NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE
MONTHS ENDED
JUNE 30, 2018
AND
2017
(UNAUDITED)
1. Basis of Presentation and Significant Accounting Policies
Nature of Operations and Basis of Presentation
– Amtech Systems, Inc. (the “Company”, “Amtech”, “we”, “our” or “us”) is a global manufacturer of capital equipment, including thermal processing, silicon wafer handling automation, and related consumables used in fabricating solar cells, LED and semiconductor devices. We sell these products to solar cell and semiconductor manufacturers worldwide, particularly in Asia, the United States and Europe.
We serve niche markets in industries that are experiencing rapid technological advances and which historically have been very cyclical. Therefore, future profitability and growth depend on our ability to develop or acquire and market profitable new products and on our ability to adapt to cyclical trends.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly our financial position, results of operations and cash flows. Certain information and note disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the fiscal year ended
September 30, 2017
.
The consolidated results of operations for the
three and nine
months ended
June 30, 2018
, are not necessarily indicative of the results to be expected for the full fiscal year.
Principles of Consolidation
– The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries and subsidiaries in which we have a controlling interest. We report non-controlling interests in consolidated entities as a component of equity separate from our equity. The equity method of accounting is used for investments over which we have a significant influence but not a controlling financial interest. All material intercompany accounts and transactions have been eliminated in consolidation. Effective July 1, 2017, we purchased the non-controlling interest in SoLayTec B.V. (“SoLayTec”), pursuant to which SoLayTec became a wholly-owned subsidiary of Amtech. Beginning July 1, 2017, the non-controlling interest will no longer be reported. Prior amounts have not been restated.
Use of Estimates
– The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
– We review product and service sales contracts with multiple deliverables to determine if separate units of accounting are present. Where separate units of accounting exist, revenue allocated to delivered items is the lower of the relative selling price of the delivered items in the sales arrangement or the portion of the selling price that is not contingent upon performance of the service.
We recognize revenue when persuasive evidence of an arrangement exists; the product has been delivered and title has transferred, or services have been rendered; and the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. For us, this policy generally results in revenue recognition at the following points:
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1.
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For our equipment business, transactions where legal title passes to the customer upon shipment, we recognize revenue upon shipment for those products where the customer’s defined specifications have been met with at least
two
similarly configured systems and processes for a comparably situated customer. Our selling prices may include both equipment and services, i.e., installation and start-up services performed by our service technicians. The equipment and services are multiple deliverables. Certain equipment that has a positive track record of successful installation and customer acceptance are considered to be routine systems. Our recognition of revenue upon delivery of such equipment that has been routinely installed and accepted is equal to the total selling price minus the relative selling price of the undelivered services.
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Where the installation and acceptance of more than
two
similarly configured items of equipment have not become routine, recognition of revenue upon delivery of equipment is limited to the lesser of (i) the total selling price minus the relative selling price of the undelivered services or (ii) the non-contingent amount. Since we defer only those costs directly related to installation, or another unit of accounting not yet delivered, and the portion of the contract price is often considerably greater than the relative selling price of those items, our policy at times will result in deferral of profit that is disproportionate in relation to the deferred revenue. When this is the case, the gross margin recognized in one period will be lower and the gross margin reported in a subsequent period will improve.
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2.
|
For products where the customer’s defined specifications have not been met with at least two similarly configured systems and processes, the revenue and directly related costs are deferred at the time of shipment and later recognized at the time of customer acceptance or when this criterion has been met. We have, on occasion, experienced longer than expected delays in receiving cash from certain customers pending final installation or system acceptance. If some customers refuse to pay the final payment, or otherwise delay final acceptance or installation, the deferred revenue would not be recognized, adversely affecting future cash flows and operating results.
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3.
|
Sales of certain equipment, spare parts and consumables are recognized upon shipment, as there are no post shipment obligations other than standard warranties.
|
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4.
|
Service revenue is recognized upon performance of the services requested by the customer. Service contract revenue is recognized as services are performed over the term of the contract, which generally results in ratable recognition over the period of the contract.
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Deferred Profit
– Revenue deferred pursuant to our revenue policy, net of the related deferred costs, if any, is recorded as deferred profit in current liabilities. The components of deferred profit are as follows, in thousands:
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|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
September 30,
2017
|
Deferred revenues
|
$
|
6,172
|
|
|
$
|
6,822
|
|
Deferred costs
|
2,612
|
|
|
2,741
|
|
Deferred profit
|
$
|
3,560
|
|
|
$
|
4,081
|
|
Shipping Expense
– Shipping expenses of
$0.5 million
for each of the three months ended
June 30, 2018
and
2017
, are included in selling, general and administrative expenses. Shipping expenses of
$2.4 million
and
$1.4 million
for the
nine
months ended
June 30, 2018
and
2017
, respectively, are included in selling, general and administrative expenses.
Research, Development and Engineering Expense
– The table below shows gross research and development expenses and grants earned, in thousands:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Research, development and engineering
|
$
|
2,284
|
|
|
$
|
1,774
|
|
|
$
|
7,102
|
|
|
$
|
5,547
|
|
Grants earned
|
(162
|
)
|
|
(351
|
)
|
|
(807
|
)
|
|
(961
|
)
|
Net research, development and engineering
|
$
|
2,122
|
|
|
$
|
1,423
|
|
|
$
|
6,295
|
|
|
$
|
4,586
|
|
Foreign Currency Transactions and Translation
– We use the U.S. dollar as our reporting currency. Our operations in Europe, China and other countries are primarily conducted in their functional currencies: the Euro, Renminbi, or the local country currency, respectively. Accordingly, assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet dates. Income and expense items are translated at the average exchange rate for each month within the year. The resulting translation adjustments are recorded directly in accumulated other comprehensive income (loss), net of tax - foreign currency translation adjustments as a separate component of stockholders’ equity. Net foreign currency transaction gains/losses, including transaction gains/losses on intercompany balances that are not long-term investments, and non-functional currency cash balances, are reported as a separate component of non-operating (income) expense in our consolidated statements of operations.
Concentrations of Credit Risk
– Our customers consist of solar cell and semiconductor manufacturers worldwide, as well as the lapping and polishing marketplace. Financial instruments that potentially subject us to significant concentrations of credit risk
consist principally of cash and trade accounts receivable. Credit risk is managed by performing ongoing credit evaluations of the customers’ financial condition, by requiring significant deposits where appropriate, and by actively monitoring collections. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness, and country of domicile.
As of
June 30, 2018
, two customers individually represented
23%
and
14%
of accounts receivable. As of
September 30, 2017
, two customers individually represented
24%
and
11%
of accounts receivable.
We maintain our cash, cash equivalents and restricted cash in multiple financial institutions. Balances in the United States, which account for approximately
60%
and
45%
of total cash balances as of
June 30, 2018
and
September 30, 2017
, respectively, are primarily invested in U.S. Treasuries or are in financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). The remainder of our cash is maintained with financial institutions with reputable credit ratings in The Netherlands, France, China, the United Kingdom, Singapore and Malaysia.
Refer to Note 9 to Condensed Consolidated Financial Statements for information regarding major customers, foreign sales and revenue in other countries subject to fluctuation in foreign currency exchange rates.
Impact of Recently Issued Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “Compensation - Stock Compensation (Topic 718).” ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016 and for the interim periods therein. This new standard increases volatility in the statement of operations by requiring all excess tax benefits and deficiencies to be recognized as discrete income tax benefits or expenses in the statement of operations in the period in which they occur. We adopted the new standard as of October 1, 2017, and prospectively applied the provisions in this guidance requiring recognition of excess tax benefits and deficits in the statement of operations. Also, as a result of the adoption of the new standard, we made an accounting policy election to recognize forfeitures as they occur and no longer estimate expected forfeitures. The provisions in this guidance requiring the use of a modified retrospective transition method would have required us to record a cumulative-effect adjustment in retained earnings as of October 1, 2017. On the basis of immateriality, we recorded such cumulative-effect adjustment as stock-based compensation in the first quarter of 2018 rather than adjusting retained earnings. Lastly, we applied the provisions of this guidance relating to classification on the statement of cash flows retrospectively with no material effect on our cash flows.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity may choose to adopt the new standard either retrospectively or through a cumulative effect adjustment as of the start of the first period for which it applies the new standard. We are in the process of determining the effect that the adoption will have on our consolidated financial statements. Based on our analysis to date, we have reached the following tentative conclusions regarding the new standard and how we expect it to affect our consolidated financial statements and related disclosures:
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•
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We expect to adopt the standard as of October 1, 2018, the start of our first quarter of fiscal 2019.
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•
|
We believe that since substantially all of our revenue is contractual, substantially all of our revenue falls within the scope of ASU 2014-09, as amended.
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•
|
We expect to use the cumulative effect transition method. Such method provides that upon applying the new standard, the cumulative effect from prior periods is recognized in our consolidated balance sheet as of the date of adoption, including an adjustment to retained earnings. Prior periods will not be retrospectively adjusted.
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•
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As discussed in our revenue recognition policy above, we currently have three categories of equipment revenue: routine equipment, non-routine equipment and new technology. Our routine equipment revenue is generally recognized upon shipment with a deferral equal to the relative selling price of the undelivered services (i.e. installation) which is typically recognized upon customer acceptance. Deferrals for non-routine equipment are generally equal to the contractual non-contingent amount. For new technology, all revenue and direct costs are deferred at the time of shipment and later recognized at the time of customer acceptance or when this criteria has been met. We have determined that under ASU 2014-09, our policy for deferrals related to non-routine equipment will no longer apply. Therefore, our new revenue recognition policy will consist of only two categories: routine equipment and new technology. Routine equipment revenue will continue to be recognized at shipment with a deferral equal to the relative selling price of the undelivered services
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(i.e. installation) which is recognized upon customer acceptance. Revenue and direct costs for new technology will continue to be deferred at the time of shipment and later recognized at the time of customer acceptance or when this criteria has been met. The elimination of the non-routine category affects a small percentage of our equipment sales (less than
5%
of fiscal year 2017 revenue). In most contracts, this change will result in higher revenue recognized at shipment and lower revenue deferrals, which are recognized upon customer acceptance.
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•
|
Sales commissions on contracts with performance periods that exceed one year will be recorded as an asset and amortized to expense over the related contract performance period in proportion to the revenue recognized as opposed to being expensed in the period the transaction is generated.
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•
|
We expect that our disclosures in our notes to our consolidated financial statements related to revenue recognition will be significantly expanded under the new standard.
|
Our analysis and evaluation of the new standard will continue through its effective date in the first quarter of fiscal 2019. A substantial amount of work has been completed, and findings and progress to date have been reported to management and the Audit Committee of the Board of Directors (the “Board”). Although we currently believe that the changes overall resulting from the adoption of the new standard will not lead to operating trends that are materially different than we reported in prior years, our evaluation of the effects is still being finalized. The quantification of the effects of the new standard, including the items discussed above, is a significant undertaking. Currently, we continue to work on our estimate of the cumulative effect adjustment from prior periods that will be recognized in our consolidated balance sheet as of the date of adoption as an adjustment to retained earnings. This estimate frequently changes as we continue to ship equipment and receive customer acceptances which result in revenue recognition and deferrals in the current fiscal year. Further, we will be required to implement necessary changes in our processes, accounting systems and internal controls in conjunction with applying the new standard.
There have been no other material changes or additions to the recently issued accounting standards other than those previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K, as amended, for the year ended
September 30, 2017
that affect or may affect our financial statements.
2. Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. In the case of a net loss, diluted earnings per share is calculated in the same manner as basic EPS.
For the
three and nine
months ended
June 30, 2018
, options for
679,000
and
428,000
weighted average shares, respectively, were excluded from the diluted EPS calculations because they were anti-dilutive. For the
three and nine
months ended
June 30, 2017
, options for
1,152,000
and
1,649,000
weighted average shares, respectively, were excluded from the diluted EPS calculations because they were anti-dilutive. These shares could become dilutive in the future.
The following table outlines basic and diluted EPS, in thousands, except per share amounts:
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Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Basic Income Per Share Computation
|
|
|
|
|
|
|
|
Net income attributable to Amtech Systems, Inc.
|
$
|
4,971
|
|
|
$
|
3,287
|
|
|
$
|
14,258
|
|
|
$
|
1,812
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
Common stock
|
14,925
|
|
|
13,242
|
|
|
14,867
|
|
|
13,203
|
|
Basic income per share attributable to Amtech shareholders
|
$
|
0.33
|
|
|
$
|
0.25
|
|
|
$
|
0.96
|
|
|
$
|
0.14
|
|
Diluted Income Per Share Computation
|
|
|
|
|
|
|
|
Net income attributable to Amtech Systems, Inc.
|
$
|
4,971
|
|
|
$
|
3,287
|
|
|
$
|
14,258
|
|
|
$
|
1,812
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
Common stock
|
14,925
|
|
|
13,242
|
|
|
14,867
|
|
|
13,203
|
|
Common stock equivalents (1)
|
166
|
|
|
156
|
|
|
314
|
|
|
85
|
|
Diluted shares
|
15,091
|
|
|
13,398
|
|
|
15,181
|
|
|
13,288
|
|
Diluted income per share attributable to Amtech shareholders
|
$
|
0.33
|
|
|
$
|
0.25
|
|
|
$
|
0.94
|
|
|
$
|
0.14
|
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(1) The number of common stock equivalents is calculated using the treasury method and the average market price during the period.
3. Inventory
The components of inventories are as follows, in thousands:
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|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
September 30,
2017
|
Purchased parts and raw materials
|
$
|
13,995
|
|
|
$
|
14,789
|
|
Work-in-process
|
5,312
|
|
|
11,078
|
|
Finished goods
|
3,283
|
|
|
4,343
|
|
|
$
|
22,590
|
|
|
$
|
30,210
|
|
4. Equity and Stock-Based Compensation
Stock-based compensation expense was
$0.2 million
and
$0.4 million
in the three months ended
June 30, 2018
and
2017
, respectively, and was
$0.6 million
and
$1.0 million
in the
nine
months ended
June 30, 2018
and
2017
, respectively, and was included in selling, general and administrative expenses.
The following table summarizes our stock option activity during the
nine
months ended
June 30, 2018
:
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|
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Options
|
|
Weighted Average Exercise Price
|
Outstanding at beginning of period
|
1,560,441
|
|
|
$
|
7.95
|
|
Granted
|
44,000
|
|
|
7.40
|
|
Exercised
|
(276,029
|
)
|
|
6.72
|
|
Forfeited
|
(74,368
|
)
|
|
16.73
|
|
Outstanding at end of period
|
1,254,044
|
|
|
$
|
7.68
|
|
|
|
|
|
Exercisable at end of period
|
1,012,503
|
|
|
$
|
7.93
|
|
Weighted average fair value of options granted during the period
|
$
|
4.20
|
|
|
|
The fair value of options was estimated at the applicable grant date using the Black-Scholes option pricing model with the following assumptions:
|
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|
|
Nine Months Ended June 30, 2018
|
|
Risk free interest rate
|
3%
|
|
Expected life
|
6 years
|
|
Dividend rate
|
0%
|
|
Volatility
|
59%
|
|
On March 28, 2018, we announced that our Board approved a stock repurchase program, pursuant to which we may repurchase up to
$4 million
of our outstanding common stock, par value
$0.01
per share, over a
one
-year period, commencing on April 2, 2018. Repurchases under the program will be made in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in compliance with the rules and regulations of the SEC; however, we have no obligation to repurchase shares and the timing, actual number, and value of shares to be repurchased is subject to management’s discretion and will depend on the Company’s stock price and other market conditions. Our Board may terminate the repurchase program at any time while it is in effect. We intend to retire any repurchased shares. There were
no
shares repurchased during the quarter ended
June 30, 2018
.
5. Income Taxes
The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, losses in certain jurisdictions and discrete items are treated separately.
Deferred tax assets and liabilities reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We record a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Our expectations regarding realization of our deferred tax assets is based upon the weight of all available evidence, including such factors as our recent earnings history, expected future taxable income and available tax planning strategies. In prior periods, we established valuation allowances on substantially all net deferred tax assets, after considering all of the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, and determined it is not more likely than not that these assets will be realized.
The Tax Cuts and Jobs Act (the “Act”), which was enacted on December 22, 2017, permanently reduces the U.S. federal corporate tax rate from 35% to 21%, eliminates corporate Alternative Minimum Tax, modifies rules for expensing capital investment, and limits the deduction of interest expense for certain companies. The Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low-tax foreign earnings, and new measures to curtail tax base erosion and promote U.S. production.
As a result of the Act, the statutory rate applicable to our fiscal year ending September 30, 2018 will be
24.5%
, based on a fiscal year blended rate calculation. Accounting Standard Codification (“ASC”) 740 requires filers to record the effect of tax law changes in the period enacted. However, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), that permits filers to record provisional amounts during a measurement period ending no later than one year from the date of enactment. In the first quarter of fiscal 2018, we re-measured the applicable deferred tax assets based on the rates at which they are expected to reverse. We adjusted our gross deferred tax assets and liabilities and recorded a corresponding offset to our full valuation allowance against our net deferred tax assets, which resulted in minimal net effect to our provision for income taxes and effective tax rate. We have not made any other provisional adjustments as a result of the Act.
The Act includes a one-time mandatory repatriation transition tax on certain net accumulated earnings and profits of our foreign subsidiaries. We are still in the process of analyzing the earnings and profits and tax pools of our foreign subsidiaries to reasonably estimate the effects of the one-time transition tax and, therefore, have not recorded a provisional impact. The tax expense impact of the one-time transition tax to be determined may be partially or fully offset by a release of valuation allowance for the utilization of existing net operating losses and tax credits that may reduce the amount of related taxes payable. We expect the accounting for this aspect of the Act to be complete by the end of fiscal 2018. As of
June 30, 2018
, consistent with historical conclusions, our cash balances held in foreign locations are expected to be permanently reinvested outside the United States as the impact of the Act on our current position is not yet fully understood and is still under evaluation.
We are assessing the applicability of the other provisions in the Act and expect to complete this analysis by the end of fiscal 2018.
For the
three and nine
months ended
June 30, 2018
, we recorded income tax expense of
$1.4 million
and an income tax benefit of
$0.2 million
, respectively. Over the last several months, we have undertaken an effort to resolve an uncertain tax position in specific tax jurisdictions. We have worked with tax experts in the local jurisdictions and in the U.S. to review the transactions and tax laws that resulted in this uncertain tax position, as well as the related interest and penalties. At the conclusion of this review, we determined that the Company is not liable for withholding taxes nor the associated interest and penalties in one of the jurisdictions. Therefore, during the second quarter of fiscal 2018 we reversed the accrued tax, interest and penalties relating to this jurisdiction, which total
$3.1 million
, which was partially offset by income tax expense relating to our consolidated pre-tax income.
The difference in our effective tax rate from the U.S. statutory rate primarily reflects the impact of the resolution of the uncertain tax position discussed above, as well as a mix of domestic and international pre-tax income and valuation allowance. In 2017 and in fiscal 2018, we reversed a portion of the valuation allowance related to net operating loss carryforwards which we have determined will be utilized against net operating income in the current year.
We classify all of our uncertain tax positions as income taxes payable long-term. At
June 30, 2018
and
September 30, 2017
, the total amount of unrecognized tax benefits was approximately
$1.2
million and
$4.2
million, respectively. Income taxes payable long-term includes other items, primarily withholding taxes that are not due until the related intercompany service fees are paid.
We classify interest and penalties related to unrecognized tax benefits as income tax expense. As of
June 30, 2018
and
September 30, 2017
, we had an accrual for potential interest and penalties of approximately
$0.6
million and
$2.6
million, respectively, classified with income taxes payable long-term.
Amtech and one or more of our subsidiaries file income tax returns in The Netherlands, Germany, France, China and other foreign jurisdictions, as well as in the U.S. and various states in the U.S. We have not signed any agreements with the Internal Revenue Service, any state or foreign jurisdiction to the extend the statute of limitations for any fiscal year. As such, the number of open years is the number of years dictated by statute in each of the respective taxing jurisdictions, which generally is from
3
to
5
years.
6. Commitments and Contingencies
Purchase Obligations
– As of
June 30, 2018
, we had unrecorded purchase obligations in the amount of
$14.6 million
compared to
$34.4 million
as of
September 30, 2017
. These purchase obligations consist of outstanding purchase orders for goods and services. While the amount represents purchase agreements, the actual amounts to be paid may be less in the event that any agreements are renegotiated, canceled or terminated.
Development Projects
– In fiscal 2014, our wholly owned subsidiary, Tempress Systems, Inc. (“Tempress”), entered into an agreement with the Energy Research Centre of the Netherlands (“ECN”), a Netherlands government-sponsored research institute, for a joint research and development project. Under the terms of the agreement, Tempress sold an ion implanter (“Equipment”) to ECN for
$1.4
million. Both Tempress and ECN are performing research and development projects utilizing the Equipment at the ECN facilities. Each party to the agreement will have
100%
rights to the results of the projects developed separately by the individual parties. Any results co-developed will be jointly owned. Tempress met its requirement to contribute
$1.4 million
to the project in the form of installation of the Equipment, acceptance testing, project meeting attendance, training, parts, and service, including keeping the Equipment in good condition and repair for the first
two
years of the agreement prior to fiscal 2017.
EPA Accrual
– As a result of the BTU International, Inc. (“BTU”) acquisition in January 2015, we assumed BTU’s proportional responsibility for clean-up costs at a Superfund site. As an equipment manufacturer, BTU generated and disposed of small quantities of solid waste that were considered hazardous under Environment Protection Agency (“EPA”) regulations. Because BTU historically used a waste disposal firm that disposed of the solid waste at a site that the EPA designated as a Superfund site, BTU was named by the EPA as one of the entities responsible for a portion of the expected clean-up costs. Based on our proportional responsibility, as negotiated with and agreed to by the EPA, our liability related to this matter is less than
$0.1
million, which is included in Other Accrued Liabilities in the Condensed Consolidated Balance Sheets as of
June 30, 2018
and
September 30, 2017
. In accordance with the agreement, BTU established a letter of credit for
$0.2
million to the benefit of the EPA for potential cash payments as settlements for our proportional liability, which is included in Restricted Cash in the Condensed Consolidated Balance Sheets as of
June 30, 2018
and
September 30, 2017
.
Legal Proceedings
– We are defendants from time to time in actions for matters arising out of our business operations. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made for disclosure. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any
probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the resolution of a legal proceeding. Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
Employment Contracts
– We have employment contracts with, and severance plans covering, certain officers and management employees under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. If severance payments under the current employment agreements or plan payments were to become payable, the severance payments would generally range from
twelve
to
thirty-six
months of salary.
7. Shareholder Rights Plan
In December 2008, Amtech and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agent”), entered into an Amended and Restated Rights Agreement (the “Restated Rights Agreement”) which amended and restated the terms governing the previously authorized shareholder rights (each a “Right”) to purchase fractional shares of our Series A Participating Preferred Stock (“Series A Preferred”) currently attached to each of our outstanding shares of common stock, par value
$0.01
per share. As amended, each Right entitles the registered holder to purchase from us
one one-thousandth
of a share of Series A Preferred at an exercise price of
$51.60
(the “Exercise Price”), subject to adjustment. The Rights will expire
10
years after issuance and will be exercisable if (a) a person or group becomes the beneficial owner of
15%
or more of our common stock or (b) a person or group commences a tender or exchange offer that would result in the offeror beneficially owning
15%
or more of our common stock. The Final Expiration Date (as defined in the Restated Rights Agreement) is December 14, 2018.
In October 2015, we entered into a Second Amended and Restated Rights Agreement (the “Second Restated Rights Agreement”) with the Rights Agent, which expands the definition of Exempted Person in the Restated Rights Agreement to include any person that our Board, in its sole and absolute discretion, exempts from becoming an Acquiring Person (as defined in the Restated Rights Agreement) under the Second Restated Rights Agreement. A person deemed an Exempted Person under the Second Restated Rights Agreement cannot trigger any of the Rights provided therein so long as such Exempted Person complies with the terms and conditions by which the Board approved such exemption from the Restated Rights Agreement.
As previously disclosed, in October 2015, we entered into a Letter Agreement (the “Agreement”) by and between Amtech and certain shareholders of Amtech who jointly file (the “Joint Filers”) under Section 13 of the Securities Exchange Act of 1934, as amended. One of the Joint Filers became a member of our Board after the Agreement was approved by the Board. The Agreement permits the Joint Filers, pursuant to the Second Restated Rights Agreement, to individually acquire shares of common stock of Amtech that would, in the aggregate, bring the Joint Filers’ collective ownership to no more than
19.9%
of our issued and outstanding common stock at any time. In the event the Joint Filers’ collective ownership at any time exceeds
19.9%
of our issued and outstanding shares of common stock, we are entitled to specific performance and all other remedies entitled to us at law or equity, among others. Our Board approved the Agreement and transactions contemplated thereunder, and has the sole authority to terminate the Agreement at any time.
|
|
8.
|
Business Segment Information
|
Our
three
reportable segments are as follows:
Solar
–
We are a leading supplier of thermal processing systems, including related automation, parts and services, to the solar/photovoltaic industry and also offer PECVD (plasma-enhanced chemical vapor deposition) equipment to the global solar market.
Semiconductor
–
We design, manufacture, sell and service thermal processing equipment and related controls for use by leading semiconductor manufacturers, and in electronics, automotive and other industries.
Polishing
–
We produce consumables and machinery for lapping (fine abrading) and polishing of materials, such as sapphire substrates, optical components, silicon wafers, numerous types of crystal materials, ceramics and metal components. We also refer to our Polishing segment as “LED/SiC” (silicon carbide).
Information concerning our business segments is as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net Revenues:
|
|
|
|
|
|
|
|
Solar *
|
$
|
14,134
|
|
|
$
|
28,981
|
|
|
$
|
75,929
|
|
|
$
|
56,960
|
|
Semiconductor
|
23,472
|
|
|
15,951
|
|
|
60,945
|
|
|
45,097
|
|
Polishing
|
3,594
|
|
|
2,828
|
|
|
10,720
|
|
|
7,782
|
|
|
$
|
41,200
|
|
|
$
|
47,760
|
|
|
$
|
147,594
|
|
|
$
|
109,839
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
Solar *
|
$
|
(85
|
)
|
|
$
|
2,991
|
|
|
$
|
3,364
|
|
|
$
|
90
|
|
Semiconductor
|
3,861
|
|
|
2,250
|
|
|
9,122
|
|
|
6,013
|
|
Polishing
|
938
|
|
|
738
|
|
|
3,153
|
|
|
1,705
|
|
Non-segment related
|
(1,778
|
)
|
|
(2,008
|
)
|
|
(4,872
|
)
|
|
(5,420
|
)
|
|
$
|
2,936
|
|
|
$
|
3,971
|
|
|
$
|
10,767
|
|
|
$
|
2,388
|
|
* The financial statement of business units included in the Solar segment include some sales of equipment and parts to the semiconductor, silicon wafer and MEMS industries, comprising less than
25%
of the Solar segment revenue.
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
September 30,
2017
|
Identifiable Assets:
|
|
|
|
Solar
|
$
|
59,726
|
|
|
$
|
97,999
|
|
Semiconductor
|
60,048
|
|
|
57,177
|
|
Polishing
|
6,476
|
|
|
5,078
|
|
Non-segment related
|
36,191
|
|
|
31,369
|
|
|
$
|
162,441
|
|
|
$
|
191,623
|
|
Non-segment related assets include cash, property and other assets.
Goodwill and other long-lived assets
We review our long-lived assets, including goodwill, for impairment at least annually in our fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Additional information on impairment testing of long-lived assets, intangible assets and goodwill can be found in Note 1 of our Annual Report on Form 10-K, as amended, for the year ended
September 30, 2017
.
9. Major Customers and Foreign Sales
During the
nine
months ended
June 30, 2018
, one customer individually represented
29%
of our net revenues. No other customer represented greater than
10%
of net revenues. During the
nine
months ended
June 30, 2017
, two customers individually represented
18%
and
11%
of our net revenues.
Our net revenues were to customers in the following geographic regions:
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2018
|
|
2017
|
United States
|
12
|
%
|
|
13
|
%
|
Other
|
1
|
%
|
|
1
|
%
|
Total North America
|
13
|
%
|
|
14
|
%
|
China
|
54
|
%
|
|
43
|
%
|
Malaysia
|
5
|
%
|
|
11
|
%
|
Taiwan
|
6
|
%
|
|
10
|
%
|
Other
|
5
|
%
|
|
8
|
%
|
Total Asia
|
70
|
%
|
|
72
|
%
|
Germany
|
8
|
%
|
|
5
|
%
|
Other
|
9
|
%
|
|
9
|
%
|
Total Europe
|
17
|
%
|
|
14
|
%
|
|
100
|
%
|
|
100
|
%
|
10. Sale of Investment
Effective June 29, 2018, we sold our remaining
15%
ownership interest in Kingstone Technology Hong Kong Limited (“Kingstone Hong Kong”) to the majority owner for approximately
$5.7 million
. We recognized a gain of approximately
$2.9 million
, which is reported as gain on sale of other assets in our Consolidated Statements of Operations for the
three and nine
months ended
June 30, 2018
. We recorded a note receivable of
$5.7 million
. The note is due in August 2018, and is, therefore, recorded as a current asset in our Consolidated Balance Sheet as of
June 30, 2018
. Upon collection of the note, Kingstone Hong Kong and its owner will no longer be related parties of Amtech.
11. Subsequent Event
In July 2018, we established a restructuring plan related to our operations in the Netherlands, which are part of our Solar operating segment (the “Plan”). The goal of the Plan is to reduce operating costs and better align our workforce with the current needs of our business and enhance our competitive position for long-term success. Once fully implemented, we expect the Plan to reduce operating costs by approximately
$3.0 million
on an annualized basis, although specific details of the Plan remain under development and subject to change. Under the Plan, we will reduce our Solar workforce by approximately
35-40
employees (approximately
20%
). The affected employees are covered by a collective bargaining agreement, which defines the amount due to employees in the event of involuntary termination. We expect to incur approximately
$0.6 million
to
$0.8 million
of one-time termination costs in the fourth quarter of fiscal 2018. It is expected that these efforts will be completed over the next six to eight months.