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Basis of Presentation | 3 Months Ended
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Dec. 31, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation | Summary of Significant Accounting Policies Nature of Operations and Basis of Presentation - Amtech Systems, Inc. (the “Company” or “Amtech”) 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. The Company sells these products to solar cell and semiconductor manufacturers worldwide, particularly in Asia, United States and Europe. The Company serves niche markets in industries that are experiencing rapid technological advances and which historically have been very cyclical. Therefore, future profitability and growth depend on the Company’s ability to develop or acquire and market profitable new products and on its ability to adapt to cyclical trends. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by 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 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, 2015. The consolidated results of operations for the three months ended December 31, 2015, 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 its wholly owned subsidiaries and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. The equity method of accounting is used for investments over which the Company has a significant influence but not a controlling financial interest. All material intercompany accounts 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. Revenue Recognition - The Company reviews 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. The Company recognizes 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:
1. | For the Company's equipment business, transactions where legal title passes to the customer upon shipment, revenue is recognized 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. 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. Revenue recognition 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.
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 the Company only defers those costs directly related to installation, or other 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, the 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.
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. On occasion, the Company has 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.
3. | Sales of certain equipment, spare parts and consumables are recognized upon shipment, as there are no post shipment obligations other than standard warranties.
4. | Service revenue is recognized upon performance of the services requested by the customer. Revenue related to service contracts is recognized ratably over the period of the contract or in accordance with the terms of the contract, which generally coincides with the performance of the services requested by the customer.
Deferred Profit – Revenue deferred pursuant to the Company’s revenue recognition policy, net of the related deferred costs, if any, is recorded as deferred profit in current liabilities. The components of deferred profit are as follows:
| December 31, 2015 |  | September 30, 2015
| (dollars in thousands)
Deferred revenues | $ | 6,994 |  |  | $ | 7,280 |
Deferred costs | 2,315 |  |  | 2,407 |
Deferred profit | $ | 4,679 |  |  | $ | 4,873 |
Cash Equivalents – The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of amounts invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts. Restricted Cash – Restricted cash of $0.8 million and $0.6 million as of December 31, 2015, and September 30, 2015, respectively, includes collateral for bank guarantees required by certain customers from whom deposits have been received in advance of shipment. Restricted cash as of December 31, 2015 and September 30, 2015 includes $0.2 million relating the Company's proportional responsibility, assumed in connection with the BTU International Inc. (“BTU”) acquisition, for clean-up costs at a Superfund site. Accounts Receivable and Allowance for Doubtful Accounts – Accounts receivable are recorded at the gross sales price of products sold to customers on trade credit terms. Accounts receivable are considered past due when payment has not been received from the customer within the normal credit terms extended to that customer. A valuation allowance is established for accounts when collection is no longer probable. Accounts are written off against the allowance when the probability of collection is remote. Accounts Receivable - Unbilled and Other – Unbilled and other accounts receivable consist mainly of the contingent portion of the sales price that is not collectible until successful installation of the product. These amounts are generally billed upon final customer acceptance. Concentrations of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company’s customers consist of solar cell and semiconductor manufacturers worldwide, as well as the lapping and polishing marketplace. 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. Reserves for potentially uncollectible receivables are maintained based on an assessment of collectability. The Company maintains its cash, cash equivalents and restricted cash in multiple financial institutions. Balances in the United States, which account for approximately 80% of the Company's total cash balances are primarily invested in US Treasuries or are in financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). The remainder of the Company’s cash is maintained with financial institutions with reputable credit in The Netherlands, France and China. As of December 31, 2015 and September 30, 2015, no customer individually represented greater than 10% of accounts receivable. Refer to Note 6 to Condensed Consolidated Financial Statements, Major Customers and Foreign Sales, for information regarding revenue and assets in other countries subject to fluctuation in foreign currency exchange rates. Inventories – Inventories are stated at the lower of cost or net realizable value. Approximately 60% of inventory is valued on an average cost basis with the remainder determined on a first-in, first-out (FIFO) basis. The components of inventories are as follows:
| December 31, 2015 |  | September 30, 2015
| (dollars in thousands)
Purchased parts and raw materials | $ | 10,950 |  |  | $ | 11,587 |
Work-in-process | 4,314 |  |  | 5,089 |
Finished goods | 6,277 |  |  | 6,653 |
| $ | 21,541 |  |  | $ | 23,329 |
Property, Plant and Equipment – Property, plant and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the applicable accounts when disposition occurs and any gain or loss is recognized. Depreciation is computed using the straight-line method. Useful lives for equipment, machinery and leasehold improvements range from three to seven years; for furniture and fixtures from five to ten years; and for buildings 20-30 years. The following is a summary of property, plant and equipment:
| December 31, 2015 |  | September 30, 2015
| (dollars in thousands)
Land, building and leasehold improvements | $ | 17,904 |  |  | $ | 18,095 |
Equipment and machinery | 9,564 |  |  | 9,709 |
Furniture and fixtures | 5,325 |  |  | 5,465 |
| 32,793 |  |  | 33,269 |
Accumulated depreciation and amortization | (15,714 | ) |  | (15,508 | )
| $ | 17,079 |  |  | $ | 17,761 |
Goodwill - Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested for impairment when it is determined that it is more likely than not that the fair value of a reporting unit or the indefinite-lived intangible asset is less than its carrying amount, typically at the end of the fiscal year, or more frequently if circumstances dictate. The following is a summary of activity in goodwill:
| Solar |  | Semiconductor |  | Polishing |  | Total
| (dollars in thousands)
Goodwill | $ | 6,617 |  |  | $ | 4,463 |  |  | $ | 728 |  |  | $ | 11,808 |
Accumulated impairment losses | (1,273 | ) |  | — |  |  | — |  |  | (1,273 | )
Carrying value at September 30, 2015 | 5,344 |  |  | 4,463 |  |  | 728 |  |  | 10,535 |
Goodwill recognized due to acquisitions | — |  |  | 600 |  |  | — |  |  | 600 |
Net exchange differences | (161 | ) |  | — |  |  | — |  |  | (161 | )
Carrying value at December 31, 2015 | $ | 5,183 |  |  | $ | 5,063 |  |  | $ | 728 |  |  | $ | 10,974 |
Goodwill | $ | 6,413 |  |  | $ | 5,063 |  |  | $ | 728 |  |  | $ | 12,204 |
Accumulated impairment losses | (1,230 | ) |  | — |  |  | — |  |  | (1,230 | )
Carrying value at December 31, 2015 | $ | 5,183 |  |  | $ | 5,063 |  |  | $ | 728 |  |  | $ | 10,974 |
Intangibles – Intangible assets are capitalized and amortized on a straight-line basis over their useful life if the life is determinable. If the life is not determinable, amortization is not recorded. The following is a summary of intangibles:
| Useful Life |  | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |  | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount
|  |  | December 31, 2015 |  | September 30, 2015
|  |  | (dollars in thousands)
Non-compete agreements | 4-8 years |  | $ | 133 |  | $ | (133 | ) | $ | — |  |  | $ | 137 |  | $ | (137 | ) | $ | — |
Customer lists | 10 years |  | 2,412 |  | (776 | ) | 1,636 |  |  | 2,434 |  | (808 | ) | 1,626 |
Technology | 5-10 years |  | 3,126 |  | (1,526 | ) | 1,600 |  |  | 3,223 |  | (1,368 | ) | 1,855 |
Trade names | 10-15 years |  | 1,449 |  | (97 | ) | 1,352 |  |  | 1,456 |  | (72 | ) | 1,384 |
Other | 2-10 years |  | 287 |  | (210 | ) | 77 |  |  | 278 |  | (204 | ) | 74 |
|  |  | $ | 7,407 |  | $ | (2,742 | ) | $ | 4,665 |  |  | $ | 7,528 |  | $ | (2,589 | ) | $ | 4,939 |
Long-lived assets - Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Warranty – A limited warranty is provided free of charge, generally for periods of 12 to 24 months, for all purchases of the Company’s new products and systems. Accruals are recorded for estimated warranty costs at the time revenue is recognized. The following is a summary of activity in accrued warranty expense:
| Three Months Ended December 31,
| 2015 |  | 2014
| (dollars in thousands)
Beginning balance | $ | 793 |  |  | $ | 628 |
Warranty expenditures | (22 | ) |  | (228 | )
Warranty provisions/(adjustment) | (5 | ) |  | 307 |
Ending balance | $ | 766 |  |  | $ | 707 |
Stock-Based Compensation - The Company measures compensation costs relating to share-based payment transactions based upon the grant date fair value of the award. Those costs are recognized as expense over the requisite service period, which is generally the vesting period. The benefits of tax deductions in excess of recognized compensation cost are credited to additional paid-in capital and reported as cash flow from financing activities rather than as cash flow from operating activities. Stock-based compensation expense reduced the Company’s results of operations by the following amounts:
| Three Months Ended December 31,
| 2015 |  | 2014
| (dollars in thousands)
Effect on income before income taxes (1) | $ | (342 | ) |  | $ | (232 | )
Effect on income taxes | 48 |  |  | 36 |
Effect on net income | $ | (294 | ) |  | $ | (196 | )
(1) | Stock-based compensation expense is included in selling, general and administrative expenses.
Stock options issued under the terms of the Company's option plans have, or will have, an exercise price equal to the fair market value of the common stock at the close of trading on the NASDAQ the day prior to the date of the option grant and expire no later than 10 years from the date of grant, with the most recent grant expiring in 2025. Options issued by the Company generally vest over six months to four years, subject to the Company's board of directors' discretion. Stock option transactions and the options outstanding are summarized as follows:
| Three months ended December 31,
| 2015 |  | 2014
| Options |  | Weighted Average Exercise Price |  | Options |  | Weighted Average Exercise Price
Outstanding at beginning of period | 1,627,477 |  |  | $ | 9.11 |  |  | 1,063,324 |  |  | $ | 7.37 |
Granted | 344,075 |  |  | 5.25 |  |  | 282,500 |  |  | 9.98 |
Exercised | — |  |  | — |  |  | — |  |  | — |
Forfeited | (33,642 | ) |  | 14.90 |  |  | — |  |  | — |
Outstanding at end of period | 1,937,910 |  |  | $ | 8.34 |  |  | 1,345,824 |  |  | $ | 7.91 |
Exercisable at end of period | 1,189,855 |  |  | $ | 9.21 |  |  | 802,703 |  |  | $ | 7.81 |
Weighted average fair value of options granted during the period | $ | 3.03 |  |  |  |  | $ | 6.09 |  |  |
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,
| 2015 |  | 2014
Risk free interest rate | 2% |  | 2%
Expected life | 6 years |  | 6 years
Dividend rate | 0% |  | 0%
Volatility | 62% |  | 67%
To estimate expected lives for this valuation, it was assumed that options will be exercised at varying schedules after becoming fully vested. Forfeitures have been estimated at the time of grant and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based upon historical experience. Fair value computations are highly sensitive to the volatility factor assumed; the greater the volatility, the higher the computed fair value of the options granted. The Company uses historical stock prices to determine the volatility factor. The Company awards restricted shares under the existing share-based compensation plans. The Company's restricted share awards vest in equal annual installments over a two- to four-year period. The total value of these awards is expensed on a ratable basis over the service period of the employees receiving the grants. The “service period” is the time during which the employees receiving grants must remain employees for the shares granted to fully vest. Restricted stock transactions and awards outstanding are summarized as follows:
| Three months ended December 31,
| 2015 |  | 2014
| Awards |  | Weighted Average Grant Date Fair Value |  | Awards |  | Weighted Average Grant Date Fair Value
Beginning Outstanding | 13,540 |  |  | $ | 7.98 |  |  | 35,203 |  |  | $ | 10.13 |
Released | (13,540 | ) |  | 7.98 |  |  | (21,663 | ) |  | 11.47 |
Ending Outstanding | — |  |  | $ | — |  |  | 13,540 |  |  | $ | 7.98 |
Fair Value of Financial Instruments In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), the Company groups its financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1 - Valuation is based upon quoted market price for identical instruments traded in active markets. Level 2 - Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques. In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the FASB ASC, it is the Company's policy to use observable inputs whenever reasonably practicable in order to minimize the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including interest rate yield curves, option volatilities and currency rates. In certain cases, where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. Cash, Cash Equivalents and Restricted Cash - Included in Cash and Cash Equivalents in the Condensed Consolidated Balance Sheets are money market funds invested in treasury bills, notes and other direct obligations of the U.S. Treasury and foreign bank operating and time deposit accounts. The fair value of this cash equivalent is based on Level 1 inputs in the fair value hierarchy. Receivables and Payables -The recorded amounts of these financial instruments, including accounts receivable and accounts payable, approximate their fair value because of the short maturities of these instruments. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Debt - The recorded amounts of these financial instruments, including long-term debt and current maturities of long-term debt, approximate fair value and are considered Level 2 in the fair value hierarchy. Pensions - The Company has retirement plans covering substantially all employees. The principal plans are the multiemployer defined benefit pension plans of the Company’s operations in The Netherlands and France and the plan for hourly union employees in Pennsylvania. The multiemployer plans in the United States and France are insignificant to the Company's results of operations and financial condition. The Company's defined contribution plans cover substantially all of the employees in the United States. The Company matches employee funds on a discretionary basis. Shipping expense – Shipping expenses of $0.4 million and $0.2 million for the three months ended December 31, 2015 and 2014, respectively, are included in selling, general and administrative expenses. Research, development and engineering expense – Research, development and engineering expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes; materials and supplies used in those activities; and product prototyping. The Company receives reimbursements through governmental research and development grants which are netted against these expenses when certain conditions have been met. The table below shows gross research and development expenses and grants earned:
| Three Months Ended
| December 31, 2015 |  | December 31, 2014
| (dollars in thousands)
Research, development and engineering | $ | 2,615 |  |  | $ | 2,573 |
Grants earned | (327 | ) |  | (736 | )
Net research, development and engineering | $ | 2,288 |  |  | $ | 1,837 |
Impact of Recently Issued Accounting Pronouncements In January 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017 and early adoption is not permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. In July 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which simplifies the accounting for measurement-period adjustments to provisional amounts recognized in a business combination. ASU 2015-16 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The provisions of ASU 2015-16 are not expected to have a material effect on the Company's financial condition, results of operations, or cash flows. In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. The Company does not expect adoption of this ASU to have a material impact on the Company's consolidated financial position and results of operations. In April 2015, the FASB issued ASU No. 2015-3, Interest-Imputation of Interest (Subtopic 835-30). This ASU requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The ASU requires retrospective application and represents a change in accounting principle. The ASU is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements. In January 2015, the FASB issued ASU No. 2015-1, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20). The FASB issued this ASU as part of its initiative to reduce costs and complexity in accounting standards, known as its Simplification Initiative. This ASU eliminates from generally accepted accounting principles in the United States the concept of extraordinary items in an effort to save time and reduce costs, while alleviating uncertainty and maintaining accurate and fulsome disclosure. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company is currently assessing the impact of this ASU but does not expect it to have a material impact on its consolidated financial position and results of operations. In June 2014, the FASB issued ASU No. 2014-12 which provides guidance on how to account for share-based payment awards where the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. This ASU requires a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The Company is currently assessing the impact of this ASU but does not expect it to have a material impact on its consolidated financial position and results of operations. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes most of the current revenue recognition requirements. The core principle of the new 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 these goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. This guidance is effective for the Company in the first quarter of fiscal year 2018 and early application is not permitted. Entities must adopt the new guidance using one of two retrospective application methods. The Company is currently evaluating the standard and the impact on its financial position and results of operations.

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