================================================================================
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 August 31, 1996
[_] 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 0-26784
SPEEDFAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2421613
----------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7406 West Detroit, Chandler, Arizona 85226
----------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 961-2175
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
------- ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (October 11, 1996).
Common Stock, no par value: 10,597,593 shares
================================================================================
SPEEDFAM INTERNATIONAL, INC.
INDEX
Page
----
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
August 31, 1996 and May 31, 1996................................ 2
Condensed Consolidated Statements of Earnings
Three Months Ended August 31, 1996 and 1995..................... 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended August 31, 1996 and 1995..................... 4
Notes to Condensed Consolidated Financial Statements............ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K................................... 12
Signature.............................................................................. 13
Exhibit Index
Exhibit 10 Amendment No. 1 to Revolving Credit Agreement Between the
Registrant and the First National Bank of Chicago and Firstar
Bank Milwaukee, N.A. dated September 13, 1996.
Exhibit 11 Computation of Net Earnings Per Share
Exhibit 27 Financial Data Schedule
-1-
PART I - FINANCIAL INFORMATION
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
AUGUST 31, MAY 31,
1996 1996
---------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 4,507 $ 10,871
Trade accounts and notes receivable, net 32,868 34,693
Inventories 31,239 27,931
Other current assets 2,300 2,470
-------- --------
Total current assets 70,914 75,965
Investments in affiliates 22,040 20,450
Property, plant and equipment, net 11,798 9,969
Other assets 1,871 1,600
-------- --------
Total assets $106,623 $107,984
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 654 $ 727
Accounts payable and due to affiliates 21,148 26,460
Customer deposits 6,894 4,814
Other current liabilities 10,593 12,771
-------- --------
Total current liabilities 39,289 44,772
-------- --------
Long-term liabilities:
Long-term debt 2,362 2,593
Deferred income taxes 583 580
-------- --------
Total long-term liabilities 2,945 3,173
-------- --------
Shareholders' equity
Common stock, no par value,
20,000,000 shares authorized, 10,580,613
and 10,514,868 shares issued and
outstanding at August 31 and
May 31, 1996, respectively 1 1
Additional paid-in capital 26,695 26,174
Retained earnings 33,285 29,247
Foreign currency translation adjustment 4,408 4,617
-------- --------
Total shareholders' equity 64,389 60,039
-------- --------
Total liabilities and $106,623 $107,984
shareholders' equity ======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
(dollars and shares in thousands, except per share data)
Three Months Ended
August 31,
---------------------
1996 1995
---------- ---------
Revenue:
Net sales $38,059 $17,633
Commissions from affiliate 1,669 183
------- -------
Total revenue 39,728 17,816
Cost of sales 25,782 12,766
------- -------
Gross margin 13,946 5,050
Research, development and engineering 3,781 1,195
Selling, general and administrative 6,805 3,482
------- -------
Operating profit 3,360 373
Interest expense (78) (271)
Other expense, net (367) (225)
------- -------
Earnings (loss) from consolidated
companies before income taxes 2,915 (123)
Income tax expense (benefit) 1,063 (27)
------- -------
Earnings (loss) from consolidated
companies 1,852 (96)
Equity in net earnings of affiliates 2,186 800
------- -------
Net earnings $ 4,038 $ 704
======= =======
Net earnings per share $0.36 $0.09
======= =======
Weighted average common and common
equivalent shares 11,277 8,248
======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
-3-
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
(dollars in thousands)
THREE MONTHS ENDED
AUGUST 31,
--------------------
1996 1995
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 4,038 $ 704
Adjustments to reconcile net
earnings to net cash used in
operating activities:
Equity in net earnings of affiliates (2,186) (800)
Depreciation and amortization 463 178
Discount on sale of stock to
employees 191 --
Other (24) 6
Changes in assets and liabilities:
Decrease in trade accounts and
notes receivable 1,864 4,014
Increase in inventories (3,363) (3,923)
(Increase) decrease in other
current assets 191 (455)
Decrease in accounts payable and
due to affiliates (5,436) (2,788)
Increase (decrease) in accrued
expenses, customer deposits
and other liabilities (154) 1,974
---------- -------
Net cash used in operating activities (4,416) (1,090)
---------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,295) (550)
Other investing activities 236 (269)
---------- -------
Net cash used in investing activities (2,059) (819)
---------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 57 --
Proceeds from sale of stock to
employees 273 --
Treasury stock transactions -- 16
Increase in short-term borrowings 4 293
Proceeds from long-term debt -- 1,023
Principal payments on long-term debt (312) (172)
---------- -------
Net cash provided by financing
activities 22 1,160
---------- -------
Effects of foreign currency rate
changes on cash 89 (39)
Net decrease in cash and cash ---------- -------
equivalents (6,364) (788)
Cash and cash equivalents at beginning
of year 10,871 1,095
---------- -------
Cash and cash equivalents at August
31, 1996 and 1995 $ 4,507 $ 307
========== =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
-4-
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by management without audit. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although management believes that the disclosures
made are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended May 31, 1996,
as filed with the Securities and Exchange Commission on September 5, 1996
as part of its Annual Report on Form 10-K/A. In the opinion of management
the information furnished herein reflects all adjustments (consisting of
normal recurring adjustments) necessary for a fair statement of results for
the interim periods presented. Results of operations for the three months
ended August 31, 1996 are not necessarily indicative of results to be
expected for the full fiscal year.
(2) INVENTORIES
The components of inventory were:
August 31, May 31,
1996 1996
----------- ----------
Raw materials $ 15,996 $ 14,626
Work-in-process 9,097 10,777
Finished goods 6,146 2,528
----------- ----------
$ 31,239 $ 27,931
=========== ==========
(3) INVESTMENTS IN AFFILIATES
The Company owns a 50% interest in SpeedFam Co., Ltd. which is translated
in accordance with SFAS No. 52. The Company's equity interest in SpeedFam
Co., Ltd. was $19,717 and $18,545 at August 31, 1996 and at May 31, 1996,
respectively based on the balance sheet of SpeedFam Co., Ltd. at July 31,
1996 and April 30, 1996, respectively. The remaining equity interest
included in investments in affiliates relates to the Company's 50%
ownership interest in Fujimi Corporation. Condensed consolidated financial
statements of SpeedFam Co., Ltd., which are consolidated on a fiscal year
that ends April 30, are as follows:
-5-
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
BALANCE SHEETS
JULY 31, APRIL 30,
1996 1996
----------- -------------
Assets
Total current assets $112,278 $ 98,492
Investment in affiliates 868 891
Property, plant and equipment, net 23,144 20,161
Deferred income taxes and other assets 8,192 7,007
-------- --------
Total assets $144,482 $126,551
======== ========
Liabilities and Stockholders'
Equity
Total current liabilities $ 87,699 $ 74,966
Long-term debt 10,648 9,106
Other long-term liabilities 6,700 5,388
Stockholders' equity
Common stock 664 664
Retained earnings 29,857 26,943
Foreign currency translation
adjustment 8,789 9,346
Unrealized gains on marketable
securities 125 138
Total liabilities and -------- --------
stockholders' equity $144,482 $126,551
======== ========
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Three Months Ended
July 31,
----------------------
1996 1995
---------- ----------
Net sales $56,750 $37,417
Costs and operating expenses 48,792 33,625
------- -------
Earnings before income taxes 7,958 3,792
Income taxes 4,103 2,158
------- -------
Net earnings before minority interest 3,855 1,634
Minority interest 34 (26)
------- -------
Net earnings 3,821 1,660
Beginning retained earnings 26,943 18,036
Dividends (907) (276)
Transfers to capital -- (454)
------- -------
Ending retained earnings $29,857 $18,966
======= =======
-6-
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(4) In fiscal year 1996, the Company entered into an unsecured credit agreement
with two U.S. banks. The credit agreement includes a $22,500 revolving line
of credit maturing April 14, 1999. As of September 13, 1996, the Company
had negotiated an amendment to the credit facility, providing for an
additional $14,000 in a 5-year unsecured term loan to fund the construction
of a new corporate headquarters and manufacturing facility in Chandler,
Arizona. The loan's principal is to be repaid in fifteen (15) quarterly
installments of $350 each beginning in October of 1997. Interest accrues
and is paid monthly on the outstanding balance at LIBOR plus 1.4%.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEGMENTS
The Company's total revenue consists of net sales in two segments: (i)
equipment, parts and expendables, and (ii) slurries, as well as commissions
earned on the distribution in the U.S. and Europe of products of SpeedFam Co.,
Ltd.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of earnings
data for the periods indicated as a percentage of total revenue:
Three Months Ended
August 31,
-------------------
1996 1995
------ ------
Revenue:
Net sales 95.8% 99.0%
Commissions from affiliate 4.2 1.0
----- -----
Total revenue 100.0 100.0
Cost of sales 64.9 71.7
----- -----
Gross margin 35.1 28.3
Research, development and engineering 9.5 6.7
Selling, general and administrative expenses 17.1 19.5
----- -----
Operating profit 8.5 2.1
Interest expense (0.2) (1.5)
Other expense, net (0.9) (1.3)
----- -----
Earnings (loss) from consolidated companies before income taxes 7.4 (0.7)
Income tax expense (benefit) 2.7 (0.2)
----- -----
Earnings (loss) from consolidated companies 4.7 (0.5)
Equity in net earnings of affiliates 5.5 4.5
----- -----
Total liabilities and stockholders' equity 10.2% 4.0%
===== =====
-8-
Net Sales. The Company's net sales for the three months ended August 31,
1996 were $38.1 million, an increase of 115.8% over net sales of $17.6 million
for the corresponding period in the prior year. This increase in net sales
resulted primarily from growth in the equipment, parts and expendables segment.
Sales of equipment, parts and expendables increased to $31.2 million or 82.0% of
total sales in the first three months of fiscal 1997 as compared to $11.2
million or 63.7% of total sales in the same period of fiscal 1996. A significant
portion of the growth in this segment was attributable to higher CMP-V sales to
the semiconductor industry as well as a significant increase in sales to the
thin film memory disk media market. Sales of slurries increased slightly to $6.8
million or 18.0% of total sales in the first three months of fiscal 1997 from
$6.4 million or 36.3% of total sales in the comparable period of fiscal 1996.
Commissions from Affiliate. Commissions from affiliate increased to $1.7
million during the first quarter of fiscal 1997 from $183,000 in the
corresponding period of fiscal 1996. The increase in the three month period, as
compared to the respective period in fiscal 1996, was due primarily to the
expanding demands in the silicon wafer industry for edge polishing systems
developed and manufactured by the Company's affiliate, SpeedFam Co., Ltd. (Far
East Joint Venture). In addition, sales of cleaning and polishing systems, also
produced by the Far East Joint Venture, to customers in the thin film memory
disk media market increased significantly in the first quarter of fiscal 1997
over the same period in the prior year.
Gross Margin. Gross margin increased to $13.9 million or 35.1% of total
revenue for the three months ended August 31, 1996 from $5.1 million or 28.3% of
total revenue for the three months ended August 31, 1995. In addition to higher
sales levels, gross margin has increased due to a considerable shift towards
higher margin products in the equipment, parts and expendables segment,
particularly the CMP-V planarization system.
Research, Development and Engineering. Research, development and
engineering expense increased to $3.8 million or 9.5% of total revenue in the
first quarter of fiscal 1997 from $1.2 million or 6.7% of total revenue in the
first quarter of fiscal 1996. This increase is primarily attributable to
continued development of the CMP process, equipment and other related
technologies. The Company believes that increased spending in research,
development and engineering, including technical support services to meet its
customers' needs, is critical to grow sales to the semiconductor and thin film
memory disk industries.
Selling, General and Administrative. Selling, general and administrative
expense increased 95.4% to $6.8 million in the first quarter of fiscal 1997 from
$3.5 million in the first quarter of fiscal 1996. For the three month period
ending August 31, 1996, selling, general and administrative expense as a percent
of total revenue decreased to 17.1% compared to 19.5% of total revenue in the
similar period of fiscal 1996 due to the significantly higher level of sales
during the first quarter of fiscal 1997 as compared to the sales level during
the same period of fiscal 1996. However, higher levels of spending were required
to support the sales growth in the first quarter of fiscal 1997 including
additional administrative and sales personnel, new service and sales locations,
and distributor commissions to an affiliate on export sales from the U.S. to the
Far East region.
Interest Expense. Interest expense decreased to $78,000 in the first
quarter of fiscal 1997 compared to $271,000 in the first quarter of fiscal 1996.
The decrease was due to the significant reduction of long-term debt since the
end of first quarter of fiscal 1996 using funds received primarily in the
initial
-9-
public offering of October 1996. As a percentage of total revenue,
interest expense decreased to 0.2% in the first quarter of fiscal 1997 from 1.5%
in the comparable prior year period.
Other Expense, Net. Other expense increased to $367,000 in the first three
months of fiscal 1997 from $225,000 in the comparable period of fiscal 1996.
The increase is due primarily to non-recurring charges associated with the
Company's secondary equity offering which was subsequently canceled. These
charges were partially offset by interest income.
Equity in Net Earnings of Affiliates. Equity in net earnings of affiliates
increased to $2.2 million for the three months ended August 31, 1996 from
$800,000 in the comparable period of fiscal 1996. With the gradual recovery of
the general Japanese economy, demand continued to be strong for products sold
to the thin film memory and semiconductor wafer industries by the Far East Joint
Venture. In addition, the Company's share of the net earnings of its other
joint venture, Fujimi Corporation, were significantly higher than in the
comparable period of fiscal 1996 due to increased sales and improved margins
realized during the first quarter of fiscal 1997 on slurry products sold by that
affiliate to the U.S. silicon wafer market.
-10-
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter ended August 31, 1996, the Company used $4.4 million
in cash from operating activities primarily to reduce current trade payables to
creditors and affiliates. Inventories also increased by approximately $3.4
million. Manufacturing lead times for machines and equipment are measured in
weeks, and result in fluctuating inventory balances depending on timing of
shipments.
As of September 30, 1996, the Company had spent approximately $4.8 million
in land and construction costs for a new corporate headquarters and
manufacturing facility in Chandler, Arizona. The Company presently estimates the
total costs to be incurred for the project will be approximately $20.3 million.
The current total estimated project cost has increased from previous estimates
due to changes in equipment production capacity and waste neutralization
requirements, power and HVAC demands.
As of September 13, 1996, the Company had successfully negotiated an
amendment to its existing $22.5 million unsecured credit facility, in which its
U.S. bank group provided the Company an additional $14.0 million in an unsecured
term loan to fund the majority of the remaining costs to construct the new
corporate headquarters and manufacturing facility in Chandler, Arizona.
The Company believes that anticipated funds provided by operations and
current bank lines of credit will be sufficient to meet the Company's capital
requirements during the next 12 months.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was
issued in March 1995 and is effective for fiscal years beginning after December
15, 1995. Management has reviewed the Statement and determined that its
provisions do not have a material effect upon the financial condition or results
of operations of the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation Plans" was issued in October 1995. The Statement will be
effective for the Company's fiscal year 1997. As allowed by the new Statement,
the Company plans to continue to use Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its stock options.
Certain pro forma and other information will be disclosed in the annual
financial statements as if the Company had measured compensation costs in a
manner consistent with the new Statement. Management has reviewed the Statement
and determined that its provisions do not have a material effect upon the
financial condition or results of operations of the Company.
Certain statements in "Management's Discussion and Analysis - Liquidity and
Capital Resources" constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
-11-
SPEEDFAM INTERNATIONAL, INC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 10 - Amendment No. 1 to Revolving Credit Agreement
Between the Registrant and the First National
Bank of Chicago and Firstar Bank Milwaukee, N.A.
dated September 13, 1996
Exhibit 11 - Computation of Net Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
One report on Form 8-K was filed July 8, 1996 to disclose
information contained in a press release announcing operating
results for the fourth quarter and year ended May 31, 1996.
-12-
SPEEDFAM INTERNATIONAL, 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.
SpeedFam International, Inc.
/s/ Roger K. Marach
----------------------------------
Date: October 11, 1996 By Roger K. Marach
Treasurer and Chief Financial Officer
(As Chief Accounting Officer and Duly
Authorized Officer of SpeedFam
International, Inc.)
-13-
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10 Amendment No. 1 to Revolving Credit Agreement Between the
Registrant and the First National Bank of Chicago and Firstar
Bank Milwaukee, N.A. dated September 13, 1996
11 Computation of Net Earnings Per Share
27 Financial Data Schedule