UNITED STATES
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: December 31,
2009 |
| 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: 0-11412
| AMTECH SYSTEMS, INC. |
| (Exact name of registrant as specified
in its charter) |
| |
|
| Arizona |
86-0411215 |
| (State or other jurisdiction
of |
(I.R.S. Employer |
| incorporation or organization) |
Identification No.) |
| |
|
| 131 South Clark Drive,
Tempe, Arizona |
85281 |
| (Address of principal executive
offices) |
(Zip
Code) |
Registrant’s
telephone number, including area code: 480-967-5146
Indicate by a 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. [X] Yes [ ] No
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). [ ] Yes [ ]
No.
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer [ ]
|
Accelerated filer [
] |
| |
|
| Non-accelerated filer [ ] (Do not
check if a smaller reporting company) |
Smaller
Reporting Company [X]
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
Shares of Common Stock
outstanding as of February 1, 2010: 9,017,352
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
2
|
|
|
December 31, |
|
September 30, |
|
|
|
2009 |
|
2009 |
|
|
|
(Unaudited) |
|
|
|
| Assets |
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
| Cash and cash
equivalents |
|
$ |
42,475 |
|
$ |
42,298 |
|
Restricted cash |
|
|
2,314 |
|
|
1,496 |
| Accounts receivable |
|
|
|
|
|
|
|
Trade (less allowance for doubtful accounts of $259 and $465 at |
|
|
7,482 |
|
|
8,409 |
|
December 31, 2009 and September 30, 2009, respectively) |
|
|
|
|
|
|
|
Unbilled and other |
|
|
4,851 |
|
|
5,156 |
|
Inventories |
|
|
12,310 |
|
|
13,455 |
| Deferred income
taxes |
|
|
2,190 |
|
|
2,290 |
|
Other |
|
|
1,688 |
|
|
841 |
|
Total current assets |
|
|
73,310 |
|
|
73,945 |
| |
| Property, Plant and Equipment -
Net |
|
|
8,394 |
|
|
8,477 |
| Deferred Income Taxes - Long
Term |
|
|
1,260 |
|
|
1,140 |
| Intangible Assets - Net |
|
|
3,652 |
|
|
3,828 |
| Goodwill |
|
|
5,058 |
|
|
5,136 |
| Other Assets |
|
|
25 |
|
|
- |
| Total Assets |
|
$ |
91,699 |
|
$ |
92,526 |
| |
The accompanying
notes are an integral part of these condensed consolidated financial
statements.
3
AMTECH SYSTEMS, INC. AND
SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands except share data)
|
|
|
December 31, |
|
September 30, |
|
|
|
2009 |
|
2009 |
|
|
|
(Unaudited) |
|
|
|
| Liabilities and Stockholders'
Equity |
|
|
|
|
|
|
| Current Liabilities |
|
|
|
|
|
|
| Accounts payable |
|
$ |
4,342 |
|
$ |
4,181 |
|
Bank loans and current maturities of long-term debt |
|
|
121 |
|
|
121 |
| Accrued compensation and
related taxes |
|
|
2,546 |
|
|
2,877 |
|
Accrued warranty expense |
|
|
1,215 |
|
|
1,429 |
| Deferred profit |
|
|
4,432 |
|
|
4,727 |
|
Customer deposits |
|
|
3,297 |
|
|
2,861 |
| Other accrued
liabilities |
|
|
1,462 |
|
|
1,721 |
|
Income taxes payable |
|
|
10 |
|
|
160 |
|
Total current liabilities |
|
|
17,425 |
|
|
18,077 |
| |
| Income Taxes Payable
Long-term |
|
|
490 |
|
|
480 |
| Long-Term Obligations |
|
|
132 |
|
|
164 |
|
Total liabilities |
|
|
18,047 |
|
|
18,721 |
| |
| Commitments and
Contingencies |
|
|
|
|
|
|
| |
| Stockholders' Equity |
|
|
|
|
|
|
| Preferred stock; 100,000,000
shares authorized; none issued |
|
|
- |
|
|
- |
|
Common stock; $0.01 par value; 100,000,000 shares authorized; |
|
|
|
|
|
|
|
shares issued and outstanding: 9,002,652 and 8,961,494 |
|
|
|
|
|
|
|
at December 31, 2009 and September 30, 2009, respectively |
|
|
90 |
|
|
90 |
| Additional paid-in
capital |
|
|
70,817 |
|
|
70,403 |
|
Accumulated other comprehensive income |
|
|
14 |
|
|
661 |
| Retained Earnings |
|
|
2,731 |
|
|
2,651 |
|
Total stockholders' equity |
|
|
73,652 |
|
|
73,805 |
|
Total Liabilities and Stockholders' Equity |
|
$ |
91,699 |
|
$ |
92,526 |
| |
The accompanying
notes are an integral part of these condensed consolidated financial
statements.
4
(Unaudited)
(in thousands, except per share
data)
|
|
|
Three Months Ended December
31, |
|
|
|
2009 |
|
2008 |
| Revenues, net of returns and
allowances |
|
$ |
15,457 |
|
$ |
17,872 |
| Cost of sales |
|
|
10,857 |
|
|
11,786 |
|
Gross profit |
|
|
4,600 |
|
|
6,086 |
| |
|
|
|
|
|
|
| Selling, general and
administrative |
|
|
3,975 |
|
|
4,483 |
| Research and development |
|
|
497 |
|
|
224 |
|
Operating income |
|
|
128 |
|
|
1,379 |
| |
|
|
|
|
|
|
| Interest and other income, net |
|
|
2 |
|
|
61 |
| |
|
|
|
|
|
|
| Income before income taxes |
|
|
130 |
|
|
1,440 |
| |
|
|
|
|
|
|
| Income tax provision |
|
|
50 |
|
|
580 |
| |
|
|
|
|
|
|
|
Net income |
|
$ |
80 |
|
$ |
860 |
| |
| Earnings Per Share: |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Basic income per share |
|
$ |
0.01 |
|
$ |
0.09 |
| Weighted average shares outstanding |
|
|
8,972 |
|
|
9,098 |
| |
|
|
|
|
|
|
| Diluted income per share |
|
$ |
0.01 |
|
$ |
0.09 |
| Weighted average shares outstanding |
|
|
9,059 |
|
|
9,109 |
The accompanying
notes are an integral part of these condensed consolidated financial
statements.
5
|
|
|
Three Months Ended December
31, |
|
|
|
2009 |
|
2008 |
| Operating Activities |
|
|
|
|
|
|
|
|
| Net income |
|
$ |
80 |
|
|
$ |
860 |
|
|
Adjustments to reconcile net income to net |
|
|
|
|
|
|
|
|
|
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
424 |
|
|
|
363 |
|
|
Write-down of inventory |
|
|
124 |
|
|
|
119 |
|
|
Deferred income taxes |
|
|
(31 |
) |
|
|
(374 |
) |
|
Non-cash share based compensation expense |
|
|
377 |
|
|
|
166 |
|
|
Provision for (reversal of) allowance for doubtful accounts |
|
|
(122 |
) |
|
|
66 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(867 |
) |
|
|
1,466 |
|
|
Accounts receivable |
|
|
1,171 |
|
|
|
890 |
|
|
Inventories |
|
|
846 |
|
|
|
(935 |
) |
|
Accrued income taxes |
|
|
(180 |
) |
|
|
623 |
|
|
Prepaid expenses and other assets |
|
|
(902 |
) |
|
|
(687 |
) |
|
Accounts payable |
|
|
222 |
|
|
|
(135 |
) |
|
Accrued liabilities and customer deposits |
|
|
(225 |
) |
|
|
(2,019 |
) |
|
Deferred profit |
|
|
(218 |
) |
|
|
736 |
|
| Net
cash provided by operating activities |
|
|
699 |
|
|
|
1,139 |
|
| Investing Activities |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(373 |
) |
|
|
(222 |
) |
|
Payment for licensing agreement |
|
|
- |
|
|
|
(300 |
) |
| Net
cash used in investing activities |
|
|
(373 |
) |
|
|
(522 |
) |
| Financing Activities |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
37 |
|
|
|
- |
|
|
Payments on long-term obligations |
|
|
(31 |
) |
|
|
(62 |
) |
| Net
cash provided by (used in) financing activities |
|
|
6 |
|
|
|
(62 |
) |
| Effect of Exchange Rate Changes on
Cash |
|
|
(155 |
) |
|
|
355 |
|
| Net Increase in Cash and Cash
Equivalents |
|
|
177 |
|
|
|
910 |
|
| Cash and Cash Equivalents, Beginning of
Period |
|
|
42,298 |
|
|
|
37,501 |
|
| Cash and Cash Equivalents, End of
Period |
|
$ |
42,475 |
|
|
$ |
38,411 |
|
| Supplemental Cash Flow
Information: |
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
4 |
|
|
$ |
8 |
|
|
Income tax refunds |
|
$ |
21 |
|
|
$ |
131 |
|
|
Income tax payments |
|
$ |
288 |
|
|
$ |
345 |
|
| Supplemental Non-cash Investing
Activities: |
|
|
|
|
|
|
|
|
|
Transfer inventory to capital equipment |
|
$ |
- |
|
|
$ |
116 |
|
|
Intangible assets funded with current liabilities |
|
$ |
- |
|
|
$ |
500 |
|
The accompanying
notes are an integral part of these condensed consolidated financial
statements.
6
1. Basis of Presentation
Nature of Operations and Basis of
Presentation – Amtech
Systems, Inc. (the “Company”) designs, assembles, sells and installs capital
equipment and related consumables used in the manufacture of solar cells,
semiconductors, and wafers of various materials, primarily for the solar and
semiconductor industries. The Company sells these products worldwide,
particularly in Asia, the United States and Europe. In addition, the Company
provided semiconductor manufacturing support services until November 2009.
The Company serves
niche markets in industries that are experiencing rapid technological advances,
and which historically have been very cyclical. Therefore, future profitability
and growth depend on the Company’s ability to develop or acquire and market
profitable new products, and on its ability to adapt to cyclical trends.
The accompanying
unaudited condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”), and consequently do not include all disclosures normally required
by U.S. generally accepted accounting principles. In the opinion of management,
the accompanying unaudited interim condensed consolidated financial statements
contain all adjustments necessary, all of which are of a normal recurring
nature, to present fairly our financial position, results of operations and cash
flows. Certain information and note disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the SEC. These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended September
30, 2009.
The condensed
consolidated results of operations for the three months ended December 31, 2009,
are not necessarily indicative of the results to be expected for the full fiscal
year.
Use of Estimates – The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition – Revenue
is recognized upon shipment of the Company’s proven technology equal to the
sales price less the greater of (i) the fair value of undelivered services and
(ii) the contingent portion of the sales price, which is generally 10-20% of the
total contract price. The entire cost of the equipment relating to proven
technology is recorded upon shipment. The remaining contractual revenue,
deferred costs and installation costs are recorded upon successful installation
of the product.
For purposes of
revenue recognition, proven technology means the Company has a history of at
least two successful installations. New technology systems are those systems
with respect to which the Company cannot demonstrate that it can meet the
provisions of customer acceptance at the time of shipment. The full amount of
revenue and costs of new technology shipments is recognized upon the completion
of installation at the customers’ premises and acceptance of the product by the
customer.
Revenue from services
is recognized as the services are performed. Revenue from prepaid service
contracts is recognized ratably over the life of the contract. Revenue from
spare parts is recorded upon shipment.
7
Deferred Profit – Revenue deferred pursuant to the Company’s
revenue recognition policy, net of the related deferred costs, if any, is
recorded as deferred profit in current liabilities. The components of deferred
profit are as follows:
|
|
December 31, |
|
September 30, |
|
|
2009 |
|
2009 |
|
|
(dollars in
thousands) |
| Deferred revenues |
$ |
5,453 |
|
$ |
6,904 |
| Deferred costs |
|
1,021 |
|
|
2,177 |
| Deferred profit |
$ |
4,432 |
|
$ |
4,727 |
Concentrations of Credit Risk –
Financial instruments that
potentially subject the Company to significant concentrations of credit risk
consist principally of trade accounts receivable. The Company’s customers,
located throughout the world, consist of manufacturers of solar cells,
semiconductors, semiconductor wafers and MEMS. Credit risk is managed by
performing ongoing credit evaluations of the customers’ financial condition, by
requiring significant deposits where appropriate, and by actively monitoring
collections. Letters of credit are required of certain customers depending on
the size of the order, type of customer or its creditworthiness, and its country
of domicile. Reserves for potentially uncollectible receivables are maintained
based on an assessment of collectability.
As of December 31,
2009, receivables from one customer accounted for 16% of total accounts
receivable. As of September 30, 2009, accounts receivable from three customers
each exceeded 10% of accounts receivable; these three customers accounted for
19%, 11% and 10% of total accounts receivable, respectively.
Restricted Cash – Current restricted cash of $2.3 million and $1.5 million as of December
31, 2009 and September 30, 2009, consists of bank guarantees required by certain
customers from whom deposits have been received in advance of shipment and $0.5
million of cash in an escrow account related to contingent payments to be paid
to the sellers of R2D due to the fulfillment of certain
requirements.
Accounts Receivable - Unbilled and
Other – Unbilled and other
accounts receivable consist mainly of the contingent portion of the sales price
that is not collectible until successful installation and acceptance of the
product, which amounts are generally billed upon final acceptance by our
customers. The majority of these amounts are offset by balances included in
deferred profit.
Inventories – Inventories are stated at the lower of cost
or net realizable value. Costs for approximately 80% of inventory are determined
on an average cost basis with the remainder determined on a first-in, first-out
(FIFO) basis. The components of inventories are as follows:
|
|
December 31, |
|
September 30, |
|
|
2009 |
|
2009 |
|
|
|
(dollars in
thousands) |
| Purchased parts and raw
materials |
$ |
6,568 |
|
$ |
7,550 |
| Work-in-process |
|
3,328 |
|
|
3,277 |
| Finished goods |
|
2,414 |
|
|
2,628 |
|
|
$ |
12,310 |
|
$ |
13,455 |
|
|
8
Property, Plant and
Equipment – Property,
plant and equipment are recorded at cost. Maintenance and repairs are charged to
expense as incurred. The cost of property retired or sold and the related
accumulated depreciation are removed from the applicable accounts when
disposition occurs and any gain or loss is recognized. Depreciation is computed
using the straight-line method. Useful lives for equipment, machinery and
leasehold improvements range from three to seven years; for furniture and
fixtures from five to 10 years; and for buildings 20 years.
The following is a
summary of property, plant and equipment:
|
|
December 31, |
|
September 30, |
|
|
2009 |
|
2009 |
|
|
(dollars in
thousands) |
| Land, building and leasehold
improvements |
$ |
7,037 |
|
|
$ |
7,124 |
|
| Equipment and machinery |
|
4,504 |
|
|
|
4,295 |
|
| Furniture and fixtures |
|
3,428 |
|
|
|
3,404 |
|
|
|
|
14,969 |
|
|
|
14,823 |
|
| Accumulated depreciation and
amortization |
|
(6,575 |
) |
|
|
(6,346 |
) |
|
|
$ |
8,394 |
|
|
$ |
8,477 |
|
| |
Goodwill - Goodwill and intangible assets with indefinite
lives are not subject to amortization, but are tested for impairment at least
annually. Goodwill is reviewed for impairment on an annual basis, typically at
the end of the fiscal year, or more frequently if circumstances
dictate.
Intangibles – Intangible assets are capitalized and
amortized over two to 10 years.
Long-lived assets are
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
The following is a
summary of intangibles:
|
|
|
|
December 31, |
|
September 30, |
|
|
Useful Life |
|
2009 |
|
2009 |
|
|
|
|
(dollars in
thousands) |
| Non-compete agreements |
10 years |
|
|
175 |
|
|
|
178 |
|
| Customer lists |
10 years |
|
|
923 |
|
|
|
940 |
|
| Technology |
10 years |
|
|
1,830 |
|
|
|
1,863 |
|
| Licenses |
10 years |
|
|
1,500 |
|
|
|
1,500 |
|
| Other |
2-10 years |
|
|
94 |
|
|
|
96 |
|
|
|
|
|
|
4,522 |
|
|
|
4,577 |
|
| Accumulated amortization |
|
|
|
(870 |
) |
|
|
(749 |
) |
| |
|
|
$ |
3,652 |
|
|
$ |
3,828 |
|
| |
9
Warranty – A limited warranty is provided free of charge,
generally for periods of 12 to 24 months to all purchasers of the Company’s new
products and systems. Accruals are recorded for estimated warranty costs at the
time revenue is recognized.
The following is a
summary of activity in accrued warranty expense:
|
|
|
Three Months Ended December
31, |
|
|
|
2009 |
|
2008 |
|
|
|
(dollars in
thousands) |
| Beginning balance |
|
$ |
1,429 |
|
|
$ |
1,155 |
|
| Warranty expenditures |
|
|
(159 |
) |
|
|
(151 |
) |
| Reserve adjustment |
|
|
(55 |
) |
|
|
327 |
|
| Ending balance |
|
$ |
1,215 |
|
|
$ |
1,331 |
|
| |
Stock-Based Compensation – The Company measures compensation costs
relating to share-based payment transactions based upon the grant-date fair
value of the award. Those costs are recognized as expense over the requisite
service period, which is generally the vesting period. The benefits of tax
deductions in excess of recognized compensation cost are reported as cash flow
from financing activities rather than as cash flow from operating activities.
Our stock-based compensation plans are summarized in the table below:
|
|
|
Shares |
|
Shares |
|
|
|
Plan |
| Name of Plan |
|
Authorized |
|
Available |
|
Options Outstanding |
|
Expiration |
| 2007 Employee Stock Incentive
Plan |
|
500,000 |
|
1,337 |
|
343,813 |
|
Apr. 2017 |
| 1998 Employee Stock Option Plan |
|
500,000 |
|
- |
|
315,682 |
|
Jan.
2008 |
| Non-Employee Directors Stock Option
Plan |
|
200,000 |
|
1,600 |
|
121,000 |
|
Jul. 2015 |
|
|
|
|
|
2,937 |
|
780,495 |
|
|
|
|
Stock-based
compensation expense recognized reduced the Company’s results of operations as
follows:
|
|
|
Three Months Ended
December 31, |
|
|
|
2009 |
|
2008 |
|
|
|
(dollars in thousands,
except per share amounts) |
| Effect on income before income taxes
(1) |
|
$ |
(377 |
) |
|
$ |
(166 |
) |
| Effect on income taxes |
|
|
106 |
|
|
|
31 |
|
| Effect on net income |
|
$ |
(271 |
) |
|
$ |
(135 |
) |
|
|
| |
(1) |
|
Stock-based
compensation expense is included in selling, general and administrative
expenses.
|
10
Qualified stock
options issued under the terms of the plans have, or will have, an exercise
price equal to or greater than the fair market value of the common stock at the
date of the option grant and expire no later than 10 years from the date of
grant, with the most recent grant expiring in 2019. Under the terms of the 1998
Employee Stock Option Plan, nonqualified stock options may also be issued.
Options issued by the Company vest over one to five years.
The stock option
transactions and the options outstanding are summarized as follows:
|
|
|
Three Months Ended
December 31, |
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
Options |
|
Price |
|
Options |
|
Price |
| Outstanding at beginning of
period |
|
|
691,403 |
|
|
$ |
7.03 |
|
|
487,053 |
|
|
$ |
8.39 |
| Granted |
|
|
102,000 |
|
|
|
6.44 |
|
|
163,000 |
|
|
|
3.80 |
| Exercised |
|
|
(7,533 |
) |
|
|
4.87 |
|
|
- |
|
|
|
- |
| Forfeited |
|
|
(5,375 |
) |
|
|
5.40 |
|
|
(250 |
) |
|
|
7.00 |
| Outstanding at end of period |
|
|
780,495 |
|
|
$ |
6.98 |
|
|
649,803 |
|
|
$ |
7.24 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable at end of period |
|
|
436,681 |
|
|
$ |
7.19 |
|
|
296,892 |
|
|
$ |
7.15 |
| Weighted average fair value of
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| granted during the period |
|
$ |
3.97 |
|
|
|
|
|
$ |
2.29 |
|
|
|
|
The fair value of
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following assumptions:
|
|
|
Three Months Ended December
31, |
|
|
|
2009 |
|
2008 |
| Risk free interest rate |
|
2.57% |
|
1.82% |
| Expected life |
|
6 years |
|
6 years |
| Dividend rate |
|
0% |
|
0% |
| Volatility |
|
68% |
|
66% |
| Forfeiture rate |
|
5% |
|
8% |
To estimate expected
lives for this valuation, it was assumed that options will be exercised at
varying schedules after becoming fully vested. Forfeitures have been estimated
at the time of grant and will be revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Forfeitures were estimated based
upon historical experience. Fair value computations are highly sensitive to the
volatility factor assumed; the greater the volatility, the higher the computed
fair value of the options granted.
There were 102,000
and 163,000 options granted during the three months ended December 31, 2009 and
2008, respectively. Total fair value of options granted was approximately $0.4
million for the three months ended December 31, 2009 and 2008.
11
In December 2007, we
began awarding restricted shares under the existing share-based compensation
plans. Our restricted share awards vest in equal annual installments over a
four-year period. The total value of these awards is expensed on a ratable basis
over the service period of the employees receiving the grants. The “service
period” is the time during which the employees receiving grants must remain
employees for the shares granted to fully vest.
|
|
Three Months Ended December
31, |
|
|
2009 |
|
2008 |
|
|
|
|
|
Weighted |
|
|
|
|
Weighted |
|
|
|
|
|
Average |
|
|
|
|
Average |
|
|
|
|
|
Grant Date |
|
|
|
|
Grant Date |
|
|
Awards |
|
Fair Value |
|
Awards |
|
Fair Value |
| Beginning Outstanding |
122,875 |
|
|
|
$
|
5.85 |
|
30,500 |
|
|
$
|
14.79 |
| Awarded |
24,000 |
|
|
|
|
6.15 |
|
100,000 |
|
|
|
3.80 |
| Released |
(33,625 |
) |
|
|
|
6.46 |
|
(7,625 |
) |
|
|
14.79 |
| Forfeited |
(1,250 |
) |
|
|
|
8.20 |
|
- |
|
|
|
- |
| Ending Outstanding |
112,000 |
|
|
|
$ |
5.70 |
|
122,875 |
|
|
$ |
5.85 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
There were 24,000 and
100,000 restricted shares awarded during the three months ended December 31,
2009 and 2008, respectively. Total fair value of restricted shares awarded was
approximately $0.1 million and $0.4 million for the three months ended December
31, 2009 and 2008, respectively.
Fair Value of Financial
Instruments –
The carrying values of the
Company’s current financial instruments approximate fair value due to the short
term in which these instruments mature.
Shipping expense – Shipping expenses of $0.3 million and $0.2
million for the three months ended December 31, 2009 and 2008, respectively, are
included in selling, general and administrative expenses.
Impact of Recently Issued Accounting
Pronouncements
In October 2009, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2009-13, Revenue Recognition–Multiple Deliverable Revenue
Arrangements. This guidance updates the existing multiple-element revenue
arrangements guidance currently included in FASB ASC 605-25, Revenue
Recognition–Multiple–Element Arrangements. The revised guidance provides for two
significant changes to the existing multiple element revenue arrangements
guidance. The first change relates to the determination of when the individual
deliverables included in a multiple-element arrangement may be treated as
separate units of accounting. The second change modifies the manner in which the
transaction consideration is allocated across the separately identified
deliverables. This guidance also significantly expands the disclosures required
for multiple-element revenue arrangements. The revised multiple-element revenue
arrangements guidance will be effective for the fiscal year ending September 30,
2011, however, early adoption is permitted, provided that the revised guidance
is retroactively applied to the beginning of the year of adoption. The Company
has not yet determined the impact, if any, the adoption of this guidance will
have on its consolidated financial statements.
2. Income Taxes
The quarterly income
tax provision is calculated using an estimated annual effective tax rate, based
upon expected annual income, permanent items, statutory tax rates and planned
tax strategies in the various jurisdictions in which the Company
operates.
12
Deferred tax assets
and liabilities reflect the tax effects of temporary differences between the
carrying value of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The Company records a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax asset will not be realized. Our
expectations regarding realization of our deferred tax assets is based upon the
weight of all available evidence, including such factors as our recent earnings
history and expected future taxable income. The company maintains a valuation
allowance with respect to certain state and foreign net operating losses that
may not be recovered. Each quarter the valuation allowance is re-evaluated.
During the quarter ended December 31, 2009, no significant changes were made to
the valuation allowance.
The Company
classifies uncertain tax positions as non-current income taxes payable unless
expected to be paid within one year. At December 31, 2009, and September 30,
2009, the total amount of unrecognized tax benefits was $0.5 million. If
recognized, these amounts would favorably impact the effective tax
rate.
The Company
classifies interest and penalties related to unrecognized tax benefits in income
tax expense. As of December 31, 2009 and September 30, 2009, the Company accrued
$0.1 million for potential interest and penalties.
The Company and one
or more of its subsidiaries file income tax returns in The Netherlands, Germany,
France and other foreign jurisdictions, as well as the U.S. and various states
in the U.S. The Company and its subsidiaries have open tax years primarily from
fiscal 2004 to fiscal 2008 with taxing foreign jurisdictions and the U.S. These
open years contain certain matters that could be subject to differing
interpretations of applicable tax laws and regulations as they relate to the
amount, timing, or inclusion of revenues and expenses, or the sustainability of
income tax positions of the Company and its subsidiaries.
3. Earnings Per Share
Basic earnings per
share (EPS) is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed similarly to
basic EPS except that the denominator is increased to include the number of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.
Common shares relating to stock options where
the exercise prices exceeded the average market price of our common shares
during the period were excluded from the diluted earnings per share calculation
as the related impact was anti-dilutive. For the three months ended December 31,
2009, options for 398,000 shares and 22,000 restricted stock award shares are
excluded from the diluted EPS calculations because they are anti-dilutive. For
the three months ended December 31, 2008, options for 630,000 shares and 30,500
restricted stock award shares are excluded from the diluted EPS calculations
because they are anti-dilutive.
13
|
|
Three Months Ended |
|
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(in thousands, except per share
amounts) |
| Basic Earnings Per Share
Computation |
|
|
|
|
|
| Net income |
$ |
80 |
|
$ |
860 |
| |
| Weighted Average Shares
Outstanding: |
|
|
|
|
|
| Common stock |
|
8,972 |
|
|
9,098 |
| Basic earnings per share |
$ |
0.01 |
|
$ |
0.09 |
| |
| Diluted Earnings Per Share
Computation |
|
|
|
|
|
| Net income |
$ |
80 |
|
$ |
860 |
| |
| Weighted Average Shares
Outstanding: |
|
|
|
|
|
| Common stock |
|
8,972 |
|
|
9,098 |
| Common stock equivalents (1) |
|
87 |
|
|
11 |
| Diluted shares |
|
9,059 |
|
|
9,109 |
| Diluted earnings per share |
$ |
0.01 |
|
$ |
0.09 |
| |
|
|
|
|
|
| |
(1) |
|
The number of
common stock equivalents is calculated using the treasury stock method and
the average market price during the
period.
|
4. Comprehensive Income
(Loss)
|
|
Three Months Ended |
|
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(dollars in
thousands) |
| Net income, as reported |
$
|
80 |
|
|
$
|
860 |
|
| Foreign currency translation adjustment |
|
(647 |
) |
|
|
(459 |
) |
| Comprehensive income (loss) |
$ |
(567 |
) |
|
$ |
401 |
|
| |
|
|
|
|
|
|
|
5. Business Segment Information
The Company’s
products are classified into two core business segments; the solar and
semiconductor equipment segment and the polishing supplies segment. The solar
and semiconductor equipment segment designs, manufactures and markets
semiconductor wafer processing and handling equipment used in the fabrication of
solar cells, integrated circuits and MEMS. Also included in the solar and
semiconductor equipment segment are the manufacturing support service operations
and corporate expenses, except for a portion of corporate expenses that is
allocated to the polishing supplies segment. The polishing supplies segment
designs, manufactures and markets carriers, templates and equipment used in the
lapping and polishing of wafer-thin materials, including silicon wafers used in
the production of semiconductors.
14
Information concerning our business segments is as follows:
|
|
Three Months Ended |
|
|
December 31, |
|
|
2009 |
|
2008 |
| Net Revenues: |
(dollars in
thousands) |
|
Solar and semiconductor equipment |
$
|
13,975 |
|
|
$
|
16,132 |
|
| Polishing supplies |
|
1,482 |
|
|
|
1,740 |
|
| |
$ |
15,457 |
|
|
$ |
17,872 |
|
| |
| Operating Income: |
|
|
|
|
|
|
|
| Solar and semiconductor
equipment |
$ |
(32 |
) |
|
$ |
1,407 |
|
|
Polishing supplies |
|
160 |
|
|
|
(28 |
) |
| |
|
128 |
|
|
|
1,379 |
|
| |
| Interest and other income (expense),
net |
|
2 |
|
|
|
61 |
|
| |
|
|
|
|
|
|
|
|
Income before income taxes |
$ |
130 |
|
|
$ |
1,440 |
|
| |
| |
December 31, |
|
September 30, |
| |
2009 |
|
2009 |
| Identifiable Assets: |
(dollars in
thousands) |
|
Solar and semiconductor equipment |
$ |
87,630 |
|
|
$ |
88,617 |
|
| Polishing supplies |
|
4,069 |
|
|
|
3,909 |
|
| |
$ |
91,699 |
|
|
$ |
92,526 |
|
| |
| Goodwill: |
|
|
|
|
|
|
|
| Solar and semiconductor
equipment |
$ |
4,330 |
|
|
$ |
4,408 |
|
|
Polishing supplies |
|
728 |
|
|
|
728 |
|
| |
$ |
5,058 |
|
|
$ |
5,136 |
|
| |
|
|
|
|
|
|
|
6. Major Customers and Foreign Sales
During the three
month period ended December 31, 2009, two customers individually represented 26%
and 24% of net revenues. During the three months ended December 31, 2008, two
customers individually represented 33% and 12% of net revenues.
15
Our net revenues were to customers in
the following geographic regions:
|
|
Three Months Ended |
|
|
December 31, |
|
|
2009 |
|
2008 |
| United States |
10 |
% |
|
18 |
% |
|
Total North America |
10 |
% |
|
18 |
% |
| |
|
|
|
|
|
| China |
60 |
% |
|
17 |
% |
| Taiwan |
4 |
% |
|
48 |
% |
| Other |
5 |
% |
|
4 |
% |
|
Total Asia |
69 |
% |
|
69 |
% |
| |
|
|
|
|
|
|
Total Europe |
21 |
% |
|
13 |
% |
|
|
100 |
% |
|
100 |
% |
| |
|
|
|
|
|
7. Commitments and Contingencies
Purchase Obligations – As of December 31, 2009, we had purchase
obligations in the amount of $14.2 million compared to $4.7 million as of
September 30, 2009. These purchase obligations consist of outstanding purchase
orders for goods and services. While the amount represents purchase agreements,
the actual amounts to be paid may be less in the event that any agreements are
renegotiated, cancelled or terminated.
Litigation – The
Company is a party to various claims arising in the normal course of business.
Management believes the resolution of these matters will not have a material
impact on the Company’s results of operations or financial
condition.
8. Subsequent Events
The Company has
evaluated subsequent events for recognition and disclosure through February 9,
2010, the date these consolidated financial statements on this Form 10-Q were
filed with the Securities and Exchange Commission. Through that date, there were
no events requiring adjustment to or disclosure in these consolidated financial
statements.
The following
discussion and analysis of our financial condition and results of operations
should be read in conjunction with our condensed consolidated financial
statements and the related notes included in Item 1, “Condensed Financial
Statement” in this quarterly report on Form 10-Q and our consolidated financial
statements and related notes included in Item 8, “Financial Statements and
Supplementary Data” in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2009.
16
The statements in this report include
forward-looking statements. These forward-looking statements are based on our
management’s current expectations and beliefs and involve numerous risks and
uncertainties that could cause actual results to differ materially from
expectations. You should not rely upon these forward-looking statements as
predictions of future events because we cannot assure you that the events or
circumstances reflected in these statements will be achieved or will occur. You
can identify forward-looking statements by the use of forward-looking
terminology, including the words “believes,” “expects,” “may,” “will,” “should,”
“seeks,” “intends,” “plans,” “estimates” or “anticipates” or the negative of
these words and phrases or other variations of these words and phrases or
comparable terminology. These forward-looking statements relate to, among other
things: our sales, results of operations and anticipated cash flows; capital
expenditures; depreciation and amortization expenses; research and development
expenses; selling, general and administrative expenses; the development and
timing of the introduction of new products and technologies; our ability to
maintain and develop relationships with our existing and potential future
customers and our ability to maintain the level of investment in research and
development and capacity that is required to remain competitive. Many factors
could cause our actual results to differ materially from those projected in
these forward-looking statements, including, but not limited to: whether we will
be able to complete acquisitions and integrate such businesses successfully and
achieve anticipated synergies; variability of our revenues and financial
performance; risks associated with product development and technological
changes; the acceptance of our products in the marketplace by existing and
potential future customers; disruption of operations or increases in expenses
caused by civil or political unrest or other catastrophic events; general
economic conditions and conditions in the semiconductor and solar industries in
particular; the continued employment of our key personnel and risks associated
with competition.
For a discussion of the
factors that could cause actual results to differ materially from the
forward-looking statements, see the “Risk Factors” set forth in Item 1A of Part
I of Amtech Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2009, the “Liquidity and Capital Resources” section under
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in this item of this report and the other risks and uncertainties
that are set forth elsewhere in this report or detailed in our other Securities
and Exchange Commission reports and filings. We assume no obligation to update
these forward-looking statements.
Introduction
Management’s
Discussion and Analysis (“MD&A”) is intended to facilitate an understanding
of our business and results of operations. MD&A consists of the following
sections:
- Overview
- Results of
Operations
- Liquidity and Capital
Resources
- Off – Balance Sheet
Arrangements
- Contractual
Obligations
- Critical Accounting
Policies
- Impact of Recently Issued
Accounting Pronouncements
17
We operate in two
segments: the solar and semiconductor equipment segment and the polishing
supplies segment. Our solar and semiconductor equipment segment is a leading
supplier of thermal processing systems, including related automation, parts and
services, to the solar/photovoltaic, semiconductor, silicon wafer and MEMS
industries.
Our polishing
supplies and equipment segment is a leading supplier of wafer carriers to
manufacturers of silicon wafers, the raw material used in the manufacture of
solar cells and semiconductors. The polishing segment also manufactures
polishing templates, steel carriers and double-sided polishing and lapping
machines to fabricators of optics, quartz, ceramics and metal parts, and to
manufacturers of medical equipment components.
Our customers are
primarily manufacturers of solar cells and integrated circuits. The solar cell
and semiconductor industries are cyclical and historically have experienced
significant fluctuations. Our revenue is impacted by these broad industry
trends.
The following table
sets forth certain operational data as a percentage of net revenue for the
periods indicated:
|
|
Three Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2009 |
|
2008 |
| Net revenue |
100 |
% |
|
100 |
% |
| Cost of goods sold |
70 |
% |
|
66 |
% |
| Gross margin |
30 |
% |
|
34 |
% |
| |
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
Selling, general and administrative |
26 |
% |
|
25 |
% |
|
Research and Development |
3 |
% |
|
1 |
% |
| Total operating expenses |
29 |
% |
|
26 |
% |
| Income from operations |
1 |
% |
|
8 |
% |
| Interest income (expense), net |
0 |
% |
|
0 |
% |
| Income before income taxes |
1 |
% |
|
8 |
% |
| Income taxes |
0 |
% |
|
3 |
% |
| Net Income |
1 |
% |
|
5 |
% |
Net Revenue
Net revenue consists
of revenue recognized upon shipment or installation of products using proven
technology and upon acceptance of products using new technology. In addition,
spare parts sales are recognized upon shipment. Service revenue is recognized
upon completion of the service activity or ratably over the term of the service
contract. The majority of our revenue is generated from large furnace systems
sales which, depending on the timing of shipment and installation, can have a
significant impact on our revenue and earnings in any given period. See Critical
Accounting Policies – Revenue Recognition.
18
| |
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
Increase |
|
|
|
|
|
|
2009 |
|
2008 |
|
(Decrease) |
|
% |
| Segment |
|
(dollars in thousands) |
|
|
|
|
|
|
|
| Solar and Semiconductor Equipment
Segment |
|
$
|
13,975 |
|
$
|
16,132 |
|
$
|
(2,157 |
) |
|
(13 |
%) |
| Polishing Supplies
Segment |
|
|
1,482 |
|
|
1,740 |
|
|
(258 |
) |
|
(15 |
%) |
| Total Net
Revenue |
|
$ |
15,457 |
|
$ |
17,872 |
|
$ |
(2,415 |
) |
|
(14 |
%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue for the
quarter ended December 31, 2009 decreased by $2.4 million, or 14%, from the
quarter ended December 31, 2008. Revenue in the solar and semiconductor
equipment segment decreased as a result of lower shipment volumes to both the
solar and the semiconductor industries, partially offset by an increase in
recognition of previously-deferred solar revenue. The decrease in shipments was
caused primarily by the global economic downturn and credit crisis. Within the
solar and semiconductor equipment segment, net revenue from the solar market was
$11.9 million for the three months ended December 31, 2009, a $0.8 million or 7%
increase from the three months ended December 31, 2008. The decrease of $0.3
million in net revenue from the Polishing Supplies Segment is also due to the
economic downturn as described above.
Backlog and Orders
Our order backlog as
of December 31, 2009 and 2008 was $74.4 million and $42.4 million, respectively.
Our backlog as of December 31, 2009 includes approximately $69.7 million of
orders from our solar industry customers compared to $35.8 million at December
31, 2008. New orders booked in our most recent quarter ended December 31, 2009
increased more than 500% to $59.4 million compared to $9.3 million in the
quarter ended December 31, 2008. The increase in new orders and backlog resulted
primarily from solar cell manufacturers accelerating their capacity expansion
plans. New orders include the recent large multi-system solar order from a
single customer in Asia. As a result of the large multi-system order, 54 % of
our backlog at December 31, 2009 is from this single customer.
The orders included
in our backlog are generally credit approved customer purchase orders expected
to ship within the next 12 months. Because our orders are typically subject to
cancellation or delay by the customer, our backlog at any particular point in
time is not necessarily representative of actual sales for succeeding periods,
nor is backlog any assurance that we will realize profit from completing these
orders. Our backlog also includes revenue deferred pursuant to our revenue
recognition policy, derived from orders that have already been shipped, but
which have not met the criteria for revenue recognition. Our backlog as of
December 31, 2009 and 2008, respectively, include $0.1 million and $1.1 million
of open orders or deferred revenue for which we anticipate no gross profit.
Gross Profit
Gross profit is the
difference between net revenue and cost of goods sold. Cost of goods sold
consists of purchased material, labor and overhead to manufacture equipment and
parts and the cost of service and support to customers for warranty,
installation and paid service calls.
The timing of revenue
recognition can have a particularly significant effect on gross margin when the
equipment revenue of an order is recognized in one period and the remainder of
the revenue attributed to holdbacks is recognized in a later period. The portion
of revenue attributed to the holdbacks generally comprises 10-20% of an order
and has a significantly higher gross margin percentage.
19
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
Increase |
|
|
|
|
|
|
2009 |
|
2008 |
|
(Decrease) |
|
% |
| Segment |
|
(dollars in thousands) |
|
|
|
|
|
|
|
| Solar and Semiconductor Equipment
Segment |
|
$
|
4,135 |
|
|
$
|
5,778 |
|
|
$
|
(1,643 |
) |
|
(28 |
%) |
| Polishing Supplies
Segment |
|
|
465 |
|
|
|
308 |
|
|
|
157 |
|
|
51 |
% |
|
Total Gross Profit |
|
$ |
4,600 |
|
|
$ |
6,086 |
|
|
$ |
(1,486 |
) |
|
(24 |
%) |
|
Gross Margin |
|
|
30 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
For the three months
ended December 31, 2009, gross profit in the solar and semiconductor equipment
segment decreased 28% versus the three months ended December 31, 2008. The
decrease was driven primarily by lower volumes which resulted in less efficient
capacity utilization. The decrease in gross profit on shipments was partially
offset by recognition of previously-deferred profit. We recognized $0.2 million
of previously-deferred profit in the quarter ended December 31, 2009, net of
deferrals, compared to a net deferral of $0.8 million of profit in the quarter
ended December 31, 2008. To support our current growth in the solar and
semiconductor equipment segment, we are making substantial investments in labor
and facilities. These investments are expected to have a short-term negative
impact on gross profit in the second fiscal quarter of 2010. Gross margins in
the polishing supplies segment were positively impacted by product mix as
volumes of higher-margin carriers and templates increased while sales of
polishing machines, which generally carry a lower gross margin, decreased.
Selling, General and Administrative
Selling, general and
administrative expenses primarily consist of the cost of employees, consultants
and contractors, facility costs, sales commissions, outbound shipping expenses,
promotional marketing expenses, legal and accounting expenses.
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
Increase |
|
|
|
|
|
|
2009 |
|
2008 |
|
(Decrease) |
|
% |
| Segment |
|
(dollars in thousands) |
|
|
|
|
|
|
|
| Solar and Semiconductor Equipment
Segment |
|
$
|
3,670 |
|
|
$
|
4,147 |
|
|
$
|
(477 |
) |
|
(12 |
%) |
| Polishing Supplies
Segment |
|
|
305 |
|
|
|
336 |
|
|
|
(31 |
) |
|
(9 |
%) |
|
Total SG&A |
|
$ |
3,975 |
|
|
$ |
4,483 |
|
|
$ |
(508 |
) |
|
(11 |
%) |
|
Percent of net revenue |
|
|
26 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
Total selling,
general and administrative (SG&A) expense for the three months ended
December 31, 2009 decreased $0.5 million, or 11%, compared to the three months
ended December 31, 2008. SG&A expenses include $0.4 million and $0.2 million
of stock-based compensation expense in the three months ended December 31, 2009
and 2008, respectively. The decrease in SG&A expenses was due primarily to
lower commission expense resulting from lower revenues generated in regions
where third-party sales agents are utilized, primarily in the Asian solar
market.
Research and Development
Research and
development expenses consist of the cost of employees, consultants and
contractors who design, engineer and develop new products and processes, as well
as materials and supplies used in producing prototypes. Reimbursements of
research and development costs in the form of governmental research and
development grants are netted against these expenses.
20
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
Increase |
|
|
|
|
|
|
2009 |
|
2008 |
|
(Decrease) |
|
% |
| Segment |
|
(dollars in thousands) |
|
|
|
|
|
|
| Semiconductor and Solar Equipment
Segment |
|
$
|
497 |
|
|
$
|
224 |
|
|
$
|
273 |
|
122 |
% |
| Polishing Supplies Segment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
0 |
% |
|
Total Research and Development |
|
$ |
497 |
|
|
$ |
224 |
|
|
$ |
273 |
|
122 |
% |
|
Percent of net revenue |
|
|
3 |
% |
|
|
1 |
% |
|
|
|
|
|
|
Research and
development costs for the three months ended December 31, 2009 increased $0.3
million compared to the three months ended December 31, 2008, due to increased
activity in development of new products and processes, primarily related to the
production of photovoltaic cells. In the three months ended December 31, 2009
and 2008, we recognized $0.1 million of reimbursements of our research and
development costs from governmental grants.
Income Taxes
During the three
months ended December 31, 2009, we recorded income taxes of $50,000. The
effective tax rate used for calculating the income tax provision for the three
months ended December 31, 2009 and December 31, 2008 were approximately 38% and
40%, respectively. The rates are estimates based upon projected annual income,
estimated annual permanent differences and statutory tax rates in the various
jurisdictions in which we operate.
At December 31, 2009
and September 30, 2009, cash and cash equivalents were $42.5 million and $42.3
million, respectively. Our working capital as of December 31, 2009 and September
30, 2009 was $55.9 million. The increase in cash and cash equivalents resulted
primarily from cash provided by operations, partially offset by purchases of
property, plant and equipment. The increase in customer orders is expected to
result in higher operating levels which will result in the use of cash for
working capital and potential capital expenditures. We have never paid dividends
on our Common Stock. Our present policy is to apply cash to investment in
product development, acquisition or expansion; consequently, we do not expect to
pay dividends on Common Stock in the foreseeable future. We continue to have
minimal long-term obligations to service. We believe that our principal sources
of liquidity discussed above are sufficient to support operations.
The success of our
growth strategy is dependent upon the availability of additional capital
resources on terms satisfactory to management. Our sources of capital in the
past have included the sale of equity securities, which include common and
preferred stock sold in private transactions and public offerings, capital
leases and long-term debt. There can be no assurance that we can raise such
additional capital resources on satisfactory terms.
Cash Flows from Operating Activities
Cash provided by our
operating activities was $0.7 million for the three months ended December 31,
2009, compared to $1.1 million provided by such activities for the three months
ended December 31, 2008. In the first quarter of fiscal 2010, cash was primarily
generated from collections of accounts receivable and changes in inventory,
partially offset by increases in prepaid expenses and other assets. In the first
quarter of fiscal 2009, cash was primarily generated by earnings from net income
adjusted for non-cash items, partially offset by increases in inventory and
prepaid expenses and other assets as well as decreases in accrued liabilities
and customer deposits.
Cash Flows from Investing Activities
Our investing
activities for the three months ended December 31, 2009 and 2008 used $0.4
million and $0.5 million respectively. For the three months ended December 31,
2009, we had capital expenditures of $0.4 million, primarily for machinery and
equipment. For the three months ended December 31, 2008, we had capital
expenditures of $0.2 million primarily for machinery and equipment and we made a
payment of $0.3 million for our licensing agreement with PST.
Cash Flows from Financing Activities
For the three months
ended December 31, 2009, less than $0.1 million of cash was used in financing
activities for the payment of long-term debt and less than $0.1 million of cash
was received due to the exercise of stock options. This compares to cash of $0.1
million used in the three months ended December 31, 2008 for the payment of
long-term debt.
As of December 31,
2009, Amtech had no off-balance sheet arrangements as defined in Item 303(a) (4)
of Regulation S-K promulgated by the Securities and Exchange Commission.
The only significant
changes in contractual obligations since the end of fiscal 2009 have been
purchase obligations (See Note 7 of the Condensed Consolidated Financial
Statements). Purchase obligations increased $9.5 million from $4.7 million as of
September 30, 2009 to $14.5 million as of December 31, 2009. The increase in
purchase obligations relates to the recent increase in sales orders and backlog.
To meet the increased demand, we accelerated our purchases of inventory. Refer
to Amtech’s annual report on Form 10-K for the year ended September 30, 2009,
for information on the Company’s other contractual obligations.
“Management’s Discussion and Analysis of
Financial Condition and Results of Operations” discusses our consolidated
financial statements that have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these consolidated financial statements requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the consolidated financial statements, the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenue and expenses during the reporting period.
On an on-going basis,
we evaluate our estimates and judgments, including those related to revenue
recognition, inventory valuation, accounts receivable collectability, warranty
and impairment of long-lived assets. We base our estimates and judgments on
historical experience and on various other factors that we believe to be
reasonable under the circumstances. The results of these estimates and judgments
form the basis for making conclusions about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
A critical accounting
policy is one that is both important to the presentation of our financial
position and results of operations, and requires management’s most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. These uncertainties
are discussed in “Item 1A. Risk Factors.” We believe the following critical
accounting policies affect the more significant judgments and estimates used in
the preparation of our consolidated financial statements.
Revenue Recognition. We review product and service sales contracts
with multiple deliverables to determine if separate units of accounting are
present in the arrangements. Where separate units of accounting exist, revenue
is allocated to delivered items equal to the total sales price less the greater
of (1) the relative fair value of the undelivered items, and (2) all contingent
portions of the sales arrangement.
We recognize revenue
when persuasive evidence of an arrangement exists; the product has been
delivered and title has transferred, or services have been rendered; the
seller’s price to the buyer is fixed or determinable and collectability is
reasonably assured. For us, this policy generally results in revenue recognition
at the following points:
(1) For the solar and semiconductor equipment segment, transactions where
legal title passes to the customer upon shipment, we recognize revenue upon
shipment for those products where the customer’s defined specifications have
been met with at least two similarly configured systems and processes for a
comparably situated customer. However, a portion of the revenue associated with
certain installation-related tasks, equal to the greater of the relative fair
value of those tasks or the portion of the contract price contingent upon their
completion, generally 10%-20% of the system’s selling price (the “holdback”),
and directly related costs, if any, are deferred and recognized into income when
the tasks are completed. Since we defer only those costs directly related to
installation or other unit of accounting not yet delivered and the deferred
portion of the contract price is often considerably greater than the cost of
those items, our policy at times will result in deferral of profit that is
disproportionate in relation to the deferred revenue. When this is the case, the
gross margin recognized in one period will be lower and the gross margin
recognized in a subsequent period will improve.
(2) For products where the customer’s defined specifications have not
been met with at least two similarly configured systems and processes, the
revenue and directly related costs are deferred at the time of shipment and
later recognized at the time of customer acceptance or when this criterion has
been met. We have, on occasion, experienced longer than expected delays in
receiving cash from certain customers pending final installation or system
acceptance. If some of our customers refuse to pay the final payment, or
otherwise delay final acceptance or installation, the deferred revenue would not
be recognized, adversely affecting our future operating results.
(3) Equipment sold by the polishing supplies segment generally does not
include process guarantees, acceptance criteria or holdbacks; therefore, the
related revenue is generally recorded upon transfer of title which is generally
at time of shipment.
(4) For all segments, sales of spare parts and consumables are recognized upon shipment, as there are no post shipment
obligations other than standard warranties.
(5) Service revenue is recognized upon performance of the services
requested by the customer. Revenue related to service contracts is recognized
ratably over the period of the contract or in accordance with the terms of the
contract, which generally coincides with the performance of the services
requested by the customer.
Income taxes. The
calculation of tax liabilities involves significant judgment in estimating the
impact of uncertainties in the application of complex tax laws. Resolution of
these uncertainties in a manner inconsistent with our expectations could have a
material impact on our operations and financial condition.
We are required to
apply a more likely than not threshold to the recognition and derecognition of
uncertain tax positions. We are required to recognize the amount of tax benefit
that has a greater than 50 percent likelihood of being ultimately realized upon
settlement. It further requires that a change in judgment related to the
expected ultimate resolution of uncertain tax positions be recognized in
earnings in the quarter of such change. Prior to adoption, our policy was to
establish reserves that reflected the probable outcome of known tax
contingencies.
23
Inventory Valuation. We
value our inventory at the lower of cost or net realizable value. Costs for
approximately 85% of inventory are determined on an average cost basis with the
remainder determined on a first-in, first-out (FIFO) basis. We regularly review
inventory quantities and record a write-down for excess and obsolete inventory.
The write-down is
primarily based on historical inventory usage adjusted for expected changes in
product demand and production requirements. However, our industry is
characterized by customers in highly cyclical industries, rapid technological
changes, frequent new product developments and rapid product obsolescence.
Changes in demand for our products and product mix could result in further
write-downs.
Allowance for Doubtful
Accounts. We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability or unwillingness of our
customers to make required payments. This allowance is based on historical
experience, credit evaluations, specific customer collection history and any
customer-specific issues we have identified. Since a significant portion of our
revenue is derived from the sale of high-value systems, our accounts receivable
are often concentrated in a relatively few number of customers. A significant
change in the liquidity or financial position of any one of these customers
could have a material adverse impact on the collectability of our accounts
receivable and our future operating results.
Warranty. We provide a limited warranty, generally for
12 to 24 months, to our customers. A provision for the estimated cost of
providing warranty coverage is recorded upon acceptance of all systems. On
occasion, we have been required and may be required in the future to provide
additional warranty coverage to ensure that the systems are ultimately accepted
or to maintain customer goodwill. While our warranty costs have historically
been within our expectations and we believe that the amounts accrued for
warranty expenditures are sufficient for all systems sold through December 31,
2009, we cannot guarantee that we will continue to experience a similar level of
predictability with regard to warranty costs. In addition, technological changes
or previously unknown defects in raw materials or components may result in more
extensive and frequent warranty service than anticipated, which could result in
an increase in our warranty expense.
Impairment of Long-lived
Assets. We periodically evaluate whether events and
circumstances have occurred that indicate the estimated useful lives of
long-lived assets or intangible assets may warrant revision or that the
remaining balance may not be recoverable. Goodwill and indefinite-lived
intangibles are also tested for impairment at least annually. When factors
indicate that an asset should be evaluated for possible impairment, we use an
estimate of the related undiscounted net cash flows generated by the asset over
the remaining estimated life of the asset in measuring whether the asset is
recoverable. We make judgments and estimates used in establishing the carrying
value of long-lived or intangible assets. Those judgments and estimates could be
modified if adverse changes occurred in the future resulting in an inability to
recover the carrying value of these assets. Below is a more detailed explanation
of the procedures we perform.
We perform a two-step
impairment test. In the first step, we estimate the fair value of the reporting
unit and compare it to the carrying value of the reporting unit. Most of our
reporting units are operating segments that are one level below the reportable
segment into which they are aggregated. The one exception is P.R. Hoffman
Machine Products, Inc. which is a reportable segment. When the carrying value
exceeds the fair value of the reporting unit, the second step is performed to
measure the amount of the impairment loss, if any. In the second step, the
amount of the impairment loss is the excess of the carrying amount of the
goodwill and other intangibles not subject to amortization over their implied
fair value.
24
The methods used to
estimate fair value of the reporting unit for the purpose of determining the
implied fair value of goodwill include the market approach and discounted cash
flows, as follows:
| |
i. |
|
One valuation
methodology used is to determine the multiples of market value of invested
capital (“MVIC”) of similar public companies to their revenue for the last
twelve months (“LTM”) and next twelve months (“NTM”), and apply those
multiples to the revenue for the comparable periods of the reporting unit
being tested for impairment. One benefit of this approach is it is the
closest to quoted market prices that are readily available. However, we
generally give less weight to this method, because the market value of the
minority interest of public companies may not be that relevant to the fair
value of our wholly-owned reporting units, which are not public companies.
Also, MVIC to revenue for the LTM uses a historical value in the
denominator, while the market values tend to be forward looking; and MVIC
of revenue for the NTM involves the use of projections for both the
comparable companies and the reporting unit. |
| |
ii. |
|
Another market
approach that we sometimes use is based upon prices paid in merger and
acquisition transactions for other companies in the same industry, again
applying the MVIC to revenue of those companies to the historical and
projected revenue of the reporting unit. When we use both market prices
determined as described in (i), above, and prices paid in merger and
acquisition transactions, we weight them to determine an indicated value
under the market approach. |
|
|
|
|
|
|
|
iii. |
|
As stated, we also use discounted cash flows as an
indication of what a third-party would pay for the reporting unit in an
arms-length transaction. This method requires projections of EBITDA
(earnings before interest, taxes, depreciation and amortization) and
applying an appropriate discount rate based on the weighted average cost
of capital for the reporting unit. |
We generally give the
greatest weight, often 75% or more, to the discounted cash flow method, due to
difficulty in identifying a sufficient number of companies that are truly
comparable to a given reporting unit. This is because two of our three reporting
units are relatively small businesses serving niche markets.
The material
estimates and assumptions used in the discounted cash flows method of
determining fair value include (i) the appropriate discount rate, given the
risk-free rate of return and various risk premiums, (ii) projected revenues,
(iii) projected material cost as a percentage of revenue, and (iv) the rate of
increase in payroll and other expense. Quantitatively, the discount rate is the
assumption that has the most pervasive effect on the discounted cash flows. We
determine the discount rate used based on input from a valuation firm, which
applies various approaches taking into account the particular circumstances of
the reporting unit in arriving at a recommendation. For annual valuations, we
test the sensitivity of the assumptions used in our discounted cash flow
projection with the aid of a valuation firm, which utilizes a Monte Carlo
simulation model, wherein various probabilities are assigned to the key
assumptions.
In fiscal year 2009,
we performed a mid-year test of the impairment of the goodwill and other
intangibles due to changing circumstances regarding the Bruce Technologies
reporting unit. This test required us to use judgments and estimates that could
be materially different than actual results. Bruce Technologies continued to
incur losses after a restructuring and cost reductions put into place during the
prior fiscal year and expectations that semiconductor customers served by this
reporting unit would not in the future achieve the kinds of growth rates they
had in the past due to increased maturity of that industry. We used the same
discount rate as used in the prior annual impairment test of this reporting
unit, but the other assumptions became more conservative due to the changing
circumstances. It was primarily the lowered projections of future revenue that
resulted in a lower estimate of fair value and the impairment loss. The payroll
and certain expense assumptions, however, were lowered to take into account a
second restructuring of the reporting unit, which involved a significant
reduction in the number of employees. The material cost assumption was also
lowered to take into account a change in product mix.
25
Stock-Based Compensation. The Company measures compensation costs
relating to share-based payment transactions based upon the grant-date fair
value of the award. Those costs are recognized as expense over the requisite
service period, which is generally the vesting period. The benefits of tax
deductions in excess of recognized compensation cost are reported as cash flow
from financing activities rather than as cash flow from operating
activities.
For discussion of the
impact of recently issued accounting pronouncements, see “Part 1. Financial
Information” in Note 1 to the financial statements under “Impact of Recently
Issued Accounting Pronouncements”.
We are exposed to
financial market risks, including changes in foreign currency exchange rates and
interest rates. Our operations in the United States are conducted in U.S.
dollars. Our operations in Europe, a component of the solar and semiconductor
equipment segment, conduct business primarily in the Euro. The functional
currency of our European operation is the Euro. Nearly all of the transactions,
assets and liabilities of all other operating units are denominated in the U.S.
dollar, their functional currency. The following disclosures about market risk
should be read in conjunction with the more in depth discussion in Item 7A,
Quantitative and Qualitative Disclosures About Market Risk in our Annual Report
on Form 10-K for the fiscal year ended September 30, 2009.
As of December 31,
2009, we did not hold any stand-alone or separate derivative instruments. We
incurred net foreign currency transaction gains or losses of less than $0.1
million during the three months ended December 31, 2009 and 2008. As of December
31, 2009, our foreign subsidiaries had $0.5 million of assets (cash and
receivables) denominated in currencies other than the functional currency. A 10%
change in the value of the functional currency relative to the non-functional
currency would result in a gain or loss of $0.1 million. As of December 31,
2009, we had $2.4 million of accounts payable, consisting primarily of amounts
owed by our foreign subsidiaries to our U.S. companies, denominated in U.S.
dollars. Although the intercompany accounts are eliminated in consolidation, a
10% change in the value of the euro relative to the U.S. dollar would result in
a gain or loss of $0.2 million.
We incurred a foreign
currency translation loss of $0.6 million and $0.4 million during the quarters
ended December 31, 2009 and 2008, respectively. Our net investment in and
advances to our foreign operations totaled $44.2 million as of December 31,
2009. A 10% change in the value of the euro relative to the U.S. dollar would
cause an approximately $4.4 million foreign currency translation adjustment, a
type of other comprehensive income (loss), which would be a direct adjustment to
our stockholders’ equity.
During three months
ended December 31, 2009 and 2008, our European operations transacted U.S. dollar
denominated sales and purchases of $0.4 million and $0.6 million, respectively.
As of December 31, 2009, sales commitments denominated in a currency other than
the function currency of our transacting operation totaled less than $0.1
million. Our lead-times to fulfill these commitments generally range between 13
and 26 weeks. A 10% change in the relevant exchange rates between the time the
order was taken and the time of shipment would cause our gross profit on such
orders to be less than $0.1 million greater than or less than expected on the
date the order was taken. As of December 31, 2009, purchase commitments
denominated in a currency other than the function currency of our transacting
operation totaled $2.3 million. A 10% change in the relevant exchange rates
between the time the purchase order was placed and the time the order is
received would cause our cost of such items to be less than $0.2 million greater
than or less than expected on the date the purchase order was
placed.
26
Disclosure Controls and Procedures
Our management,
including the Chief Executive Officer (“CEO”) and the Chief Financial Officer
(“CFO”), has carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of December 31, 2009, pursuant to Exchange Act Rules
13a-15(e) and 15(d)-15(e). Based upon that evaluation, our CEO and CFO have
concluded that as of such date, our disclosure controls and procedures in place
are effective.
Changes in Internal Control Over Financial
Reporting
There has been no
change in Amtech’s internal control over financial reporting during the first
quarter of fiscal 2010 that has materially affected, or is reasonably likely to
materially affect, its internal control over financial reporting.
| Item
6. |
|
Exhibits |
|
|
| 31.1 |
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934, as Amended
|
|
* |
|
|
|
|
|
|
| 31.2 |
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934, as Amended
|
|
* |
|
|
|
|
|
|
| 32.1 |
|
Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
* |
|
|
|
|
|
|
| 32.2 |
|
Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
* |
____________________
27
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.
AMTECH SYSTEMS, INC.
| |
By |
/s/ Robert T.
Hass |
|
Dated: |
February 9,
2010 |
|
|
|
|
|
|
|
|
Robert T. Hass |
|
|
|
|
|
Chief Accounting Officer |
|
|
|
|
|
(Principal Accounting Officer) |
|
|
28
| Exhibit |
|
|
|
Page or |
| Number |
|
Description |
|
Method of
Filing |
| 31.1 |
|
Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Amended
|
|
* |
|
|
|
|
|
|
| 31.2 |
|
Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Amended
|
|
* |
|
|
|
|
|
|
| 32.1 |
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
* |
|
|
|
|
|
|
| 32.2 |
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
* |
____________________
29