UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-30980
INFICON Holding AG
(Exact name of Registrant as specified in its charter)
INFICON Holding Inc.
(Translation of Registrantis name into English)
Switzerland
(Jurisdiction of incorporation or organization)
INFICON Inc.
Two Technology Place
East Syracuse, New York 13057
(Address of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
Name of each exchange
Title of each class: on which registered:
American Depositary Shares, each representing The Nasdaq National Market
one-tenth of one INFICON Holding AG share
with a par value of CHF 10
INFICON Holding AG shares with a par value The SWX Swiss Exchange
of CHF 10 each
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Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
----------------
(Title of class)
Indicate the number of outstanding shares of each of the issueris classes
of capital or common stock as of the close of the period covered by the annual
report.
2,315,000 shares
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 No . Not applicable.
Indicate by check mark which financial statement item the registrant has
elected to follow:
Item 17 Item 18
TABLE OF CONTENTS
PART I ............................................................................................ 1
Item 1. Identity of Directors, Senior Management and Advisors ............................. 1
Item 2. Offer Statistics and Expected Timetable ........................................... 1
Item 3. Key Information ................................................................... 1
Item 4. Information on the Company ........................................................ 11
Item 5. Operating and Financial Review and Prospects ...................................... 26
Item 6. Directors, Senior Management and Employees ........................................ 35
Item 7. Major Shareholders and Related Party Transactions ................................. 41
Item 8. Financial Information ............................................................. 47
Item 9. The Offer and Listing ............................................................. 48
Item 10. Additional Information ........................................................... 49
Item 11. Quantitative and Qualitative Disclosures about Market Risk ....................... 62
Item 12. Description of Securities Other Than Equity Securities ........................... 63
PART II ........................................................................................... 63
Item 13. Defaults, Dividend Arrearages and Delinquencies .................................. 63
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds ..... 63
Item 15. [Reserved] ....................................................................... 63
Item 16. [Reserved] ....................................................................... 63
PART III .......................................................................................... 64
Item 17. Financial Statements ............................................................. 64
Item 18. Financial Statements ............................................................. 64
i
INFICON Holding AG is a corporation (Aktiengesellschaft) organized under the
laws of Switzerland. In this annual report, "INFICON Holding AG" refers solely
to the ultimate parent company of the INFICON Group. "INFICON," the "INFICON
Group," "we," "us," "our" and "the Company" refer to INFICON Holding AG and its
consolidated subsidiaries. All references to "Unaxis" refer to our significant
shareholder, Unaxis Holding AG, a corporation (Aktiengesellschaft) organized
under the laws of Switzerland.
PRESENTATION OF FINANCIAL INFORMATION
We have prepared our Consolidated Financial Statements in accordance with
U.S. generally accepted accounting principles, or U.S. GAAP. In accordance with
the requirements of the Swiss law, we also included our INFICON Holding AG
Financial Statements under Swiss generally accepted accounting principles. Our
shares are quoted on the SWX Swiss Exchange in Swiss francs. Although we do not
anticipate paying dividends in the foreseeable future, any cash dividends
declared in respect to our shares will be declared in Swiss francs.
MARKET SHARE AND INDUSTRY DATA
Market information contained in this annual report, including information
on our market share and the position of our business relative to our
competition, largely reflects our management's best estimates. These estimates
are based upon information obtained from customers, from trade or business
organizations and associations, from other contacts within the industries in
which we compete and, in some cases, upon published statistical data from
independent third parties. We also rely on forecasts of future market conditions
from third-party sources. These third-party statistical data and forecasts
typically address a broad market for finished products made by our customers and
do not address the vacuum instrumentation market directly. We have not
independently verified the data and assumptions upon which these forecasts were
prepared by these third-party sources, including the rates of general economic
growth that were assumed in preparing the forecasts, but we believe them to be
reasonable. Except as otherwise stated, market share information and our
assessments of our competitive position have been derived by comparing our sales
to our estimates of our competitors' sales, as well as general market
conditions. Amounts and percentages included in this annual report have been
rounded and, accordingly, may not total.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F and other materials we have filed or may
file with the Securities and Exchange Commission, as well as information
included in oral statements or other written statements made, or to be made, by
us, contain disclosures which are "forward-looking statements." Forward-looking
statements include all statements that do not relate solely to historical or
current facts, and can be identified by the use of words such as "may,"
"believe," "will," "expect," "project," "estimate," "anticipate," "plan" or
"continue." These forward-looking statements address, among other things, our
strategic objectives, trends in vacuum technology and in the industries that
employ vacuum instrumentation, such as the semiconductor and related industries,
and the anticipated effects of these trends on our business. These
forward-looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that could
significantly affect our current plans and expectations, as well as future
results of operations and financial condition. Some of these risks and
uncertainties are discussed under "Key Information---Risk Factors."
As a consequence, our current and anticipated plans and our future
prospects, results of operations and financial condition may differ from those
expressed in any forward-looking statements made by or on behalf of our company.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
ii
PART I
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial Data
The following tables present our selected historical consolidated and
combined financial data. This data has been derived from our consolidated and
combined financial statements for the relevant periods prepared in accordance
with U.S. GAAP. The information set forth below should be read together with
"Operating and Financial Review and Prospects" and our historical financial
statements and notes to those statements included in this annual report. Our
income statement data set forth below for the years ended December 31, 2001,
2000 and 1999 and the balance sheet data as of December 31, 2001 and 2000 are
derived from our audited consolidated financial statements and the notes to
those statements included in this annual report. Our selected historical
combined financial and other data for the years ended December 31, 1998 and 1997
and the balance sheet data as of December 31, 1999, 1998 and 1997 have been
derived from our audited combined financial statements, which are not included
in this annual report.
In 1997, Unaxis formed its vacuum instrumentation group by bringing the
Balzers, Leybold and INFICON instrumentation businesses under a single global
management. In connection with this initiative, we decided to focus on
increasing our sales to semiconductor and related markets, to rationalize our
product offerings, and to consolidate our operations and research and
development efforts for greater efficiency and in support of our new focus.
Up until the present date, no dividends were declared by the Company.
Years ended December 31,
------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
U.S.$ in thousands except for shares and per share amount
------------------------------------------------------------------------------------
Income Statement Data:
Net sales
Semiconductor vacuum
instrumentation .................. $ 45,494 $ 65,952 $ 42,154 $ 36,402 $ 40,259
General vacuum
instrumentation .................. 98,619 104,024 87,838 81,919 91,496
----------- ---------- ---------- ---------- ----------
Total net sales ........................ 144,113 169,976 129,992 118,321 131,755
Cost of sales .......................... 78,398 83,231 69,243 61,562 66,106
----------- ---------- ---------- ---------- ----------
Gross profit ........................... 65,715 86,745 60,749 56,759 65,649
Research and development ............... 12,431 11,037 11,523 12,970 14,082
Selling, general and
administrative ...................... 39,961 41,889 38,332 38,995 38,748
----------- ---------- ---------- ---------- ----------
Income form operations ................. 13,323 33,819 10,894 4,794 12,819
Interest expense (income), net ......... (483) 292 130 130 107
Other expense, net ..................... 1,488 1,854 804 732 9
----------- ---------- ---------- ---------- ----------
Income before taxes .................... 12,318 31,673 9,960 3,932 12,703
Income taxes ........................... 2,366 8,742 2,584 21 5,186
----------- ---------- ---------- ---------- ----------
Net income ............................. $ 9,952 $ 22,931 $ 7,376 $ 3,911 $ 7,517
----------- ---------- ---------- ---------- ----------
Basic net income per share ............. $ 4.30 $ 11.21 $ 3.69 $ 1.95 $ 3.76
Diluted net income per share ........... $ 4.30 $ 11.21 $ 3.69 $ 1.95 $ 3.76
Weighted average number
of shares ........................... 2,315,000 2,046,000 2,000,000 2,000,000 2,000,000
Balance Sheet Data:
Working capital ........................ $ 61,741 $ 55,087 $ 29,719 $ 35,880 $ 38,760
Total assets ........................... 138,194 152,934 56,198 64,946 64,392
Total debt ............................. -- 869 -- -- --
Stockholders' equity ................... 119,524 108,531 41,360 47,051 50,907
1
Exchange Rate Information
Because the main listing of our shares is on the SWX Swiss Exchange in
Swiss francs, we have set forth below, for the periods and dates indicated,
information regarding the noon buying rate in the City of New York for cable
transfers in Swiss francs as certified for customs purposes by the Federal
Reserve Bank of New York, or the "noon buying rate," expressed in Swiss francs
per dollar.
We have provided these rates solely for your convenience. They should not
be construed as a representation that Swiss franc amounts actually represent the
dollar amounts or that the Swiss franc amounts could have been, or could be,
converted into dollars at these rates or at any other rate. We do not use these
rates for preparing our consolidated financial statements included in this
annual report. On February 28, 2002, the noon buying rate was U.S.$1.00=CHF
1.7057.
CHF CHF
Month High Low
----- ---- ---
September 2001 1.71 1.57
October 2001 1.67 1.60
November 2001 1.68 1.61
December 2001 1.70 1.62
January 2002 1.72 1.64
February 2002 1.73 1.68
CHF
CHF CHF CHF At Period
Calendar Year Average(1) High Low End
------------- ---------- ---- --- ---
1995 ..................... 1.1744 1.3130 1.1172 1.1540
1996 ..................... 1.2419 1.3515 1.1573 1.3390
1997 ..................... 1.4521 1.5360 1.3430 1.4610
1998 ..................... 1.4507 1.5420 1.2935 1.3735
1999 ..................... 1.5139 1.6015 1.3585 1.5930
2000 ..................... 1.6885 1.8300 1.5420 1.6116
2001 ..................... 1.6872 1.8226 1.5665 1.6732
- ----------
(1) The average of the noon buying rates on the last business day of each
month during the relevant period.
2
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
Investing in our shares or ADSs involves a high degree of risk and
uncertainty. You should carefully consider the risks and uncertainties described
below before investing in our shares or ADSs. If any of the following risks
actually occur, our business, prospects, financial condition and results of
operations could be harmed. In that case, the value of our shares or ADSs could
decline, and you could lose all or part of your investment.
Risks Relating to Our Business
Downturns in the semiconductor chip manufacturing industry have had in the past,
and may have in the future, a material adverse effect on our sales and
profitability.
Our business depends substantially upon the strength of demand from
semiconductor chip manufacturers and semiconductor equipment manufacturers, or
OEMs, which in turn depend upon the current and anticipated demand for
semiconductors and products using semiconductors. In the year ended December 31,
2001, we estimate that approximately 39% of our semiconductor vacuum
instrumentation sales, and approximately 10% of our general vacuum
instrumentation sales were to semiconductor chip manufacturers, OEMs and related
markets. For the year ended December 31, 2000, we estimate that approximately
65% of our semiconductor vacuum instrumentation sales and approximately 14% of
our general vacuum instrumentation sales were to semiconductor chip
manufacturers, OEMs and related markets. As we pursue our strategy of focusing
on the semiconductor industry, we expect that sales to such customers will
account for an increasing proportion of our sales. Periodic reductions in demand
from semiconductor chip manufacturers and OEMs may reduce revenues, and we may
be unable to increase sales to new or existing customers.
Historically, the semiconductor chip manufacturing market has been highly
cyclical and has experienced periods of overcapacity resulting in significantly
reduced demand for capital equipment. For example, in 1998 the semiconductor
chip manufacturing industry experienced a severe downturn which contributed to a
10.2% decrease in our net sales from 1997. Although the semiconductor chip
manufacturing industry recovered in late 1999 and 2000, the industry entered
another downturn in 2001 which contributed to a 15.2% decrease in net sales from
2000. We cannot assure you that:
o the semiconductor chip manufacturing industry will improve;
o the semiconductor industry is not experiencing a downturn which may
be severe or prolonged; or
o any recovery will result in increased demand for capital equipment
by the semiconductor chip manufacturing industry.
Any downturn in the semiconductor chip manufacturing industry could
reduce, or limit the growth of revenues from semiconductor chip manufacturers
and OEMs, which we expect to account for an increasing portion of our sales.
The loss of sales to our major customers would likely have a material adverse
effect on us.
Our largest customers in 2001, Pfeiffer Vacuum and various entities
related to Unaxis, including Leybold Vacuum and Leybold Optics, accounted for an
aggregate of approximately 33% of our net sales. The loss of a major customer or
any reduction in orders by these customers, including reductions due to market
or competitive conditions, would likely result in a significant decrease in
revenue for an extended period of time until new or existing customer orders
make up for the reduction.
3
Attempts to mitigate the adverse impact of any loss or reduction of orders
through the rapid addition of new customers could be difficult. This is because
prospective customers typically require lengthy qualification periods to test
and evaluate new products before placing large orders with a new supplier. Our
future success will continue to depend upon:
o our ability to maintain relationships with existing key customers;
o our ability to attract new customers; and
o the success of our OEM customers in creating demand for
manufacturing systems which incorporate our products.
Some of our customers compete, or may in the future compete, with Unaxis, and to
the extent that we are perceived to be controlled by, or under common control
with Unaxis, we may lose their business.
Some of our customers compete, or may in the future compete, with our
principal shareholder, Unaxis. Unaxis currently owns 19.51% of our shares, and
two Unaxis officers serve on our board of directors. In addition, Unaxis has
agreed to provide us services on a continuing basis. Because of this, some of
our customers may perceive us to be closely affiliated with Unaxis. To the
extent that any of these customers are competitors of Unaxis, they may choose to
stop buying our products, and our revenues may decrease as a result.
Our future growth and competitiveness depend upon our ability to develop new and
enhanced products for industries we target and to adapt rapidly to changing
technologies. We cannot assure you that we will be successful in our product
development efforts or that our new products will gain general market
acceptance.
The markets in which we sell our products, including the semiconductor
manufacturing and equipment markets, are characterized by rapidly changing
technology, evolving industry standards and practices, frequent new product and
services introductions and enhancements, pricing pressure, and changing customer
demands. Our future growth will depend, in part, on our ability to adapt to
rapidly changing technology and our ability to design, develop, manufacture,
assemble, test, market and support new products and enhancements in a timely and
cost-effective manner. We cannot assure you the introduction of new products and
product enhancements will gain market acceptance. For example, product
development efforts in our semiconductor vacuum instrumentation group include
the continuous design of our in situ analyzer products and the integration of
them within the manufacturing equipment designed by our OEM customers. Market
practice among semiconductor chip manufacturers has been to test product wafers
off-line, i.e., outside of the manufacturing process. We cannot assure you that
manufacturers will move from off-line to in situ analysis. We may also
experience difficulties or delays in our development efforts with respect to
these and other products.
Additionally, products or technologies developed by our competitors may
render our products or technologies obsolete or noncompetitive. A fundamental
shift away from vacuum technology in the semiconductor chip manufacturing market
could render our product offerings obsolete and significantly reduce our
revenues and the value of our shares or ADSs .
Changes or developments in the semiconductor industry could cause shifts in our
infrastructure and increase the competition for our products.
There may be a long-term trend toward fab-less semiconductor companies and
the use of semiconductor foundries due to the substantial expense of building or
expanding a semiconductor fabrication facility. This trend could shift our
customer base toward large foundries that may be more equipped to handle the
cyclical nature of the semiconductor market. Consequently, we may incur
additional operating costs to adjust to and support the shift in customer base.
There has been a dramatic consolidation within the semiconductor industry
to leverage the synergies between consolidated companies and to reduce the
number of OEM suppliers. The consolidation within the industry could effect the
demand and competition for our products.
4
The markets for our products are highly competitive. This competition may cause
us to reduce prices and may result in decreases in market share of our products.
We are exposed to the competitive characteristics of several different
geographic and product markets. Competition is dependent on a variety of factors
including price, quality, functionality, brand recognition, and the
effectiveness of our marketing, sales and customer service efforts. We believe
the rapid identification of new product applications and the ability to supply
commercial quantities of products that enable these applications are important
competitive factors. As the markets for our products expand, particularly with
respect to our semiconductor vacuum instrumentation products, we expect new
competition will emerge and existing competitors may commit additional resources
to the markets in which we participate. In particularly competitive markets, we
have reduced the prices on our products in order to maintain market share. For
example, our fittings and valves are especially subject to pricing pressure,
since there is little technical differentiation among competing products.
Increased competition in these markets may lead to further price reductions.
Our sales and operating profit depend upon our ability to deliver products
with functional specifications and at prices that compete successfully with our
competition, as well as our ability to manage operating costs. Some of our
competitors may have larger financial, technical and marketing resources than we
currently have. We cannot assure you that we will be able to compete effectively
in the future.
Our failure to protect our proprietary technology relating to vacuum
instrumentation may significantly impair our competitive position, which could
result in a loss of revenues and profits.
We rely, in part, on patent, trade secret, copyright and trademark law to
protect our intellectual property. Our future success and competitive position
depend upon our ability to obtain and maintain proprietary technology used in
our principal product families. We have obtained a number of patents relating to
our key product families and have filed applications for additional patents.
There can be no assurance that any pending patent applications will be approved,
that we will develop additional proprietary technology that is patentable, that
any patents obtained by or issued to us will provide us with competitive
advantages or that these patents will not be challenged by any third parties.
Furthermore, there can be no assurance that third parties will not design around
our patents. Any of the foregoing results could harm our competitive position
and result in lost revenue and market share.
In addition to patent protection, we rely upon trade secret protection for
our confidential and proprietary information and technology. We routinely enter
into confidentiality agreements with our employees. However, there can be no
assurance that these agreements will not be breached, that we will have adequate
remedies for any breach, or that our confidential and proprietary information
and technology will not be independently developed by, or become otherwise
known, to third parties.
We license technology used in our products from and to third parties. Our
inability to acquire third-party licenses, or to integrate the related
third-party technologies into our products, could result in delays in our
product developments and enhancements until equivalent technologies can be
identified, licensed and integrated. We may also require new licenses in the
future as our business grows and technology evolves. We cannot assure you that
these licenses will be available to us on commercially reasonable terms, if at
all.
Our commercial success depends upon our ability to avoid infringing or
misappropriating any patents or other proprietary rights owned by third parties.
If we are found to infringe or misappropriate a third party's patent or other
proprietary rights, we could be required to pay damages to such third party,
alter our products or processes, obtain a license from the third party or cease
activities using such proprietary rights. If we are required to do any of the
foregoing, we cannot assure you that we will be able to do so on commercially
favorable terms, if at all. Our inability to do any of the foregoing on
commercially favorable terms could have a material adverse effect on our
business, prospects, financial condition and results of operations.
Litigation may be necessary in order to enforce our patents or other
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement from third parties. Any such litigation could result in
substantial costs and diversion of resources.
5
The license agreements we have entered into with respect to our ultra clean
processing business contain provisions that could discourage a takeover or
prevent or delay a merger that shareholders' believe is favorable.
Our rights to use the patents that are licensed to us in connection with
our ultra clean processing business will terminate on a change of control of our
company to which Unaxis does not consent. This could make us less attractive as
a takeover candidate or reduce the price investors are willing to pay for our
shares or ADSs. Consequently, this could result in the market prices of our
shares and ADSs being lower than they would be without these provisions.
Our inability to convince OEMs to use our products in their manufacturing
systems could weaken our competitive position.
Manufacturing systems built by OEMs typically have a lifespan of five to
ten years. OEMs subject components to rigorous and lengthy testing processes
before incorporating them into their systems. Once an OEM has selected a
vendor's equipment for a manufacturing system, the OEM generally relies, to the
extent possible, upon that vendor's equipment. As a result, when another
vendor's equipment is incorporated into an OEM's system, we may have difficulty
convincing that OEM to use our products unless there are compelling reasons for
a change, such as significant performance or cost advantages. Additionally, a
semiconductor chip manufacturer who purchases a system from an OEM would
typically seek replacement parts only from that OEM's supplier. Inducing this
manufacturer to change suppliers would require a significant sales effort. Our
success, therefore, depends in large part on our ability to convince OEMs to
choose our products for use in each new generation of their equipment. If we are
unsuccessful in doing so, our competitive position may be harmed.
We must compete intensively to attract and retain key technical personnel to
help maintain our current level of success and to support our future growth.
Our success depends largely upon the efforts and abilities of our key
managers and other employees, particularly those with expertise in semiconductor
manufacturing and related industries. The loss of key employees or officers
could temporarily impair our ability to effectively manage our business until
new personnel are found. The risk of a loss of key managers and other employees
may increase as a result of temporary salary reductions and merit raise freezes
that were implemented in the third quarter of 2001. Our future growth and
success will depend upon our ability to attract and retain highly skilled
technical, financial, managerial and marketing personnel. Competition for such
personnel in our industry is intense, and we cannot be certain we will be
successful in attracting and retaining such personnel.
Our ability to expand our manufacturing capacity may be limited by our
suppliers' ability to meet our requirements.
During periods of increased demand for semiconductor equipment, we
experienced periodic difficulties in receiving sufficient material from some of
our suppliers. These shortages may lead to delays in production and delivery of
our products and may limit our ability to satisfy our customers' demand.
We have significant international sales to customers outside the United States.
A reduction in demand for our products resulting from economic downturns in one
or more of the markets we serve may have a material adverse effect on our sales
and profitability.
We distribute our products in many countries around the world.
Approximately 71.4% of our net sales in 2001, approximately 70.3% of our net
sales in 2000, and approximately 72.0% of our net sales in 1999 were to
customers outside the United States. Our overall success as a global business
depends, in part, upon our ability to succeed in differing economic, social and
political conditions. For example, the markets in Asia, one of the principal
markets for our semiconductor vacuum instrumentation, experienced significant
turbulence in the late 1990s. Our direct net sales to customers in the
Asia-Pacific market represented approximately 24.4%, 26.3% and 19.4% of our net
sales in the years ended December 31, 2001, 2000 and 1999, respectively, and we
expect this percentage to increase in the future. Although Asian markets have
recovered from the economic downturn of the late 1990s, future downturns in
these or other markets could reduce our revenues.
We are confronted with different legal and regulatory requirements in many
jurisdictions. These include, but are not limited to, tariffs and trade
barriers, requirements relating to withholding taxes on remittances and other
payments by subsidiaries, and different regimes controlling the protection of
intellectual property. Our international
6
operations also expose us to different local business risks and challenges. For
example, we must design local solutions to manage credit risks of local
customers and distributors. We cannot assure you that we will continue to
succeed in developing and implementing policies and strategies that are
effective in each country in which we conduct business.
Unfavorable exchange rate fluctuations may harm our results of operations.
Our operations are conducted through subsidiaries in many countries. The
results of operations and the financial position of these subsidiaries are
reported in their relevant local currency and then translated into U.S. dollars
at the applicable foreign currency exchange rate for inclusion in our
consolidated financial statements. Exchange rate fluctuations between these
foreign currencies and the U.S. dollar may have a material adverse effect on our
consolidated financial statements as reported in U.S. dollars.
We also face transaction risk from fluctuations in exchange rates between
the various currencies in which we do business. We believe a substantial portion
of the transaction risk of our operations in multiple currencies is mitigated by
our hedging activities, as well as the structural matching that occurs because
many of our operating and financial expenses are incurred in the same currency
in which the sales relating to such expenses are invoiced. This is particularly
the case following the introduction of the Euro. We are nevertheless exposed to
fluctuations in exchange rates between these currencies, and we may need to
raise our prices in response to fluctuations, which could result in reduced
sales. We cannot assure you that our operating profit will not be materially or
adversely affected by large exchange rate fluctuations.
We had losses from foreign currency transactions and foreign exchange
contracts of U.S.$1.029 million, U.S.$0.136 million, and U.S.$0.379 million for
the years ended December 31, 2001, 2000, and 1999, respectively.
In addition, our shares are quoted on the SWX Swiss Exchange in Swiss
francs. Although we do not anticipate paying dividends in the foreseeable
future, any cash dividends declared in respect to our shares will be declared in
Swiss francs. Fluctuations in the exchange rate between the Swiss franc,
Japanese yen and other currencies, including the Euro and the U.S. dollar, may
affect, among other things, the foreign currency equivalent of the Swiss franc
value of an investment in our shares and of dividends and other distribution
payments on the shares.
We must make expenditures to comply with environmental laws and regulations
relating to the production of our vacuum instrumentation products.
We must comply with environmental laws and regulations relating to the
generation, storage, handling, emission, transportation and discharge of
materials. We require environmental permits to carry out some of our operations,
and these permits are subject to modification and renewal by issuing
authorities. If we violate these environmental laws and regulations, we may be
subject to fines or be prevented from conducting some of our activities. We do
not believe that we will be required, under existing environmental laws and
enforcement policies, to spend any amounts that will adversely affect our
financial condition or results of operations. However, environmental laws and
enforcement policies have generally become more stringent in recent years. As a
result, we cannot predict the ultimate cost of compliance with these laws.
The effect of terrorist attacks or threats on the general economy could decrease
our revenues.
On September 11, 2001, the United States was subject to terrorist attacks
at the World Trade Center buildings in New York City and the Pentagon in
Washington, D.C. The current and future impact these attacks may have on our
suppliers and customers, the markets for their products, and the U.S. and global
economies are uncertain. There may be other potential adverse effects on our
operating results, as a result of this significant event, that we cannot
foresee.
Risks Relating to Our Separation from Unaxis
Our historical financial information may not be representative of our results as
an independent company.
Our consolidated and combined financial statements through December 31,
2000 have been carved out from the consolidated and combined financial
statements of Unaxis using the historical cost basis of assets, liabilities and
operating results of the Unaxis vacuum instrumentation operations that comprise
our business.
7
Accordingly, the historical financial information that we include in this annual
report does not necessarily reflect what our financial condition, operating
results and cash flows would have been had we been a separate, stand-alone
entity for the periods presented. Unaxis did not account for us as a separate,
stand-alone entity during these periods.
Our costs and expenses include direct expenses and an allocation from
Unaxis for centralized corporate and infrastructure costs, including finance,
legal, tax, information technology and human resources functions. This
allocation, which was not the result of an arm's-length negotiation with Unaxis,
is based on Unaxis' internal expense allocation methodology which charges these
expenses to operating locations based primarily on net sales. Although we
believe this allocation methodology is reasonable and allocated costs are
representative of the operating expenses that would have been incurred had we
operated on a stand-alone basis, our consolidated and combined historical
financial information is not necessarily indicative of what our financial
condition, operating results and cash flows will be in the future. We have not
made any adjustments to our historical financial statements to reflect any
significant changes that will occur in our cost structure and operations as a
result of our separation with Unaxis, including the increased costs associated
with being a publicly traded, independent company.
We are no longer able to rely on Unaxis to fund our future capital requirements,
and financing from other sources may not be available on terms as favorable as
Unaxis could obtain.
In the past, we were part of Unaxis' integrated cash management system in
which we forwarded available cash to Unaxis, and Unaxis provided us with cash
for our operations. Now that we are separated from Unaxis, Unaxis may no longer
provide funds to finance our working capital or other cash requirements. We
cannot assure you that financing from other sources, if needed, will be
available on favorable terms.
On November 23, 2000, we obtained a working capital credit facility from
Credit Suisse in a maximum amount of U.S.$30 million. We believe this credit
facility provides a sufficient liquidity source to meet current and anticipated
future capital requirements and business needs. However, in the future, we may
require or choose to obtain additional debt or equity financing in order to
finance our operations, acquisitions or other investments in our business.
Future equity financing will be dilutive to the existing holders of our shares.
Future debt financing could involve restrictive covenants that may limit the
manner in which we conduct our business. In addition, we may not be able to
obtain debt financing on terms as favorable as those Unaxis could obtain. As a
result, our cost of capital could be higher than that reflected in our
historical financial statements.
On February 28, 2001, the Company entered into two revolving credit
facilities with HypoVereinsbank. The credit facilities include a HKD 10.0
million working capital financing arrangement and a HKD10.0 million margin
coverage arrangement for foreign exchange forward transactions. The working
capital financing arrangement can be either in the form of a current account
overdraft facility, fixed advances with a maximum maturity of six months, short
term trust receipt financing, issuance of letters of credit, or issuance of bank
guarantees. The interest rates for the working capital facility are Hong Kong
Interbank Offered Rate (HIBOR), plus 1% for loans in Hong Kong dollars and 1%
for loans in U.S. dollars. The Company will be charged a monthly guarantee fee
of 0.125% of the outstanding balance, or a minimum of HKD200, and upon drawing
on the credit line, the Company will be charged an opening commission of 0.25%
on the first U.S.$50, and 0.0625% on the balance. The working capital financing
arrangement expires on February 28, 2002 and has an option for extension. The
Company has U.S.$0 outstanding under the financing arrangement as of December
31, 2001.
On March 31, 2001, the Company entered into a working capital financing
arrangement with Dresdner Bank in the amount of DM 10.0 million. The financing
arrangement can be either in the form of a current account overdraft facility or
fixed advances. The interest rate for the overdraft facility is a fixed rate of
6.95%, and may be adjusted for changes in market interest rates. The interest
rate for working capital advances in excess of 500,000 DM for 30 days or more is
EURIBOR plus 0.95%. The working capital financing arrangement expires on March
31, 2002 and has an option for extension. The Company has U.S.$0 outstanding
under the financing arrangement as of December 31, 2001.
We have significant sales to Unaxis and its affiliates.
In 2001 and 2000, Leybold Vacuum, a division of Unaxis, accounted for
approximately 12.5% and 9% of our net sales, respectively, and other Unaxis
entities accounted for an additional 4% and 7% of our net sales, respectively.
There can be no assurance that, as Unaxis reduces its ownership interest in
INFICON, these companies
8
will maintain similar levels of purchases from us. In addition, Unaxis has
announced its intention to spin off Leybold Vacuum. A significant decrease in
sales to Leybold Vacuum would have a significant impact to our revenues.
If the services we purchase from Unaxis are not sufficient to meet our needs, or
if we are not able to replace these services after our agreements with Unaxis
expire, we may be unable to manage critical operational functions of our
business.
Unaxis has agreed to provide services to us, including services related to
financial, accounting, tax, information technology and human resources. Although
Unaxis is contractually obligated to provide us with these services, these
services may not be provided at the same level as when we were a part of Unaxis,
and we may not be able to obtain the same benefits. After the expiration of
these various arrangements, we may not be able to replace the services or enter
into appropriate leases in a timely manner or on terms and conditions, including
cost, as favorable as those we receive from Unaxis.
Our business could be harmed if we fail to adequately integrate the operations
of the HAPSITE business.
Effective November 1, 2001, we completed an acquisition of the HAPSITE
business. Our management must devote their time and resources to the integration
of the operations of the HAPSITE business. If we fail to accomplish this
integration efficiently, we may not realize the anticipated benefits of the
acquisition. The process of integrating the daily operations coupled with
research and development initiatives and other aspects of the operation of the
HAPSITE business presents a challenge to our management. Other business and
strategic challenges include:
o defining and executing a comprehensive product strategy into
markets beyond the current market for emergency response;
o managing geographically remote units and personnel;
o managing the risks of entering markets or business areas in
which we have limited or no direct experience;
o minimizing the loss of key employees of the acquired HAPSITE
business; and
o informing suppliers and distributors of the effects of the
acquisition of HAPSITE and integrating this into our overall
operations;
Future acquisitions could adversely affect our business.
The Company plans to pursue acquisitions of related businesses. The
identification of an appropriate acquisition candidate involves risks inherent
in assessing the values, strengths, weaknesses, risks and profitability of
acquisition candidates. Other risks include the effects of the possible
acquisition on the Company's business, diversion of its management and risks
associated with unanticipated problems or latent liabilities. Should the Company
acquire another business, the process of integrating acquired operations into
the Company's existing operations may result in unforeseen operating
difficulties and may require significant financial resources that would
otherwise be available to support existing operations. If the Company pursues
future acquisitions, it may be required to expend significant funds, incur
additional debt or issue additional securities, which may negatively affect the
Company's results of operations and be dilutive to its shareholders. If the
Company spends significant funds or incurs additional debt, its ability to
obtain financing for working capital or other uses could be jeopardized.
Additionally, the Company could become more vulnerable to economic downturns and
competitive pressures depending on the acquisition.
Benefits from net deferred tax asset may not be realized.
The Company has recorded a net deferred tax asset of U.S.$40.6 million.
Although the Company believes that it is more likely than not that all of the
net deferred tax assets will be realized, a full realization of the net deferred
tax asset amount may not be assured. The amount of the net deferred tax asset
considered realizable could be reduced and negatively impact our financial
results if the Company is not able to generate sufficient taxable income in
future years.
9
Risks Relating to our Shares and ADSs
Unaxis has a significant influence on our company and may make decisions that
are not in the best interests of all shareholders.
Insider control of a significant proportion of our shares could have an
adverse effect on the market price of our shares and ADSs. Unaxis currently owns
19.51% of our shares. In addition, two of our directors are officers of Unaxis.
This could present the potential for a conflict of interest with respect to
areas in which we compete with Unaxis and with respect to matters related to the
agreements between us and Unaxis described under "Major Shareholders and Related
Party Transactions---Related Party Transactions---Agreements in Connection with
our Separation from Unaxis---Agreements with Unaxis". In light of its stock
ownership position and its representation on our board of directors, Unaxis has
significant influence on the outcome of corporate actions requiring shareholder
approval, including the election of directors, the amendment of our articles of
incorporation, and mergers, consolidations and sales of assets that could give
our shareholders the opportunity to realize a premium over the then-prevailing
market price of their shares. This influence may have the effect of delaying or
preventing a change of control of INFICON, even if this change of control
benefits our shareholders generally.
Future sales by Unaxis could adversely affect the market price of our shares and
ADSs.
Sales of our shares in the public market could adversely affect the market
price of the shares and ADSs. All of our shares, are now freely tradable in the
open market, except for certain shares sold to our executive officers and
employees. The shares sold to our directors may now be sold after the expiration
of 180-day lock-up agreements, on May 9, 2001. Up to 579,000 shares may be sold
by Unaxis and certain institutional investors after the expiration of a 365-day
lock-up agreement which expired on November 9, 2001. In addition, none of the
33,450 shares sold to our executive officers and employees under our two equity
purchase programs described below under "Directors, Senior Management and
Employees---Share Ownership" may be sold before November 9, 2002.
It may be difficult to initiate legal proceedings or enforce judgments against
us.
We were incorporated under the laws of Switzerland and a substantial
portion of our assets are located outside the United States. As a result, it may
be difficult to effect service of process on us or directors who reside in
Switzerland or to enforce judgments in Switzerland based on the civil liability
provisions of the securities laws of the United States. In addition, awards of
punitive damages obtained in courts in the United States may not be enforceable
in Switzerland or other countries where we conduct operations.
There may not be an active trading market for our shares or ADSs.
There may not be an active trading market for our shares or ADSs, and the
market price of our shares or ADSs may decline below the current price. We
issued only a limited number of ADSs and there may not be a sufficient amount of
investor interest in the ADSs to lead to the development of a liquid trading
market for the ADSs.
If you hold our ADSs, you are unable to exercise certain shareholder rights.
An ADR holder is not being treated as one of our shareholders and is
unable to exercise some shareholder rights. The Bank of New York is the holder
of shares underlying the ADSs. An ADR holder has those rights as set forth in a
deposit agreement among us, The Bank of New York and the ADR holders, described
under "Additional Information---The Rights of ADR Holders". These rights are
different from those of holders of our shares, including with respect to the
receipt of information, the receipt of dividends or other distributions and the
exercise of voting rights. In particular, an ADR holder must instruct The Bank
of New York to vote the shares underlying the ADRs, but only if we ask The Bank
of New York to ask for the ADR holder's instructions. As a result, it may be
more difficult for you to exercise those rights. In addition, there are fees and
expenses related to the issuance and cancellation of the ADRs.
10
Item 4. Information on the Company
A. History and Development of the Company.
INFICON Holding AG (commercial name: "INFICON") was incorporated on August
2, 2000 for an indefinite term. INFICON Holding AG is a corporation
(Aktiengesellschaft) organized under the laws of Switzerland. Its registered
office (Sitz) is located at Hintergasse 15 B, 7310 Bad Ragaz, Switzerland. The
telephone number of our registered office is 41-81-302-4646. The fax number is
41-81-302-7474. Our global headquarters is at Two Technology Place, East
Syracuse, New York 13057, United States. Our telephone number in the United
States is 1-315-434-1100. Our address on the Internet is www.inficon.com . The
information on our website is not incorporated by reference into this annual
report.
In our initial public offering on November 8, 2000, 1,736,000 INFICON
shares, with a par value of CHF 10 each, directly or in the form of ADSs, were
sold publicly in Switzerland and the United States and to institutional
investors outside Switzerland and the United States. Of the 1,736,000 shares,
315,000 shares were sold by us and 1,421,000 shares were sold by Unaxis as
selling shareholder.
Prior to our initial public offering, our business was wholly owned by
Unaxis. In order to implement our initial public offering, Unaxis restructured
the corporate ownership of the businesses in its instrumentation group, and
created INFICON Holding AG under the laws of Switzerland to hold the companies
through which we now conduct our operations. These companies have acquired from
Unaxis all of the assets relating to our business.
In 1999, Unaxis began the process of focusing its business on surface
technology and information technology, including the development, manufacture
and sale of highly advanced semiconductor equipment systems. Unaxis has
divested, or is seeking to divest, businesses which are not consistent with this
new focus. Although our business is also focused on the semiconductor sector of
the information technology market, a number of our customers are manufacturers
of semiconductor equipment systems who compete, or may in the future compete,
with Unaxis. Unaxis' new strategic focus raised a concern that our other
semiconductor equipment systems customers would be reluctant to rely on a
subsidiary of a competitor as a critical supplier and as a partner in developing
solutions for their manufacturing problems. Accordingly, Unaxis concluded that
its investors would recognize greater value from our business if it were sold
than if it were retained as part of the Unaxis group of companies.
Unaxis currently owns 19.51% of our shares. Subject to its lock-up
agreement, which expired on November 9, 2001, and general market conditions, we
believe Unaxis currently intends to sell its remaining shares of INFICON. As a
result, we believe that our initial public offering and our independence from
Unaxis is being viewed favorably by our customers and will help to strengthen
our customer relationships.
We also believe that, as a result of our initial public offering, we have
greater flexibility in managing our operations and pursuing our business
strategy in order to bring greater long-term value to our shareholders. We are
able to use our shares and ADSs as consideration to acquire other companies, and
our employees are able to participate in incentive plans that align their
interests with the interests of our other shareholders. Our initial public
offering has also created a basis for investors to value our business separately
from the business of Unaxis.
Our capital expenditures amounted to U.S.$5.6 million, U.S.$4.9 million,
and U.S.$3.3 million, in 2001, 2000 and 1999, respectively. These amounts were
used primarily for the purchase of manufacturing equipment, tooling, office
computer equipment, facility maintenance and leasehold improvements. We had
equipment divestitures in the amounts of U.S.$0.71 million, U.S.$0 million and
U.S.$0.13 million, respectively in 2001, 2000 and 1999, respectively. The
principal investing activities currently in progress are for building
infrastructure changes for our facility in Cologne, Germany and the move to a
new building of our operations in Balzers, Liechtenstein that began in the
second half of 2001. We have invested U.S.$3.0 million in 2001 and expect to
invest U.S.$4.4 million in 2002 . These capital expenditures will be funded with
cash from our operations.
11
B. Business Overview.
General
We are a leading developer, manufacturer and supplier of vacuum
instrumentation used for analysis, monitoring, measurement and control by
manufacturers to improve the productivity of their processes and the quality of
their products. Historically, our products have been designed for customers in a
number of diverse industries. In 1997, Unaxis formed our business by bringing
its instrumentation businesses under a single global management. In connection
with this initiative, we decided to focus on increasing our sales to
semiconductor and related markets, to rationalize our product offerings, and to
consolidate our operations and research and development efforts to operate more
efficiently and support our new focus. We expect to continue to focus on
semiconductor and related markets because we believe that they are the largest
and fastest growing markets for our products.
We have two business groups and five major product lines. Our
semiconductor vacuum instrumentation group focuses on semiconductor and related
markets with:
o in situ analysis hardware and software, which allows semiconductor
chip manufacturers to monitor and control their manufacturing
processes by providing immediate information on the condition of the
wafer and on the process and equipment parameters; and
o ultra clean processing products, which employ electrically charged
gas technology to prepare semiconductor chips and carriers for
packaging.
Product lines are described under the heading "Our Principal Products"
below.
Our general vacuum instrumentation group serves selected industries,
including the refrigeration and air conditioning, automotive and emergency
response markets, with:
o leak detectors, which are designed to determine whether any gaseous
impurities enter vacuum systems and to test system integrity to
ensure that no environmentally damaging, hazardous or expensive
gases escape from pressurized, sealed systems;
o vacuum control products, which measure and control gas pressures
during a manufacturing process;
o and the HAPSITE instrument provides easy and dependable on-site
analysis of volatile organic compounds (VOCs) and is designed to
quantify and speciate VOCs on-site, significantly reducing the cost,
time, and difficulties of air testing.
Based on our knowledge of our competitors and the markets we serve, we
believe many of our key products maintain leading market share positions, and
these leading market positions coupled with our competitive strengths should
enable us to take advantage of expected growth in semiconductor and related
markets.
Our principal customers in our target markets are large manufacturers who
incorporate our products into their vacuum processes and original equipment
manufacturers, or OEMs, who incorporate our products into systems they build for
their customers. In addition, we sell to several large distributors who serve
diverse markets. Our customers are located principally in the United States,
Europe and Asia. As we increase our penetration of the semiconductor industry,
we plan to build our sales and marketing operations in Asia and the United
States.
Our Competitive Advantages
We believe that we have leading market shares in the in situ analysis,
ultra clean processing and leak detection markets, and a strong position in the
vacuum control market. We believe we can enhance our market position, growth and
profitability through the following competitive advantages:
o Market-Driven Technology and Product Innovation. Our customers
operate in an environment of constant technological change. The
cornerstone of our strong market position is our investment in
technology and product innovation to keep pace with these changes.
Our investment is made through internal product development and the
acquisition of advanced technology that complements our vacuum
instrumentation portfolio. Our engineers and technical experts work
12
directly with our customers to develop optimal solutions for their
manufacturing problems. We seek to translate our knowledge of
customer process requirements and our advanced technology into
innovative products that improve our customers' process yield,
quality, costs and profitability.
o Global Presence and Comprehensive Customer Support. We have direct
sales, application support and service centers in 12 countries
around the world. This global reach is an increasingly critical
success factor for a customer base that itself is increasingly
multinational in scope. Large end users have factories worldwide and
products sold to OEMs are often exported to other parts of the
world. Our customers expect us to provide comprehensive service and
application support at all locations where our products are used. We
believe we have an excellent reputation for sales, logistic,
application and service support in all important market areas of the
world.
o State-of-the-Art Enabling Technologies. We maintain major
manufacturing operations in Syracuse, New York, USA; Balzers,
Liechtenstein; and Cologne, Germany. Each of these manufacturing
locations is highly focused on specific product lines. In the last
three years, each of our three factories has installed
state-of-the-art "enabling technologies" aimed at providing us with
the best available manufacturing efficiency, quality and information
technology to support our business.
o Demand-based Manufacturing. We employ a demand-based manufacturing
system, where products are manufactured upon receiving an order,
enabling us to manufacture products rapidly and efficiently to meet
specific customer demands. Combined with aggressive supply chain
management, our demand-based manufacturing system minimizes
inventory, dramatically reduces manufacturing cycle times, improves
on-time delivery, lowers manufacturing costs and improves quality.
o Total Quality Management and ISO Registration. All our factories
were early adopters of sophisticated total quality management
techniques, including extensive employee participation at all levels
in team-oriented programs aimed at improving product quality and
manufacturing process efficiency. All our factories were among the
earliest to apply for and achieve ISO 9001 Registration. This
world-recognized quality methodology mandates that companies adhere
to, and document their compliance with, stringent product/process
specifications.
o Integrated Management Information Systems. We have a company-wide
integrated management information system which provides us with
information on our manufacturing, sales, service and accounting
functions on a real-time basis.
o Brand Recognition. As a result of our strong market position, there
is considerable name recognition for INFICON brands. Our name
recognition, coupled with our reputation for high quality and
comprehensive customer service, provides significant support for our
introduction of new and innovative products.
o Strong and Committed Management Team. We believe our company
benefits from a cohesive and highly experienced management team. Our
seven executive officers collectively have over 110 years of
experience with INFICON and our predecessors and come from several
different national backgrounds. We believe that we have the
leadership we need to continue to leverage our competitive
advantages in the future.
While we believe these competitive advantages will enable us to compete
favorably in the vacuum instrumentation markets, there can be no assurance we
will continue to do so. We encounter substantial competition in each of our
product lines from numerous competitors. Certain of our competitors have greater
financial, technical and marketing resources than we do. Other smaller
competitors are well-established in specific product niches making it difficult
to break into those smaller markets. Furthermore, in some cases, semiconductor
chip manufacturers may direct semiconductor capital equipment manufacturers to
use a specified supplier's product in their equipment. Accordingly, our success
depends in part on our ability to have semiconductor chip manufacturers specify
that our products be used at their manufacturing facilities. We may encounter
difficulties in changing established relationships of competitors with a large
installed base of products at those customers' manufacturing facilities.
13
Our Strategy
Our principal business objective is to exploit our core competence in
vacuum technology to increase our sales, cash flow and profitability. We seek to
maintain and enhance our position as a premier supplier of vacuum-related
instrumentation to semiconductor, refrigeration and air conditioning, automotive
and other selected industrial markets. In this regard, we intend to:
o Focus on the High-growth Semiconductor and Related Markets. We
intend to focus our sales and marketing, product development efforts
and potential future acquisitions on the semiconductor and related
markets, which are the largest and fastest growing markets for
vacuum- related instrumentation. Our line of products for in situ
analysis enables semiconductor manufacturers to monitor and control
the vacuum manufacturing process directly, without the need for time
consuming external analysis to determine product defects and process
malfunctions. We believe our in situ analysis products are
well-positioned to benefit from the trend toward more difficult
manufacturing processes in the semiconductor industry necessary
because of the demand for smaller, faster and more complex chips.
Our ultra clean processing product line permits rapid damage-free
surface preparation for semiconductor packaging using highly
efficient, environmentally sound electrically charged gas
technology. Our latest generation of vacuum gauge products has been
enjoying increased sales to semiconductor manufacturers. We believe
our technological expertise and market knowledge will continue to
enable us to introduce new products and increase our market share in
semiconductor and related industries.
o Invest in Technological Innovation. We intend to continue to invest
in product and process innovation in order to provide
technologically advanced products to our customers. Industries whose
manufacturing processes use vacuum systems, in particular the air
conditioning, refrigeration, automotive, semiconductor and thin-film
coating industries, require increasingly sophisticated
instrumentation. For example, we have developed and will continue to
develop more sophisticated leak detectors to meet the increasing
demand for such instrumental equipment in the automotive industry.
In the semi conductor industry, the trend from 200mm diameter wafers
to more expensive 300mm diameter wafers has necessitated more rapid
fault detection with reduced reliance on test wafers. Our line of
mass spectrometers and other products for in situ analysis permit
customers to monitor and control the semiconductor manufacturing
process within the process chamber. We generally seek to introduce
innovative, high-margin products that will enable us to maintain
profitability in a competitive market.
o Strengthen Our Position in Core Geographic Markets. The United
States and Asia are the strongest markets for the semiconductor
business. These are already the largest markets for our
semiconductor vacuum instrumentation products, and we are further
strengthening our sales, distribution and customer service and
support infrastructure in these areas to meet the rising demand.
o Maintain the Strength of the INFICON Brand. We intend to continue to
promote an image of quality, reliability, high performance and
innovation associated with the INFICON brand. We have developed our
reputation by offering customers technologically advanced products
and providing responsive customer support services. We believe our
strong brand awareness, brand loyalty and reputation for superior
products enhances our competitiveness and provides us with a solid
foundation for future growth. We intend to maintain the efforts that
have already cemented customer loyalty to the INFICON brand.
o Enhance Our Distribution Channels to Reach Distinct Customer Bases.
We have developed specialized sales forces to target our distinct
customer segments. In our semiconductor and related markets, we
employ a specially trained force of direct sales, service and
application support professionals. Similarly, we have a specialized
group of sales distributors and representatives who concentrate
exclusively on the refrigeration and air conditioning industry. In
the more diffuse markets for general vacuum instrumentation, we
distribute our products through vacuum pump manufacturers, who have
developed strong relationships with small to mid-size vacuum
instrumentation users. We intend to continue to use our specialized
sales forces to build strong customer relationships in our major
industrial and geographic markets.
14
o Continue to Improve Manufacturing Efficiency. In order to maintain
the highest quality standards, we focus our internal manufacturing
efforts on our core proprietary vacuum sensor and accessory
technology, on the final assembly of our products and on quality
assurance. We outsource the construction of most other parts and
components, including circuit boards, mechanical assemblies and
housings. This strategy enables us to focus on our key technologies
that have been central to our success and on assuring the high
quality of our products, while reducing the capital investments and
fixed costs associated with non-core activities. In addition, we
believe this manufacturing approach significantly reduces our
susceptibility to periodic downturns in the volatile semiconductor
market. We also use a demand-based manufacturing system to reduce
inventory cycle times and production defects, in addition to our
Total Quality Management Programs and ISO registration which
supports our objectives of improving business practices and product
quality to increase profitability.
o Pursue Strategic Acquisitions. We intend to pursue strategic
acquisitions to strengthen our position in existing markets and to
expand our international presence. We may also consider strategic
acquisitions that could enhance our product offerings and
technological platforms. We intend to pursue acquisition targets
that we believe are consistent with our principal product focus and
will add value to our shareholders in the medium to long-term.
Our Principal Products
We develop, manufacture and supply products in two principal areas:
o semiconductor vacuum instrumentation; and
o general vacuum instrumentation.
Our semiconductor vacuum instrumentation generally consists of
technologically advanced products developed specifically for use in
semiconductor and related applications. For the years ended December 31, 2001,
2000 and 1999, we estimate that approximately 39%, 65%, and 54%, respectively,
of our sales in the semiconductor vacuum instrumentation segment were to
semiconductor and related markets. The remaining net sales of this group were to
distributors who resell our product under their own private-label brands to
customers which we are unable to track, and from products originally designed
for the semiconductor market which we have adapted for use in other industries.
Our general vacuum instruments are versatile products which typically can be
used in multiple applications. For the years ended December 31, 2001, 2000 and
1999, we estimate that approximately 10%, 14% and 10%, respectively, of our
sales in the general vacuum instrumentation segment were to semiconductor and
related markets. In both segments, our sales to semiconductor and related
markets were significantly lower in 1998 than from 1999 through 2001.
Semiconductor Vacuum Instrumentation
Our semiconductor vacuum instrumentation consists of two principal product
lines: in situ analysis and ultra clean processing.
In Situ Analysis
Our in situ sensors and integrating software are used in front-end chip
manufacturing to provide process verification and control, including immediate
and automatic feedback to the process equipment or a process engineer on any
faults detected and their probable cause. Net sales from our in situ analysis
business for the years ended December 31, 2001, 2000 and 1999, were U.S.$43.6
million, U.S.$54.2 million and U.S.$36.7 million, respectively.
As the cost of wafers increases and the requirement for faster fault
detection becomes more critical, we believe the industry will conduct more and
more of these analyses in the process chamber itself, leading to growth in the
in situ analysis market. The Semiconductor Industry Association's National
Technology Roadmap for Semiconductor Manufacturing supports this expectation.
15
Products. Our in situ analysis product offerings include the following:
Process State Sensors
o Gas Analyzers. Our gas analyzers are well-established in the
semiconductor market as diagnostic tools to aid process engineers in
determining the source of contaminant gases. They also find use in
continuously monitoring the manufacturing process for the presence
of contaminant gases and for verifying the presence of desired
process gases. Our gas analyzers use mass spectrometer technology.
Our products include a photoresist detector designed to stop a
physical vapor deposition process if a wafer is contaminated with
photoresist.
o Composer. The Composer, based on acoustic resonance technology,
monitors and controls the reactant feedgas to ensure that the gas
concentration is constant. The Composer is applied most frequently
in metal organic chemical vapor deposition applications.
Wafer State Sensors
o OES1200. The OES1200 is an optical emission spectrometer which is
used to determine the endpoint of etch processes. This product's
design allows customers to determine the end point in the most
difficult etch processes.
o Thin Film Deposition Controllers. Our thin film deposition
controllers determine the thickness of a material deposited in a
batch evaporation process. Although these processes are less common
in semiconductor processing today, they are still used for very
specific applications. They are used more frequently in depositions
in the optical industry, including both high-precision, scientific
optics and consumer optics. Recently, they have found use in the
manufacture of dense wavelength division multiplexing thin-film
optical filters and organic electroluminescent displays.
Integration Software
o FabGuard. The FabGuard software takes data from the in situ analysis
sensors, integrates that data with data from the process equipment
itself, and condenses and analyzes it to provide the process
engineer with actionable information. Alternatively, the engineer
can choose to have FabGuard automatically send control commands
directly to the process equipment. The software is typicallysold in
conjunction with our in situ analysis sensor products or separately
as an upgrade for use with the products.
To address the broader, non-semiconductor market for gas analysis, we
adapt and package our mass spectrometers for distribution through Pfeiffer
Vacuum, a vacuum pump manufacturer. Thus, we leverage our product development
efforts and technology without diminishing our direct sales force's focus on the
semiconductor and related markets.
Because the semiconductor market is in a constant state of technological
change, we must continually innovate and produce both next-generation products
and new products for evolving applications. Our internal development is twofold:
(1) adapting our hardware technologies for changing applications and (2)
increasing our emphasis on software development. In addition, we remain alert to
new technology acquisitions that would enhance our offering of in situ analysis
sensors and software capability.
Ultra Clean Processing
The final stage of semiconductor processing is packaging. The individual
semiconductor chip that has been manufactured in the front-end process must be
attached and electrically connected to a chip carrier in the back-end process.
16
A chip carrier provides the leads through which a chip communicates with
the outside world. Chip carriers also mount individual chips during the assembly
process. The final step in the back-end manufacturing process is to encapsulate
the assembled chip carrier with the attached semiconductor chip in a molded
plastic package. It is this finished product which is installed into electronic
devices, such as personal computers.
Semiconductor chips are attached to their chip carriers and packages with
a high number of very fine leads. The latest generation packages for high
performance chips include a variety of designs, such as plastic ball grid array,
flip chips and chip scale packaging. Any contaminants on the chip, wires, lead
frame or plastic package can cause the finished product to fail.
Our ultra clean processing product is designed for damage-free cleaning of
these critical and sensitive surfaces without the use of toxic substances. Net
sales from this product line for the years ended December 31, 2001, 2000 and
1999 were U.S.$1.9 million, U.S.$11.8 million and U.S.$5.5 million,
respectively.
Products. Our ultra clean processing products use sophisticated
electrically charged gas technology (plasma), which cleans chips and chip
carriers by chemical reactions that occur on the surfaces of the chips and chip
carriers, rather than by physical abrasion, which is more likely to damage the
sensitive leads. This patented technique has proven particularly useful for
cleaning chips which are intended for mobile communications, because they are
extremely small and sensitive to damage from an abrasive cleaning process. In
addition, our ultra clean processing products do not use any toxic substances
which could harm personnel or the environment.
The largest application of our ultra clean processing products is in
plastic ball grid array packaging, which is an advanced technology for chips
used in wireless communications like mobile phones, personal digital assistants,
and laptop commuters. We are optimistic about the future for this product line,
not only because of the long-term growth prospects for portable electronics, but
also because of the introduction of new copper interconnect technology in
semiconductor manufacturing. We believe the migration to copper interconnects
over the next several years has the potential to drive our Ultra Clean
Processing from a niche application to a mainstream semiconductor process.
Semiconductor Vacuum Instrumentation Products
Our customers for in situ analysis include semiconductor chip
manufacturers, such as IBM, Motorola and Samsung; OEMs such as Applied
Materials, Tokyo Electron and Novellus; optics manufacturers or optical coating
OEMs which use our thin film deposition controllers, such as Zeiss and Anelva;
and a private label distributor, Pfeiffer Vacuum. Semiconductor chip
manufacturers constitute the larger part of the market. Geographically, the
semiconductor market is concentrated in Asia and the United States.
The market for our ultra clean processing products is highly concentrated
with a small number of customers. Geographically, the market is concentrated in
Asia. Our customers for ultra clean processing include ASAT, NS , SPIL and ST
Microelectronics. Ultra Clean Processing is sold only to the semiconductor
industry and is targeted at the back-end of semiconductor manufacturing. Ultra
Clean Processing was our fastest growing business in 2000, but like all
semiconductor backend products, it had a major contraction in 2001.
Semiconductor manufacturers made a low level of capital investment in 2001, and
only for new package types.
General Vacuum Instrumentation
We have three product lines which serve general vacuum applications: leak
detection, vacuum control, and environmental health & safety.
Leak Detection
Our leak detection products are used for a wide variety of purposes in
numerous industries. They are used in vacuum applications, for example, to
confirm the integrity of a vacuum chamber, and in the maintenance of gas lines,
which must be airtight. We offer two families of leak detectors: helium leak
detectors and refrigerant leak detectors.
Helium leak detectors are used by manufacturers for quality control in a
broad range of applications. They are used primarily to test the integrity of a
container, whether it is a vacuum chamber or a pressurized container. The
central element of any leak detector is a sensor which is designed to detect the
presence of a certain gas. Helium is
17
an ideal gas for use in leak detection because (1) helium atoms are very small
and can seep through the tiniest cracks in a chamber and (2) helium is not
commonly found in the atmosphere, so the likelihood of false readings is
reduced. A typical helium leak detection process involves pressurizing a
container with helium, sealing the container and using sensors to detect if any
helium leaks out. Another technique is to evacuate the container, expose it to a
helium environment and use the sensors to detect the presence of helium inside
the container. Our helium leak detection products perform both of these
functions and range in size from portable to large cabinet-sized units.
Refrigerant leak detectors have sensors that can detect a range of
refrigerant gases. Refrigerant leak detectors are often used in conjunction with
helium leak detectors. For example, manufacturers of refrigeration systems will
initially test a refrigeration coil with a helium leak detector to ensure that
the chamber is leak-free. Later in the manufacturing process, the coil is filled
with refrigerant, resealed and then tested with a refrigerant leak detector to
assure integrity of the final seal. Our refrigerant leak detection products
range in size from large units which are used in assembly lines to small,
hand-held units that are used by air conditioning repairmen.
Net sales for our leak detection business for the years ended December 31,
2001, 2000 and 1999 were U.S.$ 55.3 million, U.S.$53.9 million and U.S.$41.6
million, respectively.
Products. Our most important leak detector products include the following:
Helium Leak Detectors
o UL500. The UL500 is our cabinet-sized model which provides fast leak
detection capability for very large vacuum chambers. It is widely
used in the semiconductor industry to perform leak detection tests
on high volume chambers, especially by equipment manufacturers.
o UL200 family. The UL200 family of leak detectors consists of
portable helium leak detectors which provide flexibility and speed
for our customers in a wide range of industries. They are typically
used for leak tests on smaller parts and for maintenance purposes.
Their ease of use and high quality performance have contributed to
their widespread use.
o Protec. The Protec leak detector is often used in the automotive and
refrigeration and air conditioning industries to test the integrity
of a system before it is charged with refrigerant. This quality
control measure helps manufacturers ensure that resources are not
wasted by charging faulty systems with refrigerant.
o LDS1000. The LDS1000 is designed for OEMs to incorporate into the
larger leak test systems they build.
Refrigerant Leak Detectors
o Ecotec II. The Ecotec II is used in assembly lines in the automotive
and refrigeration and air conditioning industries. The Ecotec II can
differentiate among refrigerants and is used to perform a final
quality control test on systems after they are charged.
o HLD5000. Introduced in 2001, the HLD5000 is used for quality testing
in the manufacture of refrigerated systems. Its unique functionality
will improve productivity on the assembly line and reduce the cost
of ownership.
o D-Tek family. The D-Tek family of leak detectors consists of
hand-held units which are used by field service technicians in the
refrigeration and air conditioning and automotive industries.
We plan to continue to develop new leak detection products to expand the
range of leak detection applications and to serve our existing customers'
changing needs. For example, we developed the Contura Z. This leak detector was
designed for the food packaging industry.
Markets. Our largest markets for leak detectors are the refrigeration and
air conditioning, automotive and semiconductor markets. In the refrigeration and
air conditioning market, our key customers include Carrier, Whirlpool and York
International. In the automotive market, our customers include DaimlerChrysler,
Delphi Automotive Systems and Eaton Aeroquip. Our leak detector customers in the
semiconductor industry include
18
Applied Materials, IBM and LAM Research. The users of our D-Tek leak detectors
are service technicians whom we reach through third-party distributors. In
addition, we serve other markets that require sensitive leak detection, such as
power plants, airplane manufacturers, printer manufacturers, petroleum companies
and research and development institutes.
The market for leak detectors is global. We believe that we are a strong
leader in the European market and that we are well established in the United
States and South America. We also plan to continue expanding our presence in the
Asian market for leak detectors. We are a recognized provider of leak detectors
to the Chinese refrigeration and air conditioning market, and we intend to use
our Singapore office to pursue opportunities in countries such as Thailand,
Malaysia, the Philippines and Indonesia.
Vacuum Control
Our vacuum control products include gauges, valves and fittings. Gauges
enable our customers to monitor gas pressures during various stages of the
manufacturing process. Gauges vary widely in design depending on the pressure
range and the application. Valves, which control gas flow, and fittings, which
are used to connect components to a vacuum chamber, are used in all vacuum
systems.
Net sales generated by our vacuum control products for the years ended
December 31, 2001, 2000 and 1999 were U.S.$43.3 million, U.S.$50.2 million and
U.S.$46.3 million, respectively.
Products. Our principal vacuum control products include the following:
o Capacitance Diaphragm Gauge. Capacitance diaphragm gauges are used
in a wide variety of applications to provide precise pressure
measurement within a narrow pressure range. Our SKY capacitance
diaphragm gauge features a ceramic diaphragm which provides higher
accuracy, stability, longer life and greater resistance to corrosive
gases than conventional metal diaphragms. These benefits are
possible because ceramic has some advantages over metal, such as
better thermal and chemical characteristics and less propensity to
fatigue.
o Bayard Alpert and Penning Gauges. These high-vacuum gauges provide
reliable pressure measurement in a wide range of industries
including optical coating, space simulation and heat-treating, as
well as semiconductor manufacturing processes. Our transmitter
gauges are particularly well suited for incorporation in OEM vacuum
systems because they function as "smart sensors" requiring no
additional controllers.
o Pirani Gauge. Our Pirani gauge is the most cost-effective product we
offer to measure moderate vacuum ranges directly or as part of a
pumping system in applications such as thin film coating, analytical
instrumentation or research and development.
o Combination Gauges. Our combination gauges integrate a low-vacuum
gauge, a high-vacuum gauge and an electronic controller into one
compact measuring device. These innovative gauges enable customers
to replace two traditional gauges and a controller with one
combination gauge to provide a cost-effective way to measure a wide
range of pressures. We intend to expand our range of combination
gauges into other semiconductor and thin film coating applications.
o Valves and Fittings. We offer a wide range of valves and fittings
for a variety of vacuum applications.
o Gas Dosing Controller. Our gas-dosing controller has two different
valves that act as a complete, integrated upstream control system
for a variety of vacuum applications. This device has been
specifically designed to control pressure by communicating with all
our gauges. We believe that the option of buying the combination of
a gauge, a valve and a controller from one supplier is attractive to
our customers because it reduces complexity and cost.
Markets. Gauges, valves and fittings are used in all vacuum applications
in a range of industries. We focus on serving OEMs and manufacturers of vacuum
pumps. The market for valves and fittings is characterized by high price
competition, low barriers to entry and less technical differentiation among
competing products. The target customers of our gauges, valves and fittings
products fall into three general categories:
19
o Manufacturers of vacuum pumps, who distribute our products under
their own private-label brands to small-end users with industrial,
analytical instrumentation and research and development
applications. Our private-label customers typically require a wide
array of our products to fit into their lines of vacuum pumps. Our
largest customers in this category are Leybold Vacuum and Pfeiffer
Vacuum.
o Large OEMs, including semiconductor and non-semiconductor coating
equipment manufacturers. Our large OEM customers generally use large
quantities of products specifically geared toward their
applications. Our largest customers in this market segment are
Applied Films and Unaxis. We have also received orders for our
gauges from Applied Materials, Novellus and TEL, and we intend to
continue our efforts to increase sales to large OEM customers.
o Large end-users who purchase replacement parts.
The fastest growing market for vacuum control is the semiconductor market,
and we believe that the demand for the products sold to this market, such as
capacitance diaphragm gauges, will grow significantly. Growth in other market
segments may be limited because of price competition and trends toward the use
of combination gauges to replace multiple stand-alone gauges. We intend to
pursue growth in this product line by focusing our sales efforts on the
semiconductor industry and intensifying our sales efforts in the United States
and Asia.
Environmental Health & Safety
Our Environmental Health & Safety product line consists of a
field-portable Gas Chromatograph/Mass Spectrometer (GC/MS) for use in several
associated applications requiring the on-site detection and identification of
potentially dangerous compounds. We developed and sold this product line for
Unaxis, and purchased the assets, primarily inventory and accounts receivable in
November of 2001. This product line contributed $2.5M in sales for the fourth
quarter.
The product line draws heavily from the mass spectrometer competence
developed in the in situ analysis business for semiconductor applications. The
core of the MS utilizes the same sensor technology that has made INFICON the
market leader in gas analysis. This MS operates under vacuum conditions and thus
leverages the Company's expertise in vacuum technology for design and
manufacturing.
Products. The products consist of the basic GC/MS and key accessories:
o GC/MS Analytical Module. (HAPSITE) This design consists of a
laboratory grade GC and an MS in a single, portable package weighing
35 pounds. It detects and identifies volatile organic compounds
(VOCs) in the field, in industrial sites and within buildings. It
allows the user to obtain field information within minutes, instead
of days or weeks with competing procedures.
o Vacuum Pumping System. (Service Module) This is a vacuum pumping
system, power supply and battery charger that supports the HAPSITE
in a fixed-station mode. When the HAPSITE and Service Module are
paired together, they offer the capabilities of a complete
laboratory GC/MS in less than half the space.
o Water and Soil Sampling System. (Headspace) This accessory
instrument allows the HAPSITE to detect and identify VOCs which may
be present in water or soil samples. It can be operated in the same
field environments as the HAPSITE or set up in a fixed site.
Markets. GC/MS is a relatively mature analytical approach to the detection
and identification of organic compounds. However, up until the development of
the HAPSITE, the analytical procedure required that samples be obtained in the
field and transported to the laboratory for characterization. As noted, this
procedure takes anywhere from hours to weeks for the results to be delivered to
the customer. The HAPSITE allows this analysis to be totally completed, on site,
within 15 minutes. The results have been judged by the Environmental Protection
Agency (EPA) to be equivalent to the laboratory results.
20
This product has been sold into the following market areas:
o Emergency Response. This is by far the largest market segment for
the HAPSITE product at the present time. The single largest customer
is the U.S. National Guard Bureau which has units deployed
throughout the U.S. as part of the homeland defense initiative.
Other U.S. and Allied military and governmental agencies are also
key customers. Fire Departments, usually "first responders" in the
case of chemical spills and other environmental accidents, are also
important customers in this application.
o Industrial Hygiene. This market area relates to industrial safety
programs which are concerned with employee and/or personnel safety.
Recent improvements in the capability of the HAPSITE to detect and
identify VOCs in the industrial setting make this a target market
for the next few years.
o Chemical Processing. Areas of chemical plants require different
monitoring and testing procedures to ensure continued safety. While
certain monitoring technologies have been available for some time,
the HAPSITE offers enhanced detection capabilities which can be used
to describe the size of any chemical spill or release and help
ensure worker safety.
o Environmental Protection. We expect that enforcement of the clean
air act in the U.S. and similar laws in other countries will be
natural drivers for utilization of the HAPSITE. Some sales have
already been made into this market.
For a breakdown of our total net sales by segments and by geographic
market, please see "Operating and Financial Review and Prospects---Results of
Operations."
Sales and Marketing
We sell our semiconductor vacuum instrumentation products primarily
through our direct sales force, which is critical to our strategy of maintaining
close relationships with semiconductor chip manufacturers and OEMs. We have
direct sales organizations in China, France, Germany, Hong Kong, Japan, Korea,
Liechtenstein, Singapore, Taiwan, the United Kingdom and the United States. We
sell our general vacuum instrumentation products primarily through the vacuum
pump sales forces of our distributors. We also have sales representatives and
agents who sell our leak detectors in other countries, such as Argentina,
Brazil, Canada, Denmark, Israel and Mexico. For the years ended December 31,
2001 and 2000 , approximately 68% and 47%, respectively, of our sales were
through our direct sales force and agents and approximately 32% and 53%,
respectively, were to distributors.
The following table shows where we direct our worldwide operations for
each product line:
Product Line Location
------------ --------
In Situ Analysis ............................ Syracuse, New York, USA
Ultra Clean Processing ...................... Balzers, Liechtenstein
Leak Detection .............................. Cologne, Germany
Vacuum Control .............................. Balzers, Liechtenstein
Environmental Health & Safety ............... Syracuse, New York, USA
Our largest customer, Pfeiffer Vacuum, accounted for 17%, 14% and 17% of
total net sales in 2001, 2000 and 1999, respectively. Our next largest customer
is Unaxis. Leybold Vacuum, a division of Unaxis, accounted for 12.5%, 9% and 8%
of total sales in 2001, 2000 and 1999, respectively. Various other Unaxis
entities accounted for 4%, 7% and 10% of total net sales in 2001, 2000 and 1999,
respectively. The next six largest customers accounted in the aggregate for 12%,
15% and 8% of total net sales in 2001, 2000 and 1999, respectively.
21
Customer Service and Support
We believe that a strong customer service and support infrastructure is
critical to maintaining the long-term customer relationships which are critical
to our success. Customer service and support covers such varied functions as
installation, training, on-site or telephone applications advice including data
interpretation, field repair and maintenance and factory repairs. The functional
lines between service/repair, technical support, sales and marketing are blurred
because all customer contact people strive to meet the demands of our customers.
Some forms of support are included in the price of the product; others are paid
based on a service contract or a one-time arrangement. The nature of the
product, the application and the marketing concept determine the particular
approach used.
Because we address global markets, our customer service and support is
also global. We have personnel located in China, France, Finland, Germany, Hong
Kong, Japan, Korea, Liechtenstein, Singapore, Taiwan, the United Kingdom and the
United States. In addition, many of our distributors also provide customer
service and support.
Research and Development
We firmly believe that market-driven innovation is the key to success in
our fast-moving industry. We invest heavily in product research and development,
particularly in the semiconductor vacuum instrumentation segment. We also pursue
technology acquisitions in the semiconductor and related markets when
appropriate. Our research and development staff works closely with our marketing
personnel and our customers to establish product innovation projects and goals.
We strive to minimize the time-to-market of our innovations, and are committed
to developing and maintaining strong proprietary positions through patents and
other intellectual property rights.
For the years ended December 31, 2001, 2000 and 1999, our research and
development expenditures were U.S.$12.4 million, U.S.$11.0 million and U.S.$11.5
million, respectively, which represented approximately 8.6 % and 6.5% and 8.9%
of net sales, respectively.
Patents and Other Intellectual Property Rights
We rely on a combination of patent, trademark, copyright and trade secret
protection, as well as license arrangements, in the United States and in other
countries, to establish and protect our proprietary rights in our products and
our business. Although our intellectual property is important to our business,
we are not substantially dependent on any single patent, trademark, copyright or
trade secret.
We have approximately 119 patents and patent applications. We intend to
file additional applications as we deem appropriate. We also own approximately
53 trademarks and trademark applications. In addition, we have copyrights
related to our business, including copyrights in computer software.
We have entered into intellectual property license agreements with Unaxis
entities as part of the reorganization. Under these license agreements, the
Unaxis entities license certain intellectual property rights to us, and we
license certain intellectual property rights to the Unaxis entities. See "Major
Shareholders and Related Party Transactions---Related Party
Transactions---Agreements in Connection with our Separation from
Unaxis---Intellectual Property Assignment and License Agreements" for a
description of these license agreements.
In addition to patent, trademark and copyright protections, we rely on
trade secret protection for our confidential and proprietary information and
technology. We routinely enter into confidentiality agreements with our
employees and contractors, pursuant to which they agree to maintain the
confidentiality of all our proprietary information and to assign to us all
inventions made while in our employ.
We cannot assure you that any of our pending patent or trademark
applications will be granted, that we will develop additional proprietary
technology or that any of our proprietary technology will provide us with
competitive advantages. Moreover, despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use our
products or technologies. Monitoring unauthorized use of our technology is
difficult, and we cannot be certain that the steps we have taken will prevent
unauthorized use of our technology, particularly in countries where the laws may
not protect our proprietary rights as fully as in the United States.
22
Finally, there has been substantial litigation regarding patent and other
intellectual property rights in our industries. In the future, we may be a party
to litigation to protect our intellectual property or to respond to allegations
that we infringe third-party intellectual property rights. An assertion that our
products infringe third-party proprietary rights would force us to defend
ourselves against the alleged infringement. If we are unsuccessful in any
intellectual property litigation, then we may be subject to significant
liability for damages and loss of our proprietary rights. Intellectual property
litigation, regardless of its success, would likely be time-consuming, expensive
and would divert management time and attention. Any of the foregoing results
could have a material adverse effect on our business, prospects, financial
condition or results of operations.
Manufacturing, Source of Supply and Quality Control
We concentrate our in-house operations on the manufacture of our core
proprietary vacuum sensor technology and the final assembly of our products in
order to assure the highest quality standards. We outsource all "non-core"
manufacturing, such as printed circuit boards, mechanical assemblies and
housings. This practice allows us to concentrate on those areas that are key
success factors, while reducing our investment and fixed costs associated with
non-core activities. In this manner, we strive to reduce our cost vulnerability
in periodic downturns associated with the high-growth, but volatile,
semiconductor market.
Manufacturing is conducted primarily in three locations: Syracuse, New
York; Cologne, Germany; and Balzers, Liechtenstein. We employ a demand-based
manufacturing system to reduce our inventory, cycle times and defects.
Additionally our quality management and ISO registration programs stress
team-driven, continuous improvement and comprehensive documentation of process
and product specifications.
Suppliers are certified to meet our standards for quality, delivery and
financial stability. In a few instances, we have sole-source relationships with
suppliers.
Competition
The markets for our products are highly competitive. In all our markets,
we compete primarily on the basis of the following factors:
o performance and features;
o quality and reliability;
o on-time delivery;
o price;
o range of products;
o historical customer relationships;
o applications expertise;
o manufacturing capacity; and
o customer service and support.
With respect to our semiconductor vacuum instrumentation, the most
important competitive factors are performance and features, applications
expertise and historical customer relationships. With respect to our general
vacuum instrumentation, the most important competitive factors are price,
customer service and support and manufacturing capacity.
23
In some instances, especially with respect to vacuum control, our success
depends to a large extent on our ability to convince OEMs to use our products in
the manufacturing systems they produce. Manufacturers are generally hesitant to
substitute brands when replacing parts on their manufacturing systems without
time-consuming evaluations. As a result, the company whose vacuum components are
specified into a manufacturing system at the time of initial system design
enjoys great potential for subsequent sales of replacement parts.
We encounter substantial competition in each of our product lines from
numerous competitors, although there is no one competitor that competes with us
across all our product lines. Our major competitors in the in situ analysis
market are MKS Instruments, Stanford Research Systems and ULVAC Technologies.
Our major competitors in the ultra clean processing market are E&R Engineering,
March Instruments and TePla. Our major competitors in the leak detection market
are Alcatel, Varian and Ulvac. Our major competitors in the vacuum measurement
market are BOC Edwards, Helix Technologies, Millipore and MKS Instruments. Our
major competitors in the vacuum components market are BOC Edwards, MDC, Nor-Cal
Products, Varian and VAT. Our assessments of our competitive position have been
derived by comparing our sales to our estimates of our competitors' sales as
well as general market conditions.
Seasonality
Our net sales and results of operations are seasonally affected by the
summer vacations of our suppliers' and customers' employees. Additionally, our
refrigerant leak detection products, which comprise approximately 6 - 7% of
annual sales, are seasonally affected by a larger percentage of sales occurring
during the initial six months of the year. As a result, our net sales and
results of operations are usually lower in the third quarter of each calendar
year. This seasonality causes our operating results to vary from quarter to
quarter.
Sources and Availability of Raw Materials
It has been our experience that the raw materials used for our products
are generally readily available at relatively stable prices. Any scarcity in raw
materials used for our products has always been limited to a very small portion
thereof and has never had a material adverse effect on our business or financial
condition.
24
C. Organizational Structure.
INFICON Holding AG is the parent company of the INFICON group which
operates from 12 countries and consists of a parent company, four manufacturing
companies, six sales subsidiaries and a management company located in Bad Ragaz,
Switzerland which performs administrative, inter-company financing and
intellectual property management functions. The organizational structure of
INFICON group is as follows:
(a)
----------------
INFICON
HOLDING AG
Bad Ragaz,
Switzerland
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| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(c) (b) (b) (c) (d) (c) (b) (b) (b) (b) (b)
- ------- ------- ------- ------------- ----------- --------- ---------- ------- --------- --------- --------
INFICON INFICON INFICON INFICON INFICON INFICON INFICON INFICON INFICON INFICON INFICON
Aaland, S.A.R.L., Ltd., AG., GmbH, Inc., Co., Ltd., Ltd., Ltd., Ltd., Ltd.,
Ab, France UK Balzers Bad Ragaz, Syracuse, Japan Korea Hong Kong Singapore Taiwan
Finland Liechtenstein Switzerland U.S.
- ------- ------- ------- ------------- ----------- --------- ---------- ------- --------- --------- --------
|
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(c)
-----------
INFICON
GmbH,
Cologne,
Germany
-----------
Legend
(a) = Parent Company
(b) = Sales Subsidiary
(c) = Manufacturing Company
(d) = Management Company
25
Subsidiary Name Location Ownership Percentage
--------------- -------- --------------------
INFICON Inc. .................... United States of America 100%
INFICON AG ...................... Liechtenstein 100%
INFICON GmbH .................... Germany 100%
INFICON GmbH .................... Switzerland 99.5%
INFICON Aaland Ab ............... Finland 100%
INFICON Ltd ..................... United Kingdom 100%
INFICON S.A.R.L ................. France 100%
INFICON Co., Ltd ................ Japan 100%
INFICON Ltd ..................... Taiwan 100%
INFICON Ltd ..................... Korea 100%
INFICON Pte. Ltd. ............... Singapore 99.99%
INFICON Ltd ..................... Hong Kong 99.96%
D. Property, Plants and Equipment.
Our global headquarters is located in Syracuse, New York, USA, and our
manufacturing facilities include the following:
Owned or Expiration
Location of Facility Leased of Lease Size ( sq.ft.)(1) Primary Products
- -------------------- ------ -------- ----------------- ----------------
Syracuse, New York, USA ...... Owned N/A 150,000 In Situ Analysis
Environmental Health &
Safety
Balzers, Liechtenstein(2) .... Leased 2002 125,000 Vacuum Control
Ultra Clean Processing
Cologne, Germany(3) .......... Leased 2010 50,000 Leak Detection
Mariehamn, Finland ........... Leased 2002 15,000 Vacuum Measurement
- ----------
(1) This figure includes gross space, i.e., including traffic and utility
areas.
(2) We intend to relocate our operations to a new facility in the first half
of 2002. In connection with this move, we incurred capital expenditures of
approximately U.S.$3 million in 2001 to outfit the new facility for our
requirements. During 2002 we expect to incur U.S.$4.4 million to complete
the new facility.
(3) We are currently in the process of relocating a part of our operations to
other buildings in the same building complex. In connection with this
relocation, we estimate to incur capital expenditures of approximately
U.S.$0.5 million.
Item 5. Operating and Financial Review and Prospects
You should read the following discussion together with the rest of the
annual report, including our consolidated financial statements and related
notes. The results described below are not necessarily indicative of the results
to be expected in any future periods. This discussion contains forward-looking
statements based on current expectations, which involve risks and uncertainties.
Actual results and the timing of certain events may differ significantly from
those projected in these forward-looking statements, due to a number of factors,
including those set forth in the section entitled "Risk Factors" and elsewhere
in this annual report.
Overview
We are a leading developer, manufacturer and supplier of vacuum
instrumentation and critical sensor technologies to the semiconductor and
related markets, as well as other industries worldwide. Up until the public
offering in November 2000, our business was wholly owned by Unaxis Holding AG.
Historically, our products have been designed for customers in diverse
industries. In 1997, Unaxis formed an instrumentation group by bringing its
Balzers, Leybold and INFICON instrumentation businesses under a single global
management. In connection with this initiative, we decided to focus on
increasing our sales to semiconductor and related markets, to rationalize our
product offerings and to consolidate our operations and research and development
efforts to operate more efficiently
26
and support our focus. The consolidation, which was completed in mid-1999,
allowed us to reduce our personnel costs and other manufacturing overheads and
achieve economies of scale. We are continuing to enhance our presence in the
semiconductor and related markets, because we believe they are the largest and
fastest growing markets for our products.
We operate in two business segments: the semiconductor vacuum
instrumentation segment and the general vacuum instrumentation segment. We have
two major product lines that we include in the semiconductor vacuum
instrumentation segment: our in situ analysis and ultra clean processing product
lines. The products we sell in our semiconductor vacuum instrumentation segment
are technologically advanced products, which were developed for use in various
semiconductor-manufacturing applications. Although we sell some of these
products outside of the semiconductor market, our general level of sales of
these products is sensitive to the cyclical fluctuations of the semiconductor
equipment market, which is generally more volatile than the semiconductor chip
manufacturing market. For the years 2001, 2000 and 1999, we estimate that
approximately 39%, 65% and 54%, respectively, of our sales in this segment were
to semiconductor and related markets such as manufacturers of semiconductor
chips, flat screen televisions and monitors, computer disc drive components and
various electronic storage media, such as compact discs, digital video discs and
floppy discs. While the semiconductor chip manufacturing market has been highly
cyclical, it has shown improvement during 1999 and 2000. This has resulted in
increased demand for our products. As a result the revenue growth of our
semiconductor instrumentation segment during 2000 has been greater than the
growth rate of our general vacuum instrumentation segment. Although the
semiconductor chip manufacturing industry recovered in late 1999 and 2000, the
industry entered another downturn in 2001 which contributed to a 15.2% decrease
in net sales from 2000.
Our general vacuum instrumentation segment consists of versatile products
which are suitable for multiple applications in manufacturing, and industrial
markets. Our products in this segment fall into two product lines: our leak
detection and our vacuum control product lines. These products are used in many
markets, including air conditioning, refrigeration, automotive, environmental
testing, and semiconductor manufacturing. For the years 2001, 2000 and 1999, we
estimate that approximately 10%, 14% and 10%, respectively, of our sales in this
segment were to semiconductor and related markets. We anticipate that the
percentage of our sales in this segment to the semiconductor industry will
increase in future years as our vacuum gauges become more widely used in the
semiconductor industry.
We are subject to risks common to companies in the semiconductor industry,
including the highly cyclical nature of the semiconductor industry leading to
recurring periods of oversupply, development by our competitors of new
technological innovations, dependence on key personnel, and the protection of
proprietary technology. Our general vacuum instrumentation segment sells to
diverse markets and, accordingly, we believe that it is less susceptible to the
risks associated with the semiconductor or any other single market, but is
susceptible to the performance of the economy as a whole. For more information
on the risks of our business, see "Risk Factors".
In April 2000, Unaxis announced that it was restructuring its operations
to focus on building its core information technology business and would divest a
number of other businesses for strategic portfolio streamlining purposes. In
order to implement the divestiture of INFICON through an initial public
offering, Unaxis formed INFICON Holding AG under the laws of Switzerland to hold
the companies through which we now conduct our operations. These companies
acquired substantially all of the assets relating to our business from various
divisions and subsidiaries of Unaxis in the third and fourth quarter of 2000.
Our consolidated financial statements included in this prospectus reflect
Unaxis' historical cost basis in our assets and liabilities.
We generally recognize revenue (i.e., net sales) and accrue for
anticipated returns, warranty costs and commissions, upon shipment. However,
where sales are contingent upon customer acceptance, we recognize revenue after
confirmation of acceptance. We typically ship our products within four to six
weeks after receiving orders. Because of this relatively short backlog period,
our revenue closely tracks changes in market conditions. Research and
development costs are expensed as incurred. We anticipate that we will have
additional personnel in research and development, particularly in the
semiconductor vacuum instrumentation group, and, accordingly, that our research
and development costs in this group will increase in the future.
The effective tax rate in each year is less than the U.S. federal
statutory rate primarily due to the lower tax rates imposed by the local
jurisdictions in which our foreign operations are located. We do not expect the
creation of our Swiss holding company to negatively impact our future effective
tax rate.
27
From a cash flow perspective, the company will realize a future tax
benefit as a result of the restructuring. Since the asset transfer that occurred
in the third and fourth quarter of 2000 related to the restructuring was a
taxable transaction for Unaxis, the transaction resulted in goodwill and other
intangible assets for tax purposes that will be deductible for tax purposes over
the next fifteen years. A deferred tax asset has been recorded on the balance
sheet for this future benefit and the expected cash flow. The Company's ability
to realize these deferred tax assets is dependent on it generating sufficient
income in the related jurisdictions, primarily the United States and Germany, to
offset the deferred tax asset.
The Company has assessed its critical accounting policies which include
revenue recognition, pension actuarial assumptions and methods, inventory
costing, reserves for obsolescence, bad debt, warranty and valuation allowances
for deferred tax assets. Based upon our current methods, assumptions and
estimates underlying these critical accounting policies, we feel these critical
accounting policies are appropriate in the manner in which they are accounted
for. We do not believe that modifications to the assumptions or changes in
conditions would have a significant impact on earnings. The following summarizes
specific accounting policies:
Bad Debt. We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Warranties. We provide for the estimated cost of product warranties at the
time revenue is recognized. While we engage in extensive product quality
programs and process, including actively monitoring and evaluating the
quality of our component suppliers, our warranty obligation is affected by
product failure rates, material usage, and service delivery costs incurred
in correcting a product failure. Should actual product failure rates,
material usage or service delivery costs differ from our estimates,
revisions to the estimated warranty liability may be required.
Inventory. We write down our inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual future demand or market
conditions are less favorable than those projected by management,
additional inventory write-downs may be required.
Pension Benefits. We have pension benefit costs and credits that are
developed from actuarial valuations. Inherent in these valuations are key
assumptions including discount rates and expected return on plan assets.
We are required to consider current market conditions, including changes
in interest rates, in selecting these assumptions. Changes in the related
pension benefit costs or credits may occur in the future in addition to
changes resulting from fluctuations in our related headcount due to
changes in the assumptions.
Deferred Tax Assets. We record a valuation allowance to reduce our
deferred tax assets to the amount that we believe is more likely than not
to be realized. While we have considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event we were to determine that we would not
be able to realize all or part of our net deferred tax assets in the
future, an adjustment to the deferred tax assets would be charged against
income in the period such determination was made. Likewise, should we
determine that it would be able to realize its deferred tax assets in the
future in excess of its net recorded amount, an adjustment to the deferred
tax assets would increase income in the period such determination was
made.
The financial statements include related party transactions with Unaxis.
These transactions include revenues resulting from the sale of goods and
services. Additionally, Unaxis has agreed to provide services to us, including
services related to financial, accounting, tax, information technology and human
resources. Although Unaxis is contractually obligated to provide us with these
services, these services may not be provided at the same level as when we were a
part of Unaxis, and we may not be able to obtain the same benefits. After the
expiration of these various arrangements, we may not be able to replace the
services or enter into appropriate leases in a timely manner or on terms and
conditions, including cost, as favorable as those we receive from Unaxis.
28
The Company does not have any off-balance sheet arrangements or
transactions, other than operating leases, that should be disclosed which would
have a significant impact on earnings. Our operating leases on our facilities in
Germany and Liechtenstein extend through 2010 and 2013, respectively and are not
subject to renegotiation prior to the expiration.
A. Results of Operations.
The following table sets forth, for the periods indicated, the amount and
percentage of total net sales of certain line items included in our consolidated
income statements:
Years ended December 31,
------------------------------------------------------------------
2001 2000 1999
------------------- ------------------ ------------------
U.S.$ % U.S.$ % U.S.$ %
-------- ----- -------- ------ ------- -----
(in thousands)
(audited)
Net sales
Semiconductor vacuum
instrumentation .................... $ 45,494 31.6% $ 65,952 38.8% $42,154 32.4%
General vacuum
instrumentation .................... 98,619 68.4% 104,024 61.2 87,838 67.6
-------- ----- -------- ------ ------- -----
Total net sales ................ 144,113 100.0 169,976 100.0 129,992 100.0
Cost of sales ................................ 78,398 54.4 83,321 49.0 69,243 53.3
-------- ----- -------- ------ ------- -----
Gross profit ................................. 65,715 45.6 86,745 51.0 60,749 46.7
Research and development ..................... 12,431 8.6 11,037 6.5 11,523 8.9
Selling, general and administrative .......... 39,961 27.7 41,889 24.6 38,332 29.5
-------- ----- -------- ------ ------- -----
Income from operations ....................... 13,323 9.3 33,819 19.9 10,894 8.4
Interest expense (income), net ............... (483) (.3) 292 .2 130 .1
Other expense, net ........................... 1,488 1.1 1,854 1.1 804 .6
-------- ----- -------- ------ ------- -----
Income before income taxes ................... 12,318 8.5 31,673 18.6 9,960 7.7
Provision for income taxes ................... 2,366 1.6 8,742 5.1 2,584 2.0
-------- ----- -------- ------ ------- -----
Net income ................................... $ 9,952 6.9 $ 22,931 13.5% $ 7,376 5.7%
======== ===== ======== ====== ======= =====
The following table sets forth, for the periods indicated, certain segment
information:
Years ended December 31,
------------------------------------------------------------------
2001 2000 1999
------------------- ------------------ ------------------
U.S.$ % U.S.$ % U.S.$ %
-------- ----- -------- ------ ------- -----
(in thousands)
(audited)
Semiconductor Vacuum
Instrumentation
Net sales:
In situ analysis ........................ $ 43,614 30.3 $ 54,187 31.9% $36,662 28.2%
Ultra clean processing .................. 1,880 1.3 11,765 6.9 5,492 4.2
-------- ----- -------- ------ ------- -----
Total net sales .................... 45,494 31.6 65,952 38.8 42,154 32.4
Gross profit ................................. 22,364 15.5 39,034 22.9 22,146 17.0
Earnings before interest and taxes ........... (679) (0.5) 17,931 10.6 3,479 2.7
Identifiable assets(1) ....................... 56,563 -- 63,672 -- 19,669 --
General Vacuum Instrumentation
Net sales:
Leak detection .......................... 55,272 38.4 53,873 31.7 41,576 32.0
Vacuum Control .......................... 43,347 30.0 50,151 29.5 46,262 35.6
-------- ----- -------- ------ ------- -----
Total net sales .................... 98,619 68.4 104,024 61.2 87,838 67.6
Gross profit ................................. 43,351 30.1 47,711 28.1 38,603 29.7
Earnings before interest and taxes ........... 12,514 8.7 14,028 8.3 6,611 5.1
Identifiable assets(1) ....................... $ 81,631 $ 89,262 -- $36,529 --
(1) Identifiable assets refers to the assets utilized by the corresponding
segment, including working capital, property, plant and equipment and
intangible assets. Total assets on our combined balance sheet include
identifiable segment assets and general corporate assets, which are not
allocated to either segment. At this time, we have no general corporate
assets, which are not allocated to a specific segment.
29
Our semiconductor vacuum instrumentation segment products generally have
higher margins than our general vacuum instrumentation segment products due to
our stronger market positions in those markets and patented technology that
distinguishes our products from those of our competitors. The following table
sets forth, for the periods indicated, sales to customers, based on customer
location, in each geographical market expressed absolutely and as a percentage
of total net sales. (1)
Years ended December 31,
----------------------------------------------------------------------
2001 2000 1999
------------------- ------------------- ------------------
U.S.$ % U.S.$ % U.S.$ %
-------- ----- -------- ----- -------- -----
(in thousands)
Europe ....................... $ 63,637 44.2% $ 73,750 43.4% $ 66,686 51.3%
United States .......... 41,157 28.6% 50,540 29.7% 36,398 28.0%
Asia-Pacific ........... 35,220 24.4% 44,670 26.3% 25,218 19.4%
Other .................. 4,099 2.8% 1,016 0.6% 1,690 1.3%
-------- ----- -------- ----- -------- -----
Total ............. $144,113 100.0% $169,976 100.0% $129,992 100.0%
======== ===== ======== ===== ======== =====
- ----------
(1) The table above summarizes sales on the basis of a product's country of
destination, as opposed to its country of origin.
Year Ended December 31, 2001 Compared with Year Ended December 31, 2000
Net Sales
Net sales decreased by 15.2% to U.S.$144.1 million for the year ended
December 31, 2001 from U.S.$170.0 million for the year ended December 31, 2000.
This decrease is due primarily to a decline in sales volume for the
Semiconductor Vacuum Instrument Segment. Price changes did not have a
significant impact on our net sales, however, our European sales are subject to
a currency translation effect due to the weak European currencies. Sales for the
year ended December 31, 2001 were negatively impacted by changes in currency
exchange rates of U.S.$3.3 million, primarily with respect to the Swiss franc,
Yen and the Euro, as compared to 2000.
Semiconductor Vacuum Instrumentation Segment. Net sales decreased by 31.0%
to U.S.$45.5 million for the year ended December 31, 2001 from U.S.$66.0 million
for the year ended December 31, 2000. This decrease resulted from a lower demand
for in-situ products during the last three quarters of 2001, from semiconductor
manufacturers and their suppliers in the United States and Asia coupled with a
low demand for our ultra clean processing products from back-end semiconductor
packaging customers in Asia and Europe.
General Vacuum Instrumentation Segment. Net sales decreased by 5.2% to
U.S.$98.6 million for the year ended December 31, 2001 from U.S.$104.0 million
for the year ended December 31, 2000. This decrease resulted from a weaker
demand for our vacuum control products from data storage and semiconductor OEM
customers. This decrease was partially offset by the acquisition of the HAPSITE
product line and an increased demand for our leak detection products from our
refrigeration, air-conditioning, automotive and semiconductor customers.
Gross Profit
Gross profit decreased by 24.2% to U.S.$65.7 million, or 45.6% of net
sales, for the year ended December 31, 2001 from U.S.$86.7 million, or 51.0% of
net sales, for the year ended December 31, 2000. This percentage decline is
primarily due to unfavorable product mix and unabsorbed fixed costs associated
with underutilized manufacturing capacity in our in-situ analysis, vacuum
control and ultra clean processing product lines. This effect was partially
offset by better utilization of manufacturing capacity and a favorable product
mix within our leak detection product line.
Research and Development
Research and development costs increased by 12.6% to U.S.$12.4 million, or
8.6% of net sales, for the year ended December 31, 2001 from U.S.$11.0 million,
or 6.5% of net sales, for the year ended December 31, 2000. This increase
resulted primarily from an increased investment in new product development
projects, including the purchase of intellectual property relating primarily to
product development for the semiconductor industry for which the Company
incurred U.S.$0.6 million during 2001. The Company also expects to incur
expenses of U.S.$0.9 million during 2002 relating to the development of the
intellectual property.
30
Selling, General and Administrative
Selling, general and administrative expenses decreased by 4.6% to
U.S.$40.0 million, or 27.7% of net sales, for the year ended December 31, 2001
from U.S.$41.9 million, or 24.6% of net sales, for the year ended December 31,
2000. This decrease is a result of a comprehensive cost-reduction program
introduced during the end of the first quarter of 2001. The cost-reduction
program includes a reduction in overtime, temporary employees, employee
salaries, a shortened workweek and temporary furloughs. We also reduced expenses
incurred for: travel, advertising, outside services, bonuses and commissions.
This decrease in expenses was partially offset by higher compensation expenses
for increased headcount, and expenses related to being a public company.
Income from Operations
For the reasons stated above, income from operations decreased to
U.S.$13.3 million, or 9.3% of net sales, for the year ended December 31, 2001
from U.S.$33.8 million, or 19.9% of net sales, for the year ended December 31,
2000.
OtherExpense/Income
Other expense was U.S.$1.5 million, or 1.1% of net sales, for the year
ended December 31, 2001 as compared to U.S.$1.9 million, or 1.1% of net sales,
for the year ended December 31, 2000. This reduction in expense primarily
relates to the elimination of a management fee of U.S.$1.2 million charged by
Unaxis in 2000 and was partially offset by foreign currency exchange losses and
the write down of certain leasehold improvements during 2001.
Provision for Income Taxes
Provision for income taxes decreased to U.S.$2.4 million, or 19.2% of
income before income taxes for the year ended December 31, 2001 from U.S.$8.7
million, or 27.6% of income before taxes, for the year ended December 31, 2000.
This decrease resulted from a decrease in taxable income and the change in the
effective tax rate. The effective tax rate has decreased due to increased
earnings in lower-taxed jurisdictions.
Net Income
For the reasons stated above, net income decreased to U.S.$10.0 million,
or 6.9% of net sales, for the year ended December 31, 2001 from U.S.$22.9
million, or 13.5% of net sales, for the year ended December 31, 2000.
Year Ended December 31, 2000 Compared with Year Ended December 31, 1999
Net Sales
Net sales increased by 30.8% to U.S.$170.0 million for the year ended
December 31, 2000 from U.S.$130.0 million for the year ended December 31, 1999.
This increase is due to growth of sales volume in all business areas. Price
changes did not have a significant impact on our net sales; however, our
European sales are subject to a currency translation effect due to the weak
European currencies. Sales for the year ended December 31, 2000 were negatively
impacted by changes in currency exchange rates of U.S.$9.5 million, primarily
with respect to the Swiss franc and the Euro, as compared to 1999.
Semiconductor Vacuum Instrumentation Segment. Net sales increased by 56.5%
to U.S.$66.0 million for the year ended December 31, 2000 from U.S.$42.2 million
for the year ended December 31, 1999. This increase resulted from an increase in
sales volume in the in situ analysis and in the ultra clean processing product
lines due to a strong increase in demand for our products from semiconductor
equipment manufacturers in the United States and Asia.
General Vacuum Instrumentation Segment. Net sales increased by 18.4% to
U.S.$104.0 million for the year ended December 31, 2000 from U.S.$87.8 million
for the year ended December 31, 1999. This increase resulted primarily from
increased sales volume of leak detectors due to the strong demand from
semiconductor customers in the United States and Asia and strong demand for
gauges, especially by OEMs in Europe and Japan.
31
Gross Profit
Gross profit increased by 42.8% to U.S.$86.7 million, or 51.0% of net
sales, for the year ended December 31, 2000 from U.S.$60.7 million, or 46.7% of
net sales, for the year ended December 31, 1999. The increases were primarily
due to a favorable change in product mix towards higher margin products, fuller
utilization of existing manufacturing capacity as a result of increased net
sales volume, as well as reduced operating costs due to the completion of the
consolidation of our vacuum gauge operations in Liechtenstein.
Research and Development
Research and development costs decreased by 4.2% to U.S.$11.0 million, or
6.5% of net sales, for the year ended December 31, 2000 from U.S.$11.5 million,
or 8.9% of net sales, for the year ended December 31, 1999. This decrease
resulted primarily from the currency translation effect of U.S.$0.8 million for
our European research and development departments as a result of weaker European
currencies and, to a lesser extent, from the completion of the consolidation of
our vacuum gauge operation in Liechtenstein in 1999. This decrease was partially
offset by increased compensation expense.
Selling, General and Administrative
Selling, general and administrative expenses increased by 9.3% to
U.S.$41.9 million, or 24.6% of net sales, for the year ended December 31, 2000
from U.S.$38.3 million, or 29.5% of net sales, for the year ended December 31,
1999. This increase resulted primarily from increased compensation and incentive
pay expense as well as expense for an employee stock purchase discount program
in connection with our initial public offering. These increases were offset in
part by reduced costs due to the completion of the consolidation of our vacuum
gauge operations in Liechtenstein.
Income from Operations
For the reasons stated above, income from operations increased to
U.S.$33.8 million, or 19.9% of net sales, for the year ended December 31, 2000
from U.S.$10.9 million, or 8.4% of net sales, for the year ended December 31,
1999.
Provision for Income Taxes
Provision for income taxes increased to U.S.$8.7 million, or 27.6% of
income before income taxes for the year ended December 31, 2000 from U.S.$2.6
million, or 25.9% of income before taxes, for the year ended December 31, 1999.
This increase resulted from an increase in taxable income and the change in the
effective tax rate. The effective tax rate has increased due to increased
earnings in higher-taxed jurisdictions.
Net Income
For the reasons stated above, net income increased to U.S.$22.9 million,
or 13.5% of net sales, for the year ended December 31, 2000 from U.S.$7.4
million, or 5.7% of net sales, for the year ended December 31, 1999.
B. Liquidity and Capital Resources.
Historically, we have been able to finance our operations and capital
requirements through cash provided by operations. Cash provided by operating
activities was U.S.$24.8 million, U.S.$18.7 million and U.S.$13.1 million for
the years ended December 31, 2001, 2000 and 1999 respectively. In 2001, cash
provided by operating activities of U.S.$24.8 million consisted of net income of
U.S.$10.0 million, depreciation and amortization of U.S.$2.9 million and a net
decrease in working capital not related to financing activities of U.S.$11.4
million. In 2000, cash provided by operating activities of U.S.$18.7 million
consisted of net income of U.S.$22.9 million, depreciation and amortization of
U.S.$3.6 million and a net increase in working capital of U.S.$8.4 million. In
1999, cash provided by operating activities of U.S.$13.1 million consisted of
net income of U.S.$7.4 million, depreciation and amortization of U.S.$4.0
million and a net decrease in working capital of U.S.$2.2 million.
32
Working capital was U.S.$61.7 million as of December 31, 2001, compared to
U.S.$53.5 million as of December 31, 2000. The increase was due primarily to an
increase in cash of U.S.$5.1 million, an increase in inventory of U.S.$0.6
million, a decrease in other current and deferred tax assets of U.S.$3.9
million, a decrease in accounts receivable of U.S.$15.1 million, a decrease in
accounts payable and accrued liabilities of U.S.$20.4 million, a decrease in
income taxes payable of U.S.$2.2 million and the negative effect of foreign
currency adjustments which totaled U.S.$1.1 million. Depreciation and
amortization decreased to U.S.$2.9 million for the year ended December 31, 2001
from U.S.$3.6 million for the year ended December 31, 2000.
Cash used in investing activities was U.S.$7.4 million, U.S.$4.9 million
and U.S.$2.9 million for the years ended December 31, 2001, 2000 and 1999,
respectively, primarily for the purchase of the HAPSITE business in 2001 and the
purchase of property and equipment in each period. Cash (used in) provided by
financing activities was U.S.$(11.3) million, U.S.$12.9 million and U.S.$(9.2)
million in 2001, 2000 and 1999, respectively. In 2001 we repaid advances to
Unaxis of U.S.$11.2 million. In 2000, we received U.S.$10.9 million as advances
from Unaxis for restructuring and U.S.$34.5 million as proceeds from the initial
public offering and payment on notes receivable from officers, U.S.$0.9 million
proceeds from long term debt and used U.S.$28.2 million to repay short-term debt
to Unaxis and U.S.$5.1 million advances to Unaxis compared to U.S.$9.2 million
for advances to Unaxis in 1999.
We currently rely on a credit facility for up to U.S.$30 million by Credit
Suisse and loans provided by Unaxis. The funds are borrowed and repaid
throughout the year, as cash flow is available. The interest charged by Credit
Suisse is currently LIBOR + 1.25% p.a. for fixed advances. For a more detailed
description of this credit facility, please see "Additional
Information--Material Contracts--Loan Agreement with Credit Suisse". The
interest charged by Unaxis on the loans provided to us is 7% of the outstanding
balance. The average balance outstanding with Unaxis, exclusive of advances
related to our reorganization, was approximately U.S.$1.2 and U.S.$1.5 million
in 2001 and 2000, respectively. As of December 31, 2001, accounts payable to
affiliates were U.S.$0.4 million. This outstanding balance relates primarily to
payments due to Unaxis in connection with our normal operations.
On February 28, 2001, the Company entered into two revolving credit
facilities with HypoVereinsbank. The credit facilities include a HKD 10.0
million working capital financing arrangement and a HKD10.0 million margin
coverage arrangement for foreign exchange forward transactions. The working
capital financing arrangement can be either in the form of a current account
overdraft facility, fixed advances with a maximum maturity of six months, short
term trust receipt financing, issuance of letters of credit, or issuance of bank
guarantees. The interest rates for the working capital facility are Hong Kong
Interbank Offered Rate (HIBOR), plus 1% for loans in Hong Kong dollars and 1%
for loans in U.S. dollars. The Company will be charged a monthly guarantee fee
of 0.125% of the outstanding balance, or a minimum of HKD200, and upon drawing
on the credit line, the Company will be charged an opening commission of 0.25%
on the first U.S.$50, and 0.0625% on the balance. The working capital financing
arrangement expires on February 28, 2002 and has an option for extension. The
Company has U.S.$0 outstanding under the financing arrangement as of December
31, 2001.
On March 31, 2001, the Company entered into a working capital financing
arrangement with Dresdner Bank in the amount of DM 10.0 million. The financing
arrangement can be either in the form of a current account overdraft facility or
fixed advances. The interest rate for the overdraft facility is a fixed rate of
6.95%, and may be adjusted for changes in market interest rates. The interest
rate for working capital advances in excess of 500,000 DM for 30 days or more is
EURIBOR plus 0.95%. The working capital financing arrangement expires on March
31, 2002 and has an option for extension. The Company has U.S.$0 outstanding
under the financing arrangement as of December 31, 2001.
We currently believe the cash generated from operations, together with the
cash balance as of December 31, 2001, and borrowings available under our line of
credit, will be sufficient to satisfy our working capital and capital
expenditure requirements. Capital expenditures in 2002 will be consistent with
those in 2001 because we expect to invest approximately U.S.$4.4 million for
building infrastructure changes and leasehold improvements for our manufacturing
facility in Cologne, Germany and for the move of our Liechtenstein operations to
a new facility in Balzers, Liechtenstein.
We made full recourse loans available to our executive officers eligible
to participate in the leveraged share plan for the purpose of purchasing up to
80% of the shares allocated to them under the plan. Loans made to executive
officers have a term of 7 years and are on a recourse basis. The loans are
secured by all of the shares purchased under the leveraged share plan, and we
have either a first, or, if a portion of the shares are financed or refinanced
by another lender, a second lien, on the shares. The loans have an interest rate
equal to 120% of the
33
mid-term applicable federal rate (as defined in the Internal Revenue Code)
determined on the date the loans are made. The lock-up agreement entered into
with the underwriters will be released to the extent that it is necessary for us
or any other lender to realize on security in the shares. Under U.S. GAAP, the
balances of the loans payable to us are offset against the value of the shares
on our balance sheet. As of December 31, 2001, we had outstanding loans to
executive officers in an aggregate amount of approximately U.S.$0.5 million.
C. Research and development, patents and licenses, etc.
For a description of our research and development policies for the last
three years, please refer to "Information on the Company---Business
Overview---Research and Development."
D. Trend Information.
Early in 2001 the semiconductor industry entered into a cyclical downturn
and consequently a decrease in net sales. The decrease in net sales is due to a
worldwide slowdown in demand for semiconductor products which resulted in a
decline in demand from semiconductor capital equipment manufacturers and
semiconductor device manufacturer customers. We believe our broadly balanced
portfolio of businesses, with the majority of our business generated by more
stable general industrial markets, and the considerable geographic diversity of
our markets has helped mitigate the effects of the U.S.-led semiconductor sector
downturn. In a period of market uncertainty in the semiconductor sector, we
believe we are well positioned to outperform the sector as a whole because of
our focus and leadership in emerging technologies and employing some of the most
advanced enabling technologies in our manufacturing environment. We expect these
new technologies to be substantially less affected by a technology sector
downturn.
Euro Conversion
Approximately 40%, 38% and 46% of our sales for the year ended December
31, 2001, 2000 and 1999, respectively, were to customers in the European Union.
On January 1, 1999, a single currency called the euro was introduced in Europe.
Eleven of the fifteen member countries of the European Union adopted the euro as
their common legal currency on that date. Fixed conversion rates between these
participating countries' existing currencies (the "legacy currencies") and the
euro were established as of that date. The legacy currencies are scheduled to
remain legal tender as denominations of the euro until at least January 1, 2002,
but not later than July 1, 2002. During this transition period, parties may
settle transactions using either the euro or a participating country's legacy
currency.
We believe that increased price transparency resulting from the use of a
single currency will render the prices charged for our semiconductor
instrumentation and vacuum instrumentation products more comparable and will
increase cross-border business among the participating countries. This will
affect our ability to price our products differently in the various European
markets. A possible consequence may be price harmonization at lower average
prices for products sold in some markets. Nevertheless, differences in national
value-added tax regimes may reduce the potential for price harmonization.
We believe the conversion to the euro will reduce our exposure to changes
in foreign exchange rates, due to the netting effect of having assets and
liabilities denominated in a single currency, as opposed to the various legacy
currencies. As a result, we expect that our foreign exchange hedging costs will
be reduced. We believe the introduction of the euro does not have any material
tax consequences. We also believe the euro conversion will not have a material
effect on our financial position or results of operations.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the pooling of
interests method. The implementation of SFAS 141 did not have a material impact
to the Company's consolidated income, financial position, or cash flows.
34
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets", which is effective for the Company on January 1, 2002. SFAS 142
requires, among other things, the discontinuance of goodwill amortization and
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, and reclassification of certain intangibles out of previously
reported goodwill. SFAS 142 also requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. As a result of
implementing SFAS 142, the Company will stop amortizing any goodwill effective
January 1, 2002 but will continue to amortize other intangible assets. The
elimination of any goodwill amortization will not have a material impact to the
Company's consolidated income, financial position, or cash flows.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management is
currently determining what effect, if any, SFAS 143 will have on its financial
position and results of operations.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 supersedes FASB 121 "Accounting for
the Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed
of." SFAS 144 applies to all long-lived assets (including discontinued
operations) and consequently amends Accounting Principles Board Opinion 30,
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business." SFAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001, and will be adopted by the
Company, as required, on January 1, 2002. Management is currently determining
what effect, if any, SFAS 144 will have on its financial position and results of
operations.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management.
Our articles of incorporation provide that the board of directors may
consist of one or more members at any time. Directors are elected and removed by
shareholder resolution. Members of our board of directors serve three-year terms
and may be reelected upon completion of their term of office. The shareholders
may remove the directors without cause. Our seven directors currently in office
were elected by shareholder resolution.
Our board of directors establishes the strategic, accounting,
organizational and financing policies to be followed by us. Our board of
directors further appoints the executive officers and the authorized signatories
and supervises our management. Moreover, our board of directors is entrusted
with preparing shareholders' meetings and carrying out shareholder resolutions.
Our executive officers are responsible for our day-to-day management. The
executive officers have individual responsibilities established by our
Organizational Regulations and by the board of directors. Executive officers are
appointed by and serve at the discretion of the board of directors, subject to
any applicable employment agreements. Currently, only our Chief Executive
Officer and President, Mr. Brissenden, has an employment agreement with us. The
amended and restated employment agreement with Mr. Brissenden is effective until
it is terminated by either Mr. Brissenden or us upon at least twelve months
notice to the other party. Pursuant to the agreement, Mr. Brissenden's base
salary is reviewed and adjusted by the Board and he is eligible to receive an
annual bonus in an amount determined by the Board in its sole discretion. Mr.
Brissenden is entitled to participate in the employee benefit plans provided to
other employees in accordance with our general policies in effect from time to
time.
If either we or Mr. Brissenden terminate his employment without cause upon
at least twelve months notice, Mr. Brissenden will continue to provide services
to us during the notice period and we will continue to pay Mr. Brissenden his
base salary and he will continue to participate in our employee benefit plans.
Upon termination of the notice period, we will have no further obligation to Mr.
Brissenden under the agreement. If Mr. Brissenden terminates his employment by
reason of a disability, he shall continue to receive his base salary for up to
three months following his termination of employment.
35
Set forth below are the name, age, principal position and biographical
description of each of our directors and executive officers:
Name Age Position
- ---- --- --------
Paul Choffat ...................... 52 Chairman of the Board of Directors
John J. Grad ...................... 63 Vice-Chairman of the Board of Directors
Kurt Muck ......................... 47 Director
Paul E. Otth ...................... 58 Director
Karsten Ottenberg ................. 40 Director
Thomas Staehelin .................. 54 Director
James L. Brissenden ............... 63 Director, Chief Executive Officer and President
Peter G. Maier .................... 39 Vice President and Chief Financial Officer
Ulrich Doebler .................... 46 Vice President, Leak Detection
Gary W. Lewis ..................... 56 Vice President, Environmental Health & Safety
Linda Van Roekel .................. 53 Vice President, In Situ Analysis
Lukas Winkler ..................... 39 Vice President, Vacuum control
Albert Zueger ..................... 56 Vice President, Ultra Clean Processing
Paul Choffat. Before becoming an entrepreneur and private investor in
September 1999, Mr. Choffat was the Managing Director and CEO of Fotolabo SA for
three years where he was responsible for the strategic and operational
initiatives of the Company . Prior to his engagement with Fotolabo SA, Mr.
Choffat was a Member of the Executive Board of Sandoz AG where he was
responsible for initial integration of Sandoz & Ciba. Prior to his engagement
with Sandoz AG, he was the President and CEO of Von Roll AG for one year. Mr.
Choffat currently also holds directorships in several other Swiss corporations.
Mr. Choffat holds a PhD in Law from the University of Lausanne and a M.B.A. from
IMD, Lausanne.
John J. Grad. Mr. Grad is President of John J. Grad and Associates, Inc.
Management Consultants. In 1987, Mr. Grad joined Landis & Gyr AG where he became
President of Landis & Gyr Powers, Inc. In 1991, he was named to their Executive
Board and in 1993, he assumed the responsibility for Landis & Gyr Holding, Inc.,
the holding company for all North American divisions, while retaining the
position of President and CEO of Landis & Gyr Powers, Inc. In March 1996, he
became President and CEO of Landis & Staefa, Inc., a position that he retained
until the creation of Siemens Building Technologies. From October 1998 through
October 2000, Mr. Grad served as President and Chief Executive Officer of
Siemens Building Technologies, Inc. Mr. Grad holds a Bachelor of Science degree
in Industrial Management and a M.B.A. from the University of Cincinnati.
Kurt Muck. In 2000 Mr. Muck became Chairman of the Board of Directors of
Unaxis Deutsche Holding AG and Executive Vice President and Member of the
Executive Board of Unaxis Holding AG. From 1985 to 1996 Mr. Muck held various
positions at Philips GmbH including Managing Director of Philips GmbH, Germany
and Managing Director of Philips Semiconductors for Central Europe. In 1997, Mr.
Muck served as President of Siemens Division for Electro Mechanical Components.
Mr. Muck holds an engineering degree from the Technical College in Nuremberg.
Paul E. Otth. In June 2000, Mr. Otth became the Chief Financial Officer
and a Member of the Executive Board of Unaxis Holding AG. Mr. Otth currently
also holds directorships in several other Swiss corporations. From 1989 until
November 1996, Mr. Otth was with Landis & Gyr AG, where he became the Chief
Financial Officer and a Member of the Executive Board in November 1994. From
November 1996 until October 1998, he served as the Chief Financial Officer and a
Member of the Executive Board of Elektrowatt AG (a successor company of Landis &
Gyr AG). From October 1998 until May 2000, he served as Chief Financial Officer
of Siemens Building Technologies (a successor company of Elektrowatt AG). Mr.
Otth is a Certified Public Accountant.
Karsten Ottenberg. Mr. Ottenberg is Senior Vice President of Philips
Semiconductors, and holds the position of General Manager of the Business Unit
Identification, with headquarters in Hamburg, Germany. The Business Unit is
focussing on IC's for the smart card, the smart tag&label, the car access and
immobilizer as well as the corresponding reader markets. Prior to taking over
the responsibility for the Identification business late 1999, Mr. Ottenberg held
a number of senior management positions at Philips Semiconductors International
Marketing
36
and Sales between 1995 and 1999. These included General Manager positions of the
European Sales Operation, the European Automotive Market Segment and the German
Marketing Sales Organization. Before joining Philips Semiconductors, Karsten was
at Philips Research from 1987-1994, conducting research and managing
international projects in the area of computer vision and artificial
intelligence. He has a background in physics, mathematics and computer science,
and he holds a Ph.D. from University of Utrecht, The Netherlands.
Thomas Staehelin. Mr. Staehelin is a Swiss corporate and tax attorney and
partner in the Basel based law firm Fromer, Schultheiss and Staehelin. Mr.
Staehelin is a private investor and serves on the boards of various Swiss listed
or unlisted companies in various capacities ranging from a member,
Vice-Chairman, or Chairman. Mr. Staehelin holds a Ph.D. in Law from the
University of Basel. He currently serves as Chairman of the Chamber of Commerce
of Basel and was a member of parliament.
James L. Brissenden. Mr. Brissenden joined INFICON Leybold Hereaus as
President and Chief Executive Officer in 1984. In 1996, Mr. Brissenden became
President and Chief Executive Officer of Balzers and Leybold Instrumentation,
our predecessor. Prior to joining INFICON, Mr. Brissenden spent 20 years with
Carborundum Company with his last position being Vice President and General
Manager, Electric Products Division. Mr. Brissenden has served as President of
the Unaxis holding company in the United States and Chairman of Contraves Inc.,
a Unaxis subsidiary. Mr. Brissenden holds a BSBA from Ohio State University and
an MBA from the State University of New York.
Peter G. Maier. Mr. Maier joined INFICON in 1996 as Director of
Information Systems and became Vice President of Finance for Leybold Inficon,
and Controller for the Instrumentation Division in 1998. Prior to joining us,
Mr. Maier served Deloitte Consulting as project manager and consultant for
enterprise application integration (SAP R/3) from 1994 to 1996. From 1992 to
1994, Mr. Maier served as Controller for Heidelberger Druckmaschinen AG in
Germany. Mr. Maier holds a masters degree in business administration and
computer science from the University of Karlsruhe, Germany.
Ulrich Doebler. Dr. Doebler joined INFICON in 1986. From 1996 to December
1999, Dr. Doebler was the Marketing and Engineering Manager of our Leak
Detection business unit. Dr. Doebler holds a PhD in physics from the University
of Cologne.
Gary W. Lewis. Mr. Lewis joined INFICON in November 1984 as Manufacturing
Manager and was named Vice President of Quality Assurance in 1991. He has
managed some of the various leak detection products since 1995 and was a key
participant in the acquisition of the EHS (HAPSITE) business. Mr. Lewis holds a
B.S. in electrical engineering from Clarkson University and an MBA from Chapman
University.
Linda Van Roekel. Ms. Van Roekel joined INFICON in December 1984. Ms. Van
Roekel has been an officer since November 1992, when she was named Vice
President of Marketing. In April 2000, Ms. Van Roekel was elected president of
the Association of Vacuum Equipment Manufacturers International. Ms. Van Roekel
holds an M.S. in chemistry from the University of Washington and an MBA from
Syracuse University.
Lukas Winkler. Mr. Winkler joined the company in January 1993 and has
served as our Vice President, Vacuum control since January 1997. From January
1995 to January 1997, Mr. Winkler served our Balzers AG subsidiary as General
Manager Production. Mr. Winkler has a Masters Degree in engineering from the
Swiss Federal Institute of Technology and an MBA from Syracuse University.
Albert Zueger. Mr. Zueger joined the company in 1964. From January 1997,
he has been Vice President, Ultra Clean Processing. Prior to that, Mr. Zueger
held various management positions within the company. Mr. Zueger holds a B.S. in
mechanical engineering from the University of Applied Sciences Liechtenstein.
Unaxis, as our sole shareholder prior to our initial public offering, has
elected all of our directors. INFICON and Unaxis had an understanding that
Unaxis would elect Messr. Muck and Otth, two of its own officers, to our board
of directors.
37
B. Compensation.
During the fiscal year ended December 31, 2001, the aggregate amount of
compensation (including any benefits in kind granted) that we paid to our seven
executive officers as a group amounted to U.S.$0.9 million. During the fiscal
year ended December 31, 2001 our board of directors received CHF 464,000 in
compensation. One half of this amount was paid in cash, payable semi-annually.
The other half was provided in the form of options to purchase INFICON shares.
The aggregate number of options provided to the directors was calculated based
on the sum of CHF 232,000 (approximately U.S.$138,500) divided by the
Black-Scholes value of an option on the grant date. The options vested
immediately, and become exercisable after a year and will expire seven years
after the grant date. On May 15 and November 15, 2001, the Company agreed to pay
our directors an aggregate of 1,550 and 2,030 options, respectively, at exercise
prices of CHF 174 and 128. The exercise price is equal to the closing price of
the shares on the grant date.
During 2001, we contributed an aggregate amount of approximately
U.S.$174,300 to provide pension, retirement and similar benefits to our
executive officers.
C. Board Practices.
General
Members of our board of directors serve three-year terms which for the
current members expire on the date of the annual meeting of shareholders in
2003. Executive officers are appointed by and serve at the discretion of the
board of directors, subject to any applicable employment agreements. Currently,
only our Chief Executive Officer and President, Mr. Brissenden, has an
employment agreement with us.
None of the directors of the Company or any of our subsidiaries has
currently a service contract with us or any of our subsidiaries that provides
for benefits upon termination of employment.
Committees of the Board of Directors
During 2001, the audit committee was comprised of Paul Choffat, John Grad,
and Thomas Staehelin. The audit committee must consist of directors who are not
officers or employees of INFICON. Each member of the audit committee meets the
independence requirements of the Nasdaq National Market rules, the Board of
Directors has adopted a written charter for the audit committee. The purpose of
the audit committee is to assist the board of directors in fulfilling its
responsibility to oversee our financial reporting process, including monitoring
the integrity of our financial statements and the independence and performance
of our internal and external auditors.
The responsibilities of the audit committee include:
o recommending to the board of directors the independent public
accountants to be selected to conduct the annual audit of our books
and records;
o reviewing the proposed scope of such audit and approving the audit
fees to be paid;
o reviewing the adequacy and effectiveness of our accounting and
internal financial controls with the independent public accountants
and our financial and accounting staff;
o reviewing and approving transactions between the Company and its
directors, officers and affiliates; and
o reviewing and reassessing annually the adequacy of our audit
committee charter.
In addition, our board of directors has established a compensation
committee. The responsibilities of the compensation committee are to provide a
general review of our compensation and benefit plans to ensure that they meet
corporate financial and strategic objectives. The responsibilities of the
compensation committee also include administering the employee incentive plans
described below under "Share Ownership".
Our compensation committee currently consists of Mr. John Grad, Mr. Karsten
Ottenberg and Mr. Kurt Muck .
38
D. Employees.
As of December 31, 2001, we had 673 full time employees and on average
during 2001, we had approximately 21 temporary or part time employees. We had
694, 691 and 653 employees as of December 31, 2001, 2000 and 1999, respectively.
The following table shows a breakdown of employees by main category of
activity and geographic location:
Year 2001
---------
Employees by Region
Employees
by Activity Europe North America Asia Total
----------------------------------------------------------
Manufacturing 120 91 -- 211
Research and
Development 65 51 116
Sales & Marketing 73 64 38 175
General
Administration 105 52 35 192
--- --- --- ---
Total 363 258 73 694
Some of our non-management workers at our German facility belong to German
workers unions. However, we do not negotiate collective bargaining agreements
with these unions to cover our workers nor do we have any other direct
relationships with them. Instead, in accordance with German practice, unions
negotiate agreements with industry-wide employers' associations. In recent
years, unions have cooperated with industry, agreeing to concessions to improve
operating efficiency. A German collective bargaining agreement governs the
employment of all workers of the categories organized in the relevant union,
whether or not the individual worker is a union member.
In Germany, employers and unions generally negotiate collective bargaining
agreements annually. The general umbrella agreement that covers our workers was
entered into for an indefinite term. A separate agreement, which covers
compensation and benefit matters and is usually entered into for a period of one
year, has a two-year term this time which expires in April 2002.
Our employees at our Cologne, Germany and Balzers, Liechtenstein
facilities are represented by works councils (Betriebsrat), elected by all
non-management employees. In Germany, the members serve a four-year term and the
next elections are scheduled for February 2002. In Liechtenstein, elections of
the new members were held in January 2001 and the members serve a three-year
term.
The works councils facilitate communications between us and our staff at
the facility level. The members of our works councils share responsibilities
with us for managing staff-related matters and working condition issues such as
compensation issues (within the framework provided by the collective bargaining
agreement), the hiring of new employees, working hours, working shifts or
matters relating to employee facilities (e.g., cafeterias). In Germany, the
rights and responsibilities of works council are set forth in the German Works
Council Constitution Act (Betriebsverfassungsgesetz). The German Works Council
Constitution Act provides, among other things, that any termination of an
employee must be approved by members of the works council. Similarly, scheduled
overtime work must generally be approved by the works council.
We have never experienced a work stoppage, slowdown or strike, and we
consider our relations with our employees to be excellent.
39
E. Share Ownership.
Our directors and executive officers beneficially own, as a group, 14,545
shares and 14,542 options to purchase 72,710 shares of INFICON. The terms of
these options are described below.
Under our leveraged share plan described below, 23,683 options to purchase
118,415 INFICON shares were granted to our executive officers and certain key
employees. Each option entitles its holder to purchase five INFICON shares at
the initial public offering price of CHF 225. The options are non-transferable
and will expire on the seventh anniversary of the date of grant which was
November 8, 2001.
In connection with our initial public offering, we offered employees the
right to participate in one of two equity purchase programs. These are the
leveraged share plan and the discounted share purchase plan.
Leveraged Share Plan. The leveraged share plan was available only in
connection with our initial public offering to three tiers of employees: the
Chief Executive Officer, other executive officers and key employees. No shares
were being made available to our directors under the leveraged share plan.
Depending on an eligible employee's tier, an eligible employee could purchase
shares in the offering at the initial public offering price for a total purchase
price between CHF 40,000 and CHF 1,000,000 (U.S.$22,504 and U.S.$562,588,
respectively). For each share purchased in the initial public offering by an
eligible employee pursuant to the leveraged share plan, such eligible employee
received an option to purchase five shares at the offer price. The amount of
shares authorized for issuance under the leveraged share plan had a maximum
aggregate value of CHF 7.0 million (U.S.$3.9 million), representing 31,111
shares at the initial offering price of CHF 225. Employees are at all times
fully vested in shares purchased under the plan.
Except as otherwise determined by the board of directors, none of the
shares purchased under this plan may be transferred or sold until the fourth
anniversary of the closing of the offering. In the case of an employee's
termination of employment as a result of resignation, dismissal for cause,
retirement or disability (unless otherwise determined by the board of directors
or any compensation committee of the board of directors), the shares will remain
subject to the lock up agreement. In the case of an employee's termination of
employment as a result of a dismissal without cause or upon death, the lock up
agreement will be released immediately.
The options are non-transferable and expire on the seventh anniversary of
the date of grant. Fifty percent of the options vest and become exercisable on
the second anniversary of the date of the grant and the remaining 50% of the
options vest and become exercisable on the third anniversary of the date of
grant. In the case of an employee's termination of employment as a result of
resignation other than as a result of a material adverse change in (i) his or
her compensation or (ii) the material terms or his or her employment, or
dismissal (other than for cause) unvested options lapse without compensation,
and vested options may be exercised within 90 days. Upon an employee's
termination of employment as a result of a termination of employment without
cause or a resignation due to a material adverse change in (i) his or her
compensation or (ii) the material terms of his or her employment, all vested
options remain exercisable for the term of the options and all unvested options
continue to vest as if the employee had remained employed with the Company and
such options remain exercisable for the term of the option. In the case of
termination of employment for cause, all vested and unvested options lapse with
immediate effect. In the case of termination of employment upon death or as a
result of retirement or disability, unless otherwise determined by the board of
directors or any compensation committee of the board of directors, unvested
options lapse and vested options may be exercised within 360 days. The
underlying shares related to the options will be made available by us through
authorized but non-issued shares (conditional share capital) of us or through
shares purchased in the market.
Loans were made available to executive officers and key employees who
participated in the leveraged share plan. We made loans available to executive
officers for purposes of purchasing up to 80% of the shares allocated to them
under the plan. The loans are for a term of 7 years. In addition, we made loans
available to key employees for purposes of purchasing up to 50% of the shares
allocated to them under the plan. The loans to key employees became due and
payable in full 30 days following the initial public offering date.
The loans were made on a full recourse basis and are secured by all shares
purchased under the plan by such executive officer or key employee and we have
either a first or if a portion of the shares are financed or refinanced by
another lender, a second lien on the shares. The loans have an interest rate
equal to 120% of the mid-term applicable federal rate (as defined in the
Internal Revenue Code) determined on the date the loans are made. The lock-up
agreement entered into with the underwriters and the restrictions on transfer
under the leveraged
40
share plan and the discounted share purchase plan will be released to the extent
that it is necessary for us or any other lender to realize on security in the
shares. As of December 31, 2001, we had outstanding loans to executive officers
in an aggregate amount of approximately U.S.$0.5 million.
During the period during which the option may be exercised, an employee
may elect to pay for the shares, issuable upon exercise of such option and, if
required by us, to satisfy tax withholding obligations related to the option, in
full at the time of exercise as follows:
o in cash;
o at the discretion of the board of directors with shares that are
already owned by the participant;
o in a combination of cash or already owned shares; or
o through an exercise procedure approved by the board of directors by
which an employee sells some or all of the shares underlying the
exercised portion of the option.
56 employees participated in the leveraged share plan purchasing an aggregate of
23,683 shares representing 1.02% of the voting rights. In addition, 23,683
options to purchase 118,415 INFICON shares at the initial public offering price
of CHF 225 each were granted to our executive officers and certain key
employees.
Discounted Share Purchase Plan. The discounted share purchase plan were
offered to employees who were not eligible to participate in the leveraged share
plan. Under this plan, eligible persons were offered the opportunity to purchase
shares on the closing of the offering at a 30% discount to the offer price. Each
employee was entitled to purchase up to CHF 15,000 (U.S.$8,439) worth of shares
(based on the offering price and rounded down to the nearest whole share) in the
offering at a 30% discount. A total of approximately 600 employees were eligible
to participate and a total of 589 employees eventually participated in
discounted share purchase plan. Based on the amount of shares actually purchased
by our employees under the program, we incurred compensation expense of CHF
659,272 (U.S.$371,170) in the fourth quarter of 2000. The amount of shares
issued under the discounted share purchase plan had a maximum aggregate value of
CHF 1,538,303 (U.S.$865,431), representing 9,767 shares, at the initial offering
price of CHF 225, discounted by 30%. Employees are at all times fully vested in
their shares.
None of the shares purchased in the offering by employees under this plan
may be transferred or sold until the second anniversary from the date of the
closing of the offering, after which date they may either be retained or sold.
In the case of an employee's termination of employment as a result of
resignation, dismissal for cause, retirement or disability, the shares will
remain subject to the lock up agreement. In the case of termination of
employment upon dismissal (other than for cause) or death, the lock up agreement
will be released.
Shares purchased under the discounted share purchase plan and the
leveraged share plan may be settled either in shares or ADSs. Options exercised
under the leveraged share plan may be settled in shares.
It is anticipated that our board of directors will establish an equity
incentive plan to provide for future equity awards to employees in the
foreseeable future.
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders.
The following table sets forth the number and the percentages of shares,
on a fully diluted basis, that our principal shareholder Unaxis owned as of
February 28, 2002 and and March 21, 2001.
As of February 28, 2002 As of March 21, 2001
----------------------- --------------------
--------------------------------------- -------------------------------------
Owner Number of Shares (1)(2) Percent(1) Number of Shares(2)(3) Percent
- ----- ----------------------- ---------- ---------------------- -------
Unaxis Holding AG 451,675 19.51% 451,675 19.51%
Hofwiesenstrasse
135
P.O. Box 1309
CH-8021 Zurich
================================================================================
41
o Under Swiss law, each director of INFICON Holding AG must own at
least one director's qualifying share. Although each of our
directors owns one share in compliance with this law, we disregarded
these shares for the purpose of this table.
o Each share, including any of the shares owned by Unaxis, has one
vote.
o Under a share lending agreement entered into by Unaxis and the
underwriters in our initial public offering, the underwriters
obtained from Unaxis 260,000 shares to cover over-allotments. The
over-allotment option was not exercised by the underwriters and the
share lending agreement was settled by returning 133,075 shares to
Unaxis and selling the remaining 127,325 shares to certain
institutional investors.
According to our records, 168,036 of our shares are held, directly or in
the form of ADS, by an aggregate of 142 holders located in the United States.
However, some of the shareholders located in the United States might have chosen
not to register their name, citizenship or registered office and address in our
share register. For this reason, our records may not accurately reflect the
actual number of holders located in the United States and the shares held by
these holders.
There are no arrangements which INFICON is aware of that may result in a
change of control of INFICON.
B. Related Party Transactions.
Agreements in Connection with our Separation from Unaxis
In connection with our separation from Unaxis and our initial public
offering on November 8, 2000, we entered into a number of agreements with
related parties. The summary description of these agreements below does not
purport to be complete. You should read the full text of these agreements which
were included as exhibits to the registration statement on Form F-1 filed with
the Securities Exchange Commission in connection with our initial public
offering and which are incorporated herein by reference. The registration
statement (including the exhibits and schedules thereto) may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will
also be available for inspection and copying at the regional offices of the
Securities and Exchange Commission located at The Woolworth Building, 233
Broadway, New York, New York 10279 and at Citicorp Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661. Copies of such material may also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Securities and
Exchange Commission also maintains a website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of this website is
http://www.sec.gov.
Agreements with Unaxis
We and Unaxis have entered into the master separation agreement which
contains the key provisions relating to our separation from Unaxis, our
capitalization by Unaxis and our initial public offering. In addition, the
master separation agreement provides for ancillary agreements which have been
entered into by us and companies which have or will become our subsidiaries on
the one hand and Unaxis and its subsidiaries on the other. The ancillary
agreements include:
o agreements with respect to the transfer of assets related to our
business by Unaxis entities to companies which have or will become
our subsidiaries (asset transfer agreements);
o Intercompany service agreements;
o intellectual property assignments and license agreements; and
o a tax deed.
42
Master Separation Agreement
Separation from Unaxis. The master separation agreement governs key
matters relating to the separation of the INFICON divisions from the various
Unaxis subsidiaries of which they were a part, and the transfer of these
divisions into separate Unaxis subsidiaries. Unaxis' contribution of the
subsidiaries engaged in the INFICON business to INFICON Holding AG was
substantially complete on October 4, 2000. The master separation agreement sets
forth the obligations of the parties after the separation, including each
party's obligation to use its best efforts to cause its subsidiaries to comply
with the terms of its respective intercompany service agreement and the
following additional matters:
Non-Compete. We use subsidiaries of Unaxis as a distribution channel for
some of our vacuum control products. Generally speaking, we distribute these
products directly to OEMs and end users and the Unaxis subsidiaries distribute
these products to OEMs and end users under their private label. Except for these
areas which relate to leak detection and those described in "Intellectual
Property Assignment and License Agreements" below, we and Unaxis have agreed not
to compete with each other in our core lines of business for a period of five
years after the separation date.
Generally speaking, our core lines of business for these purposes
encompass the businesses we are in today, as described in this annual report.
In more specific terms, Unaxis has agreed not to compete with us in the
following businesses:
(1) In Situ Analysis:
Wafer state sensors, including sensors to determine etch rate, uniformity
of etch rate and completion of etch process; optical emission spectrometers; and
thin film deposition controllers. Process state sensors, including gas analyzers
based on mass spectrometer technology; and gas concentration controllers based
on acoustic resonance technology. Sensor integration and analysis software,
including FabGuard software.
(2) Ultra Clean Processing:
Stand alone plasma cleaners. Plasma cleaning step before wire bonding or
die attaching. Plasma treatment/activation before molding. Contact cleaning for
PC boards.
(3) Leak Detection:
Helium leak detectors. Refrigerant leak detectors. Other leak detectors.
(4) Vacuum Control:
Capacitance diaphragm gauges (including such gauges with a ceramic
diaphragm), Bayard-Alpert gauges, Penning gauges, Pirani gauges and combination
gauges. Various valves and fittings, including integrated gas-dosing
controllers.
We have agreed not to compete with Unaxis in the following businesses:
(1) Information Technology:
Semiconductor technology, including systems and processes used in the
manufacture of application-specific integrated circuits and coatings for
ultrathin semiconductor substrates. Data storage, including optical and magnetic
storage. Displays, including TFT displays and large area coating. Optical
coating systems and components. Coating materials.
(2) Surface Technology:
Tool coatings. Component coatings. Decorative coatings.
43
In the fields of information and surface technology we may, however,
compete with Unaxis: in connection with copper wire bonding processes in back
end semiconductor manufacturing processes; the continued sale of the small ultra
high vacuum coater for research and development applications; and in any
instrumentation that is used to monitor or control processes, such as our in
situ products.
(3) Components:
Systems/Products for Vacuum Generation including:
o Dry pumps
o Turbomolecular pumps (including drag pumps)
o Cryogenic pumps
o Turbostream blowers
o Forevacuum pumps
o Cryo cooler technology
Gas Chromatograph/Mass Spectrometers for volatile organic compounds
Payload fairings for the space industry. Satellite and solar generator
components.
In addition to the above, the parties have also agreed (1) not to compete
with each other in the ultra clean processing businesses of each party and (2)
that each party may continue to compete with the other, to the extent that, and
in the businesses they were competing in, on the effective date of the asset
transfers.
We believe that the non-compete arrangement allows us to continue to
conduct our business as currently operated. However, technology in the
semiconductor industry is constantly evolving and could move rapidly in a
direction we have not anticipated. Accordingly, there can be no assurance that
these limitations will not have a material adverse effect on us.
Indemnities. Unaxis has agreed to indemnify us for any loss incurred by us
as a result of any claim or action resulting out of or from the operation of any
business other than our business prior to, on or after the date of separation.
In turn, we have agreed to indemnify Unaxis or any of its subsidiaries for any
loss incurred by any of them as a result of any claim or action resulting out of
or from the operation of our business prior to, on or after the date of
separation.
Expenses. We shared the costs and expenses related to our initial public
offering with Unaxis in relation to the amount of shares sold by each of Unaxis
and us in the initial public offering. Unaxis paid most of the costs and
expenses related to our separation from Unaxis.
Termination. The master separation agreement terminates on the earlier of
mutual consent of Unaxis and us and three years from the date of the separation.
Although the Master Separation Agreement was not negotiated at arm's
length, we believe that these terms and conditions, taken as a whole, are no
less favorable to us than we could have obtained from unaffiliated third
parties.
Asset Transfer Agreements
The asset transfer agreements identified the assets that Unaxis and other
wholly owned subsidiaries of Unaxis have transferred to us, the liabilities we
have assumed from them in 10 different jurisdictions and the terms of the asset
transfers in connection with our reorganization. In each jurisdiction, the
agreement was entered into by a subsidiary of INFICON as purchaser, and a Unaxis
subsidiary located in the same jurisdiction as seller.
44
Except with respect to China, Unaxis has transferred to INFICON all of its
assets related to the businesses described in this annual report which are
necessary to conduct the INFICON businesses as they were conducted by Unaxis
prior to the asset transfers. The aggregate transfer price with respect to the
various asset transfers of approximately CHF 250 million (U.S.$140.6 million)
was not negotiated at arm's length. The transfer prices were determined by
Unaxis in accordance with tax rulings, tax law requirements and other statutory
requirements of the local jurisdictions in which the assets are located.
The asset transfer agreements were entered into on various dates during
the period from June 30, 2000 to December 15, 2000. Regulatory requirements in
China delayed the transfer of Chinese assets. The Chinese transfer became
effective in the second quarter of 2001. During the current transition period,
Unaxis held any benefits and liabilities derived from these assets for the
benefit of our new Hong Kong subsidiary.
Intercompany Service Agreements
Services. Each of our subsidiaries has signed one or several intercompany
service agreements with its respective Unaxis counterpart or counterparts in its
jurisdiction. These agreements cover various services that differ from
jurisdiction to jurisdiction, including finance, legal, tax, information
technology, human resources and other services. Each agreement includes a
detailed description of the services to be provided and service terms. The
service fee for all the agreements was determined by Unaxis. Although these
agreements were not negotiated at arm's length we believe that they are on terms
no less favorable to INFICON than could have been obtained from unaffiliated
third parties.
Standard of Care, Duty to Cooperate and Delegation of Performance. Each
providing company has agreed to maintain a high professional standard of care in
rendering the services and to use reasonable efforts to follow the pre-existing
policies, procedures and practices. The parties have agreed to use good faith
efforts to cooperate with each other in all matters relating to the provision
and receipt of the services. The providing company may engage a subcontractor to
perform a service, provided that the subcontractor agrees to abide by the terms
of the agreement and no extra compensation is owed to the providing company.
Term and Termination. Except for the agreement of our Taiwan subsidiary
which terminated March 30, 2001, the agreements remain in effect for an
unlimited period of time unless terminated in accordance with the terms of the
agreement. The agreement provides for a termination by any party upon six
months' prior written notice. In addition, any party may terminate the agreement
in case of a material breach of the agreement if the breaching party has not
remedied such breach within sixty business days after being given notice of the
breach. A termination may relate to all or any one or more services, except in
the event of a material breach of a service where it relates to this particular
service only.
Fees. Fees are determined annually and are calculated based on the
projected direct or indirect cost of providing the services for that year plus
7%. There are no adjustments made if the actual direct and indirect costs differ
from those projected. Fees for any additional services are determined on a case
by case basis.
Payment Terms. Under each agreement, the providing company bills the
receiving company on a monthly basis for all fees and expenses. The service fee
is due on the first day of each month and payable by the receiving company
within 15 days after receipt of an invoice. Late payments beyond 60 days are
subject to an 8% per annum interest charge on the invoiced amount.
Dispute Resolution. The parties agreed to make a good faith attempt to
resolve any dispute first by negotiation and arbitration before resorting to
litigation.
Intellectual Property Assignment and License Agreements
We have entered into intellectual property assignment and royalty-free
license agreements with various Unaxis entities as part of the reorganization.
Generally speaking, with the exception of the patents related to the ultra clean
processing business, all of the Unaxis patents and other intellectual property
which are currently used by Unaxis that relate to INFICON's business have been
assigned to INFICON, with royalty-free licenses granted back to Unaxis on the
basis described below. Unaxis has retained the patents related to the ultra
clean processing business and has granted INFICON a royalty-free license to use
such property on the basis described below. The licensing arrangements have been
drafted to be consistent with the non-compete arrangement described under
"Master Separation Agreement above".
45
o A license agreement between Unaxis, as licensor, and INFICON,
as licensee, governs our use of a number of Unaxis patents
related to the ultra clean processing business and the leak
detection business. This license allows us to use Unaxis
patents exclusively for five years, and non-exclusively
thereafter, in the fields of plasma cleaning/activation of
quad flat package, plastic ball grid array, personal computer
board, chip scale package and multi chip module, with the
exception of chip scale package and multi chip module
processed for or within the multi-chamber systems and modules,
such as cluster tools. This license also allows us to use such
Unaxis patents non-exclusively in the fields of leak detector
and plasma cleaning/activation processes for assembly and
packaging concepts, including wafer level and board level
techniques, including chip scale package and multi chip module
processed for or within the multi-chamber systems and modules,
such as cluster tools. This license is royalty-free, perpetual
and worldwide. In addition, Unaxis has agreed that it will not
grant any further licenses under the leak detector patents.
o A license agreement between INFICON, as licensor, and Unaxis,
as licensee, provides for the Unaxis entities' use of the
intellectual property we acquired under the intellectual
property assignment agreements described above. This license
allows the Unaxis entities to use such intellectual property
exclusively for five years, and non-exclusively thereafter, in
the field of designing, producing, selling and servicing
information technology, surface technology and components
relating thereto. This license also allows the Unaxis entities
to use such intellectual property non-exclusively, in all
other fields outside of the field of designing, producing,
selling and servicing of in situ analysis systems,
semiconductor cleaning systems, leak detection products and
various gauges, valves and fittings associated with vacuum
processes. This license is royalty-free, perpetual and
worldwide.
The licenses granted to the licensee in each agreement, other than the
leak detector licenses, terminate upon a change of control which has not been
consented to by the relevant licensor. For purposes of the foregoing, "control"
means (i) the ownership of at least 50% of the equity of beneficial interest of
a person, (ii) the right to vote for or appoint a majority of the board of
directors or other governing body of such person or (iii) the power to directly
or indirectly direct or cause the direction of the management and policies of
such person by any means whatsoever.
Although the license agreements were not negotiated at arm's length, we
believe that their terms and conditions, taken as a whole, are no less favorable
to us than we could have obtained from unaffiliated third parties. We also
believe that the licensing arrangements described above will allow us to
continue to conduct our business as currently operated. However, technology in
the semiconductor industry is constantly evolving and could move rapidly in a
direction we have not anticipated. Accordingly, there can be no assurance that
the limitations in the ultra clean licenses will not have a material adverse
effect on us.
As part of the reorganization, we have also entered into a number of
intercompany license agreements to allow INFICON affiliates to use the
intellectual property acquired under the intellectual property assignment
agreements described above.
Tax Deed
We and Unaxis have entered into a tax deed in order to regulate our and
their subsidiaries' tax affairs in connection with our separation from Unaxis
and our initial public offering. In general, under the tax deed, Unaxis is
responsible for all taxes resulting from our separation, our initial public
offering and all taxes relating to our business for any period ending on or
before the date of separation. We are responsible for all taxes relating to our
business for any period beginning after the date of separation. The tax deed
also provides that each of Unaxis and us will indemnify the other for all taxes
for which it is responsible.
Although the tax deed was not negotiated at arm's length, we believe that
its terms and conditions, taken as a whole, are reasonable
46
Intercompany Loans
We have currently the following intercompany loans outstanding:
Intercompany Loans
(in thousands)
Interest
Borrower Lender Currency Face Amount in USD Rate
- -------- ------ -------- ----------- ------ ----
INFICON Inc, US INFICON GmbH, CH USD 65,332 65,332 6.85%
INFICON GmbH, Cologne INFICON GmbH, CH EUR 11,709 10,374 3.90%
INFICON AG, Liechtenstein INFICON Holding AG CHF 17,291 10,336 3.53%
INFICON Ltd, Korea INFICON Holding AG KRW 481,546 367 6.40%
INFICON Ltd, Korea INFICON Holding AG USD 400 400 3.51%
INFICON Pte Ltd, Singapore INFICON Holding AG USD 200 200 6.40%
INFICON Co., Ltd, Japan INFICON Holding AG JPY 368,536 2,811 0.58%
INFICON Ltd, Taiwan INFICON Holding AG USD 600 600 3.50%
INFICON Ltd, United Kingdom INFICON Holding AG GBP 150 218 6.04%
INFICON Aaland Ab, Finland INFICON Holding AG EUR 1,100 975 3.85%
INFICON Ltd, Hong Kong INFICON Holding AG USD 328 328 3.43%
All of these loans are unsecured fixed advances extended in connection
with the purchase by our subsidiaries of the assets relating to our business
from Unaxis.
C. Interests of Experts and Counsel.
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information.
Index to Financial Statements
Page Number
-----------
1. Index to Financial Statements
Report of the Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3
Consolidated Statements of Income for the three years in the period ended December 31, 2001 F-4
Consolidated Statements of Shareholder's Equity for the three years in the period ended F-5
December 31, 2001
Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2001 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-25
All other schedules have been omitted as the required information is not
applicable or the information is presented in the financial statements or the
notes thereto.
47
Legal Proceedings
We are not currently involved in any material court, arbitral or
administrative proceedings, nor are we aware of any such proceeding pending or
threatened.
Dividend Policy
We currently intend to retain all future earnings to finance future growth
and therefore do not anticipate proposing to our shareholders the payment of any
dividends in the foreseeable future.
B. Significant Changes.
Since the date of the annual financial statements in this annual report,
no significant change has occurred.
Item 9. The Offer and Listing
A. Offer and Listing Details.
The Company's registered shares are listed and principally traded on the
Swiss Exchange, where prices are expressed in Swiss francs. The Company's
registered shares are also traded on the Nasdaq National Market as American
Depositary Shares. The table below presents, for the registered shares on the
Swiss Exchange and Nasdaq National Market the:
o annual high and low market prices for the last three years and,
o high and low market prices for each financial quarter for 2001 and,
o high and low market prices for each month for the most recent six
months.
For each of the periods indicated, the information presented is based on the:
o high and low closing sales prices quoted in Swiss francs for the
registered shares on the Swiss Exchange.
o The U.S. dollar equivalent based on the Noon Buying Rate on the last
trading day of the periods presented. The "Noon Buying Rate" is the
rate in New York City for cable transfers in selected currencies as
certified for customs purposes by the Federal Reserve Bank of New
York.
For the last three years and each financial quarter for 2001, our high and
low marked prices have been:
Period High Low
- ------------------ -------------------------------- --------------------------------
Shares (in CHF) ADSs (in U.S.$) Shares (in CHF) ADSs (in U.S.$)
--------------- --------------- --------------- ---------------
Year ended
December 31, 1999 -- -- -- --
December 31, 2000 240.00 12.88 150.00 9.75
December 31, 2001 197.00 11.50 86.00 5.40
Quarter ended
March 31, 2001 190.00 11.50 136.00 8.38
June 30, 2001 197.00 11.00 150.00 8.53
September 30, 2001 180.00 9.80 86.00 5.55
December 31, 2001 163.00 9.50 87.00 5.40
48
B. Plan of Distribution.
Not applicable.
C. Markets.
Our shares are listed on the SWX Swiss Exchange and our ADSs are listed on
The Nasdaq National Market, in each case under the symbol "IFCN".
D. Selling Shareholders.
Not applicable.
E. Dilution.
Not applicable.
F. Expenses of the Issue.
Not applicable.
Item 10. Additional Information
A. Share Capital.
Not applicable.
B. Memorandum and Articles of Association.
Set forth below is a summary description of the material provisions of our
articles of incorporation and Swiss law relating to our company purpose and
shareholders' rights.
Register Entry Number and Purpose of INFICON Holding AG
INFICON Holding AG is registered in the commercial register of the Canton
of St. Gallen, Switzerland. There is no register entry number. On their first
page, our articles of incorporation describe the objects and purpose of our
corporation as follows:
"The purpose of the Corporation is to participate in manufacturing,
trading and service businesses in Switzerland and abroad and to hold,
acquire and sell such participations.
The Corporation may, in Switzerland as well as abroad, establish branches
and subsidiaries. The Corporation may perform all transactions which are
directly or indirectly related to its purpose.
Furthermore, the Corporation may acquire or sell real estate."
Transfer of Shares
There are no restrictions on the free transferability of our shares. A
transfer of shares is effectuated by corresponding entry in the books of a bank
or depositary institution following assignment in writing by the selling
shareholder and notification of such assignment to us which can be made by the
bank or the depositary institution. In order to be registered in our share
register as a shareholder with voting rights, a purchaser must file with us a
share registration form disclosing its name, citizenship or registered office
and address.
A purchaser that does not make such disclosure will be registered as a
shareholder without voting rights. This means that the purchaser may not
participate in or vote at a shareholders' meeting, but will still be entitled to
49
dividends and other rights with financial value. Notwithstanding the foregoing,
any shares held by or on behalf of The Bank of New York, as depositary, or any
successor depositary for the ADSs, will be registered with voting rights. We may
enter into agreements with banks or finance companies which hold shares for the
account of other persons (nominees) regarding the entry of the beneficial owners
of our shares into the share register.
The shares and the pecuniary rights arising therefrom may only be pledged
in favor of the bank which has the book-entry regarding these shares by written
pledge agreement. A notification to us is not required.
Voting Rights and Share Certificates
Each of our shares carries one vote at our shareholders' meetings. Voting
rights may be exercised only after a shareholder has been recorded in our share
register (Aktienbuch) as a shareholder with voting rights. We may enter into
agreements with banks or financial companies which hold shares for the account
of other persons (nominees) regarding the exercise of the voting rights related
to the shares. Registration with voting rights is subject to restrictions. See
"The Offer and Listing--Transfer of Shares".
Our shares are cleared and settled through SIS SegaInterSettle AG. The
shares will not be physically represented by certificates but will be managed
collectively in book-entry form by SIS SegaInterSettle AG. Shareholders are
therefore not entitled to have their shares physically represented and delivered
in certificate form (aufgehobener Titeldruck). They can, however, request a
statement confirming their ownership of the shares.
Net Profits, Dividends and Liquidation Rights
Swiss law requires that at least 5% of our annual net profits must be
retained by us as general reserves for so long as these reserves amount to less
than 20% of our par share capital. Because INFICON Holding AG is a holding
company, any net profits remaining thereafter are distributable at the
shareholders' meeting.
Under Swiss law, dividends may be paid out only if a company has
sufficient distributable profits from previous business years, or if the
reserves of the company are sufficient to allow the distribution of a dividend.
In either event, dividends may be paid out only upon approval by the
shareholders' meeting. The board of directors may propose that a dividend be
paid out, but cannot itself declare the dividend. In practice, the shareholders'
meeting usually approves the dividend proposal of the board.
Dividends are usually due and payable immediately after the shareholders'
resolution relating to the allocation of profits has been passed. The statute of
limitations in respect of dividend payments is five years. For information about
deduction of withholding taxes, see "Taxation", below.
In the event of liquidation, any surplus arising out of a liquidation
(after the settlement of all claims of all creditors) is distributed to
shareholders in proportion to the paid par value of shares held, but this
surplus is subject to Swiss withholding tax of 35%. See "Taxation".
No Liability of Our Shareholders for Capital Calls; No Redemption, Sinking Fund
or Similar Provisions
Our shares are fully paid-up and non-assessable. No shareholder has any
liability to further capital calls by us. Our articles of incorporation do not
contain any redemption provisions, sinking fund provisions or any provisions
discriminating against any existing or prospective holder of our shares as a
result of such shareholder owning a substantial number of shares.
Repurchase of Shares
Swiss law limits the number of our shares which we may hold or repurchase.
We and our subsidiaries may only repurchase our own shares if we have sufficient
available reserves to pay the purchase price, and if the aggregate par value of
such shares does not exceed 10% of our par share capital. Shares repurchased by
us and our subsidiaries do not carry any rights to vote at shareholders'
meetings but are generally entitled to the economic benefits applicable to our
shares generally. Furthermore, we must create a reserve on our balance sheet in
the amount of the purchase price of the acquired shares. Currently, we own none
of our own shares.
50
Change of Shareholder Rights
Under Swiss law, the rights of shareholders may only be changed by way of
amending the articles of incorporation which requires a shareholders' resolution
passed by the majority of the shares represented at the shareholders' meeting.
In addition, certain changes to shareholder rights require a supermajority of
votes. For instance, a reverse stock split may only be effectuated by an
unanimous vote of the shareholders of a corporation. The creation of shares with
privileged voting rights, restrictions on the transferability of shares or a
restriction or elimination of preemptive rights of shareholders require a
resolution passed at a shareholders' meeting with a supermajority
(qualifiziertes Mehr) of two-thirds of the shares represented at such meeting
and a simple majority of the aggregate par value of the shares represented at
such meeting.
Shareholders' Meetings
Under Swiss law, an annual shareholders' meeting must be held within six
months after the end of a company's financial year. Shareholders' meetings may
be convened by the board of directors or, if necessary, by the statutory
auditors. The board of directors is further required to convene an extraordinary
shareholders' meeting if so resolved by a shareholders' meeting or if so
requested by holders of shares representing in aggregate at least 10% of the
share capital of the company. Shareholders holding shares with a par value of at
least CHF 1 million have the right to request in writing, at least 50 days prior
to the day of the respective shareholders' meeting, that a specific proposal be
discussed and voted upon at such shareholders' meeting. If the board of
directors does not call a shareholders' meeting within a reasonable period after
the request was made, it may be ordered by a judge at the request of the
shareholders seeking such a meeting. A shareholders' meeting is convened by the
board of directors publishing a notice in the Swiss official gazette of commerce
(Schweizerisches Handelsamtsblatt) at least 20 days prior to such meeting. In
addition, shareholders may be informed by a letter sent to the address indicated
in the share register.
There is no provision in our articles of incorporation requiring a
presence quorum at shareholders' meetings.
Restrictions on Right to Own our Securities and on Ability to Effect a Change of
Control
Apart from the limitations described above on the right of a company to
own its own securities and the restriction on the voting rights of a purchaser
of our shares that does not file with us a share registration form disclosing
its name, citizenship and registered office or address, there are no limitations
on the rights to own securities of INFICON, regardless of who owns them.
None of our organizational documents contain any provision that would have
an effect of delaying, deferring or preventing a change of control of INFICON.
Disclosure of Principal Shareholders
None of our organizational documents contain any provision governing the
ownership threshold above which ownership must be disclosed. However, under the
Swiss Stock Exchange Act, shareholders and groups of shareholders acting in
concert who acquire or dispose of shares and thereby reach, exceed or fall below
the respective threshold of 5%, 10%, 20%, 33.33%, 50% or 66.66% of the voting
rights of a Swiss listed company with a registered office in Switzerland must
notify the company and the SWX Swiss Exchange of such transactions in writing
within four trading days, whether or not the voting rights can be exercised.
Following receipt of such notification, the corporation must inform the public
within two trading days.
An additional disclosure obligation exists under the Swiss Code of
Obligations pursuant to which a company must disclose the identity and size of
shareholdings of all its shareholders and shareholder groups acting in concert
who hold more than 5% of its voting rights. This disclosure must be made once a
year in the notes to the financial statements as published in the company's
annual report.
Changes in Capital
Our articles of incorporation do not impose conditions governing changes
in the capital that are more stringent than is required by law. Under Swiss law,
additional capital may be raised by shareholders' resolution of a
51
majority of shares except for an increase in our share capital (i) by way of
capitalization of reserves (Kapitalerhohung aus Eigenkapital), (ii) against
contribution in kind (Sacheinlage), (iii) for the acquisition of assets
(Sachubernahme), (iv) involving the grant of special privileges or benefits, or
(v) for the purpose of creating authorized or conditional share capital which
require a resolution passed at a shareholders' meeting with the supermajority
(qualifiziertes Mehr) of at least two-thirds of the shares represented at such
meeting and a simple majority of the aggregate par value of the shares
represented at such meeting.
Authorized and Conditional Share Capital
Under the Swiss Code of Obligations, the shareholders may decide on an
increase of the share capital in a specified aggregate par value up to 50% of
the existing share capital in the form of:
(1) authorized capital (genehmigtes Kapital) to be utilized at the
discretion of the board of directors within a period not exceeding
two years; or
(2) conditional capital (bedingtes Kapital) for the purpose of issuing
shares, inter alia, (i) to grant rights to employees of a company or
its subsidiaries to subscribe to new shares or (ii) to grant
conversion rights or warrants to holders of convertible bonds. Such
capital is called "conditional" because the issuance of any new
shares is conditioned upon third parties, such as employees of the
company or convertible bondholders, exercising their rights to
require the issuance of such shares.
Director's Power to Vote on a Proposal in which the Director is Materially
Interested
None of our organizational documents contain any provision with respect to
(a) a director's power to vote on a proposal, arrangement or contract in which
the director is materially interested; (b) the director's power, in the absence
of an independent quorum, to vote compensation to themselves or any members of
their body; (c) borrowing powers exercisable by the directors and how such
borrowing powers can be varied; (d) retirement or non-retirement of directors
under an age limit requirement; and (e) number of shares, if any, required for
director's qualification.
Under applicable Swiss law, however, a director or officer of a company is
prohibited from representing the company in a transaction to which such director
or officer is a party unless the director or officer is explicitly authorized to
do so by the company, the transaction is later approved by the company or there
is no potential risk of overreaching by the director or officer. The same holds
true if a person who is a director or officer of two companies acts on both
sides of a transaction between the two companies. However, Swiss case law seems
to permit such "double representation" between affiliated companies, at least in
transactions between a parent company and its wholly-owned subsidiary. In
addition, the duty of loyalty imposed on a director or officer by Swiss
corporation law requires such director or officer to abstain from voting on a
matter in which the director or officer is not only materially interested but in
which the director or officer's interest is directly opposite to the one of the
company.
The Rights of ADR Holders
The rights of our ADR holders are set out in and limited by the provisions
of the deposit agreement among us, The Bank of New York and the owners and
beneficial owners from time to time of ADRs.
The following is a summary of the material provisions of the deposit
agreement. For more complete information, you should read the entire deposit
agreement and the form of ADR which were included as exhibits to the
registration statement on Form F-1 filed with the Securities Exchange Commission
in connection with our initial public offering and which are incorporated herein
by. The registration statement (including the exhibits and schedules thereto)
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the regional
offices of the Securities and Exchange Commission located at The Woolworth
Building, 233 Broadway, New York, New York 10279 and at Citicorp Center, 500
West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Securities and Exchange Commission also maintains a website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of this website is http://www.sec.gov.
52
Share Dividends and Other Distributions
The Bank of New York has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on shares or other deposited
securities, after deducting its fees and expenses. You will receive these
distributions in proportion to the number of shares your ADSs represent.
o Cash. The Bank of New York will convert any cash dividend or
other cash distribution we pay on the shares into U.S.
dollars, if it can do so on a reasonable basis and can
transfer the U.S. dollars to the United States. If that is not
possible or if any approval from the Swiss government is
needed and can not be obtained, the deposit agreement allows
The Bank of New York to distribute the foreign currency only
to those ADR holders to whom it is possible to do so. It will
hold the foreign currency it cannot convert for the account of
the ADR holders who have not been paid. It will not invest the
foreign currency and it will not be liable for any interest.
Before making a distribution The Bank of New York will deduct any
withholding taxes that must be paid under Swiss law. See "Additional
Information---Taxation" below. It will distribute only whole U.S. dollars and
cents and will round fractional cents to the nearest whole cent. If the exchange
rates fluctuate during a time when The Bank of New York cannot convert the
foreign currency, you may lose some or all of the value of the distribution.
o Shares. The Bank of New York may distribute additional ADSs
representing any shares we distribute as a dividend or free
distribution, if we furnish it promptly with satisfactory
evidence that it is legal to do so. The Bank of New York will
only distribute whole ADSs. It will sell shares which would
require it to issue a fractional ADS and distribute the net
proceeds in the same way as it does with cash. If The Bank of
New York does not distribute additional ADRs, each ADS will
also represent the new shares.
o Rights to purchase additional shares. If we offer holders of
our securities any rights to subscribe for additional shares
or any other rights, The Bank of New York may make these
rights available to you. The Bank of New York will first
consult with us and we must furnish The Bank of New York with
satisfactory evidence that it is legal to do so. If we don't
furnish this evidence, and The Bank of New York decides it is
practical to sell the rights, The Bank of New York will sell
the rights and distribute the proceeds in the same way as it
does with cash. The Bank of New York will allow rights that
are not distributed or sold to lapse. In that case, you will
receive no value for them.
If The Bank of New York makes rights available to you, it will exercise
the rights and purchase the shares on your behalf. The Bank of New York will
then deposit the shares and deliver ADSs to you. It will only exercise rights if
you pay it the exercise price and any other charges the rights require you to
pay.
U.S. securities laws may restrict transfers and cancellation of the ADSs
represented by shares purchased upon exercise of rights. For example, you may
not be able to trade these ADSs freely in the United States. In this case, The
Bank of New York may deliver the ADSs under a separate restricted deposit
agreement which will contain the same provisions as the deposit agreement,
except for changes needed to put the necessary restrictions in place.
o Other Distributions. The Bank of New York will send to you
anything else we distribute on deposited securities by any
means it thinks is legal, fair and practical, provided, if the
distribution is of securities, that we furnish it with
satisfactory evidence that it is legal to do so. If it cannot
make the distribution in that way, The Bank of New York has a
choice. It may decide to sell what we distributed and
distribute the net proceeds, in the same way as it does with
cash. Or, it may decide to hold what we distributed, in which
case ADSs will also represent the newly distributed property.
The Bank of New York is not responsible if it decides that it is unlawful
or impractical to make a distribution available to any ADR holders. For example:
53
o if Switzerland were to impose restrictions on convertibility
of its currency into U.S. dollars or transfers of currency out
of the country, it could be unlawful or impractical for The
Bank of New York to make a cash distribution to ADR holders
(currently no restrictions of this type exist);
o distribution of shares, rights or other securities to ADR
holders could be unlawful if the distribution would be
considered a sale under U.S. securities law and the shares,
rights or other securities were not registered under the
Securities Act of 1933 for offer and sale in the United
States; and
o a distribution to ADR holders could be impractical if the
expenses The Bank of New York would incur in making the
distribution would exceed the value of the distribution to ADR
holders.
We have no obligation to register ADSs, shares, rights or other securities
under the Securities Act. We also have no obligation to take any other action to
permit the distribution of ADRs, shares, rights or anything else to ADR holders.
This means that you may not receive the distributions we make on our shares or
any value for them if it is illegal or impractical for us to make them available
to you.
Deposit, Withdrawal and Cancellation
The Bank of New York will deliver ADSs if you or your broker deposit
shares or evidence of rights to receive shares with the custodian. Upon payment
of its fees and expenses and of any taxes or charges, such as stamp taxes or
stock transfer taxes or fees, The Bank of New York will register the appropriate
number of ADSs in the names you request and will deliver the ADRs at its office
to the persons you request.
You may turn in your ADRs at The Bank of New York's office. Upon payment
of its fees and expenses and of any taxes or charges, such as stamp taxes or
stock transfer taxes or fees, The Bank of New York will deliver the shares and
any other deposited securities underlying the ADR to you or a person you
designate at the office of the custodian. Or, at your request, risk and expense,
The Bank of New York will deliver the deposited securities at its office, if
feasible.
Voting Rights
You may instruct The Bank of New York to vote the shares underlying your
ADRs, but only if we ask The Bank of New York to ask for your instructions.
Otherwise, you won't be able to exercise your right to vote unless you withdraw
the shares. However, you may not know about the meeting enough in advance to
withdraw the shares.
If we ask for your instructions, The Bank of New York will notify you of
the upcoming vote and arrange to deliver our voting materials to you. The
materials will (1) describe the matters to be voted on and (2) explain how you
may instruct The Bank of New York to vote the shares or other deposited
securities underlying your ADSs as you direct. For instructions to be valid, The
Bank of New York must receive them on or before the date specified. The Bank of
New York will try, as far as practical, subject to Swiss law and the provisions
of our articles of incorporation, to vote or to have its agents vote the shares
or other deposited securities as you instruct. The Bank of New York will only
vote or attempt to vote as you instruct.
We can not assure you that you will receive the voting materials in time
to ensure that you can instruct The Bank of New York to vote your shares. In
addition, The Bank of New York and its agents are not responsible for failing to
carry out voting instructions or for the manner of carrying out voting
instructions. This means that you may not be able to exercise your right to vote
and there may be nothing you can do if your shares are not voted as you
requested.
The rules of The Nasdaq National Market currently require us to solicit
proxies from holders of ADSs. Accordingly, we intend to ask The Bank of New York
to seek your voting instructions for all shareholder meetings. However if we
were to delist the ADSs from The Nasdaq National Market, Nasdaq's rules no
longer require solicitation, we would have the right not to ask for voting
instructions. For example, we might decide to do so in order to save the
expenses of the solicitation, or if we decide that too few ADR holders were
interested in exercising voting rights, or if we preferred that the shares
represented by ADSs not be voted.
54
Fees and Expenses
ADR holders must pay: For:
- --------------------- ----
$5.00 (or less) per 100 ADSs o Each issuance of an ADR,
including as a result of a
distribution of shares or rights
or other property
o Each cancellation of an ADR for
the purpose of withdrawal,
including if the deposit
agreement terminates
$.02 (or less) per ADS o Any cash distribution to you
A fee equivalent to the fee that o Distribution of securities
would be payable if the distributed to holders of
securities distributed to you had deposited securities which are
been shares and the shares had distributed by The Bank of New
been deposited for issuance of York to ADR holders
ADSs
$1.50 per ADR delivered o Registration or transfer of
ADRs
Registration or transfer fees o Transfer and registration of
shares on our share register to
or from the name of The Bank of
New York or its agent when you
deposit or withdraw shares. No
such fees are currently charged
for registration or transfer of
our shares.
Expenses of The Bank of New York o Conversion of foreign currency
to U.S. dollars
Expenses of The Bank of New York o Cable, telex and facsimile
transmission expenses (if
expressly provided in the deposit
agreement)
Taxes and other governmental o As necessary.
charges The Bank of New York or
the custodian have to pay on any
ADR or share underlying an ADR,
for example, stock transfer
taxes, stamp duty or withholding
taxes
Any charges payable by The Bank o As incurred. No charges of this
of New York or its agents in type are currently made in the
connection with servicing the Swiss market.
deposited securities.
Payment of Taxes
The Bank of New York may deduct the amount of any taxes owed from any
payments to you. It may also sell deposited securities, by public or private
sale, to pay any taxes owed. You will remain liable if the proceeds of the sale
are not enough to pay the taxes. If The Bank of New York sells deposited
securities, it will, if appropriate, reduce the number of ADSs to reflect the
sale and pay to you any proceeds, or send to you any property, remaining after
it has paid the taxes.
Reclassifications, Recapitalizations and Mergers
If we: Then:
- ------ -----
o Change the nominal or par value The cash, shares or other securities
of our shares received by The Bank of New York will
o Reclassify, split up or become deposited securities. Each ADS
consolidate any of the deposited will automatically represent its
securities equal share of the new deposited
securities.
o Distribute securities on the The Bank of New York may, and will if
shares that are not distributed we ask it to, distribute some or all
to you of the cash, shares or other
o Recapitalize, reorganize, securities it received. It may also
merge, liquidate, sell all or issue new ADRs or ask you to
substantially all of our assets, surrender your outstanding ADRs in
or take any similar action exchange for new ADRs identifying the
new deposited securities.
Amendment and Termination
We may agree with The Bank of New York to amend the deposit agreement and
the ADRs without your consent for any reason. If the deposit amendment adds or
increases fees or charges, except for taxes and other governmental charges or
expenses of The Bank of New York for registration fees, facsimile costs,
delivery charges or similar items, or prejudices a substantial right of ADR
holders, it will only become effective 30 days after The
55
Bank of New York notifies you of the amendment. At the time an amendment becomes
effective, you are considered, by continuing to hold your ADR, to agree to the
amendment and to be bound by the ADRs and the deposit agreement as amended.
The Bank of New York will terminate the deposit agreement if we ask it to
do so. The Bank of New York may also terminate the deposit agreement if The Bank
of New York has told us that it would like to resign and we have not appointed a
new depositary bank within 60 days. In both cases, The Bank of New York must
notify you at least 30 days before termination.
After termination, The Bank of New York and its agents will do the
following under the deposit agreement but nothing else: (1) advise you that the
deposit agreement is terminated, (2) collect distributions on the deposited
securities, and (3) deliver shares and other deposited securities upon
cancellation of ADRs. One year after termination, The Bank of New York may sell
any remaining deposited securities by public or private sale. After that, The
Bank of New York will hold the money it received on the sale, as well as any
other cash it is holding under the deposit agreement for the pro rata benefit of
the ADR holders that have not surrendered their ADRs. It will not invest the
money and has no liability for interest. The Bank of New York's only obligations
will be to account for the money and other cash. After termination our only
obligations will be to indemnify The Bank of New York for some losses and to pay
certain amounts to The Bank of New York.
Limitations on Obligations and Liability
The deposit agreement expressly limits our obligations and the obligations
of The Bank of New York. It also limits our liability and the liability of The
Bank of New York. We and The Bank of New York:
o are only obligated to take the actions specifically set forth
in the deposit agreement without negligence or bad faith;
o are not liable if either of us is prevented or delayed by law
or circumstances beyond our control from performing our
obligations under the deposit agreement;
o are not liable if either of us exercises discretion permitted
under the deposit agreement;
o have no obligation to become involved in a lawsuit or other
proceeding related to the ADRs or the deposit agreement on
your behalf or on behalf of any other party; and
o may rely upon any documents we believe in good faith to be
genuine and to have been signed or presented by the proper
party.
In the deposit agreement, we agree to indemnify The Bank of New York for
acting as depositary, except for losses caused by The Bank of New York's own
negligence or bad faith, and The Bank of New York agrees to indemnify us for
losses resulting from its negligence or bad faith.
Requirements for Depositary Actions
Before The Bank of New York will deliver or register a transfer of an ADR,
make a distribution on an ADR, or permit withdrawal of shares, The Bank of New
York may require:
o payment of stock transfer or other taxes or other governmental
charges and transfer or registration fees charged by third
parties for the transfer of any shares or other deposited
securities;
o satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
o compliance with regulations it may establish, from time to
time, consistent with the deposit agreement, including
presentation of transfer documents.
The Bank of New York may refuse to deliver ADRs or register transfers of
ADRs generally when the transfer books of The Bank of New York or our transfer
books are closed or at any time if The Bank of New York or we think it advisable
to do so.
56
Your Right to Receive the Shares Underlying Your ADRs
You have the right to cancel your ADRs and withdraw the underlying shares
at any time except:
o When temporary delays arise because: (1) The Bank of New York
has closed its transfer books or we have closed our transfer
books; (2) the transfer of shares is blocked to permit voting
at a shareholders' meeting; or (3) we are paying a dividend on
our shares.
o When you or other ADR holders seeking to withdraw shares owe
money to pay fees, taxes and similar charges.
o When it is necessary to prohibit withdrawals in order to
comply with any laws or governmental regulations that apply to
ADRs or to the withdrawal of shares or other deposited
securities.
This right of withdrawal may not be limited by any other provision of the
deposit agreement.
Pre-release of ADRs
The deposit agreement permits The Bank of New York to deliver ADRs before
deposit of the underlying shares. This is called a pre-release of the ADR. The
Bank of New York may also deliver shares upon cancellation of pre-released ADRs
(even if the ADRs are canceled before the pre-release transaction has been
closed out). A pre-release is closed out as soon as the underlying shares are
delivered to The Bank of New York. The Bank of New York may receive ADRs instead
of shares to close out a pre-release. The Bank of New York may pre-release ADRs
only under the following conditions: (1) before or at the time of the
pre-release, the person to whom the pre-release is being made must represent to
The Bank of New York in writing that it or its customer owns the shares or ADRs
to be deposited; (2) the pre-release must be fully collateralized with cash or
other collateral that The Bank of New York considers appropriate; and (3) The
Bank of New York must be able to close out the pre-release on not more than five
business days' notice. In addition, The Bank of New York will limit the number
of ADSs that may be outstanding at any time as a result of pre-release, although
The Bank of New York may disregard the limit from time to time, if it thinks it
is appropriate to do so.
C. Material Contracts.
Agreements in Connection with our Separation from Unaxis
For a summary description of these agreements, to the extent they are
material, please see "Major Shareholders and Related Party Transactions--Related
Party Transactions" above.
For a summary description of the deposit agreement between us, The Bank of
New York as depositary and the owners and beneficial owners from time to time of
ADRs, please see "Additional Information---The Rights of ADR Holders".
Loan Agreement with Credit Suisse
On November 23, 2000, we entered into a loan agreement with Credit Suisse
to provide us with working capital financing in an amount of up to U.S.$30.0
million in the form of either a current account loan, fixed advances,
bid-/advance payment-/performance bonds, the issuance of letters of credit or
margin coverage for foreign exchange forward transactions. The initial interest
rates for any current account loan were fixed at 9% for loans in U.S.$, 7.75%
for loans in Euro and 5.25% for loans in CHF. Credit Suisse, however, reserved
the right to make adjustments to reflect prevailing money and capital market
conditions. Credit Suisse will in each case determine the interest rates for any
fixed advances in accordance with prevailing money and capital market rates and
the pricing grid attached as annex 1 to the agreement. Currently, the interest
rate for fixed advances is set at LIBOR +1.25% per annum. As consideration for
its services, Credit Suisse charged us an upfront fee of 0.125% upon closing of
the agreement, calculated on the facility amount, and will charge us a quarterly
fee of 0.25% on the loan amount when used as current overdraft facility and a
commitment fee of 0.1% per annum on the entire facility amount, payable
quarterly in arrears, which latter amount will be deducted on payable interest
and letter of credit fees on all utilizations under the credit facility. The
agreement has a term of one year and will automatically be extended for another
year, unless terminated with effect as of the end of a term by one party upon 90
days prior written notice.
57
The agreement contains a pari passu covenant with respect to any existing or
future similar bank loans and a material adverse change clause. The agreement is
governed by Swiss law. Currently, we have not drawn funds under this facility.
Loan Agreement with HypoVereinsbank
On February 28, 2001, the Company entered into two revolving credit
facilities with HypoVereinsbank. The credit facilities include a HKD 10.0
million working capital financing arrangement and a HKD10.0 million margin
coverage arrangement for foreign exchange forward transactions. The working
capital financing arrangement can be either in the form of a current account
overdraft facility, fixed advances with a maximum maturity of six months, short
term trust receipt financing, issuance of letters of credit, or issuance of bank
guarantees. The interest rates for the working capital facility are Hong Kong
Interbank Offered Rate (HIBOR), plus 1% for loans in Hong Kong dollars and 1%
for loans in U.S. dollars. The Company will be charged a monthly guarantee fee
of 0.125% of the outstanding balance, or a minimum of HKD200, and upon drawing
on the credit line, the Company will be charged an opening commission of 0.25%
on the first U.S.$50, and 0.0625% on the balance. The working capital financing
arrangement expires on February 28, 2002 and has an option for extension. The
Company has U.S.$0 outstanding under the financing arrangement as of December
31, 2001.
Loan Agreement with Dresdner Bank
On March 31, 2001, the Company entered into a working capital financing
arrangement with Dresdner Bank in the amount of DM 10.0 million. The financing
arrangement can be either in the form of a current account overdraft facility or
fixed advances. The interest rate for the overdraft facility is a fixed rate of
6.95%, and may be adjusted for changes in market interest rates. The interest
rate for working capital advances in excess of 500,000 DM for 30 days or more is
EURIBOR plus 0.95%. The working capital financing arrangement expires on March
31, 2002 and has an option for extension. The Company has U.S.$0 outstanding
under the financing arrangement as of December 31, 2001.
Lease Agreements for Manufacturing Facilities in Balzers, Liechtenstein and
Cologne, Germany
The lease agreement between Unaxis Balzers AG as landlord and INFICON AG,
Balzers as tenant for the manufacturing facility in Balzers, Liechtenstein was
entered into on September 1, 2000 and is effective until December 31, 2001. It
is renewable for additional terms of three months each unless terminated three
months prior to expiration of its respective term. The rent is calculated based
upon certain factors such as depreciation of and interest from building and
infrastructure for costing purposes and adjusted by the parties to the agreement
if there is a material change to any of these factors. As per September 1, 2000,
the rent was CHF 1.1 million plus additional expenses in the amount of CHF
886,000. The rent is payable on a monthly basis. Within the first half of 2002
INFICON AG will move into a new leased facility owned by a local private
entrepreneur. The current lease term is 12 years and contains two options for
the Company to extend the lease up to an additional 14 years. Annual lease costs
are CHF 2,918,000.
The lease agreement between BuL Vermietungsgesellschaft mbH & Co. KG as
landlord and INFICON GmbH as tenant for the manufacturing facility in Cologne,
Germany was entered into with effect as of July 1, 2000 for a term of ten years.
The monthly rent is DM 61,822 and will be adjusted according to the prevailing
German cost of living-index. There are additional monthly charges in the amounts
of DM 12,794 and DM 2,000 to cover utilities and administrative expenses and a
monthly prepayment in the amount of DM 9,000 for additional costs which will be
calculated based on a certain formula. The lease agreement is governed by German
law and contains customary representations and warranties. In addition, landlord
and tenant agreed that in the beginning of 2001 the tenant will vacate some of
the used area and take over some additional floor-space in other buildings and
that the landlord will make a correlating adjustment to the rent.
D. Exchange Controls.
Other than in connection with government sanctions imposed on Iraq,
Serbia, Libya (currently suspended) and portions of Angola (UNITA), there are
currently no government laws, decrees or regulations in Switzerland that
restrict the export or import of capital, including, but not limited to, Swiss
foreign exchange controls on the payment of dividends, interest or liquidation
proceeds, if any, to non-resident holders of capital stock of Swiss
corporations.
58
E. Taxation.
Swiss Taxation of Residents of the United States
Under Swiss tax laws, dividends paid and similar cash or in-kind
distribution made by us to a holder of shares (including dividends on
liquidation proceeds and stock dividends) are subject to a Swiss federal
withholding tax at a rate of presently 35%. The withholding tax must be withheld
by us from the gross distribution and be paid to the Swiss Federal Tax
Administration.
Pursuant to the current Convention Between the United States of America
and the Swiss Confederation for the Avoidance of Double Taxation with Respect to
Taxes on Income entered into force on December 19, 1997 (the "Treaty"), a U.S.
holder of shares is eligible for a reduced rate of the withholding tax equal to
15% of the dividend, provided that such holder (1) is a resident of the United
States for purposes of the Treaty, (2) qualifies for benefits under the Treaty
and (3) holds less than 10% of the voting stock of the company.
Such an eligible holder must apply for a refund of the amount of the Swiss
withholding tax in excess of the 15% Treaty rate. The claim for refund must be
filed on Swiss Tax Form 82, which may be obtained from any Swiss Consulate
General in the United States or from the Federal Tax Administration of
Switzerland at the address below. Three copies of the form must be duly
completed, signed before a notary public of the United States, and sent to the
Federal Tax Administration of Switzerland, Eigerstrasse 65, CH-3003 Berne,
Switzerland. The form must be accompanied by suitable evidence of deduction of
the Swiss withholding tax withheld at source, such as certificates of deduction,
signed bank vouchers or credit slips. The form may be filed on or after July 1
or January 1 following the date the dividend was payable, but no later than
December 31 of the third year following the calendar year in which the dividend
became payable.
United States Taxation
The following discussion, based on current law, is a summary of the
material United States federal income tax considerations to you of the
acquisition, ownership and disposition of the ADSs or shares as of the date
hereof. The discussion of the United States federal income tax consequences set
forth below is based upon the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations, and judicial decisions
and administrative interpretations thereunder, all as currently in effect, and
such authorities may be subject to subsequent changes in United States law or in
any double taxation convention or treaty between the United States and
Switzerland, which changes may have retroactive effect, so as to result in
federal income tax consequences different from those discussed below. In
addition, this summary is based, in part, upon representations made by the
Depositary to us and assumes that the Deposit Agreement, and all other related
agreements, will be performed in accordance with their terms. This discussion
does not purport to deal with all aspects of United States federal income
taxation that may be relevant to a particular holder in light of the holder's
circumstances, for example, persons subject to the alternative minimum tax
provisions of the Internal Revenue Code. Also, this discussion does not deal
with special rules that may apply to you if you are a member of a special class
of holders subject to special rules, including:
o a dealer in securities or currencies,
o a trader in securities that elects to use a mark-to-market
method of accounting for your securities holdings,
o a financial institution,
o a life insurance company,
o a tax-exempt organization,
o a person that actually or constructively owns 10% or more of
our voting stock,
o a person holding ADS or shares as part of a hedging,
conversion or constructive sale transaction or straddle, or
o a person whose "functional currency" is not the United States
dollar.
59
The discussion also does not discuss any aspect of state, local or foreign
law, nor federal estate and gift tax law.
The discussion below pertains to you only if you are a "U.S. Holder" who
qualifies for benefits under the Treaty, holds less than 10% of our total shares
outstanding, holds the ADSs or shares as a capital asset, and whose functional
currency is the U.S. dollar. You are a U.S. Holder if you are a beneficial owner
of ADSs or shares and you are:
o a citizen or individual resident of the United States,
o a corporation, partnership or other entity created in or under
the laws of the United States or any political subdivision
thereof,
o an estate, the income of which is subject to United States
federal income taxation regardless of its source, or
o a trust if (A) a court within the United States is able to
exercise primary supervision over the administration of the
trust and (B) one or more United States persons have the
authority to control all substantial decisions of the trust.
You will qualify for benefits under the Treaty under most circumstances if
you are a resident of the United States for purposes of the Treaty and you are a
U.S. Holder.
You are urged to consult with your own tax advisor regarding the tax
consequences of investing in the ADSs or shares, including the tax effects of
any state, local, foreign, or other tax laws and possible changes in the tax
laws.
Distributions
For United States federal income tax purposes, you will be required to
include as ordinary dividend income the full amount (not reduced by any Swiss
withholding tax) of any distribution to the extent paid to you out of the our
current or accumulated earnings and profits as defined for United States federal
income tax purposes. Such dividend will constitute income from sources outside
the United States. Dividends paid by us are not eligible for the dividends
received deduction generally allowed to corporate shareholders. If any
distribution exceeds our current and accumulated earnings and profits, such
excess will be treated as a nontaxable return of capital to the extent of your
tax basis in the shares and thereafter as capital gain. Consequently, such
distributions in excess of our current and accumulated earnings and profits
would not give rise to foreign source income and as a U.S. Holder, you would not
be able to use the foreign tax credit arising from any Swiss withholding tax
imposed on such distribution unless such credit can be applied (subject to
applicable limitations) against United States tax due on other foreign source
income in the appropriate category for foreign tax credit purposes.
Because payments of dividends with respect to ADSs and shares are to be
made in Swiss Francs, a U.S. Holder will be required to determine the amount of
dividend income by translating the Swiss Francs into U.S. dollars at the "spot
rate" on the date of receipt regardless of whether such Swiss Francs are
converted into U.S. dollars. The tax basis of Swiss Francs received by you will
equal the U.S. dollar equivalent of such Swiss Francs at the spot rate on the
date such Swiss Francs are received by you. Upon subsequent exchange of such
Swiss Francs for U.S. dollars, or upon the use of such Swiss Francs to purchase
property, you will recognize exchange gain or loss equal to the difference
between your tax basis for the Swiss Francs and the U.S. dollars received or, if
property is received, the fair value of the property on the date of the
exchange. Such gain or loss will be treated as United States source ordinary
income or loss. A U.S. Holder may be required to recognize exchange gain or loss
if the amount of any refund of the Swiss withholding tax differs from the United
States dollar value of such refund on the date the dividends were received.
You may be entitled to claim as a credit against your United States
federal income tax liability, or alternatively you may deduct from your United
States federal taxable income, the amount of the withholding tax to the extent
of the 15% Treaty rate. However, your ability to claim a foreign tax credit is
subject to a general limitation that is determined by the amount of your United
States source income relative to your total income. In addition, your ability to
claim the credit is subject to a specific basket limitation that is determined
in a similar way with respect to a specific type of income. Any refundable
portion of the paid Swiss withholding tax, such as the
60
amount of the withholding tax in excess of the 15% Treaty rate, would not be
eligible for credit against United States federal income tax liability. For
foreign tax credit purposes, dividends paid by us will constitute "passive
income" or, in the case of some U.S. holders, "financial services income". The
rules governing the foreign tax credit are complex. You are urged to consult
your own tax advisor regarding the availability of the foreign tax credit under
your particular circumstances.
Sale, Exchange or Other Disposition of Shares
Any gain or loss on a sale, exchange or other disposition of ADSs or
shares by a U.S. Holder will be capital gain or loss for United States federal
income tax purposes in an amount equal to the difference between the amount
realized on the disposition and the U.S. Holder's tax basis in the ADSs or
shares. Any such gain or loss will be United States source gain or loss and will
be long-term capital gain or loss if you held the ADSs or shares for more than
one year. In the case of an individual U.S. Holder, capital gains will be
subject to U.S. federal income tax at preferential rates if specified minimum
holding periods are met. The deductibility of capital losses is subject to
limitations.
Passive Foreign Investment Company Considerations
We believe that we will not be treated as a passive foreign investment
company (a "PFIC") for United States federal income tax purposes for the current
taxable year and expect to continue our operations in such a manner that we will
not be a PFIC. However, this is a factual determination that must be made after
the close of each taxable year and therefore is subject to change. We would be a
PFIC with respect to you if for any taxable year in which you held our ADSs or
shares either (1) 75% or more of our gross income consists of some specified
types of "passive" income, such as dividends, interest, rents and royalties, or
(2) the average percentage of its assets (by value) that produce or are held for
the production of passive income is at least 50%. If we were to become a PFIC
for any taxable year during which you owned our ADSs or shares you (1) would be
subject to additional taxes on certain distributions received from us and on any
gain realized upon the sale or other dispositions of the ADSs or shares unless
you made a mitigating tax election if available and (2) would be required to
file an annual information return describing the distributions received from us
and any gain realized upon the disposition of a beneficial interest in us. You
should consult your own tax advisor regarding the potential application of the
PFIC rules to your ownership of ADSs or shares.
United States Information Reporting and Backup Withholding
Dividend payments with respect to the ADSs and shares and proceeds from
the sale, exchange or redemption of the ADSs and shares paid to U.S. Holders
other than some exempt recipients (such as corporations) may be subject to
information reporting to the Internal Revenue Service and possible United States
backup withholding at 31% rate. Backup withholding will not apply, however, to a
holder who furnishes a correct taxpayer identification number or certificate of
foreign status and makes any other required certification or who is otherwise
exempt from backup withholding. A U.S. Holder will provide such certification on
Internal Revenue Service Form W-9. Shareholders should consult their tax
advisors regarding the application of the information reporting and backup
withholding rules.
Amounts withheld as backup withholding may be credited against your federal
income tax liability, and you may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the Internal Revenue Service and furnishing any required information.
F. Dividends and Paying Agents.
Not applicable.
G. Statements by Experts.
Not applicable.
H. Documents on Display.
Except for the documents listed below, all documents referred to in this
annual report were either filed with the Securities and Exchange Commission as
exhibits to the registration statement on Form F-1 that became effective
61
on November 8, 2000 or are being filed as exhibits to this annual report on Form
20-F and may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Securities and Exchange Commission
located at The Woolworth Building, 233 Broadway, New York, New York 10279 and at
Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Securities and Exchange Commission also maintains a
website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of this website is http://www.sec.gov.
Copies of the our articles of incorporation are available at the office of
INFICON Holding AG, Hintergasse 15 B, 7310 Bad Ragaz, Switzerland, and an
English translation thereof has been filed with the Securities and Exchange
Commission as an exhibit to the registration statement on Form F-1.
I. Subsidiary Information.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Certain members of our combined group have periodically received advanced
funds from Unaxis. If interest rates were to increase by 10%, there would not be
a material impact on our results of operations or financial position. We do not
expect to have significant outstanding debt during the next fiscal year.
Foreign Exchange Rate Risk
Approximately 64.6%, 65.3%, and 69.0% of our net sales in the years ended
December 31, 2001, 2000 and 1999, respectively, were recognized through our
subsidiaries outside the United States. Our foreign subsidiaries maintain their
accounting records in their local currencies. Consequently, period-to-period
comparability of our results of operations is affected by fluctuations in
exchange rates. We derive a significant portion of our cash flows from
foreign-denominated revenue. To the extent the dollar value of
foreign-denominated revenue is diminished as a result of a strengthening U.S.
dollar, our results of operations and cash flows could be adversely affected.
The primary currencies to which we have exposure are the Japanese yen, the
Swiss franc, the Deutsche mark and the euro. This exposure arises from our sales
of inventory among our subsidiaries for resale in local currencies.
Consequently, the cash flows from our subsidiaries are affected by exchange rate
fluctuations. To reduce the risks associated with foreign currency rate
fluctuations, each of our manufacturing facilities in the United States, Germany
and Liechtenstein enters into forward exchange contracts on a continuing basis
for the purpose of controlling economic risks related to accounts receivable not
denominated in its local currency, as well as risk related to our probable
anticipated, but not firmly committed, transactions. The anticipated
transactions whose risks are being hedged are the intercompany purchases of
inventory among our various entities for resale in local currency. The time
periods of the anticipated transactions that are hedged are generally one year
or less.
We had (gains) and losses from foreign currency transactions and foreign
exchange contracts of U.S.$1.029 million U.S.$0.136 million and U.S.$0.379
million for the years ended December 31, 2001, 2000 and 1999, respectively,
which are recorded as "other expense, net". The potential fair value loss for a
hypothetical 10% adverse change in forward currency exchange rates on our
forward exchange contracts at December 31, 2001, 2000 and 1999 would be
U.S.$0.922 million, U.S.$0.530 million and U.S.$0.896 million, respectively.
This potential loss was estimated by calculating the fair value of the forward
exchange contracts at December 31, 2001, 2000 and 1999 and comparing that to the
calculation using the hypothetical forward currency exchange rates. While we do
not enter forward exchange contracts for trading purposes, there can be no
assurance that any losses realized on such instruments will be fully offset by
gains on the underlying exposure. We plan to continue to use forward exchange
contracts in order to mitigate the impact of exchange rate fluctuations.
We have financial instruments, including cash, receivables, and payables,
that are denominated in foreign currencies other than in U.S. dollars. The net
asset value of these financial instruments at December 31, 2001 and 2000 was
U.S.$38.4 million and U.S.$29.6 million, respectively. Foreign currency balances
are primarily
62
denominated in Euros, Swiss francs and Japanese yen. Although we generally enter
into foreign currency forward contracts, there still exists the risk related to
functional currency exchange rate exposures. The result of a uniform 10%
strengthening in the value of the dollar relative to the currencies in which our
net assets are denominated would result in a decrease in the net equity balance
of U.S.$6.2 million, U.S.$12.9 million and U.S.$2.7 million as of December 31,
2001, 2000 and 1999, respectively and a decrease in net income and cash flows of
U.S.$0.883 million, U.S.$1.5 million and U.S.$0.562 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
Item 12. Description of Securities Other Than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
Use of Proceeds
The registration statement in Form F-1 (Commission File No. 333-12706)
which we filed with the Securities and Exchange Commission in connection with
our initial public offering became effective on November 8, 2000, the offering
date. In our initial public offering, 1,736,000 INFICON shares, with a par value
of CHF 10 each, directly or in the form of ADSs, were registered with the
Securities and Exchange Commission and sold publicly in Switzerland and the
United States and to institutional investors outside of Switzerland and the
United States. Of the 1,736,000 shares, 315,000 were sold by us and 1,421,000 by
Unaxis. The aggregate price of the offering amount registered and sold was CHF
390,600,000 (U.S.$219,903,963).
Credit Suisse First Boston (Europe) Limited, Arnhold and S. Bleichroeder,
Inc., Credit Suisse First Boston, Zurich, Deutsche Bank AG London, Bank Julius
Baer & Co. Ltd., Pictet & Cie and Bank Vontobel AG were the underwriters in our
initial public offering.
From November 8, 2000 to December 31, 2000, the amount of our expenses
incurred in connection with our formation and our initial public offering,
including underwriting discounts and expenses paid to or for underwriters was
U.S.$4,165,000.
We received net offering proceeds of CHF 63,669,571 (U.S.$35,708,121). In
calculating this amount, we already considered the amount of shares purchased by
our employees and the amount borrowed from us by our employees under our equity
incentive plans described in "Directors, Senior Management and Employees---Share
Ownership" above.
We used our net proceeds of the offering mainly to prepay a note in the
principal amount of CHF 50.1 million (U.S.$28.2 million), with a maturity date
of April 4, 2001 and bearing interest at the rate of LIBOR plus 0.25%, issued to
Unaxis in connection with the reorganization.
The remainder is being used, together with cash from other sources
available to us, for general corporate purposes, including working capital
requirements, and potentially, to fund acquisitions.
We have not received any portion of the proceeds from the sale of shares
by Unaxis.
Item 15. [Reserved]
Item 16. [Reserved]
63
PART III
Item 17. Financial Statements
We have responded to Item 18 in lieu of responding to this item.
Item 18. Financial Statements
Index to Financial Statements
1. Audited Financial Statements
Page Number
-----------
Report of the Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3
Consolidated Statements of Income for the three years in the period ended December 31, 2001 F-4
Consolidated Statements of Shareholder's Equity for the three years in the period ended F-5
December 31, 2001
Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2001 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-25
All other schedules have been omitted as the required information is not
applicable or the information is presented in the financial statements or the
notes thereto.
64
INFICON Holding AG
Consolidated Financial Statements
Years ended December 31, 2001, 2000 and 1999
Report of the Independent Auditors ....................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets .............................................. F-3
Consolidated Statements of Income ........................................ F-4
Consolidated Statements of Stockholders' Equity .......................... F-5
Consolidated Statements of Cash Flows .................................... F-6
Notes to Consolidated Financial Statements ............................... F-7
Schedule II - Valuation of Qualifying Accounts ........................... F-25
All other schedules have been omitted as the required information is not
applicable or the information is presented in the financial statements or the
notes thereto.
F-1
Report of Independent Auditors
Board of Directors
INFICON Holding AG
We have audited the accompanying consolidated balance sheets of INFICON Holding
AG (INFICON) as of December 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 8. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of INFICON Holding AG
at December 31, 2001 and 2000, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
January 25, 2002
Buffalo, New York
F-2
INFICON Holding AG
Consolidated Balance Sheets
(U.S. Dollars in Thousands, except per share amounts)
December 31
2001 2000
---- ----
Assets
Current assets:
Cash and cash equivalents $ 33,788 $ 28,700
Trade accounts receivable, net 17,166 29,386
Accounts receivable-affiliates 979 5,721
Inventories 21,729 22,218
Deferred tax asset 3,440 2,122
Other current assets 2,079 7,620
--------- ---------
Total current assets 79,181 95,767
Property, plant and equipment, net 16,020 13,941
Deferred tax asset 38,837 40,519
Other assets 4,156 2,707
--------- ---------
Total assets $ 138,194 $ 152,934
========= =========
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable, net $ 4,855 $ 9,632
Accounts payable -affiliates 409 18,354
Accrued liabilities 10,641 10,341
Income taxes payable 1,084 3,343
Deferred tax liability 451 596
--------- ---------
Total current liabilities 17,440 42,266
Long-term debt -- 869
Deferred tax liability 1,230 1,268
Stockholders' equity:
Common stock (2,770,000 shares authorized; 2,315,000
shares issued; par value CHF 10 (U.S.$5.63) 13,033 13,033
Additional paid-in capital 97,349 93,531
Notes receivable from officers (523) (1,307)
Retained earnings 15,225 5,273
Accumulated other comprehensive loss (5,560) (1,999)
--------- ---------
Total stockholders' equity 119,524 108,531
--------- ---------
Total liabilities and stockholders' equity $ 138,194 $ 152,934
========= =========
See notes to consolidated financial statements.
F-3
INFICON Holding AG
Consolidated Statements of Income
(U.S. Dollars in thousands, except per share amounts)
Year ended December 31
2001 2000 1999
---------------------------------
Net sales $144,113 $169,976 $129,992
Cost of sales 78,398 83,231 69,243
---------------------------------
Gross profit 65,715 86,745 60,749
Research and development 12,431 11,037 11,523
Selling, general and administrative 39,961 41,889 38,332
---------------------------------
Income from operations 13,323 33,819 10,894
Interest expense (income), net (483) 292 130
Other expense, net 1,488 1,854 804
---------------------------------
Income before income taxes 12,318 31,673 9,960
Provision for income taxes 2,366 8,742 2,584
---------------------------------
Net income $ 9,952 $ 22,931 $ 7,376
=================================
Basic net income per share $ 4.30 $ 11.21 $ 3.69
Diluted net income per share $ 4.30 $ 11.21 $ 3.69
See notes to consolidated financial statements.
F-4
INFICON Holding AG
Consolidated Statements of Stockholders' Equity
(U.S. Dollars in thousands)
Note Accumulated
Additional Receivable Advances Other Total
Common Paid-in From Retained to/from Comprehensive Stockholders'
Stock Capital Officers Earnings Unaxis Loss Equity
-----------------------------------------------------------------------------------
Balance at January 1, 1999 $ -- $ -- $ -- $ -- $47,618 $ (567) $ 47,051
Net income 7,376 -- 7,376
Other comprehensive income, net of tax:
Foreign currency translation adjustments (3,891) (3,891)
---------
Total comprehensive income 3,485
Net transactions with Unaxis (9,176) -- (9,176)
-----------------------------------------------------------------------------------
Balance at December 31, 1999 -- -- -- -- 45,818 (4,458) 41,360
Net income 5,273 17,658 -- 22,931
Other comprehensive income, net of tax:
Foreign currency translation adjustments 2,459 2,459
---------
Total comprehensive income 25,390
Net transactions with Unaxis (5,138) (5,138)
Reclass upon reorganization of Company 11,260 18,886 (30,146) -- --
Initial public offering 1,773 33,935 35,708
Payment to Unaxis from IPO proceeds (28,192) -- (28,192)
Issuance of stock for promissory notes (1,371) (1,371)
Payments on promissory notes 122 122
Foreign currency revaluation of notes (58) (58)
Deferred tax 40,710 40,710
-----------------------------------------------------------------------------------
Balance at December 31. 2000 13,033 93,531 (1,307) 5,273 -- (1,999) 108,531
Net income 9,952 9,952
Other comprehensive income;
Cumulative effect of change in accounting
principle as of January 1, 2001 for
unrealized gains on foreign currency
hedges, net of related income
tax of $218 327 327
Unrealized loss on foreign currency
hedges, net of related income tax of
$144 (196) (196)
Foreign currency translation adjustments (3,692) (3,692)
---------
Total comprehensive income 6,391
Payments on promissory notes 784 784
Adjustment for IPO expenses and
reorganization taxes 3,818 3,818
-----------------------------------------------------------------------------------
Balance at December 31, 2001 $13,033 $97,349 $ (523) $15,225 $ -- $(5,560) $ 119,524
===================================================================================
See notes to consolidated financial statements.
F-5
INFICON Holding AG
Consolidated Statements of Cash Flows
(U.S. Dollars in thousands)
Year ended December 31
2001 2000 1999
----------------------------------
Cash flows from operating activities:
Net income $ 9,952 $ 22,931 $ 7,376
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property, plant and equipment 2,854 3,565 4,049
Loss (Gain) on disposal of property, plant and equipment 559 -- (310)
Deferred taxes (56) 625 (198)
Changes in operating assets and liabilities:
Trade accounts receivable 17,521 (14,553) (1,803)
Inventories 1,260 (2,535) 2,699
Other assets 3,409 (7,561) (68)
Accounts payable (10,165) 12,632 876
Accrued liabilities 211 3,322 2,041
Income taxes payable 86 2,345 22
Other liabilities -- (1,048) (1,547)
Accrued pension benefits (879) (977) 3
----------------------------------
Net cash provided by operating activities 24,752 18,746 13,140
Cash flows from investing activities:
Purchases of property, plant and equipment (5,597) (4,853) (3,289)
Proceeds from sale of property, plant and equipment 149 -- 437
Purchase of HAPSITE Business (note 3) (2,000) -- --
----------------------------------
Net cash used in investing activities (7,448) (4,853) (2,852)
Cash flows from financing activities:
Payments on notes receivable from officers 795 122 --
(Payment on) proceeds from long-term debt (869) 869 --
Advances from (payments to) Unaxis for reorganization (11,248) 10,920 --
Proceeds from IPO -- 34,337 --
Payment to Unaxis from IPO proceeds -- (28,192) --
Net advances to Unaxis -- (5,138) (9,176)
----------------------------------
Net cash (used in) provided by financing activities (11,322) 12,918 (9,176)
----------------------------------
Effect of exchange rate changes on cash and cash equivalents (894) 1,399 (916)
Increase in cash and cash equivalents 5,088 28,210 196
Cash and cash equivalents at beginning of period 28,700 490 294
----------------------------------
Cash and cash equivalents at end of period $ 33,788 $ 28,700 $ 490
==================================
See notes to consolidated financial statements.
F-6
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(U.S.$ in thousands, except per share amounts)
1. Description of Business
INFICON Holding AG (INFICON or the "Company") is a leading developer,
manufacturer and supplier of vacuum instrumentation to semiconductor and other
industries worldwide. The Company's products include in situ analyzers, ultra
clean processing equipment, leak detectors and vacuum measurement and component
products. INFICON is subject to risks common to companies in the semiconductor
industry including, but not limited to, the highly cyclical nature of the
semiconductor industry leading to recurring periods of oversupply, development
by INFICON or its competitors of technological innovations, dependence on key
personnel and the protection of proprietary technology.
Prior to the reorganization and public offering in November 2000, INFICON
represented the Instrumentation business of its parent company, Unaxis Holding
AG (Unaxis). In the first quarter of 2000, Unaxis announced its intent to
reorganize the operations of the Instrumentation Group into a new company, and
sell a portion of the reorganized business to the public. Immediately prior to
the reorganization and public offering, Unaxis transferred the Instrumentation
Group to a newly formed corporation, INFICON Holding AG. The consolidated
financial statements of the Company represent the assets, liabilities, and
operations of the business units which Unaxis transferred. The financial
statements represent the combined operations of these business units which
operated as a division of Unaxis prior to the asset transfer and the
consolidated operations of the Company and its wholly-owned subsidiaries after
the reorganization. INFICON has operations in the United States, Liechtenstein,
Switzerland, Germany, Finland, Japan, United Kingdom, France, Korea, Singapore,
Taiwan, China and Hong Kong. Prior to the reorganization, these operations were
divisions of wholly-owned subsidiaries of Unaxis.
The consolidated financial statements for the period prior to the asset
transfer include expenses (primarily corporate expenses) based on an allocation
of the overall expenses of Unaxis. Unaxis' historical cost basis of assets and
liabilities has been reflected in the Company's financial statements. The
consolidated financial statements for 2000, included herein, reflect the changes
that occurred in the capitalization and public offering of INFICON Holding AG as
a result of, or after, the reorganization.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in the consolidation. Prior to the
reorganization, the financial statements include the accounts of each of the
business units encompassing the Instrumentation Group.
Revenue Recognition
The Company recognizes revenue upon the transfer of title which is
generally upon shipment. When customer's acceptance is required, revenue is not
recognized until the customer's acceptance is received. The Company accrues for
anticipated returns and warranty costs upon shipment.
Cash and Cash Equivalents
All highly-liquid investments with an original maturity of three months or
less at the date of purchase are considered to be cash equivalents.
F-7
2. Summary of Significant Accounting Policies (continued)
Trade Accounts Receivable
Trade accounts receivable are shown net of allowances for doubtful
accounts of U.S.$1,685 and U.S.$1,154 at December 31, 2001 and 2000,
respectively. The Company markets its products to a diverse customer base
globally. Trade credit is extended based upon evaluation of each customer's
ability to perform its obligations, these evaluations are updated periodically
and the Company generally does not require collateral.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
Income Taxes
Deferred taxes result from the temporary differences in the carrying value
of assets and liabilities for financial and tax reporting purposes.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for major
renewals and betterments that extend the useful lives of property, plant and
equipment are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred. When assets are sold or otherwise disposed of, the cost
and related accumulated depreciation are eliminated from the accounts and any
resulting gain or loss is recognized in earnings.
Depreciation is provided on the straight-line method over the estimated
useful lives of 20 years for buildings and three to five years for machinery and
equipment.
Intangible Assets
The costs of identified intangible assets and goodwill are generally
amortized on a straight-line basis over five years. Other assets are shown net
of accumulated amortization of U.S.$1,270 and U.S.$2,613 at December 31, 2001
and 2000, respectively. The Company periodically reviews goodwill to evaluate
whether changes have occurred that would suggest goodwill may be impaired based
on the estimated undiscounted cash flows of the asset to which goodwill relates
over the remaining amortization period. If this review indicates that the
remaining useful life of goodwill requires revision or that the goodwill is not
recoverable, the carrying amount of the goodwill is reduced by the estimated
shortfall of cash flows on a discounted basis. Other intangible assets are also
evaluated periodically for impairment using undiscounted cash flows over the
remaining useful life of the respective asset. If this review indicates that the
remaining useful life of the respective intangible asset requires revision, the
carrying amount of the asset is reduced by the estimated shortfall of cash flows
on a discounted basis. In 1999, the Company recorded an impairment loss in the
semiconductor vacuum instrumentation segment of U.S.$522 in selling, general and
administrative expenses to write down the value of goodwill and patents related
to the acquisition of Low Entropy Systems to its fair value. This determination
was made as a result of the product having low actual and projected sales.
Research and Development
Research and development costs are expensed as incurred.
Shipping and Handling Costs
Revenue and costs associated with shipping products to customers are
included in sales and cost of sales, respectively.
Advertising Costs
Advertising costs (U.S.$1,455 in 2001, U.S.$2,360 in 2000 and U.S.$2,245
in 1999) are expensed as incurred.
F-8
2. Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the
applicable local currency. For those subsidiaries, assets and liabilities are
translated to U.S. dollars at year-end exchange rates. Income and expense
accounts are translated at the average exchange rates prevailing for the year.
The resulting translation adjustments are included in accumulated other
comprehensive loss in consolidated stockholders' equity. Gains and losses from
foreign currency transactions are reported in the income statement under other
expense, net. The Company's shares are registered on the public exchanges in the
United States and Switzerland. Therefore, in the future, dividends may be
declared in the currency of either country.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the pooling of
interests method. The implementation of SFAS 141 did not have a material impact
to the Company's consolidated income, financial position, or cash flows.
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets", which is effective for the Company on January 1, 2002. SFAS 142
requires, among other things, the discontinuance of goodwill amortization and
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, and reclassification of certain intangibles out of previously
reported goodwill. SFAS 142 also requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. As a result of
implementing SFAS 142, the Company will stop amortizing any goodwill effective
January 1, 2002 but will continue to amortize other intangible assets. The
elimination of any goodwill amortization will not have a material impact to the
Company's consolidated income, financial position, or cash flows.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management is
currently determining what effect, if any, SFAS 143 will have on its financial
position and results of operations.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 supersedes FASB 121 "Accounting for
the Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed
of." SFAS 144 applies to all long-lived assets (including discontinued
operations) and consequently amends Accounting Principles Board Opinion 30,
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business." SFAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001, and will be adopted by the
Company, as required, on January 1, 2002. Management is currently determining
what effect, if any, SFAS 144 will have on its financial position and results of
operations.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. Management
believes the estimates are reasonable.
F-9
2. Summary of Significant Accounting Policies (continued)
Software Cost
Effective January 1, 1999, the Company adopted SOP 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use" and began to
capitalize the cost of software obtained for internal use and to amortize such
costs over their estimated life.
Reclassification
Certain reclassifications have been made to prior years' financial
statements to conform to the 2001 presentation.
3. Acquisition of HAPSITE Business
Effective November 1, 2001, the Company acquired substantially all the net
assets of the HAPSITE business (HAPSITE) of Leybold Inficon, Inc., a subsidiary
of Unaxis. HAPSITE manufacturers and sells self-contained, field portable gas
chromatograph-mass spectrometer systems used for direct measurement of volatile
organic compounds in air, water and soil
The transaction was accounted for under the purchase method of accounting
for business combinations, and the results of operations of HAPSITE have been
included in the Company's consolidated financial statements since the effective
date of the acquisition. The purchase price was U.S.$2,000 in cash, which was
allocated to the net assets acquired and liabilities assumed based upon
estimated fair market values as follows (U.S.$ in thousands):
Accounts receivable $ 839
Inventories 1,814
Prepaid expenses 11
Machinery and equipment 234
Accounts payable (468)
Accrued expenses (430)
-------
$ 2,000
=======
4. Inventories
Inventories consist of the following (U.S.$ in thousands):
December 31
2001 2000
------------------------
Raw material $11,054 $12,254
Work-in-process 3,030 2,383
Finished goods 7,645 7,581
------------------------
$21,729 $22,218
========================
5. Property, Plant and Equipment
The components of property, plant and equipment consist of the following
(U.S.$ in thousands):
December 31
2001 2000
------------------------
Land $ 700 $ 700
Buildings and improvements 9,980 9,601
Machinery and equipment 20,970 18,947
------------------------
31,650 29,248
Less accumulated depreciation 15,630 15,307
------------------------
$16,020 $13,941
========================
F-10
5. Property, Plant and Equipment (continued)
The fire insurance values of Property, Plant and Equipment are (U.S.$ in
thousands):
December 31
2001 2000
------------------------
Buildings and improvements $ 9,196 $ 9,933
Machinery and equipment 22,204 23,800
------------------------
$31,400 $33,733
========================
6. Other Assets
The components of other assets were as follows (U.S.$ in thousands):
December 31
2001 2000
------------------------
Pension asset $ 936 $ 262
Deferred compensation asset 1,129 1,586
Deposits 420 142
Note receivable 250
Cash surrender value of life insurance 211 192
Other 1,210 525
------------------------
$ 4,156 $ 2,707
========================
7. Accrued Liabilities
The components of accrued liabilities were as follows (U.S.$ in
thousands):
December 31
2001 2000
------------------------
Salaries, wages and related costs $ 2,875 $ 3,982
Warranty 2,717 1,711
Commissions 129 334
Pension and other retiree benefit plan contributions 1,317 2,159
Deferred compensation liabilities 1,129 1,585
Foreign exchange contracts 59
Sales tax payable 396 233
Deferred revenue 57 67
Accrued professional fees 616
Other 1,405 211
------------------------
$10,641 $10,341
========================
8. Debt
The Company entered into a U.S $30.0 million working capital financing
arrangement with Credit Suisse on November 23, 2000. The financing arrangement
can be either in the form of a current account overdraft facility, fixed
advances with a maximum maturity of twelve months, bid/advance
payment/performance bonds, issuance of letters of credit, or as margin coverage
for foreign exchange forward transactions. The interest rates for the overdraft
facility are a fixed rate of 9% for loans in U.S. dollars and 7.75% for loans in
Euro dollars, and 5.25% for loans in Swiss francs. The Company paid an initial
fee of 0.125% upon closing of the agreement and will be charged a quarterly fee
of 0.25% on the current overdraft facility and a commitment fee of 0.1% per
annum on the entire facility amount, payable quarterly in arrears, which latter
amount will be deducted on payable interest and letter of credit fees on all
utilizations under the credit facility. The working capital financing
arrangement had an automatic extension for one year on November 23, 2001. The
Company has a stand-by letter of credit outstanding under the financing
arrangement as of December 31, 2001 and 2000 for U.S.$0 and U.S.$812,
respectively. The total amount unused under the facility as of December 31, 2001
and 2000 was U.S.$30.0 million and U.S.$29.2 million, respectively.
F-11
8. Debt (continued)
On December 18, 2000, the Company entered into a term loan agreement with
a bank. Principal was payable in equal monthly installments of U.S.$35 through
December 18, 2002. The loan was guaranteed by a local bank through December 18,
2001. Interest was payable monthly at an interest rate of the Euribor 3 month
rate plus .4%. The entire outstanding balance was paid during 2001.
The Company entered into a DM 10.0 million working capital financing
arrangement with Dresdner Bank on March 31, 2001. The financing arrangement can
be either in the form of a current account overdraft facility or fixed advances.
The interest rate for the overdraft facility is a fixed rate of 6.95%, and may
be adjusted for changes in market interest rates. The interest rate for working
capital advances in excess of 500,000 DM for 30 days or more is Euribor plus
0.95%. The working capital financing arrangement expires on March 31, 2002 and
has an option for extension. The Company has U.S.$0 outstanding under the
financing arrangement as of December 31, 2001.
Additionally, the Company entered into two revolving credit facilities
with HypoVereinsbank on February 28, 2001. The credit facilities include a
HKD10,000,000 working capital financing arrangement and a HKD10,000,000 margin
coverage arrangement for foreign exchange forward transactions. The working
capital financing arrangement can be either in the form of a current account
overdraft facility, fixed advances with a maximum maturity of six months, short
term trust receipt financing, issuance of letters of credit, or issuance of bank
guarantees. The interest rates for the working capital facility are Hong Kong
Interbank Offered Rate (HIBOR), plus 1% for loans in Hong Kong dollars and 1%
for loans in U.S. dollars. The Company will be charged a monthly guarantee fee
of 0.125% of the outstanding balance, or a minimum of HKD200, and upon drawing
on the credit line, the Company will be charged an opening commission of 0.25%
on the first U.S.$50, and 0.0625% on the balance. The working capital financing
arrangement expires on February 28, 2002 and has an option for extension. The
Company has U.S.$0 outstanding under the financing arrangement as of December
31, 2001.
9. Related Party Transactions
The financial statements include transactions with Unaxis for the years
ended December 31, 2001, 2000 and 1999. The Company made net cash advances to
Unaxis on a consolidated basis of U.S.$0, U.S. ($5,138) and U.S. ($9,176) for
the years ended December 31, 2001, 2000 and 1999, respectively. Prior to the
reorganization, INFICON participated in Unaxis' centralized cash management
system. Cash receipts in excess of cash requirements were transferred to Unaxis.
Certain members of the consolidated group were periodically advanced funds by
Unaxis. These transactions with Unaxis were interest bearing at a rate of
approximately 7% and the net advances fluctuated on a daily basis. Interest
expense on Unaxis' advances was U.S.$0, U.S $350 and U.S $137 for fiscal years
2001, 2000 and 1999, respectively.
The Company incurred corporate general and administrative expenses of
U.S.$3,904, U.S.$5,946 and U.S.$5,925 for the fiscal years 2001, 2000 and 1999,
respectively. These charges represent allocations for expenses incurred by
Unaxis on the Company's behalf including costs for occupancy, finance, legal,
tax, information technology and human resources functions. The amounts are
primarily allocated based on net sales, which management believes to be
reasonable. Effective January 1, 2000, and through the date of the initial
public offering on November 9, 2000, Unaxis charged the Company an additional
fee based on third party sales which amounted to U.S.$1,244 for the year ended
December 31, 2000. The payment of this fee was waived and reversed to income in
2001. INFICON and Unaxis have entered into agreements providing for the
separation of the companies and governing various relationships for separating
employee benefits and tax obligations, indemnification and transition services.
The Company leases buildings from Unaxis and Unaxis subsidiaries. The leases are
for U.S.$160 per month and are due to expire in December 2001 and 2010. Rent
expense, which is included in the above corporate charges, under such operating
leases was U.S.$1,868, U.S.$1,557 and U.S.$1,902 for the years ended December
31, 2001, 2000 and 1999, respectively.
Net sales include U.S.$23,750, U.S.$26,348 and U.S.$22,965 of sales to
Unaxis subsidiaries for the fiscal years ended December 31, 2001, 2000 and 1999,
respectively. There was a receivable of U.S.$979, and U.S.$5,721 at December 31,
2001 and 2000, respectively, from Unaxis subsidiaries. There was a payable of
U.S.$409 and U.S.$18,354 at December 31, 2001 and 2000, respectively, from
Unaxis subsidiaries.
F-12
10. Financial Instruments and Risk Management
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and equivalents: The carrying amount reported in the balance sheet
for cash and equivalents approximates its fair value.
Foreign currency exchange contracts: On January 1, 2001, the Company
adopted Financial Accounting Standards Board ("FASB") No. 133 ("FASB 133"),
Accounting for Certain Derivative Instruments and Certain Hedging Activities.
FASB No. 133 requires that all derivatives, including foreign currency exchange
contracts, be recognized on the balance sheet at fair value. Derivatives that
are not hedges must be recorded at fair value through earnings. The adoption of
FASB 133, as of January 1, 2001, resulted in a cumulative after tax credit of
U.S.$327 to comprehensive income.
The Company maintains a foreign currency exchange risk management strategy
that uses derivative instruments, in the form of forward exchange contracts, to
hedge against future movements in foreign exchange rates that affect certain
foreign currency denominated sales and related purchase transactions, caused by
currency exchange rate volatility. These contracts are designated as cash flow
hedges and generally have durations of less than one year. The Company attempts
to match the forward contracts with the underlying items being hedged in terms
of currency, amount and maturity. The primary currencies in which the Company
has exposure are the Japanese yen, the Swiss franc, the Duetsche mark, and the
Euro. This exposure arises in certain locations from the intercompany purchase
of inventory in foreign currency for resale in local currency.
The Company's accounting policy, for derivative financial instruments, is
based on its designation of such instruments as hedging transactions. An
instrument is designated as a hedge based in part on its effectiveness in risk
reduction and one-to-one matching of derivative instruments to underlying
transactions. The company records all derivatives on the balance sheet at fair
value. For derivative instruments that are designated and qualify as cash flow
hedges, the effective portion of the gain or loss on the derivative instrument
is reported as a component of accumulated other comprehensive income and
reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. The gain or loss (ineffectiveness) on the
derivative instrument in excess of the hedged item, if any, is recognized in
current earnings during the period in which it occurs. The Company did not have
any significant gains or losses from ineffective hedges.
The aggregate value of contracts for the sale of U.S. dollars in exchange
for foreign currencies was U.S.$7,058 and U.S.$3,900 at December 31, 2001 and
2000, respectively. The aggregate value of contracts for the exchange of other
foreign currencies was U.S.$1,810 and U.S.$1,404 at December 31, 2001 and 2000,
respectively. For the twelve months ended December 31, 2001, the Company had
unrealized net losses under foreign currency contracts of U.S.$(196), net of
taxes, in accumulated other comprehensive income. These unrealized net losses
are expected to be recognized into earnings over the next twelve months.
For the years ended December 31, 2001, 2000, and 1999, the Company
recorded net expense (income) of U.S.$(115), U.S.$(430) and U.S.$521,
respectively, in other expense, which represented the release of the derivative
into earnings to offset the items being hedged. The Company had losses from all
foreign currency transactions and foreign exchange contracts of U.S.$1,029,
U.S.$136 and U.S.$379 for fiscal years 2001, 2000 and 1999, respectively, which
are recorded in other expense.
11. Operating Leases
The Company leases some of its facilities and machinery and equipment
under operating leases, from Unaxis and third parties, expiring in years 2002
through 2010. Generally, the facility leases require the Company to pay
maintenance, insurance and real estate taxes.
Rental expense under operating leases totaled U.S.$2,936, U.S.$2,932 and
U.S.$2,438 for the years ended December 31, 2001, 2000 and 1999, respectively.
F-13
11. Operating Leases (continued)
Minimum lease payments under operating leases are as follows:
(U.S.$ in thousands)
--------------------
2002 $2,800
2003 2,619
2004 2,293
2005 2,165
2006 2,163
12. Supplemental Cash Flow Information
Cash payments for income taxes were U.S.$2,618, U.S.$1,594 and U.S.$961
for 2001, 2000 and 1999, respectively. Interest payments were U.S.$162, U.S.$16
and U.S.$92 in 2001, 2000 and 1999, respectively.
13. Income Taxes
Prior to the reorganization in 2000, INFICON was included in the
consolidated tax returns of its parent. The provision for income taxes was
calculated as if INFICON had filed separate income tax returns. For financial
reporting purposes, income before income taxes included the following:
2001 2000 1999
-----------------------------------
(U.S.$ in thousands)
United States $ 140 $ 12,689 $ 3,704
Foreign 12,178 18,984 6,256
-----------------------------------
Total $ 12,318 $ 31,673 $ 9,960
===================================
Provisions (benefits) for income taxes included the following:
2001 2000 1999
-----------------------------------
(U.S.$ in thousands)
Current:
Federal $ -- $ 4,770 $ 1,825
State 34 1,010 430
Foreign 2,388 2,337 527
-----------------------------------
2,422 8,117 2,782
-----------------------------------
Deferred:
Federal (351) (503) (439)
Foreign 295 1,128 241
-----------------------------------
(56) 625 (198)
-----------------------------------
Provision for income taxes $ 2,366 $ 8,742 $ 2,584
===================================
The differences between the United States federal statutory income tax rate and
the Company's effective tax rate were as follows:
2001 2000 1999
-----------------------------------
U.S. federal statutory rate 34.0% 34.0% 34.0%
Effect of permanent differences (2.6%) 1.0% 2.4%
Effect of foreign subsidiaries with different tax rates (17.1%) (8.7%) (14.4%)
State taxes, net of federal benefit (0.8%) 2.0% 2.9%
Net operating losses for which no benefit was recorded 6.0 -- --
Other (0.3%) (0.7%) 1.0%
-----------------------------------
Effective tax rate 19.2% 27.6% 25.9%
===================================
Deferred tax assets and liabilities were comprised of the following:
F-14
13. Income Taxes (continued)
2001 2000
------------------------
(U.S.$ in thousands)
Deferred tax assets:
Accrued liabilities $ 2,553 $ 1,164
Tax credit and loss carryforwards 3,538 1,030
Basis differences/ intangible assets 36,225 39,735
Inventory 626 622
Deferred revenue and other 266 264
------------------------
Total gross deferred tax assets 43,208 42,815
Less valuation allowance (738) --
------------------------
Total deferred tax assets 42,470 42,815
------------------------
Deferred tax liabilities:
Accrued employee benefits 118 118
Property, plant and equipment 1,300 1,216
Foreign exchange contracts 451 653
Other 5 51
------------------------
Total deferred tax liabilities 1,874 2,038
------------------------
Net deferred tax asset $ 40,596 $ 40,777
========================
Presented as:
Current deferred tax asset $ 3,440 $ 2,122
Long-term deferred tax asset 38,837 40,519
Current deferred tax liability (451) (596)
Long-term deferred tax liability (1,230) (1,268)
------------------------
$ 40,596 $40,77
========================
During the year ended December 31, 2000, Unaxis Holding AG transferred the
assets and liabilities of various INFICON subsidiaries to newly created legal
entities that are wholly-owned by INFICON Holding AG. For income tax purposes,
the asset transfer was considered a taxable transaction creating a new income
tax basis of the assets and liabilities transferred. The transaction resulted in
a basis difference of approximately U.S.$101,905 which will be deductible for
tax purposes over various periods, no longer than 15 years. As a result, a
deferred tax asset of U.S.$40,710 related to the basis difference has been
recorded with a corresponding credit in stockholders' equity. The transaction is
considered a non-cash event for purposes of the statement of cash flows.
In conjunction with the business transfers and taxable transaction
described above, it was agreed that Unaxis would be responsible for the payment
of taxes for the period up to the date of transfer. The tax liability for the
period through the transfer date was estimated and recorded as part of the
equity reclass upon reorganization of the Company. Upon filing of the 2000 tax
return during 2001, the actual amount of the tax applicable to the period
through the transfer was calculated and the difference between this amount and
the 2000 estimate of U.S.$2.4 million has been recorded as an increase to
additional paid in capital as an adjustment to reorganization taxes in the
statement of stockholders' equity.
At December 31, 2001, the Company has federal and foreign net operating
loss carryforwards of U.S.$12,483, which are available to offset future taxable
income, if any, through 2021. Realization of the deferred tax benefit is
dependent on generating sufficient taxable income to offset the deferred tax
asset prior to its expiration on December 31, 2021. The Company has recorded a
valuation allowance as of December 31, 2001 of U.S.$738, which represents the
tax benefit for net operating losses incurred in 2001 for which the Company is
uncertain as to the amount, if any, of future tax benefits to be received for
the future utilization of such loss carryforwards.
F-15
13. Income Taxes (continued)
Undistributed earnings of INFICON's foreign subsidiaries, are permantly
reinvested. Distribution of earnings to INFICON would generally be exempt from
taxation in Switzerland in accordance with their participation exemption. The
participation exemption, in most cases, exempts income such as dividends,
interest and capital gains from taxation in Switzerland if such income is
derived from qualifying investments in subsidiaries. Upon distribution of those
earnings in the form of dividends, withholding taxes ranging from 5% to 20%
would be payable upon the remittance of all previous unremitted earnings as of
December 31, 2001.
14. Employee Benefit Plans
Certain INFICON employees (primarily United States, Liechtenstein and
Germany) participate in the contributory and noncontributory defined benefit
plans. Benefits under the defined benefit plan are generally based on years of
service and or final average pay. Unaxis funds the pension plans in accordance
with the requirements of the Employee Retirement Income Security Act of 1974, as
amended, and the Internal Revenue Code in the United States and in accordance
with local regulations in foreign countries. As part of the reorganization,
INFICON assumed the existing defined benefit plan obligations for all of
INFICON's employees. Unaxis will transfer the related portion of the pension
plan assets.
INFICON also participates in U.S. and foreign defined contribution plans
for substantially all of its employees. The costs associated with these plans
were U.S.$433, U.S.$1,053 and U.S.$843 in 2001, 2000 and 1999, respectively.
INFICON has established its own defined contribution plans subsequent to the
reorganization for substantially all of its employees.
The following tables show reconciliations of defined benefit pension plans as of
December 31, 2001, 2000 and 1999:
Pension Benefits
----------------------------------
2001 2000 1999
----------------------------------
(U.S.$ in thousands)
Change in benefit obligation
Benefit obligation, January 1 $ 33,109 $ 30,729 $ 32,398
Service cost 2,193 1,954 1,920
Interest cost 1,681 1,482 1,491
Allocation of surplus to participants -- 750 --
Actuarial losses (gains) (539) (983) (197)
Benefits paid (443) (350) (1,203)
Other (Purchase of HAPSITE business) 482 -- --
Foreign currency translation adjustments (861) (473) (3,680)
----------------------------------
Benefit obligation, December 31 $ 35,622 $ 33,109 $ 30,729
==================================
Change in plan assets
Fair value of plan assets, January 1 $ 33,210 $ 31,036 $ 31,068
Actual return on plan assets (1,172) 1,087 3,030
Company contributions 1,281 1,182 1,136
Participants' contributions 690 629 589
Benefits paid (495) (435) (1,280)
Other (Purchase of HAPSITE business) 390 -- --
Foreign currency translation adjustments (816) (289) (3,507)
----------------------------------
Fair value of plan assets, December 31 $ 33,088 $ 33,210 $ 31,036
==================================
F-16
14. Employee Benefit Plans (continued)
2001 2000 1999
---------------------------------
(U.S.$ in thousands)
Reconciliation of funded status
Funded status $(2,534) $ (101) $ 307
Unrecognized prior service benefit (21) (28) (36)
Unrecognized net transition asset (37) (70) (109)
Unrecognized actuarial (gains) losses 3,528 461 (1,139)
---------------------------------
(Accrued) prepaid benefit costs $ 936 $ 262 $ (977)
=================================
Weighted average assumptions as of December 31
Discount rate 5.75% 6.1% 6.1%
Expected return on plan assets 6.25% 6.5% 6.5%
Rate of compensation increase 3.67% 3.8% 3.5%
The following table summarizes the components of the net periodic benefit
costs for defined benefit pension plans for the periods ended December 31, 2001,
2000 and 1999:
2001 2000 1999
---------------------------------
(U.S.$ in thousands)
Service cost $ 2,239 $ 1,954 $ 1,920
Interest cost 1,680 1,482 1,491
Expected return on plan assets (1,579) (1,697) (1,614)
Amortization of prior service benefit (39) (10) (10)
Amortization of transition asset (11) (39) (39)
Amortization of (gain) loss 28 37 58
---------------------------------
Net periodic benefit cost $ 2,318 $ 1,727 $ 1,806
=================================
The amounts applicable to the Company's pension plans with accumulated
benefit obligations in excess of plan assets at December 31, 2001 and 2000 were
as follows:
2001 2000
------------------------
(U.S.$ in thousands)
Accumulated benefit obligation $ 2,230 $ 1,933
Fair value of plan assets -- --
The amounts applicable to the Company's pension plans with projected benefit
obligations in excess of plan assets at December 31, 2001 and 2000 were as
follows:
2001 2000
------------------------
(U.S.$ in thousands)
Projected benefit obligation $13,550 $10,415
Fair value of plan assets 7,676 7,175
F-17
14. Employee Benefit Plans (continued)
The Company maintains bonus and profit sharing plans which provides cash
awards to key employees based upon operating results and employee performance.
Bonus expense to key employees was U.S.$1,519, U.S.$2,386, and U.S.$1,075 for
the years ended December 31, 2001, 2000 and 1999, respectively.
Deferred Compensation and Supplemental Executive Retirement Plan
The Company has a deferred compensation and a Supplemental Executive
Retirement Plan (SERP) that covers certain executives. The deferred compensation
plan provides that participants may defer up to 15% of their base compensation
and/or up to 100% of any performance bonus. Participants in this plan are fully
vested in all amounts paid into the plan. The amounts paid into the plan are
invested in life insurance contracts, money markets, mutual funds, and fixed
income funds.
One executive participates in the Supplemental Executive Retirement Plan.
In order to participate in the plan, the individual must defer a percentage of
their base salary to the Plan. The Company contributes an actuarial determined
portion into the Plan each year. The Company contribution was U.S.$78, U.S.$73
and U.S.$85 for the years ended December 31, 2001, 2000 and 1999, respectively.
Upon termination of employment, the individual will receive a single sum amount
based upon age at the date of termination and reduced by benefits payable under
other INFICON qualified retirement plans and benefits payable pursuant to social
security, and any debts or amounts that are owed to the Company by the
individual.
15. Comprehensive Income
The accumulated balances for each classification of comprehensive income
are as follows:
Accumulated other
Foreign Cash flow comprehensive
currency items hedges income
-------------- --------- -----------------
Balance at January 1, 1999 $ (567) $ -- $ (567)
Net foreign currency
translation adjustments (3,891) -- (3,891)
------- ----- -------
Balance at December 31, 1999 (4,458) -- (4.458)
Net foreign currency
translation adjustments 2,459 -- 2,459
------- ----- -------
(1,999)
Balance at December 31, 2000 (1,999) --
Net foreign currency
translation adjustments (3,692) -- (3,692)
Cumulative effect of a change
in accounting for derivative
instruments and hedging
activities -- 327 327
Unrealized loss on foreign
currency hedges -- (196) (196)
------- ----- -------
Balance at December 31, 2001 $(5,691) $ 131 $(5,560)
======= ===== =======
F-18
16. Equity
Share Capital
INFICON Holding AG was incorporated on August 2, 2000 with an initial
share capital of U.S.$56 in exchange for 10,000 fully paid-up registered shares
with a par value of CHF 10 (U.S.$5.63) per share. The Company issued 1,990,000
fully paid-up registered shares with a par value of CHF 10 per share to Unaxis
in exchange for the contribution to the Company by Unaxis of the subsidiaries
engaged in the Instrumentation business.
On November 6, 2000, the Board of Directors, by resolution, determined to
issue an additional 315,000 registered shares at a par value of CHF 10
(U.S.$5.63) per share. Unaxis waived its preemptive right to subscribe for these
shares.
On November 9, 2000, the Company completed an initial public offering in
which it sold 315,000 registered shares of common stock at a price of CHF 225
(U.S.$126.58) per share. The Company received net proceeds of approximately
$35,708 after underwriting discounts and other issuance costs of approximately
$4,165. Following the offering, Unaxis retained an ownership of approximately
19.5% in INFICON Holding AG.
In November 2000, the issuance costs were estimated and recorded as a
reduction to the proceeds from the initial public offering. In 2001, the actual
expenses were quantified and paid and the differences between the estimated
expenses and actual expenses paid of $1.4 million has been recorded as an
increase to additional paid in capital in 2001 as an adjustment of IPO expenses
in the statement of stockholders' equity.
The shares are registered shares with a par value of CHF 10 per share. The
shares are fully paid-up and non-assessable. Each share carries one vote at the
Company's shareholders' meeting. Voting rights may be exercised only after a
shareholder has been recorded in the share register as a shareholder with voting
rights.
Under the Swiss Code of Obligations, the shareholders may decide on an
increase of the share capital in a specified aggregate par value up to 50% of
the existing share capital in the form of authorized capital to be used at the
discretion of the Board of Directors. The Board of Directors is authorized to
issue at any time until October 19, 2002 up to 340,000 shares of par value CHF
10 per share. Such issuance may be made by full underwriting or in partial
amounts. The Board of Directors is authorized to determine the issue price,
period of dividend entitlement and the form of the contribution upon the
issuance of the shares. In addition, the Board of Directors approved conditional
capital in the amount 115,000 shares which shall be issued upon the exercise of
option rights which some employees and members of the Board of Directors will be
granted pursuant to the Employee Incentive Plan. The Board of Directors will
regulate the details of the issuance.
Share Purchase Plan
In connection with the initial public offering, the Company offered
employees the opportunity to participate in one of two equity purchase programs.
The two programs are the leveraged share plan and the discounted share purchase
plan.
Leveraged Share Plan - The leveraged share plan was available to three
tiers of employees: the Chief Executive Officer, other executive officers and
key employees. Depending on an eligible employee's tier, an eligible employee
may have purchased shares in the offering for a total purchase price between
U.S.$22,500 and U.S.$562,500. Approximately 56 employees participated in the
leveraged share plan purchasing either ADRs or shares totaling 38,109 and
19,872, respectively. Each ADR represents one-tenth of one share (or a right to
receive one-tenth of one share). These ADRs and shares issued to employees under
the leveraged share plan are included in the 315,000 shares offered by the
Company as part of the initial public offering.
The shares purchased under the leveraged share plan may not be transferred
or sold until the fourth anniversary of the closing of the offering. The plan
includes specific requirements for employees who are terminated prior to the
fourth anniversary of the closing of the offering.
Discounted Share Purchase Plan - The discounted share purchase plan was
offered to employees who are not eligible to participate in the leveraged share
plan. Under this plan, eligible persons were offered the opportunity
F-19
16. Equity (continued)
to purchase shares on the closing of the offering at a 30% discount to the offer
price. Each employee was entitled to purchase up to $8,439 worth of shares in
the offering at a 30% discount. Employees who participated in the discounted
share purchase plan purchased either ADRs or shares totaling 26,011 and 7,166,
respectively. The ADRs and shares issued under the discounted share purchase
plan are included in the 315,000 shares offered by the Company as part of the
initial public offering. The 30% discount was treated as compensation.
None of the shares purchased in the offering may be transferred or sold
until the second anniversary from the date of the closing of the offering, after
which date they may be either retained or sold. The plan includes specific
requirements for employees who are terminated prior to the second anniversary
from the date of closing.
Notes Receivable from Officers
In November 2000, certain officers and key employees purchased 16,480
shares of common stock and paid the exercise price by issuing cash plus full
recourse promissory notes, denominated in U.S. Dollars, Swiss Francs, or
Deutsche Marks, to the Company totaling U.S.$1,371. As of December 31, 2001 and
2000, there was an outstanding balance on the notes of U.S.$523 and U.S.$1,307,
respectively. The remaining notes, which have been offset against stockholders'
equity for financial statement presentation, are due in November 2007 and bear
an interest rate equal to 120% of the mid-term applicable federal rate (as
defined in the Internal Revenue Code). The interest is payable on a quarterly
basis.
17. Stock Option Plan
Leveraged Share Plan - The aggregate amount of shares that may be issued in the
form incentive stock options under the Leveraged Share Plan is 155,555 shares.
All options are granted at prices equal to 100% of the market value of the
common stock at the date of grant. The options are non-transferable and expire
on the seventh anniversary of the date of grant. Fifty percent of the options
vest and become exercisable on the second anniversary of the date of the grant.
The remaining 50% of the options will vest and become exercisable on the third
anniversary of the date of grant. The plan includes specific requirements for
employees who are terminated prior to exercising their options or prior to the
options becoming vested. The Company has issued options to purchase 118,415
shares.
The options are non-transferable and expire on the seventh anniversary of
the date of grant. Fifty percent of the options vest and become exercisable on
the second anniversary of the date of the grant. The remaining 50% of the
options will vest and become exercisable on the third anniversary of the date of
grant. The plan includes specific requirements for employees who are terminated
prior to exercising their options or prior to the options becoming vested.
Directors Stock Option Plan - In fiscal year 2001 the Board of Directors
approved the Directors Stock Option Plan. The Directors Stock Option Plan is
solely for members of the Board, who are not employees of INFICON. The Company
will grant options to the eligible Board members, on May 15 and November 15 of
each year, commencing May 15, 2001. The number of options granted to the
eligible Board members will be an amount equal to 25% of their annual
compensation. Options are non-transferable and will vest immediately upon date
of grant and become exercisable one year after the grant date and are
exercisable within a period of seven years after the allocation date. All
options are granted at prices equal to 100% of the market value of the common
stock at the date of grant. The plan includes specific requirements for the
Board members who are removed or resign from the Board. In 2001, the company
issued options to purchase 3,580 shares.
F-20
17. Stock Option Plan (continued)
The following is a summary of option transactions under both Plans:
Shares Price Range
------ -----------
Outstanding December 31, 1999 -- --
Granted 118,415 U.S.$126.58
Exercised -- --
Outstanding December 31, 2000 118,415 U.S.$126.58
Granted 3,580 U.S.$74 - U.S.$103
Exercised -- --
-------
Outstanding December 31, 2001 121,995 U.S$74 - U.S$126.58
=======
Exercisable at December 31, 2001 -- --
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income is required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123"). The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk free interest rate of 3.0% and 6.25% for 2001
and 2000; a dividend yield of 0% and 0% for 2001 and 2000; volatility factors of
the expected market price of the Company's common stock of .442 and .767 for
2001 and 2000; and a weighted average expected life of the options of 5 years.
The weighted average exercise price and remaining contractual life of these
options were U.S.$126.58 and 7 years, respectively, as of December 31, 2000. The
weighted average exercise price and remaining contractual life of these options
were U.S.$125.44 and 6 years, respectively, as of December 31, 2001.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
(U.S.$ in thousands, except per share amounts) 2001 2000
------- -------
Pro forma net income $ 8,908 $22,595
Pro forma net income per share $ 3.85 $ 11.04
F-21
18. Business Segments
INFICON is a global supplier of instrumentation for analysis, monitoring
and control in the vacuum, semiconductor, refrigeration, automotive, emergency
response and industrial hygiene markets, with headquarters and manufacturing
facilities in the United States, and administrative offices and manufacturing in
the United States, Germany, and Liechtenstein, in addition to sales and service
locations worldwide. INFICON operates in two primary business segments:
Semiconductor Vacuum Instrumentation, and General Vacuum Instrumentation.
The semiconductor vacuum instrumentation segment includes two major
product lines: in situ analysis and ultra clean processing. The products in this
segment are developed for use in various semiconductor manufacturing
applications. The general vacuum instrumentation segment includes two major
product lines: leak detection and vacuum measurement and components. These
products are used in numerous markets including air conditioning, refrigeration,
automotive and semiconductor manufacturing.
The Company had sales to one unaffiliated major customer of 17%, 14% and
17% of consolidated sales for the years ended December 31, 2001, 2000 and 1999,
respectively. The Company had sales to Unaxis and their various divisions of
16.5%, 16% and 18% of consolidated sales for the years ended December 31, 2001,
2000 and 1999, respectively.
Information on the Company's business segments was as follows:
Years ended December 31
2001 2000 1999
----------------------------------
(U.S.$ in thousands)
Sales:
Semiconductor vacuum instrumentation $ 45,494 $ 65,952 $ 42,154
General vacuum instrumentation 98,619 104,024 87,838
----------------------------------
Total sales $144,113 $169,976 $129,992
==================================
Sales between business segments, which were not material, generally were
priced at prevailing market prices.
Years ended December 31
2001 2000 1999
----------------------------------
(U.S.$ in thousands)
Gross profit:
Semiconductor vacuum instrumentation $ 22,364 $ 39,034 $ 22,146
General vacuum instrumentation 43,351 47,711 38,603
----------------------------------
Total gross profit $ 65,715 $ 86,745 $ 60,749
==================================
Earnings before interest and taxes:
Semiconductor vacuum instrumentation $ (679) $ 17,931 $ 3,479
General vacuum instrumentation 12,514 14,034 6,611
----------------------------------
Total earnings before interest and taxes $ 11,835 $ 31,965 $ 10,090
==================================
Depreciation and amortization:
Semiconductor vacuum instrumentation $ 1,285 $ 1,458 2,332
General vacuum instrumentation 1,569 2,107 1,717
----------------------------------
$ 2,854 $ 3,565 $ 4,049
==================================
F-22
18. Business Segment (continued)
Capital expenditures:
Semiconductor vacuum instrumentation $ 1,868 $ 2,170 $ 1,168
General vacuum instrumentation 3,729 2,683 2,121
----------------------------------
$ 5,597 $ 4,853 $ 3,289
==================================
Identifiable assets:
Semiconductor vacuum instrumentation $ 56,563 $ 63,672 $ 19,669
General vacuum instrumentation 81,631 89,262 36,529
----------------------------------
$ 138,194 $152,934 $ 56,198
==================================
Long-lived assets:
Semiconductor vacuum instrumentation $ 32,232 $ 27,614 $ 7,207
General vacuum instrumentation 26,781 27,967 6,653
----------------------------------
$ 59,013 $ 55,581 $ 13,860
==================================
Sales by geographic location:(1)
United States $ 51,062 $ 58,982 $ 40,358
Europe 68,226 81,332 73,717
Other 24,825 29,662 15,917
----------------------------------
Total sales $ 144,113 $169,976 $129,992
==================================
(1) The geographic location of a sale is determined by the subsidiary that
recorded the sale, rather than customer location.
19. Historical and Pro Forma Net Income Per Share
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128 ("FASB 128") "Earnings
per Share". FASB 128 requires both basic earnings per share, which is based on
the weighted average number of common shares outstanding, and diluted earnings
per share, which is based on the weighted average number of common shares
outstanding and all dilutive common equivalent shares outstanding. The average
number of shares outstanding is based upon the capitalization of INFICON after
the reorganization. The dilutive effect of options is determined under the
treasury stock method using the average market price for the period. Common
equivalent shares are included in the per share calculations where the effect of
their inclusion would be dilutive. The Company does not have any potential
common equivalent shares outstanding.
The following table sets forth the computation of basic and diluted earnings per
share:
Years ended December 31
2001 2000 1999
----------------------------------------------
(U.S.$ in thousands, except per share amounts)
Numerator:
Numerator for basic and diluted earnings per share:
Net income $ 9,952 $ 22,931 $ 7,376
Denominator:
Denominator for basic and diluted earnings per share:
Weighted average shares outstanding 2,315,000 2,046,000 2,000,000
Earnings per share:
Basic $ 4.30 $ 11.21 $ 3.69
Diluted $ 4.30 $ 11.21 $ 3.69
F-23
20. Quarterly Data (unaudited)
Quarter ended
March 31 June 30 September 30 December 31
-------------------------------------------------------
(U.S.$ in thousands)
2001
Sales $49,186 $37,833 $30,075 $27,019
Gross profit 24,413 17,485 12,889 10,928
Net income 6,662 3,172 14 104
Basic net income per share $ 2.88 $ 1.37 $ 0.01 $ 0.04
Diluted net income per share $ 2.88 $ 1.37 $ 0.01 $ 0.04
2000
Sales $40,432 $42,183 $42,262 $45,099
Gross profit 20,343 21,566 21,653 23,183
Net income 5,758 6,354 5,546 5,273
Basic net income per share $ 2.88 $ 3.18 $ 2.77 $ 2.42
Diluted net income per share $ 2.88 $ 3.18 $ 2.77 $ 2.42
The Company recorded certain adjustments in the fourth quarter of 2001
which reduced selling, general and administrative expenses by approximately
U.S.$1.9 million. These adjustments related primarily to bonus and profit
sharing accruals, pension expense and bad debt expense.
21. Additional information required by Swiss Law
As required by article 663 paragraph 3 of the Swiss Code of Obligations,
the following supplementary information is disclosed (U.S.$ in thousands):
2001 2000 1999
----------------------------
Total personnel costs $37,800 $39,915 $34,379
===============================
Total amortization on intangible assets $ 220 $ 633 $ 595
Total depreciation of property, plant
and equipment 2,634 2,932 3,454
-------------------------------
Total amortization and depreciation $ 2,854 $ 3,565 $ 4,049
===============================
F-24
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INFICON Holding AG
(U.S. Dollars in Thousands)
Balance at
Beginning of Add: Charged Deduct: Balance at
Year to Expense Write-offs End of Year
----------------------------------------------------------
Allowance for doubtful accounts:
Year ended December 31, 2001 $1,154 $ 753 $222 $1,685
Year ended December 31, 2000 $ 664 $ 760 $270 $1,154
Year ended December 31, 1999 $ 867 $(174) $ 29 $ 664
F-25
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on Form 20-F on its behalf.
INFICON Holding AG
Date: March 27, 2002
/s/ James L. Brissenden
----------------------------------------
Name: James L. Brissenden
Title: President and Chief
Executive Officer
Date: March 27, 2002
/s/ Peter G. Maier
----------------------------------------
Name: Peter G. Maier
Title: Vice-President and Chief
Financial Officer
F-26
Index to Exhibits
Exhibit
No. Description
- --------- -----------
1.1* Amendment to Form of Underwriting Agreement
1.2* Share Lending Agreement
2.1* Master Separation Agreement between Unaxis Holding AG and INFICON
Holding AG dated August 31, 2000
3.1* Articles of Incorporation of the Registrant (English translation)
3.2 Organizational Regulations (INFICON Holding AG, a Swiss Company, is
not required to have By-laws under Swiss law)
4.1* Deposit Agreement, dated as of November 8, 2000, among the
Registrant, The Bank of New York, as depositary, and the owners and
beneficial owners from time to time of American Depositary Receipts,
including the form of American Depositary Receipt
10.1* INFICON Leveraged Share Plan
10.2* INFICON Discounted Share Purchase Plan
10.3.1* Intercompany Service Agreement between Leybold Vakuum GmbH and
INFICON GmbH
10.3.2* Intercompany Service Agreement between Unaxis Balzers Limited and
INFICON Limited
10.3.3* Intercompany Service Agreement between Leybold Vacuum UK Limited and
INFICON Limited
10.3.4* Intercompany Service Agreement between Leybold Vacuum Japan Co., Ltd
and INFICON Co., Ltd.
10.3.5* Intercompany Service Agreement between Leybold Vacuum Korea Ltd. And
INFICON Ltd.
10.3.6* Intercompany Service Agreement between Unaxis Singapore Pte Ltd and
INFICON Pte Ltd.
10.3.7* Intercompany Service Agreement between Leybold Vacuum Products, Inc.
and INFICON, Inc.
10.3.8* Intercompany Service Agreement between INFICON, Inc. and Leybold
Vacuum Products, Inc.
10.3.9* Intercompany Service Agreement between Leybold SAS and INFICON SARL
10.4.1* Asset Purchase Agreement between Leybold Inficon, Inc. and INFICON,
Inc.
10.4.2* Asset Purchase Agreement between Leybold Vakuum GmbH and INFICON
GmbH, Cologne (formerly known as Leybold Vakuum Deutschland GmbH),
including Supplementary Agreement thereto
10.4.3* Asset Purchase Agreement between Unaxis Balzers Limited and INFICON
Limited
10.4.4* Asset Purchase Agreement between Leybold Vacuum UK Limited and
INFICON Limited
10.4.5* Asset Purchase Agreement between Leybold Vacuum Japan Co., Ltd. And
INFICON Co., Ltd.
10.4.6* Asset Purchase Agreement between Leybold Vacuum Korea Ltd. And
INFICON Ltd.
10.4.7* Asset Purchase Agreement between Unaxis Singapore Pte Ltd and
INFICON Pte Ltd
10.4.8* Asset Purchase Agreement between Balzers and Leybold China Limited
and INFICON Limited
10.4.9* Asset Purchase Agreement between Leybold SAS and INFICON GmbH,
Cologne regarding sales of assets of French subsidiary, including
English translation thereof
10.4.10* Asset Purchase Agreement between Leybold SAS and INFICON Limited,
Liechtenstein regarding sale of assets of French subsidiary,
including English translation thereof
10.4.11** Asset Purchase Agreement between Balzers and Leybold Taiwan, Ltd.
And INFICON Ltd. Regarding sale of assets of Taiwanese subsidiary
10.5* Tax Deed between Unaxis Holding AG and INFICON Holding AG
10.6* Intellectual Property Assignment from Leybold Vakuum GmbH to INFICON
GmbH
10.7* Intellectual Property Assignment from Leybold Inficon, Inc. to
INFICON GmbH
10.8* Intellectual Property Assignment from Unaxis Balzers Limited to
INFICON GmbH
10.9* Ultra Clean License Agreement between Unaxis Balzers Limited and
INFICON GmbH, including Side Agreement thereto
10.10* Intellectual Property License Agreement between INFICON GmbH
(Cologne) and INFICON GmbH
10.11* Intellectual Property License Agreement between INFICON GmbH and
INFICON Limited
10.12* Intellectual Property License Agreement between INFICON GmbH and
Unaxis Balzers Limited
10.13* Intellectual Property License Agreement between INFICON GmbH and
INFICON, Inc.
10.14* Lease Agreement for manufacturing facilities in Cologne, Germany
between INFICON GmbH and Balzers and Leybold Holding AG dated August
31, 2000 with English translation
10.15* Lease Agreement for manufacturing facilities in Balzers,
Liechtenstein between INFICON AG and Balzers AG dated August 31,
2000 with English translation
10.16* Employment Agreement between Jim Brissenden and Leybold Inficon Inc.
10.17** Loan Agreement between INFICON Holding AG and Credit Suisse
23.10 Consent of Ernst & Young LLP
================================================================================
* Incorporated by Reference to our registration statement on Form F-1 filed
with the Securities and Exchange Commission.
** Incorporated by Reference to our Annual Report on Form 20-F filed April 2,
2002 with the Securities and Exchange Commission.
F-27