<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ________
Commission File Number 0-26924
AMX CORPORATION
(Exact name of registrant as specified in its charter)
75-1815822
TEXAS (I.R.S. Employer Identification No.)
(State of Incorporation)
11995 FORESTGATE DRIVE
DALLAS, TEXAS 75243
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 644-3048
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 [ ]
8,293,348
COMMON STOCK, $0.01 PAR VALUE (NUMBER OF SHARES OUTSTANDING AT
(Title of Each Class) October 31, 1998)
<PAGE>
AMX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 1998 and
March 31, 1998 3
Consolidated Statements of Operations for the Three
and Six Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the Six Months
ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
</TABLE>
2
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 628,244 $ 178,942
Receivables - trade and other, less allowance
for doubtful accounts of $629,000 for
September 30, 1998 and $460,000 for
March 31, 1998 . . . . . . . . . . . . . . . 11,880,015 10,276,225
Inventories . . . . . . . . . . . . . . . . . . 10,489,261 9,002,737
Prepaid expenses. . . . . . . . . . . . . . . . 1,426,724 768,492
Deferred income tax . . . . . . . . . . . . . . 136,905 136,905
----------- -----------
Total current assets. . . . . . . . . . . . . . . 24,561,149 20,363,301
Property and equipment, at cost, net. . . . . . . 4,685,998 4,347,791
Capitalized software. . . . . . . . . . . . . . . 117,387 169,274
Deposits and other. . . . . . . . . . . . . . . . 325,194 433,442
Deferred income tax . . . . . . . . . . . . . . . 10,058 10,058
Goodwill, less accumulated amortization of
$246,000 for September 30, 1998 and $122,000
for March 31, 1998. . . . . . . . . . . . . . . 880,194 1,004,049
----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . $30,579,980 $26,327,915
----------- -----------
----------- -----------
</TABLE>
3
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . $ 5,659,897 $ 3,866,857
Line of credit and notes payable. . . . . . 2,726,185 2,403,437
Current portion of long-term debt . . . . . 1,000,000 --
Accrued compensation. . . . . . . . . . . . 1,546,160 1,481,770
Accrued sales commissions . . . . . . . . . 828,255 787,913
Accrued dealer incentives . . . . . . . . . 413,000 329,416
Other accrued expenses. . . . . . . . . . . 228,302 153,449
Income taxes payable. . . . . . . . . . . . 1,001,525 743,868
------------ ------------
Total current liabilities . . . . . . . . . . 13,403,324 9,766,710
Long-term debt. . . . . . . . . . . . . . . . 520,891 45,600
Commitments and contingencies
Minority interest in subsidiary . . . . . . . -- 1,652,000
Shareholders' equity :
Preferred stock, $0.01 par value
Authorized shares - 10,000,000
Issued shares - none. . . . . . . . . . . -- --
Common stock, $0.01 par value:
Authorized shares -- 40,000,000
Issued shares -- 8,298,556 for
September 30, 1998 and 8,261,158
for March 31, 1998. . . . . . . . . . . . 82,986 82,612
Additional paid-in capital. . . . . . . . . 4,159,827 4,079,682
Retained earnings . . . . . . . . . . . . . 12,412,952 10,748,183
Less treasury stock (5,208 shares at
March 31, 1998) . . . . . . . . . . . . . . -- (46,872)
------------ ------------
Total shareholders' equity. . . . . . . . . . 16,655,765 14,863,605
------------ ------------
Total liabilities and shareholders' equity. . $ 30,579,980 $ 26,327,915
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
4
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
System sales . . . . . . . . . . . . . . . . . . . $18,374,709 $14,353,191 $33,255,252 $26,402,162
OEM and custom product sales . . . . . . . . . . . 494,111 484,380 890,969 1,469,695
----------- ----------- ----------- -----------
Net sales . . . . . . . . . . . . . . . . . . . 18,868,820 14,837,571 34,146,221 27,871,857
Cost of sales. . . . . . . . . . . . . . . . . . . 8,816,743 6,353,515 15,655,031 12,130,655
----------- ----------- ----------- -----------
Gross profit. . . . . . . . . . . . . . . . . . 10,052,077 8,484,056 18,491,190 15,741,202
Selling and marketing expenses . . . . . . . . . . 5,780,481 5,213,834 11,343,910 10,761,714
Research and development expenses. . . . . . . . . 1,037,785 982,184 1,903,136 2,019,033
General and administrative expenses. . . . . . . . 1,426,734 1,258,457 2,629,405 2,301,509
----------- ----------- ----------- -----------
Operating income. . . . . . . . . . . . . . . . 1,807,077 1,029,581 2,614,739 658,946
Interest expense . . . . . . . . . . . . . . . . . 116,605 38,198 195,493 47,966
Other income, net. . . . . . . . . . . . . . . . . -- 40,658 30,344 68,980
----------- ----------- ----------- -----------
Income before income taxes . . . . . . . . . . . . 1,690,472 1,032,041 2,449,590 679,960
Income tax provision . . . . . . . . . . . . . . . 524,607 416,593 772,536 274,212
----------- ----------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . $1,165,865 $615,448 $1,677,054 $405,748
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share . . . . . . . . . . . . . $0.14 $0.08 $0.20 $0.05
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share . . . . . . . . . . . . $0.13 $0.07 $0.19 $0.05
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
5
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended September 30,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . $ 1,677,054 $ 405,748
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization . . . . . . . . . 1,066,280 910,379
Provision for losses on receivables . . . . . . 168,213 16,284
Provision for inventory obsolescence. . . . . . 30,000 3,000
Changes in operating assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . (1,772,001) (1,403,086)
Inventories. . . . . . . . . . . . . . . . . (1,516,524) (2,851,464)
Other. . . . . . . . . . . . . . . . . . . . -- (30,641)
Prepaid expenses . . . . . . . . . . . . . . (658,232) 73,292
Accounts payable . . . . . . . . . . . . . . 1,793,040 1,069,674
Accrued expenses . . . . . . . . . . . . . . 263,168 28,466
Income taxes payable . . . . . . . . . . . . 257,657 30,625
----------- -----------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . . 1,308,655 (1,747,723)
INVESTING ACTIVITIES
Purchase of property and equipment . . . . . . . . (1,228,734) (1,046,194)
Decrease in other assets . . . . . . . . . . . . . 108,233 --
Minority interest in PHAST . . . . . . . . . . . . (1,652,000) (25,000)
----------- -----------
Net cash used in investing activities. . . . . . . (2,772,501) (1,071,194)
FINANCING ACTIVITIES
Sale of securities -- net of expenses. . . . . . . 120,624 65,894
Disqualifying dispositions . . . . . . . . . . . . 6,768 --
Net increase in line of credit . . . . . . . . . . 419,947 1,600,000
Proceeds from long-term debt and notes payable . . 1,500,000 --
Repayments of long-term debt and notes payable . . (121,908) (72,462)
----------- -----------
Net cash provided by financing activities. . . . . 1,925,431 1,593,432
Effect of exchange rate changes on cash. . . . . . (12,283) (2,086)
----------- -----------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . 449,302 (1,227,571)
Cash and cash equivalents at beginning of period . 178,942 2,091,819
----------- -----------
Cash and cash equivalents at end of period . . . . $ 628,244 $ 864,248
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
6
<PAGE>
AMX CORPORATION
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying condensed consolidated financial statements, which should be
read in conjunction with the consolidated financial statements and footnotes
included in the Annual Report on Form 10-K for the fiscal year ended March 31,
1998, of AMX Corporation (the "Company"), are unaudited (except for the March
31, 1998 consolidated balance sheet, which was derived from the Company's
audited financial statements), but have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been
included.
Operating results for the six months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year
ending March 31, 1999.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 (FAS 128), "Earnings Per Share," which was effective for financial
statements for periods ending after December 15, 1997. The new standard
eliminated primary and fully diluted earnings per share and required
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. Earnings per share amounts for all
periods have been restated and presented to conform to the SFAS 128
requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 1,165,865 $ 615,448 $ 1,677,054 $ 405,748
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Denominator:
Denominator for basic earnings per share -
Weighted-average shares outstanding . . . . . . 8,281,677 7,838,710 8,270,862 7,838,507
Effect of dilutive securities:
Employee stock options . . . . . . . . . . . . . . 409,946 453,409 512,330 467,957
----------- ---------- ----------- ----------
Denominator for diluted earnings per share . . . . 8,691,623 8,292,119 8,783,192 8,306,464
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Basic earnings per share . . . . . . . . . . . . . $ 0.14 $ 0.08 $ 0.20 $ 0.05
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Diluted earnings per share . . . . . . . . . . . . $ 0.13 $ 0.07 $ 0.19 $ 0.05
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
Of the total stock options outstanding at September 30, 1998, options
covering 245,500 shares of stock were not included in the computation of diluted
earnings per share because the option exercise price was greater than the
average market price of the common shares for the period, and therefore the
effect would have been anti-dilutive.
7
<PAGE>
3. Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Raw materials $ 5,753,853 $4,430,081
Work in progress 1,614,421 722,593
Finished goods 3,280,987 3,980,063
Less reserve for obsolescence (160,000) (130,000)
----------- ----------
Total $10,489,261 $9,002,737
----------- ----------
----------- ----------
</TABLE>
4. Comprehensive Income
As of April 1, 1998, the Company adopted Financial Accounting Standards Board
Statement 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components.
However, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's foreign currency translation adjustments to be included
in other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
The components of comprehensive income, net of related tax, for the six month
periods ended September 30, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Net income $1,677,054 $405,748
Foreign currency translation adjustments (12,290) (2,094)
---------- --------
Comprehensive income $1,664,764 $403,654
---------- --------
---------- --------
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Company's 1998 Annual Report on Form 10-K. The Company believes that all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below to present fairly the following
quarterly information. Quarterly operating results have varied significantly in
the past and can be expected to vary in the future. Results of operations for
any particular quarter are not necessarily indicative of results of operations
for a full year.
OVERVIEW
AMX designs, develops, manufactures and markets integrated control systems that
enable end users to operate as a single system a broad range of electronic and
programmable equipment in a variety of corporate, educational, industrial,
entertainment, governmental, and residential settings. The Company's hardware
and software products provide the operating system, machine control, and user
interface necessary to operate, as an integrated network, electronic devices
from different manufacturers through easy-to-use control panels. The Company's
systems are available in a variety of configurations and provide centralized
control of a wide range of video systems, audio systems, teleconferencing
equipment, educational media, lighting equipment, environmental control systems,
security systems, and other electronic devices. The Company has introduced
several Windows-Registered Trademark--based software applications that handle
design functions, permit scheduling control, and enable a personal computer to
operate on the Company's AXlink and PHASTlink bus as a control panel.
The Company's quarterly operating results have varied significantly in the
past, and can be expected to vary in the future. These quarterly fluctuations
have been the result of a number of factors. These factors include seasonal
purchasing of the Company's dealers and distributors, particularly from
international distributors, OEMs, and other large customers; sales and marketing
expenses related to entering new markets; the timing of new product
introductions by the Company and its competitors; fluctuations in commercial and
residential construction and remodeling activity; and changes in product or
distribution channel mix. In addition, the Company generally experiences higher
selling and marketing expenses during the first fiscal quarter of each year due
to costs associated with three of the Company's largest trade shows.
The Company's system sales are made through dealers and distributors. The
Company principally relies on over 1,600 specialized third-party dealers of
electronic and audiovisual equipment to sell, install, support and service its
products in the United States. Internationally, the Company relies on a network
of 22 exclusive distributors serving 27 countries and over 82 dealers serving an
additional 19 countries to distribute its products.
The Company's U.S. dealers pursue a wide variety of projects that can
range from small conference rooms/boardrooms to very large projects in a
university, government facility, amusement park, or corporate training facility.
The Company's international distributors tend to order in large quantities to
take advantage of volume discounts the Company offers and to economize on
shipping costs. These international orders are not received at the same time
each year. Notwithstanding the difficulty in forecasting future sales and the
relatively small level of backlog at any given time, the Company generally must
plan production, order components, and undertake its development, selling and
marketing activities, and other commitments months in advance. Accordingly, any
shortfall in revenues in a given quarter may impact the Company's results of
operations.
The Company purchases components that comprise approximately 37% to 41% of
its cost of sales from foreign vendors. The primary components purchased are
standard power supplies and displays for touch panels. Historically, the Company
has not had any significant cost issues related to price changes due to
purchasing from foreign vendors. However, there can be no assurance that this
will be the case in the future. The Company has experienced delays of up to
three weeks in receiving materials from foreign vendors. However, the Company
takes this issue into consideration when orders are placed and, therefore, this
concern
9
<PAGE>
has not, in the past, significantly impacted the Company's ability to meet
production and customer delivery deadlines. However, a significant shortage
of or interruption in the supply of foreign components could have a material
adverse affect on the Company's results of operations.
The Company's selling and marketing expenses category also includes
customer service and support and engineering. The engineering department of the
Company is involved in research and development as well as customer support and
service. Additionally, the Company has created sales support teams, which are
focused on specific geographic regions or customer categories. These teams
include sales personnel, system designers, and technical support personnel, all
of whom indirectly participate in research and development activities by
establishing close relationships with the Company's customers and by
individually responding to customer-expressed needs.
RESULTS OF OPERATIONS
The following table contains certain amounts, expressed as a percentage of
net sales, reflected in the Company's consolidated statements of income for the
three month and six month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
-------- ------ ------ ------
<S> <C> <C> <C> <C>
System sales 97.4% 96.7% 97.4% 94.7%
OEM and custom product sales 2.6 3.3 2.6 5.3
----- ----- ----- -----
Net sales 100.0 100.0 100.0 100.0
Cost of sales 46.7 42.8 45.8 43.5
----- ----- ----- -----
Gross profit 53.3 57.2 54.2 56.5
Selling and marketing expenses 30.6 35.2 33.2 38.6
Research and development expenses 5.5 6.6 5.6 7.2
General and administrative expenses 7.6 8.5 7.7 8.3
----- ----- ----- -----
Operating income 9.6 6.9 7.7 2.4
Interest expense 0.6 0.3 0.6 0.2
Other income -- 0.3 0.1 0.2
----- ----- ----- -----
Income before income taxes 9.0 6.9 7.2 2.4
Income taxes 2.8 2.8 2.3 1.0
----- ----- ----- -----
Net income 6.2% 4.1% 4.9% 1.4%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 RESULTS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
During the second quarter of the 1999 fiscal year, the Company's revenues
continued to increase, realizing an increase of $4.0 million, or 27%, over the
second quarter last year. Revenue was driven by increases in the residential and
the commercial markets. The residential market growth is derived primarily from
the increase in revenues at PHAST. This entity has seen demand for its product
increase since it began shipments in March of 1997. Accordingly, revenues from
the residential market increased 52% over the same quarter last year. This
growth was favorably impacted by home construction, which is normally greater
during the summer than any other time of year.
The Company's commercial market also experienced strong growth during the
quarter, up 30% over the second quarter last year. This sector of the business
has been favorably impacted by the continued
10
<PAGE>
proliferation of the use of multi-media equipment for presentations, the use
of security equipment, and the creative use of control systems with a variety
of new applications such as cruise ships.
The international market grew by 15% over last year's second quarter, up 14%
from the first quarter this year. The second quarter was the first quarter that
the Company experienced any significant decrease in revenues in the Asian
region. Revenues decreased 40% from the same period last year, and 17% from the
first quarter this year. This did not have a material impact on the Company,
however, because only 3% of the Company's revenues are derived from this region.
Gross margins continue to be impacted by the increase in revenues from the
residential market. Margins for this market are lower than those achieved by
the commercial, international and educational markets. Additionally, PHAST is
hampered by the fact that it is not yet producing near capacity, and
accordingly, suffers from the inability to absorb all of its overhead expenses.
As revenues grow, this absorption should increase, as well as the realization of
the benefits from quantity pricing from its suppliers.
Over the last four fiscal quarters, the Company has aggressively attempted to
increase its operating income by reducing expenses as a percentage of revenues.
While dollar spending for operating expenses is up, expenses as a percentage of
revenue are down compared to the second quarter last year. Accordingly,
operating expenses were 6.6% less as a percentage of revenue than the same
quarter last year. This favorable result can be attributed in great degree to
the cost efficiencies associated with the merger of AudioEase into PHAST in
October 1997. The combined second quarter revenue growth of these two entities
during the second quarter was 65%, while combined operating expenses of the two
increased only 15%.
The Company's effective tax rate has returned to normalcy during the current
year. This is due to two factors. The Company does not have any large
non-deductible expenses as it has in the past, and the increase in revenues
to its international market allows the Company to realize the favorable tax
impact of its Foreign Sales Corporation.
SIX MONTHS ENDED SEPTEMBER 30, 1998 RESULTS COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1997
Revenues have increased 23%, or $6.3 million, during the first six months of the
fiscal year 1999, compared to the same period for the fiscal year 1998. As
indicated in the previous discussion of the second quarter results, the revenue
growth is due to strong demand for product from the residential, commercial,
and international markets. Growth in the residential market is primarily due to
the continued acceptance of the PHAST product line in the market place.
Residential revenues are up 44% over last year. Commercial revenues are up 21%
and international revenues are up 33% over last year.
Gross margins are down slightly, again as a result of the increase in the
revenues from the residential market. As discussed above, this market achieves
lower gross margins than the Company's other markets, for the same reasons
stated above.
The Company has focused on increasing operating profits, and accordingly has
sought to increase expenses at a lower rate than revenue growth. As a result,
even though the Company increased spending in areas such as new product
development, the PHASTLink Partner Program, dealer training, technical support,
and its regional sales offices, it has reduced spending on trade shows,
marketing, and in its Singapore office. The Company has also realized a
reduction in expenses as a result of the merger of Audio Ease, Inc. into PHAST
in October 1997.
The Company's effective tax rate is lower than last year. The Company does not
have any large non-deductible expenses as it has in the past, such as not being
able to consolidate losses from its PHAST subsidiary. The increase in revenues
to its international market allows the Company to realize the favorable tax
impact of its Foreign Sales Corporation.
11
6<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the past three years, the Company has satisfied its operating cash
requirements principally through cash flow from operations. During the fiscal
year ended March 31, 1998, $2.4 million was drawn against the revolving line
of credit agreement in order to satisfy operating cash requirements. In the
six months ended September 30, 1998, the Company provided $1.3 million of
cash flow from operations. The Company spent $1.2 million on capital
expenditures, primarily for the purchase of tooling and computer equipment.
The Company has also redeemed the preferred stock of PHAST, which was funded
by a term loan from its commercial bank.
The Company has a $5.0 million revolving line of credit agreement that
expires on September 30, 1999. It is expected that this line of credit will
be renewed at that time. The line of credit provides for interest at the
bank's contract rate, which is expected to approximate prime. At September
30, 1998, $2.75 million was outstanding under the revolving loan agreement.
The Company expects to spend approximately $2.0 million for capital
expenditures in fiscal 1999.
The Company believes that cash flow from operations, the Company's
existing cash resources and funds available under its revolving loan facility
will be adequate to fund its working capital and capital expenditure
requirements for at least the next 12 months. An important element of the
Company's business strategy has been, and continues to be, the acquisition of
similar businesses and complementary products and technology and the
integration of such businesses and products and technology into the Company's
existing operations. Such future acquisitions, if they occur, may require
that the Company seek additional funds.
CONTINGENCIES
The Company is party to ordinary litigation incidental to its business,
none of which is expected to have a material adverse effect on the results of
operations, financial position or liquidity of the Company.
YEAR 2000
Some computers and other equipment are operated and controlled by
software code in which calendar year data is abbreviated to only two digits.
As a result of this design flaw, some of these systems could fail to produce
correct results beginning on January 1, 2000, if the year indicator "00" is
interpreted to designate the year 1900 rather than the year 2000. This
problem with software design as well as embedded technology such as
microcontrollers is commonly referred to as the "Year 2000" issue. The
Company uses a variety of software products to operate its business, and the
Company's products contain software and embedded technology that is used in
the operation of the products, all of which could be affected by the Year
2000 issue.
STATE OF READINESS
The Company has developed and begun implementation of a plan to address
the problems involved with the Year 2000 issue. The plan is focussed on four
areas: the Company's internal software and hardware, the Company products,
the Company's suppliers, and the equipment that supports the Company's
infrastructure.
In order to assess its issues with internal software, the Company made a
complete inventory of all software located on its computer network and
desktop support systems. The manufacturers of these software programs have
been contacted in order to ascertain whether these software programs are year
2000 compliant. The Company has had an independent review of its information
systems department conducted to confirm its handling of the Year 2000 issue.
Additionally, the Company has also arranged to
12
<PAGE>
have all of its major software programs tested in a lab, at which time all
date indicators will be moved forward to the year 2000. It is anticipated
that this testing will be completed by February 1999.
The Company has addressed the Year 2000 issue in the engineering of its
products. The Company believes that there will be minimal product failure
by the Company's products as a result of the year 2000 date issue and such
failures are not expected to have a material adverse effect on the Company's
business, financial condition, or results of operations. However, many of
the Company's products interface with systems and products of other
manufacturers, and as a result, a system of which the Company's products
comprise a portion may fail through no fault of the Company's. The Company
may be requested to remedy the issue because of the integration of its
equipment in these systems. The Company is still evaluating what its response
will be in such situations, and as a result, is unable to estimate what the
costs or the effect of such situations would be.
The Company relies on over 300 manufacturers and suppliers to provide
parts and equipment that are integrated during the manufacturing the
Company's products. Because of the reliance of obtaining these products in
order to manufacture the Company's products, it is important for the Company
to ascertain these suppliers' ability to operate their businesses on January
1, 2000. As of September 30, 1998, the majority of these manufacturers and
suppliers have been contacted by the Company and asked to respond to a
questionnaire that will indicate their readiness to the Year 2000 issue. The
Company will attempt to gain a response from 100% of these suppliers. Based
on the relative size and sophistication of the supplier, and the critical
nature of the part to the Company's products, on-sites visits may be made to
certain of these suppliers. The Company expects to have received responses
from its suppliers by December 1998.
Finally, the Company has begun inspection of the many systems that
provide support to the infrastructure of its operations. These include phone
systems, security systems, air conditioning equipment, machinery, and other
related equipment that are used in the Company's physical operations.
Responses and warranties have been received by certain of the manufactures of
the equipment and service providers. It is expected that this process will
be completed by January 1999.
COSTS
Based on the analysis completed so far, the Company believes that the
costs it will incur to address the Year 2000 issue will not exced $50,000 and
are covered in the normal operating plan of the Company for 1999. Certain of
the actions included in the plan require the Company to enlist outside
service providers. The costs for these outside service providers have been
incorporated into the Company's operating plan. The Company should not incur
any material additional costs for these services. Personnel costs associated
with the implementation and completion of the plan are also covered in the
normal operations of the Company.
RISK OF YEAR 2000 ISSUES AND CONTINGENCY PLANS
The Company believes its products will have minimal impact from the Year
2000 issue, and that the Company's software is more likely than not free from
any Year 2000 issues. It is the Company's belief that the most reasonably
likely worst case scenario is that the Company's critical suppliers will not
have adequately addressed the Year 2000 issue. The Company's contingency
plan for this is to seek new suppliers. Because of the bidding process the
Company currently uses in purchasing its materials, the Company believes that
it will not be difficult to find additional sources of its raw materials.
However, because of the inherent complexities involved in the Year 2000
issue, the Company may find that its costs of these materials exceeds its
current costs, and as a result its results of operations may be adversely
affected by this course of events. However, it is the Company's belief at
this time that any effect on the Company's costs of doing business and
results of operations will not be material. This belief may change as the
Company's analysis continues.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
The discussion of the Company's efforts and expectations relating to the
Year 2000 issue contain forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the costs associated with such compliance
are based upon management's best estimates, which were derived using numerous
assumptions. These assumptions involve a number of future events, including
the continued availability of certain resources, cooperation by vendors and
customers, and other factors. There can be no assurance that these estimates
will prove to be accurate, and actual results could differ materially from
those currently anticipated. Specific factors that could cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in Year 2000 issues, variability of definitions of
"compliance with Year 2000" and the myriad of different products and
services, and combinations thereof, sold by the Company. No assurance can be
given that the aggregate cost of defending and resolving such claims, if any,
will not materially adversely affect the Company's results of operations.
14
<PAGE>
AMX CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to this item is incorporated herein from Part 1.
Financial Information (Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Contingencies).
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Shareholders of AMX Corporation was held on August
4, 1998, to consider two matters of business. The matters brought before the
shareholders and the voting results are as follows:
1. Election of Directors
<TABLE>
<CAPTION>
SHARES
WITHHELD FROM BROKER
FOR VOTING FOR NON-VOTES *
<S> <C> <C> <C>
Scott D. Miller 7,202,868 72,745 --
Joe Hardt 7,202,368 73,245 --
Peter York 7,202,868 72,745 --
Thomas S. Roberts 7,202,968 72,645 --
Harvey B. Cash 7,202,968 72,645 --
J. Otis Winters 7,202,568 77,045 --
John F. McHale 7,202,568 77,045 --
</TABLE>
2. Ratification of Ernst & Young LLP as auditors
<TABLE>
<CAPTION>
SHARES WITHHELD BROKER
FOR FROM VOTING FOR NON-VOTES *
<S> <C> <C>
7,202,968 72,645 --
</TABLE>
* Broker non-votes occur where a broker holding stock in street name does
not vote those shares.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation the Company.
(Incorporated by reference from Exhibit 4.1 to the Company's Form
S-8 filed March 11, 1996, File No. 333-2202).
3.2 Amended and Restated Bylaws of the Company, as amended.
(Incorporated by reference from Exhibit 3.4 to the Company's
Registration Statement on Form S-1 filed September 13, 1995, as
amended, File No. 33-96886).
3.3 Amendment to Amended and Restated Bylaws of the Company.
(Incorporated by reference from Exhibit 3.5 to the Company's
Registration Statement on Form S-1 filed September 13, 1995, as
amended, File No. 33-96886).
15
<PAGE>
4.1 Specimen certificate for the Common Stock of the Company
(Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 filed September 13, 1995, as
amended, File No. 33-96886).
(+)27.1 Financial Data Schedule.
b. Reports on Form 8-K
None
- ----------------------------
(+)Filed herewith.
16
<PAGE>
AMX CORPORATION
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.
AMX Corporation
Date: November 13, 1998 By: /s/ David E. Chisum
-------------------------------------
David E. Chisum
Chief Financial Officer (Duly Authorized
Officer and Principal Financial Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 628,244
<SECURITIES> 0
<RECEIVABLES> 12,508,587
<ALLOWANCES> (628,572)
<INVENTORY> 10,489,261
<CURRENT-ASSETS> 24,561,149
<PP&E> 9,936,890
<DEPRECIATION> 5,250,892
<TOTAL-ASSETS> 30,579,980
<CURRENT-LIABILITIES> 13,403,324
<BONDS> 520,891
0
0
<COMMON> 82,986
<OTHER-SE> 16,572,779
<TOTAL-LIABILITY-AND-EQUITY> 30,579,980
<SALES> 34,146,221
<TOTAL-REVENUES> 34,146,221
<CGS> 15,655,031
<TOTAL-COSTS> 15,655,031
<OTHER-EXPENSES> 15,876,451
<LOSS-PROVISION> 168,213
<INTEREST-EXPENSE> 195,493
<INCOME-PRETAX> 2,449,590
<INCOME-TAX> 772,536
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,677,054
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
