UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
- ----- OF 1934 For the transition period from __________ to ____________
Commission file number 0-21321
CYMER, INC.
(Exact name of registrant as specified in its charter)
Nevada 33-0175463
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16750 Via Del Campo Court, San Diego, CA 92127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 385-7300
Former name, former address and former fiscal year, if changed since last
report.
N/A
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
----- -----
The number of shares of Common Stock, with $0.001 par value, outstanding on
November 9, 2000 was 29,419,921.
CYMER, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of December 31, 3
1999 and September 30, 2000
Consolidated Statements of Operations for the 4
three and nine months ended September 30, 1999 and 2000
Consolidated Statements of Cash Flows for the 5
nine months ended September 30, 1999 and 2000
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About 27
Market Risk
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 29
ITEM 2. Changes in Securities and Use of Proceeds 29
ITEM 3. Defaults upon Senior Securities 29
ITEM 4. Submission of Matters to a Vote of Security Holders 29
ITEM 5. Other Information 29
ITEM 6. Exhibits and Reports on Form 8-K 29
SIGNATURE PAGE 30
2
PART I. FINANCIAL INFORMATION
CYMER, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
ASSETS 1999 2000
CURRENT ASSETS:
Cash and cash equivalents $ 75,765 $ 96,295
Short-term investments 97,564 108,584
Accounts receivable - net 68,961 82,914
Foreign exchange contracts receivable 21,706 28,686
Inventories 51,409 74,480
Deferred income taxes 16,360 16,349
Prepaid expenses and other 3,110 4,472
------------------- -------------------
Total current assets 334,875 411,780
PROPERTY - net 56,921 81,796
LONG-TERM INVESTMENTS 19,760 6,022
DEFERRED TAXES - NON-CURRENT 8,562 6,855
OTHER ASSETS 6,413 6,221
------------------- -------------------
TOTAL ASSETS $426,531 $512,674
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,599 $ 31,573
Accrued and other liabilities 52,002 65,653
Foreign exchange contracts payable 24,276 27,735
Income taxes payable 6,482 9,134
Revolving loan 18,395 17,360
------------------- -------------------
Total current liabilities 121,754 151,455
LONG-TERM LIABILITIES:
Convertible subordinated notes 172,500 172,335
Other liabilities 3,271 3,224
MINORITY INTEREST 2,113 1,871
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred Stock - authorized 5,000,000 shares; $.001 par value,
no shares issued or outstanding - -
Common stock - authorized 50,000,000 shares; $.001 par value,
issued and outstanding 28,435,000 and 29,349,000 shares 28 29
Paid-in capital 125,623 136,716
Treasury stock at cost (2,000,000 common shares) (24,871) (24,871)
Accumulated other comprehensive loss (3,620) (1,173)
Retained earnings 29,733 73,088
------------------- -------------------
Total stockholders' equity 126,893 183,789
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $426,531 $512,674
=================== ===================
See notes to unaudited consolidated financial statements.
3
CYMER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ---------------------------
1999 2000 1999 2000
REVENUES:
Product sales $58,834 $97,909 $142,036 $264,242
Other 100 518 399 1,052
------------- ------------- ------------ ------------
Total revenues 58,934 98,427 142,435 265,294
------------- ------------- ------------ ------------
COSTS AND EXPENSES:
Cost of product sales 36,803 50,038 93,314 139,834
Research and development 9,616 12,167 24,931 33,569
Sales and marketing 4,379 5,668 11,375 14,204
General and administrative 3,422 5,970 9,388 15,267
------------- ------------- ------------ ------------
Total costs and expenses 54,220 73,843 139,008 202,874
------------- ------------- ------------ ------------
OPERATING INCOME 4,714 24,584 3,427 62,420
------------- ------------- ------------ ------------
OTHER INCOME (EXPENSE):
Foreign currency exchange gain (loss) - net 246 (385) 172 (405)
Interest and other income 1,809 2,849 5,226 8,023
Interest and other expense (3,183) (1,945) (8,753) (8,108)
------------- ------------- ------------ ------------
Total other income (expense) - net (1,128) 519 (3,355) (490)
------------- ------------- ------------ ------------
INCOME BEFORE INCOME TAX
PROVISION AND MINORITY INTEREST 3,586 25,103 72 61,930
------------- ------------- ------------ ------------
INCOME TAX PROVISION - 6,912 - 17,960
MINORITY INTEREST (136) (102) (409) (431)
------------- ------------- ------------ ------------
NET INCOME (LOSS) $3,450 $18,089 ($337) $ 43,539
============= ============= ============ ============
EARNINGS (LOSS) PER SHARE:
Basic:
Earnings (loss) per share $0.12 $0.62 ($0.01) $1.50
============= ============= ============ ============
Weighted average common shares outstanding 28,046 29,226 27,748 29,002
============= ============= ============ ============
Diluted:
Earnings (loss) per share $0.12 $0.58 ($0.01) $1.40
============= ============= ============ ============
Weighted average common and potential
common shares outstanding 29,145 30,974 27,748 31,021
============= ============= ============ ============
See notes to unaudited consolidated financial statements.
4
CYMER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
- -------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1999 2000
OPERATING ACTIVITIES:
Net income (loss) ($337) $43,539
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 13,092 14,252
Minority interest 409 431
Deferred income taxes (1,114) -
Loss on disposal or impairment of property and equipment 307 1,815
Change in assets and liabilities:
Accounts receivable - net (8,168) (17,057)
Foreign exchange contracts receivable 6,530 (8,283)
Inventories (3,904) (24,402)
Prepaid expenses and other assets (885) (6,877)
Accounts payable 5,492 11,048
Accrued and other liabilities 13,277 20,459
Foreign exchange contracts payable (7,582) 4,872
Income taxes payable 156 2,718
---------------- ----------------
Net cash provided by operating activities 17,273 42,515
---------------- ----------------
INVESTING ACTIVITIES:
Acquisition of property (15,004) (40,618)
Purchases of investments (98,114) (133,969)
Proceeds from sold or matured investments 97,829 136,804
Acquisition of minority interest - (1,104)
---------------- ----------------
Net cash used in investing activities (15,289) (38,887)
---------------- ----------------
FINANCING ACTIVITIES:
Net borrowings under revolving loan and security agreements 4,808 -
Proceeds from issuance of common stock 5,501 10,929
Dividends paid to minority shareholder of foreign subsidiary - (183)
Payments on capital lease obligations (433) (429)
---------------- ----------------
Net cash provided by financing activities 9,876 10,317
---------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (3,966) 6,585
---------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,894 20,530
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53,130 75,765
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $61,024 $96,295
================ ================
5
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid (net of amounts capitalized) $ 6,455 $ 6,245
Income taxes paid $ 2,286 $13,659
================ ===============
SUPPLEMENTAL DISCLOSURE OF NON CASH FLOW ACTIVITIES:
Conversion of subordinated notes to equity - $ 165
================ ===============
See notes to unaudited consolidated financial statements.
6
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared
by Cymer, Inc., and its wholly-owned and majority-owned subsidiaries
(collectively "Cymer"), without audit, in accordance with the instructions to
Form 10-Q and therefore does not include all information and footnotes necessary
for a fair presentation of financial position, results of operations and cash
flows in accordance with generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Cymer, Inc., its wholly-owned subsidiaries, Cymer Japan,
Inc. "Cymer Japan", Cymer Singapore Pte Ltd. "Cymer Singapore", Cymer B.V. in
the Netherlands "Cymer B.V.", and Cymer Southeast Asia, Inc., in Taiwan "Cymer
SEA" and its majority-owned subsidiary, Cymer Korea, Inc. "Cymer Korea". Cymer,
Inc. owns 70% of Cymer Korea. During the first quarter of 2000, Cymer, Inc.
acquired the 25% minority interest in Cymer SEA for $1,104,000. Cymer sells its
excimer lasers in Japan primarily through Cymer Japan. Cymer Korea, Cymer SEA,
Cymer Singapore and Cymer B.V. are field service offices for customers in those
regions. All significant intercompany balances have been eliminated in
consolidation.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
UNAUDITED INTERIM FINANCIAL DATA - In the opinion of management, the
unaudited consolidated financial statements for the interim periods presented
reflect all adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the financial position and results of operations as
of and for such periods indicated. These consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Cymer's Annual Report on Form 10-K
(including items incorporated by reference therein) for the year ended December
31, 1999. Results for the interim periods presented herein are not necessarily
indicative of results which may be reported for any other interim period or for
the entire fiscal year.
RECLASSIFICATIONS - Certain amounts in the prior years' financial
statements have been reclassified to conform to current period presentation.
2. EARNINGS PER SHARE
EARNINGS PER SHARE - Basic earnings per share ("EPS") excludes dilution
and is computed by dividing net income or loss attributable to common
stockholders by the weighted-average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (convertible preferred
stock, warrants to purchase common stock and common stock options using the
treasury stock method) were exercised or converted into common stock. Potential
common shares in the diluted EPS computation are excluded in net loss periods as
their effect would be anti-dilutive.
7
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
1999 2000 1999 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss) $3,450 $18,089 ($337) $43,539
============ =========== =========== ===========
Basic earnings (loss) per share $0.12 $0.62 ($0.01) $1.50
============ =========== =========== ===========
Basic weighted average common shares
outstanding 28,046 29,226 27,748 29,002
Effect of dilutive securities:
Warrants 67 33 - 34
Options 1,032 1,715 - 1,985
------------ ----------- ----------- -----------
Diluted weighted average common and potential
common shares outstanding 29,145 30,974 27,748 31,021
============ =========== =========== ===========
Diluted earnings (loss) per share $0.12 $0.58 ($0.01) $1.40
============ =========== =========== ===========
For the three months ended September 30, 1999 and 2000, weighted
average options and warrants to purchase 108,000 and 366,000 shares of common
stock, respectively, were outstanding but not included in the computation of
diluted earnings per share as their effect was anti-dilutive. In addition, for
the three months ended September 30, 1999 and 2000, weighted average common
shares attributable to convertible subordinated notes of 3,670,213 and
3,666,703, respectively, were not included in the calculation of diluted
earnings per share as they were also anti-dilutive.
For the nine months ended September 30, 1999 and 2000, weighted
average options and warrants to purchase 224,000 and 118,000 shares of common
stock, respectively, were outstanding but not included in the computation of
earnings per share as their effect was anti-dilutive. In addition, for the
nine months ended September 30, 1999 and 2000, weighted average common shares
attributable to convertible subordinated notes of 3,670,213 and 3,667,084,
respectively, were not included in the calculation of diluted earnings per
share as they were also anti-dilutive.
3. BALANCE SHEET DETAILS
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------------ ------------------
(IN THOUSANDS)
INVENTORIES:
Raw materials $ 16,199 $ 19,134
Work-in-progress 18,661 28,187
Finished goods 28,849 39,659
------------------ ------------------
63,709 86,980
Allowance for excess and obsolete (12,300) (12,500)
------------------ ------------------
Total $ 51,409 $ 74,480
================== ==================
ACCRUED AND OTHER LIABILITIES:
Warranty and installation reserves $ 24,600 $ 33,800
Payroll and payroll related 11,662 15,452
Interest 11,371 12,605
Other 4,369 3,796
================== ==================
Total $ 52,002 $ 65,653
================== ==================
8
4. REPORTING COMPREHENSIVE INCOME
The accumulated balance of other comprehensive income (loss) is
disclosed as a separate component of stockholders' equity. For Cymer,
comprehensive income includes foreign currency translation adjustments and
unrealized holding gains and losses on available-for-sale securities, which are
recorded on short-term and long-term investments in the accompanying
consolidated balance sheet.
The following table summarizes the change in each component of
accumulated other comprehensive loss for the periods ended December 31, 1999 and
September 30, 2000:
Total unrealized
gains (losses) on Accumulated
Translation available-for-sale other
adjustment, investments, comprehensive
net of tax net of tax income (loss)
---------------- --------------------- ------------------
January 1, 1999 Balance ($1,862) $ 235 ($1,627)
Period net change (1,719) (274) (1,993)
---------------- --------------------- ------------------
December 31, 1999 Balance (3,581) (39) (3,620)
Period net change 2,378 69 2,447
================ ===================== ==================
September 30, 2000 Balance ($1,203) $30 ($1,173)
================ ===================== ==================
5. CLASS ACTION LAWSUITS
Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between April 24, 1997 and September 26, 1997 (the "Class Period"). The
complaints allege claims under the federal securities laws. The plaintiffs
allege that Cymer and the other defendants made various material
misrepresentations and omissions during the Class Period. The complaints do not
specify the amount of damages sought. The complaints have been consolidated into
a single action and a class representative has been appointed by the court. A
consolidated amended complaint was filed in early August 1999. On November 5,
1999, Cymer and the other defendants filed a motion to dismiss the consolidated
amended claim for failure to state a cause of action. On April 1, 2000, the
court granted defendant's motion to dismiss with leave to amend the complaint by
the plaintiffs. The plaintiffs filed their second amended complaint on June 5,
2000. Cymer moved to dismiss the amended complaint on August 4, 2000. Cymer
believes it has meritorious defenses to the claims asserted and intends to
defend the action vigorously. Accordingly, no provision for any liability or
loss that may result from adjudication or settlement thereof has been made in
the accompanying consolidated financial statements.
6. CONVERTIBLE SUBORDINATED NOTES
In the first quarter of 2000, $165,000 of Cymer's subordinated notes
were converted to 3,510 shares of common stock.
7. STOCKHOLDERS' EQUITY
2000 NONSTATUTORY STOCK OPTION PLAN ( THE "PLAN" ) - On August 16,
2000, Cymer adopted the 2000 Nonstatutory Stock Option Plan under which the
maximum aggregate number of shares which may be sold and issued is 500,000.
The shares may be authorized, but unissued, or reacquired common stock. Options
may only be granted to employees or consultants who are neither directors nor
officers. The Plan will be administered by the Board of Directors or a
9
committee appointed by the Board of Directors, which will determine the terms
of the options, including the exercise price and the number of options
granted. The 2000 Nonstatutory Stock Option Plan will be in effect for ten
years from the adoption by the Board of Directors unless terminated sooner
under the terms of the Plan. The exercise price of the options granted under
the Plan will equal the quoted market value of the common stock at the date
of grant. Options issued under the 2000 Nonstatutory Stock Option Plan
generally become exercisable ratably over a four year period following the
date of grant.
8. CONTINGENCIES
Cymer's Japanese manufacturing partner and at least one of Cymer's
Japanese customers have been notified that Cymer's laser systems in Japan may
infringe certain Japanese patents held by another Japanese company. Cymer has
agreed to indemnify its Japanese manufacturing partner and its customers against
patent infringement claims under certain circumstances. Cymer believes, based
upon the advice of counsel, that Cymer's products do not infringe any valid
claim of the asserted patents or that it is entitled to prior user rights in
Japan.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AN ASTERISK ("*") DENOTES A FORWARD-LOOKING STATEMENT REFLECTING
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
STOCKHOLDERS OF CYMER, INC. (TOGETHER WITH ITS WHOLLY-OWNED AND MAJORITY-OWNED
SUBSIDIARIES, COLLECTIVELY, "CYMER") SHOULD CAREFULLY REVIEW THE CAUTIONARY
STATEMENTS SET FORTH IN THIS FORM 10Q, INCLUDING "RISK FACTORS" BEGINNING ON
PAGE 17 HEREOF. CYMER MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN CYMER'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO STOCKHOLDERS.
CYMER DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF CYMER.
RESULTS OF OPERATIONS
The following table sets forth certain items in Cymer's consolidated
statements of operations as a percentage of total revenues for the periods
indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 2000 1999 2000
Revenues:
Product sales 99.8% 99.5% 99.7% 99.6%
Other .2 .5 .3 .4
------------ ----------- ----------- ------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of product sales 62.5 50.8 65.5 52.7
Research and development 16.3 12.3 17.5 12.7
Sales and marketing 7.4 5.8 8.0 5.3
General and administrative 5.8 6.1 6.6 5.8
------------ ----------- ----------- ------------
Total costs and expenses 92.0 75.0 97.6 76.5
------------ ----------- ----------- ------------
Operating income 8.0 25.0 2.4 23.5
Other income (expense) - net (1.9) .5 (2.3) (.2)
------------ ----------- ----------- ------------
Income (loss) before provision for
income taxes and minority interest 6.1 25.5 .1 23.3
Provision for income taxes - 7.0 - 6.8
Minority interest (.2) (.1) (.3) (.1)
------------ ----------- ----------- ------------
Net income (loss) 5.9% 18.4% (.2%) 16.4%
------------ ----------- ----------- ------------
Gross margin on product sales 37.4% 48.9% 34.3% 47.1%
------------ ----------- ----------- ------------
11
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
REVENUES. Cymer's total revenues consist of product sales, which
include sales of laser systems, spare parts, service and training, and other
revenues, which primarily include revenues from funded development activities
performed for SEMATECH. Revenue from product sales is generally recognized at
the time of shipment, unless customer agreements contain inspection, acceptance
or other conditions, in which case revenue is recognized at the time such
conditions are satisfied. Funded development contracts are accounted for on the
percentage-of-completion method based on the relationship of costs incurred to
total estimated costs, after giving effect to estimates of costs to complete the
development project.
Product sales increased 66% from $58.8 million in the three months
ended September 30, 1999 to $97.9 million in the three months ended September
30, 2000, primarily due to increased sales of DUV photolithography laser
systems. Due to the increase in Cymer's installed base of lasers, Cymer's
revenues from spares, replacement parts and services has increased and has
become a larger component of product sales. Funded development revenues
increased from $100,000 for the three months ended September 30, 1999 to
$518,000 for the three months ended September 30, 2000, primarily due to the
completion of milestones on laser research projects in 1999 compared to the
addition of new research projects in 2000. All laser research projects for the
three months ended September 30, 1999 and 2000, respectively, were sponsored by
SEMATECH.
Cymer's sales are generated primarily by shipments to customers in
Japan, the Netherlands, and the United States. Approximately 88%, 85% and 88% of
Cymer's sales in 1998, 1999 and the first nine months of 2000, respectively,
were derived from customers outside the United States. Cymer maintains a
wholly-owned Japanese subsidiary which sells to Cymer's Japanese customers.
Revenues from Japanese customers, generated primarily by this subsidiary,
accounted for 48%, 37% and 42% of revenues for 1998, 1999 and the first nine
months of 2000, respectively. The activities of Cymer's Japanese subsidiary are
limited to sales and service of products purchased by the subsidiary from the
parent corporation. Costs of development and the majority of the production
costs of Cymer's products, including costs of shipment to Japan, are recorded on
the books of the parent company. Cymer anticipates that international sales will
continue to account for a significant portion of its net sales.*
COST OF PRODUCT SALES. Cost of product sales includes direct material
and labor, warranty expenses, license fees, manufacturing and service overhead,
and foreign exchange gains and losses on foreign currency exchange contracts
associated with purchases of Cymer's products by the Japanese subsidiary for
resale under firm third-party sales commitments.
Cost of product sales increased 36% from $36.8 million for the three
months ended September 30, 1999 to $50.0 million for the three months ended
September 30, 2000 due to the increase in sales volume. The gross margin on
these sales increased from 37.4% for the three months ended September 30, 1999
to 48.9% for the same three month period in 2000. This increase was primarily
due to increased product sales absorbing fixed manufacturing facility costs and
reduced costs due to improved efficiencies in some manufacturing processes.
Net gains or losses from foreign currency exchange contracts are
included in cost of product sales in the consolidated statements of operations
as the related sales are recognized. Cymer recognized a net loss on such
contracts of $187,000 for the three months ended September 30, 1999 and a net
gain of $944,000 for the three months ended September 30, 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses include
costs of internally-funded and externally-funded projects as well as continuing
research support expenses which primarily include employee and material costs,
depreciation of equipment and other engineering related costs. Research and
development expenses increased 27% from $9.6 million for the three months ended
September 30, 1999 to $12.2 million for the three months ended September 30,
2000, due primarily to increased product development efforts related to an
12
increase in projected product introductions. Research and development
expenses in 1999 consisted primarily of costs associated with the development
of the Orion or ELS-6000 laser system. During the third quarter of 2000, the
increased expenses reflect the continued development efforts for the ELS-6000
and ELS-6010 laser systems, as well as the initial stages of development for
the 6000A series argon fluoride laser. Research and development expenses were
also higher for the three months ended September 30, 2000 as compared to the
same period in 1999 due to increased staffing levels to support product
introductions and allocated costs associated with the move from the existing
research and development leased facility into a new Cymer owned facility,
both located in San Diego, California. As a percentage of total revenues,
such expenses decreased from 16.3% to 12.3% in the respective periods due to
substantially increased revenues.
SALES AND MARKETING. Sales and marketing expenses include the expenses
of the sales, marketing and customer support staffs and other marketing
expenses. Sales and marketing expenses increased 29% from $4.4 million for the
three months ended September 30, 1999 to $5.7 million for the three months ended
September 30, 2000 due primarily to increased staffing levels and the associated
recruiting and relocation expenses. As a percentage of total revenues, such
expenses decreased from 7.4% to 5.8% in the respective periods due to
substantially increased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of management and administrative personnel costs, professional
services and administrative operating costs. General and administrative expenses
increased 74% from $3.4 million in the three months ended September 30, 1999 to
$6.0 million for the three months ended September 30, 2000, due to continued
process quality development efforts, including the implementation and on going
support of a new Enterprise Resource Planning ("ERP") system which is currently
in process and the required general and administrative support activities.
General and administrative expenses for the three months ended September 30,
2000 were also increased from those in the same period of 1999 due to expenses
associated with the write off of computer systems made obsolete by the new ERP
system. As a percentage of total revenues, such expenses increased from 5.8% to
6.1% from period to period.
OTHER INCOME (EXPENSE) - NET. Net other income (expense) consists
primarily of interest income and expense and foreign currency exchange gains and
losses associated with fluctuations in the value of the Japanese yen against the
United States dollar. For the three months ended September 30, 1999, net other
expense totaled $1.1 million as compared to net other income of $519,000 for the
three months ended September 30, 2000. This change from net other expense to net
other income was primarily due to an increase in interest income associated with
higher market yields in 2000 on the investment of increased cash balances offset
by foreign exchange losses. Foreign currency exchange gains totaled $246,000,
interest income totaled $1.8 million, interest expense totaled $3.2 million, and
other expense totaled $263,000 for the three months ended September 30, 1999,
compared to an exchange loss of $385,000, interest income of $2.8 million,
interest expense of $2.4 million, and other income of $430,000 for the three
months ended September 30, 2000. Other income for the three months ended
September 30, 2000 is primarily due to a reclassification from second quarter to
third quarter results for costs associated with computer systems made obsolete
by the new ERP system.
Cymer's results of operations are subject to fluctuations in the value
of the Japanese yen against the United States dollar. Sales by Cymer to its
Japanese subsidiary are denominated in dollars, and sales by the subsidiary to
customers in Japan are denominated in yen. Cymer's Japanese subsidiary manages
its exposure to such fluctuations by entering into foreign currency exchange
contracts to hedge its purchase commitments to Cymer. The gains or losses from
these contracts are recorded as a component of cost of product sales, while the
remaining foreign currency exposure is recorded as other income (expense) in the
consolidated statements of operations. Gains and losses resulting from foreign
currency translation are accumulated as a separate component of consolidated
stockholders' equity.
13
INCOME TAX PROVISION. The tax provision of zero reported for the three
months ended September 30, 1999 reflects an annual effective tax rate of 0%. The
provision for income taxes for the three months ended September 30, 2000 of $6.9
million reflects an annual effective tax rate of 28%. The annual effective tax
rates for both periods are less than the U.S. statutory rate of 35% primarily as
a result of permanent book/tax differences and tax credits.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
REVENUES. Product sales increased 86% from $142.0 million for the nine
months ended September 30, 1999 to $264.2 million in the nine months ended
September 30, 2000, primarily due to increased sales of DUV photolithography
laser systems. Due to the increase in Cymer's installed base of lasers, Cymer's
revenues from spares, replacement parts and services has increased and has
become a larger component of product sales. Funded development revenues
increased from $399,000 for the nine months ended September 30, 1999 to $1.1
million for the nine months ended September 30, 2000, primarily due to the
completion of milestones on laser research projects in 1999 as compared to the
addition of new research projects in 2000. All laser research projects for the
first nine months of 1999 and 2000, respectively, were sponsored by SEMATECH.
COST OF PRODUCT SALES. Cost of product sales increased 50% from $93.3
million for the nine months ended September 30, 1999 to $139.8 million for the
nine months ended September 30, 2000 due to the increase in sales volume. The
gross margin on these sales increased from 34.3% for the nine months ended
September 30, 1999 to 47.1% for the same nine month period in 2000. This
increase was primarily due to increased product sales absorbing fixed
manufacturing facility costs and continuous improvements in efficiencies in some
manufacturing processes.
Net gains or losses from foreign currency exchange contracts are
included in cost of product sales in the consolidated statements of operations
as the related sales are recognized. Cymer recognized a net loss on such
contracts of $1.0 million for the nine months ended September 30, 1999 compared
to a net gain of $2.3 million for the nine months ended September 30, 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
35% from $24.9 million for the nine months ended September 30, 1999 to $33.6
million for the nine months ended September 30, 2000, due primarily to increased
product development efforts related to an increase in projected product
introductions. Research and development expenses in 1999 consisted of costs
associated with the development of the Orion or ELS-6000 laser system. During
the first nine months of 2000, the increased expenses reflect the continued
development efforts for the ELS-6000 laser system as well as ELS-6010 laser and
argon fluoride laser development. In addition, research and development expenses
were higher for the first nine months of 2000 as compared to 1999 due to
increased staffing levels to support product introductions and allocated costs
associated with the move from the existing research and development leased
facility into the new Cymer owned facility, both located in San Diego,
California. As a percentage of total revenues, such expenses decreased from
17.5% to 12.7% in the respective periods due to substantially increased
revenues.
SALES AND MARKETING. Sales and marketing expenses increased 25% from
$11.4 million for the nine months ended September 30, 1999 to $14.2 million for
the nine months ended September 30, 2000 due primarily to increased staffing
expenses, including recruiting costs due to expanded operations in the areas of
product marketing and sales administration. As a percentage of total revenues,
such expenses decreased from 8.0% to 5.3% in the respective periods due to
substantially increased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased 63% from $9.4 million in the nine months ended September 30, 1999 to
$15.3 million for the nine months ended September 30, 2000, due to the continued
process quality development efforts, including the implementation and on going
support of a new Enterprise Resource Planning ("ERP") system which is currently
in process and the required general and administrative support activities.
14
General and administrative expenses for the nine months ended September 30, 2000
were also increased from those in the same period of 1999 due to expenses
associated with the write off of computer systems made obsolete by the new ERP
system. As a percentage of total revenues, such expenses decreased from 6.6% to
5.8% from period to period.
OTHER INCOME (EXPENSE) - NET. Net other expense decreased from $3.4
million for the nine months ended September 30, 1999 to $490,000 for the nine
months ended September 30, 2000, primarily due to the increase in interest
income associated with higher market yields in 2000 on the investment of
increased cash balances. Foreign currency exchange gains totaled $172,000,
interest income totaled $5.2 million, interest expense totaled $8.4 million, and
other expense totaled $308,000 for the nine months ended September 30, 1999,
compared to an exchange loss of $405,000, interest income of $8.0 million,
interest expense of $8.0 million, and other expense of $63,000 for the nine
months ended September 30, 2000.
Cymer's results of operations are subject to fluctuations in the value
of the Japanese yen against the United States dollar. Sales by Cymer to its
Japanese subsidiary are denominated in dollars, and sales by the subsidiary to
customers in Japan are denominated in yen. Cymer's Japanese subsidiary manages
its exposure to such fluctuations by entering into foreign currency exchange
contracts to hedge its purchase commitments to Cymer. The gains or losses from
these contracts are recorded as a component of cost of product sales, while the
remaining foreign currency exposure is recorded as other income (expense) in the
consolidated statements of operations. Gains and losses resulting from foreign
currency translation are accumulated as a separate component of consolidated
stockholders' equity.
INCOME TAX PROVISION. The tax provision for the nine months ended
September 30, 1999 reflects an annual effective tax rate of 0%. The provision
for income taxes for the nine months ended September 30, 2000 of $18.0 million
reflects an annual effective tax rate of 29%. The annual effective tax rates for
both periods are less than the U.S. statutory rate of 35% primarily as a result
of permanent book/tax differences and tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Since its initial public offering and a second public offering, both in
1996, Cymer has funded its operations primarily through a convertible
subordinated note offering on August 6, 1997, which generated $167.3 million in
net proceeds, and from bank borrowings, cash flow from operations and the
proceeds from employee stock option exercises. As of September 30, 2000, Cymer
had approximately $96.3 million in cash and cash equivalents, $108.6 million in
short-term investments, $6.0 million in long-term investments, $260.3 million in
working capital and $17.4 million in bank debt.
Net cash provided by operating activities was approximately $17.3
million and $42.5 million for the nine months ended September 30, 1999 and 2000,
respectively. The increase in cash was due primarily to Cymer's improved
profitable operations. For the nine months ended September 30, 1999, a net loss
of $337,000 was recorded versus net income of $43.5 million for the nine months
ended September 30, 2000. Increases in inventory, accounts receivable, and
income taxes payable resulted from increased revenues and bookings during the
nine months ended September 30, 2000 and were offset by increases in accounts
payable and accrued and other liabilities during the same period.
Net cash used in investing activities was approximately $15.3 million
and $38.9 million for the nine months ended September 30, 1999 and 2000,
respectively. The increase in cash used in investing activities for the nine
months ended September 30, 1999 as compared to the same period in 2000 is
primarily attributable to the continued investment in property acquisitions to
accommodate the increased business activity. Included in these property
acquisitions are the construction of an additional facility at the San Diego,
California location, as well as the implementation and on going support of a new
ERP system. In addition, $1.1 million in cash was used for the acquisition of
the minority shareholder interest in Cymer's Taiwan subsidiary during the first
nine months of 2000.
15
Net cash provided by financing activities was approximately $9.9
million and $10.3 million for the nine months ended September 30, 1999 and 2000,
respectively. The net cash provided by financing activities for the nine months
ended September 30, 1999 was primarily attributable to $4.8 million in bank
borrowings in Japan and the receipt of $5.5 million upon the issuance of common
stock due to the exercising of stock options by Cymer employees. For the period
ended September 30, 2000, the cash provided was attributable to the receipt of
$10.9 million upon issuance of common stock due to employee stock option
exercises offset by dividends paid to the minority shareholders of a foreign
subsidiary and payments on capital lease obligations.
Cymer requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. Cymer's future capital requirements will depend on many factors,
including the rate of Cymer's manufacturing expansion, the timing and extent of
spending to support product development efforts and expansion of sales and
marketing and field service and support, the timing of introductions of new
products and enhancements to existing products, and overall industry conditions.
Cymer believes that it has sufficient working capital and available bank credit
to sustain operations and provide for the future expansion of its business over
the next twelve months.*
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
new standard, as amended, will become effective for Cymer for the first quarter
of 2001. Interim reporting for this standard will be required. Cymer has not yet
assessed the effect of this standard on Cymer's current reporting and
disclosures.
In December 1999, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." SAB 101
provides guidance on the ability to recognize revenue when it is realized or
realizable and earned. Subsequently, the Staff issued SAB 101B, which delayed
the required implementation until the fourth fiscal quarter for years beginning
after December 15, 1999. SAB 101 requires companies currently not in compliance
to retroactively apply the SAB to all periods presented. Cymer is evaluating the
impact of the adoption of SAB 101 and does not anticipate that it will have a
material impact on Cymer's financial condition or results of operations.
16
RISK FACTORS
LIKELY FLUCTUATIONS IN OPERATING RESULTS
CERTAIN FACTORS CAUSING FLUCTUATIONS
Cymer's operating results have in the past fluctuated and are likely in
the future to fluctuate significantly. These fluctuations depend on a variety of
factors which may include:
- the demand for semiconductors in general and, in particular,
for leading edge devices with smaller circuit geometries;
- the rate at which semiconductor manufacturers take delivery of
photolithography tools from Cymer's customers and rate at
which those customers take delivery of lightsources from
Cymer;
- cyclicality in the market for semiconductor manufacturing
equipment;
- the timing and size of orders from Cymer's small base of
customers;
- the ability of Cymer to manufacture, test and deliver laser
systems in a timely and cost effective manner;
- the mix of laser models, replacement parts and service
revenues;
- the ability of Cymer's competitors to obtain orders from
Cymer's customers;
- the entry of new competitors into the market for DUV
photolithography illumination sources;
- the ability of Cymer to manage its costs as it supplies its
products in higher volumes and multiple different models; and
- Cymer's ability to effectively manage its exposure to foreign
currency exchange rate fluctuations, principally with respect
to the Japanese yen (in which sales by Cymer's Japanese
subsidiary are denominated).
In addition, as customers become more efficient at integrating Cymer's lasers
into their photolithography tools, reductions in customer laser inventories may
affect Cymer's operating results.
TIMING OF REVENUE RECOGNITION
Cymer has historically derived a substantial portion of its quarterly
and annual revenues from the sale of a relatively small number of systems. As a
result, the precise timing of the recognition of revenue from an order for a
small number of systems can have a significant impact on Cymer's total revenues
and operating results for a particular period. If customers cancel or reschedule
orders for a small number of systems or if Cymer cannot fill orders in time to
recognize revenue during a particular period, this could adversely affect
Cymer's operating results for that period. For example, unanticipated
manufacturing, testing, shipping or product acceptance delays could cause such
cancellations, rescheduling or inability to fill orders promptly.
FIXED EXPENSES
Cymer's expense levels are based, in large part, on Cymer's
expectations as to future revenues. Therefore, Cymer's expenses are relatively
fixed in the short term. If revenue levels fall below expectations, this would
disproportionately and adversely affect net income. Cymer cannot forecast the
impact of these and other factors on its revenues and operating results in any
future period with any degree of certainty.
SEMICONDUCTOR MANUFACTURER DEMAND
Cymer believes that semiconductor manufacturers are currently growing
capacity and developing capability for production and pilot production of 0.25um
to 0.18um and below devices. Cymer also believes that the efforts to develop
such capacity and/or capability are driving present
17
demand for its laser systems for DUV photolithography tools. Once semiconductor
manufacturers have acquired such capacity and/or capability, their demand for
Cymer's DUV photolithography tools will depend on whether they want to expand
their capacity further to manufacture such devices. This will in turn depend on
whether their sales forecasts and manufacturing process yields justify such an
investment. Cymer currently expects that demand for its DUV laser systems will
depend on such demand and process development constraints of the semiconductor
manufacturers.
INDUSTRY CONDITIONS
Cymer is expanding certain aspects of its operations in response to
improvements in industry conditions. Should continued improvements not
materialize, the planned increases in spending may negatively impact profitable
operations.
Due to the foregoing, as well as other unanticipated factors, Cymer's
operating results will likely fall below the expectations of public market
analysts or investors in some future quarter or quarters. Such failure to meet
operating result expectations would materially adversely affect the price of
Cymer's Common Stock.
DEPENDENCE ON SEMICONDUCTOR INDUSTRY
Cymer derives substantially all of its revenues from photolithography
tool manufacturers. Photolithography tool manufacturers depend in turn on the
demand for their products from semiconductor manufacturers. Semiconductor
manufacturers depend on the demand from manufacturers of end-products or systems
that use semiconductors. The semiconductor industry is highly cyclical and has
historically experienced periodic and significant downturns. These downturns
have often had a severe effect on the demand for semiconductor manufacturing
equipment, including photolithography tools. Cymer believes that downturns in
the semiconductor manufacturing industry will periodically occur, resulting in
periodic decreases in demand for semiconductor manufacturing equipment. In
addition, Cymer believes that in a future downturn Cymer's need to continue
investment in research and development, and to maintain extensive ongoing
customer service and support capability, will constrain its ability to reduce
expenses. Accordingly, downturns in the semiconductor industry would likely have
a material adverse effect on Cymer's business, financial condition and results
of operations.
DEPENDENCE ON SMALL NUMBER OF CUSTOMERS
A small number of manufacturers of DUV photolithography tools
constitute Cymer's primary customer base. Three large firms, ASM Lithography,
Canon and Nikon dominate the photolithography tool business. Collectively, they
accounted for approximately 88%, 74% and 78% of Cymer's total revenues in 1998,
1999, and the nine months ended September 30, 2000, respectively. Individually,
sales to ASM Lithography, Canon and Nikon accounted for approximately 33%, 17%
and 24%, respectively, of total revenues in 1999 and 31%, 18% and 29%,
respectively, of total revenues for the nine months ended September 30, 2000.
Cymer expects that sales of its systems to these customers will continue to
account for a substantial majority of its revenues in the foreseeable future.
None of Cymer's customers are obligated to purchase a minimum number of Cymer's
products. The loss of any significant business from any one of these customers,
a significant reduction in orders from any one of these customers or production
problems for any one of these customers that cause a slow down in Cymer's
deliveries, would have a material adverse effect on Cymer's business, financial
condition and results of operations. Reductions caused by changes in a
customer's competitive position, a decision to purchase illumination sources
from other suppliers, or economic conditions in the semiconductor and
photolithography tool industries, could all cause such a loss of business or
reduction in orders.
18
NEED TO MANAGE A CHANGING BUSINESS
In recent years, in response to business cycles in the semiconductor
industry, Cymer has sharply expanded and contracted the scope of its operations
and the number of employees in most of its functional areas. As of September 30,
2000, Cymer had 879 employees. Cymer has substantially expanded its facilities
and manufacturing capacity. For example, since December 31, 1996 Cymer has
occupied three additional buildings covering approximately 187,000 square feet.
In a cyclical environment of dramatic growth or contraction, Cymer will need:
- to continue close management of these areas, and
- to improve its management, operational and financial systems,
including
- accounting and other internal management systems,
- quality control,
- delivery,
- field service and customer support capabilities and,
- changing sales and marketing channels.
Cymer must also effectively manage its inventory levels, including assessing and
managing excess and obsolete inventories associated with the changing
environment and new product introductions. Cymer will need to attract, train,
retain and manage key technical personnel in order to support Cymer's growth
and/or contraction. Cymer will also need to manage effectively its international
operations, including:
- the operations of its subsidiaries in Japan, Korea, Taiwan,
Singapore and The Netherlands,
- its field service and support presence in Asia and Europe and
- its relationship with Seiko as a manufacturer of its
photolithography lasers.
Cymer must also effect timely deliveries of its products and maintain the
product quality and reliability required by its customers. Any failure to
effectively manage Cymer's growth or contraction would materially adversely
affect Cymer's financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT INTRODUCTIONS
Semiconductor manufacturing equipment and processes are subject to
rapid technological change. Cymer believes that its future success will depend
in part upon its ability to:
- continue to enhance its excimer laser products and their
process capabilities, and
- develop and manufacture new products with improved
capabilities.
In order to enhance and improve its products and develop new products, among
other things, Cymer must work closely with its customers, particularly in the
product development stage, to integrate its lasers with its customers'
photolithography tools. Future technologies, such as EUV and scalpel processes,
might render Cymer's excimer laser products obsolete. Further, Cymer might not
be able to develop and introduce new products or enhancements to its existing
products and processes in a timely or cost effective manner that satisfy
customer needs or achieve market acceptance. The failure to do so could
materially adversely affect Cymer's business, financial condition and results of
operations.
DEPENDENCE ON KEY SUPPLIERS
Cymer obtains certain of the components and subassemblies included in
its products from a single supplier or a limited group of suppliers. In
particular, there are no alternative sources for certain of such components and
subassemblies, including certain optical components used in Cymer's lasers. In
addition, Cymer is increasingly outsourcing the manufacture of various
subassemblies. To date Cymer has been able to obtain adequate supplies of the
components
19
and subassemblies in a timely manner from existing sources. However, due to the
nature of Cymer's product development requirements, key suppliers often need to
rapidly advance their own technologies in order to support Cymer's new product
introduction schedule. These suppliers may or may not be able to satisfy Cymer's
schedule requirements in providing new modules and subassemblies to Cymer. If
Cymer cannot obtain sufficient quantities of such materials, components or
subassemblies, or if such items do not meet Cymer's quality standards, delays or
reductions in product shipments could have a material adverse effect on Cymer's
business, financial condition and results of operations.
COMPETITION
LAMBDA-PHYSIK AND GIGAPHOTON
Cymer currently has two significant competitors in the market for
excimer laser systems for photolithography applications:
- Lambda-Physik and
- Gigaphoton (Komatsu and Ushio).
On July 10, 2000 Ushio and Komatsu announced the combination of their excimer
laser business into a joint venture to be known as Gigaphoton Inc.
Both of these companies:
- are larger than Cymer,
- have access to greater financial, technical and other
resources than does Cymer, and
- are located in closer proximity to Cymer's customers
than is Cymer.
Cymer believes that Lambda-Physik and Gigaphoton are aggressively seeking to
gain larger positions in this market. Cymer believes that its customers have
each purchased products offered by these competitors and that its customers have
qualified competitors' lasers for use with their products. Cymer believes that
Gigaphoton in particular has been qualified for production use by chipmakers in
Japan and elsewhere. Cymer also believes that Lambda-Physik has been qualified
for production use by chipmakers in the U.S. Cymer could lose market share and
its growth could slow or even decline as competitors gain market acceptance.
OTHER TECHNOLOGIES
In the future, Cymer will likely experience competition from other
technologies, such as EUV and scalpel processes. To remain competitive, Cymer
believes that it will need to:
- manufacture and deliver products to customers on a timely
basis and without significant defects, and
- maintain a high level of investment in research and
development and in sales and marketing.
Cymer might not have sufficient resources to continue to make the investments
necessary to maintain its competitive position.
SMALL AND IMMATURE MARKET FOR EXCIMER LASERS
The market for excimer lasers is still small and immature. Larger
competitors with substantially greater financial resources, including other
manufacturers of industrial lasers, might attempt to enter the market.
Cymer might not remain competitive. A failure to remain competitive
would have a material adverse effect on Cymer's business, financial condition
and results of operations.
20
DEPENDENCE ON KEY PERSONNEL
Cymer is highly dependent on the services of a number of key employees
in various areas, including:
- engineering,
- research and development,
- sales and marketing, and
- manufacturing.
In particular, there are a limited number of experts in excimer laser
technology. There is intense competition for such personnel, as well as for the
highly-skilled hardware and software engineers Cymer requires. Cymer has in the
past experienced, and continues to experience, difficulty in hiring personnel,
including experts in excimer laser technology. Cymer believes that, to a large
extent, its future success will depend upon:
- the continued services of its engineering, research and
development, sales and marketing and manufacturing and service
personnel, and
- its ability to attract, train and retain highly skilled
personnel in each of these areas.
Cymer does not have employment agreements with most of its employees, and Cymer
might not be able to retain its key employees. The failure of Cymer to hire,
train and retain such personnel could have a material adverse effect on Cymer's
business, financial condition and results of operations.
DEPENDENCE ON SINGLE PRODUCT LINE
Cymer's only product line is excimer lasers ("KrF, ArF and F2 laser
systems"). The primary market for excimer lasers is for use in DUV
photolithography equipment for manufacturing deep-submicron semiconductor
devices. Demand for Cymer's products will depend in part on the rate at which
semiconductor manufacturers adopt excimer lasers as the illumination source for
their photolithography tools.
Impediments to such adoption include:
- instability of photoresists used in advanced DUV
photolithography and
- potential shortages of specialized materials used in DUV
optics.
There can be no assurance that such impediments can or will be overcome. In any
event, such impediments may materially reduce the demand for Cymer's products.
Further, if Cymer's customers experience reduced demand for DUV photolithography
tools, or if Cymer's competitors are successful in obtaining significant orders
from such customers, Cymer's financial condition and results of operations would
be materially adversely affected.
RISK OF EXCESSIVE INVENTORY BUILDUPS BY PHOTOLITHOGRAPHY TOOL MANUFACTURERS
Photolithography tool manufacturers constitute substantially all of
Cymer's customers. Photolithography tool manufacturers sell their systems in
turn to semiconductor manufacturers. Market conditions in the industry and
production efficiency of the photolithography tool manufacturer can cause
Cymer's customers to expand or reduce their orders for new laser systems as they
try to manage their inventories to appropriate levels which better reflect their
expected sales forecasts and production requirements. Cymer is working with its
customers to better understand these issues. However, there can be no assurance
that Cymer will be successful in this regard, or that its customers will not
build excessive laser inventories. Excessive customer laser inventories could
result in a material decline in Cymer's revenues and operating results in future
periods as such inventories are brought into balance.
21
RISKS ASSOCIATED WITH IMPLEMENTING A NEW ENTERPRISE RESOURCE PLANNING SYSTEM
Cymer implemented a new corporate wide enterprise resource planning ("ERP")
system to replace its old ERP system during the year 2000. The implementation
and ongoing employee training of a new ERP system requires full commitment of
management and the dedication and utilization of significant internal as well as
external resources in managing the project, process redesigns and system
integration. Historically, many companies have experienced difficulties in
implementing ERP systems. These difficulties range from cost overruns, push-outs
of implementation deadlines, process and operations gridlock, failure to execute
operating plans, including inability to ship products for revenue, and
abandonment of the effort altogether. Cymer must effectively manage its planning
and execution of the implementation of the system and the training of personnel
throughout the Company. Any failure to effectively manage Cymer's efforts or
process and operations designs would materially adversely affect Cymer's
financial condition and results of operations.
PRODUCTION USE OF EXCIMER LASERS
Cymer's products might not meet production specifications or cost of
operation requirements over time when subjected to prolonged and intense use in
volume production in semiconductor manufacturing processes. If any semiconductor
manufacturer cannot successfully achieve or sustain volume production using
Cymer's lasers, Cymer's reputation with semiconductor manufacturers or the
limited number of photolithography tool manufacturers could be damaged. This
would have a material adverse effect on Cymer's business, financial condition
and results of operations.
MAINTENANCE OF FIELD SERVICE AND SUPPORT ORGANIZATION
Cymer believes that the need to provide fast and responsive service to
the semiconductor manufacturers using its lasers is critical. Cymer cannot
depend solely on its direct customers to provide this specialized service.
Therefore, Cymer believes it is essential to maintain through its own personnel,
a rapid response capability to service its lasers throughout the world.
Accordingly, Cymer has an ongoing effort to continuously develop its direct
support infrastructure in the United States, Japan, Europe, Korea, Singapore,
Taiwan and Southeast Asia. This task entails recruiting and training qualified
field service personnel and maintaining effective and highly trained
organizations that can provide service to customers in various countries in
their assigned regions. Cymer has historically experienced difficulties in
effectively training field service personnel. Additionally, field service
personnel often experience high turnover. Cymer might not be able to attract and
train qualified personnel to maintain these operations successfully. Further,
the costs of such operations might be excessive. A failure to implement this
plan effectively could have a material adverse effect on Cymer's business,
financial condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
CYMER PATENTS
Cymer believes that the success of its business depends more on such
factors as the technical expertise of its employees, as well as their innovative
skills and marketing and customer relations ability, than on patents,
copyrights, trade secrets and other intellectual property rights. Nevertheless,
the success of Cymer may depend in part on patents. As of September 30, 2000,
Cymer owned 87 United States patents covering certain aspects of technology
associated with excimer lasers. Such patents will expire at various times during
the period from January 2008 to May 2019. As of September 30, 2000, Cymer had
also applied for 62 additional patents in the United States, 6 of which have
been allowed. As of September 30, 2000, Cymer owned 64 foreign patents and had
filed 221 patent applications pending in various foreign countries.
Cymer's pending patent applications and any future applications might
not be approved. Cymer's patents might not provide Cymer with competitive
advantages. Third parties might
22
challenge Cymer's patents. In addition, third parties' patents might have an
adverse effect on Cymer's ability to do business. In this regard, due to cost
constraints, Cymer did not begin filing for patents in Japan or other countries
with respect to inventions covered by its United States patents and patent
applications until 1993. Therefore, Cymer lost the right to seek foreign patent
protection for certain of its inventions. Additionally, because foreign patents
may afford less protection under foreign law than is available under United
States patent law, any such patents issued to Cymer might not adequately protect
Cymer's technology in a given foreign jurisdiction. Furthermore, third parties
might independently develop similar products, duplicate Cymer's products or, to
the extent patents are issued to Cymer, design around the patents issued to
Cymer.
COMPETITIVE PATENTS
Others may have filed and in the future may file patent applications
that are similar or identical to those of Cymer. To determine the priority of
inventions, Cymer may have to participate in interference proceedings declared
by the United States Patent and Trademark Office. Such interference proceedings
could result in substantial cost to Cymer. Such third party patent applications
might have priority over patent applications filed by Cymer.
OTHER FORMS OF PROTECTION
Cymer also relies upon:
- trade secret protection,
- employee nondisclosure agreements,
- third-party nondisclosure agreements, and
- other intellectual property protection methods
to protect its confidential and proprietary information. Despite these efforts,
third parties might:
- independently develop substantially equivalent proprietary
information and techniques,
- otherwise gain access to Cymer's trade secrets, or
- disclose such technology.
Cymer might not be able to meaningfully protect its trade secrets.
POSSIBLE CLAIMS TO OWNERSHIP OF CYMER'S INTELLECTUAL PROPERTY
Cymer has in the past funded a significant portion of its research and
development expenses from outside research and development revenues. Cymer has
received such revenues from photolithography tool manufacturers and from
SEMATECH, a semiconductor industry consortium, in connection with the design and
development of specific products. Cymer currently funds a small portion of its
development expenses through SEMATECH. Although Cymer's arrangements with
photolithography tool manufacturers and SEMATECH seek to clarify the ownership
of the intellectual property arising from research and development services
performed by Cymer, disputes over the ownership or rights to use or market such
intellectual property might arise between Cymer and such parties. Any such
dispute could result in restrictions on Cymer's ability to market its products
and could have a material adverse effect on Cymer's business, financial
condition and results of operations.
PATENT INFRINGEMENT
Third parties have in the past notified, and may in the future notify,
Cymer that it may be infringing intellectual property rights of others.
Conversely, Cymer has in the past notified, and may in the future notify, third
parties that they may be infringing Cymer's intellectual property rights.
23
Specifically, Cymer has engaged in discussions with one of its
competitors, Komatsu, with respect to certain of Komatsu's Japanese patents, in
the course of which Komatsu has also identified to Cymer a number of additional
Japanese and U.S. patents that Komatsu asserts may be infringed by Cymer or by
Cymer's Japanese manufacturing partner, Seiko. Komatsu has also notified one of
Cymer's integrator customers, Nikon, of its belief that Cymer's lasers infringe
several of Komatsu's Japanese and U.S. patents. Cymer, in consultation with
Japanese patent counsel, has initiated oppositions to certain Komatsu Japanese
patents and patent applications in the Japanese Patent Office. Some of these
oppositions have been dismissed by the Japanese Patent Office. Litigation might
ensue with respect to the Komatsu Japanese patents or Komatsu U.S. patents.
Also, Komatsu might assert infringement claims under other or additional
patents. Komatsu has notified Seiko that Komatsu intends to enforce its rights
under the Komatsu Japanese patents against Seiko if Seiko engages in
manufacturing activities for Cymer. In connection with its manufacturing
agreement with Seiko, Cymer has agreed to indemnify Seiko against such claims
under certain circumstances. Cymer and Seiko might not ultimately prevail in any
such litigation.
Cymer has notified its competitors and others of Cymer's United States
patent portfolio. Cymer has specifically asserted certain of its U.S. patents
against Komatsu when informed that Komatsu lasers might be integrated into
steppers intended for shipment into the U.S. Cymer and Komatsu have engaged in
discussions with regard to each party's claims. Those discussions might not be
successful and litigation could result. Attorneys representing Komatsu are
currently challenging one of Cymer's U.S. patents in the U.S. Patent Office.
Cymer has also been engaged in patent discussions with another competitor,
Lambda-Physik, concerning allegations by each party against the other of
possible patent infringement. These discussions also might not be successful and
litigation could result.
Any patent litigation initiated by Cymer, or initiated by Cymer's
competitors against Cymer, would, at a minimum, be costly. Litigation could also
divert the efforts and attention of Cymer's management and technical personnel.
Both could have a material adverse effect on Cymer's business, financial
condition and results of operations. Furthermore, in the future other third
parties might assert other infringement claims, and customers and end users of
Cymer's products might assert other claims for indemnification resulting from
infringement claims. Such assertions, if proven to be true, might materially
adversely affect Cymer's business, financial condition and results of
operations. If any such claims are asserted against Cymer, Cymer may seek to
obtain a license under the third party's intellectual property rights. However,
such a license might not be available on reasonable terms or at all. Cymer could
decide, in the alternative, to resort to litigation to challenge such claims or
to design around the patented technology. Such actions could be costly and would
divert the efforts and attention of Cymer's management and technical personnel,
which would materially adversely affect Cymer's business, financial condition
and results of operations.
TRADEMARK
Cymer has registered the trademark CYMER in the United States and
certain other countries and is seeking additional registrations of other
trademarks including "Insist on Cymer" in the United States and in certain other
countries. Cymer uses these and a variety of other marks in its advertisements
and other business activities around the world. Based on the use of these or
other marks, Cymer might be subjected to actions for trademark infringement,
which could be costly to defend. If a challenge to a mark were to be successful,
Cymer might be required to cease use of the mark and, potentially, to pay
damages.
RISKS ASSOCIATED WITH MANUFACTURING IN JAPAN
Cymer has qualified Seiko of Japan as a contract manufacturer of its
photolithography lasers. Komatsu, a competitor of Cymer, has advised Seiko that
certain aspects of Cymer's lasers might infringe certain patents that have been
issued to Komatsu in Japan. Komatsu has advised
24
Seiko it intends to enforce its rights under such patents against Seiko if Seiko
engages in manufacturing activities for Cymer. In the event that,
notwithstanding its manufacturing agreement with Cymer, Seiko should determine
not to continue manufacturing Cymer's products until resolution of the matter
with Komatsu, Cymer's ability to meet any heavy demand for its products could be
materially adversely affected. See -- "Uncertainty Regarding Patents and
Protection of Proprietary Technology."
RISKS OF INTERNATIONAL SALES AND OPERATIONS
SIGNIFICANT INTERNATIONAL TRADE
Cymer derived approximately 88%, 85% and 88% of its revenues in 1998,
1999 and the nine months ended September 30, 2000, respectively, from customers
located outside the United States. Because a significant majority of Cymer's
principal customers are located in other countries, particularly Asia, Cymer
anticipates that international sales will continue to account for a significant
portion of its revenues.* In order to support its overseas customers, Cymer:
- maintains subsidiaries in Japan, Korea, Taiwan, Singapore and
the Netherlands,
- is further developing its field service and support operations
worldwide, and
- will continue to work with Seiko as a manufacturer of its
products in Japan.*
Cymer might not be able to manage these operations effectively. Cymer's
investment in these activities might not enable it to compete successfully in
international markets or to meet the service and support needs of its customers.
Additionally, a significant portion of Cymer's sales and operations could be
subject to certain risks, including:
- tariffs and other barriers,
- difficulties in staffing and managing foreign subsidiary and
branch operations,
- currency exchange risks and exchange controls,
- potentially adverse tax consequences, and
- the possibility of difficulty in accounts receivable
collection.
Because many of Cymer's principal customers, as well as many of the end-users of
Cymer's laser systems, are located in Asia, the recent economic problems and
currency fluctuations affecting that region could intensify Cymer's
international risk. Further, while Cymer has experienced no difficulty to date
in complying with United States export controls, these rules could change in the
future and make it more difficult or impossible for Cymer to export its products
to various countries. These factors could have a material adverse effect on
Cymer's business, financial condition and results of operations.
CURRENCY FLUCTUATIONS
Sales by Cymer to its Japanese subsidiary are denominated in dollars,
while sales by the subsidiary to customers in Japan are denominated in yen. This
means that Cymer's results of operations show some fluctuation based on the
value of the Japanese yen against the U.S. dollar. Cymer's Japanese subsidiary
manages its exposure to such fluctuations by entering into foreign currency
exchange contracts to hedge its purchase commitments. Management will continue
to monitor Cymer's exposure to currency fluctuations, and, when appropriate, use
financial hedging techniques to minimize the effect of these fluctuations.
However, exchange rate fluctuations might have a material adverse effect on
Cymer's results of operations or financial condition. In the future, Cymer might
need to sell its products in other currencies, which would make the management
of currency fluctuations more difficult and expose Cymer to greater risks in
this regard.
25
FOREIGN REGULATIONS
Numerous foreign government standards and regulations apply to Cymer's
products. These standards and regulations are continually being amended.
Although Cymer endeavors to meet foreign technical and regulatory standards,
Cymer's products might not continue to comply with foreign government standards
and regulations, or changes thereto. It might not be cost effective for Cymer to
redesign its products to comply with such standards and regulations. The
inability of Cymer to design or redesign products to comply with foreign
standards could have a material adverse effect on Cymer's business, financial
condition and results of operations.
DISRUPTION OF ELECTRIC SERVICE
California and particularly San Diego County, the location of Cymer's
headquarters and primary manufacturing facility, has in the past experienced
unusually hot and humid weather. This has caused Cymer's electric utility
supplier to notify the company that it could be subject to blackouts of electric
power. While Cymer has some back up power capability, any prolonged blackout or
series of periodic blackouts could disrupt Cymer's production schedule. Any
material disruption of electric service would have an adverse impact upon
Cymer's financial performance.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS
Federal, state and local regulations impose various controls on the
storage, handling, discharge and disposal of substances used in Cymer's
manufacturing process and on the facility leased by Cymer. Cymer believes that
its activities conform to present governmental regulations applicable to its
operations and its current facilities. These regulations include those related
to environmental, land use, public utility utilization and fire code matters.
Such governmental regulations might in the future impose the need for additional
capital equipment or other process requirements upon Cymer. They might also
restrict Cymer's ability to expand its operations. The adoption of such
measures, or the failure by Cymer to comply with applicable environmental and
land use regulations or to restrict the discharge of hazardous substances, could
subject Cymer to future liability or could cause its manufacturing operations to
be curtailed or suspended.
RISKS OF PRODUCT LIABILITY CLAIMS
Cymer faces a significant risk of exposure to product liability claims
in the event that the use of its products results in personal injury or death.
Cymer might experience material product liability losses in the future. Cymer
maintains insurance against product liability claims. However, such coverage
might not continue to be available on terms acceptable to Cymer. Such coverage
also might not be adequate for liabilities actually incurred. Further, in the
event that any of Cymer's products prove to be defective, Cymer may need to
recall or redesign such products. A successful claim brought against Cymer in
excess of available insurance coverage, or any claim or product recall that
results in significant adverse publicity against Cymer, could have a material
adverse effect on Cymer's business, financial condition and results of
operations.
POSSIBLE PRICE VOLATILITY OF COMMON STOCK
The following factors may significantly affect the market price of
Cymer's Common Stock:
- actual or anticipated fluctuations in Cymer's operating
results,
- announcements of technological innovations,
- new products or new contracts by Cymer or its competitors,
- developments with respect to patents or proprietary rights,
- conditions and trends in the laser device and other technology
industries,
- changes in financial estimates by securities analysts,
- general market conditions, and
- other factors.
26
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many high
technology companies. Such fluctuations have in some cases been unrelated to the
operating performance of these companies. Severe price fluctuations in a
company's stock have frequently been followed by securities litigation. Cymer is
currently in the process of defending such an action (see - "Legal Matters").
Such litigation can result in substantial costs and a diversion of management's
attention and resources.
LEGAL MATTERS
Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between April 24, 1997 and September 26, 1997 (the "Class Period"). The
complaints allege claims under the federal securities laws. The plaintiffs
allege that Cymer and the other defendants made various material
misrepresentations and omissions during the Class Period. The complaints do not
specify the amount of damages sought. The complaints have been consolidated into
a single action and a class representative has been appointed by the court. A
consolidated amended complaint was filed in early August, 1999. On November 5,
1999, Cymer and the other defendants filed a motion to dismiss the consolidated
amended claim for failure to state a cause of action. On April 1, 2000, the
court granted defendant's motion to dismiss with leave to amend the complaint by
the plaintiffs. The plaintiffs filed their second amended complaint on June 5,
2000. Cymer moved to dismiss the amended complaint on August 4, 2000. Cymer
believes it has meritorious defenses to the claims asserted and intends to
defend the action vigorously. Accordingly, no provision for any liability or
loss that may result from adjudication or settlement thereof has been made in
the accompanying consolidated financial statements.
ANTI-TAKEOVER EFFECT OF NEVADA LAW AND CHARTER AND BYLAW PROVISIONS;
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE
Nevada law as well as Cymer's charter and other documents contain
provisions that could discourage a proxy contest or make more difficult the
acquisition of a substantial block of Cymer's Common Stock, including Cymer's
Articles of Incorporation and Bylaws and Cymer's Preferred Shares Rights
Agreement ("poison pill") dated February 13, 1998. In addition, the Board of
Directors is authorized to issue, without shareholder approval, up to 5,000,000
shares of Preferred Stock. Such shares of Preferred Stock may have voting,
conversion and other rights and preferences that may be superior to those of the
Common Stock and that could adversely affect the voting power or other rights of
the holders of Common Stock. The Board of Directors could use the issuance of
Preferred Stock or of rights to purchase Preferred Stock to discourage an
unsolicited acquisition proposal.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK
Cymer conducts business in several international currencies through its
worldwide operations. Due to the large volume of business Cymer manages in
Japan, the Japanese operation poses the greatest foreign currency risk. Cymer
uses financial instruments, principally forward exchange contracts, in Japan to
manage its foreign currency exposures. Cymer does not enter into forward
exchange contracts for trading purposes.
Cymer enters into foreign currency exchange contracts in order to
reduce the impact of currency fluctuations related to purchases of Cymer's
inventories by Cymer Japan for resale under firm third-party sales commitments.
Net gains or losses are recorded on the date the
27
inventories are received by Cymer Japan (the transaction date) and are included
in cost of product sales in the consolidated statements of operations as the
related sale is consummated. Amounts due from/to the bank on contracts not
settled as of the transaction date are recorded as foreign exchange contracts
receivable/payable in the consolidated balance sheets.
At September 30, 2000, Cymer had outstanding forward foreign exchange
contracts to buy US$81.5 million for 8.6 billion yen under foreign currency
exchange facilities with contract rates ranging from 101.83 yen to 108.72 yen
per US$ and various expiration dates through December 2001.
INVESTMENT AND DEBT RISK
Cymer maintains an investment portfolio consisting primarily of
government and corporate fixed income securities, certificates of deposit and
commercial paper. While it is Cymer's general intent to hold such securities
until maturity, management will occasionally sell certain securities for cash
flow purposes.* Therefore, Cymer's investments are classified as
available-for-sale and are carried on the balance sheet at fair value. Due to
the conservative nature of the investment portfolio, a sudden change in interest
rates would not have a material effect on the value of the portfolio.
In August 1997, Cymer issued $172.5 million aggregate principal amount
of Step-Up Convertible Subordinated (Notes) due August 6, 2004, with interest
payable semi-annually February 6 and August 6, commencing February 6, 1998.
Interest on the notes is stated at 3 1/2% per annum from August 6, 1997 through
August 5, 2000 and at 7 1/4% per annum from August 6, 2000 to maturity or
earlier redemption, representing a yield to maturity accrued at approximately
5.47%. The Notes are convertible at the option of the holder into shares of
Common Stock of Cymer at any time on or after November 5, 1997 and prior to
redemption or maturity, at a conversion rate of 21.2766 shares per $1,000
principal amount of Notes, subject to adjustment under certain conditions. Cymer
could not redeem the Notes prior to August 9, 2000. Thereafter, Cymer can redeem
the Notes from time to time, in whole or in part, at specified redemption
prices. The Notes are unsecured and subordinated to all existing and future
senior indebtedness of Cymer. The indenture governing the Notes does not
restrict the incurrence of senior indebtedness or other indebtedness by Cymer.
These Notes are recorded at face value on the consolidated balance sheets. The
fair value of such debt, based on quoted market prices at September 30, 2000 was
$185.1 million. As of December 31, 1999, $172.5 million in Convertible
Subordinated Notes was outstanding, as compared to $172.3 million outstanding as
of September 30, 2000.
28
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Cymer has been named as a defendant in several
putative shareholder class action lawsuits which were filed in
September and October, 1998 in the U.S. District Court for the Southern
District of California. Certain executive officers and directors of
Cymer are also named as defendants. The plaintiffs purport to represent
a class of all persons who purchased Cymer's Common Stock between April
24, 1997 and September 26, 1997 (the "Class Period"). The complaints
allege claims under the federal securities laws. The plaintiffs allege
that Cymer and the other defendants made various material
misrepresentations and omissions during the Class Period. The
complaints do not specify the amount of damages sought. The complaints
have been consolidated into a single action and a class representative
has been appointed by the court. A consolidated amended complaint was
filed in early August, 1999. On November 5, 1999, Cymer and the other
defendants filed a motion to dismiss the consolidated amended claim for
failure to state a cause of action. On April 1, 2000, the court granted
defendant's motion to dismiss with leave to amend the complaints by the
plaintiffs. The plaintiffs filed their second amended complaint on June
5, 2000. Cymer moved to dismiss the amended complaint on August 4,
2000. Cymer believes it has meritorious defenses to the claims asserted
and intends to defend the action vigorously. Accordingly, no provision
for any liability or loss that may result from adjudication or
settlement thereof has been made in the accompanying consolidated
financial statements.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Bylaws of Cymer, as amended and restated.
10.1 2000 Nonstatutory Stock Option Plan.
10.2 Employment Agreement, dated June 1, 2000, by and between David
Myers and Cymer.
27.1 Financial Data Schedule (submitted for SEC use only)
(b) Reports on Forms 8-K
None.
29
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.
CYMER, INC.
(Registrant)
Date: November 10, 2000 By: /S/ WILLIAM A. ANGUS, III
-------------------------
William A. Angus, III
Sr. Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
30