|
NetShift Software
The Complete Answer —
for your successful kiosk
Did you know that as well as the world's leading Public Browser Interface NetShift we produce a range of utilities to keep your kiosk running more reliably?
And that they are free to NetShift users?
Check them out!
|
MICROTOUCH SYSTEMS INC (MTSI)
Quarterly Report (SEC form 10-Q)
Management's Discussion and
Analysis of Financial Condition and
Results of Operations
Results of Operations:
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in MicroTouch's statements of
operations:
Percentage of Total Revenue
---------------------------------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
---------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 63.9 61.4 63.4 62.4
------ ------ ------ ------
Gross Profit 36.1 38.6 36.6 37.6
Operating Expenses:
Research & Development 7.6 6.7 8.2 7.0
Sales & Marketing 13.9 15.5 14.3 14.8
General & Administrative 7.3 6.9 6.9 6.6
Amortization of Intangible Assets 0.1 0.3 0.3 0.4
Total Operating Expenses 28.9 29.4 29.6 28.8
------ ------ ------ ------
Operating Income 7.2 9.2 7.0 8.8
Other Income 0.2 (0.3) 0.7 0.3
Arbitration costs --- --- 4.2 ---
------ ------ ------ ------
Income Before Provision for Income Tax 7.5 8.9 3.4 9.1
Net Income 5.1 6.1 2.3 6.2
Net Sales Net sales in the quarter ended June 30, 1999 increased over the
corresponding period of 1998 by $3,919,000 or 11% to $41,044,000. For the six-
month period ended June 30, 1999, net sales increased $4,920,000 or 7% to
$77,772,000. The increase in both the three and six-month periods ended June 30,
1999 were due to volume increases in North America, partially offset by slower
than anticipated sales in Europe. For the quarter ended June 30, 1999,
international sales accounted for 41% of net sales for the period, representing
a decrease from 47% in the second quarter of 1998. For the six-month period
ended June 30, 1999, international sales accounted for 43% of net sales as
compared to 49% for the six-month period ended June 30, 1998. The decrease in
both periods reflected the decline in European volume, combined with the effect
of increased sales in the U.S.
Gross Profit Gross profit for the quarter ended June 30, 1999 increased $496,000
or 3% over the second quarter of 1998 to $14,832,000. As a percentage of net
sales, gross profit decreased from 38.6% in the second quarter of 1998 to 36.1%
in the second quarter of 1999. The gross profit percentage decline was due to a
change in product mix reflecting an increase in lower-margin flat touchscreens,
and higher production costs in the Factura kiosk business, as well as the impact
of implementing a new manufacturing process at the Methuen, Massachusetts plant.
For the six-month period ended June 30, 1999, gross profit increased by
$1,091,000 or 4% to $28,470,000. As a percentage of net sales, gross profit for
the period decreased to 36.6% from 37.6% in the same period in 1998, reflecting
the reasons above.
Research and Development Research and development expenses for the quarter ended
June 30, 1999 increased over the corresponding period of 1998 by $618,000 or
25%. As a percentage of net sales, research and development expenses increased
from 6.7% in the second quarter of 1998 to 7.6% in the second quarter of 1999.
The increase in research and development expenses resulted primarily from the
impact of a program to develop improvements in touchscreen technologies,
especially a next
generation version of capacitive products. For the six-month period ended June
30, 1999, research and development spending increased $1,312,000 or 26% over the
same period in 1998. As a percentage of net sales, research and development
expenses increased from 7.0% in the six month period ended June 30, 1998 to 8.2%
for the corresponding period of 1999. The increase in research and development
expenses resulted primarily from continued development projects in touchscreen
technologies, especially resistive products.
Sales and Marketing Sales and marketing expenses in the quarter ended June 30,
1999 decreased by $45,000 or 1% over the corresponding period of 1998. As a
percentage of net sales, sales and marketing expenses decreased from 15.5% in
the second quarter of 1998 to 13.9% in the second quarter of 1999. The decrease
in sales and marketing expenses reflects vacancies which have yet to be filled
in the sales organization, particularly the Vice President of Sales. A search
for a new Vice President of Sales is ongoing. For the six-month period ended
June 30, 1999, sales and marketing expenses increased by $276,000 or 3% to
$11,063,000. As a percentage of net sales, sales and marketing expenses
decreased to 14.3% in the first six months of 1999 as compared to 14.8% in the
first six months of 1998.
General and Administrative General and administrative expenses in the quarter
ended June 30, 1999 increased from the corresponding period of 1998 by $331,000
or 13% to $2,891,000. For the six-month period ended June 30, 1999, general and
administrative expenses increased over the corresponding period of 1998 by
$566,000 or 12% to $5,399,000. As a percentage of net sales, general and
administrative expense increased from 6.9% to 7.3% for the three-month period
ended June 30, 1999 and from 6.6% to 6.9% for the six-month period ended June
30, 1999 as compared to the corresponding periods in 1998. The increased
spending primarily reflects higher Information Technology expenses, especially
costs associated with the establishment of the Company's e-commerce website,
Touchstore.com.
Amortization of Intangible Assets For the quarter ended June 30, 1999,
operating expenses included $100,000 of amortization relating to various
acquisitions and purchases of technologies, as compared to $126,000 for the
quarter ended June 30, 1998. For the six-month period ended June 30, 1998,
amortization expense was $214,000 as compared to $260,000 for the comparable
period of 1998.
Operating Income Operating income in the quarter ended June 30, 1999 decreased
from the corresponding period of 1998 by $382,000 or 11% to $3,021,000. As a
percentage of net sales, operating income decreased from 9.2% in the second
quarter of 1998 to 7.2% for the second quarter of 1999. For the six-month period
ended June 30, 1999, operating income of $ 5,416,000 reflects a decrease of
$1,017,000 or 16 % over the comparable period of 1998. For the three and six-
month periods ended June 30, 1999, the decrease in operating income is primarily
the result of increased operating expenses to develop next generation capacitive
technology and to establish infrastructure to support anticipated business
growth. International operating income in the quarter ended June 30, 1999
decreased by 48% as compared to the second quarter of 1998. For the six-month
period ended June 30, 1999, international operating income decreased by 39% from
the corresponding period of 1998 due to the previously discussed European sales
decline and to slowing gaming sales in the Asia Pacific region.
Other Income Other income in the quarter ended June 30, 1999 increased from the
$81,000 loss in the corresponding period of 1998 by $144,000 to $63,000. This
increase was primarily due to a lower foreign currency loss of $134,000 in the
second quarter of 1999 as compared to a loss of $347,000 in the comparable
period of 1998. Interest income, net of interest expenses, on the Company's
cash and investment portfolio for the second quarter of 1999 was $197,000
compared to $256,000 for the second quarter of 1998, reflecting a decrease in
the size of the Company's investment portfolio, which is discussed under
"Liquidity and Capital Resources".
Other Expense - Litigation During the first quarter of 1999 the Company
recorded a charge of $3,303,000 in relation to a judgement against the Company
in a lawsuit in which a former employee of the Company sued for gender
discrimination, retaliation and misrepresentation. While the Company was
found not liable for the discrimination and retaliation claims, the jury awarded
the plaintiff approximately $2,600,000 in compensatory and punitive damages
under the misrepresentation claim. While the matter is continuing in post-trial
proceedings, the Company has established a reserve for the full amount of the
judgement, as well as estimated associated legal fees.
Provision for Income Taxes The Company's effective tax rate for both the three
and six-month periods ended June 30, 1999 and June 30, 1998 was 32.0%. The
effective tax rates in all periods differed from the federal statutory rate of
34% primarily as a result of the provision for state income taxes, partially
offset by the benefit related to the Company's foreign sales corporation and
tax-exempt interest income.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had net working capital of $51,085,000,
including approximately $27,261,000 in cash, cash equivalents and marketable
securities. The Company reported net cash provided by operating activities of
$5,238,000 for the six-month period ended June 30, 1999. Additionally, the
Company maintains bank lines of credit totaling $8.5 million. As of June 30,
1999, the Company had no borrowings under its bank lines of credit. During the
six-month period ended June 30, 1999 the major uses of cash were to pay down
borrowings under the Company's lines of credit, reduce obligations to vendors
and purchase shares of the Company's stock under the Company's buyback program
discussed below.
In May, 1999 the Board of Directors of the Company extended for the fourth time
a repurchase program of the Company's common stock, originally approved in
December, 1997 and extended in 1998 and 1999. The amount of common stock to be
repurchased under this program is not to exceed $23.0 million. During the six-
month period ended June 30, 1999 the Company repurchased approximately 506,000
shares at an aggregate cost of $6.7 million. Since January, 1998 the Company
has purchased approximately 1.3 million shares at an aggregate cost of
approximately $16.9 million. These shares have been and will be used for the
Company's stock option plan, employee stock purchase plan and for other
corporate purposes, possibly including acquisitions.
During the first half of 1999 the Company invested $4.5 million in capital
expenditures. Major capital expenditures included investment in the Company's
touchscreen manufacturing operations and computer information systems to support
the infrastructure of its expanding worldwide operations.
Pending operational needs, the Company has invested its cash in investment
grade, interest-bearing securities. The Company believes that these cash
investments, together with anticipated cash flows from operations pursuant to
its current operating plan, will be sufficient to meet the Company's working
capital and capital expenditure requirements, at least through 2000. While the
Company regularly evaluates acquisition candidates, conducts preliminary
discussions regarding acquisitions and intends to pursue acquisition
opportunities available to it, there can be no assurance that any such
acquisition will be made or if any such acquisition is completed, that cash
consideration will be offered by the Company.
The discussion contained in this section, as well as elsewhere in this Form 10-
Q, may contain forward-looking statements based on the current expectations of
the Company's management. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
Foreign Exchange Exposure
Significant portions of the Company's operations are conducted in foreign
countries, including the United Kingdom of Great Britain, Germany, France,
Italy, Spain, Australia, Taiwan, Japan, Hong Kong and
Korea. Exchange rate fluctuations between the U.S. dollar and the currencies of
these countries, including various European currencies and the Australian
dollar, result in fluctuations in the amounts relating to foreign operations
reported in the Company's consolidated financial statements. In general, the
Company's policy is not to enter into derivative financial instruments or other
financial instruments to manage foreign currency exchange rate risk. The Company
can provide no assurances that it will not enter into such financial instruments
in the future.
Supply Exposure
Although the Company generally uses standard parts for its product, certain
components, such as ASICs and the coated glass used in the production of touch
sensors are currently available only from a single source. In the event that
suppliers are unable to fulfill the Company's requirements, the resulting
interruption in production would have an adverse impact on the Company's
operating results. The Company maintains an inventory of ASICs, coated glass
and other components in order to limit the potential impact of such
interruptions. While the Company believes that there are other companies that
are capable of manufacturing these sole source components, the inability to
obtain sufficient components as required, or to develop alternative sources if
and when needed, would adversely affect the Company's operating results.
READINESS FOR YEAR 2000
The Company has taken actions to understand the nature and extent of the work
required to make its systems, products and infrastructure Year 2000 compliant.
The Company does not believe that any material Year 2000 issues exist with
software or embedded technology contained within its product offerings. System
hardware, software and microprocessor controlled equipment that support the
Company's infrastructure have been inventoried and assessed for Year 2000
compliance. To the extent necessary to address material Year 2000 issues, the
Company has installed current releases or upgrades from software vendors. By
the end of the third quarter, the Company expects that all of its business
systems will have been upgraded and will be compliant. The conversions on
international facilities systems were completed by the end of the second quarter
of 1999. During the second quarter of 1999, the Company conducted a testing
program to confirm that all installed software upgrades, which have been
represented by software vendors as compliant, functioned with dates posted as
2000. One material deficiency was identified as a result of this testing and
the Company expects to resolve it by the end of the third quarter. Because the
upgrades were installed by existing employees and consultants of the Company in
conjunction with their normal duties, and the software upgrades would have been
purchased in the normal course of business, the Company has not segregated the
cost of making these systems compliant. Based on available information,
including assurances from software vendors that their products are compliant,
the Company believes that it will be able to manage its total Year 2000
transition without any material adverse effect on its business operations,
products, operating results or financial condition.
The Company has not fully determined the extent to which the systems of
customers and vendors with whom the Company has material relationships may not
be compliant. There can be no assurance that the systems of other companies
which the Company deals with will be converted on a timely basis. No assurance
can be given that such failure to convert by another company will not have a
material negative effect on the Company's consolidated financial position,
results of operations or cash flow.
Newsbit furnished by:
A: NetShift Software Ltd.
A: Hughenden Yard, Marlborough, Wilts,SN8 1LT, UK
T: +44 (0)1672 511 094
F: +44 (0)1672 511 078
E: [email protected]
W: www.netshift.com
Thanks Anna!
|
