-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LZzBwXaJWy1c1gQWo01WTEN5jSWc3VKKPgMKetik9d4B4omxfYu4xjfCL5BbZtUs t1u3VUnyGA71nvGJtDJsBw== 0001047469-98-040726.txt : 19981116 0001047469-98-040726.hdr.sgml : 19981116 ACCESSION NUMBER: 0001047469-98-040726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXSYS TECHNOLOGIES INC CENTRAL INDEX KEY: 0000206030 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 111962029 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16182 FILM NUMBER: 98748077 BUSINESS ADDRESS: STREET 1: 910 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 BUSINESS PHONE: 2018711500 MAIL ADDRESS: STREET 2: 910 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 FORMER COMPANY: FORMER CONFORMED NAME: VERNITRON CORP DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 0-16182 ------ AXSYS TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 11-1962029 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 910 SYLVAN AVENUE ENGLEWOOD CLIFFS, NEW JERSEY 07632 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 871-1500 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 ----- ----- 4,003,267 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AS OF NOVEMBER 3, 1998. ================================================================================ AXSYS TECHNOLOGIES, INC. INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Statements of Operations - Three Months Ended September 30, 1998 and 1997 3 Condensed Consolidated Statements of Operations - Nine Months Ended September 30, 1998 and 1997 4 Condensed Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 5 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 17 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AXSYS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands, except per share data) THREE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ----------- NET SALES $ 26,250 $ 30,168 Cost of sales 19,927 21,575 Selling, general and administrative expenses 4,079 5,224 Amortization of intangible assets 107 107 ----------- ----------- OPERATING INCOME 2,137 3,262 Interest expense 215 823 Other expense (income) 24 (2) ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 1,898 2,441 Provision for income taxes - 993 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 1,898 1,448 DISCONTINUED OPERATIONS: (Loss) income from operations, net of taxes (2) 2 Loss on disposal, net of taxes (2,508) (244) ----------- ----------- NET (LOSS) INCOME $ (612) $ 1,206 =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations $ 0.45 $ 0.46 Discontinued operations (0.60) (0.08) ----------- ----------- TOTAL $ (0.15) $ 0.38 =========== =========== Weighted average common shares outstanding 4,187,794 3,148,381 =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Income from continuing operations $ 0.45 $ 0.42 Discontinued operations (0.60) (0.07) ----------- ----------- TOTAL $ (0.15) $ 0.35 =========== =========== Weighted average common shares outstanding 4,202,439 3,460,610 =========== =========== See accompanying notes to condensed consolidated financial statements. 3 AXSYS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands, except per share data) NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ----------- NET SALES $ 89,922 $ 85,578 Cost of sales 65,658 61,738 Selling, general and administrative expenses 15,637 14,962 Amortization of intangible assets 323 212 ----------- ----------- OPERATING INCOME 8,304 8,666 Interest expense 761 2,166 Other expense 54 24 ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 7,489 6,476 Provision for income taxes 1,063 2,608 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 6,426 3,868 DISCONTINUED OPERATIONS: Income (loss) from operations, net of taxes 63 (52) Loss on disposal, net of taxes (2,508) (244) ----------- ----------- NET INCOME 3,981 3,572 Preferred stock dividends - 102 ----------- ----------- NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 3,981 $ 3,470 =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Income from continuing operations $ 1.53 $ 1.23 Discontinued operations (0.58) (0.09) ----------- ----------- TOTAL $ 0.95 $ 1.14 =========== =========== Weighted average common shares outstanding 4,208,787 3,057,239 =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Income from continuing operations $ 1.52 $ 1.13 Discontinued operations (0.58) (0.09) ----------- ----------- TOTAL $ 0.94 $ 1.04 =========== =========== Weighted average common shares outstanding 4,243,279 3,333,962 =========== =========== See accompanying notes to condensed consolidated financial statements. 4 AXSYS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Unaudited) SEPTEMBER 30, DECEMBER 31, 1998 1997 ----------- ----------- ASSETS CURRENT ASSETS: Cash $ 176 $ 573 Accounts receivable - net 15,861 17,603 Inventories - net 27,107 26,003 Other current assets 2,900 977 ----------- ----------- TOTAL CURRENT ASSETS 46,044 45,156 PROPERTY, PLANT AND EQUIPMENT - net 14,902 13,377 EXCESS OF COST OVER NET ASSETS ACQUIRED - net 12,325 12,729 NET ASSETS OF DISCONTINUED OPERATIONS 750 7,002 OTHER ASSETS 1,737 430 ----------- ----------- TOTAL ASSETS $ 75,758 $ 78,694 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,809 $ 9,437 Accrued expenses and other liabilities 9,307 9,868 Current portion of long-term debt and capital lease obligations 1,151 904 ----------- ----------- TOTAL CURRENT LIABILITIES 17,267 20,209 LONG-TERM DEBT & CAPITAL LEASES, less current portion 6,067 8,629 OTHER LONG-TERM LIABILITIES 2,277 2,284 DEFERRED INCOME 156 255 SHAREHOLDERS' EQUITY: Preferred Stock, none issued and outstanding at September 30, 1998 and December 31, 1997 - - Common Stock, issued and outstanding 4,122,767 shares at September 30, 1998 and 4,113,190 shares at December 31, 1997 41 41 Capital in Excess of Par 40,766 40,409 Retained Earnings 10,848 6,867 Treasury Stock, at cost, 119,500 shares at September 30, 1998 and none at December 31, 1997 (1,664) - ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 49,991 47,317 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 75,758 $ 78,694 =========== =========== See accompanying notes to condensed consolidated financial statements. 5 AXSYS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, dollars in thousands) NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,981 $ 3,572 Adjustments to reconcile net income to cash provided by operating activities: Loss on disposal of discontinued operations 2,508 244 Deferred income taxes (230) - Realization of net operating loss carryforward 58 2,205 Depreciation and amortization 2,733 2,242 Change in net assets of discontinued operations 154 (919) Decrease (increase) in current assets, other than cash 298 (3,504) (Decrease) increase in current liabilities (3,189) 3,142 Other-net 41 138 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,354 7,120 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,929) (1,949) Net proceeds from sale of discontinued operation 1,797 - Advances to third parties (651) - Acquisition of business, net of cash acquired - (7,335) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (1,783) (9,284) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from borrowings - 7,000 Net repayment of borrowings (3,348) (5,244) Purchases of Treasury Stock (1,664) - Other 44 (1,646) ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,968) 110 ----------- ----------- NET DECREASE IN CASH (397) (2,054) CASH AT BEGINNING OF PERIOD 573 2,580 ----------- ----------- CASH AT END OF PERIOD $ 176 $ 526 =========== =========== Supplemental Cash Flow Information: Cash paid for: Interest $ 629 $ 1,631 Income tax 1,002 190 Non-Cash Investing and Financing Activities: Equipment acquired under capital leases $ 1,021 $ 1,612 Capital stock issued for acquisition - 2,166 See accompanying notes to condensed consolidated financial statements. 6 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Axsys Technologies, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. 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 considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results for the three month and nine month periods ended September 30, 1998 are not indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Certain reclassifications have been made to previously reported financial statements to conform to current classifications. NOTE 2 - EARNINGS PER SHARE Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share" which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share has been computed by dividing Net Income Applicable to Common Shareholders by the weighted average number of common shares outstanding. Diluted earnings per share has been computed by dividing Net Income Applicable to Common Shareholders by the weighted average number of common shares outstanding including the dilutive effects of warrants and stock options. NOTE 3 - ACQUISITIONS On May 30, 1997, the Company acquired Teletrac, Inc. ("Teletrac") for $9,926, including the issuance of 153,000 shares of Axsys Common Stock, 53,000 of which shares were issued at closing and 100,000 of which shares will be issued pursuant to a Stockholder Agreement entered into as of May 30, 1997 with certain selling shareholders and employees of Teletrac. Teletrac designs and manufactures laser-based precision measurement systems and state-of-the-art precision linear and rotary positioning servo systems for use in the electronics capital equipment market. The acquisition of Teletrac was accounted for under the purchase method of accounting and, accordingly, the results of operations of Teletrac have been included in the accompanying consolidated financial statements since the date of its acquisition. The cost of the acquisition was allocated on the basis of the fair market value of the assets acquired and liabilities assumed. Summarized below are the unaudited pro forma results of operations of the Company as if Teletrac had been acquired on January 1, 1997: PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1997 ------------------------------------ Net sales $ 89,889 Income from continuing operations 3,957 Net income 3,661 Basic earnings per share from continuing operations 1.23 Diluted earnings per share from continuing operations 1.13 The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition of Teletrac taken place at the beginning of 1997 or the future operating results of the combined companies. 7 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4 - DISCONTINUED OPERATIONS On September 16, 1998, the Company sold its Sensor Systems business unit ("Sensor Systems") which manufactured position sensor devices such as potentiometers, pressure transducers and encoders primarily for defense and industrial automation applications, for $3,030, of which $1,030 was in the form of a five year, 10% subordinated note. Sensor Systems' land and building were not sold as part of this transaction, but are being marketed for sale by the Company and are recorded as Net Assets of Discontinued Operations on the September 30, 1998 Consolidated Balance Sheet at their estimated net realizable value. The disposal of Sensor Systems has been accounted for as a discontinued operation and, accordingly, the related net assets and operating results have been reported separately from continuing operations in all years presented. In addition, the Company has reported separately a $2,508 loss on the sale of Sensor Systems, which is net of a $1,794 tax benefit. Revenues applicable to the discontinued operation for the nine months ended September 30, 1998 and 1997 were $4,774 and $4,945, respectively. In September 1997, the Company was advised by its environmental consultants that the costs associated with the remediation of a previously discontinued operation site were estimated to be higher than originally anticipated. The estimates to remediate this site ranged from approximately $600 to $1,500. Actual costs may be different than these estimates. Based on this information, the Company increased its reserve relating to this site in fiscal 1997 to approximately $600 by recording a discontinued operation charge of $400, before a tax benefit of $156. NOTE 5 - ADVANCES TO THIRD PARTIES On August 12, 1998, the Company entered into an agreement with Westlake Technology Corporation ("WTC") whereby the Company has the exclusive right to market and sell WTC's electronic and electromechanical test equipment. In return for these exclusive rights, the Company has agreed to provide loans of up to a maximum of $1,400 to WTC. Outstanding loans bear interest at 10.5% and mature on August 12, 2001. As of September 30, 1998, the outstanding loan balance, which is recorded under "Other Assets" in the Condensed Consolidated Balance Sheet, was $654. NOTE 6 - INVENTORIES Inventories have been determined generally by lower of cost (first-in, first-out or average) or market. Inventories consist of: SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------- Raw materials $ 6,450 $ 6,692 Work-in-process 12,145 11,581 Finished goods 12,445 11,136 ----------- ---------- 31,040 29,409 Less reserves 3,933 3,406 ----------- ---------- $ 27,107 $ 26,003 =========== ========== 8 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7 - SHAREHOLDERS' EQUITY COMMON STOCK - On October 21, 1997, the Company completed an underwritten public offering of 1,064,809 shares of its Common Stock at a public offering price of $27.00 per share (the "offering"). Of the approximately $26,400 of net proceeds from the offering, approximately $6,900 was used to repurchase outstanding warrants to purchase the Company's Common Stock and the remaining net proceeds to prepay a portion of the Company's outstanding bank debt. PREFERRED STOCK - The Company paid quarterly dividends on its $1.20 Cumulative Redeemable Preferred Stock in additional shares at an annual rate of 15% based on the shares outstanding from August 1991 through February 22, 1996. On February 22, 1996, the Company's right to pay dividends in additional shares of Preferred Stock expired. From February 22, 1996 to June 4, 1997, the Company did not declare or pay any dividends on the Preferred Stock, although they continued to accumulate. On February 14, 1997, the Company commenced an offer to exchange 0.75 shares of its Common Stock for each outstanding share of its Preferred Stock. On March 17, 1997, the Exchange Offer terminated and the Company accepted for exchange all shares of Preferred Stock validly tendered as of that time. Approximately 538,000 shares of Preferred Stock were exchanged for approximately 403,500 shares of Common Stock. Holders of shares of Preferred Stock accepted for exchange did not receive any separate payment in respect of dividends not paid subsequent to February 22, 1996, the last date on which dividends were paid on the Preferred Stock. On June 4, 1997, the Company called for redemption all of the remaining approximately 200,900 outstanding shares of its Preferred Stock. The redemption price was $7.70 per share, including accrued and unpaid dividends of $1.54 per share through the redemption date. TREASURY STOCK - In August 1998, the Company's Board of Directors authorized the repurchase, from time to time, on the open market or otherwise, of up to 200,000 shares of the Company's Common Stock at prevailing market prices or at negotiated prices. The Company plans to use the repurchased shares for general corporate purposes, including the satisfaction of commitments under its employee benefit plans. As of September 30, 1998 the Company has repurchased 119,500 shares for an aggregate purchase price of $1,664. NOTE 8 - INCOME TAXES The Company has determined, based upon the level of its current taxable income, it is more likely than not that it will realize the benefit of a portion of its deferred tax assets which previously had been fully reserved with a valuation allowance. As such, beginning in the second quarter of 1998, the Company has reversed a portion of its tax valuation allowance equal to the amount it would have recorded as a tax provision on income from continuing operations before taxes during the period. As a result, the Company reduced its tax provision from continuing operations and increased its net deferred tax asset by $784 and $1,991 for the three month and nine month periods ended September 30, 1998, respectively. Excluding the effect of the tax valuation allowance reversal, income from continuing operations for the three month and nine month periods ended September 30, 1998 would have been $1,114 or $0.27 per diluted share and $4,435 or $1.05 per diluted share, respectively. In addition, during the second quarter, the Company has reduced its tax valuation allowance and credited Capital in Excess of Par by $255, to recognize the remaining portion of deferred tax assets originating prior to the Company's 1991 quasi-reorganization. Including $58 which was recorded as part of the Company's first quarter tax provision, a total of $313 has been credited to Capital in Excess of Par during 1998. As of September 30, 1998, the remaining tax valuation allowance is approximately $1.6 million. 9 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 9 - SEGMENT DATA Effective January 1, 1998, the Company adopted SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which requires disclosure of information on the segments of a business based on the way management organizes the segments of its business for making operating decisions and assessing performance. The Company classifies its businesses under two major groups, the Precision Systems Group ("PSG") and the Industrial Components Group ("ICG"). The PSG designs and manufactures micro-positioning and precision optical components and systems primarily for defense, space, electronics capital equipment and digital imaging applications. The ICG is comprised of the Precision Ball Bearings segment, which distributes and services precision miniature ball bearings, and the Electronic Interconnect Products segment, which designs and manufactures interconnect devices, barrier terminal blocks, and connectors. The products of both the ICG segments are used in a variety of commercial and industrial applications. As discussed in Note 4, the company sold its Sensor Systems segment during the third quarter of 1998. The disposal of Sensor Systems, which previously was part of the PSG, has been accounted for as a discontinued operation and, accordingly, their related operating results have been reported separately from continuing operations and the segment data below has been restated to exclude the Sensor Systems segment. The following tables present financial data for each of the Company's segments.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net sales: PSG $ 16,051 $ 19,170 $ 55,909 $ 52,150 ----------- ----------- ----------- ----------- Precision Ball Bearings 6,010 6,806 19,849 20,265 Electronic Interconnect Products 4,189 4,192 14,164 13,163 ----------- ----------- ----------- ----------- Total ICG 10,199 10,998 34,013 33,428 ----------- ----------- ----------- ----------- Total Sales $ 26,250 $ 30,168 $ 89,922 $ 85,578 =========== =========== =========== =========== Earnings before amortization, interest and taxes: PSG $ 1,549 $ 2,436 $ 6,228 $ 6,428 ----------- ----------- ----------- ----------- Precision Ball Bearings 678 915 2,563 2,798 Electronic Interconnect Products 652 666 2,291 2,252 ----------- ----------- ----------- ----------- Total ICG 1,330 1,581 4,854 5,050 Non-allocated expenses (981) (1,576) (3,593) (5,002) ----------- ----------- ----------- ----------- Income from continuing operations before taxes $ 1,898 $ 2,441 $ 7,489 $ 6,476 =========== =========== =========== ===========
SEPTEMBER 30, DECEMBER 31, 1998 1997 ----------- ----------- Identifiable assets: PSG $ 37,631 $ 37,135 ----------- ----------- Precision Ball Bearings 13,654 12,475 Electronic Interconnect Products 8,852 8,679 ----------- ----------- Total ICG 22,506 21,154 Non-allocated assets 14,871 13,403 Net assets of discontinued operations 750 7,002 ----------- ----------- Total assets 75,758 78,694 =========== =========== 10 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Included in non-allocated expenses are the following: general corporate expense, interest expense, amortization of goodwill and other income and expense. Identifiable assets by segment consist of those assets that are used in the segments' operations. Non-allocated assets are comprised primarily of goodwill and net deferred tax assets. NOTE 10 - OTHER INFORMATION SEPTEMBER 30, DECEMBER 31, 1998 1997 ----------- ----------- Allowance for doubtful accounts $ 487 $ 265 =========== =========== Accumulated depreciation and amortization of property, plant and equipment $ 10,623 $ 8,502 =========== =========== Accumulated amortization of excess of cost Over net assets acquired $ 1,485 $ 1,162 =========== =========== 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth certain financial data as a percentage of net sales for the three month and nine month periods ended September 30, 1998 and 1997. The Company acquired the stock of Teletrac Inc. ("Teletrac") on May 30, 1997. This acquisition, which is part of the PSG, has been accounted for under the purchase method of accounting. Accordingly, the results of the continuing operations of Teletrac have been included in the Company's Condensed Consolidated Statements of Operations since the date of acquisition. On September 16, 1998 the Company sold certain assets related to its Sensor Systems segment. The divestiture, which was previously part of the PSG, has been accounted for as a discontinued operation. Accordingly, the results of the operations of this division through the date of the sale and the loss from the disposal are reflected in discontinued operations.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net sales: PSG 61.1% 63.5% 62.2% 60.9% ----------- ----------- ----------- ----------- Precision Ball Bearings 22.9 22.6 22.0 23.7 Electronic Interconnect Products 16.0 13.9 15.8 15.4 ----------- ----------- ----------- ----------- Total ICG 38.9 36.5 37.8 39.1 ----------- ----------- ----------- ----------- Total Company 100.0 100.0 100.0 100.0 ----------- ----------- ----------- ----------- Cost of sales 75.9 71.5 73.0 72.1 ----------- ----------- ----------- ----------- Gross profit 24.1 28.5 27.0 27.9 ----------- ----------- ----------- ----------- Operating expenses: Selling, general and administrative expenses 15.6 17.3 17.4 17.5 Amortization of intangible assets 0.4 0.4 0.4 0.3 ----------- ----------- ----------- ----------- 16.0 17.7 17.8 17.8 ----------- ----------- ----------- ----------- Operating income 8.1 10.8 9.2 10.1 Interest expense 0.8 2.7 0.8 2.5 Other expense 0.1 - 0.1 - ----------- ----------- ----------- ----------- Income from continuing operations before taxes 7.2 8.1 8.3 7.6 Provision for income taxes - 3.3 1.2 3.1 ----------- ----------- ----------- ----------- Income from continuing operations 7.2 4.8 7.1 4.5 Discontinued operations: Income (loss) from operations, net of taxes - - 0.1 - Loss on disposal, net of taxes (9.5) (0.8) (2.8) (0.3) ----------- ----------- ----------- ----------- Net Income (2.3)% 4.0% 4.4% 4.2% =========== =========== =========== =========== Gross profit (as a percentage of related net sales): PSG 21.1% 27.7% 25.2% 26.1% ICG 28.8 29.8 29.9 30.6
12 COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 NET SALES. Net sales decreased by 13.0%, or $3.9 million, from $30.2 million in the three month period ended September 30, 1997 to $26.3 million in the same period of 1998. The PSG's sales decreased by 16.3%, or $3.1 million, from $19.2 million in 1997 to $16.1 million in 1998. This decrease was primarily the result of a decline in revenue in the space and electronics capital equipment markets. The PSG sales to the electronics capital equipment market have decreased as a result of the continuing difficulties in the Asian economy and specific weakness in the data storage and semiconductor segments of that market. The decline in the PSG sales to the space market is primarily due to the timing of satellite programs. Smaller PSG sales declines in the digital imaging and industrial automation markets were offset by higher revenues in the defense market. The ICG's sales decreased by 7.3%, or $0.8 million, from $11.0 million in 1997 to $10.2 million in 1998. Sales of electronic interconnect products remained flat over the prior year. Sales of precision ball bearings were down 11.7% over the prior year primarily due to the weak electronics capital equipment market. GROSS PROFIT. The Company's gross profit decreased by 26.4%, or $2.3 million, from $8.6 million in 1997 to $6.3 million in 1998. Gross profit margin decreased from 28.5% of net sales in 1997 to 24.1% in 1998. The gross margin for the PSG decreased from 27.7% of net sales in 1997 to 21.1% in 1998 and for the ICG, decreased from 29.8% of net sales in 1997 to 28.8% in 1998. The decline in the PSG gross profit margin was due primarily to the lost variable contribution margin on the decline in sales and higher fixed overhead spending. The decline in the ICG's sales was primarily in precision ball bearings which has a higher variable cost of sales content than the Company's other businesses. As such, the effect of the lower sales volume on the ICG's gross margin was not as significant. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses decreased by 21.9%, or $1.1 million, from $5.2 million in 1997 to $4.1 million in 1998. As a percentage of net sales, SG&A decreased from 17.3% in 1997 to 15.5% in 1998. The decrease in SG&A expenses is primarily due to a decrease in incentive compensation expense. INTEREST EXPENSE. Interest expense decreased by 73.9%, or $608,000, from $823,000 in 1997 to $215,000 in 1998. The decrease in interest expense was primarily due to lower average borrowings during 1998 resulting from the Company's use of the net proceeds (approximately $19.5 million) from its stock offering in late October of 1997 to repay indebtedness under the Company's senior credit facility. TAXES. The Company's effective tax rate, decreased from 40.7% in 1997 to none in 1998. As discussed in Note 8 to the Condensed Consolidated Financial Statements, the Company offset its normal third quarter continuing operations tax provision by the reversal of a portion of its tax valuation allowance. As of September 30, 1998, the remaining tax valuation allowance is approximately $1.6 million. The Company will continue to assess the realizability of its deferred tax assets in future periods. DISCONTINUED OPERATIONS. In September 1998, the Company sold its Sensor Systems business unit and recorded a loss on the disposal of $2.5 million, net of a tax benefit of $1.8 million. Results of operations from the discontinued business have been reported separately from continuing operations in all periods presented. In the third quarter of 1997, the Company recorded a discontinued operation charge of $244,000, net of a tax benefit of $156,000, to increase its environmental reserve for the remediation of a previously discontinued operation site. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 NET SALES. Net sales increased by 5.1%, or $4.3 million, from $85.6 million in the nine month period ended September 30, 1997 to $89.9 million in the same period of 1998. The PSG's sales increased by 7.2%, or $3.8 million, from $52.2 million in 1997 to $55.9 million in 1998. The increase in PSG's sales is primarily due to the acquisition of Teletrac. Lower sales to the space market, primarily due to the timing of satellite programs, were offset by increased sales to the defense and digital imaging markets. The ICG's sales increased by 1.8%, or $0.6 million, from $33.4 million in 1997 to $34.0 million in 1998. Sales of electronic interconnect products grew 7.6%, or $1.0 million over the prior year as a result of the introduction and continuing acceptance of new product offerings and market share gains. Sales of precision ball bearings were down 2.1% over the prior year primarily as a result of a decline in sales to the weak electronics capital equipment market. 13 GROSS PROFIT. The Company's gross profit increased by 1.8%, or $0.4 million, from $23.8 million in 1997 to $24.3 million in 1998. Gross profit margin decreased from 27.9% of net sales in 1997 to 27.0% in 1998. The gross margin for the PSG decreased from 26.1% of net sales in 1997 to 25.2% in 1998 and for the ICG, decreased from 30.6% of net sales in 1997 to 29.9% in 1998. The decrease in gross profit margin for both the PSG and ICG was primarily due to higher spending on fixed overhead. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by 4.5%, or $0.7 million, from $15.0 million in 1997 to $15.6 million in 1998. As a percentage of net sales, SG&A decreased from 17.5% in 1997 to 17.4% in 1998. The increase in SG&A expenses in absolute dollars was primarily due to the acquisition of Teletrac partially offset by a decrease in incentive compensation expense. INTEREST EXPENSE. Interest expense decreased by 64.9%, or $1,405,000, from $2,166,000 in 1997 to $761,000 in 1998. The decrease in interest expense was primarily due to lower average borrowings during 1998 resulting from the Company's use of the net proceeds (approximately $19.5 million) from its stock offering in late October of 1997 to repay indebtedness under the Company's senior credit facility. TAXES. The Company's effective tax rate, decreased from 40.3% in 1997 to 14.2% in 1998. As discussed in Note 8 to the Condensed Consolidated Financial Statements, the Company offset its normal second and third quarter continuing operations tax provision by the reversal of a portion of its tax valuation allowance. DISCONTINUED OPERATIONS. See discussion in "Comparison of the Three Months Ended September 30, 1998 and September 30, 1997". PREFERRED STOCK DIVIDENDS. Preferred Stock dividends decreased 100%, or $102,000, to none in 1998. The decrease in Preferred Stock dividends was due to the Company's exchange of Preferred Stock for Common Stock and subsequent redemption of remaining Preferred Stock during 1997 (see Note 7 to the Condensed Consolidated Financial Statements). As a result of such redemption, there is no Preferred Stock outstanding and there are no accrued and unpaid dividends. BACKLOG A substantial portion of the Company's business is of a build-to-order nature requiring various engineering, manufacturing, testing and other processes to be performed prior to shipment. As a result, the Company generally has a significant backlog of orders to be shipped. The Company's backlog of orders decreased by 9.5% or $4.5 million, from $51.8 million at December 31, 1997 to $47.3 million at September 30, 1998. The decrease in backlog was primarily due to a decline in orders from the electronics capital equipment and space markets. The decline in the electronics capital equipment market is due primarily to the continuing difficulties in the Asian economy and specific weakness in the data storage and semiconductor segments of that market. The decline in bookings from the space market is primarily due to the timing of satellite programs. Orders from the next significant satellite program are not anticipated in the current fiscal year. The Company believes that a substantial portion of the backlog of orders at September 30, 1998 will be shipped over the next twelve months. 14 LIQUIDITY AND CAPITAL RESOURCES The Company funds its operations primarily from cash flow generated by operations and, to a lesser extent, from borrowings under its credit facility and through capital lease transactions. Net cash provided by operations for the nine months ended September 30, 1998 and 1997 was $6.4 million and $7.1 million, respectively. The decrease in cash provided from operations in 1998 was primarily due to increased working capital requirements. This use of cash was partially offset by an increase in net income as adjusted for the realization of tax loss carryforwards, deferred income taxes and non-cash amortization and depreciation, as well as lower funding of discontinued operations. At December 31, 1997, the Company had approximately $1.3 million of net operating losses and $0.5 million of tax credits available to reduce future taxable income. The net operating losses and a substantial portion of the tax credits will be used to offset tax payments in 1998. The Company's working capital was $28.8 million and $24.9 million on September 30, 1998 and December 31, 1997, respectively. Net cash used in investing activities for the nine months ended September 30, 1998 and 1997 was $1.8 million and $9.3 million, respectively. During 1997, the Company acquired Teletrac for cash consideration of $7.3 million. During 1998, the Company increased its capital expenditures by $1.0 million over the prior year, primarily on machinery and equipment to expand or improve on capabilities and to lower operating costs, and made a $0.7 million advance to a third party (see Note 5 to the Condensed Consolidated Financial Statements). In addition, the Company received net proceeds from the sale of Sensor Systems of $1.7 million in 1998. The Company had no material commitments for capital expenditures as of September 30, 1998. The Company has an $11.0 million senior secured revolving credit facility which expires on April 25, 2000 (the "Credit Facility"), of which $2.7 million was outstanding as of September 30, 1998. The Credit Facility contains restrictive covenants which, among other things, impose limitations with respect to the incurrence of additional liens and indebtedness, mergers, consolidations and specified sale of assets and requires the Company to meet certain financial tests including minimum levels of earnings and net worth and various other financial ratios. In addition, the Credit Facility prohibits the payment of cash dividends. The Company believes that the remaining availability under the Credit Facility and cash generated from operations will be sufficient to finance its future capital expenditures, working capital requirements and the purchase of additional Company Common Stock for at least the next 12 months. YEAR 2000 The Company is continuously monitoring Year 2000 compliance issues effecting its information technology ("IT") and non-IT systems. No significant non-IT system Year 2000 compliance issues have been identified. As related to IT systems, the Company is in the process of implementing new management information systems at three of its business units. While the implementation of these new systems does address Year 2000 concerns, Year 2000 compliance was not the predominant justification supporting such investments. These new IT systems are expected to enhance future operations through improved operating management and efficiencies. It is anticipated that the new systems will be fully operational by the end of the first quarter of 1999. The cost of these new systems is projected to be approximately $1.1 million of which $0.9 million will be capitalized and depreciated over future periods. Approximately $0.9 million has been spent through September 1998, including $0.3 million spent in 1997. Substantial progress has been made on the implementation of these new management information systems and no unmanageable problems have been identified. In addition, the projected completion date for these implementations allows adequate time to identify and correct potential hardware or software problems that may arise. As such, no further contingency plans have been formulated. 15 The Company is in the process of surveying material third parties such as customers, vendors, banks and others to determine their Year 2000 readiness. While it is not possible to fully assess the actual readiness of these third parties, a majority of their responses indicate that they are or will be Year 2000 compliant. For those vendors who have not responded satisfactorily, alternative sources will be identified. RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. Management does not believe that the implementation of the statement will have a material impact on the consolidated financial position or consolidated results of operations of the Company. This quarterly report on Form 10-Q provides certain forward-looking statements. The Company's business is subject to a variety of risks and uncertainties. As a result, actual future results and developments may be materially different from those expressed or implied in any forward-looking statement. Disclosure regarding factors affecting the Company's future results and developments is contained in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the fiscal year ended December 31, 1997. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable as of September 30, 1998. 16 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the quarter ended September 30, 1998. ITEM 5. OTHER INFORMATION Not applicable during the quarter ended September 30, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27: Financial Data Schedule (For SEC use only). Exhibit 99.1: Company press release regarding stock repurchase program. Exhibit 99.2: Company press release regarding strategic alliance with Westlake Technologies Corporation. Exhibit 99.3: Company press release regarding divestiture of Sensor Systems division. b) Reports on Form 8-K None during the quarter ended September 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 11th day of November, 1998. Date: November 11, 1998 AXSYS TECHNOLOGIES, INC. By: /s/ Stephen W. Bershad ------------------------------- Stephen W. Bershad Chairman of the Board and Chief Executive Officer By: /s/ Raymond F. Kunzmann ------------------------------- Raymond F. Kunzmann Vice President-Finance and Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF AXSYS TECHNOLOGOES, INC. AS OF SEPTEMBER 30, 1998 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 SEP-30-1998 176 0 16,348 487 27,107 46,044 25,525 10,623 75,758 17,267 6,067 0 0 41 49,950 75,758 89,922 89,922 65,658 65,658 15,944 70 761 7,489 1,063 6,426 (2,445) 0 0 3,981 0.95 0.94 Earnings per share has been prepared in accordance with SFAS No. 128. Basic anddiluted EPS have been entered in place of primary and fully diluted, respectively.
EX-99.1 3 STOCK PURCHASE Exhibit 99.1 FOR IMMEDIATE RELEASE Contact: - -------- David L. Concannon General Counsel Axsys Technologies, Inc. (201) 871-1500 Web Site: http://www.axsys.com AXSYS TECHNOLOGIES, INC. ANNOUNCES STOCK REPURCHSE PROGRAM Englewood Cliffs, NJ -- August 10, 1998 -- Axsys Technologies, Inc. (Nasdaq: AXYS) today announced that its Board of Directors has authorized the repurchase, from time to time, on the open market or otherwise, of up to 200,000 shares of its common stock at prevailing market prices or at negotiated prices. Such repurchases will be funded primarily with borrowings under the Company's existing credit facility. The Company plans to use the repurchased shares for general corporate purposes, including the satisfaction of commitments under its employee benefit plans. Axsys Technologies designs, manufactures and sells custom micro-positioning and precision optical components and systems for markets such as defense, space, digital imaging and electronics capital equipment. The Company also designs, manufactures and sells interconnect devices and distributes precision ball bearings for use in a variety of industrial, commercial and consumer applications. This news release contains certain forward-looking statements. The Company's business is subject to a variety of risks and uncertainties. As a result, actual future results and developments may be materially different from those expressed or implied in any forward-looking statement. Disclosure regarding factors affecting the Company's future results and developments is contained in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the fiscal year ended December 31, 1997. ***** EX-99.2 4 ALLIANCE WITH WESTLAKE TECHNOLOGY Exhibit 99.2 FOR IMMEDIATE RELEASE Contact: David L. Concannon, General Counsel Axsys Technologies, Inc. 201/871-1500 dlc@axsys.com www.axsys.com -or- Paul Lonnegren Tate Associates, Inc. 303/683-4200 paul@tateweb.com www.tateweb.com AXSYS TECHNOLOGIES TARGETS DATA STORAGE INDUSTRY WITH STRATEGIC ALLIANCE Englewood Cliffs, NJ, August 12, 1998 -- Axsys Technologies, Inc. (Nasdaq: AXYS) and privately held Westlake Technology Corporation (WTC) of Thousand Oaks, Calif. have formed a strategic alliance that targets the data storage industry. The alliance gives Axsys exclusive rights to market and sell WTC's electronic and electromechanical test equipment through Axsys' Santa Barbara, Calif.-based Teletrac, Inc. subsidiary. Teletrac also has exclusive rights to integrate WTC's electronic test modules into its high-performance magnetic disk drive head gimbal assembly (HGA) and head stack assembly (HSA) test products. Axsys expects this unified product offering to expand sales of both Teletrac and WTC, as each introduces products to the other's customer base. In return for the exclusive rights to market and sell WTC's products, Axsys has agreed to provide working capital to WTC to fund its current operations and joint development programs for new turnkey test systems for the HGA and HSA test markets, among others. Axsys has the option to acquire WTC's stock at a future date. "This alliance with WTC allows us to offer complete, turnkey test systems to the data storage marketplace," says Teletrac President Dick Howitt. "By bringing the sales and marketing of the two companies' products under a single umbrella, Teletrac will be able to provide customers with unified systems that promote the concept of open-architecture design. Open architecture, as outlined by the Committee for Open Architecture Test (COAT), represents a crucial step forward because it affords superior, cost-effective solutions for the dynamic test requirements of the magnetic disk industry." - more - WTC President William Valliant adds, "By partnering with Teletrac, WTC will be able to accelerate its development of next-generation test products for the magnetic data storage market." Axsys Technologies, Inc. designs, manufactures and sells custom micro-positioning and precision optical components and systems for markets such as defense, space, digital imaging and electronics capital equipment. The company also designs, manufactures and sells interconnect devices and distributes precision ball bearings for use in a variety of industrial, commercial and consumer applications. This news release contains certain forward-looking statements. The Company's business is subject to a variety of risks and uncertainties. As a result, actual future results and developments may be materially different from those expressed or implied in any forward-looking statement. Disclosure regarding factors affecting the Company's future results and developments is contained in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the fiscal year ended December 31, 1997. EX-99.3 5 SENSOR SYSTEMS Exhibit 99.3 FOR IMMEDIATE RELEASE Contact: David L. Concannon General Counsel Axsys Technologies, Inc. 201/871-1500 dlc@axsys.com www.axsys.com AXSYS TECHNOLOGIES DIVESTS SENSOR SYSTEMS DIVISION ENGLEWOOD CLIFFS, NJ, SEPTEMBER 16, 1998 -- Axsys Technologies, Inc. (Nasdaq: AXYS) today announced that, as part of its long-term strategy to focus its operations on the electronics capital equipment and digital imaging markets, it has sold its Vernitron Sensor Systems division ("SSD") to Sensor Systems L.L.C. for approximately $3,000,000, of which $1,000,000 is in the form of a five year, 10% note. Sensor Systems L.L.C. is a newly formed, privately held company which, along with Fisher Electric Technologies and Motor Magnetics, is a part of the Electromotive Solutions Group, manufacturers of specialty electric motors and alternators. SSD manufactures various types of sensor products including pressure transducers, potentiometers and rotary optical encoders, which are used on defense and aerospace programs that are generally different than those serviced by the remaining Axsys business units. SSD had revenues of approximately $7,400,000 in 1997, of which $850,000 was inter-company. The sale of SSD is being treated as a discontinued operation and, accordingly, the operating results of SSD will be reported separately from continuing operations. As a result of the sale and related discontinued operations treatment, it is estimated that Axsys' earnings from continuing operations for 1998, excluding the effect of a tax valuation allowance reversal, will be reduced by approximately $.04 per diluted share. In addition, Axsys will record a net after tax discontinued operations charge on the sale of SSD of approximately $2,600,000. Axsys Technologies, Inc. supplies micro-positioning and precision optical products for a variety of markets, including defense, space, digital imaging and electronics capital equipment. The company also produces interconnect devices and distributes precision ball bearings for industrial, consumer and other commercial applications. For more information, contact Axsys Technologies, Inc., 910 Sylvan Avenue, Suite 180, Englewood Cliffs, NJ 07632. (201) 871-1500, FAX (201) 871-7750; web: www.axsys.com This news release contains certain forward-looking statements. The Company's business is subject to a variety of risks and uncertainties. As a result, actual results and developments may be materially different from those expressed or implied in any forward-looking statement. Disclosure regarding factors affecting the Company's future results and developments is contained in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the fiscal year ended December 31, 1997. -----END PRIVACY-ENHANCED MESSAGE-----