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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 31, 1997 COMMISSION FILE NUMBER: 0-26968
----------------
ETEC SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 94-3094580
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
26460 CORPORATE AVENUE, HAYWARD, CALIFORNIA 94545
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510)783-9210
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
21,318,230 shares of Common Stock were outstanding as of February 28, 1997.
This report, including exhibits, consists of 175 pages. The Index of Exhibits
is found on page 16.
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1
TABLE OF CONTENTS
PAGE
----
PART I--FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements
Consolidated Balance Sheets at January 31, 1997 and July 31, 1996..... 3
Consolidated Statements of Income for the three months and six months
ended January 31, 1997 and 1996...................................... 4
Consolidated Statements of Cash Flows for the six months ended January
31, 1997 and 1996.................................................... 5
Notes to Consolidated Financial Statements............................ 6
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8
PART II--OTHER INFORMATION
Item 1.Legal Proceedings.................................................. N/A
Item 2.Changes in Securities.............................................. 12
Item 3.Defaults Upon Senior Securities.................................... N/A
Item 4.Submission of Matters to a Vote of Security Holders................ 13
Item 5.Other Information.................................................. N/A
Item 6.Exhibits and Reports on Form 8-K................................... 14
Signature................................................................. 15
2
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ETEC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
JANUARY 31, JULY 31,
1997 1996
----------- --------
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 56,803 $ 44,472
Marketable securities.................................. 34,673 24,153
Accounts receivable, less allowance for doubtful
accounts of $1,077 and $1,102......................... 62,890 37,316
Inventory.............................................. 69,937 52,135
Other current assets................................... 2,107 3,042
Deferred tax assets.................................... 25,670 24,508
-------- --------
Total current assets................................. 252,080 185,626
Property, plant and equipment, net....................... 27,401 19,381
Other assets............................................. 3,911 3,864
-------- --------
$283,392 $208,871
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current maturities of long-term debt................... $ 3,333 $ 3,333
Accounts payable....................................... 17,264 14,184
Accrued and other liabilities.......................... 71,753 51,084
Taxes payable.......................................... 6,316 5,826
-------- --------
Total current liabilities............................ 98,666 74,427
Long-term debt, less current portion..................... 5,000 6,667
Deferred gain on sale of asset........................... 3,005 5,571
Other liabilities........................................ 6,147 6,329
-------- --------
Total liabilities.................................... 112,818 92,994
-------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 10,000,000
shares authorized; none issued and outstanding........ -- --
Common Stock, par value $0.01 per share; 40,000,000 and
30,000,000 shares authorized; 21,284,136 and
19,610,964 issued and outstanding..................... 213 196
Warrants............................................... 631 1,096
Additional paid-in capital............................. 191,423 149,858
Cumulative translation adjustments..................... (779) 211
Accumulated deficit.................................... (20,914) (35,484)
-------- --------
Total stockholders' equity........................... 170,574 115,877
-------- --------
$283,392 $208,871
======== ========
See accompanying notes to consolidated financial statements.
3
ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- --------
Revenue:
Products........................... $ 45,309 $ 23,522 $ 81,711 $ 40,625
Services........................... 8,371 8,083 16,856 15,688
--------- --------- -------- --------
53,680 31,605 98,567 56,313
--------- --------- -------- --------
Cost of revenue:
Products........................... 21,723 12,826 39,275 21,207
Services........................... 6,642 5,548 13,194 10,919
--------- --------- -------- --------
28,365 18,374 52,469 32,126
--------- --------- -------- --------
Gross profit......................... 25,315 13,231 46,098 24,187
--------- --------- -------- --------
Operating expenses:
Research, development and
engineering....................... 8,115 3,568 14,596 6,839
Selling, general and
administrative.................... 6,290 4,771 12,185 9,224
--------- --------- -------- --------
14,405 8,339 26,781 16,063
--------- --------- -------- --------
Income from operations............... 10,910 4,892 19,317 8,124
Interest expense..................... (266) (512) (510) (1,124)
Other income, net.................... 1,027 671 1,821 1,600
--------- --------- -------- --------
Income before income tax provision
and extraordinary item.............. 11,671 5,051 20,628 8,600
Income tax provision................. 4,085 1,263 6,058 2,150
--------- --------- -------- --------
Income before extraordinary item..... 7,586 3,788 14,570 6,450
Extraordinary loss on early
extinguishment of debt............... -- (300) -- (300)
--------- --------- -------- --------
Net income........................... 7,586 3,488 14,570 6,150
Accretion of mandatorily redeemable
convertible preferred stock......... -- -- -- 1,078
--------- --------- -------- --------
Net income attributable to Common
Stockholders......................... $ 7,586 $ 3,488 $ 14,570 $ 5,072
========= ========= ======== ========
Per share data:
Income before extraordinary item... $ 0.35 $ 0.20 $ 0.68 $ 0.38
Extraordinary loss................. -- (0.02) -- (0.02)
--------- --------- -------- --------
Net income......................... $ 0.35 $ 0.18 $ 0.68 $ 0.36
========= ========= ======== ========
Number of weighted average common
equivalent shares used in per share
calculation......................... 21,806 18,869 21,462 16,859
========= ========= ======== ========
See accompanying notes to consolidated financial statements.
4
ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED
JANUARY 31,
----------------
1997 1996
------- -------
Cash flows from operating activities:
Net income................................................. $14,570 $ 6,150
Adjustments to reconcile net income to net cash used in
operating activities:
Extraordinary loss on early extinguishment of debt....... -- 300
Depreciation, amortization, and other noncash charges.... 1,855 1,178
Deferred taxes........................................... (1,162) --
Changes in assets and liabilities:
Accounts receivable.................................... (28,850) (10,842)
Inventory.............................................. (18,600) (8,850)
Other assets........................................... 478 960
Accounts payable....................................... 3,272 2,450
Accrued and other liabilities.......................... 23,279 (143)
------- -------
Net cash used in operating activities................ (5,158) (8,797)
------- -------
Cash flows from investing activities:
Purchases of marketable securities, net.................... (10,520) (3,102)
Capital expenditures for property and equipment, net....... (9,659) (3,010)
Loan to Polyscan, Inc...................................... -- (1,807)
New building construction costs............................ (5,000) --
Proceeds from sale of plant................................ 5,000 --
------- -------
Net cash used in investing activities................ (20,179) (7,919)
------- -------
Cash flows from financing activities:
Repayment of debt and capital leases....................... (1,813) (12,829)
Financing from (repayment to) intermediary................. 1,202 5,086
Repurchase of warrants in connection with building
financing................................................. (2,633) --
Proceeds from issuance of Common Stock..................... 40,336 40,628
------- -------
Net cash provided by financing activities............ 37,092 32,885
------- -------
Effect of exchange rate changes on cash...................... 576 (737)
------- -------
Net change in cash and cash equivalents...................... 12,331 15,432
Cash and cash equivalents at the beginning of the period..... 44,472 23,638
------- -------
Cash and cash equivalents at the end of the period........... $56,803 $39,070
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................... $ 448 $ 1,530
======= =======
Cash paid during the period for income taxes................. $ 6,124 $ 1,657
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of mandatorily redeemable convertible preferred
stock to Common Stock........................................ -- $77,475
======= =======
See accompanying notes to consolidated financial statements.
5
ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
In the opinion of the management of Etec Systems, Inc. (the "Company"), the
unaudited consolidated interim financial statements included herein have been
prepared on the same basis as the July 31, 1996 audited consolidated financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the interim period results.
The results of operations for current interim periods are not necessarily
indicative of results to be expected for the current year or any other period.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
year ended July 31, 1996 included in the Company's Annual Report on Form 10-K
(File No. 0-26968). The July 31, 1996 balance sheet included herein was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
For the purposes of presentation, the Company has indicated its interim
fiscal periods as ending January 31, 1997 and 1996. As the Company's annual
fiscal period is accounted for on a 52-53 week year, the interim period
financial statements included herein represent results for the three- and six-
month periods ended January 31, 1997 and January 26, 1996.
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 periods. Actual results could differ from those estimates.
Capitalization of Cost of Internal Use Software
The Company capitalizes certain costs related to the purchase of software
for internal use and its implementation which include purchased software,
consulting fees, and use of certain specified Company resources. As of January
31, 1997, approximately $6.4 million of costs associated with internal use
software had been capitalized and is included in construction in process.
NOTE 2--CASH EQUIVALENTS AND MARKETABLE SECURITIES
At January 31, 1997, the fair value of the Company's investments
approximated cost. At January 31, 1997, $49.8 million of investments are
included in cash and cash equivalents on the balance sheet. The investment
portfolio at January 31, 1997 is comprised of money market funds, corporate
debentures, asset-backed obligations, U.S. Government agency securities,
certificates of deposit, commercial paper, auction-rate preferreds, and
municipal obligations.
NOTE 3--INVENTORY
Inventory consisted of the following (in thousands):
JANUARY 31, 1997 JULY 31, 1996
---------------- -------------
Purchased parts............................ $ 21,947 $16,861
Work-in-process............................ 37,493 25,380
Spares..................................... 10,497 9,894
-------- -------
$ 69,937 $52,135
======== =======
6
ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ACCOUNTS RECEIVABLE
JANUARY 31, 1997 JULY 31, 1996
---------------- -------------
Accounts receivable........................ $37,354 $32,638
Financed receivables*...................... 25,536 4,678
------- -------
$62,890 $37,316
======= =======
- --------
* Included in accrued and other current liabilities are the amounts $25,536
and $4,678, respectively, which are due to a trading partner as a result of
third party financing arrangements.
NOTE 5--STOCKHOLDERS' EQUITY
In December, 1996, the Company completed a public offering of 5,029,916
shares of Common Stock, of which 500,000 shares were issued and sold by the
Company and 4,529,916 shares were sold by stockholders. In December 1996, the
underwriters of the public offering exercised their option to purchase an
additional 754,487 shares of Common Stock from the Company at $33.25 per share
before deducting underwriting discounts and commissions. Net proceeds to the
Company from the offering totaled approximately $39.4 million after deducting
underwriting discounts and estimated offering expenses. Concurrent with the
public offering, Grumman exercised 150,000 warrants for $255,000.
The Company's Articles of Incorporation were amended on January 30, 1997 to
provide for the issuance of 50,000,000 shares of stock. 40,000,000 shares are
Common Stock with a par value of $0.01 per share and 10,000,000 shares are
Preferred Stock with a par value of $0.01 per share.
On January 15, 1997, the Board of Directors adopted a shareholder rights
plan. Under the plan, the Board of Directors has established a Series A
Participating Preferred Stock. The number of shares constituting such series
shall be the number of shares of authorized Common Stock divided by 100. The
holders of the Series A Participating Preferred Stock have 100 votes for each
share held by them. Holders of the Series A Participating Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Registrant, commencing after the close of business on January 31, 1997, a
dividend of $1,600 per share.
NOTE 6--LEASE COMMITMENT
In January 1997, the company completed construction of and moved into a new
administrative building having approximately 60,000 square feet of office
space. The cost of the building, which the company paid, was approximately
$5.0 million through January 31, 1997. On January 31, 1997, the Company sold
the building to its existing landlord and entered into a 15-year lease that is
subject to rental adjustments every three years pursuant to an adjustment in
the Consumer Price Index. In addition, the Company has also obtained a
commitment from its landlord to provide financing of up to $4.0 million for
leasehold improvements to its existing office and manufacturing facilities
located adjacent to the new building.
NOTE 7--NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding for the three month and six month
periods ended January 31, 1997 and 1996. Common equivalent shares consist of
stock options and warrants using the treasury stock method except when
antidilutive.
7
ETEC SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1997 AND JANUARY 31, 1996
Revenue. Revenues are primarily comprised of sales of MEBES, CORE and ALTA
systems, accessories and upgrades, and sales of technical support, maintenance
and other services. The Company derives most of its revenues from the sale of
a small number of systems and upgrades and any delay in the recognition of
revenue for a single system or upgrade can have a material adverse effect on
the Company's consolidated results of operations in a particular quarter. For
example, one system, originally scheduled to be shipped in the first quarter
of fiscal 1997, was delayed due to additional calibration and testing and was
shipped in the second quarter of fiscal 1997.
Product revenue increased 101% to $81.7 million from $40.6 million for the
six months ended January 31, 1997 and 1996, respectively. This increase
reflects the sale of six additional systems, higher average selling prices,
changes in product mix, and an increase in the sales of upgrades and
accessories of approximately $5.7 million.
Service revenue increased 7% to $16.9 million from $15.7 million for the six
months ended January 31, 1997 and 1996, respectively. This increase primarily
reflects generally higher service activity caused by an increase in the number
of systems under service contract.
Gross Profit. The Company's gross profit on product revenue increased 119%
to $42.4 million from $19.4 million for the six months ended January 31, 1997
and 1996, respectively. The increase in gross profit on product revenue was
due to an increase in product revenue and a higher gross margin on product
revenue, which increased to 52% from 48% for the six months ended January 31,
1997 compared to the six months ended January 31, 1996. The increase in
product gross margin is primarily attributable to generally higher selling
prices for the Company's products and an increase in the level of sales of
accessories (which tend to have higher gross margins).
The Company's gross profit on service revenue decreased 23% to $3.7 million
from $4.8 million for the six months ended January 31, 1997 and 1996,
respectively. Gross margin on service revenue was 22% and 30% for the six
months ended January 31, 1997 and 1996, respectively. The decreases in gross
profit and gross margin reflect an investment in service personnel and
training to support the number of systems serviced. The Company expects that
such costs will continue to increase with the result being a further decline
in service margins.
Research, Development and Engineering. Research, development and engineering
expenses, net of third-party funding under cooperative development agreements,
increased 113% to $14.6 million, representing 15% of revenue, from $6.8
million, representing 12% of revenue, for the six months ended January 31,
1997 and 1996, respectively. This increase primarily reflects the Company's
increased commitment to product development. Due to the Company's commitment
to product development, net research, development and engineering expenses are
expected to increase in future periods.
Selling, General and Administrative. Selling, general and administrative
expenses increased 32% to $12.2 million, representing 12% of revenue, from
$9.2 million, representing 16% of revenue, for the six months ended January
31, 1997 and 1996, respectively. Selling, general and administrative expenses
increased due to increased expenses for market development fees for the
increased laser beam system sales in Asia, increased profit-sharing, the
addition of selling, general and administrative expenses from the acquired
Polyscan Inc., the costs of legal and accounting fees associated with a public
company, and costs associated with an increase in hiring.
Income Tax Provision. The Company recorded provisions for income taxes for
the six months ended January 31, 1997 and 1996 of $6.1 million and $2.2
million, respectively. Reflected in the provision for the six months ended
January 31, 1997 is a $1.1 million income tax benefit recorded as a result of
releasing a portion of
8
ETEC SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--(CONTINUED)
the valuation allowance previously recorded against its deferred tax assets.
Management's evaluation of the recoverability of the Company's deferred tax
assets is based in part upon the current product backlog and the Company's
proven ability to increase manufacturing capacity. Management has fully
reserved deferred tax assets that would be realized, if at all, more than one
year in the future. Because of the uncertainty of realization, management will
continue to evaluate the recoverability of the Company's deferred tax assets.
The provision for the quarter ended January 31, 1996 primarily reflects taxes
payable by the Company's foreign subsidiaries.
Extraordinary Loss on Early Extinguishment of Debt. During the six months
ended January 31, 1996, the Company paid $5.0 million of its 10.65% senior
secured notes before their due dates. As a result of this repayment, the
Company recorded an extraordinary loss of approximately $300,000 related to
unamortized debt issuance costs.
QUARTERS ENDED JANUARY 31, 1997 AND JANUARY 31, 1996
Revenue. Revenues are primarily comprised of sales of MEBES, CORE and ALTA
systems, accessories and upgrades, and sales of technical support, maintenance
and other services. The Company derives most of its revenues from the sale of
a small number of systems and upgrades and any delay in the recognition of
revenue for a single system or upgrade can have a material adverse effect on
the Company's consolidated results of operations in a particular quarter. For
example, one system, originally scheduled to be shipped in the first quarter
of fiscal 1997, was delayed due to additional calibration and testing and was
shipped in the second quarter of fiscal 1997.
Product revenue increased 93% to $45.3 million from $23.5 million for the
quarters ended January 31, 1997 and 1996, respectively. This increase
primarily reflects the sale of three additional systems, higher average
selling prices and changes in the product mix.
Service revenue increased 4% to $8.4 million from $8.1 million for the
quarters ended January 31, 1997 and 1996, respectively. This increase
primarily reflects generally higher service activity caused by an increase in
the number of systems under service contracts.
Gross Profit. The Company's gross profit on product revenue increased 121%
to $23.6 million from $10.7 million for the quarters ended January 31, 1997
and 1996, respectively. The increase in gross profit on product revenue was
due to an increase in product revenue and a higher gross margin on product
revenue, which increased to 52% from 45% for the quarter ended January 31,
1997 compared to the quarter ended January 31, 1996. The increase in product
gross margin is primarily attributable to generally higher selling prices for
the Company's products and an increase in the level of sales of accessories
(which tend to have higher gross margins).
The Company's gross profit on service revenue decreased 32% to $1.7 million
from $2.5 million for the quarters ended January 31, 1997 and 1996,
respectively. Gross margin on service revenue was 21% and 31% for the quarters
ended January 31, 1997 and 1996, respectively. The decreases in gross profit
and gross margin reflect an investment in service personnel and training to
support the number of systems serviced. The Company expects that such costs
will continue to increase with the result being a further decline in service
margins.
Research, Development and Engineering. Research, development and engineering
expenses, net of third-party funding under cooperative development agreements,
increased 127% to $8.1 million, representing 15% of revenue, from $3.6
million, representing 11% of revenue, for the quarters ended January 31, 1997
and 1996, respectively. This increase primarily reflects the Company's
increased commitment to product development. Due to the Company's commitment
to product development, net research, development and engineering expenses are
expected to increase in absolute dollars in future periods.
9
ETEC SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--(CONTINUED)
Selling, General and Administrative. Selling, general and administrative
expenses increased 32% to $6.3 million, representing 12% of revenue, from $4.8
million, representing 15% of revenue, for the quarters ended January 31, 1997
and 1996, respectively. Selling, general and administrative expenses increased
due to increased expenses for market development fees for the increased laser
beam system sales in Asia, increased profit-sharing, the addition of selling,
general and administrative expenses from the acquired Polyscan Inc., the costs
of legal and accounting fees associated with a public company, and costs
associated with an increase in hiring.
Income Tax Provision. The Company recorded provisions for income taxes for
the quarters ended January 31, 1997 and 1996 of $4.1 million and $1.3 million,
respectively.
Extraordinary Loss on Early Extinguishment of Debt. During the quarter ended
January 31, 1996, the Company paid $5.0 million of its 10.65% senior secured
notes before their due dates. As a result of this repayment, the Company
recorded an extraordinary loss of approximately $300,000 related to
unamortized debt issuance costs.
B. LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its cash needs primarily with cash from operations,
approximately $11.0 in net receipts from the sale and leaseback of the
Company's Hayward, California campus in fiscal 1995, and $98.1 million from
the Company's IPO and additional offerings in fiscal 1996 and fiscal 1997,
$10.0 million from a private placement with Intel Corporation in fiscal 1996.
The Company has spent approximately $9.7 million for net capital
expenditures in the first six months of fiscal 1997 primarily to purchase
testing and other equipment, upgrade manufacturing facilities, and implement
an enterprise-wide business software system.
The Company has budgeted a total of approximately $34.0 million for capital
expenditures in fiscal 1997, approximately $10.0 million of which the Company
intends to finance through operating leases.
In April 1996, the Company commenced construction of a 60,000 square foot
administrative building in Hayward, California. As of January 31, 1997, the
Company had expended $5.0 million related to the new facility. The Company
sold the new building in the second quarter of fiscal 1997 to the landlord of
its current facility and entered into a leasing arrangement for a period of 15
years.
As of January 31, 1997, the Company had cash and cash equivalents and
marketable securities, totaling $91.5 million. The Company believes that its
existing cash balances (including cash equivalents and marketable securities),
together with existing sources of liquidity, including cash from operations
and the existing credit agreement, will provide adequate cash to fund its
operations for at least the next twelve months.
Cash Flows from Operations
Net cash used in operating activities for the six months ended January 31,
1997 was $5.2 million compared to $8.8 million for the corresponding period in
1996.
Cash flows from operating activities for the six months ended January 31,
1997 primarily reflected net income of $14.6 million; increases in noncash
items (which included $1.9 million of depreciation and amortization, partially
offset by $1.2 million of deferred taxes) and increases in accounts receivable
of $28.9 million, inventory of $18.6 million, accounts payable of $3.3
million, and accrued and other liabilities of $23.3 million.
10
ETEC SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--(CONTINUED)
Cash flows used for operating activities for the six months ended January
31, 1996 primarily reflected net income of $6.2 million; increases in noncash
items (which include depreciation and amortization of $1.2 million); and
increases in accounts receivable of $10.8 million, inventory of $8.9 million,
and accounts payable of $2.5 million.
Fluctuations in accounts receivable, inventory, and current liabilities for
the above periods were caused primarily by the timing of system orders, the
timing of shipments, customer requested delivery dates, and the timing of
payments to vendors. The significant increase in inventory during the quarter
ended January 31, 1997 compared to July 31, 1996 was due primarily to
increases in material purchases and work-in-process to meet scheduled
production.
Prior to the shipment of a system, the Company receives payment for a
significant portion of the system sales price. Such payments are generally
received when the Company receives an order and at various agreed-upon times
when the system is being manufactured. As a result, the amount of customer
advances fluctuates based on the number of systems that are on order and each
system's status within the manufacturing cycle. Advances from customers
decreased slightly to $23.0 million at January 31, 1997 from $24.1 million at
July 31, 1996; the decreases are included in accrued and other liabilities on
the Company's balance sheet.
Financing and Investing Activities
Net cash used in investing activities for the six months ended January 31,
1997 was $20.2 million compared to $7.9 million for the six months ended
January 31, 1996. Cash flows from investing activities for the six months
ended January 31, 1997 reflected net purchases of investments of $10.5
million, and increases in net capital expenditures of $9.7 million.
Net cash provided by financing activities for the six months ended January
31, 1997 was $37.1 million compared to the six months ended January 31, 1996
of $32.9 million. The increase in net cash provided by financing activities is
primarily attributable to the reduction in the amount of debt payments.
C. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this report which are prefaced with words such as "expects,"
"anticipates," "believes" and similar words and other statements of similar
sense, are forward-looking statements. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances which may or may not be within the Company's control and as to
which there can be no firm assurances given. These forward-looking statements,
like any other forward-looking statements, involve risks and uncertainties
that could cause actual results to differ materially from those projected or
anticipated.
In addition to other risks and uncertainties that may be described elsewhere
in this document, certain risks and uncertainties that could affect the
Company's financial results include: potential delays in shipments or other
delays in recognition of revenue from sales of product or services; cyclicity
of the maskmaking and semiconductor equipment industries; potential customers'
capital spending decisions of customers and prospective customers; the
development, market acceptance and successful production of new products and
enhancements; competitors' product introductions and enhancements; risks
associated with international sales and operations; risks associated with any
future acquisitions, including the Company's ability to successfully integrate
acquired businesses, products, or technologies and to develop products which
gain commercial acceptance; risks associated with stock market volatility;
risks associated with changes in governmental laws and regulations; risks
associated with a reduction in cooperative development funding; and risks
associated with foreign operations, such as foreign exchange risk, import-
export controls, and political risks.
11
ETEC SYSTEMS, INC.
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Registrant's Articles of Incorporation were amended on January 30, 1997 to
provide for the issuance of 50,000,000 shares of stock. Of said shares,
40,000,000 shares are Common Stock with a par value of $0.01 per share and
10,000,000 shares are Preferred Stock with a par value of $0.01 per share. The
Board of Directors has the authority, without any action by the shareholders,
to fix the number of shares to be included in any series of Preferred Stock.
On January 15, 1997, the Board of Directors of the Registrant adopted a
shareholder rights plan designed to ensure fair and equal treatment for
shareholders in the event of a proposed acquisition of the Registrant, by
enhancing the ability of the Board of Directors to negotiate more effectively
with a prospective acquiring party. Under the plan [see Exhibit 10.2],
shareholder rights will be triggered if a hostile party acquires 15% of the
Registrant's stock without approval of the Board of Directors.
Under the plan, the Board of Directors has established a series of Preferred
Stock designated as "Series A Participating Preferred Stock." The number of
shares constituting such series shall be the number of shares of authorized
Common Stock divided by 100. The holders of the Series A Participating
Preferred Stock have 100 votes for each share held by them. Holders of the
Series A Participating Preferred Stock are entitled to receive, when and as
declared by the Board of Directors of the Registrant, commencing after the
close of business on January 31, 1997, a dividend of $1,600 per share.
12
ETEC SYSTEMS, INC.
PART II--(CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on December 17, 1996.
Matters voted upon at the meeting included:
1)Election of directors (listed below)
The following directors were elected to hold office until the next
Annual Meeting of Stockholders of the Company:
DIRECTOR AFFIRMATIVE NEGATIVE WITHHELD
-------- ----------- -------- --------
Stephen E. Cooper.......................... 15,953,472 0 13,184
Edward L. Gelbach.......................... 15,953,889 0 12,767
Catherine P. Lego.......................... 15,953,939 0 12,717
Jack H. King............................... 15,954,139 0 12,517
John McBennett............................. 15,947,439 0 19,217
John Suzuki................................ 15,954,139 0 12,517
Thomas Michael Trent....................... 15,947,139 0 19,517
Robert L. Wehrli........................... 15,953,289 0 13,367
2) Adoption of Corporation's Eighth Amended and Restated Articles of
Incorporation to increase the authorized number of shares of Common
Stock from 30,000,000 to 40,000,000 shares
Votes in the
affirmative: 15,728,226
Votes in the negative: 191,560
Votes withheld: 46,870
3) Approval of increase in number of Common Stock shares available for
issuance under the 1995 Omnibus Incentive Plan from 1,000,000 to
1,975,000 shares
Votes in the affirmative:
12,103,935
Votes in the negative:
3,787,371
Votes withheld: 48,997
Broker non-votes: 26,353
4) Ratification of the appointment of Price Waterhouse LLP as independent
public accountants for the Company for the fiscal year ended July 31,
1997
Votes in the affirmative:
15,908,540
Votes in the negative: 29,962
Votes withheld: 28,154
13
ETEC SYSTEMS, INC.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a)The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
----------- -----------
2 Eighth Amended and Restated Articles of Incorporation
10.1 Amended and Restated Lease Agreement, dated January 31, 1997, by
and between Registrant and ESI (CA) QRS 12-6, Inc.
10.2 Rights Agreement, dated as of January 15, 1997, by and between
Registrant and Bank of Boston, Rights Agent.
Statements of computation of earnings per common share and
11 equivalents.
27 Financial Data Schedule.
See Exhibit Index on page 16.
(b)Reports on Form 8-K.
The Company filed a current report on Form 8-K during the quarter ended
January 31, 1997 reporting the adoption of a shareholder rights plan.
14
ETEC SYSTEMS, INC.
SIGNATURE
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, on March 17, 1997.
ETEC SYSTEMS, INC.
(Registrant)
By __________________________________
/s/ Philip J. Koen, Jr.
PHILIP J. KOEN, JR.
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
15
ETEC SYSTEMS, INC.
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
2 Eighth Amended and Restated Articles of Incorporation 19
10.1 Amended and Restated Lease Agreement, dated January 31, 22
1997, by and between Registrant and ESI (CA) QRS 12-6,
Inc.
10.2 Rights Agreement, dated as of January 15, 1997, by and 106
between Registrant and Bank of Boston, Rights Agent.
Statements of computation of earnings per common share and
11 equivalents. 174
27 Financial Data Schedule. 175
16