates that site development
startup costs will decline in the future quarters of 2000, but that expenditures
for program production, marketing and advertising will increase materially as
the network expands.
Cost of Product Sales. Product costs associated with MicroNet sales
were $2.3 million and $2.6 million in the three months ended March 31, 2000 and
1999, respectively. MicroNet's sales mix in the three months ended March 31,
2000 reflects the transition into higher margin disk arrays which generated
higher gross margins than MicroNet's older product line which represented the
majority of the its product sales in 1999.
Research, Development and Engineering Expenses. The majority of RD&E
was focused on the development and engineering on disk array products,
specifically the development of the Genesis and SANcube product lines which have
been introduced to the market in 1999 and early 2000, respectively. Research,
development and engineering expenses associated with MicroNet increased to $0.3
million (10.0% of product sales) in the three months ended March 31, 2000 from
$0.2 million (6.5% of product sales) in the three months ended March 31,1999.
Research and development costs incurred by the Internet Technology Group ("ITG")
amounted to $0.1 million in the three months ended March 31, 2000 and were not
material in 1999. The Company anticipates increased spending in connection with
research, development and engineering programs which support iNEXTV's Internet
video strategy.
Selling and Administrative. Selling and administrative expenses
increased to $5.8 million in the three months ended March 31, 2000 from $2.2
million in the three months ended March 31, 1999. In addition to costs incurred
for the Internet video programming and site development discussed above, the
Company's Internet video businesses incurred direct sales, marketing and
administrative expenses totaling $3.6 million in the three months ended March
31, 2000. In the three months ended March 31, 1999, direct Internet-related
expenditures were $0.1 million. MicroNet selling and administrative expenses and
other nonallocated administrative costs totaled $1.2 million and $1.0 million,
respectively, in the three months ended March 31, 2000 compared to $1.1 million
and $1.1 million, respectively, in the three months ended March 31, 1999. The
Company anticipates that it will need to increase its sales and marketing
efforts to be successful in bringing together the necessary capabilities to
build the Company's presence in Internet video markets and increase sales at
MicroNet due to its new product offerings in early 2000.
Amortization of Goodwill. In connection with the acquisitions of each
of MicroNet, TV onthe WEB and AENTV, the purchase price exceeded the fair value
of assets acquired and liabilities assumed, resulting in the recording of
goodwill. Goodwill is being amortized on a straight-line basis over a
three-to-five year period from the respective dates of acquisition. Additional
goodwill may be recognized to the extent that future payments are required to be
paid on the MicroNet preferred stock, or if the Company exercises options to
acquire controlling equity interest in its other Internet video affiliates. The
rapid amortization policy results in material charges against operations and
increased losses being recognized.
Interest Expense. Interest expense, primarily due to the issuance of
$44.0 million of 12% Senior Notes due 2003 and Warrants to purchase
approximately 1.02 million shares of Common Stock in January and July 1998, was
$1.4 million for the three months ended March 31, 2000 and 1999, respectively.
Amortization of Debt Financing Costs. These amounts reflect periodic
amortization of financing costs over the remaining terms of the debt. Financing
costs associated with the January and July 1998 issuance of the 12% Senior Notes
are being charged to expense over five years.
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Interest Income. Interest income is earned on cash balances and short
and long-term investments. In the three months ended March 31,1999 the Company,
pending application of the proceeds of the 12% Senior Notes, had significantly
higher investment balances compared to the three months ended March 31, 2000,
which resulted in higher interest income.
Other (Income) Expense, Net. In the three months ended March 31, 2000
and 1999, other (income) expense, net , was minor.
Provision for Income Taxes. The provisions for income taxes in the
three months ended March 31, 2000 and 1999 consist primarily of foreign income
taxes and withholding taxes on royalty income. The Company was not required to
include any material provision for U.S. Federal income tax in any of these
periods due to the utilization of net operating loss carry forwards and timing
differences. At March 31, 2000, the Company had net operating loss carry
forwards for income tax purposes of $130.4 million, expiring in the years 2005
through 2014. As a result of financing transactions that were completed in 1994
and 1995, the Company is limited in the amount of net operating loss carry
forwards that can offset consolidated Federal taxable income in a given year.
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
Company's domestic interest and amortization expenses and operating loss carry
forwards are not deductible in computing such foreign taxes.
Income (Loss) of Business Held for Disposition. In February 2000, the
Board of Directors of the Company authorized management to pursue a sale of Data
Systems, its wholly-owned subsidiary that manufacturers and sells high
performance, tape-based mass data storage products. As a result, for all periods
presented, the Company reported as a single line item in the Consolidated
Statements of Operations and Comprehensive Loss, an income (loss) of business
held for disposition, net of taxes of $0.5 million and $(0.8) million in the
three months ended March 31, 2000 and 1999, respectively. Revenues of this
segment totaled $11.7 million and $12.3 million in the three months ended March
31, 2000 and 1999, respectively. Total costs and operating expenses of this
segment totaled $11.4 million and $13.1 million in the three months ended March
31, 2000 and 1999, respectively. Other (income) expense of this segment totaled
$(0.1) million and none in the three months ended March 31, 2000 and 1999,
respectively. Prospective buyers have only recently been approached by the
Company's advisors. However, the Company believes that it will recognize a gain
on the sale of Data Systems some time in fiscal 2000.
Net Loss. The Company reported a net loss of $6.7 million in the three
months ended March 31, 2000 compared to a net loss of $1.9 million in the three
months ended March 31, 1999, primarily as a result of the factors discussed
above under "Internet Video Programming and Site Development" and "Selling and
Administrative."
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow. At March 31, 2000, the Company had cash and short-term
investments of $33.1 million and working capital of $27.2 million. At December
31, 1999, the Company had cash and short-term investments of $41.7 million and
working capital of $38.5 million. Data Systems, which is accounted for as a
Discontinued Operation, had working capital of $12.6 million and $8.8 million at
March 31, 2000 and December 31, 1999, respectively. Working capital of Data
Systems has been classified in net assets of business held for disposition at
March 31, 2000 and December 31, 1999. The decline in cash and short-term
investments in the three months ended March 31, 2000 results primarily from
capitalized costs and operating losses of the Company's Internet video
businesses, operations of the Internet Technology Group, operating losses of
MicroNet, an increase in working capital of discontinued operations of $2.9
million, offset in part by operating income earned from the Company's technology
licensing activities. Cash used in continuing operations totaled $4.2 million in
the three months ended March 31, 2000 and $2.8 million in the three months ended
March 31, 1999. Cash used in discontinued operations
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totaled $2.9 million in the three months ended March 31, 2000, largely due to
the increase in inventory levels for government programs scheduled for delivery
later in the year and payments against restructuring reserves established in
prior years, and $3.2 million in the three months ended March 31, 1999.
Major items impacting income from continuing operations in the three
months ended March 31, 2000, which did not affect cash, were goodwill
amortization associated with acquired Internet businesses, totaling $0.6
million. Other non-cash charges affecting the first quarter of 2000 operations
included other depreciation and amortization of $0.8 million.
During 1999, the Company, through its subsidiary iNEXTV, acquired
majority control of TV onthe WEB and AENTV in step acquisitions. The Company has
included the value of assets and liabilities of these majority-owned affiliates
in its Consolidated Financial Statements and has reported 100% of net losses
reported by these affiliates for periods after it acquired a majority interest.
Also during 1999, the Company acquired minority interests in Executive Branch
Webcasting Corporation ("EBWC") and TV1. The Company has elected not to exercise
options to acquire additional ownership in EBWC. Accordingly, in the fourth
quarter of 1999, the Company wrote off its minority investment in EBWC. In the
quarter ended March 31, 2000, the Company incurred infrastructure capital costs
of $1.3 million to build out the New York City studio and to support the network
website, communications, accounting and information tracking systems.
The Company's strategy is to grow Internet revenues from video
advertising, e-commerce partnerships, webcasting and technology licensing. In
order to do so, the Company will be required to incur substantial expenditures
to attract users to its video websites, which have only recently become
operational. Material advertising and e-commerce revenues are not likely to be
obtained until a significant base of users can be demonstrated. There can be no
assurance that the Company will be successful in obtaining sufficient revenues
from the above sources to make its Internet video businesses viable or
profitable.
The Company intends to seek strategic partnerships with other companies
in order to obtain additional content, brand recognition, user awareness,
technology and infrastructure cost savings. The Company may be required to
commit significant resources and/or to issue a significant percentage of its
Common Stock in order to attract such prospective partners, which would dilute
current stockholders' interest in the Company.
The Company believes that it has adequate financial resources to
develop its Internet video businesses as presently envisioned for at least the
next twelve months. The Company recently announced its intention to sell Data
Systems, which manufactures the Company's high performance mass data storage and
instrumentation products for entertainment and government applications. At the
date of this Report the Company had not entered into any definitive agreement of
sale, and there can be no assurance that the Company will be able to consummate
a sale, or as to the terms or timing of any sale, if consummated. Ampex intends
to use the proceeds of the proposed sale to expand its Internet video operations
through its iNEXTV subsidiary and other Internet activities, and to retire debt.
In addition, the Company may seek to raise additional capital at any time to
make new investments in streaming media Internet ventures and technology. The
Company may seek to issue additional shares of Common Stock in public or private
equity transactions or seek to sell equity securities of one or more of its
Internet video businesses in an initial public offering. There can be no
assurance that a market will exist for the Company's or its affiliates'
securities. The Company expects that it will face an increased number of
competitors in future years, many of whom will be better capitalized and have
greater financial resources than the Company. The ability to access the capital
markets will be instrumental to the Company's future success.
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 2002. At March 31,
2000, the Company had borrowings outstanding of $1.7 million and had letters of
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credit issued against the facility totaling $1.1 million. At March 31, 1999, the
Company had borrowings outstanding of $13,934 and had letters of credit issued
against the facility totaling $0.9 million. The Company believes that this
facility will be significantly reduced or allowed to expire in conjunction with
the sale of Data Systems.
Financing Transactions. During the three months ended March 31, 2000,
holders of 760 shares of Convertible Preferred Stock exchanged their holdings
for 380,000 shares of Common Stock, leaving 1,125 shares of Convertible
Preferred Stock outstanding. Beginning in June 2001, the Company will be
required to redeem any remaining shares of Convertible Preferred Stock in
quarterly installments through September 2008. The Company's Redeemable
Preferred Stock is redeemable in quarterly installments from June 1999 through
March 2008. During the three months ended March 31, 2000, the Company satisfied
its redemption obligation by issuing 260,679 shares of Common Stock in exchange
for Redeemable Preferred Stock with a liquidation preference of $1.1 million.
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 has the
option to make mandatory redemption payments either in cash or in 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 8 of Notes to Unaudited Consolidated
Financial Statements.
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 and other
investments. The yield on the Company's investment portfolio is substantially
lower than the interest charges on the 12% Senior Notes. The Company has wide
discretion as to how the debt proceeds may be invested, including for
acquisitions of and investments in new businesses, including the Company's
Internet video businesses. Any such investments or acquisitions 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 has invested a 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.
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. Upon a successful sale of Data Systems, the
Company plans to offer to repay a substantial portion of the Senior Notes.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133 is effective for the
Company in fiscal year 2001 and will not require retroactive restatement of
prior period financial statements. The Company has not yet quantified the impact
of adopting SFAS 133 on its financial statements, but the Company believes there
will not be a significant impact.
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In December 1999, the Securities Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The Company believes that adopting SAB 101 will not have a material impact
on the Company's financial position and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Opinion No. 25. FIN 44
clarifies the application of Opinion 25 for (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
Management believes that that the impact of FIN 44 will not have a material
effect on the financial position or results of operations of the Company.
RISK FACTORS
RISK OF CONTINUING LOSSES
Ampex has incurred significant operating and net losses in the three
months ended March 31, 2000 and its 1999 fiscal year, primarily due to its
Internet video programming activities, promotional expenses and amortization of
goodwill of acquired businesses. The Company also incurred certain interest
expenses and in fiscal 1999 incurred additional losses from its discontinued
operation. Although Internet video revenues may grow in future periods, there
can be no assurance that such revenues will be sufficient to offset expenses
and/or losses that may be incurred in such periods, or that such items will not
increase. The Company may be required to incur additional indebtedness in
connection with future acquisitions or its Internet expansion plans, which could
increase future interest expenses, and may be unable to consummate the sale of
Data Systems, which has experienced and is expected to continue to experience
declining product sales. In addition, the Company cannot predict the amount of
licensing royalties that it may recognize in future periods. Accordingly, the
Company expects operating and net losses to continue at least for the near
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations, " above, and the other Risk Factors included in this
section.
RISKS ASSOCIATED WITH INEXTV AND INTERNET VIDEO STRATEGY
The Company's Internet subsidiary, iNEXTV, was formed in mid-1999, and
has not yet generated any material advertising or sales revenues. The business
and prospects of iNEXTV and the Company's Internet video strategy in general,
are subject to the risks and uncertainties typical of companies in the early
stages of development, particularly in new and rapidly evolving markets such as
those for Internet content, advertising and electronic commerce (e-commerce). If
the Company is not successful in its Internet strategy, investors in Ampex
Common Stock could suffer the loss of a significant portion or all of their
investment.
The development of iNEXTV and the implementation of the Company's
strategy to expand its Internet video businesses involve special risks and
uncertainties, including but not limited to the following:
. the ability of iNEXTV and its affiliates to identify, produce
or acquire and deliver compelling, quality video programming
over the Internet that appeals to its target audiences;
. the ability of iNEXTV and its affiliates to obtain and manage
key employees and other resources for growth from their
present size and to become profitable;
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. market acceptance of streaming media technology, which is
currently of lower quality than television or radio
broadcasts, is subject to congestion and interruptions on the
Internet, and requires specialized software, technical
expertise and increased bandwidth;
. dependence upon the continued acceptance and growth of the
Internet as a significant medium for advertising and
e-commerce, and upon iNEXTV's ability to generate advertising
revenues and, in future periods, to sell goods and services
over the Internet;
. the ability of iNEXTV and its affiliates to attract and retain
sponsors and advertisers, content developers and other key
partners necessary to make its websites viable;
. dependence upon timely delivery and integration of website
software and hardware purchased from third parties which the
Company is continually required to develop and upgrade in
order to support all its websites;
. vulnerability of Internet content delivery to system failures
and interruptions for a variety of reasons (including
telecommunications problems and natural disasters), computer
viruses and other breaches of security;
. dependence upon Internet service providers, web browsers,
providers of streaming media products and others to provide
Internet access to iNEXTV's websites and programming;
. the ability of the Company to generate sufficient revenues to
offset the related high cost of bandwidth for its streaming
media video sites and the risk that the Company may compete
with sites which have access to low cost bandwidth facilities;
. the ability of Ampex to innovate, upgrade and transfer to
iNEXTV and its affiliates audio or video technology for
Internet-based applications;
. competition among Internet broadcasters and providers of
products and services for users, advertisers, content and new
products and services;
. uncertainty about the adoption and application of new laws,
proposed taxation and government regulations relating to
Internet businesses, which could slow Internet growth,
adversely affect the viability of e-commerce, expose iNEXTV to
potential liabilities or negative criticism for mishandling
customer security or user privacy concerns or otherwise
adversely affect its Internet businesses;
. the ability to obtain licenses of intellectual property
developed by others that affect Internet usage. Intellectual
property claims against the Company could be costly and could
result in the loss of significant rights;
. the ability to expand successfully in the European or other
foreign markets, which is likely to be subject to cultural and
language barriers, different regulatory environments, currency
exchange rate fluctuations and other difficulties relating to
managing foreign operations; and
. likelihood of continued and significant expenses resulting in
material losses in future periods, which could negatively
affect the price of the Company's securities and require it to
seek additional capital which may not be available on
satisfactory terms, or at all.
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RISKS ASSOCIATED WITH ACQUISITION STRATEGY
In order to expand Ampex's products and services, Ampex has made, and
may continue to make, acquisitions of, and/or investments in, other business
entities, including businesses involved in both producing and distributing
Internet video programming. Ampex may not be able to identify or acquire
additional acquisition candidates in the future, or complete any further
acquisitions or investments on satisfactory terms. In order to pay for future
acquisitions or investments, Ampex may have to:
. issue additional equity securities of the Company or a
subsidiary, which would dilute the ownership interest of
existing Ampex stockholders;
. incur additional debt; and/or
. amortize goodwill and other intangibles or incur other
acquisition-related charges, which could materially impact
earnings.
Acquisitions and investments involve numerous additional risks,
including difficulties in the management of operations, services and personnel
of the acquired companies, and of integrating acquired companies with Ampex
and/or each other's operations. Ampex may also encounter problems in entering
markets and businesses in which it has limited or no experience. Acquisitions
can also divert management's attention from other business concerns. Ampex may
make investments in companies in which it has less than a 100% interest. Such
investments involve additional risks, including the risk that Ampex may not be
in a position to control the management or policies of such entities, and risks
of potential conflicts with other investors. Ampex has invested in companies
that are in the early stage of development and may be expected to incur
substantial losses. Ampex's financial resources may not be sufficient to fund
the operations of such companies, which could require sales of other
non-Internet assets. Accordingly, there can be no assurance that any
acquisitions or investments that Ampex has made, or may make in the future, will
result in any return, or as to the timing of any return and Ampex could lose all
or a substantial portion of its investments.
RISK OF PROPOSED SALE OF DATA SYSTEMS
The Company recently announced its intention to sell Data Systems,
which manufactures the Company's high performance mass data storage and
instrumentation products for entertainment and government applications, and the
Company has accounted for this subsidiary's operations as a discontinued
business effective with its fiscal 1999 financial statements. Although the
Company has engaged a financial advisory firm and has had preliminary
discussions related to the proposed sale, at the date of this Report the Company
had not entered into any definitive agreement of sale, and there can be no
assurance that the Company will be able to consummate a sale, or as to the terms
or timing of any sale, if consummated. Ampex intends to use the proceeds of the
proposed sale to expand its Internet video operations through its iNEXTV
subsidiary and other Internet activities, and to retire debt. However, there can
be no assurance that any such proceeds will be sufficient to do so, or to offset
any potential losses that may be attributable to iNEXTV or other Company
operations. See "Risks Associated with iNEXTV and Internet Video Strategy, "
above. In addition, if the proposed sale is consummated, Ampex may retain
certain liabilities associated with Data Systems' prior operations, including
pension benefit obligations, environmental liabilities and indemnification
obligations customarily contained in sale agreements.
RISK OF LEVERAGE
As of March 31, 2000, Ampex had outstanding approximately $45.0 million
of total borrowings, which included $44.0 million principal amount of 12% Senior
Notes due 2003 and $1.0 million of subsidiary indebtedness. The Company has
invested a portion of the proceeds from the Senior Notes in its MicroNet and
iNEXTV
20
<PAGE>
subsidiaries and for general corporate purposes. The Company has invested
a portion of the balance of these proceeds in government securities and, in
order to realize yields approaching the interest rate on the Senior Notes, from
time to time has invested in high-yield mutual funds and corporate securities,
some of which have longer terms and lower credit quality than U.S. government
securities. The Company may also engage in various transactions in derivative
securities although it has not done so to date. As discussed above, the Company
hopes to use a portion of the proceeds from the planned sale of Data Systems to
reduce its indebtedness. However, there can be no assurance that the Company
will be able to consummate the sale or, if consummated, that the Company will
realize proceeds that it determines are available for such repayment.
The Company may incur additional indebtedness from time to time to
finance acquisitions or capital expenditures or for other purposes, subject to
the restrictions in the indenture governing the Senior Notes. The degree to
which the Company is leveraged, and the types of investments it selects, could
have important consequences to investors, including the following:
. a substantial portion of the Company's consolidated cash flow
from operations must be dedicated to the payment of the
principal of and interest on outstanding indebtedness, and
will not be available for other purposes;
. Ampex's ability to obtain additional financing in the future
for working capital needs, capital expenditures, acquisitions
and general corporate purposes may be materially limited or
impaired, or such financing may not be available on terms
favorable to Ampex;
. the Company may be more highly leveraged than its competitors,
which may place it at a competitive disadvantage;
. Ampex's leverage may make it more vulnerable to a downturn in
its business or the economy in general;
. investments in securities with lower credit quality or longer
maturities could subject the Company to potential losses due
to nonpayment or changes in market value of those securities,
and transactions in derivative securities could expose Ampex
to losses caused by stock market fluctuations; and
. the financial covenants and other restrictions contained in
the Senior Note indenture and other agreements relating to
Ampex's indebtedness will restrict Ampex's ability to borrow
additional funds, to dispose of assets or to pay dividends on
or repurchase preferred or common stock.
Ampex expects that cash balances and cash flow from operations will be
sufficient to fund anticipated operating expenses, capital expenditures and debt
service requirements as they become due, at least through 2000. There can be no
assurance, however, that the amounts available from these sources will be
sufficient for such purposes in future periods. The Company may also seek to
raise additional equity capital in the private or public markets to finance the
expansion of its Internet video businesses. No assurance can be given that
additional sources of funding will be available if required or, if available,
will be on satisfactory terms. If Ampex cannot service its indebtedness, it will
be forced to adopt alternative strategies. These strategies may include reducing
or delaying capital expenditures, selling additional assets, restructuring or
refinancing Ampex's indebtedness. There can be no assurance that any of these
strategies will be successful or that they will be permitted under the Senior
Note Indenture, if applicable.
FLUCTUATIONS IN ROYALTY INCOME
Ampex's results of operations in certain prior and current periods
reflect the receipt of significant royalty income, including material
nonrecurring payments resulting from negotiated settlements primarily related to
sales of
21
<PAGE>
products by manufacturers before negotiating licenses from Ampex. Although Ampex
has a substantial number of outstanding and pending patents, and its patents
have generated substantial royalties in the past, it is not possible to predict
the amount of royalty income Ampex will receive in the future. Royalty income
has historically fluctuated widely due to a number of factors that Ampex cannot
predict, such as the extent to which third parties use its patented technology,
the extent to which it must pursue litigation in order to enforce its patents,
and the ultimate success of its licensing and litigation activities. As the
Company expands its Internet video businesses, the significance of its royalty
income, relative to operating income, is expected to increase until those
businesses become profitable.
The costs of patent litigation can be material. The institution of
patent enforcement litigation may also increase the risk of counterclaims
alleging infringement by Ampex of patents held by third parties or seeking to
invalidate patents held by Ampex. Moreover, there is no assurance that Ampex
will continue to develop patentable technology that will be able to generate
significant patent royalties in future years to replace patents as they expire.
Ampex's royalty income fluctuates significantly from quarter to quarter and from
year to year, and there can be no assurance as to the level of royalty income
that will be realized in future periods.
DEPENDENCE ON LICENSED PATENT APPLICATIONS AND PROPRIETARY TECHNOLOGY
Ampex's success depends, in part, upon its ability to establish and
maintain the proprietary nature of its technology through the patent process.
There can be no assurance that one or more of Ampex's patents will not be
successfully challenged, invalidated or circumvented or that it will otherwise
be able to rely on such patents for any reason. In addition, there can be no
assurance that competitors, many of whom have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that prevent, limit or interfere with Ampex's ability to
make, use and sell its products either in the United States or in foreign
markets. If any of Ampex's patents are successfully challenged, invalidated or
circumvented or its right or ability to manufacture products were to be
proscribed or limited, Ampex's ability to continue to manufacture and market its
products could be adversely affected, which would likely have a material adverse
effect upon Ampex's business, financial condition and results of operations.
Litigation may be necessary to enforce Ampex's patents, to protect
trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference proceedings brought against, initiated by or
otherwise involving Ampex may require Ampex to incur substantial legal and other
fees and expenses and may require some of its employees to devote all or a
substantial portion of their time to the prosecution or defense of such
litigation or proceedings.
RAPID TECHNOLOGICAL CHANGE AND RISKS OF NEW PRODUCT AND SERVICES DEVELOPMENT
All the industries and markets from which Ampex derives revenues,
directly or through its licensing program, are characterized by continual
technological change and the need to introduce new products, product upgrades,
services and patentable technology. This has required, and will continue to
require, that Ampex spend substantial amounts for the research, development and
engineering of new products and advances to existing products and, with respect
to the Company's Internet operations, new content and services. No assurance can
be given that Ampex's existing products, services and technologies will not
become obsolete or that any new products, services or technologies will win
commercial acceptance. Obsolescence of existing product lines, or inability to
develop and introduce new products and services, could have a material and
adverse effect on the Company's sales and results of operations in the future.
The development and introduction of new technologies, services and products are
subject to inherent technical and market risks, and there can be no assurance
that Ampex will be successful in this regard.
In 1999, MicroNet changed the mix of its products to focus on its
high-end products, some of which it recently introduced or expects to introduce
later this year. Although the Company believes that these products will
22
<PAGE>
be well received, there is no guarantee that they will be introduced on a timely
basis or will achieve significant market share or generate significant sales
revenues. To the extent that MicroNet fails to improve its profitability, the
Company will be required to devote resources (including management's time and
attention) to MicroNet that would otherwise be available for the expansion of
the Company's Internet video businesses.
COMPETITION
The market for Internet products and services is highly competitive and
characterized by multiple competitors and low barriers to entry. Ampex is
attempting to develop improvements in video quality in order to differentiate
itself from its competitors. However, other companies may develop competing
technologies and Ampex may be unable to obtain patent or other protection for
its Internet video technology. In addition, the market for Internet advertising
and electronic commerce, upon which iNEXTV's Internet operations will be
partially dependent to achieve ultimate profitability, is intensely competitive
and the Company believes that competition in this field will intensify.
MicroNet's competitors include large companies such as EMC, Data
General and IBM and other small system integrators, many of which are more
established and have greater resources than MicroNet. There is no assurance that
MicroNet will be able to compete successfully in these markets in the future.
DEPENDENCE ON CERTAIN SUPPLIERS
Ampex purchases certain components from a single domestic or foreign
manufacturer for use in its disk arrays and other manufactured products.
Significant delays in deliveries or defects in such components have adversely
affect Ampex's manufacturing operations, pending qualification of an alternative
supplier. In addition, Ampex produces highly engineered products in relatively
small quantities. As a result, Ampex's ability to cause suppliers to continue
production of certain products on which it may depend may be limited. Ampex does
not generally enter into long-term raw materials or components supply contracts.
RISKS RELATED TO INTERNATIONAL OPERATIONS
International operations are subject to a number of special risks,
including limitations on repatriation of earnings, restrictive actions by local
governments, and fluctuations in foreign currency exchange rates and
nationalization. Additionally, export sales are subject to export regulation and
restrictions imposed by U.S. government agencies. Fluctuations in the value of
foreign currencies can affect Ampex's results of operations. Ampex does not
normally seek to mitigate its exposure to exchange rate fluctuations by hedging
its foreign currency positions.
The expansion of iNEXTV's European operations, which are conducted
primarily through TV1, may generate advertising and sales revenues in future
periods, although the Company has not recognized any material revenue to date.
The European operations of iNEXTV are expected to be subject to certain risks
and uncertainties, as set forth under the caption "Risks Associated with iNEXTV
and Internet Video Strategy. "
In January 1999, the new "Euro" currency was introduced in certain
European countries that are part of the European Monetary Union. Beginning in
2003, all EMU countries are expected to be operating with the Euro as their
single currency. A significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace generally. Some of the rules and regulations
relating to the governance of the currency have not yet been defined and
finalized. As a result, companies operating or conducting business in Europe
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling the Euro. Ampex is currently
assessing the effect the introduction of the Euro will have on its internal
accounting systems and the potential sales of its products. Ampex will take
appropriate corrective actions based on the results
23
<PAGE>
of such assessment. Ampex has not yet determined the costs related to addressing
this issue. This issue is not expected to have a material adverse affect on
Ampex's business.
VOLATILITY OF STOCK PRICE
The trading price of Ampex's Common Stock has been and can be expected
to be subject to significant volatility, reflecting a variety of factors,
including:
. quarterly fluctuations in operating results;
. announcements of acquisitions, Internet developments or new
product introductions by Ampex or its competitors;
. reports and predictions concerning the Company by analysts and
other members of the media;
. issuances of substantial amounts of Common Stock in order to
redeem outstanding shares of its Preferred Stock, or
otherwise; and
. fluctuations in trading volume of the Company's Common Stock,
and general economic or market conditions.
The stock market in general, and Internet and technology companies in
particular, have experienced a high degree of price volatility, which has had a
substantial effect on the market prices of many such companies for reasons that
often are unrelated or disproportionate to operating performance. These broad
market and industry fluctuations may adversely affect the price of Ampex's
Common Stock, regardless of its operating performance.
DEPENDENCE ON KEY PERSONNEL
Ampex is highly dependent on its management. Ampex's success depends
upon the availability and performance of key executive officers and directors.
Except for certain employees of its Internet affiliates, the Company has not
entered into employment agreements with its key employees, and the loss of the
services of key persons could have a material adverse effect upon Ampex. The
Company does not maintain key man life insurance on any of these individuals.
ANTI-TAKEOVER CONSEQUENCES OF CERTAIN GOVERNING INSTRUMENTS
Ampex's Certificate of Incorporation provides for a classified Board of
Directors, with members of each class elected for a three-year term. The
Certificate of Incorporation provides for nullification of voting rights of
certain foreign stockholders in certain circumstances involving possible
violations of security regulations of the United States Department of Defense.
The instrument governing Ampex's outstanding Preferred Stock, which has an
aggregate liquidation value of approximately $37.6 million at March 31, 2000,
requires that Ampex make mandatory offers to redeem those securities out of
legally available funds in the event of a change of control. For this purpose, a
change of control includes the following events: a person or group of people
acting together acquires 30% or more of Ampex's voting securities; Ampex merges,
consolidates or transfers all or substantially all of its assets; or the
dissolution of Ampex. The Certificate of Incorporation authorizes the Board of
Directors to issue additional shares of Preferred Stock without the vote of
stockholders. The indenture governing Ampex's outstanding Senior Notes, in the
total principal amount of $44 million, requires Ampex to offer to repurchase the
Senior Notes at a purchase price equal to 101% of the outstanding principal
amount thereof together with accrued and unpaid interest in the event of a
change of control. Under the indenture, a change of control includes the
following events: a person or group of people acting together acquires 50% or
more of the Company's voting stock; or the transfer of
24
<PAGE>
substantially all of the Company's assets to any such person or group, other
than to certain subsidiaries and affiliates of Ampex.
These provisions could have anti-takeover effects by making an
acquisition of Ampex by a third party more difficult or expensive in certain
circumstances.
NONPAYMENT OF DIVIDENDS
Ampex has not declared dividends on its Common Stock since its
incorporation in 1992 and Ampex has no present intention of paying dividends on
its Common Stock. Ampex is also restricted by the terms of certain agreements
and of the outstanding Preferred Stock as to the declaration of dividends.
ENVIRONMENTAL ISSUES
Ampex's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. 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. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites located
off Company facilities. There can be no assurance Ampex 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 Ampex in the future.
YEAR 2000 RISKS
Year 2000 problems could interfere with Ampex's business. Many software
programs may not recognize calendar dates beginning in Year 2000. This problem
could cause computers or machines that utilize date dependent software either to
shut down or provide incorrect information. As of the date of this 10-Q, Ampex
has not experienced any material Year 2000 problems. However, if Ampex or any
other company that it conducts business with fails to mitigate internal or
external Year 2000 risks, Ampex may temporarily be unable to engage in business
activities, which could materially harm its business and impair the value of
Ampex Common Stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the disclosure made in the 1999
Form10-K.
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.
25
<PAGE>
In response to a lawsuit filed by the Company against Mitsubishi
Electric Corporation and Mitsubishi Electric America Inc. ("Mitsubishi"), which
has been finally resolved as previously reported, Mitsubishi filed a lawsuit
against Ampex, alleging patent infringement by certain Ampex video and data
recorder products. In 1997, the U.S. District Court for the Central District of
California determined that Ampex has no liability to Mitsubishi patents, and
Mitsubishi appealed to the Court of Appeals for the Federal Circuit. On August
30, 1999, the Court of Appeals affirmed the judgment in favor of Ampex and
subsequently denied Mitsubishi's request for reconsideration. On January 31,
2000, Mitsubishi filed a petition for certiorari to the Supreme Court of the
United States. On April 3, 2000, the Supreme Court denied Mitsubishi's petition.
No further appeals are available.
On January 7, 2000, a suit was filed against the Company and others in
the Superior Court of the District of Columbia by Information Super Station
("ISS") seeking an injunction and recovery of damages in connection with
activities related to an investment in a subsidiary of ISS made by the Company's
subsidiary, iNEXTV. The Company has moved to dismiss this suit on the grounds of
inconvenient forum. While no order has yet been issued, the judge has stated her
intention to grant this motion. On February 1, 2000, the Company filed suit
against ISS and others in the United States District Court for the Southern
District of New York under the Federal securities laws seeking contract
rescission and damages in connection with activities related to this investment.
ISS has moved to dismiss the suit on the grounds of inconvenient forum or, in
the alternative, to transfer the suit to the United States District Court for
the District of Colombia.
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. Ampex 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 Ampex
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 2000 or 2001 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 four contaminated sites that have 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 six
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. Some of these
activities involve the participation of state and local government agencies. The
other five sites (including the four Superfund sites) are associated with the
operations of the Media subsidiaries formerly owned by the Company. 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 March 31,
2000, the Company had an accrued liability of $1.6 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 any
liability for contingent liabilities it may incur with respect to former Media
sites discussed above. Based on facts currently known to management, management
believes it has no contingent liability 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.
26
<PAGE>
While 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 Ampex'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
During the three months ended March 31, 2000, the holders of 760 shares
of the Company's outstanding 8% Noncumulative Convertible Preferred Stock (the
"Convertible Preferred Stock") converted such shares into a total of 380,000
shares of the Company's Class A Common Stock pursuant to the conversion right
contained in the Convertible Preferred Stock. For the three months ended March
31, 2000, holders of 537 shares of Redeemable Preferred Stock exchanged their
holdings into 260,679 shares of Common Stock. No cash or other consideration was
paid by the Company, directly or indirectly, in connection with such conversion
or exchange. The shares of Class A Common Stock were issued in reliance upon the
exemption from registration contained in Section 3(a)(9) of the Securities Act
of 1933, as amended, for the issuance of securities exchanged by the issuer with
the existing security holders exclusively where no commission or other
remuneration is paid or given directly or indirectly for soliciting such
exchange.
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 March 31, 2000.
27
<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: May 12, 2000 /s/ EDWARD J. BRAMSON
---------------------
Edward J. Bramson
Chairman and Chief Executive Officer
Date: May 12, 2000 /s/ CRAIG L. McKIBBEN
---------------------
Craig L. McKibben
Vice President, Chief Financial Officer
and Treasurer
28
<PAGE>
AMPEX CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 2000
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27.1* Financial Data Schedule.
* Filed Herewith.
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 14,392
<SECURITIES> 18,709
<RECEIVABLES> 1,939
<ALLOWANCES> (274)
<INVENTORY> 2,089
<CURRENT-ASSETS> 38,377
<PP&E> 9,040
<DEPRECIATION> 2,704
<TOTAL-ASSETS> 79,765
<CURRENT-LIABILITIES> 11,151
<BONDS> 43,569
39,818
0
<COMMON> 566
<OTHER-SE> (38,276)
<TOTAL-LIABILITY-AND-EQUITY> 79,765
<SALES> 3,261
<TOTAL-REVENUES> 6,955
<CGS> 2,255
<TOTAL-COSTS> 12,989
<OTHER-EXPENSES> (1)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,364
<INCOME-PRETAX> (6,938)
<INCOME-TAX> 323
<INCOME-CONTINUING> (7,261)
<DISCONTINUED> 548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,713)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
