CVD Equipment Corporation — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; comparisons are with FY2011. This is an annual report, not a quarterly-only filing. CVD designs and manufactures customized and standard equipment for semiconductor, solar, nanomaterials, LED, gas-control, and related markets.
Financial performance and condition
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $22.16 million | $30.99 million | Down 28.5% |
| Gross profit / margin | $7.99 million / 36.1% | $11.45 million / 36.9% | Margin down 0.8 percentage points |
| Operating income | $0.55 million | $4.76 million | Down 88.5% |
| Net income | $0.44 million | $3.78 million | Down 88.5% |
| Diluted EPS | $0.07 | $0.67 | Down $0.60 |
| Cash and cash equivalents, year-end | $13.72 million | $18.14 million | Down $4.42 million |
| Working capital, year-end | $20.10 million | $22.95 million | Down $2.85 million |
| Long-term debt, including current maturities | $8.32 million | $3.17 million | Up $5.15 million |
- Cash flow from operations was negative $0.18 million, versus positive $4.19 million in 2011. Investing cash outflow was $9.67 million, including $11.80 million of capital expenditures, largely tied to the new facility. Financing provided $5.44 million, including $6.00 million of new borrowing.
- Year-end current assets were $24.09 million and current liabilities $3.99 million. The company also reported $0.80 million of restricted cash.
- CVD/First Nano and Conceptronic revenue was $19.00 million, down 28.8%; SDC revenue was $3.16 million, down 26.9%.
Material changes and notable items
- Management attributed the revenue and profit decline primarily to deliberately accepting fewer new orders during the facility transition and production disruption and inefficiencies from dismantling and relocating equipment.
- The company purchased a 130,000-square-foot Central Islip facility for $7.20 million and incurred approximately $4.05 million in renovation costs in 2012. The move was completed in March 2013. The company expected to close the sale of its former headquarters for $3.875 million in April 2013.
- Backlog fell 48.5% to $8.34 million from $16.20 million, which management attributed to the reduced order intake during the transition. Backlog may be delayed or canceled and is not assurance of future revenue or profit.
- R&D expense was approximately $1.33 million, compared with $0.96 million in 2011. In 2012, $0.39 million was for independent research rather than customer orders.
- A $0.69 million loss on the sale of the Application Laboratory property was recorded in operating expenses. The company also reported a $0.04 million income tax benefit, versus $1.01 million of tax expense in 2011.
Outlook, risks, and contingencies
- Management said cash, operating cash flow, and credit facilities should be sufficient for working capital and capital expenditure needs over the next 12 months. No quantitative revenue or earnings guidance was provided.
- The company reported covenant noncompliance under all three HSBC and GE Capital loan agreements at December 31, 2012, and said it obtained waivers for each. The HSBC $7 million revolving facility, available through August 2014, had not been used.
- Risks cited include intense competition, uncertainty about future profitability and financing, customer order delays or cancellations, and reliance on successfully replacing significant customer sales. One customer accounted for 16.6% of FY2012 revenue, versus 43.2% in FY2011. Foreign sales were 24.4% of revenue, up from 12%.
- The company is pursuing a $5.82 million breach-of-contract claim against Taiwan Glass. Taiwan Glass counterclaimed for unspecified damages; its motion for partial summary judgment seeking $3.56 million was denied in November 2012. The litigation remained ongoing.
- Management assessed disclosure controls and internal control over financial reporting as effective at year-end. The external auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether operations and order intake recovered after the March 2013 move, and how quickly backlog replenished.
- Actual proceeds and timing of the former headquarters sale, and final facility renovation and relocation costs.
- Compliance with debt covenants after the waivers, available borrowing capacity, and scheduled debt repayment requirements.
- Cash conversion, working-capital trends, and customer collections given negative operating cash flow in 2012.
- Developments and potential financial effects of the Taiwan Glass litigation, including the status and usability of returned equipment included in finished-goods inventory.
- Whether independent R&D and growth-market investments produce commercial sales without materially increasing expenses or diluting shareholders through future financing.