NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED
DECEMBER 31, 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 leading, global manufacturer of capital equipment, including thermal processing and wafer handling automation, and related consumables used in fabricating semiconductor devices, light-emitting diodes, or LEDs, silicon carbide (SiC) and silicon power chips and solar cells. We sell these products to semiconductor and solar cell 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 for the fiscal year ended
September 30, 2018
.
The consolidated results of operations for the
three
months ended
December 31, 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. All significant intercompany balances and transactions have been eliminated in consolidation.
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.
Reclassifications
– Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. These reclassifications had no effect on the previously reported Consolidated Financial Statements for any period.
Shipping Expense
– Shipping expenses of
$0.5 million
and
$1.2 million
for the three months ended
December 31, 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:
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
2018
|
|
2017
|
Research, development and engineering
|
$
|
2,129
|
|
|
$
|
2,290
|
|
Grants earned
|
(183
|
)
|
|
(299
|
)
|
Net research, development and engineering
|
$
|
1,946
|
|
|
$
|
1,991
|
|
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
December 31, 2018
, one Semiconductor segment customer individually represented
16%
of accounts receivable. As of
September 30, 2018
, one Solar segment customer individually represented
23%
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
62%
and
65%
of total cash balances as of
December 31, 2018
and
September 30, 2018
, 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. We maintain cash in bank accounts in amounts which at times may exceed federally insured limits. We have not experienced any losses on such accounts.
Refer to Note 10 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
See Note 2 for information on our adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), which amends the existing accounting standards for revenue recognition. The adoption of ASC 606 did not have a material effect on our results of operations.
In November 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-18, “Statement of Cash Flows: Restricted Cash.” The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash and require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. We adopted this standard retrospectively effective October 1, 2018, and, accordingly, to conform to the current period presentation, we reclassified our restricted cash to be included in the total of cash and cash equivalents presented at the bottom of our consolidated statements of cash flows for both the beginning and ending periods for our three months ended December 31, 2018 and 2017. As a result, the amount of the change in our net cash provided by operating activities no longer separately shows the change in restricted cash for either period.
The following table summarizes the effects related to the adoption of ASU 2016-18 for the
three
months ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
As reported
|
|
As adjusted
|
Net cash provided by (used in) operating activities
|
$
|
263
|
|
|
$
|
(14,622
|
)
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
|
$
|
295
|
|
|
$
|
453
|
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
|
$
|
1,575
|
|
|
$
|
(13,152
|
)
|
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
|
$
|
51,121
|
|
|
$
|
75,761
|
|
Cash, Cash Equivalents and Restricted Cash, End of Period
|
$
|
52,696
|
|
|
$
|
62,609
|
|
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 for the year ended
September 30, 2018
that affect or may affect our financial statements.
2. Contracts with Customers
We are a leading, global manufacturer of capital equipment, including thermal processing and wafer handling automation, and related consumables used in fabricating semiconductor devices, light-emitting diodes, or LEDs, silicon carbide (“SiC”) and silicon power chips and solar cells. We sell these products to semiconductor and solar cell manufacturers worldwide, particularly in Asia, the United States and Europe. We operate in
three
reportable business segments, based primarily on the industry they serve: (i) Semiconductor, (ii) Solar and (iii) Polishing. In our Semiconductor segment, we supply thermal processing equipment, including solder reflow ovens, diffusion furnaces, and customer high-temp belt furnaces for use by semiconductor and electronics assembly manufacturers. In our Polishing segment, we produce substrate consumables and machinery for lapping (fine abrading) and polishing of materials, such as silicon wafers for semiconductor products, sapphire wafers for LED applications, compound
substrates, like silicon carbide wafers, for power device applications. In our Solar segment, we supply thermal processing systems, including diffusion furnace, plasma-enhanced chemical vapor deposition (“PECVD”) system, atomic layer deposition (“ALD”) system, and related automation, to the photovoltaic solar industry.
Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a product or service to the customer. The transaction price of a contract is allocated to each distinct performance obligation based upon the relative standalone selling price for each performance obligation and is recognized as revenue upon satisfaction of the performance obligation.
We implemented ASC 606 as of October 1, 2018 using the modified retrospective approach with no cumulative effect adjustment recorded to the opening balance of accumulated deficit. Prior period amounts have not been restated and continue to be reported under the accounting standards in effect for those periods. Upon adoption of ASC 606, we changed our accounting policy for the installation performance obligation included in all Solar segment system sales. Previously under ASC 605, we deferred revenue for the fair value of the installation and recognized it when earned. Under ASC 606, we will no longer record a deferral but will continue to recognize the revenue when earned. This change in policy does not result in a change in the amount of revenue recorded; instead, it removes the installation liability from our balance sheet.
To achieve the core principle of the standard, we apply the following five steps:
1)
Identify the contract with the customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
2)
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract to the customer. To the extent a contract includes multiple promised goods and services, the Company must apply judgment to determine whether promised goods and services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.
Our equipment sales consist of multiple performance obligations, including the system itself and obligations that are not delivered simultaneously with the system, primarily installation services. Customers who purchase new systems are provided an assurance-type warranty, generally for periods of
12
to
24
months. In accordance with ASC 606, assurance-type warranties are not considered a performance obligation.
3)
Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. The transaction price for equipment sales is adjusted for estimated product returns that we expect to occur under our return policy based upon historical return rates, which have historically been immaterial. In rare cases when the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes.
The transaction price for all transactions is based on the price reflected in the individual customer’s purchase order. Variable consideration has not been identified as a significant component of the transaction price for any of our transactions.
The Company has determined that most contracts will be completed in less than
one
year. For those transactions where all performance obligations will be satisfied within one year or less, the Company is applying the practical expedient outlined in ASC 606-10-32-18. This practical expedient allows the Company not to adjust promised consideration for the effects of a significant financing component if the Company expects at contract inception the period between when the Company transfers the promised
good or service to a customer and when the customer pays for that good or service will be one year or less. For those transactions that are expected to be completed after one year, the Company has assessed that there are no significant financing components because any difference between the promised consideration and the cash selling price of the good or service is for reasons other than the provision of financing.
4)
Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple distinct performance obligations require an allocation of the transaction price to each distinct performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to each distinct performance obligation or to a distinct service that forms part of a single performance obligation.
Where required, the Company determines the standalone selling price (“SSP”) for each performance obligation based on consideration of both market and Company specific factors, including the selling price and profit margin for similar products.
For those contracts that contain multiple performance obligations (primarily system sales requiring installation services), the Company must determine the SSP. To determine the SSP for labor related performance obligations (such as the labor component of installation), the Company used directly observable inputs based on the standalone sale prices for these services. The Company used a cost plus margin approach in determining the SSP for any materials related performance obligations (e.g., system add-ons, spare parts, and systems).
5)
Recognize revenue when or as the Company satisfied a performance obligation
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either 1) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, 2) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or 3) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer. Examples of control are using the asset to produce goods or services, enhance the value of other assets, settle liabilities, and holding or selling the asset. For over time recognition, ASC 606 requires the Company to select a single revenue recognition method for the performance obligation that faithfully depicts the Company’s performance in transferring control of the goods and services. The guidance allows entities to choose between two methods to measure progress toward complete satisfaction of a performance obligation:
Output methods - recognize revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract (e.g., surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed, and units of produced or units delivered); and
Input methods - recognize revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation.
Equipment and related product revenues (e.g., furnace systems, system add-ons, machinery, consumables and spare parts) are recognized at a point in time, when they are shipped or delivered, depending on contractual terms.
For installation services, revenue is recognized at a point in time, once the installation of the tool is complete. The nature of the installation services are such that the customer does not simultaneously receive and consume the benefits provided by the entity’s performance, nor does performance of installation services create or enhance an asset that the customer controls. Installation services do not create an asset with an alternative use to the entity, and the entity does not have an enforceable right to payment for performance completed to date.
Maintenance and service contracts are recognized over time. Progress in the satisfaction of these performance obligations will be measured using an input method of either time elapsed in the case of fixed period contracts, or labor hours expended, in the case of project-based contracts.
Cost to Obtain and Fulfill a Contract with a Customer
The Company recognizes an asset related to incremental costs of obtaining a contract with a customer if the Company expects to recover those costs. The Company will recognize an asset from costs incurred to fulfill a contract only if such costs relate directly to a contract that the entity can specifically identify, the costs generate or enhance resources of the Company that will be used in satisfying performance obligations in the future, and the costs are expected to be recovered. Any assets recognized related to costs to obtain or fulfill a contract are amortized to selling, general and administrative expense on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.
In substantially all of our business transactions, we incur incremental costs to obtain contracts with customers, in the form of sales commissions. We maintain a commission program which awards our sales representatives for system sales and our employees for system sales and other individual goals. Under ASC 606, an asset shall be amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. However, ASC 606 provides a practical expedient to allow for the recognition of commission expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Based on the nature of the Company’s contracts with customers, we have elected this practical expedient and will expense all commissions as incurred based upon the expectation that the amortization period would be
one
year or less.
Revenue Categories used by Management
Management reviews disaggregated revenue at the operating segment level. Revenue-generating transactions vary between our operating segments due to several factors. For example, installation for our Solar systems is a longer process due to the complexities of the chemicals and equipment involved. Additionally, lead times are longer in our Solar operating segment than in our Semiconductor or Polishing segments. Most of the revenue for our Polishing segment results from the sale of consumables, rather than equipment sales. These consumables have a much shorter production period than equipment produced by our other operating segments. Due to these variations between operating segments, management determined that disaggregated revenue by segment sufficiently depicts how economic factors affect the nature, amount, timing and uncertainty of our revenue and cash flows.
Contract assets and liabilities
Contract assets consist of amounts the Company is not legally able to invoice but has completed the related performance obligation. These amounts generally arise from variances between the contractual payment terms and the transaction price assigned to the open performance obligations (e.g., the Company has recognized revenue in an amount greater than the amount that is billable under the contract). Contract assets are reflected in current assets on the consolidated balance sheets.
Contract liabilities are reflected in current liabilities on the consolidated balance sheets as all performance obligations are expected to be satisfied within the next
12
months. Contract liabilities include customer deposits and deferred profit. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations. This amount relates primarily to prepayments for system sales and installation services.
Solar system transactions have payment terms that generally require a down payment (
20%
-
30%
of contract price), followed by a second payment due upon shipment of the system (
40%
-
50%
of contract price), with a final payment due upon acceptance of the installation (
10%
-
20%
of contract price). Semiconductor system transactions have payment terms that generally require a payment due upon shipment of the system (
80%
-
90%
of contract price) and a final payment due upon installation or acceptance.
The components of contract assets are as follows, in thousands:
|
|
|
|
|
|
December 31,
2018
|
Unbilled accounts receivable
|
$
|
4,601
|
|
Contract assets
|
$
|
4,601
|
|
The components of contract liabilities are as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
September 30,
2018
|
Customer deposits
|
$
|
11,065
|
|
|
$
|
15,298
|
|
Deferred revenues
|
3,547
|
|
|
5,616
|
|
Deferred costs
|
(2,376
|
)
|
|
(2,545
|
)
|
Contract liabilities
|
$
|
12,236
|
|
|
$
|
18,369
|
|
For the three months ended
December 31, 2018
, we recognized previously deferred gross profit of
$0.5 million
.
3. Restructuring
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 solar 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. 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 notice periods and amount due to employees in the event of involuntary termination.
The Company and its Chief Executive Officer and President, Fokko Pentinga, agreed on a transition of leadership, pursuant to which Mr. Pentinga stepped down as the Chief Executive Officer, President and a director of the Company effective December 6, 2018 (the “Effective Date”). In connection with his departure, Mr. Pentinga and the Company entered into a Separation Agreement and General Release of all Claims, dated November 28, 2018 (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Pentinga will receive the following benefits:
|
|
•
|
a severance payment of
$864,000
in gross, less all customary and appropriate income and employment taxes;
|
|
|
•
|
a payment of
$458,500
for all other amounts due him;
|
|
|
•
|
all of his time-based stock options (the “Options”), became fully vested and immediately exercisable. Mr. Pentinga has the right to exercise Options with an exercise price of
$7.01
or less until December 31, 2019. The remaining Options are exercisable during the
90
-day period following the Effective Date; and
|
|
|
•
|
certain other benefits as set forth in the Separation Agreement.
|
The table below details the activity for
three
months ended
December 31, 2018
related to the above restructuring actions and the outstanding obligations as of
December 31, 2018
, in thousands:
|
|
|
|
|
|
Three Months Ended December 31, 2018
|
Balance at September 30, 2018
|
$
|
865
|
|
Severance expense, net of adjustments
|
874
|
|
Cash payments
|
(275
|
)
|
Balance at December 31, 2018
|
$
|
1,464
|
|
4. 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
months ended
December 31, 2018
and
December 31, 2017
, options for
1,198,000
and
120,000
weighted average shares, respectively, were excluded from the diluted EPS calculations because they were anti-dilutive. These shares could become dilutive in the future.
A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
Net (loss) income attributable to Amtech Systems, Inc.
|
$
|
(2,372
|
)
|
|
$
|
6,452
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted-average shares used to compute basic EPS
|
14,220
|
|
|
14,781
|
|
Common stock equivalents (1)
|
—
|
|
|
517
|
|
Weighted-average shares used to compute diluted EPS
|
14,220
|
|
|
15,298
|
|
|
|
|
|
Basic (loss) income per share attributable to Amtech shareholders
|
$
|
(0.17
|
)
|
|
$
|
0.44
|
|
Diluted (loss) income per share attributable to Amtech shareholders
|
$
|
(0.17
|
)
|
|
$
|
0.42
|
|
(1) The number of common stock equivalents is calculated using the treasury method and the average market price during the period.
5. Inventory
The components of inventories are as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
September 30,
2018
|
Purchased parts and raw materials
|
$
|
14,840
|
|
|
$
|
15,896
|
|
Work-in-process
|
6,311
|
|
|
6,067
|
|
Finished goods
|
2,657
|
|
|
2,747
|
|
|
$
|
23,808
|
|
|
$
|
24,710
|
|
6. Equity and Stock-Based Compensation
Stock-based compensation expense was
$0.2 million
and
$0.3 million
in the three months ended
December 31, 2018
and
2017
, respectively, and was included in selling, general and administrative expenses.
The following table summarizes our stock option activity during the
three
months ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average Exercise Price
|
Outstanding at beginning of period
|
1,248,758
|
|
|
$
|
7.69
|
|
Granted
|
154,850
|
|
|
5.52
|
|
Exercised
|
(10,984
|
)
|
|
3.34
|
|
Forfeited
|
(66,940
|
)
|
|
9.75
|
|
Outstanding at end of period
|
1,325,684
|
|
|
$
|
7.37
|
|
|
|
|
|
Exercisable at end of period
|
1,095,001
|
|
|
$
|
7.73
|
|
Weighted average fair value of options granted during the period
|
$
|
3.18
|
|
|
|
As a result of the Separation Agreement (see Note 3), vesting of
12,500
options was accelerated in the first quarter of 2019. Additionally,
122,500
options are subject to potential modification, if they are unexercised at the end of the 90-day period following the Effective Date. The modification will allow for an additional nine-month exercise period.
The fair value of options was estimated at the applicable grant date using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
Three Months Ended December 31, 2018
|
Risk free interest rate
|
3%
|
Expected life
|
6 years
|
Dividend rate
|
0%
|
Volatility
|
60%
|
On November 29, 2018, we announced that the Board of Directors of Amtech Systems, Inc. (the “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. 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
December 31, 2018
.
7. Income Taxes
For the
three
months ended
December 31, 2018
and
2017
, we recorded income tax expense of
$0.6 million
and
$1.2 million
, respectively. 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. 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.
We classify all of our uncertain tax positions as income taxes payable long-term. At both
December 31, 2018
and
September 30, 2018
, the total amount of unrecognized tax benefits was approximately
$1.2
million. 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 both
December 31, 2018
and
September 30, 2018
, we had an accrual for potential interest and penalties of approximately
$0.7
million 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.
8. Commitments and Contingencies
Purchase Obligations
– As of
December 31, 2018
, we had unrecorded purchase obligations in the amount of
$16.0 million
compared to
$15.0 million
as of
September 30, 2018
. 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.
Legal Proceedings and Other Claims
– From time to time, we are a party to claims and actions for matters arising out of our business operations. We regularly evaluate the status of the legal proceedings and other claims 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 the outcome of claims and 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 claim or legal proceeding. Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
In December 2018, we were notified by our customer that the turnkey contract for Phase II has been terminated. As a result, we will not perform the final installation and integration of our equipment. Final settlement of the contract is under review. We have removed the value of this remaining work from our backlog with no material effect on financial condition and results of operations.
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 contracts or severance plans were to become payable, the severance payments would generally range from
twelve
to
thirty-six
months of salary.
|
|
9.
|
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 “SiC/LED.”
Information concerning our business segments is as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
2018
|
|
2017
|
Net Revenues:
|
|
|
|
Solar *
|
$
|
7,510
|
|
|
$
|
49,197
|
|
Semiconductor
|
18,960
|
|
|
20,891
|
|
Polishing
|
2,983
|
|
|
3,523
|
|
|
$
|
29,453
|
|
|
$
|
73,611
|
|
Operating (loss) income:
|
|
|
|
Solar *
|
$
|
(2,804
|
)
|
|
$
|
5,352
|
|
Semiconductor
|
2,745
|
|
|
3,004
|
|
Polishing
|
769
|
|
|
1,104
|
|
Non-segment related
|
(2,626
|
)
|
|
(1,694
|
)
|
|
$
|
(1,916
|
)
|
|
$
|
7,766
|
|
* The financial statement of business units included in the Solar segment include sales of equipment and parts to the semiconductor, silicon wafer and microelectromechanical (“MEMS”) industries, comprising not more than half of the Solar segment revenue.
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
September 30,
2018
|
Identifiable Assets:
|
|
|
|
Solar
|
$
|
38,502
|
|
|
$
|
48,898
|
|
Semiconductor
|
62,036
|
|
|
59,744
|
|
Polishing
|
7,178
|
|
|
6,545
|
|
Non-segment related*
|
33,207
|
|
|
34,219
|
|
|
$
|
140,923
|
|
|
$
|
149,406
|
|
*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 Notes 1 and 5 of our Annual Report on Form 10-K for the year ended
September 30, 2018
.
10. Major Customers and Foreign Sales
During the
three
months ended
December 31, 2018
, one Semiconductor segment customer individually represented
13%
of our net revenues. No other customer represented greater than
10%
of net revenues. During the
three
months ended
December 31, 2017
, one Solar segment customer individually represented
50%
of our net revenues.
Our net revenues were to customers in the following geographic regions:
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
2018
|
|
2017
|
United States
|
20
|
%
|
|
7
|
%
|
Other
|
2
|
%
|
|
2
|
%
|
Total North America
|
22
|
%
|
|
9
|
%
|
China
|
30
|
%
|
|
71
|
%
|
Malaysia
|
3
|
%
|
|
3
|
%
|
Taiwan
|
8
|
%
|
|
2
|
%
|
Other
|
7
|
%
|
|
3
|
%
|
Total Asia
|
48
|
%
|
|
79
|
%
|
Germany
|
17
|
%
|
|
6
|
%
|
Other
|
13
|
%
|
|
6
|
%
|
Total Europe
|
30
|
%
|
|
12
|
%
|
|
100
|
%
|
|
100
|
%
|