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 June 30, 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 August 11, 2000
Common Stock 28,301,100
Part I. Financial Information
Item 1. Financial Statements
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands, Except for Share Amounts)
June 30, September 30,
ASSETS 2000 1999
---------------- ---------------
Current assets:
Cash and cash equivalents $ 6,974 $ 4,789
Trade receivables, less allowance for doubtful
accounts of $273 and $271 63,382 38,366
Inventories 63,024 41,667
Income tax refund receivable 2,246 3,944
Prepaid expenses and other current assets 3,843 2,607
Deferred income taxes 5,928 5,928
---------------- ---------------
Total current assets 145,397 97,301
Property, plant and equipment, net 29,432 30,336
Intangibles, less accumulated amortization of $4,372 and $3,574 3,531 3,406
Other assets, net 725 841
---------------- ---------------
Total assets $ 179,085 $ 131,884
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank and other short-term debt $ 12,315 $ 10,160
Accounts payable 28,507 14,602
Accrued commissions 2,249 1,018
Accrued warranty and installation 13,545 9,045
Accrued payroll and related benefits 6,123 3,691
Income taxes payable 3,913 --
Other liabilities 3,080 3,977
Customer advances 3,290 2,119
Long-term debt, due within one year 343 381
---------------- ---------------
Total current liabilities 73,365 44,993
Long-term debt, due after one year 3,742 3,911
Deferred income taxes 1,955 1,955
---------------- ---------------
Total liabilities 79,062 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 authorized,
28,289,250 and 27,628,996 shares issued and outstanding 44,656 41,464
Retained earnings 54,856 39,009
Accumulated other comprehensive income 511 552
---------------- ---------------
Total shareholders' equity 100,023 81,025
---------------- ---------------
Total liabilities and shareholders' equity $ 179,085 $ 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 Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 64,910 $ 29,838 $ 168,773 $ 86,076
Cost of sales 31,192 15,216 79,771 44,790
----------- ----------- ----------- -----------
Gross profit 33,718 14,622 89,002 41,286
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 17,671 13,336 48,604 36,414
Research and development 6,068 5,555 17,261 16,304
----------- ----------- ----------- -----------
Total operating expenses 23,739 18,891 65,865 52,718
----------- ----------- ----------- -----------
Income (loss) from operations 9,979 (4,269) 23,137 (11,432)
Other income (expense), net 209 125 167 1,064
----------- ----------- ----------- -----------
Income (loss) before income taxes 10,188 (4,144) 23,304 (10,368)
Income taxes 3,260 (1,409) 7,457 (3,525)
----------- ----------- ----------- -----------
Net income (loss) $ 6,928 $ (2,735) $ 15,847 $ (6,843)
=========== =========== =========== ===========
Earnings (loss) per share
Basic $ 0.24 $ (0.10) $ 0.57 $ (0.25)
=========== =========== =========== ===========
Diluted $ 0.24 $ (0.10) $ 0.55 $ (0.25)
=========== =========== =========== ===========
Average common shares:
Basic 28,279 27,584 27,984 27,584
=========== =========== =========== ===========
Diluted 28,917 27,584 28,823 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)
Nine Months Ended
June 30,
---------------------------------
2000 1999
---------------- ---------------
Operating activities:
Net income (loss) $ 15,847 $ (6,843)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,020 7,750
Loss on disposition of assets 170 157
Change in:
Trade receivables (24,712) 11,014
Inventories (21,607) (2,325)
Income tax refund receivable 1,698 (4,217)
Prepaid expenses and other current assets (558) (355)
Other assets (149) (385)
Accounts payable 13,752 1,219
Accrued commissions 1,231 508
Accrued warranty and installation 4,498 (3,589)
Accrued payroll and related benefits 2,431 (447)
Other accrued liabilities (907) 2,205
Customer advances 1,168 (466)
Income taxes payable 3,932 --
---------------- ---------------
Net cash provided by operating activities 2,814 4,226
---------------- ---------------
Investing activities:
Purchases of property, plant and equipment (3,742) (2,191)
Increase in intangible assets (1,086) (292)
Proceeds from sale of equipment 70 1,020
---------------- ---------------
Net cash used in investing activities (4,758) (1,463)
---------------- ---------------
Financing activities:
Proceeds from exercise of stock options 3,173 --
Borrowings under line of credit and short-term debt 80,892 1,000
Repayments under line of credit and short-term debt (79,638) (4,413)
Proceeds from long-term debt and capital leases -- 442
Repayments of long-term debt and capital leases (314) (489)
---------------- ---------------
Net cash provided by (used in) financing activities 4,113 (3,460)
---------------- ---------------
Effect of exchange rate changes on cash and cash equivalents 16 104
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 2,185 (593)
Cash and cash equivalents at beginning of period 4,789 7,287
---------------- ---------------
Cash and cash equivalents at end of period $ 6,974 $ 6,694
================ ===============
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 Nine Months Ended
June 30, June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income (loss) $ 6,928 $ (2,735) $ 15,847 $ (6,843)
Foreign currency translation adjustment (208) (66) (41) 458
----------- ----------- ----------- -----------
Comprehensive income (loss) $ 6,270 $ (2,801) $ 15,806 $ (6,385)
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
We prepared the consolidated financial statements included herein, 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
June 30, 2000, the consolidated results of operations for the three and nine
month periods ended June 30, 2000 and 1999 and the consolidated cash flows for
the nine month periods ended June 30, 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, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 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 133 is effective for
us in fiscal 2001. We have not yet determined the effect the adoption of this
standard will have on our financial condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The SEC has delayed
implementation of SAB 101 until the fourth quarter of fiscal years beginning
after December 15, 1999. When we adopt SAB 101 in the fourth quarter of fiscal
2001, we will recognize revenue when we substantially complete the terms of the
applicable sales arrangement. 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 fourth quarter of fiscal 2001 net sales to be deferred, which could be
partially or totally offset by the recognition of net sales 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 September 30, 2001 with a
cumulative adjustment in that quarter to reflect the effect of the change. We
are also considering potential changes to the terms of our agreements for
equipment sales that could mitigate the impact of SAB 101. In addition, we may
need to renegotiate the financial covenants under our line of credit agreement.
As a result, while SAB 101 would not affect the fundamental aspects of our
operations as measured by our shipments and cash flows, implementation of SAB
101 could have an adverse effect on our reported results of operations for the
fourth quarter of fiscal 2001 when SAB 101 will be implemented.
In April 2000, Financial Accounting Standards Board Interpretation No. 44, or
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 us in the fourth quarter of fiscal year 2000. We have not yet
determined the effect, if any, the implementation of the interpretation will
have on our financial condition or results of operations.
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):
June 30, 2000 September 30, 1999
---------------------- ------------------
Parts and raw materials $ 33,087 $ 23,930
Work-in-process 25,153 11,852
Finished goods 4,784 5,885
--------------- ---------------
$ 63,024 $ 41,667
=============== ===============
During the nine months ended June 30, 2000 and 1999, $269,000 and $2,777,000,
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 Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Federal $ 2,203 $ (1,316) $ 4,766 $ (3,201)
State 555 (159) 1,060 (390)
Foreign 502 66 1,631 66
----------- ----------- ----------- -----------
Total $ 3,260 $ (1,409) $ 7,457 $ (3,525)
=========== =========== =========== ===========
Note 5. Contingency
In August, 1998, the Company filed suit against Novellus Systems, Inc. in the
United States District Court for the Northern District of California (Case No.
C-98-3089DLJ), alleging infringement of two of its patents relating to single
substrate processing tools used in electrochemical deposition of copper onto
semiconductor wafers. The Company seeks damages for past infringement, a
permanent injunction, treble damages for willful infringement, pre-judgment
interest and attorneys fees. Novellus answered the complaint by denying all
allegations, counterclaiming for declaratory judgment of invalidity and
noninfringement. During the nine months ended June 30, 2000, Novellus filed a
motion for summary judgement of noninfringement, which motion was granted on
March 17, 2000 and judgement was subsequently entered on May 12, 2000 dismissing
the case. On May 15, 2000 the Company filed an appeal to the United States Court
of Appeals for the Federal Circuit. The appeal is pending.
A lawsuit brought by Mitsubishi Silicon America Corporation, successor to Siltec
Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the United
States Federal District Court for the District of Oregon against us. The lawsuit
alleges breach of warranties and seeks damages and attorney's fees in excess of
$5 million. A trial date has been set for February 12, 2001. We believe the
lawsuit to be without merit and are contesting the action vigorously. However,
given the inherent uncertainty of litigation, there can be no assurance that the
ultimate outcome will be in our favor. Further, regardless of the ultimate
outcome, there can be no assurance that the diversion of management's attention,
and any costs associated with the lawsuit, will not have a material adverse
effect on our financial condition, results of operations or cash flows.
The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of our 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 Nine Months Ended
June 30, June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
Numerator:
Net income (loss) for basic and diluted
earnings (loss) per share $ 6,928 $ (2,735) $ 15,847 $ (6,843)
=========== =========== =========== ==========
Denominator:
Average common shares used for basic
earnings (loss) per share 28,279 27,584 27,984 27,584
Effect of dilutive stock option 638 -- 839 --
----------- ----------- ----------- ----------
Denominator for diluted earnings
(loss)per share 28,917 27,584 28,823 27,584
=========== =========== =========== ==========
Options to purchase 842,900 shares of common stock were outstanding at June 30,
1999, but were not included in the computation of diluted net loss per share as
the effect would be anti-dilutive. In addition, options for 11,000 shares of
common stock that have been granted have an exercise price that is greater than
the market price of $17.31 at June 30, 2000.
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
Third quarter fiscal 2000 $60,371 $4,539 $492 $5,031 $492 $64,910
Third quarter fiscal 1999 26,399 3,439 241 3,680 241 29,838
First nine months of fiscal 2000 157,358 11,415 1,383 12,798 1,383 168,773
First nine months of fiscal 1999 76,001 10,075 331 10,406 331 86,076
Income (loss) from operations
Third quarter fiscal 2000 9,425 943 389 9,979
Third quarter fiscal 1999 (4,311) 187 (145) (4,269)
First nine months of fiscal 2000 22,330 1,834 1,027 23,137
First nine months of fiscal 1999 (11,814) 570 (188) (11,432)
Total assets for the Equipment Segment were $171,243 at June 30, 2000 and
$131,884 at September 30, 1999
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
THIRD QUARTER OF FISCAL 2000 COMPARED WITH THIRD QUARTER OF FISCAL 1999
Net Sales. Net sales consist of revenues from sales of equipment, spare parts,
software and service contracts. Net sales increased 117.5% to $64.9 million in
the third quarter of fiscal 2000 from $29.8 million for the same period in
fiscal 1999. Net sales for the first nine months of fiscal 2000 increased 96.1%
to $168.8 from $86.1 million when compared to fiscal 1999. Sales in the third
quarter and for the first nine months of fiscal 2000 were up in all product
categories compared to the same periods in fiscal 1999. These increases are
principally due to a recovery in the semiconductor industry and the transition
toward electroplating copper and other metals used in the fabrication of
integrated circuits. Sales consisted of both capacity and technology purchases
by our customers.
Our Semiconductor Equipment segment's net sales were $60.4 million in the third
quarter of fiscal 2000, up 128.7% from $26.4 million in net sales for the third
quarter of fiscal 1999. Third quarter 2000 net sales of surface preparation
equipment and ECD equipment were up 91.6% and 436.6%, respectively, as compared
to third quarter 1999. For the first nine months of fiscal 2000, the
Semiconductor Equipment segment's net sales were $157.4 million, up 107.0% from
$76.0 million net sales for the same period in 1999. First nine months of fiscal
2000 net sales of surface preparation equipment and electrochemical deposition
equipment were up 88.7% and 208.3% as compared to the same period in 1999.
The Software Control Systems segment's net sales were $5.0 million in the third
quarter of fiscal 2000 which includes approximately $492,000 of intercompany
sales, and compares with $3.7 million in the third fiscal quarter of 1999. For
the first nine months of 2000, the Software Control Systems segment's net sales
were $12.8 million including approximately $1.4 million of intercompany sales,
compared with $10.4 million including approximately $331,000 of intercompany
sales in the same period in 1999.
Gross Profit. Gross margin was 51.9% of net sales in the third quarter and 52.7%
for the first nine months of fiscal 2000 compared to 49.0% and 48.0% 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 $17.7 million or 27.2% of net sales for the third quarter of
fiscal 2000, compared to $13.3 million or 44.7% of net sales for the same period
in fiscal 1999. For the first nine months of fiscal 2000, selling, general and
administrative expense was $48.6 million or 28.8% of net sales, compared to
$36.4 million or 42.3% of net sales for the same period in fiscal 1999. Selling,
general and administrative expenses increased on an absolute basis primarily due
to increased sales activity and the related field service costs. The decrease as
a percentage of net sales is primarily due to sales volume increasing at a
faster rate than that of selling, general and administrative expenses.
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 $6.1
million or 9.3% of net sales in the third quarter of fiscal 2000 as compared to
$5.6 million or 18.6% of net sales for the same period in fiscal 1999. In the
first nine months of fiscal 2000, R&D expense was $17.3 million or 10.2% of net
sales. This compares with fiscal 1999 first nine months expense of $16.3 million
or 18.9% 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.
Our semiconductor equipment segments' net operating income was $9.4 million in
the third quarter of fiscal 2000, up $13.7 million from the net operating loss
of $4.3 million for the third quarter of fiscal 1999. For the first nine months
of fiscal 2000, the semiconductor equipment segments' net operating income was
$22.3 million, up $34.1 million from the net operating loss of $11.8 million for
the same period in fiscal 1999. Operating income is up in both periods of fiscal
2000 as compared to the same period in fiscal 1999 primarily due to increased
sales activity, improved gross margins and an operating expense growth rate that
was slower that the growth of net sales.
Our software control systems segments' net operating income was approximately
$943,000 in the third quarter of fiscal 2000, up $756,000 from the net operating
income of approximately $187,000 for the third quarter of fiscal 1999. For the
first nine months of fiscal 2000, the software control systems segments' net
operating income, including the effect of intercompany transactions, was $1.8
million, up $1.3 million from the net operating income of approximately $570,000
for the same period in fiscal 1999.
Other Income (Expense), Net. Other income (expense), net was a net other income
of approximately $209,000 in the third quarter of fiscal 2000, which includes
interest expense of approximately $180,000 and a foreign exchange gain of
approximately $263,000. This compares to net other income of $125,000, which
includes interest expense of approximately $74,000 and a foreign exchange gain
of approximately $138,000, for the same period in fiscal 1999. For the first
nine months of fiscal 2000, other income (expense), net was a net other income
of approximately $167,000, which includes interest expense of approximately
$701,000 and a foreign exchange gain of approximately $440,000. This compares to
net other income of $1.1 million, which includes interest expense of
approximately $281,000 and a foreign exchange gain of $847,000, for the same
period in fiscal 1999.
Income Taxes. Income taxes for the third quarter of fiscal 2000 were a $3.3
million tax provision and a $1.4 million tax benefit for the third quarter of
fiscal 1999. For the first nine months of fiscal year 2000, the provision for
income taxes was $7.5 million compared to a $3.5 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 nine months of fiscal 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 $107.3
million at June 30, 2000, which represents an increase of 116.3% from $49.6
million at June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $2.8 million during the first nine
months of fiscal 2000, compared to $4.2 million provided in the same period in
fiscal 1999. Cash provided by operations was lower primarily due to increases in
trade receivables of $24.7 million and inventory of $21.6 million partially
offset by net income of $15.8 million, increases in accounts payable of $13.8
million and accrued warranty of $4.5 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 June 30 2000, our principal sources of liquidity consisted of
approximately $7.0 million of cash and cash equivalents, and $29.0 million
available under the Company's revolving line of credit, which was increased
during the quarter from $25 million to $40 million. 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.
On June 16, 2000, we filed with the Securities and Exchange a registration
statement on Form S-3 for the offer and sale of 3,036,000 shares of our common
stock. We subsequently amended this registration statement on June 30, 2000 and
July 26, 2000. This offering has not yet been completed and we cannot assure you
that the sale of these shares will be completed in the near term. See the S-3
for additional information related to this offering.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 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 133 is effective for
us in fiscal 2001. We have not yet determined the effect the adoption of this
standard will have on our financial condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The SEC has delayed
implementation of SAB 101 until the fourth quarter of fiscal years beginning
after December 15, 1999. When we adopt SAB 101 in the fourth quarter of fiscal
2001, we will recognize revenue when we substantially complete the terms of the
applicable sales arrangement. 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 fourth quarter of fiscal 2001 net sales to be deferred, which could be
partially or totally offset by the recognition of net sales 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 September 30, 2001 with a
cumulative adjustment in that quarter to reflect the effect of the change. We
are also considering potential changes to the terms of our agreements for
equipment sales that could mitigate the impact of SAB 101. In addition, we may
need to renegotiate the financial covenants under our line of credit agreement.
As a result, while SAB 101 would not affect the fundamental aspects of our
operations as measured by our shipments and cash flows, implementation of SAB
101 could have an adverse effect on our reported results of operations for the
fourth quarter of fiscal 2001 when SAB 101 will be implemented.
In April 2000, Financial Accounting Standards Board Interpretation No. 44, or
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 us in the fourth quarter of fiscal year 2000. We have not yet
determined the effect, if any, the implementation of the interpretation will
have on our financial condition or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risks
Market risks relating to our operations result primarily from changes in
interest rates and changes in foreign currency exchange rates.
As of June 30, 2000, we had approximately $4.1 million in fixed-rate long-term
debt and approximately $12.3 million in variable-rate short-term debt. As a
result, changes in the fixed rate interest market would change the estimated
fair value of our long-term debt. We believe that a 10% change in the long-term
interest rate would not have a material effect on our business, financial
condition, results of operations or cash flows.
All of our international 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 June 30, 2000, we
held forward contracts to purchase Japanese Yen with a face value of $15.3
million, a market value of $15.3 million and therefore no unrealized gain or
loss. Additionally, the impact of movements in currency exchange rates on
forward contracts are offset to the extent of intercompany receivables
denominated in Japanese Yen. We believe 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 our financial
condition, results of operations or cash flows. We do not hold or issue
derivative financial instruments for trading or speculative purposes.
LITIGATION
In August 1998, the Company filed suit against Novellus Systems, Inc. in the
United States District Court for the Northern District of California (Case No.
C-98-3089DLJ), alleging infringement of two of its patents relating to single
substrate processing tools used in electrochemical deposition of copper onto
semiconductor wafers. The Company seeks damages for past infringement, a
permanent injunction, treble damages for willful infringement, pre-judgment
interest and attorneys fees. Novellus answered the complaint by denying all
allegations, counterclaiming for declaratory judgment of invalidity and
noninfringement. During the nine months ended June 30, 2000, Novellus filed a
motion for summary judgement of noninfringement, which motion was granted on
March 17, 2000 and judgement was subsequently entered on May 12, 2000 dismissing
the case. On May 15, 2000 the Company filed an appeal to the United States Court
of Appeals for the Federal Circuit. The appeal is pending.
A lawsuit brought by Mitsubishi Silicon America Corporation, successor to Siltec
Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the United
States Federal District Court for the District of Oregon against us. The lawsuit
alleges breach of warranties and seeks damages and attorney's fees in excess of
$5 million. A trial date has been set for February 12, 2001. We believe the
lawsuit to be without merit and are contesting the action vigorously. However,
given the inherent uncertainty of litigation, there can be no assurance that the
ultimate outcome will be in our favor. Further, regardless of the ultimate
outcome, there can be no assurance that the diversion of management's attention,
and any costs associated with the lawsuit, will not have a material adverse
effect on our financial condition, results of operations or cash flows.
The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of our 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
In August 1998, the Company filed suit against Novellus Systems, Inc. in the
United States District Court for the Northern District of California (Case No.
C-98-3089DLJ), alleging infringement of two of its patents relating to single
substrate processing tools used in electrochemical deposition of copper onto
semiconductor wafers. The Company seeks damages for past infringement, a
permanent injunction, treble damages for willful infringement, pre-judgment
interest and attorneys fees. Novellus answered the complaint by denying all
allegations, counterclaiming for declaratory judgment of invalidity and
noninfringement. During the nine months ended June 30, 2000, Novellus filed a
motion for summary judgement of noninfringement, which motion was granted on
March 17, 2000 and judgement was subsequently entered on May 12, 2000 dismissing
the case. On May 15, 2000 the Company filed an appeal to the United States Court
of Appeals for the Federal Circuit. The appeal is pending.
A lawsuit brought by Mitsubishi Silicon America Corporation, successor to Siltec
Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the United
States Federal District Court for the District of Oregon against us. The lawsuit
alleges breach of warranties and seeks damages and attorney's fees in excess of
$5 million. A trial date has been set for February 12, 2001. We believe the
lawsuit to be without merit and are contesting the action vigorously. However,
given the inherent uncertainty of litigation, there can be no assurance that the
ultimate outcome will be in our favor. Further, regardless of the ultimate
outcome, there can be no assurance that the diversion of management's attention,
and any costs associated with the lawsuit, will not have a material adverse
effect on our financial condition, results of operations or cash flows.
The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of our 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10.32) Business loan agreement, dated July 5, 2000, between the Company
and Bank of America
(10.33) Promissory Note, dated July 5, 2000, between the Company and Bank
of America
(10.34) Corporate Resolution to Borrow, dated July 5, 2000, between the
Company and Bank of America
(10.39) Employment Agreement between Jurek Koziol and Semitool, Inc.
dated March 23, 2000.
(27) Financial Data Schedule for Form 10-Q dated June 30, 2000.
(b) Reports on Form 8-K:
1. On July 5, 2000, Semitool, Inc. filed a report on Form 8-K
announcing certain additions to the management of the Company.
2. On July 6, 2000, Semitool, Inc. filed a report on Form 8-K
announcing the Company's Spectrum(TM)E product.
3. On July 10, 2000, Semitool, Inc. filed a report on Form 8-K
announcing that the Company is licensing its copper ECD seed
layer technology to Shipley Company, L.L.C.
4. On July 10, 2000, Semitool, Inc. filed a report on Form 8-K
announcing the Company's Paragon(TM), an ECD Cluster processing
tool.
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.
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(Registrant)
Date: August 14, 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