UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to ______________
Commission file number 0-25424
Semitool, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Montana 81-0384392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
655 West Reserve Drive
Kalispell, Montana 59901
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (406)752-2107
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 __
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
Title Outstanding as of May 5, 2000
Common Stock 28,280,270
Part I. Financial Information
Item 1. Financial Statements
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands, Except for Share Amounts)
March 31, September 30,
ASSETS 2000 1999
--------------- ---------------
Current assets:
Cash and cash equivalents $ 7,717 $ 4,789
Trade receivables, less allowance for doubtful
accounts of $222 and $271 53,736 38,366
Inventories 50,327 41,667
Income tax refund receivable 2,405 3,944
Prepaid expenses and other current assets 2,353 2,607
Deferred income taxes 5,928 5,928
--------------- ---------------
Total current assets 122,466 97,301
Property, plant and equipment, net 28,647 30,336
Intangibles, less accumulated amortization of $4,127 and $3,574 3,443 3,406
Other assets, net 1,117 841
--------------- ---------------
Total assets $ 155,673 $ 131,884
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank and other short-term debt $ 8,911 $ 10,160
Accounts payable 23,384 14,602
Accrued commissions 1,926 1,018
Accrued warranty and installation 11,460 9,045
Accrued payroll and related benefits 5,079 3,691
Income taxes payable 2,031 --
Other accrued liabilities 2,177 3,974
Customer advances 1,360 2,119
Long-term debt, due within one year 343 381
Payable to shareholder 60 3
--------------- ---------------
Total current liabilities 56,731 44,993
Long-term debt, due after one year 3,843 3,911
Deferred income taxes 1,955 1,955
--------------- ---------------
Total liabilities 62,529 50,859
--------------- ---------------
Contingency (Note 5)
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, no par value, 75,000,000 and 30,000,000 shares
authorized, 28,265,420 and 27,628,996 shares issued and
outstanding 44,497 41,464
Retained earnings 47,928 39,009
Accumulated other comprehensive income 719 552
--------------- ---------------
Total shareholders' equity 93,144 81,025
--------------- ---------------
Total liabilities and shareholders' equity $ 155,673 $ 131,884
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except for Per Share Amounts)
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 54,308 $ 25,816 $ 103,863 $ 56,238
Cost of sales 24,841 13,889 48,579 29,574
----------- ----------- ----------- -----------
Gross profit 29,467 11,927 55,284 26,664
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 15,978 11,421 30,933 23,078
Research and development 5,881 5,200 11,193 10,749
----------- ----------- ----------- -----------
Total operating expenses 21,859 16,621 42,126 33,827
----------- ----------- ----------- -----------
Income (loss) from operations 7,608 (4,694) 13,158 (7,163)
Other income (expense), net (60) 198 (42) 939
----------- ----------- ----------- -----------
Income (loss) before income taxes 7,548 (4,496) 13,116 (6,224)
Income taxes 2,360 (1,529) 4,197 (2,116)
----------- ----------- ----------- -----------
Net income (loss)
$ 5,188 $ (2,967) $ 8,919 $ (4,108)
=========== =========== =========== ===========
Earnings (loss) per share:
Basic $ 0.18 $ (0.11) $ 0.32 $ (0.15)
=========== =========== =========== ===========
Diluted $ 0.18 $ (0.11) $ 0.31 $ (0.15)
=========== =========== =========== ===========
Average common shares:
Basic 28,048 27,584 27,838 27,584
=========== =========== =========== ===========
Diluted 28,986 27,584 28,639 27,584
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Six Months Ended
March 31,
---------------------------------
2000 1999
--------------- ---------------
Operating activities:
Net income (loss) $ 8,919 $ (4,108)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,160 5,078
Loss on disposition of assets 106 157
Change in:
Trade receivables (14,020) 10,860
Inventories (8,626) 2,301
Income tax refund receivable 1,539 --
Prepaid expenses and other current assets 308 (2,501)
Other assets (479) (69)
Accounts payable 8,300 (1,439)
Accrued commissions 908 70
Accrued warranty and installation 2,410 (3,126)
Accrued payroll and related benefits 1,384 (610)
Other accrued liabilities (1,841) (140)
Customer advances (759) (1,081)
Income taxes payable 2,049 --
Shareholder payable 57 (78)
--------------- ---------------
Net cash provided by operating activities 4,415 5,314
--------------- ---------------
Investing activities:
Purchases of property, plant and equipment (1,485) (1,640)
Increase in intangible assets (708) (197)
Proceeds from sale of equipment 47 1,008
--------------- ---------------
Net cash used in investing activities (2,146) (829)
--------------- ---------------
Financing activities:
Proceeds from exercise of stock options 3,014 --
Borrowings under line of credit and short-term debt 49,470 1,000
Repayments under line of credit and short-term debt (51,633) (4,413)
Repayments of long-term debt and capital leases (217) (222)
--------------- ---------------
Net cash provided by (used in) financing activities 634 (3,635)
--------------- ---------------
Effect of exchange rate changes on cash and cash equivalents 25 203
--------------- ---------------
Net increase in cash and cash equivalents 2,928 1,053
Cash and cash equivalents at beginning of period 4,789 7,287
--------------- ---------------
Cash and cash equivalents at end of period $ 7,717 $ 8,340
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in Thousands)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income (loss) 5,188 (2,967) 8,919 (4,108)
Foreign currency translation adjustment (75) (198) 167 524
----------- ----------- ----------- -----------
Comprehensive income (loss) 5,113 (3,165) 9,086 (3,584)
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements included herein have been prepared by us,
without audit, pursuant to the rules and regulations of the United States
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted as
permitted by such rules and regulations. We believe the disclosures included
herein are adequate; however, these consolidated statements should be read in
conjunction with the consolidated financial statements and the notes thereto for
the year ended September 30, 1999 previously filed with the SEC on Form 10-K.
The financial information presented as of any date other than September 30, 1999
has been prepared from the books and records without audit. Financial
information as of September 30, 1999 has been derived from the audited financial
statements of our Company, but does not include all disclosures required by
generally accepted accounting principles. In our opinion these unaudited
financial statements contain all of the adjustments (normal and recurring in
nature) necessary to present fairly our consolidated financial position as of
March 31, 2000, the consolidated results of operations for the three and six
month periods ended March 31, 2000 and 1999 and the consolidated cash flows for
the six month periods ended March 31, 2000 and 1999. The results of operations
for the periods presented may not be indicative of those you may expect for the
full year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for the Company in fiscal 2001. The
Company has not yet determined the effect, if any, the adoption of this standard
will have on the financial condition or results of operations of the Company.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. The semiconductor
capital equipment industry and the accounting profession are currently
discussing various practical implementation considerations. While we have not
fully assessed the impact on us of the adoption of SAB 101, we believe that it
may require a significant amount of our first quarter of fiscal 2001 revenues to
be deferred which could be partially, or totally offset by the recognition of
revenue for products shipped in prior periods as required by SAB 101. Any change
in our revenue recognition policy resulting from the implementation of SAB 101
would be reported as a change in accounting principle in the quarter ending
December 31, 2000 with a cumulative adjustment in that quarter to reflect the
effect of the change. As a result, while SAB 101 would not affect the underlying
strength or weakness of our business operations, implementation of SAB 101 could
have a material effect on our reported results of operations for the first
quarter of fiscal 2001 when SAB 101 will be implemented.
In April 2000, Financial Accounting Standards Board Interpretation No. 44 (FIN
44), Accounting for Certain Transactions Involving Stock Compensation-an
interpretation of APB Opinion No. 25, was issued. FIN 44 clarifies and modifies
APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44 is
effective for the Company in the fourth quarter of fiscal year 2000. The Company
has not yet determined the effect, if any, the implementation of the
Interpretation will have on the financial condition or results of operation of
the Company.
Note 2. Principles of Consolidation
Our consolidated financial statements include the accounts of Semitool, Inc. and
our wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Note 3. Inventories
Our inventories are summarized as follows (in thousands):
March 31, 2000 September 30, 1999
------------------ ------------------
Parts and raw materials $ 27,924 $ 23,930
Work-in-process 18,567 11,852
Finished goods 3,836 5,885
-------------- --------------
$ 50,327 $ 41,667
============== ==============
During the six months ended March 31, 2000 and 1999, $84,000 and $1,636,000,
respectively, of finished goods inventory was transferred to property, plant and
equipment.
Note 4. Income Taxes
The components of our income tax provision (benefit) are as follows,(in
thousands):
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Federal $ 1,659 $ (1,368) $ 2,562 $ (1,888)
State 318 (161) 505 (228)
Foreign 383 -- 1,130 --
----------- ----------- ----------- -----------
Total $ 2,360 $ (1,529) $ 4,197 $ (2,116)
=========== =========== =========== ===========
Note 5. Contingency
A lawsuit was filed against us by Mitsubishi Silicon America Corporation
(successor to Siltec Corporation) in the United States District Court for the
District of Oregon in July 1998. The lawsuit alleges breaches of warranties by
us in connection with the sale of tools, and seeks damages in excess of $5
million, plus attorney's fees. The trial is scheduled to commence in February
2001. Although we believe the lawsuit is without merit and are contesting the
action vigorously, litigation is inherently uncertain and we may not win.
Moreover, even if we prevail, the diversion of management attention and costs
associated with litigation could have a material adverse affect on our financial
condition, results of operations or cash flow.
In August of 1998, we filed suit against Novellus Systems, Inc. in the United
States District Court for the Northern District of California (Case No.
C-98-3089 DLJ), alleging infringement of two of our patents relating to single
substrate processing tools used in electrochemical deposition of copper onto
semiconductor wafers. We seek damages for past infringement, a permanent
injunction prohibiting future infringement, treble damages for willful
infringement, prejudgment interest and attorney fees. Novellus answered the
complaint by denying all of the allegations and counter-claiming for declaratory
judgement of invalidity and noninfringement. Novellus filed a motion for summary
judgment of noninfringement, and that motion was granted on March 27, 2000. We
intend to appeal to the United States Court of Appeals for the Federal Circuit,
seeking review of the ruling on the motion for summary judgment.
We are subject to other legal proceedings and claims which have arisen in the
ordinary course of business and have not been finally adjudicated. Although
there can be no assurance as to the ultimate disposition of these matters, it is
the opinion of our management, based upon the information available at this
time, that the currently expected outcome of these matters, individually or in
the aggregate, will not have a material adverse effect on our results of
operations, financial condition or cash flows. Note 6. Earnings (Loss) Per
Common Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ---------- ----------- -----------
Numerator:
Net income (loss) for basic and diluted
earnings (loss) per share $ 5,188 $ (2,967) $ 8,919 $ (4,108)
=========== =========== =========== ===========
Denominator:
Average common shares used for basic
earnings (loss) per share 28,048 27,584 27,838 27,584
Effect of dilutive stock option 938 -- 801 --
----------- ----------- ----------- -----------
Denominator for diluted earnings
(loss)per share 28,986 27,584 28,639 27,584
=========== =========== =========== ===========
Options to purchase 882,325 shares of common stock were outstanding at March 31,
1999, but were not included in the computation of diluted net loss per share as
the effect would be anti-dilutive.
The authorized shares of the Company's capital stock were increased from
30,000,000 to 75,000,000 at the February 8, 2000 Annual Meeting of Shareholders.
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on March 28, 2000. All references in the financial statements to the
number of shares, per share amounts and market prices of the Company's common
stock have been retroactively restated to reflect the increased number of common
shares outstanding.
Note 7. Operating Segment and Geographic Information:
We adopted Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information" in 1999.
SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of our reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas and major customers.
Our reportable segments have been determined based on the nature of its
operations, products offered to customers and information used by the chief
operating decision maker as defined by SFAS 131. Our two reportable segments are
Semiconductor Equipment and Software Control Systems.
The Semiconductor Equipment segment's primary products perform wafer cleaning,
stripping and etching, and electroplating processes in the manufacturing of IC
devices. The Software Control Systems segment's primary products are designed to
provide a communication interface to monitor and control most of the front-end
process equipment in a fab. The Semiconductor Equipment segment's current
product offerings qualify for aggregation under SFAS 131 as the products are
manufactured and distributed in the same manner, have similar economic
characteristics and are sold to the same customer base.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies". Segment operating results are
measured based on income (loss) from operations. Intersegment sales are based on
internal transfer prices. Intersegment sales reflect sales of products from the
Software Control Systems segment to the Semiconductor Equipment segment. (in
thousands)
Total
Equipment Software Software Elim-
Segment Segment Segment inations Consolidated
Net sales External External Internal
Second quarter fiscal 2000 $51,210 $3,098 $655 $3,753 $(655) $54,308
Second quarter fiscal 1999 22,398 3,418 90 3,508 (90) 25,816
First half fiscal 2000 96,987 6,876 891 7,767 (891) 103,863
First half fiscal 1999 49,602 6,636 90 6,726 (90) 56,238
Income (loss) from
operations
Second quarter fiscal 2000 7,843 (235) 467 232 (467) 7,608
Second quarter fiscal 1999 (4,933) 239 43 282 (43) (4,694)
First half fiscal 2000 12,909 249 642 891 (642) 13,158
First half fiscal 1999 (7,504) 341 43 384 (43) (7,163)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAUTION
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report on Form 10-Q
which are not historical facts are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, including
without limitation, statements regarding gross margins, research and
development, costs of manufacturing, future balances, acquisitions, equity and
debt financings, effects of interest rate changes, and effects of new accounting
standards, and are subject to the safe harbor provisions created by that
statute. A forward-looking statement may contain words such as "will continue to
be," "will be," "continue to," "expect to," "anticipates that," "to be" or "can
impact." We caution that forward-looking statements are subject to risks and
uncertainties that could cause our actual results to differ materially from
those projected in such forward-looking statements. These risks and
uncertainties include, but are not limited to, the cyclical nature of the
semiconductor industry in general, lack of market acceptance for new products,
decreasing demand for our existing products, impact of competitive products and
pricing, product development, commercialization and technological difficulties,
capacity and supply constraint difficulties and other risks detailed herein. Our
future results will depend on our ability to continue to enhance our existing
products and to develop and manufacture new products and to finance such
activities. There can be no assurance that we will be successful in the
introduction, marketing and cost-effective manufacture of any new products or
that we will be able to develop and introduce in a timely manner new products or
enhancements to our existing products and processes which satisfy customer needs
or achieve widespread market acceptance.
We undertake no obligation to provide revisions to forward-looking statements to
reflect subsequent events, changed circumstances, or the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 2000 COMPARED WITH SECOND QUARTER OF FISCAL 1999
Net Sales. Net sales consist of revenues from sales of equipment, spare parts,
software and service contracts. Net sales increased 110.4% to $54.3 million in
the second quarter of fiscal 2000 from $25.8 million for the same period in
fiscal 1999. Net sales for the first six months of fiscal 2000 increased 84.7%
or $47.6 million when compared to fiscal 1999. Sales in the second quarter of
fiscal 2000 were up in all product categories except for software control
systems and increased in all product categories for the first six months of 2000
compared to the same period a year ago. These increases are principally due to a
recovery in the semiconductor industry. Sales consisted of both capacity and
technology buys by our customers.
Our Semiconductor Equipment segment's net sales were $51.2 million in the second
quarter of fiscal 2000, up $28.8 million or 128.6% from $22.4 million net sales
for fiscal 1999 second quarter. Second quarter 2000 net sales of surface
preparation equipment and ECD equipment were up 96.9% and 413.8%, respectively,
as compared to second quarter 1999. For the first six months of fiscal 2000, the
Semiconductor Equipment segment's net sales were $97.0 million, up $47.4 million
or 95.5% from $49.6 million net sales for the same period in 1999. First six
months 2000 net sales of surface preparation equipment and electrochemical
deposition equipment were up 78.6% and 138.0% as compared to the same period in
1999.
The Software Control Systems segment's net sales were $3.8 million in the second
fiscal quarter of 2000 which includes approximately $655,000 of intercompany
sales, and compares with $3.5 million in the second fiscal quarter of 1999. For
the first six months of 2000, the Software Control Systems segment's net sales
were $7.8 million which includes approximately $891,000 of intercompany sales,
compared with $6.7 million in the same period in 1999. Intercompany sales were
not significant in the 1999 period second quarter and first half.
Gross Profit. Gross margin was 54.3% of net sales in the second quarter and
53.2% for the first half of fiscal 2000 compared to 46.2% and 47.4% of net sales
for the same periods in fiscal 1999. The increase in gross margin was primarily
due to changes in our sales mix and to a higher level of cost absorption caused
by increased manufacturing activity. Our gross margin has been, and will
continue to be, affected by a variety of factors, including the sales mix and
average selling price of products sold, and the cost to manufacture, service and
support new and enhanced products.
Selling, General and Administrative. Selling, general and administrative (SG&A)
expenses were 29.4% and 29.8% of net sales in the second quarter and first half
of fiscal 2000, compared to 44.2% and 41.0% of net sales for the same periods in
fiscal 1999. The decline as a percentage of net sales is a result of increased
sales volume. A substantial portion of our SG&A expenses are fixed in the
short-term.
Research and Development. Research and development (R&D) expenses consist of
salaries, project materials, laboratory costs, consulting fees and other costs
associated with our research and development efforts. R&D expense was $5.9
million or 10.8% of net sales in the second quarter of fiscal 2000 as compared
to $5.2 million or 20.1% of net sales for the same period in fiscal 1999. In the
first six months of fiscal 2000, R&D expense was $11.2 million or 10.8% of net
sales. This compares with fiscal 1999 first half expense of $10.7 million or
19.1% of net sales. The decline as a percentage of sales in fiscal 2000 periods
is a result of increased sales volume.
We are committed to technology leadership in the semiconductor equipment
industry and expect to continue to fund R&D expenditures with a multiyear
perspective. Our research and development expenses have fluctuated from quarter
to quarter in the past. We expect such fluctuation to continue in the future,
both in absolute dollars and as a percentage of net sales, primarily due to the
timing of expenditures and fluctuations in the level of net sales in a given
quarter.
Net operating income for the Semiconductor Equipment Segment was $7.8 million
and $12.9 million for the second quarter and the first six months of fiscal
2000. This compares with net operating losses of $4.9 million and $7.5 million
for the respective periods of fiscal 1999. The increases period over period are
primarily attributed to increased sales volume and higher gross margins which
more than offset higher SG&A and R&D costs.
Our Software Control Systems segment's net operating income for the second
quarter and first six months of fiscal 2000 were approximately $232,000 and
$891,000. This compares with the amounts for the same periods in fiscal 1999 of
approximately $282,000 and $384,000. Increased R&D costs resulted in the lower
net operating income of the second quarter of 2000 when compared to the same
period in fiscal 1999. In comparing the first half of fiscal 2000 to the same
period in fiscal 1999, higher net sales and increased gross margins offset
higher R&D expenses to result in an increase of $507,000 for net operating
income.
Other Income (Expense), Net. Other income (expense), net was a net other expense
of approximately $60,000 in the second quarter of fiscal 2000, which includes
interest expense of $249,000. This compares to net other income of $198,000,
which includes interest expense of $78,000, for the same period in fiscal 1999.
For the first six months of fiscal 2000, other income (expense), net was a net
other expense of approximately $42,000, which includes interest expense of
$521,000 netted with other income of $479,000, which includes a foreign exchange
gain of $177,000. This compares to net other income of $939,000, which includes
a foreign exchange gain of $847,000, for the same period in fiscal 1999.
Income Taxes. Income taxes for the second quarter of fiscal 2000 were a $2.4
million tax provision and a $1.5 million benefit for the second quarter of
fiscal 1999. For the first six months of fiscal year 2000, the provision for
income taxes was $4.2 million compared to a $2.1 million tax benefit for the
same period a year ago. Income tax provisions and benefits are made based on the
blended estimate of federal, state and foreign effective income tax rates which
were estimated to be 32% in the first half of year 2000 and 34% in fiscal 1999.
Backlog. We include in our backlog those customer orders for which we have
written authorization and for which shipment is scheduled within the next twelve
months. Orders are generally subject to cancellation or rescheduling by
customers with limited or no penalty. As the result of systems ordered and
shipped in the same quarter, possible changes in customer delivery schedule,
cancellations, and shipment delays, the backlog at any particular date and the
new orders bookings for any particular period are not necessarily indicative of
actual sales for any succeeding period. Order backlog was approximately $92.1
million at March 31, 2000 which represents an increase of 213.3% from $29.4
million at March 31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for the Company in fiscal 2001. The
Company has not yet determined the effect, if ant, the adoption of this standard
will have on the financial condition or results of operations of the Company.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. The semiconductor
capital equipment industry and the accounting profession are currently
discussing various practical implementation considerations. While we have not
fully assessed the impact on us of the adoption of SAB 101, we believe that it
may require a significant amount of our first quarter of fiscal 2001 revenues to
be deferred which could be partially, or totally offset by the recognition of
revenue for products shipped in prior periods as required by SAB 101. Any change
in our revenue recognition policy resulting from the implementation of SAB 101
would be reported as a change in accounting principle in the quarter ending
December 31, 2000 with a cumulative adjustment in that quarter to reflect the
effect of the change. As a result, while SAB 101 would not affect the underlying
strength or weakness of our business operations, implementation of SAB 101 could
have a material effect on our reported results of operations for the first
quarter of fiscal 2001 when SAB 101 will be implemented.
In April 2000, Financial Accounting Standards Board Interpretation No. 44 (FIN
44), Accounting for Certain Transactions Involving Stock Compensation-an
interpretation of APB Opinion No. 25, was issued. FIN 44 clarifies and modifies
APB Opinion No. 25, Accounting for Stock Issued to employees. FIN 44 is
effective for the Company in the fourth quarter of fiscal year 2000. The Company
has not yet determined the effect, if any, the implementation of the
Interpretation will have on the financial condition or results of operation of
the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $4.4 million during the first six
months of fiscal 2000, compared to $5.3 million provided in the same period in
fiscal 1999. Cash provided by operations was lower primarily due to increases in
receivables of $24.8 million and inventory of $10.9 million partially offset by
increases in net income of $13.0 million, accounts payable of $9.7 million and
accrued warranty of $5.5 million which changes were the result of increased
sales. We expect future working capital balances to fluctuate based on net sales
and the average cycle time of the specific equipment types being manufactured.
As of March 31, 2000, our principal sources of liquidity consisted of
approximately $7.7 million of cash and cash equivalents, and $16.2 million
available under the Company's $25 million revolving line of credit. The credit
facility is with Bank of America and bears interest at the bank's prime lending
rate or LIBOR plus 1.5%. The revolving line of credit expires on April 1, 2001
and all principal amounts owing are due by April 1, 2004. The revolving line of
credit agreement has various restrictive covenants, including a prohibition
against pledging or in any way encumbering current or operating assets during
the term of the agreement and the maintenance of various financial ratios.
We believe that at our current operations cash and cash equivalents, funds
generated from operations, and funds available under our bank line will be
sufficient to meet our planned capital requirements during the next twelve
months including the spending of approximately $5.0 million to purchase
property, plant and equipment. We believe that success in our industry requires
substantial capital in order to maintain flexibility and to take advantage of
opportunities as they arise. We may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products or
technologies. We may also effect additional equity or debt financings to fund
such activities or to fund greater than anticipated growth. The sale of
additional equity securities or the issuance of equity securities in a business
combination could result in dilution to our shareholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risks
Market risks relating to the Company's operations result primarily from changes
in interest rate and changes in foreign currency exchange rates.
Interest Rate Sensitivity
As of March 31, 2000, we have approximately $4.2 million in long-term debt and
approximately $8.9 million in short-term debt. Our long-term debt bears interest
at a fixed rate. As a result, changes in the fixed rate interest market would
change the estimated fair value of its fixed rate long-term debt. We believe
that a 10% change in the long-term interest rate would not have a material
effect on our financial condition, results of operations or cash flows.
Foreign Currency Exchange Rate Sensitivity
All of our non-U.S. operations are subject to inherent risks in conducting
business abroad, including fluctuation in the relative value of currencies. We
manage this risk and attempt to reduce such exposure through an economic hedge
by entering into short-term forward exchange contracts. At March 31, 2000, we
held forward contracts to purchase Japanese Yen with a face value of $13.4
million, a market value of $13.9 million and an unrealized loss of approximately
$500,000. However, the impact of movements in currency exchange rates on forward
contracts is offset to the extent of intercompany receivables denominated in
yen. The effect of a 10% change in foreign exchange rates on hedged transactions
involving Japanese Yen forward exchange contracts and the underlying
transactions would not be material to the our financial condition, results of
operations or cash flows. We do not hold or issue derivative financial
instruments for trading or speculative purposes.
LITIGATION
A lawsuit was filed against us by Mitsubishi Silicon America Corporation
(successor to Siltec Corporation) in the United States District Court for the
District of Oregon in July 1998. The lawsuit alleges breaches of warranties by
us in connection with the sale of tools, and seeks damages in excess of $5
million, plus attorney's fees. The trial is scheduled to commence in February
2001. Although we believe the lawsuit is without merit and are contesting the
action vigorously, litigation is inherently uncertain and we may not win.
Moreover, even if we prevail, the diversion of management attention and costs
associated with litigation could have a material adverse affect on our financial
condition, results of operations or cash flow.
In August of 1998, we filed suit against Novellus Systems, Inc. in the United
States District Court for the Northern District of California (Case No.
C-98-3089 DLJ), alleging infringement of two of our patents relating to single
substrate processing tools used in electrochemical deposition of copper onto
semiconductor wafers. We seek damages for past infringement, a permanent
injunction prohibiting future infringement, treble damages for willful
infringement, prejudgment interest and attorney fees. Novellus answered the
complaint by denying all of the allegations and counter-claiming for declaratory
judgement of invalidity and noninfringement. Novellus filed a motion for summary
judgment of noninfringement, and that motion was granted on March 27, 2000. We
intent to appeal to the United States Court of Appeals for the Federal Circuit,
seeking review of the ruling on the motion for summary judgment.
We are subject to other legal proceedings and claims which have arisen in the
ordinary course of business and have not been finally adjudicated. Although
there can be no assurance as to the ultimate disposition of these matters, it is
the opinion of our management, based upon the information available at this
time, that the currently expected outcome of these matters, individually or in
the aggregate, will not have a material adverse effect on our results of
operations, financial condition or cash flows.
SEMITOOL, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
A lawsuit was filed against us by Mitsubishi Silicon America Corporation
(successor to Siltec Corporation) in the United States District Court for the
District of Oregon in July 1998. The lawsuit alleges breaches of warranties by
us in connection with the sale of tools, and seeks damages in excess of $5
million, plus attorney's fees. The trial is scheduled to commence in February
2001. Although we believe the lawsuit is without merit and are contesting the
action vigorously, litigation is inherently uncertain and we may not win.
Moreover, even if we prevail, the diversion of management attention and costs
associated with litigation could have a material adverse affect on our financial
condition, results of operations or cash flow.
In August of 1998, we filed suit against Novellus Systems, Inc. in the United
States District Court for the Northern District of California (Case No.
C-98-3089 DLJ), alleging infringement of two of our patents relating to single
substrate processing tools used in electrochemical deposition of copper onto
semiconductor wafers. We seek damages for past infringement, a permanent
injunction prohibiting future infringement, treble damages for willful
infringement, prejudgment interest and attorney fees. Novellus answered the
complaint by denying all of the allegations and counter-claiming for declaratory
judgement of invalidity and noninfringement. Novellus filed a motion for summary
judgment of noninfringement, and that motion was granted on March 27, 2000. We
intend to appeal to the United States Court of Appeals for the Federal Circuit,
seeking review of the ruling on the motion for summary judgment.
We are subject to other legal proceedings and claims which have arisen in the
ordinary course of business and have not been finally adjudicated. Although
there can be no assurance as to the ultimate disposition of these matters, it is
the opinion of our management, based upon the information available at this
time, that the currently expected outcome of these matters, individually or in
the aggregate, will not have a material adverse effect on our results of
operations, financial condition or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on February 8, 2000, the
following proposals were adopted:
1. To elect six directors of the Company to serve until the 2000 Annual
Meeting of Shareholders or until their successors are elected and
qualified. All director nominees received votes which exceeded the minimum
number of votes to be elected. The table below summarizes voting results:
Votes Votes
For Withheld
------------ --------
Raymon F. Thompson 12,832,821 661,860
Howard E. Bateman 12,832,191 662,490
Richard A. Dasen 12,833,441 661,240
Timothy C. Dodkin 12,846,641 648,040
Daniel J. Eigeman 12,832,091 662,590
Calvin S. Robinson 12,829,491 665,190
2. To approve an amendment to the Company's Restated Articles of Incorporation
to increase the number of authorized shares of the Company's Common Stock
from 30,000,000 shares to 75,000,000 shares.
For Against Abstain
------------ ------- -------
12,063,149 1,400,372 31,160
3. To ratify the appointment of PricewaterhouseCoopers, LLP independent
auditors for the Company for the fiscal year ending September 30, 2000.
For Against Abstain
------------ ------- --------
13,454,281 14,990 25,410
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(3.8) Amendment to the Restated Articles of Incorporation of the
Company
(3.9) Correction to the Amendment to the Restated Articles of
Incorporation of the Company
(27) Financial Data Schedule for Form 10-Q dated March 31, 2000.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended
March 31, 2000.
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.
SEMITOOL, INC.
--------------
(Registrant)
Date: May 12, 2000 By /s/William A. Freeman
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William A. Freeman
Vice President and Chief Financial Officer
By /s/Larry A. Viano
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Larry A. Viano
Chief Accounting Officer