SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File No. 0-20292
AMPEX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3667696
(State of Incorporation) (I.R.S. Employer Identification Number)
500 Broadway
Redwood City, California 94063-3199
(Address of principal executive offices, including zip code)
(650) 367-2011
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of March 31, 2001, the aggregate number of outstanding shares of the
Registrant's Class A Common Stock, $.01 par value, was 58,504,996. There were
no outstanding shares of the Registrant's Class C Common Stock, $0.01 par
value.
AMPEX CORPORATION
FORM 10-Q
Quarter Ended March 31, 2001
INDEX
Page
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................... 2
Consolidated Balance Sheets (unaudited) at March 31, 2001 and
December 31, 2000.............................................. 3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 2001 and 2000..................... 4
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 2001 and 2000........................... 5
Notes to Unaudited Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk...... 26
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 26
Item 2. Changes in Securities and Use of Proceeds...................... 27
Item 3. Defaults Upon Senior Securities................................ 27
Item 4. Submission of Matters to a Vote of Security Holders............ 27
Item 5. Other Information.............................................. 28
Item 6(a). Exhibits....................................................... 28
Item 6(b). Reports on Form 8-K............................................ 28
Signatures ............................................................... 29
2
AMPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, December 31,
2001 2000
--------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 11,889 $ 10,384
Short-term investments 14 5,011
Accounts receivable (net of allowances of nil in 2001 and in 2000) 129 127
Other current assets 1,262 3,930
--------- ---------
Total current assets 13,294 19,452
Property, plant and equipment, net 4,700 5,217
Intangible assets, net 84 211
Investments in affiliate 2,361 1,678
Deferred pension asset 283 377
Other assets 1,085 1,173
Net assets of business held for sale 11,331 11,660
--------- ---------
Total assets $33,138 $39,768
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 157 $ 157
Accounts payable 302 554
Accrued restructuring costs 1,362 2,482
Other accrued liabilities 9,158 7,973
--------- ---------
Total current liabilities 10,979 11,166
Long-term debt 45,922 46,086
Other liabilities 27,004 26,637
Deferred income taxes 1,213 1,213
--------- ---------
Total liabilities 85,118 85,102
--------- ---------
Commitments and contingencies (Note 7)
Mandatorily redeemable nonconvertible preferred stock, $1,000 liquidation value:
Authorized: 69,970 shares in 2001 and in 2000
Issued and outstanding - none in 2001 and in 2000 - -
Mandatorily redeemable preferred stock, $2,000 liquidation value:
Authorized: 21,859 shares in 2001 and in 2000
Issued and outstanding - 16,636 shares in 2001; 17,173 in 2000 33,272 34,346
Convertible preferred stock, $2,000 liquidation value:
Authorized: 10,000 shares in 2001 and in 2000
Issued and outstanding - 1,125 shares in 2001 and in 2000 2,250 2,250
Stockholders' deficit:
Preferred stock, $1.00 par value:
Authorized: 898,171 shares in 2001 and in 2000
Issued and outstanding - none in 2001 and in 2000 - -
Common stock, $.01 par value:
Class A:
Authorized: 175,000,000 shares in 2001 and in 2000
Issued and outstanding - 58,504,996 shares in 2001; 58,075,396 in 2000 585 581
Class C:
Authorized: 50,000,000 shares in 2001 and in 2000
Issued and outstanding - none in 2001 and in 2000 - -
Other additional capital 422,658 421,578
Notes receivable from stockholders (4,642) (4,642)
Accumulated deficit (488,550) (481,894)
Accumulated other comprehensive loss (17,553) (17,553)
--------- ---------
Total stockholders' deficit (87,502) (81,930)
--------- ---------
Total liabilities, redeemable preferred stock and stockholders' deficit $ 33,138 $ 39,768
========= =========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
For the three months ended
-----------------------------
March 31,
-----------------------------
2001 2000
------------ ------------
(unaudited)
Royalty income $ 2,336 $ 3,119
Internet revenue 130 575
----------- -----------
Total revenue 2,466 3,694
----------- -----------
Intellectual property costs 173 370
Internet video programming and site development 1,565 3,249
Research, development and engineering 68 119
Selling and administrative 3,333 4,642
Amortization of goodwill 127 574
----------- -----------
Total costs and operating expenses 5,266 8,954
----------- -----------
Operating loss (2,800) (5,260)
Equity in net loss of affiliate 497 226
Interest expense 1,331 1,364
Amortization of debt financing costs 88 88
Interest income (130) (547)
Other (income) expense, net (87) (1)
----------- -----------
Loss from continuing operations before income taxes (4,499) (6,390)
Provision for income taxes 247 323
----------- -----------
Loss from continuing operations (4,746) (6,713)
Loss from discontinued operations (net of taxes of none in 2000) - (774)
Income (loss) of business held for sale (net of taxes of none in 2001 and 2000) (1,910) 548
----------- -----------
Net loss (6,656) (6,939)
Benefit from extinguishment of mandatorily redeemable preferred stock 832 -
----------- -----------
Net loss applicable to common stockholders (5,824) (6,939)
Other comprehensive loss, net of tax:
Unrealized gain (loss) on marketable securities - (130)
Foreign currency translation adjustments - 10
----------- -----------
Comprehensive loss $ (5,824) $ (7,059)
========== ==========
Basic and diluted loss per share :
Loss per share from continuing operations $ (0.08) $ (0.12)
Loss per share from discontinued operations $ (0.03) $ 0.00
Loss per share applicable to common stockholders $ (0.10) $ (0.12)
----------- -----------
Weighted average number of common shares outstanding 58,080,117 55,518,445
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the three months ended
---------------------------
March 31, March 31,
2001 2000
------------ ----------
(unaudited)
Cash flows from perating activities:
Net loss $(6,656) $(6,939)
Loss from discontinued operations 1,910 226
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and accretion 595 1,019
Equity loss of unconsolidated subsidiary 497 226
Net loss on disposal of assets - 155
Changes in operating assets and liabilities:
Accounts receivable (2) 310
Deferred pension asset 94 (1,206)
Other assets 2,669 3,468
Accounts payable (252) (677)
Other accrued liabilities and income taxes payable 1,490 (96)
Accrued restructuring costs (1,121) (1,813)
Other liabilities 60 (395)
------- -------
Net cash used in continuing operations (716) (5,722)
Net cash used in discontinued operations (1,388) (1,427)
------- -------
Net cash used in operating activities (2,104) (7,149)
------- -------
Cash flows from investing activities:
Additional investment in subsidiary (1,180) -
Purchases of short-term investments - (15,552)
Proceeds received on the maturity of short-term investments 4,997 25,621
Proceeds from the sale of short-term investments - 2,140
Additions to property, plant and equipment 175 (1,435)
------- -------
Net cash provided by continuing operations 3,992 10,774
Net cash used in discontinued operations (120) (418)
------- -------
Net cash provided by investing activities 3,872 10,356
------- -------
Cash flows from financing activities:
Borrowings under working capital facilities - 662
Repayments under working capital facilities (203) -
Proceeds from issuance of common stock 9 37
------- -------
Net cash provided by (used in) continuing operations (194) 699
------- -------
Net cash provided by (used in) financing activities (194) 699
------- -------
Effects of exchange rates on discontinued operations (69) (112)
------- -------
Net increase in cash and cash equivalents 1,505 3,794
Cash and cash equivalents, beginning of period 10,384 10,598
------- -------
Cash and cash equivalents, end of period $11,889 $14,392
======= =======
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Ampex Corporation
Ampex Corporation ("Ampex" or the "Company") is a leading innovator of
visual information technology. In recent years, the Company embarked to
strategically reposition itself by capitalizing on its digital imaging
technology to become a major provider of Internet video programming, services
and technology. The Company's internal Internet video operations, acquisitions
and strategic investments have been consolidated into iNEXTV Corporation
("iNEXTV" or "iNEXTV.com"), a wholly-owned subsidiary.
iNEXTV produces and aggregates video content for syndication to
popular portals and destination websites. iNEXTV has entered into syndication
agreements with Microsoft's WindowsMedia.com, Yahoo!, Qwest's Online Avenue,
Juno, TravelNow.com, Autobytel and others. It produces short form programming
covering numerous "life style" topics, current events and entertainment. Its
majority owned affiliate, Alternative Entertainment Network, Inc. ("AENTV" or
"AENTV.com"), acquired in a series of step acquisitions during 1999 and 2000,
produces web video programming about the entertainment industry and other
"infotainment" topics, including Hollywood Reporter, Billboard Minutes, Chix on
Flixs and others. The Company has an equity ownership interest in TV1 Internet
Television, ("TV1"or "TV1.de"), one of Europe's leading webcasters. Beginning
in 1999, the Company, in a series of step acquisitions, acquired a majority
interest in TV onthe WEB, Inc. ("TV onthe WEB") a webcaster and video production
company. In September 2000, the Company ceased funding TV onthe WEB, wrote off
its remaining investment in the subsidiary and ceased to include it in the
Company's Consolidated Financial Statements. The Consolidated Statement of
Operations for 2000 includes the results of operations of the Company's internal
Internet video operations, 100% of the results of operations of AENTV and 100%
of the results of operations of TV onthe WEB. The Company's investment in TV1
is being accounted for under the equity method effective January 1, 2001 when
the Company increased its equity interest from 17.5% to 35%, with financial
results for prior periods being restated to recognize the Company's equity
interest in such periods.
As of the year ended 1999, in order to focus more sharply on its Internet
video businesses, the Company announced plans to sell Ampex Data Systems
Corporation, ("Data Systems"), its subsidiary that makes high performance tape-
based mass data storage products. For accounting reporting purposes, the
results of operations of Data Systems have been classified as a "Business Held
for Sale" in the Consolidated Statements of Operations for all periods
presented. The book value of the net assets to be sold is reflected in "Net
Assets of Business Held for Sale" in the Consolidated Balance Sheets. At the
date of these financial statements, the Company is no longer conducting active
discussions with potential buyers of Data Systems. While Data Systems continues
to be offered for sale, present economic and market conditions indicate that
consummation of a successful sale might not occur until late in 2001 or 2002, if
at all. The Company had intended to use the proceeds from the sale of Data
Systems to fund the activities and operating losses of iNEXTV and other Internet
initiatives, as well as to retire debt. Since such source of funds is expected
to be deferred indefinitely, the Company is seeking alternative financing
strategies discussed below.
As of the year ended 2000, Ampex decided to discontinue the operations of
MicroNet Technology, Inc. ("MicroNet"), its wholly-owned subsidiary that made
high performance disk arrays and storage area network products. The operations
of MicroNet have been classified as "Discontinued Operations" in the
Consolidated Statements of Operations for all periods presented. At December
31, 2000, the Company established a reserve for the costs of closure and to
write-off its investment in MicroNet. which is included in "Loss on Disposal of
Discontinued Operations." As a result, there are no assets or liabilities of
MicroNet included in the Consolidated Balance Sheet for all periods presented.
The Company's continuing operations consist of Ampex's intellectual
property licensing department, its Internet Technology Group ("ITG") and its
subsidiary, iNEXTV.
Liquidity and Going Concern Considerations
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred operating
losses for the past nine quarters and requires additional capital to meet its
obligations and accomplish the Company's business plan, which raises substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company's working capital has declined substantially from December 31,
1999 to December 31, 2000 and further declined in the first quarter of 2001.
The Company has experienced a substantial reduction in its cash and marketable
securities which declined to $11.9 million at March 31, 2001. In November 2000,
Data Systems issued Senior Secured Notes providing net proceeds of approximately
$8 million, which are included in the above
6
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Ampex Corporation (cont'd.)
amount. The Notes are secured by certain assets of the Company and Data
Systems. Ampex is negotiating a sale and leaseback of certain real estate and
would use the proceeds from the transaction to repay the Notes. The Notes were
originally scheduled to mature on the earlier of May 31, 2001 or the sale of
Data Systems. The Company and the Noteholder have an agreement in principle to
extend the Note maturity date to August 31, 2001 to facilitate the completion of
the sale and leaseback discussed above. The Company is also negotiating an
expansion of its working capital facility to provide additional borrowing
capacity at Data Systems and has taken steps to reduce headcount and overhead
expenses of Data Systems in order to be able to operate at a cash breakeven
level at reduced sales levels. The Company is seeking to raise equity capital
for iNEXTV with certain strategic partners in order to fund anticipated
operating losses of its Internet businesses until projected profitability.
Lastly, the Company has entered into negotiations with certain consumer
electronics manufacturers to license the Company's intellectual property for use
in the manufacture of digital camcorders, DVDs and computer games. These
capital raising strategies are in preliminary stages, and there can be no
assurance that they will be successful or raise sufficient resources in time for
the Company to remain a going concern. Furthermore, the Company's debt
indentures include provisions that may adversely impact the ability to complete
a sale of all or substantially all of its assets, such that Common stockholders
might not realize any recovery of their investment in the Company.
Note 2 - Basis of Presentation
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In addition,
certain reclassifications have been made to the prior year financial statements
to conform to the current year's presentation. The statements should be read in
conjunction with the Company's report on Form 10-K for the year ended December
31, 2000 and the Audited Consolidated Financial Statements included therein.
In the opinion of management, the financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position, results of operations and cash flows
for the interim periods presented. The results of operations for the three-
month period ended March 31, 2001 are not necessarily indicative of the results
to be expected for the full year.
Note 3 - Business Held for Disposition
In February 2000, the Board of Directors of the Company authorized
management to pursue a sale of Data Systems, its wholly-owned subsidiary that
manufacturers and sells high performance, tape-based mass data storage products.
Ampex continues to seek a buyer for the Data Systems business, but due to
economic and market conditions believes that it will be difficult to consummate
a successful sale until late 2001 or 2002, if at all.
A summary of the operating results of Data Systems is as follows:
March 31, March 31,
2001 2000
-------- ---------
(in thousands)
Revenues........................................ $ 9,825 $11,739
Costs and operating expenses.................... 11,338 11,290
Operating income (loss)......................... (1,513) 449
Interest expense................................ 406 13
Other (income) expense.......................... 10 (68)
Income (loss) of business held for disposition.. (1,910) 548
7
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Business Held for Disposition (cont'd.)
A summary of the assets and liabilities of Data Systems is as follows:
March 31, December 31,
2001 2000
---------- -----------
(in thousands)
Current assets...................... $ 26,100 $ 26,040
Property, plant and equipment, net.. 5,803 6,010
Other assets........................ 142 159
Current liabilities................. (19,624) (19,302)
Other liabilities................... (530) (552)
Other............................... (560) (695)
-------- --------
Net assets of segment to be sold.... $ 11,331 $ 11,660
-------- --------
Note 4 - Discontinued Operation
As of the year-end 2000, the Board of Directors of the Company authorized
management to close MicroNet and to establish a reserve for the costs of closure
and to write-off its investment. Management is attempting to liquidate
MicroNet's assets and plans to distribute the proceeds in satisfaction of its
liabilities. The Consolidated Balance Sheet as of March 31, 2001 and December
31, 2000 did not include any assets or liabilities of MicroNet.
Note 5 - Computation of Basic and Diluted Loss per Share
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted loss per
common share is provided as follows (in thousands, except per share amounts):
Three months
ended
March 31,
--------------------
2001 2000
------- -------
Numerator
Loss from continuing operations............................ $(4,746) $(6,713)
======= =======
Net loss applicable to common stockholders................. $(5,824) $(6,939)
======= =======
Denominator
Weighted average common stock outstanding.................. 58,080 55,518
------- -------
Basic and diluted loss per share from continuing operations.. $ (0.08) $ (0.12)
======= =======
Basic and diluted loss per share
applicable to common stockholders.......................... $ (0.10) $ (0.12)
======= =======
In the three months ended March 31, 2001, 537 shares of Redeemable
Preferred Stock were redeemed into 429,600 shares of Common Stock which are
included in the weighted average common stock outstanding from the date of
exchange. In the three months ended March 31, 2000, holders of 760 shares of
Convertible Preferred Stock converted their holdings into 380,000 shares of
Common Stock and 537 shares of Redeemable Preferred Stock were redeemed into
260,679 shares of Common Stock which are included in the weighted average common
stock outstanding from the date of exchange. The remaining shares of Common
Stock potentially issuable on conversion of Convertible Preferred Stock and
redemption of the Redeemable Preferred Stock have not been included in the
computation of diluted weighted average common stock outstanding for the three
months ended March 31, 2001 and 2000, respectively, since they are anti-
dilutive. If the Company was to make all remaining redemption payments in
Common Stock based on the floor conversion price, an additional 13,871,300
shares of Common Stock would be issued over the number of common shares included
in the diluted income per share computation. At March 31, 2001 such additional
shares of Common Stock would be anti-dilutive to the diluted loss per share
reported.
8
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Computation of Basic and Diluted Loss per Share (cont'd.)
Stock options to purchase 4,088,929 shares of Common Stock at prices
ranging from $0.26 to $6.00 per share were outstanding at March 31, 2001, but
were not included in the computation of diluted loss per share as they are anti-
dilutive.
Stock options to purchase 3,340,118 shares of Common Stock at prices
ranging from $1.06 to $6.00 per share were outstanding at March 31, 2000, but
were not included in the computation of diluted loss per share as they are anti-
dilutive.
In January 1998, Warrants to purchase 1,020,000 shares of Common Stock at
$2.25 per share were issued in connection with the issuance of the Senior Notes.
See Note 11. On May 10, 1999, Warrants were exercised for 204,000 shares of
Common Stock, which are included in the weighted average common stock
outstanding since the date of the exchange. The remaining outstanding warrants
are excluded from the computation of weighted average common stock outstanding
at March 31, 2001 and 2000, respectively, since they are anti-dilutive.
Note 6 - Supplemental Schedule of Cash Flow Information
Three months
ended
March 31,
-------------------
2001 2000
-------- --------
(in thousands)
Interest paid........................................... $ 2,640 $ 2,641
Income taxes paid....................................... 247 330
Redeemable preferred stock.............................. (1,074) (1,520)
Convertible preferred stock............................. - (1,074)
Issuance of common stock................................ 1,074 2,594
Note 7 - Commitments and Contingencies
Legal Proceedings
The Company is currently a defendant in lawsuits that have arisen in the
ordinary course of its business. Certain subsidiaries have been assessed income
and value-added taxes together with penalties and interest. Management does not
believe that any such lawsuits or unasserted claims will have a material adverse
effect on the Company's financial position, results of operations or cash flows.
Environmental Matters
Ampex's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. Owners and occupiers of sites containing hazardous
substances, as well as generators and transporters of hazardous substances, are
subject to broad liability under various federal and state environmental laws
and regulations, including liability for investigative and cleanup costs and
damages arising out of past disposal activities. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites located
off Company facilities. Management has provided reserves, which have not been
discounted, related to investigation and cleanup costs and believes that the
final disposition of these matters will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
The Company has not accrued any liability for costs that might be assessed
against it by federal or state environmental agencies involving sites owned by
the Company's former subsidiary Media. Media is primarily responsible for the
cleanup at its facilities and at off site locations. The Company believes that
it has no material contingent liability in connection with the Media properties.
9
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Preferred Stock
Each share of Convertible Preferred Stock and Redeemable Preferred Stock
entitles the holder thereof to receive noncumulative dividends at the rate of 8%
per annum, if declared by the Company's Board of Directors. Each share of
Convertible Preferred Stock may be converted, at the option of the holder
thereof, at a conversion price of $4.00 per share, into 500 shares of Common
Stock, subject to adjustment under certain circumstances. In the three months
ended March 31, 2000, the holders of 760 shares of Convertible Preferred Stock
converted their holdings into 380,000 shares of Common Stock, leaving 1,125
shares of Convertible Preferred Stock outstanding. Beginning in June 2001, the
Company will become obligated to redeem any remaining Convertible Preferred
Stock in quarterly installments through December 2008. Beginning in June 1999,
the Company became obligated to redeem the Redeemable Preferred Stock in
quarterly installments through March 2008. In the three months ended March 31,
2001, the Company issued 429,600 shares of its Common Stock to satisfy the
quarterly redemption requirements. In the three months ended March 31, 2000, the
Company issued 260,679 shares of its Common Stock to satisfy the quarterly
redemption requirements. The Company is obligated to redeem approximately $6.5
million face amount of Convertible and Redeemable Preferred Stock over the next
twelve months. The Company has the option to redeem the Redeemable Preferred
Stock at any time and the Convertible Preferred Stock beginning in June 2001,
and has the option to make mandatory redemption payments either in cash or in
shares of Common Stock. In the event that the Company does not have sufficient
funds legally available to make any mandatory redemption payment in cash, the
Company will be required to make such redemption payment by issuing shares of
Common Stock. Shares of Common Stock issued to make any optional or mandatory
redemption payments will be valued at the higher of $2.50 or fair market value
per share of Common Stock. The Company intends to issue shares of Common Stock
to satisfy its redemption obligation on the Redeemable Preferred Stock through
December 31, 2001. To the extent that the floor redemption price exceeds the
fair value of shares issued to redeem the Convertible Preferred Stock and the
Redeemable Preferred Stock the Company recognizes a benefit from extinguishment
of preferred stock.
Note 9 - Income Taxes
As of December 31, 2000, the Company had net operating loss carryforwards
for income tax purposes of $125 million expiring in the years 2005 through 2014.
As a result of the financing transactions that were completed in April 1994 and
February 1995, the Company's ability to utilize its net operating losses and
credit carryforwards as an offset against future consolidated federal income tax
liabilities will be restricted in its application, which will result in a
material amount of the net operating loss never being utilized by the Company.
Note 10 - Accumulated Other Comprehensive Income
The balances of each classification within accumulated other comprehensive
income are as follows:
Minimum
Pension
Liability
--------------
(in thousands)
December 31, 2000............... $ 17,553
Current period change........... -
-------------
March 31, 2001.................. $ 17,553
=============
Note 11 -- Senior Notes
In January 1998, the Company issued $30.0 million of its 12% Senior Notes
("Notes"), together with Warrants to purchase 1.02 million shares of Common
Stock. The Warrants are exercisable at $2.25 per share at any time on or prior
to March 15, 2003. At the time of issuance, the Warrants were valued using the
Black-Scholes model. The value assigned to the Warrants was $765,000, which is
being amortized against interest expense over the term of the Notes. At the end
of June 1998, the Company issued an additional $14.0 million Senior Notes.
Interest on the Notes is payable semi-annually on March 15 and September 15 of
each year. The Notes will mature on March 15, 2003. The Company may redeem the
Notes, in whole or in part, at any time after March 15, 2000, at redemption
prices expressed as percentages of the principal amount of the Notes ranging
from 100% to 106% depending on the redemption date, together with accrued and
unpaid interest, if any, to the date of redemption. The Notes are senior
unsecured obligations of the Company and rank pari passu in right of payment
with all existing and future subordinated indebtedness of the Company.
10
AMPEX CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Segment Reporting
The Company has the following operating segments: licensing of intellectual
property and Internet video production and distribution. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
The Company evaluates segment performance based on return on operating
assets employed. Profitability is measured as income or loss from continuing
operations before income taxes excluding goodwill amortization and asset
writedown.
Intersegment sales and transfers are accounted for at current market prices
but they were not significant to revenues.
Three Months Ended March 31, 2001
------------------------------------------------
Licensing of Eliminations
Internet Intellectual and
Video Property Corporate Totals
--------- ------------ ------------- --------
Revenues from external customers.......... $ 130 $2,336 $ - $ 2,446
Interest income........................... 3 - 127 130
Interest expense.......................... - - 1,331 1,331
Depreciation, amortization and accretion.. 272 - 197 469
Segment income (loss)..................... (3,431) 2,163 (3,104) (4,372)
Segment assets............................ 6,156 - 26,982 33,138
Expenditures for segment assets........... (175) - - (175)
Three Months Ended March 31, 2000
-----------------------------------------------
Licensing of Eliminations
Internet Intellectual and
Video Property Corporate Totals
-------- ------------ ------------ -------
Revenues from external customers.......... $ 575 $ 3,119 $ - $ 3,694
Interest income........................... 22 - 525 547
Interest expense.......................... 9 - 1,355 1,364
Depreciation, amortization and accretion.. 241 1 201 443
Segment income (loss)..................... (6,422) 2,749 (2,466) (6,139)
Segment assets............................ 12,305 1 67,459 79,765
Expenditures for segment assets........... 1,435 - - 1,435
11
Forward-Looking Statements
This Form 10-Q contains predictions, projections and other statements about
the future that are intended to be "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others, those described under "Risk Factors," below.
These forward-looking statements speak only as of the date of this Report. The
Company disclaims any obligation or undertaking to disseminate updates or
revisions of any forward-looking statements contained or incorporated herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based. IN ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-Q,
READERS ARE URGED TO READ CAREFULLY ALL SUCH CAUTIONARY STATEMENTS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company and its subsidiaries should be read in
conjunction with the unaudited Consolidated Financial Statements and the Notes
thereto, included elsewhere in this Report, and the Consolidated Financial
Statements and the Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations, included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, as filed with the
Securities and Exchange Commission (file no. 0-20292) (the "2000 Form 10-K").
Strategic Repositioning of the Company
In recent years, the Company began a strategic repositioning by
capitalizing on its digital imaging technology to become a major provider of
Internet video programming, services and technology. In 1999, the Company
consolidated its internal Internet video operations, acquisitions and strategic
investments into iNEXTV Corporation, a wholly-owned subsidiary. In August 2000,
the Company announced that it would cease funding and write-off its remaining
investment in TV onthe WEB, allowing it to re-deploy its financial resources to
its core Internet video businesses which produce video content and technology
for distribution on the web. In early 2001, the Company increased its equity
ownership in its German affiliate, TV1 Internet Television, from 17.5% to 35%.
Effective January 1, 2001, the Company began to account for TV1 using the equity
method of accounting, with the financial results of prior periods being restated
to recognize the Company's equity interest in such periods.
In February 2000, in order to focus more sharply on its Internet video
businesses, the Company announced plans to sell Data Systems, its subsidiary
which makes high performance tape-based mass data storage products. For
accounting purposes, the results of operations of Data Systems have been
classified as a "Business Held for Sale" in the Consolidated Statements of
Operations for all periods presented. The book value of the net assets to be
sold of this segment is reflected in "Net Assets of Business Held for Sale" in
the Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000. At
the date of these financial statements, the Company is no longer conducting
active discussions with potential buyers of Data Systems. While Data Systems
continues to be offered for sale, present economic and market conditions
indicate that consummation of a successful sale might not occur until late in
2001 or in 2002, if at all. The Company had intended to use the proceeds from
the sale of Data Systems to fund the activities and operating losses of iNEXTV
and other Internet initiatives, as well as to retire debt. Since this source of
funds is expected to be deferred indefinitely, the Company is pursuing
alternative financing strategies discussed below.
12
As of year-end 2000, Ampex determined to discontinue the operations of
MicroNet, its subsidiary which manufactured disk arrays and storage area network
products. At December 31, 2000, the Company established a reserve for the costs
of closure and to write-off its investment in MicroNet. Accordingly, the
operations of MicroNet have been classified as "Discontinued Operations" for all
periods presented.
The Company's continuing operations consist of Ampex's intellectual
property licensing department, its Internet Technology Group and its subsidiary,
iNEXTV.
Results of Operations for the Three Months Ended March 31, 2001 and 2000
Total Revenue. Total revenue decreased by 33.2% to $2.5 million for the
three months ended March 31, 2001 compared to $3.7 million for the three months
ended March 31,2000. In the three months ended March 31, 2001, the revenue
decrease over the three months ended March 31, 2000 was due to the decreased
royalty income and the decrease in the Company's Internet video businesses.
Royalty Income. Royalty income was $2.3 million in the three months ended
March 31, 2001 compared to $3.1 million in the three months ended March 31,
2000. The Company's royalty income derives from patent licenses, and the Company
receives most of its royalty income from licenses with companies that
manufacture consumer video products (such as VCRs and camcorders) and, in
certain cases, professional video tape recorders. The Company is assessing
whether manufacturers of digital camcorders, computer video games and DVD
recorders are using its patented technology and has entered into preliminary
discussions with certain manufacturers to license the Company's patents for such
use. There can be no assurance that the manufacturers of these products are
utilizing the Company's technology or, if used, whether the Company will be able
to negotiate license agreements with the manufacturers. Royalty income has
historically fluctuated widely due to a number of factors that the Company
cannot predict or control such as the extent of use of the Company's patented
technology by third parties, the materiality of any nonrecurring royalties
received as the result of negotiated settlements for products sold by
manufacturers prior to entering into licensing agreements with the Company, the
extent which the Company must pursue litigation in order to enforce its patents,
and the ultimate success of its licensing and litigation activities. The costs
of patent litigation can be material, and the institution of patent enforcement
litigation may also increase the risk of counterclaims alleging infringement by
the Company of patents held by third parties or seeking to invalidate patents
held by the Company. See "Legal Proceedings," below.
Internet Revenue. The Company's Internet video programming and services
business began in early 1999, and in June 1999 were consolidated under its
subsidiary, iNEXTV. iNEXTV recorded revenue of $0.1 million in the three months
ended March 31, 2001 compared to $0.6 million in the three months ended March
31, 2000. Internet revenues in 2000 were principally from webcasting, video
production and event marketing services, substantially all of which were
provided by the Company's subsidiary, TV onthe WEB, which the Company ceased
funding in October, 2000. For the three months ended March 31, 2000, TV onthe
WEB reported a net loss of $2.0 million. Since October 1, 2000, the Company has
not recognized any revenues or expenses of TV onthe WEB in its consolidated
financial statements. iNEXTV expects to continue to offer certain web video
services through its other Internet subsidiaries. Internet revenues do not
include revenues of TV1, which provides Internet video services to European
businesses, totaling $0.3 million and $0.2 million in the three month periods
ended March 31, 2001 and 2000, respectively, because TV1 is accounted for under
the equity method of accounting. In future periods, iNEXTV will rely
significantly on advertising and e-commerce revenues. The Company is seeking to
increase revenues by syndicating its content and that of others for distribution
to third party websites under advertising revenue sharing arrangements and by
offering various services to customers who wish to add video content to their
own websites. iNEXTV and its subsidiary AENTV have announced agreements with
destination websites and Internet portals and broadband service providers that
are being implemented. By increasing the size of its audiences through
syndication, management believes that it will enhance the attractiveness of its
programming to potential
13
buyers of web based video advertising. However, revenues from syndicated
advertising activities are not expected to become significant before the second
half of 2001.
Intellectual Property Costs. Intellectual property costs relate to those
expenditures incurred by the Company's in-house patent department in procuring
royalty income and expenditures associated with patent enforcement litigation.
Internet Video Programming and Site Development. Internet video
programming and site development costs of $1.6 million in the three months ended
March 31, 2001 and $3.2 million in the three months ended March 31, 2000
represent costs incurred for services rendered to customers, as well as costs
incurred for the development of made-for-the-Internet video programming and non-
capitalized website hardware and software purchases in support of iNEXTV's
websites and infrastructure. The operations of TV onthe WEB were responsible
for $1.2 million of Internet Video Programming and Site Development expenses in
the three months ended March 31, 2000. Since October 1, 2000, the Company has
not recognized any revenues or expenses of TV onthe WEB in its consolidated
financial statements, as a result of its decision to cease funding its
operations as of that date. The Company anticipates that site development
startup costs will continue to decline in 2001, as the requisite web site
infrastructure is substantially in place. The Company is also seeking to add
content from others to expand the scope of its programming without a
commensurate increase in expenses.
Research, Development and Engineering Expenses. Research, development and
engineering expenses associated with support of iNEXTV's Internet video strategy
were relatively unchanged in the periods. The Company anticipates increased
spending in connection with research, development and engineering programs that
support iNEXTV's Internet video strategy.
Selling and Administrative. Selling and administrative expenses decreased
to $3.3 million in the three months ended March 31, 2001 from $4.6 million in
the three months ended March 31, 2000. In addition to costs incurred for the
Internet video programming and site development discussed above, the Company's
Internet video businesses incurred direct sales, marketing and administrative
expenses totaling $1.5 million in the three months ended March 31, 2001 and $3.6
million in the three months ended March 31, 2000. The operations of TV onthe
WEB accounted for $0.8 million of selling and administrative expenses in the
three months ended March 31, 2000. The content syndication business model
reduces the Company's expenses for marketing and advertising in return for
sharing advertising revenue with syndication partners. Accordingly, the Company
believes its Internet marketing and advertising expenditures will decline in the
future from levels incurred in recent periods. Other nonallocated
administrative costs totaled $1.8 million in the three months ended March 31,
2001 compared to $1.0 million in the three months ended March 31, 2000.
Amortization of Goodwill. In connection with the investments in each of TV
onthe WEB, AENTV and TV1, the purchase price exceeded the fair value of assets
acquired and liabilities assumed, resulting in the recording of goodwill. In
the second quarter of 2000, the Company changed the expected life of goodwill of
the acquired Internet businesses from three years to two years, given the rapid
changes affecting the Internet and to conform to other Internet content
companies. In the third quarter of 2000, the Company wrote off its remaining
investment in TV onthe WEB, resulting in fully amortizing all remaining goodwill
and providing a reserve for asset impairment to write down the assets of TV
onthe WEB to their estimated realizable value. The Company's Equity in Net Loss
of Affiliate includes amortization of goodwill arising from the investment in
TV1 of $0.4 million and $0.2 million in the three months ended March 31, 2001
and 2000, respectively.
Operating Loss. The Company incurred an operating loss of $2.8 million in
the three months ended March 31, 2001 compared to $5.3 million in the three
months ended March 31, 2000. The decrease in the operating loss in the three
months ended March 31, 2001 from 2000 was primarily due to the exclusion of TV
onthe WEB in 2001 which contributed $2.0 million of operating losses in the
three months ended March 31, 2000.
14
Equity in Net Loss of Affiliate. In early 2001, the Company increased its
equity interest in TV1 Internet Television from 17.5% to 35%. Effective January
1, 2001, the Company began to account for TV1 under the equity method of
accounting. The financial results of prior periods have been restated to
recognize the Company's equity interest in such periods. The Equity in Net Loss
of Affiliate in the three months ended March 31, 2001 and March 31, 2000,
includes amortization of goodwill totaling $0.4 million and $0.2 million,
respectively.
Interest Expense. Interest expense is associated primarily with $44.0
million of 12% Senior Notes, due 2003 and Warrants to purchase approximately
1.02 million shares of Common Stock in January and July 1998. Interest expense
associated with the Senior Discount Notes issued in November 2000 is included in
Loss of Business Held for Sale.
Amortization of Debt Financing Costs. These amounts reflect periodic
amortization of financing costs over the remaining terms of the debt. Financing
costs associated with the January and July 1998 issuance of the 12% Senior Notes
are being charged to expense over five years.
Interest Income. Interest income is earned on cash balances and short and
long-term investments. In the three months ended March 31,2001 the Company had
significantly lower investment balances compared to the three months ended March
31, 2000, which resulted in lower interest income.
Other (Income) Expense, Net. For the three months ended March 31, 2001,
other (income) expense, net consists primarily of foreign currency transaction
gains and losses. In the three months ended March 31, 2000, other (income)
expense, net, was minor.
Provision for Income Taxes. The provisions for income taxes in the three
months ended March 31, 2001 and 2000 consist primarily of foreign income taxes
and withholding taxes on royalty income. The Company was not required to
include any material provision for U.S. Federal income tax in any of these
periods due to the utilization of net operating loss carry forwards and timing
differences. At March 31, 2001, the Company had net operating loss carry
forwards for income tax purposes of $125 million, expiring in the years 2007
through 2015. As a result of financing transactions that were completed in 1994
and 1995, the Company is limited in the amount of net operating loss carry
forwards that can offset consolidated Federal taxable income in a given year.
The Company derives pretax foreign income from its international operations,
which are conducted principally by its foreign subsidiaries. In addition, the
Company's royalty income is subject, in certain cases, to foreign tax
withholding. Such income is taxed by foreign taxing authorities and the
Company's domestic interest and amortization expenses and operating loss carry
forwards are not deductible in computing such foreign taxes.
Income (Loss) of Business Held for Sale. In February 2000, the Board of
Directors of the Company authorized management to pursue a sale of Data Systems,
its wholly-owned subsidiary that manufacturers and sells high performance, tape-
based mass data storage products. To date, no acceptable offers to purchase
Data Systems have been received, although the Company continues to offer Data
Systems for sale. As a result, for all periods presented, the Company reported
as a single line item in the Consolidated Statements of Operations, an income
(loss) of business held for sale, net of taxes, of ($1.9) million and $0.5
million in the three months ended March 31, 2001 and 2000, respectively.
15
A summary of the operating results of Data Systems is as follows:
Three months ended
--------------------
Mar. 31, Mar. 31,
2001 2000
------- -------
(in thousands)
Revenues...................................... $ 9,825 $11,739
Costs and operating expenses.................. 11,339 11,290
Operating income (loss)....................... (1,514) 449
Interest expense.............................. 406 13
Other (income) expenses....................... (10) (68)
Income (loss) of business held for sale....... (1,910) 548
Loss from Discontinued Operations. In February 2001, the Board of
Directors of the Company authorized management to close MicroNet, its wholly-
owned subsidiary that makes high performance disk arrays and Storage Area
Network, and to establish a reserve for the costs of closure at the year ended
December 31, 2000. As a result, for the three months ended March 31, 2000, the
Company reported as a single line item in the Consolidated Statements of
Operations, a loss from discontinued operations, net of taxes, of $0.8 million.
Revenues and total costs and operating expenses of this segment totaled $3.3
million and $4.0 million, respectively, in the three months ended March 31,
2000.
Net Loss. The Company reported a net loss of $6.7 million in the three
months ended March 31, 2001 compared to a net loss of $6.9 million in the three
months ended March 31, 2000, primarily as a result of the factors discussed
above under "Royalty Income," "Internet Video Programming and Site Development,"
"Selling and Administrative," "Amortization of Goodwill," "Equity in Net Loss of
Affiliate," "Income (Loss) of Business Held for Sale," and "Loss from
Discontinued Operations."
Benefit from Extinguishment of Mandatorily Redeemable Preferred Stock. In
the three months ended March 31, 2001, the Company issued shares of Common Stock
valued at $2.50 per share to satisfy its redemption obligation on the Redeemable
Preferred Stock, which was higher than fair value per share of Common Stock. As
a result the Company recorded a benefit available to common stockholders of $0.8
million, representing the difference between the fair value and $2.50 per share
for the number of shares issued, on the Consolidated Statements of Operations.
Liquidity and Capital Resources
Cash Flow. At March 31, 2001, the Company had cash and short-term
investments of $11.9 million and working capital of $2.3 million. At December
31, 2000, the Company had cash and short-term investments of $15.4 million and
working capital of $8.3 million. Data Systems, which is accounted for as a
"Business Held for Sale," had working capital of $6.5 million and $6.7 million
at March 31, 2001 and December 31, 2000, respectively. Working capital of Data
Systems has been classified in "Net Assets of Business Held for Sale" at March
31, 2001 and December 31, 2000. The decline in cash and short-term investments
in the three months ended March 31, 2001 results primarily from operating losses
of the Company's Internet video businesses and operations of the Internet
Technology Group. These losses more than offset operating income from the
Company's non-Internet technology licensing activities. Cash used in continuing
operations totaled $0.7 million in the three months ended March 31, 2001 and
$5.7 million in the three months ended March 31, 2000. Cash used in
discontinued operations totaled $1.4 million in each of the three months ended
March 31, 2001 and 2000, respectively.
Major items impacting income from continuing operations in the three months
ended March 31, 2001, which did not affect cash, were equity in net loss of
affiliate and goodwill amortization associated with acquired
16
Internet businesses, totaling $0.6 million. Other non-cash charges affecting the
first quarter of 2001 operations included other depreciation and amortization of
$0.5 million.
The Company intends to seek strategic partnerships with other companies in
order to obtain additional content, brand recognition, user awareness,
technology and infrastructure cost savings. The Company may be required to
commit significant resources to these partnerships, which could increase the
Company's liquidity needs and require it to issue debt or equity securities
which would dilute current stockholders' interest in the Company.
The Company has announced its intention to sell Data Systems, which
manufactures the Company's high performance mass data storage and
instrumentation products for entertainment and government applications. At the
date of these financial statements, the Company is no longer conducting active
discussions with potential buyers of Data Systems. While Data Systems continues
to be offered for sale, present economic and market conditions indicate that
consummation of a successful sale might not occur until late in 2001 or 2002, if
at all. The Company had intended to use the proceeds from the sale of Data
Systems to fund the activities and operating losses of iNEXTV and other Internet
initiatives, as well as to retired debt. Since such source of funds is expected
to be deferred indefinitely, the Company is seeking alternative financing
strategies discussed below. There can be no assurance that these capital raising
strategies will be successful or raise sufficient resources in time for the
Company to remain a going concern.
In November 2000, Data Systems issued Senior Discount Notes providing net
proceeds of $8 million to fund the Company's short-term working capital
requirements. The Notes are secured by certain assets of the Company and Data
Systems. Ampex is currently negotiating a sale and leaseback of certain real
estate and would apply the net proceeds from the transaction to repay the Senior
Discount Notes. The Notes were originally scheduled to mature on the earlier of
May 31, 2001 or the sale of Data Systems. The Company and representatives of the
Noteholders have agreed in principle to extend the Note maturity date to August
31, 2001 to facilitate the completion of the sale and leaseback of certain real
estate discussed above. There can be no assurance that the transactions will be
consummated. In addition, the Company has recently taken steps to reduce
headcount and overhead expenses of Data Systems in order to operate at a cash
breakeven level at reduced sales levels. There can be no assurance that the cost
savings to be realized will be adequate for Data Systems to return to
profitability.
The Company has available, through a subsidiary, a working capital facility
that allows it to borrow or obtain letters of credit totaling $7.0 million,
based on eligible accounts receivable, through May 2002. At March 31, 2001, the
Company had borrowings outstanding of $2.2 million and had letters of credit
issued against the facility totaling $1.1 million. At December 31, 2000, the
Company had borrowings outstanding of $2.4 million and had letters of credit
issued against the facility totaling $1.1 million. The Company is seeking to
expand the working capital facility to provide additional borrowing capacity at
Data Systems as it implements operational cost savings.
In addition, the Company is seeking to raise equity capital for iNEXTV with
certain strategic partners to be able to fund anticipated operating losses of
its Internet businesses until projected profitability. These capital raising
activities are in preliminary stages of discussion and no commitments have been
received for additional capital. There can be no assurance that a market will
exist for the Company's or its affiliates' equity securities. In addition, the
Company has been notified by the staff of the American Stock Exchange ("Amex")
that it is conducting a review of the Company's eligibility for continued
listing on the Amex. The Amex has requested the Company to provide certain
additional information and financial data concerning the Company's business and
financial condition. The Company plans to provide the requested information and
to meet with members of the Amex staff to discuss this matter.
Financing Transactions. In 1998, the Company issued $44.0 million of its
12% Senior Notes due March 15, 2003, together with Warrants to purchase 1.02
million shares of its Class A Common Stock (the "Class A Stock"). As a result
of the issuance of the 12% Senior Notes, the Company's total indebtedness and
future debt service obligations increased significantly from prior levels. The
Company has applied a substantial portion of the
17
debt proceeds in acquisitions of the Company's Internet video businesses. Such
investments or acquisitions are not expected to pay a current return, which
could require the Company to fund debt service obligations on the 12% Senior
Notes out of its liquidity and cash flow from existing operations. There can be
no assurance that the Company's available resources will be sufficient to enable
it to meet its debt service obligations. The indenture under which the 12%
Senior Notes were issued contains customary affirmative and negative restrictive
covenants that limit, among other things, the incurrence of additional senior
debt, the payment of dividends, the sale of assets and other actions by the
Company and certain restricted subsidiaries.
In November 2000, Data Systems issued Senior Discount Notes providing net
proceeds of approximately $8.0 million, which used to fund the Company's short
term working capital requirements. The Notes are secured by certain assets of
Data Systems and the Company and are due on the earlier of May 31, 2001 or the
divestiture of Data Systems. Ampex plans to repay the Senior Discount Notes out
of the proceeds of the anticipated sale and leaseback transaction described
above. In the event this transaction is not consummated, the Company believes
it will be required to raise additional capital from the sale of other assets or
from the issuance of debt or equity securities in order to continue to repay the
Notes and to carry out its current business strategy. No assurance can be given
that the Company would be successful in raising any additional funds, or as to
the terms of any securities that might be issued or arrangements that might be
entered into.
Recent Pronouncements
Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 133 ("SFAS
133"), Accounting for Derivative Instruments and Hedging Activities which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair
value. The adoption of SFAS 133 on January 1, 2001 had no effect on the Company
as the Company currently has no derivative instruments.
Risk Factors
Ability to Continue as a Going Concern
As discussed in the Notes to the Unaudited Financial Statements for the
three months ended March 31, 2001, there exists substantial uncertainty as to
the Company's ability to continue as a going concern. The Company has incurred
operating losses in each of the past nine quarters and requires additional
capital to meet its obligations and to accomplish its business plan which
projects continuing losses throughout 2001. The Company's working capital has
declined substantially in recent periods and its cash and marketable securities
have declined to $11.9 million at March 31, 2001. The Company is negotiating a
sale and leaseback of certain real estate and would use the proceeds to repay
Senior Discount Notes which mature shortly as discussed below. In addition, the
Company is seeking to expand its working capital debt facilities, reduce
operating costs of its Data Systems subsidiary, raise equity capital for iNEXTV
and enter into negotiations with prospective licensees of its intellectual
property for use in consumer electronics and video games. In addition, the
Company is continuing to offer its Data Systems subsidiary for sale, but does
not anticipate such a transaction in the current fiscal period. These capital
raising strategies are in preliminary stages and there can be no assurance that
they will be successful or raise sufficient resources for the Company to remain
a going concern.
Risk of Continuing Losses
Ampex has incurred significant operating and net losses in the three months
ended March 31, 2001 and its fiscal years ended December 31, 2000 and 1999. Such
losses were primarily due to its Internet video programming activities,
operating losses of MicroNet and, in 2000, its decision to discontinue certain
operations and to provide reserves to close down MicroNet, amortization of
goodwill of acquired businesses and interest expense. Revenues
18
were not sufficient to offset these items. Although the Company expects that its
Internet video revenues will grow in future periods and that many of its
operational costs will decline since its infrastructure is largely complete,
there can be no assurance that such revenues will be sufficient to offset
similar expenses and/or losses that may be incurred in such periods, or that
such items will not increase. The Company may incur additional indebtedness in
connection with future acquisitions or its Internet expansion plans, which could
increase future interest expenses. In addition, the Company cannot predict the
amount of licensing royalties that it may recognize in future periods. The
Company has taken steps to reduce costs and believes that operating losses from
its Internet operations will decline in 2001 compared with losses incurred in
2000. However, the Company expects operating and net losses to continue at least
for the balance of 2001. Also, the Company has recently taken steps to reduce
headcount and overhead expenses of Data Systems in order to seek to operate at a
cash breakeven level at reduced sales levels, pending a sale of Data Systems.
Such actions are expected to give rise to restructuring charges in the second
quarter of 2001. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations, " below, and the other Risk Factors
included in this section.
Risks of Declining Liquidity
The Company has experienced a substantial reduction in its cash and
marketable securities which declined to $11.9 million at March 31, 2001. In
November 2000, Data Systems issued Senior Discount Notes providing net proceeds
of approximately $8 million, which are included in the above amount and are
being used to fund the Company's short-term working capital requirements. The
Notes are secured by certain assets of the Company and Data Systems. Ampex is
negotiating a sale and leaseback of certain real estate and would apply the net
proceeds from the transaction to repay the Notes. The Notes were originally
scheduled to mature on the earlier of May 31, 2001 or the sale of Data Systems.
At the date of this Report, the Company is no longer conducting active
discussions with potential buyers of Data Systems. While Data Systems continues
to be offered for sale, present economic and market conditions indicate that
consummation of a successful sale might not occur late in 2001 or 2002, if at
all. The Company and the representatives of the holders of the Senior Discount
Notes have reached an agreement in principle to extend the Note maturity date to
August 31, 2001 to facilitate the completion of the sale and leaseback discussed
above. The Company is also negotiating an expansion of its working capital
facility to provide additional borrowing capacity at Data Systems. The Company
is seeking to raise equity capital for iNEXTV with certain strategic partners
and has entered into negotiations with certain consumer electronics
manufacturers to license the Company's intellectual property for use in the
manufacture of digital camcorders, DVDs and computer games. No assurance can be
given that the Company will be successful in raising any additional funds, or as
to the terms of any securities that might be issued or arrangements that might
be entered into.
Risks Associated with iNEXTV and Internet Video Strategy
The Company's Internet subsidiary, iNEXTV, was formed in mid-1999, and has
not yet generated any material advertising revenues. The business and prospects
of iNEXTV, and the Company's Internet video strategy in general, are subject to
the risks and uncertainties typical of companies in the early stages of
development. These risks are particularly high in new and rapidly evolving
markets such as those for Internet content, advertising and electronic commerce
(e-commerce). If the Company is not successful in its Internet strategy,
investors in Ampex Common Stock could suffer the loss of a significant portion
or all of their investment.
The development of iNEXTV and the implementation of the Company's strategy
to expand its Internet video businesses involve special risks and uncertainties,
including but not limited to the following:
. the ability of iNEXTV and its affiliates to identify, produce or acquire
and deliver compelling, quality video programming over the Internet that
appeals to its target audiences;
. the ability of iNEXTV and its affiliates to obtain and manage key
employees and other resources for growth and profitability;
19
. market acceptance of Internet broadband access connections, which
improve the quality of streaming video but are more costly than methods
currently used my most consumers;
. market acceptance of streaming media technology, which is currently of
lower quality than television or radio broadcasts, is subject to
congestion and interruptions on the Internet, and requires specialized
software, technical expertise and increased bandwidth;
. dependence upon growth of the Internet as a significant medium for
advertising, especially branding advertising formats, recognizing recent
declines in banner advertising on the Internet;
. iNEXTV's ability to generate advertising revenues from its recent
"syndication strategy" whereby it seeks to sell advertising tied to
content that it has produced and aggregated from third parties for
distribution on popular portals and destination websites;
. the ability of iNEXTV and its affiliates to attract content developers
and other key partners in addition to content distribution partners
necessary to make its web operations viable;
. dependence upon timely delivery and integration of website software and
hardware purchased from third parties used in its Internet operations
and that of companies upon which the Company depends to host and serve
content to users;
. vulnerability of Internet content delivery to system failures and
interruptions for a variety of reasons (including telecommunications
problems and natural disasters), computer viruses and other breaches of
security;
. dependence upon Internet service providers, web browsers, providers of
streaming media products and others to provide Internet access to
iNEXTV's websites and programming;
. the ability of the Company to generate sufficient revenues to offset the
increased cost of bandwidth that would result from increased viewership
of its streaming media video sites and the risk that the Company may
compete with sites which have access to lower cost of bandwidth;
. the ability of Ampex to innovate, upgrade and transfer to iNEXTV and its
affiliates audio or video technology for Internet-based applications;
. competition among Internet broadcasters and providers of products and
services for users, advertisers, content and new products and services;
. uncertainty about the adoption and application of new laws, proposed
taxation and government regulations relating to Internet businesses,
which could have a negative effect on Internet business. Some of these
negative effects could include slowing down Internet growth, adversely
affecting the viability of e-commerce, exposing iNEXTV to potential
liabilities or negative publicity for mishandling customer security or
user privacy concerns or otherwise adversely affecting its Internet
businesses;
. the ability, if needed, to obtain licenses of intellectual property
developed by others that affect Internet usage. Intellectual property
claims, if asserted, against the Company could be costly and could have
a material adverse effect on its Internet business;
20
. the ability to expand successfully in the European or other foreign
markets, which is likely to be subject to cultural and language
barriers, different regulatory environments, currency exchange rate
fluctuations and other difficulties relating to managing foreign
operations; and
. likelihood of continued and significant expenses resulting in material
losses in future periods. Such losses could negatively affect the price
of the Company's securities. In addition, continued losses could require
the Company to seek additional capital which may not be available on
satisfactory terms, or at all.
Risks Associated with Acquisition Strategy
In order to expand Ampex's products and services, Ampex has made, and may
continue to make under the right circumstances, acquisitions of, and/or
investments in, other business entities. These entities may be involved in
producing and distributing Internet video programming or providing related
services or technology. Ampex may not be able to identify or acquire additional
acquisition candidates in the future, or complete any further acquisitions or
investments on satisfactory terms. In order to pay for future acquisitions or
investments, Ampex may have to:
. issue additional equity securities of the Company or a subsidiary, which
would dilute the ownership interest of existing Ampex stockholders;
. incur additional debt; and/or
. amortize goodwill and other intangibles or incur other acquisition-
related charges, which could materially impact earnings.
Acquisitions and investments involve numerous additional risks, including
difficulties in the management of operations, services and personnel of the
acquired companies, and of integrating acquired companies with Ampex and/or each
other's operations. Ampex may also encounter problems in entering markets and
businesses in which it has limited or no experience. Acquisitions can also
divert management's attention from other business concerns. Ampex has made and
may make additional investments in companies in which it has less than a 100%
interest. Such investments involve additional risks, including the risk that
Ampex may not be in a position to control the management or policies of such
entities, and risks of potential conflicts with other investors. Ampex has
invested in companies that are in the early stage of development and may be
expected to incur substantial losses. Ampex's financial resources may not be
sufficient to fund the operations of such companies. Accordingly, there can be
no assurance that any acquisitions or investments that Ampex has made, or may
make in the future, will result in any return, or as to the timing of any
return. During 2000, the Company elected to cease funding the operations of TV
onthe WEB, Inc. ("TV onthe WEB") and to consolidate the production activities
and website of EXBTV.com ("EXBTV") into its New York City operations and into
inextv.com, requiring certain asset writedowns, including goodwill. In
addition, Ampex elected to discontinue the operations of MicroNet, which it
acquired in 1998. In the future, it is possible that Ampex could lose all or a
substantial portion of its other investments.
Risk that the Company will be Unable to Sell Data Systems
The Company has announced its intention to sell Data Systems, which
manufactures high performance mass data storage and instrumentation products for
entertainment and government applications. For accounting purposes, the results
of operations of Data Systems have been classified as a "Business Held for Sale"
for all periods presented. At the date of these financial statements, the
Company is no longer conducting active discussions with potential buyers of Data
Systems. While Data Systems continues to be offered for sale, present economic
and market conditions indicate that consummation of a successful sale might not
occur until late in 2001 or 2002, if at all. There can be no assurance that the
Company will be able to consummate a sale, or as to the terms, conditions or
timing of any sale, if consummated. Failure to sell Data Systems would have a
significant negative impact on the
21
Company's liquidity and capital resources. See "Risks Associated with iNEXTV and
Internet Video Strategy, " above.
Risk of Leverage
As of March 31, 2001, Ampex had outstanding total borrowings of
approximately $54.6 million, which included $8.6 million of Senior Discount
Notes with an original maturity on May 31, 2001 that are being extended to
August 31, 2001, $44.0 million principal amount of 12% Senior Notes due 2003 and
$2.2 million of subsidiary indebtedness. The Senior Discount Notes are secured
by liens on the Data Systems manufacturing facilities in Colorado Springs,
Colorado and on the Company's future patent licensing income stream. As
discussed above, the Company is seeking to negotiate a sale and leaseback of
certain real estate and would apply the net proceeds to repay the Senior
Discount Notes and accrued interest.
The Company is seeking to increase its working capital facility and in the
future may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes, subject to the
restrictions in the indenture governing the Senior Notes. The degree to which
the Company is leveraged, and the types of investments it selects, could have
important consequences to investors, including the following:
. a substantial portion of the Company's consolidated cash flow from
operations must be dedicated to the payment of principal and interest on
outstanding indebtedness, and is therefore unavailable for other
purposes;
. Ampex's ability to obtain additional financing in the future for working
capital needs, capital expenditures, acquisitions and general corporate
purposes may be materially limited or impaired, or such financing may
not be available on terms favorable to Ampex;
. the Company may be more highly leveraged than its competitors, which may
place it at a competitive disadvantage;
. Ampex's leverage may make it more vulnerable to a downturn in its
business or the economy in general;
. investments in securities with lower credit quality or longer maturities
could subject the Company to potential losses due to nonpayment or
changes in market value of those securities. Transactions in derivative
securities could expose Ampex to losses caused by stock market
fluctuations; and
. the financial covenants and other restrictions contained in the Senior
Discount Notes and Senior Note indentures and other agreements relating
to Ampex's indebtedness may restrict Ampex's ability to borrow
additional funds, to dispose of assets or to pay dividends on or to
repurchase preferred or common stock.
Ampex has not received acceptable offers to purchase Data Systems.
Accordingly, it is seeking alternative capital raising strategies as discussed
above. There can be no assurance that any of these strategies will be successful
or that they will be permitted under the Senior Discount Notes or Senior Note
Indentures, if applicable.
Fluctuations in Royalty Income
Ampex's results of operations in certain prior periods reflect the receipt
of significant royalty income, including material nonrecurring payments
resulting from negotiated settlements primarily related to sales of products by
manufacturers before negotiating licenses from Ampex. Although Ampex has a
substantial number of outstanding and pending patents, and its patents have
generated substantial royalties in the past, it is not possible to
22
predict the amount of royalty income Ampex will receive in the future. Royalty
income has historically fluctuated significantly from quarter-to-quarter and
year-to-year due to a number of factors that Ampex cannot predict. These factors
include the extent to which third parties use its patented technology, the
extent to which the Company must pursue litigation in order to enforce its
patents, and the ultimate success of its licensing and litigation activities. As
the Company expands its Internet video businesses, the significance of its
royalty income, relative to operating income, is expected to increase until
those businesses become profitable. Upon an event of default, the Holders of the
Senior Discount Notes will receive additional collateral consisting of the right
to receive the proceeds of all future royalties sufficient to repay principal
and accrued interest.
The costs of patent litigation can be material. The institution of patent
enforcement litigation may also increase the risk of counterclaims alleging
infringement by Ampex of patents held by third parties or seeking to invalidate
patents held by Ampex. Moreover, there is no assurance that Ampex will continue
to develop patentable technology that will be able to generate significant
patent royalties in future years to replace patents as they expire.
Dependence on Licensed Patent Applications and Proprietary Technology
Ampex's success depends, in part, upon its ability to establish and
maintain the proprietary nature of its technology through the patent process.
There can be no assurance that one or more of Ampex's patents will not be
successfully challenged, invalidated or circumvented or that it will otherwise
be able to rely on such patents for any reason. In addition, there can be no
assurance that competitors, many of whom have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that prevent, limit or interfere with Ampex's ability to
make, use and sell its products either in the United States or in foreign
markets. If any of Ampex's patents are successfully challenged, invalidated or
circumvented or its right or ability to manufacture products were to be
proscribed or limited, Ampex's ability to continue to manufacture and market its
products could be adversely affected, which would likely have a material adverse
effect upon Ampex's business, financial condition and results of operations.
Litigation may be necessary to enforce Ampex's patents, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings brought against, initiated by or otherwise involving
Ampex may require Ampex to incur substantial legal and other fees and expenses
and may require some of its employees to devote all or a substantial portion of
their time to the prosecution or defense of such litigation or proceedings.
Rapid Technological Change and Risks of New Product and Services Development
All the industries and markets from which Ampex derives revenues, directly
or through its licensing program, are characterized by continual technological
change and the need to introduce new products, product upgrades, services and
patentable technology. This has required, and will continue to require, that
Ampex spend substantial amounts for the research, development and engineering of
new products and advances to existing products and, with respect to the
Company's Internet operations, new content and services. No assurance can be
given that Ampex's existing products, services and technologies will not become
obsolete or that any new products, services or technologies will win commercial
acceptance. Obsolescence of existing product lines, or inability to develop and
introduce new products and services, could have a material and adverse effect on
the Company's sales and results of operations in the future. The development
and introduction of new technologies, services and products are subject to
inherent technical and market risks, and there can be no assurance that Ampex
will be successful in this regard.
Competition
The market for Internet products and services is highly competitive and
characterized by multiple competitors and low barriers to entry. Ampex is
attempting to develop improvements in video quality in order to
23
differentiate itself from its competitors. However, other companies may develop
competing technologies and Ampex may be unable to obtain patent or other
protection for its Internet video technology. In addition, the market for
Internet advertising and electronic commerce, upon which iNEXTV's Internet
operations will be primarily dependent to achieve ultimate profitability, is
intensely competitive and the Company believes that competition in this field
will intensify.
Dependence on Certain Suppliers
The Company's manufacturing subsidiaries purchase certain components from a
single domestic or foreign manufacturer for use in its products. Significant
delays in deliveries or defects in such components have adversely affected
Ampex's manufacturing operations in the past, pending qualification of an
alternative supplier. In addition, Ampex produces highly engineered products in
relatively small quantities. As a result, Ampex's ability to cause suppliers to
continue production of certain products on which it may depend may be limited.
Ampex does not generally enter into long-term raw materials or components supply
contracts.
iNEXTV has contracted with a third party to provide content hosting and to
serve content to geographically dispersed users. The Company believes that this
company has built a secure and dependable network by providing sufficient
hardware and software redundancy and by physically locating its servers at
numerous different ISPs around the world. However, in the event of a major
disaster to the Internet, iNEXTV would incur significant down time in its
operations and lost revenue.
Risks Related to International Operations
International operations are subject to a number of special risks,
including limitations on repatriation of earnings, restrictive actions by local
governments, and fluctuations in foreign currency exchange rates and
nationalization. Additionally, export sales are subject to export regulation
and restrictions imposed by U.S. government agencies. Fluctuations in the value
of foreign currencies can affect Ampex's results of operations. Ampex does not
normally seek to mitigate its exposure to exchange rate fluctuations by hedging
its foreign currency positions.
The expansion of iNEXTV's European operations, which are conducted
primarily through TV1, may generate advertising and service revenues in future
periods, although the Company has not recognized any revenue to date, since it
does not presently consolidate the operations of TV1. The European operations
of iNEXTV are expected to be subject to certain risks and uncertainties,
including risks and uncertainties similar to those facing domestic development
stage Internet companies.
In January 1999, the new "Euro" currency was introduced in certain European
countries that are part of the European Monetary Union. Beginning in 2003, all
EMU countries are expected to be operating with the Euro as their single
currency. A significant amount of uncertainty exists as to the effect the Euro
will have on the marketplace generally. Some of the rules and regulations
relating to the governance of the currency have not yet been defined and
finalized. As a result, companies operating or conducting business in Europe
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling the Euro. Ampex is currently
assessing the effect the introduction of the Euro will have on its internal
accounting systems and the potential sales of its products. Ampex will take
appropriate corrective actions based on the results of such assessment. Ampex
has not yet determined the costs related to addressing this issue. This issue
is not expected to have a material adverse affect on Ampex's business.
Volatility of Stock Price
The trading price of Ampex's Common Stock has been and can be expected to
be subject to significant volatility, reflecting a variety of factors,
including:
24
. quarterly fluctuations in operating results;
. announcements of acquisitions, Internet developments or new product
introductions by Ampex or its competitors;
. announcements regarding the Company's planned sale of Data Systems;
. reports and predictions concerning the Company by analysts and other
members of the media;
. issuances of substantial amounts of Common Stock in order to redeem
outstanding shares of its Preferred Stock, or otherwise; and
. fluctuations in trading volume of the Company's Common Stock, and
general economic or market conditions.
The stock market in general, and Internet and technology companies in
particular, have experienced a high degree of price volatility, which has had a
substantial effect on the market prices of many such companies for reasons that
often are unrelated or disproportionate to operating performance. These broad
market and industry fluctuations may adversely affect the price of Ampex's
Common Stock, regardless of its operating performance. Recently, the Company has
been notified by the American Stock Exchange ("Amex") that it is initiating a
review of the Company's eligibility for continued listing. If the Company's
Common Shares become delisted from Amex, the share price might become more
volatile and an active market may no longer be maintained.
Dependence on Key Personnel
Ampex is highly dependent on its management. Ampex's success depends upon
the availability and performance of key executive officers and directors.
Except for certain employees of its Internet affiliates, the Company has not
entered into employment agreements with its key employees, and the loss of the
services of key persons could have a material adverse effect upon Ampex. The
Company does not maintain key man life insurance on any of these individuals.
Anti-Takeover Consequences of Certain Governing Instruments
Ampex's Certificate of Incorporation provides for a classified Board of
Directors, with members of each class elected for a three-year term. The
Certificate of Incorporation provides for nullification of voting rights of
certain foreign stockholders in certain circumstances involving possible
violations of security regulations of the United States Department of Defense.
The instrument governing Ampex's outstanding Preferred Stock, which has an
aggregate liquidation value of approximately $35.5 million at March 31, 2001,
requires that Ampex make mandatory offers to redeem those securities out of
legally available funds in the event of a change of control. For this purpose,
a change of control includes the following events: a person or group of people
acting together acquires 30% or more of Ampex's voting securities; Ampex merges,
consolidates or transfers all or substantially all of its assets; or the
dissolution of Ampex. The Certificate of Incorporation authorizes the Board of
Directors to issue additional shares of Preferred Stock without the vote of
stockholders. The indenture governing Ampex's outstanding Senior Notes, in the
total principal amount of $44 million, requires Ampex to offer to repurchase the
Senior Notes at a purchase price equal to 101% of the outstanding principal
amount thereof together with accrued and unpaid interest in the event of a
change of control. Under the indenture, a change of control includes the
following events: a person or group of people acting together acquires 50% or
more of the Company's voting stock; or the transfer of substantially all of the
Company's assets to any such person or group, other than to certain subsidiaries
and affiliates of Ampex. In addition, the Senior Discount Notes issued in
November 2000 are mandatorily redeemable in the event of the sale of Data
Systems or a change of control (as defined) of Ampex or Data Systems.
25
These provisions could have anti-takeover effects by making an acquisition
of Ampex by a third party more difficult or expensive in certain circumstances.
Nonpayment of Dividends
Ampex has not declared dividends on its Common Stock since its
incorporation in 1992 and Ampex has no present intention of paying dividends on
its Common Stock. Ampex is also restricted by the terms of certain agreements
and of the outstanding Preferred Stock as to the declaration of dividends.
Environmental Issues
Ampex's facilities are subject to numerous federal, state and local laws
and regulations designed to protect the environment from waste emissions and
hazardous substances. Owners and occupiers of sites containing hazardous
substances, as well as generators and transporters of hazardous substances, are
subject to broad liability under various federal and state environmental laws
and regulations, including liability for investigative and cleanup costs and
damages arising out of past disposal activities. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites located
off Company facilities. There can be no assurance Ampex will not ultimately
incur liability in excess of amounts currently reserved for pending
environmental matters, or that additional liabilities with respect to
environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital equipment
or other requirements. Such liabilities or regulations could have a material
adverse effect on Ampex in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the disclosure made in the 2000
Form 10-K.
PART II -- OTHER INFORMATION
----------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business.
In the opinion of management, no such current or pending lawsuits, either
individually or in the aggregate, are likely to have a material adverse effect
on the Company's financial condition, results of operations or cash flows.
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. Ampex is also subject to the federal Occupational
Safety and Health Act and other laws and regulations affecting the safety and
health of employees in its facilities. Management believes that Ampex is
generally in compliance in all material respects with all applicable
environmental and occupational safety laws and regulations or has plans to bring
operations into compliance. Management does not anticipate that capital
expenditures for pollution control equipment for fiscal 2001 or 2002 will be
material.
Owners and occupiers of sites containing hazardous substances, as well as
generators and transporters of hazardous substances, are subject to broad
liability under various federal and state environmental laws and regulations,
including liability for investigative and cleanup costs and damages arising out
of past disposal activities. The Company has been named as a potentially
responsible party by the United States Environmental Protection
26
Agency with respect to four contaminated sites that have been designated as
"Superfund" sites on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980. The Company is
engaged in six environmental investigation, remediation and/or monitoring
activities at sites located off Company facilities, including the removal of
solvent contamination from subsurface aquifers at a site in Sunnyvale,
California. Some of these activities involve the participation of state and
local government agencies. The other five sites (including the four Superfund
sites) are associated with the operations of the Media subsidiaries formerly
owned by the Company. Although the Company sold Media in November 1995, the
Company may have continuing liability with respect to environmental
contamination at these sites if Media fails to discharge its responsibilities
with respect to such sites. During 2000, the Company spent a total of
approximately $0.1 million in connection with environmental investigation,
remediation and monitoring activities and expects to spend a similar amount in
fiscal 2001 for such activities.
Because of the inherent uncertainty as to various aspects of environmental
matters, including the extent of environmental damage, the most desirable
remediation techniques and the time period during which cleanup costs may be
incurred, it is not possible for the Company to estimate with any degree of
certainty the ultimate costs that it may incur with respect to the currently
pending environmental matters referred to above. Nevertheless, at March 31,
2000, the Company had an accrued liability of $1.2 million for pending
environmental liabilities associated with the Sunnyvale site and certain other
sites currently owned or leased by the Company. The Company has not accrued any
liability for contingent liabilities it may incur with respect to former Media
sites discussed above. Based on facts currently known to management, management
believes it has no contingent liability in connection with such pending matters,
either individually or in the aggregate, will be material to the Company's
financial condition or results of operations or material to investors.
While the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has plans to bring operations
into compliance, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Furthermore, because the Company conducts its business in foreign
countries as well as in the U.S., it is not possible to predict the effect that
future domestic or foreign regulation could have on Ampex's business, operating
results or cash flow. There can be no assurance that the Company will not
ultimately incur liability in excess of amounts currently reserved for pending
environmental matters, or that additional liabilities with respect to
environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital equipment
or other requirements. Such liabilities or regulations could have a material
adverse effect on the Company in the future.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
For the three months ended March 31, 2001, holders of 537 shares of
Redeemable Preferred Stock exchanged their holdings into 429,600 shares of
Common Stock. No cash or other consideration was paid by the Company, directly
or indirectly, in connection with such conversion or exchange. The shares of
Class A Common Stock were issued in reliance upon the exemption from
registration contained in Section 3(a)(9) of the Securities Act of 1933, as
amended, for the issuance of securities exchanged by the issuer with the
existing security holders exclusively where no commission or other remuneration
is paid or given directly or indirectly for soliciting such exchange.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
27
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6(a). EXHIBITS
Not applicable.
ITEM 6(b). REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on May 3, 2001 containing
information under Item 5 regarding a review by the Amex of the Company's
continuing eligibility for listing.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMPEX CORPORATION
Date: May 15, 2001 /s/ EDWARD J. BRAMSON
---------------------
Edward J. Bramson
Chairman and Chief Executive Officer
Date: May 15, 2001 /s/ CRAIG L. McKIBBEN
---------------------
Craig L. McKibben
Vice President, Chief Financial Officer and
Treasurer
29