FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________to__________________
Commission File Number 0-12353
PLASMA-THERM, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 04-2554632
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10050 16TH STREET NORTH, ST. PETERSBURG, FLORIDA 33716
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(Address of principal executive offices and zip code)
(727)577-4999
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Registrant's telephone number, including area code
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share
Outstanding at March 22, 1999:
11,220,061
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INDEX
PAGE
NUMBER
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PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets - February 28, 1999 and
November 30, 1998......................................................3
Statements of Income - Three Months ended
February 28, 1999 and February 28, 1998 ...............................5
Statements of Cash Flows - Three Months ended
February 28, 1999 and February 28, 1998 ...............................6
Notes to Consolidated Financial Statements ..............................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........................10
PART II. OTHER INFORMATION
Item 5. Other Information ............................................14
Item 6. Exhibits and Reports on Form 8-K .............................15
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, NOVEMBER 30,
ASSETS 1999 1998
----------- -----------
(UNAUDITED)
Current assets
Cash and cash equivalents $ 6,528,146 $ 7,170,464
Accounts receivable 9,925,804 14,842,937
Inventories 9,904,975 9,859,914
Prepaid income taxes 843,374 1,405,591
Prepaid expenses and other 753,683 747,234
Deferred tax asset 361,577 244,691
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Total current assets 28,317,559 34,270,831
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Property, plant and equipment
Building 5,106,870 4,996,731
Machinery and equipment 11,787,735 11,296,080
Leasehold improvements 151,005 151,005
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17,045,610 16,443,816
Less accumulated depreciation and
amortization 5,328,656 4,610,619
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11,716,954 11,833,197
Land 1,012,992 1,012,992
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12,729,946 12,846,189
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Other assets 136,762 151,762
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$41,184,267 $47,268,782
=========== ===========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, NOVEMBER 30,
LIABILITIES 1999 1998
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Current liabilities
Short-term borrowings $ 3,000,000 $ 5,000,000
Current maturities of long-term obligations 518,700 585,228
Accounts payable 3,458,709 4,828,263
Accrued payroll and related 287,957 605,431
Accrued expenses 1,226,310 1,083,535
Accrued restructuring charge 552,392 992,847
Customer deposits 21,250 570,625
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Total current liabilities 9,065,318 13,665,929
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Long-term obligations 2,966,051 3,085,353
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SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock, $.01 par value (25,000,000
shares authorized, 11,220,061 and
11,207,061 shares issued and outstanding
at February 28, 1999 and November 30, 1998) 112,202 112,072
Additional paid-in capital 17,202,219 17,156,849
Retained earnings 11,838,477 13,248,579
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29,152,898 30,517,500
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$41,184,267 $47,268,782
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See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED FEBRUARY,
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1999 1998
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Net sales $ 9,296,375 $12,311,720
Cost of sales 6,551,231 6,970,104
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Gross profit 2,745,144 5,341,616
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Operating expenses:
Research and development 2,165,978 1,103,727
Selling and administrative 1,861,909 1,847,251
Restructuring charge 805,036 --
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Total operating expenses 4,832,923 2,950,978
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Operating income (loss) (2,087,779) 2,390,638
Interest (income) expense, net 70,351 45,755
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Income (loss) before income
taxes (benefit) (2,158,130) 2,344,883
Income taxes (benefit) (748,028) 871,203
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Net income (loss) $(1,410,102) $ 1,473,680
=========== ===========
Earnings (loss) per share:
Basic $ (0.13) $ 0.13
=========== ===========
Diluted $ (0.13) $ 0.13
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See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28,
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1999 1998
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Cash flows from operating activities
Net income (loss) $(1,410,102) $ 1,473,680
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 768,551 578,435
Loss on disposal of assets 258 --
Deferred taxes (116,886) 8,922
Compensation - stock options 6,300 6,000
Tax benefit related to certain stock options
and warrants 6,640 51,522
Changes in assets and liabilities
(Increase) decrease in accounts receivable 4,917,133 (1,043,421)
Increase in inventories (45,061) (955,625)
Decrease in prepaid income taxes 562,217 258,101
Increase in prepaid expenses and other (6,449) (94,835)
Increase (decrease) in accounts payable (1,369,554) 410,358
Decrease in accrued payroll and related (317,474) (119,993)
Increase in accrued expenses 142,775 583,785
Decrease in accrued restructuring charge (440,455) --
Increase (decrease) in customer deposits (549,375) 333,989
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Net cash provided by
operating activities 2,148,518 1,490,918
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Cash flows from investing activities
Capital expenditures (637,566) (710,488)
Other -- 7,706
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Net cash used in investing activities (637,566) (702,782)
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See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28,
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1999 1998
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Cash flows from financing activities
Proceeds from issuance of long-term obligations -- --
Principal payments on long-term obligations (185,830) (177,242)
Net proceeds under line of credit agreements (2,000,000) 1,000,000
Exercise of stock options and warrants 32,560 134,360
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Net cash provided by (used in)
financing activities (2,153,270) 957,118
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Net increase (decrease) in cash and
cash equivalents (642,318) 1,745,254
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Cash and cash equivalents, beginning of period 7,170,464 5,398,030
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Cash and cash equivalents, end of period $ 6,528,146 $ 7,143,284
=========== ===========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND NOVEMBER 30, 1998
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
financial position as of February 28, 1999 and November 30, 1998 and
the results of operations and cash flows for the three months ended
February 28, 1999 and 1998.
The results of operations for the three months ended February 28, 1999
and 1998 are not necessarily indicative of results for the full year.
The November 30, 1998 balance sheet amounts and disclosures included
herein have been derived from the November 30, 1998 audited financial
statements of the Registrant. While the Company believes that the
disclosures presented are adequate to make the information not
misleading, it is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial
statements and the notes included in the Company's latest annual
report on Form 10-K.
NOTE 2 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Plasma-Therm, Inc. and its wholly owned subsidiary, Magnetran Inc.
All significant intercompany transactions and balances have been
eliminated.
NOTE 3 INVENTORIES
Inventories consist of the following:
FEBRUARY 28, NOVEMBER 30,
1999 1998
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Raw materials $5,311,100 $4,974,844
Work-in-process 4,241,545 4,477,355
Finished goods 352,330 407,715
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$9,904,975 $9,859,914
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NOTE 4 EARNINGS PER SHARE DISCLOSURES
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999
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INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ----------- ---------
Basic EPS:
Income (loss) available to common
Shareholders ($1,410,102) 11,216,422 ($ .13)
=======
Effect of Dilutive Securities:
Options -- 6,883
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Diluted EPS:
Income (loss) available to common
Shareholders + assumed conversions ($1,410,102) 11,223,305 ($ .13)
=========== =========== =======
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998
--------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ----------- ---------
Basic EPS:
Income available to common
Shareholders $ 1,473,680 11,141,183 $ .13
=======
Effect of Dilutive Securities:
Options -- 245,364
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Diluted EPS:
Income available to common
Shareholders + assumed conversions $ 1,473,680 11,386,547 $ .13
=========== =========== =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
Net sales of $9,296,375 for the first quarter of 1999 decreased by
24.5% from net sales of $12,311,720 for the first quarter of 1998. The decrease
in net sales for the first quarter was primarily due to the continued slowdown
in the Company's four market segments, specifically data storage.
Gross profit of $2,745,144 for the first quarter of 1999 was 29.5% of
net sales, compared to $5,341,616 for the first quarter of 1998 which was 43.4%
of net sales. The decrease in gross margin for the first quarter of 1999 was
primarily attributable to the strategic placement of lower margin systems sold
in the microelectromechanical (MEMS) market in an effort to increase market
share. Additionally, as stated above, a slowdown in the Company's four markets
resulted in lower net sales, causing the Company to experience an increase in
fixed manufacturing costs as a percentage of net sales. This added to the
reduction in gross profit margin for the first quarter of 1999 over the same
period for 1998.
Research and development expense for the first quarter of 1999 and
1998 was $2,165,978 and $1,103,727, which was 23.3% and 9% of net sales,
respectively. The increase is the direct result of the continued implementation
of new research and development programs to enhance development efforts in the
Company's target markets: optoelectronics/telecommunications, data storage,
photomask, and MEMS. The Company operates in constantly changing and highly
competitive markets. Therefore, the Company believes it is critical to continue
to increase its investment in research and development programs in order to
continue to provide innovative, high-quality products, as well as maintain and
increase its position as a technology leader in the markets served.
Selling and administrative expense was $1,861,909 for the first
quarter of 1999, compared to $1,847,251 for the first quarter of 1998 which was
20% and 15% of net sales, respectively. The increase as a percentage of net
sales is a direct result of the decrease in net sales for the first quarter of
1999.
Net loss before the income tax benefit for the first quarter of 1999
was $2,158,130, compared to net income before income taxes of $2,344,883 in the
first quarter of 1998. Net loss per diluted share was $.13 for the first quarter
of 1999, compared to net income per diluted share of $.13 for the first quarter
of 1998. Included in the net loss before the income tax benefit for the first
quarter of 1999 was an additional restructuring charge of $805,036 related to
services provided by TRW/BDM International pertaining to the Company's
implementation of the Supply Chain Management program. Excluding this
restructuring charge, the Company's net loss before the income tax benefit would
have been $1,353,094 or $.08 per diluted share. The primary reasons for the
decrease for the first quarter of 1999 are described above.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
Net cash provided by operations totaled $2,145,518 for the first three
months of 1999, compared to net cash provided by operations of $1,490,918 for
the same period in 1998. Cash generated from operations for the first three
months of 1999 consisted of various components including non-cash depreciation
and amortization of $768,551 and decreases in accounts receivable and prepaid
income taxes of $4,917,133 and $562,217, respectively. Primary sources of cash
were partially offset by a net loss of $1,410,102 in addition to decreases in
accounts payable, accrued expenses, and customer deposits of $1,369,554,
$757,929 and $549,375, respectively. The decrease in accounts receivable was
related to lower revenue generated in the first quarter of 1999. The decrease in
prepaid income taxes consists of a refund of approximately $1.2 million for the
overpayment of federal income taxes for 1998 partially offset by the recording
of the tax benefit of approximately $650,000 related to the net loss realized in
the first quarter of 1999. As a result of the weakening economic conditions of
the semiconductor industry, in September 1998, the Company temporarily extended
its payment terms to primarily all of its vendors to 90 days. In an effort to
revert back to standard, 30-day terms, as of February 28, 1999, the vendors on
extended terms had been partially repaid, thus resulting in a reduction of
accounts payable. The decrease in accrued expenses was the direct result of two
factors: (1) approximately $300,000 was associated with the timing of the
payroll cycle; and (2) net payments of approximately $400,000 was for the
consulting services performed in 1998 related to the restructuring. The decrease
in customer deposits is the result of recognizing revenue in the first quarter
of 1999 upon shipment of systems on which partial payments had been made as of
November 30, 1998.
Net cash used in investing activities for the first three months of
1999 was $637,566 compared to $702,782 for the same period in 1998. For the
first three months of 1999, the Company incurred approximately $640,000 in
capital expenditures, of which $400,000 was for the purchase and construction of
various lab equipment to be used for research and development. In addition,
approximately $110,000 was for the continued construction on a 33,000 square
foot facility to be used for additional research and development and office
space. As of the middle of March 1999, the construction of the new facility was
delayed for at least six months (see Exhibit 99.1 included in this filing). The
remaining $130,000 was for the purchase of various computer equipment.
Net cash used in financing activities for the first three months of
1999 was $2,153,270 as compared to net cash provided by financing activities of
$957,118 for the same period in 1998. Cash used for financing activities in the
first three months of 1999 included net repayments of $2,000,000 on the line of
credit and the principal repayments of approximately $180,000 on long-term
obligations. Cash provided by financing activities included $30,000 from the
exercise of stock options in connection with the Company's stock option plan.
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FORWARD LOOKING INFORMATION
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements, including the forward-looking statements contained
in this report. The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include but are
not limited to the following:
The Company sells relatively expensive capital equipment, and in any
given quarter or financial period, any one customer or any individual shipment
may represent a significant portion of revenue in that period. Therefore, a
delay or cancellation of that shipment could cause the Company to experience a
revenue or earnings shortfall for a given financial period.
The Company relies on distributors and representatives, which
complement its direct sales and service staff, to sell and service its products
in various geographic locations. Should these sales and service channels be
rendered ineffective, it could materially impact the Company's business. Some of
the Company's competitors have more extensive direct sales and service locations
in the Company's distributors' and representatives' channels, which could
provide these competitors with a competitive advantage in certain geographic
areas.
Plasma-Therm, Inc. depends heavily on the success and growth of the
high technology marketplace. In particular, a slowdown in personal computer
consumption could cause a slowdown of disk drive production, resulting in lower
output of data storage, which could materially affect the Company's business.
The Company also relies on the health of its four served markets: data
storage, microelectromechanical, photomask, and
optoelectronics/telecommunications, in addition to the general semiconductor
equipment marketplace. A slowdown in capital equipment purchases could also
affect the Company's business from time to time.
YEAR 2000
The inability of certain computers, software, and equipment utilizing
microprocessors to properly recognize data fields containing a two-digit year
commonly is referred to as the Year 2000 issue. The Company has conducted a
comprehensive review of its hardware and software systems and all of the
Company's embedded systems contained in the Company's buildings, plant,
equipment, and other infrastructure to identify applications that could be
affected by the Year 2000 issue. Following this review, the Company took
corrective measures to resolve any problems associated with the Year 2000 issue,
and the costs associated with such corrective measures were not material. The
Company's hardware and software systems and embedded
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systems have been tested internally, and the Company believes them to be Year
2000 compliant. Ongoing monitoring of hardware and software developments, which
may affect the Company's internal operations, are in place, and any corrective
actions will be taken as necessary. Such ongoing costs are not expected to be
significant. However, there cannot be any guaranty that all of the Company's
systems are completely Year 2000 compliant.
The Company also conducted a comprehensive review of the Year 2000 readiness of
the Company's products including computers, operating systems, and software that
form a part of the Company's products. With respect to the computers that form a
part of the Company's products, each of the computers is substantially Year 2000
compliant. However, the functions performed by these computers are not affected
by their ability to recognize and properly perform date-sensitive functions. As
a result, the Company's product performance is not affected by whether these
computers are Year 2000 compliant. Accordingly, the failure of these computers
to be Year 2000 compliant would not have a material affect on the Company.
With respect to the operating systems that form a part of the Company's
products, testing of current and ongoing releases from our operating systems
manufacturers continues to show these are substantially Year 2000 compliant.
Areas of non-compliance within operating systems from our manufacturers have
little or no application or effect on the performance of the Company's products.
With respect to the software that forms a part of the Company's products, most
system software utilizes date information from the computer or operating system,
and does not process the date for normal system operation. This assures the
lowest impact for date-related issues to the software. In all known cases where
portions of the software may be non-compliant, the software has no effect on
performing the basic functions of the system. However, the Year 2000 problem
associated with the software, should it arise, can be easily corrected manually.
During the Company's fiscal third quarter, the Company will contact customers
using products containing hardware, operating systems and software sensitive to
the Year 2000 issue. Specific information regarding product performance,
precautions and manual methods of dealing with the Year 2000 problem, should it
arise, will be provided. Operating system and software upgrades, which will
include Year 2000 related upgrades, will be made available as they are
incorporated in planned releases during 1999.
The Company does not interact electronically with its customers or suppliers.
The Company does not believe that the failure of its customers or suppliers to
be Year 2000 compliant would materially affect the Company's business, results
of operations, or financial condition. Nonetheless, the Company has sent letters
to each of its suppliers from whom the Company has purchased at least $1,000 of
materials during the last three years to determine their Year 2000 readiness.
The Company has received responses from a majority of these suppliers that they
are or will be Year 2000 compliant, and the Company continues to seek responses
from the rest of its suppliers.
Based on the Company's Year 2000 analysis described above, the Company is
uncertain of its worst case scenario if the Company's products, systems,
customers, or suppliers are not Year
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2000 compliant. In addition, the Company has not established and does not intend
to establish a contingency plan in case it is not Year 2000 compliant.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On March 15, 1999, the Company issued a press release (the "Press
Release") announcing its financial results for the three months ended
February 28, 1999. The Press Release also announced (i) a further
restructuring of overheads and reduction in personnel as a result of
the continued slowdown (ii) a continued reorganization as part of the
Company's implementation of the Supply Chain Management program
developed with TRW/BDM International (iii) the delay of the shipment
date of the Physical Vapor Deposition (PVD) system, (iv) the delay of
the construction of the Research and Development, Customer
Applications and Training Center, and (v) the 30-day medical leave of
absence, effective March 15, 1999, of Scott DeFerrari, President and
CEO of the Company, and the temporary resumption of duties of CEO
during that period by Ronald H. DeFerrari, Chairman of the Board of
the Company. A copy of the Press Release is included herein as Exhibit
99.1 and is incorporated by reference into this Item 5.
The Press Release contains "safe harbor" language, pursuant to the
Private Securities Litigation Reform Act, indicating that certain
statements contained in the Press Release are "forward looking" rather
than historic. The Press Release also indicates that certain factors
could cause actual results to differ from those projected in the
forward-looking statements and specifically identifies some of those
factors.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.51 Amendment No. 1 to Employment Agreement between Registrant and
Jay N. Sasserath, dated January 28, 1999.
10.52 Design Agreement dated May 4, 1998 between the Registrant and
Facility Planning and Resources.
10.53 Design Agreement dated July 21, 1998 between the Registrant and
The Perry Company.
10.54 Construction Agreement dated February 5, 1999 between the
Registrant and The Perry Company.
10.55 Construction Loan Agreement, Promissory Note, and Mortgage,
Assignment of Rents and Security Agreement dated February 18,
1999 between the Registrant and NationsBank, N.A.
27 Financial Data Schedule (for SEC use only).
99.1 Press release dated March 15, 1999.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the first quarter of fiscal
1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASMA-THERM, INC.
Date: March 24, 1999 BY: /s/ STACY WAGNER
---------------------------------
Stacy Wagner
Chief Financial Officer, Treasurer
and Secretary
Date: March 24, 1999 BY: /s/ RONALD H. DEFERRARI
---------------------------------
Ronald H. DeFerrari
Chairman of the Board and
Chief Executive Officer
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PLASMA-THERM, INC.
FOR 10-Q (FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999)
EXHIBIT INDEX
10.51 Amendment No. 1 to Employment Agreement between Registrant and Jay N.
Sasserath, dated January 28, 1999.
10.52 Design Agreement dated May 4, 1998 between the Registrant and Facility
Planning and Resources.
10.53 Design Agreement dated July 21,1998 between the Registrant and The
Perry Company.
10.54 Construction Agreement dated February 5, 1999 between the Registrant
and The Perry Company.
10.55 Construction Loan Agreement, Promissory Note, and Mortgage, Assignment
of Rents and Security Agreement dated February 18, 1999 between the
Registrant and NationsBank, N.A.
27 Financial Data Schedule (for SEC use only).
99.1 Press release dated March 15, 1999.
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