-----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, QdSwLK1HRDvPe0cbjMj4lhEl7s486W+akKlVBkcKRrRvckoGmJB2bQzE7DzZpoe9 VjslcymGFwKlUxKUAj+yKw== 0001047469-99-031015.txt : 19990812 0001047469-99-031015.hdr.sgml : 19990812 ACCESSION NUMBER: 0001047469-99-031015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99684110 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 FORM 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 JUNE 30, 1999 COMMISSION FILE NUMBER 0-16182 ------------------------ AXSYS TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 11-1962029 (State or other jurisdiction of (I.R.S. Employer 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 ---- ---- 4,077,587 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AS OF JULY 28, 1999. AXSYS TECHNOLOGIES, INC. INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Operations - Three Months Ended June 30, 1999 and 1998 4 Condensed Consolidated Statements of Operations - Six Months Ended June 30, 1999 and 1998 5 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999 and 1998 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 16
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AXSYS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 -------------- --------------- ASSETS CURRENT ASSETS: Cash.................................................................... $ 88 $ 69 Accounts receivable - net............................................... 17,273 16,877 Inventories - net....................................................... 29,156 27,028 Other current assets.................................................... 2,993 2,838 -------------- --------------- TOTAL CURRENT ASSETS.................................................. 49,510 46,812 PROPERTY, PLANT AND EQUIPMENT - net....................................... 15,374 15,080 EXCESS OF COST OVER NET ASSETS ACQUIRED - net............................. 12,002 12,216 OTHER ASSETS.............................................................. 2,448 2,103 -------------- --------------- TOTAL ASSETS.......................................................... $ 79,334 $ 76,211 -------------- --------------- -------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................................ $ 8,043 $ 7,867 Accrued expenses and other liabilities.................................. 6,884 7,050 Current portion of long-term debt and capital lease obligations......... 5,637 1,179 -------------- --------------- TOTAL CURRENT LIABILITIES............................................. 20,564 16,096 LONG-TERM DEBT & CAPITAL LEASES, less current portion..................... 3,876 5,612 OTHER LONG-TERM LIABILITIES............................................... 2,214 2,375 SHAREHOLDERS' EQUITY: Common Stock, issued 4,122,767 shares at June 30, 1999 and December 31, 1998...................................................... 41 41 Capital in Excess of Par................................................ 39,843 40,761 Retained Earnings....................................................... 13,703 12,966 Treasury Stock, at cost, 72,318 shares at June 30, 1999 and 117,750 at December 31, 1998.......................................... (907) (1,640) -------------- --------------- TOTAL SHAREHOLDERS' EQUITY............................................ 52,680 52,128 -------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $ 79,334 $ 76,211 -------------- --------------- -------------- ---------------
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)
THREE MONTHS ENDED JUNE 30, -------------------------------------------- 1999 1998 ---------------- ------------------ NET SALES......................................................... $ 26,979 $ 31,774 Cost of sales..................................................... 19,030 21,918 Selling, general and administrative expenses...................... 5,311 5,545 Research and development expenses................................. 998 926 Amortization of intangible assets................................. 107 107 ---------------- ------------------ OPERATING INCOME.................................................. 1,533 3,278 Interest expense.................................................. 222 288 Other expense..................................................... 2 25 ---------------- ------------------ INCOME FROM CONTINUING OPERATIONS BEFORE TAXES............................................................. 1,309 2,965 Provision for income taxes........................................ 236 - ---------------- ------------------ INCOME FROM CONTINUING OPERATIONS................................. 1,073 2,965 DISCONTINUED OPERATIONS: Income from operations, net of tax.............................. - 91 ---------------- ------------------ NET INCOME........................................................ $ 1,073 $ 3,056 ---------------- ------------------ ---------------- ------------------ BASIC EARNINGS PER SHARE: Income from continuing operations............................... $ 0.26 $ 0.70 Discontinued operations......................................... - 0.02 ---------------- ------------------ TOTAL............................................................. $ 0.26 $ 0.72 ---------------- ------------------ ---------------- ------------------ Weighted average common shares outstanding........................ 4,103,854 4,222,591 --------------- ------------------ --------------- ------------------ DILUTED EARNINGS PER SHARE: Income from continuing operations............................... $ 0.26 $ 0.70 Discontinued operations......................................... - 0.02 ---------------- ------------------ TOTAL............................................................. $ 0.26 $ 0.72 ---------------- ------------------ ---------------- ------------------ Weighted average common shares outstanding........................ 4,116,773 4,264,699 ---------------- ------------------ ---------------- ------------------
See accompanying notes to condensed consolidated financial statements. 4 AXSYS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands, except per share data)
SIX MONTHS ENDED JUNE 30, --------------------------- 1999 1998 ------------ ---------- NET SALES ........................................ $ 52,114 $ 63,672 Cost of sales .................................... 37,318 43,848 Selling, general and administrative expenses ..... 10,406 11,558 Research and development expenses ................ 2,024 1,883 Amortization of intangible assets ................ 214 214 ---------- ---------- OPERATING INCOME ................................. 2,152 6,169 Interest expense ................................. 412 546 Special charge ................................... 1,000 -- Other expense .................................... 3 32 ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES ............................................ 737 5,591 Provision for income taxes ....................... -- 1,063 ---------- ---------- INCOME FROM CONTINUING OPERATIONS ................ 737 4,528 DISCONTINUED OPERATIONS: Income from operations, net of tax ............. -- 65 ---------- ---------- NET INCOME ....................................... $ 737 $ 4,593 ---------- ---------- ---------- ---------- BASIC EARNINGS PER SHARE: Income from continuing operations .............. $ 0.18 $ 1.07 Discontinued operations ........................ -- 0.02 ---------- ---------- TOTAL ............................................ $ 0.18 $ 1.09 ---------- ---------- ---------- ---------- Weighted average common shares outstanding ....... 4,105,051 4,219,284 ---------- ---------- ---------- ---------- DILUTED EARNINGS PER SHARE: Income from continuing operations .............. $ 0.18 $ 1.06 Discontinued operations ........................ -- 0.02 ---------- ---------- TOTAL ............................................ $ 0.18 $ 1.08 ---------- ---------- ---------- ---------- Weighted average common shares outstanding ....... 4,119,833 4,263,698 ---------- ---------- ---------- ----------
See accompanying notes to condensed consolidated financial statements. 5 AXSYS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, dollars in thousands)
SIX MONTHS ENDED JUNE 30, 1999 1998 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...................................................... $ 737 $ 4,593 Adjustments to reconcile net income to cash (used in) provided by operating activities: Deferred income taxes ........................................... (309) (933) Depreciation and amortization ................................... 1,862 1,790 Change in net assets of discontinued operation .................. -- 152 Increase in current assets, other than cash ..................... (2,370) (1,922) Increase (decrease) in current liabilities ...................... 76 (268) Other-net ....................................................... (17) 147 ------- ------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ........... (21) 3,559 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................................ (541) (2,876) Advance to third party .......................................... (468) -- ------- ------- NET CASH USED IN INVESTING ACTIVITIES ......................... (1,009) (2,876) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from borrowings .................................... 2,200 -- Net repayment of borrowings ..................................... (908) (754) Purchases of Treasury Stock ..................................... (251) -- Other ........................................................... 8 44 ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........... 1,049 (710) ------- ------- NET INCREASE (DECREASE) IN CASH ............................... 19 (27) CASH AT BEGINNING OF PERIOD ....................................... 69 573 ------- ------- CASH AT END OF PERIOD ............................................. $ 88 $ 546 ------- ------- ------- ------- Supplemental Cash Flow Information: Cash paid for: Interest ...................................................... $ 354 $ 468 Income Tax .................................................... 115 339 Non-Cash Investing and Financing Activities: Equipment acquired under capital leases ....................... $ 1,422 $ 75
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 disclosures 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 six month periods ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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, 1998. Certain reclassifications have been made to previously reported financial statements to conform to current classifications. NOTE 2 - 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 stock options, if any. NOTE 3 - 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, which were not sold as part of this transaction, were sold during July 1999 for approximately their book value of $750, net of retained liabilities. 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 periods presented. Revenues applicable to the discontinued operation for the three month and six month periods ended June 30, 1998 were $1,892 and $3,589, respectively. NOTE 4 - 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 $1,900 to WTC. Outstanding loans bear interest at 10.5% and mature on August 12, 2001. As of June 30, 1999, the outstanding loan balance, which is recorded under "Other Assets" in the Condensed Consolidated Balance Sheet, was $1,520. 7 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5 - INVENTORIES Inventories have been determined generally by lower of cost (first-in, first-out or average) or market. Inventories consist of:
JUNE 30, DECEMBER 31, 1999 1998 ----------------- ----------------- Raw materials...................................... $ 10,840 $ 9,401 Work-in-process.................................... 9,930 8,665 Finished goods..................................... 12,356 12,642 ----------------- ----------------- 33,126 30,708 Less reserves...................................... (3,970) (3,680) ----------------- ----------------- $ 29,156 $ 27,028 ----------------- ----------------- ----------------- -----------------
NOTE 6 - SHAREHOLDERS' EQUITY 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. During July 1999, the Company's Board of Directors authorized an increase in the share repurchase program from an aggregate of 200,000 shares of Common Stock to an aggregate of 700,000 shares. The Company plans to use the repurchased shares for general corporate purposes, including the satisfaction of commitments under its employee benefit plans. As of June 30, 1999 the Company has repurchased 144,700 shares for an aggregate purchase price of $1,915, of which 72,382 shares have been used by the Company to satisfy its obligation to issue shares under certain employee benefit plans and in connection with the acquisition of its Teletrac, Inc. subsidiary. NOTE 7 - 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 both its three month and six month periods continuing operations tax provisions by $309 and $1,221 in 1999 and 1998, respectively. The tax provision recorded in the second quarter of 1999 represents the reversal of the tax benefit recorded in the first quarter. As of June 30, 1999, the remaining tax valuation allowance is approximately $600. NOTE 8 - SEGMENT DATA 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 systems and components for a variety of industries including defense, space, digital imaging and electronics capital equipment. 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 industrial, consumer and other commercial applications. As discussed in Note 3, 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, its operating results have been reported separately from continuing operations and the segment data below has been restated to exclude the Sensor Systems segment. 8 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 8 - SEGMENT DATA - CONT'D. The following tables present financial data for each of the Company's segments.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1999 1998 1999 1998 -------- -------- -------- -------- Net sales: PSG ....................................................... $ 15,669 $ 20,451 $ 29,699 $ 39,858 -------- -------- -------- -------- Precision Ball Bearings ................................... 6,353 6,576 12,906 13,839 Electronic Interconnect Products .......................... 4,957 4,747 9,509 9,975 -------- -------- -------- -------- Total ICG ............................................. 11,310 11,323 22,415 23,814 -------- -------- -------- -------- Total Sales ....................................... $ 26,979 $ 31,774 $ 52,114 $ 63,672 -------- -------- -------- -------- -------- -------- -------- -------- Earnings before amortization, interest and taxes: PSG ....................................................... $ 849 $ 2,605 $ 753 $ 4,679 -------- -------- -------- -------- Precision Ball Bearings ................................... 726 906 1,577 1,885 Electronic Interconnect Products .......................... 820 701 1,598 1,639 -------- -------- -------- -------- Total ICG ............................................. 1,546 1,607 3,175 3,524 Non-allocated expenses .................................... (1,086) (1,247) (3,191) (2,612) -------- -------- -------- -------- Income from continuing operations before taxes .......................................... $ 1,309 $ 2,965 $ 737 $ 5,591 -------- -------- -------- -------- -------- -------- -------- -------- JUNE 30, DECEMBER 31, 1999 1998 -------- -------- Identifiable assets: PSG ....................................................... $ 40,263 $ 38,585 -------- -------- Precision Ball Bearings ................................... 13,902 13,653 Electronic Interconnect Products .......................... 9,168 8,351 -------- -------- Total ICG ............................................. 23,070 22,004 Non-allocated assets ...................................... 16,001 15,622 -------- -------- Total assets .......................................... $ 79,334 $ 76,211 -------- -------- -------- --------
Included in non-allocated expenses are the following: general corporate expense, interest expense, amortization of goodwill, special charges 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 9 - OTHER INFORMATION
JUNE 30, DECEMBER 31, 1999 1998 ------- ------- Allowance for doubtful accounts ............................... $ 381 $ 507 ------- ------- ------- ------- Accumulated depreciation and amortization of property, plant and equipment ............................. $13,133 $11,531 ------- ------- ------- ------- Accumulated amortization of excess of cost over net assets acquired .................................... $ 1,804 $ 1,590 ------- ------- ------- -------
9 AXSYS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 10 - SPECIAL CHARGE On November 20, 1998, the Company's Chairman and CEO and the owner of approximately 31% of the Company's common stock ("the Chairman"), submitted an offer to purchase all of the common stock not owned by him for $15.00 per share in cash (the "Chairman's Proposal"). Shortly thereafter, the Company's Board of Directors formed a Special Committee to evaluate the Chairman's Proposal. On January 11, 1999, the Company received an unsolicited offer to purchase the Company for $20.00 per share in cash. In response to this unsolicited offer, the Chairman withdrew his proposal, and on January 13, 1999, the Company's Board of Directors dissolved the Special Committee. On January 14, 1999, the Company engaged investment bankers to explore various strategic alternatives, including the potential sale of the Company. On January 29, 1999, the Company publicly announced that the Board of Directors had instructed its investment bankers to explore the potential sale of the Company. During the first quarter of 1999, the Company recorded a pre-tax special charge of $1,000 for expenses related to a process of exploring the potential sale of the Company. On June 15, 1999, the Company publicly announced that its Board of Directors had determined not to pursue a sale of the Company at that time. 10 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 six month periods ended June 30, 1999 and 1998. 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 Sensor Systems through the date of the sale and the loss from the disposal are reflected in discontinued operations.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net sales: PSG.................................................. 58.1 % 64.4 % 57.0 % 62.6 % ------------ ------------ ------------ ------------ Precision Ball Bearings.............................. 23.5 20.7 24.8 21.7 Electronic Interconnect Products..................... 18.4 14.9 18.2 15.7 ------------ ------------ ------------ ------------ Total ICG........................................ 41.9 35.6 43.0 37.4 ------------ ------------ ------------ ------------ Total Company................................ 100.0 100.0 100.0 100.0 ------------ ------------ ------------ ------------ Cost of sales............................................ 70.5 69.0 71.6 68.9 ------------ ------------ ------------ ------------ Gross profit............................................. 29.5 31.0 28.4 31.1 ------------ ------------ ------------ ------------ Operating expenses: Selling, general and administrative expenses......... 19.7 17.5 20.0 18.1 Research and development expenses.................... 3.7 2.9 3.9 3.0 Amortization of intangible assets..................... 0.4 0.3 0.4 0.3 ------------ ------------ ------------ ------------ 23.8 20.7 24.3 21.4 ------------ ------------ ------------ ------------ Operating income......................................... 5.7 10.3 4.1 9.7 Interest expense..................................... 0.8 0.9 0.8 0.9 Special charge....................................... - - 1.9 - Other expense........................................ - 0.1 - - ------------ ------------ ------------ ------------ Income from continuing operations before taxes........... 4.9 9.3 1.4 8.8 Provision for income taxes............................. 0.9 - - 1.7 ------------ ------------ ------------ ------------ Income from continuing operations........................ 4.0 9.3 1.4 7.1 Discontinued operations: Income from operations, net of tax..................... - 0.3 - 0.1 ------------ ------------ ------------ ------------ Net income............................................... 4.0 % 9.6 % 1.4 % 7.2% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Gross profit (as a percentage of related net sales): PSG...................................................... 28.3 % 31.4 % 26.3 % 31.3% ICG...................................................... 30.9 30.4 31.0 30.9
11 COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 NET SALES. Net sales decreased by 15.1%, or $4.8 million, from $31.8 million in the three month period ended June 30, 1998 to $27.0 million in the same period of 1999. The PSG's sales decreased by 23.4%, or $4.8 million, from $20.5 million in 1998 to $15.7 million in 1999. This decrease was primarily the result of lower sales to the electronics capital equipment, digital imaging and space markets, partially offset by an increase in sales to the defense market. In the electronics capital equipment market, overall soft market conditions, especially in the data storage segment, continue to impact sales volume. Lower sales to the digital imaging market were due to a combination of soft market conditions and technical problems which are delaying shipments on certain product offerings. In the space market, lower sales were primarily due to the timing of major satellite programs. Partially offsetting these negative variances was an increase in sales to the defense market primarily due to shipments under a large space-based defense program. The ICG recorded sales of $11.3 million in the second quarter of 1999, which were substantially the same as sales in the second quarter of the prior year. Sales of electronic interconnect products were up 4.4% over the prior year, primarily due to new product introductions. This increase was offset by a 3.4% decline in sales of precision ball bearings. GROSS PROFIT. The Company's gross profit decreased by 19.3%, or approximately $1.9 million, from $9.9 million in 1998 to $7.9 million in 1999. Gross profit margin decreased from 31.0% of net sales in 1998 to 29.5% in 1999. The gross margin for the PSG decreased from 31.4% of net sales in 1998 to 28.3% in 1999 and, for the ICG, increased from 30.4% of net sales in 1998 to 30.9% in 1999. The decline in the PSG gross profit margin was primarily due to the spreading of fixed costs over a lower sales volume. The improved margins in the ICG were primarily due to a favorable sales mix in both of its business segments and, favorable purchase price variances and sales volume related efficiencies in the electronic interconnect products segment. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses decreased by 4.2%, or $0.2 million, from $5.5 million in 1998 to $5.3 million in 1999. As a percentage of net sales, however, SG&A increased from 17.5% in 1998 to 19.7% in 1999. The decrease in SG&A expenses was primarily due to lower incentive expense partially offset by increased spending on employment related costs, travel, advertising and promotions. RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses of $1.0 million in 1999 were substantially the same as 1998. INTEREST EXPENSE. Interest expense decreased by 22.9%, or $0.1 million, from $0.3 million in 1998 to $0.2 million in 1999. The decrease in interest expense was primarily due to a combination of lower average borrowings and a lower average borrowing rate during 1999. TAXES. The Company's effective tax rate increased from none in 1998 to 18.0% in 1999. As discussed in Note 7 to the Condensed Consolidated Financial Statements, the Company offset its normal second quarter continuing operations tax provision in both 1999 and 1998 by the reversal of a portion of its tax valuation allowance. The tax provision recorded in the second quarter of 1999 represents the reversal of the tax benefit recorded in the first quarter. As of June 30, 1999, the remaining tax valuation allowance is approximately $0.6 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. Results of operations from the discontinued business have been reported separately from continuing operations in 1998. COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 NET SALES. Net sales decreased by 18.2%, or $11.6 million, from $63.7 million in the six month period ended June 30, 1998 to $52.1 million in the same period of 1999. The PSG's sales decreased by 25.5%, or $10.2 million, from $39.9 million in 1998 to $29.7 million in 1999. This decrease was primarily the result of lower sales to the electronics capital equipment, digital imaging and space markets, partially offset by an increase in sales to the defense market. In the electronics capital equipment market, the lower sales volume was due to soft market conditions, especially in the data storage segment. Lower sales to the digital imaging market were due to a combination of soft market conditions and technical problems which are delaying shipments on certain product offerings. In the space market, lower sales were primarily due to the timing of major satellite programs. Partially offsetting these negative variances was an increase in sales to the defense market primarily due to shipments under a large space based defense program. The ICG's sales decreased 5.9%, or $1.4 million, from $23.8 million in 1998, which included record high sales in the first quarter of the year, to $22.4 million in 1999. Sales of the electronic interconnect products and precision ball bearings were 6.7% and 4.7% below the prior year, respectively. Beginning in the second half of 1998, the ICG has felt the impact that the economic difficulties in Asia and the soft manufacturing segment in general were having on its customers. However, these soft market conditions appear to be improving, as the ICG's sales during the first half of 1999 are approximately 16% higher than sales for the second half of 1998. 12 GROSS PROFIT. The Company's gross profit decreased by 25.4%, or $5.0 million, from $19.8 million in 1998 to $14.8 million in 1999. Gross profit margin decreased from 31.1% of net sales in 1998 to 28.4% in 1999. The gross margin for the PSG decreased from 31.3% of net sales in 1998 to 26.3% in 1999 and, for the ICG, increased slightly from 30.9% of net sales in 1998 to 31.0% in 1999. The decline in the PSG gross profit margins were primarily due to the spreading of fixed costs over a lower sales volume. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses decreased by 10.0%, or $1.2 million, from $11.6 million in 1998 to $10.4 million in 1999. As a percentage of net sales, however, SG&A increased from 18.1% in 1998 to 20.0% in 1999. The decrease in SG&A expenses was primarily due to lower incentive expense. RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses of $2.0 million in 1999 were slightly higher than the $1.9 million incurred in 1998 primarily due to higher spending on new product development for the digital imaging market. INTEREST EXPENSE. Interest expense decreased by 24.5%, or $0.1 million, from $0.5 million in 1998 to $0.4 million in 1999. The decrease in interest expense was primarily due to a combination of lower average borrowings and a lower average borrowing rate during 1999. SPECIAL CHARGE. During the first quarter of 1999, the Company recorded a pre-tax special charge of $1.0 million for expenses related to the process of exploring the potential sale of the Company, which was discontinued during the second quarter of 1999 (See Note 10 to the Condensed Consolidated Financial Statements). TAXES. The Company's effective tax rate decreased from 19.0% in 1998 to none in 1999. Commencing in the second quarter of 1998, the Company began to offset its normal continuing operations tax provision by the reversal of a portion of its tax valuation allowance. (See Note 7 to the Condensed Consolidated Financial Statements). DISCONTINUED OPERATIONS. See discussion in "Comparison of the Three Months Ended June 30, 1999 and June 30, 1998". 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 increased by 4.5% or $2.2 million, from $49.0 million at December 31, 1998 to $51.2 million at June 30, 1999 reflecting increases in most of the Company's major market segments. The Company believes that a substantial portion of the backlog of orders at June 30, 1999 will be shipped over the next twelve months. LIQUIDITY AND CAPITAL RESOURCES Net cash (used in) provided by operations for the six months ended June 30, 1999 and 1998 was ($21,000) and $3.6 million, respectively. The decrease in cash provided from operations in 1999 was primarily due to reduced earnings. The Company's working capital was $28.9 million and $30.7 million on June 30, 1999 and December 31, 1998, respectively. Net cash used in investing activities for the six months ended June 30, 1999 and 1998 was $1.0 million and $2.9 million, respectively. This reduction in use of cash was primarily due to lower capital expenditures and an increase in the use of capital lease financing. The Company had no material commitments for capital expenditures as of June 30, 1999. 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. The Company has an $11.0 million senior secured revolving credit facility which expires on April 25, 2000 (the "Credit Facility"), of which $4.3 million was outstanding as of June 30, 1999. 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 it will be able to extend its current Credit Facility beyond April 25, 2000 or enter into a credit agreement with a new group of lenders with terms and covenants which are at least as favorable as those existing under the current facility. The Company further believes that its borrowing capacity under an extended Credit Facility or a new credit arrangement 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. 13 YEAR 2000 The Company is continuously monitoring Year 2000 compliance issues affecting 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 has completed the implementation of 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 also expected to enhance future operations through improved operating management and efficiencies. The cost of these new systems was approximately $1.2 million, of which $1.0 million has been capitalized and will be depreciated over future periods. Of the total $1.2 million Year 2000 spending, approximately $0.9 million and $0.3 million was spent in 1998 and 1997, respectively. With the implementation of these new management information systems, the Company believes it has addressed the potential Year 2000 hardware or software problems which it has identified. As such, no further contingency plans have been formulated. The Company is continuing 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, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. 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. FORWARD-LOOKING STATEMENTS 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, 1998. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk sensitive instruments do not subject the Company to material risk exposures. 14 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of the Company was held on July 29, 1999. The following matters were submitted to a vote of security holders. The results of the voting were as follows: (1) Election of Directors All four directors of the Company were elected by the stockholders.
Votes Votes FOR WITHHELD --- -------- Stephen W. Bershad 3,293,784 6,583 Anthony J. Fiorelli, Jr. 3,294,079 6,288 Eliot M. Fried 3,294,279 6,088 Richard V. Howitt 3,292,188 8,179
(2) Appointment of Independent Auditors The stockholders were asked to ratify the appointment of Arthur Andersen LLP as independent auditors for the Company for 1999. This matter was approved by the stockholders with 3,296,210 votes cast for, 2,776 votes opposed, and 1,381 votes abstained. ITEM 5. OTHER INFORMATION Not applicable during the quarter ended June 30, 1999. 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 10(1): Amendment, Consent and Waiver to the Credit Agreement, dated April 25, 1996, between the Company, various banks named therein and Banque Paribas, as Agent. Exhibit 27 (1): Financial Data Schedule (For SEC use only). Exhibit 27 (2): Restated Financial Data Schedule (For SEC use only). b) Reports on Form 8-K None during the quarter ended June 30, 1999. 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 August, 1999. Date: August 11, 1999 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 16 EX-10.1 2 EXHIBIT 10.1 Exhibit 10(1) AMENDMENT, CONSENT AND WAIVER AMENDMENT, CONSENT AND WAIVER (this "Amendment"), dated as of June 4, 1999 among AXSYS TECHNOLOGIES, INC. (formerly, Vernitron Corporation) (the "borrower"), the various financial institutions party to the Credit Agreement referred to below (the "Banks"), and PARIBAS (formerly, Banque Paribas), as agent (the "Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provides such terms in the Credit Agreement. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of April 25, 1996 (as amended, modified or supplemented through the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. The undersigned Banks hereby consent to the waiving of compliance by the Borrower with the requirements of Section 9.12 of the Credit Agreement with respect to and limited to the fiscal quarter ending on March 31, 1999. 2. Section 9.12 of the Credit Agreement is hereby amended by deleting the amount opposite the date June 30, 1999 and inserting in lieu thereof the amount "$8,250,000". 3. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that on the Amendment Effective Date, after giving effect to this Amendment and the transactions contemplated hereby, (i) no Default or Event of Default shall exist and (ii) all of the representations and warranties contained in the Credit Documents shall be true and correct in all material respects, with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all materials respects as of such specified date). 4. This Amendment shall become effective on the date (the "Amendment Effective Date") when (i) the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile) the same to the Agent and (ii) all fees, costs and expenses owing to the Banks, including without limitations, the fees of White & Case LLP, shall have been paid. 5. This Amendment is limited as specified and shall not constitute a modification, acceptance, consent or waiver of any other provision of the Credit Agreement or any other Credit Document. 6. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterpart when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. * * * IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. AXSYS TECHNOLOGIES, INC. By: /s/Raymond F. Kunzmann ---------------------- Title: Vice President PRECISION AEROTECH, INC. By: /s/Raymond F. Kunzmann ---------------------- Title: Vice President SPEEDRING SYSTEMS, INC. By: /s/Raymond F. Kunzmann ---------------------- Title: Vice President TELETRAC, INC. By: /s/Raymond F. Kunzmann ---------------------- Title: Vice President PARIBAS, Individually and as Agent By: /s/Darryl M. Monasebian ----------------------- Title: Director By: /s/Walter L. Bellingham ----------------------- Title: Vice President IBJ WHITEHALL BANK & TRUST COMPANY By: /s/David Thalmann ----------------------- Title: Director FLEET BANK, N.A. By: /s/Thomas G. Carley ----------------------- Title: Vice President PARIBAS CAPITAL FUNDING LLC By: ----------------------- Title: EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFROMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF AXSYS TECHNOLOGIES, INC. AS OF JUNE 30, 1999 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JUN-30-1999 JUN-30-1999 $88 0 17,654 381 29,156 49,510 28,507 13,133 79,334 20,564 3,876 0 0 41 52,639 79,334 52,114 52,114 37,318 37,318 13,588 59 412 737 0 737 0 0 0 737 0.18 0.18
EX-27.2 4 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF AXSYS TECNOLOGIES INC., AS OF JUNE 30, 1998 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JUN-30-1998 JUN-30-1998 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $63,672 63,672 43,848 43,848 13,637 50 546 5,591 1,063 4,528 65 0 0 4,593 1.09 1.08
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