CVD Equipment Corp Reports Operating Results (10-Q)
CVD Equipment Corp. designs, develops, manufactures, markets, installs and services equipment primarily for the semiconductor industry. The company's products include both batch and single substrate systems used for depositing, rapid thermal processing, annealing, diffusion and etching of semiconductor films, gas and liquid flow control systems and ultra high purity gas and chemical piping delivery systems. The company also fabricates standard and custom quartzware, and offers equipment consulting and refurbishing of semiconductor processing equipment. Cvd Equipment Corp has a market cap of $20 million; its shares were traded at around $4.2 with a P/E ratio of 38.18 and P/S ratio of 1.1. Highlight of Business Operations:We incurred approximately $2,867,000 of general and administrative expenses during the nine months ended September 30, 2009, compared to approximately $2,987,000 of general and administrative expenses incurred in the nine months ended September 30, 2008, representing a decrease of approximately $120,000 or 4.0%. This decline was comprised mainly of additional workers compensation costs of $168,000 incurred during the first nine months of 2008, as result of a shortfall in a self-insured workers compensation trust fund, in which we were a member from January 2000 through March 2006. Those costs were incurred as a result of the findings of a forensic audit performed on the Manufacturing Industry Workers Compensation Self-Insurance Trust Fund (the “Fund”). We are no longer a member of the Fund. The Fund was established to enable the participating employers to self insure their workers compensation liability exposure as provided for under the Workers Compensation Laws of the State of New York. Under the terms of the agreement, we are jointly and severally liable for the expenses and obligations of the Fund and for the workers compensation liability of all participating employers incurred while we were a member. We were advised that certain adjustments were necessary to comply with New York State Workers Compensation Board regulatory guidelines for group self insurance trusts. The contributions previously charged have not been adequate to cover Fund expenses including future claims. As a result, we were advised that additional contributions of approximately $168,000 were required, which we expensed in full during the nine months ended September 30, 2008. There may be additional contributions necessary as a result of any outstanding residual liability for any given contribution year. We are accruing an additional $5,000 per quarter for this potential liability based on our best estimate of anticipated future liabilities.
As a result of the foregoing factors, operating income was approximately $182,000 for the three months ended September 30, 2009, which represents an increase of 163.8% compared to operating income of $69,000 for the three month period ended September 30, 2008. This increase can be primarily attributable to the revised estimated cost to complete and recognize revenue under a long-term contract as previously discussed. For the nine months ended September 30, 2009 our operating income was approximately $99,000 compared to approximately $137,000 for the nine months ended September 30, 2008 a decrease of 27.7%. This is primarily a result of the decrease in revenue attributed to continued delays or reductions in capital expenditures by potential customers as a result of current economic conditions.
Interest income for the three and nine months ended September 30, 2009 was approximately $6,000 and $29,000 respectively, compared to approximately $21,000 and $80,000 for the three and nine months ended September 30, 2008. This decrease is a result both a reduction in available cash as well as investing cash in more conservative investments such as short-term treasury bonds and certificates of deposit, with lower returns than we previously received on money market funds. Interest expense for the three and nine months ended September 30, 2009 was $62,000 and $189,000 respectively, compared to approximately $58,000 and $163,000 for the three and nine months ended September 30, 2008. The primary source of this interest expense is from the mortgages on the three buildings that we own. The increase for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 is attributable to a full nine months of interest expense in 2009 on the mortgage on the building we purchased in February, 2008. As a result of equipment purchases, we have utilized $382,000 of our credit facility with Capital One, N.A. and converted it into term loans.
Other income during the three and nine months ended September 30, 2009 was approximately $10,000 and $22,000 respectively, compared to approximately $157,000 and $170,000 respectively for the three and nine months ended September 30, 2008. Other income is primarily comprised of the cash received when selling excess scrap metal throughout the year.
For the nine months ended September 30, 2009, we recorded a current income tax expense of approximately $91,000 that was reduced by the recognition of deferred tax benefits of approximately $157,000 which provided a net tax benefit of $66,000 for that period, compared to a current income tax expense of $207,000 that was reduced by the recognition of the deferred tax benefits of approximately $138,000 which resulted in a net tax expense of approximately $69,000 for the nine months ended September 30, 2008.
As of September 30, 2009, we had aggregate working capital of approximately $9,908,000 and cash and cash equivalents of $4,775,000 compared to $9,849,000 and $5,721,000 respectively at December 31, 2008, an increase in working capital of $59,000 and a decrease in cash and cash equivalents of $946,000, respectively. The decrease in cash and cash equivalents was primarily the result of the funding for partially completed projects, purchases of capital equipment and the reduction of long-term debt.
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