FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
QUARTERLY REPORT
For the quarterly period ended September 30, 2003
INFICON Holding AG
INFICON Holding Inc.
(Translation of Registrant's Name Into English)
INFICON Inc.
Two Technology Place
East Syracuse, New York 13057
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.)
Form 20-F |X| Form 40-F |_|
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes |_| No |X|
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- )
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Table of Contents
INFICON Holding AG
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Consolidated Balance Sheets...........................................................3
Consolidated Statements of Income.....................................................4
Consolidated Statements of Cash Flows.................................................5
Notes to condensed consolidated financial statements..................................6
Operating and Financial Review and Prospects.........................................18
Quantitative and Qualitative Disclosure of Market Risk...............................26
Signature............................................................................27
Statements Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.......28
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INFICON Holding AG
Consolidated Balance Sheets
(U.S. Dollars in thousands, except per share amounts)
September 30, December 31,
2003 2002
------------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 33,711 $ 37,846
Trade accounts receivable, net 19,124 15,895
Accounts receivable - affiliates 571 417
Inventories 20,760 19,880
Deferred tax assets 5,280 5,325
Other current assets 4,292 3,065
------------ ------------
Total current assets 83,738 82,428
Property, plant and equipment, net 20,939 21,419
Intangibles, net 1,607 343
Deferred tax assets 37,975 35,664
Other assets 1,906 8,074
------------ ------------
Total assets $ 146,165 $ 147,928
============ ============
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 6,328 $ 5,736
Accounts payable - affiliates 286 172
Accrued liabilities 14,085 9,711
Income taxes payable 832 2,547
Deferred tax liabilities 578 466
------------ ------------
Total current liabilities 22,109 18,632
Deferred tax liabilities 686 696
Other liabilities 2,471 1,190
------------ ------------
Total liabilities 25,266 20,518
Stockholders' equity:
Common stock (2,315,000 shares issued par value CHF 10 (U.S. $5.63) 13,033 13,033
Additional paid-in capital 94,024 94,024
Notes receivable from officers (315) (523)
Retained earnings 5,177 15,330
Accumulated other comprehensive income 8,980 5,546
------------ ------------
Total stockholders' equity 120,899 127,410
------------ ------------
Total liabilities and stockholders' equity $ 146,165 $ 147,928
============ ============
See notes to condensed consolidated financial statements.
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INFICON Holding AG
Consolidated Statements of Income
(Unaudited)
(U.S. Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
----------------------- ------------------------
Net sales $ 38,520 $ 33,617 $ 114,434 $ 96,951
Cost of sales 21,394 18,796 64,560 54,257
----------------------- ------------------------
Gross profit 17,126 14,821 49,874 42,694
Research and development 5,022 4,281 15,409 11,829
Impairment of long lived assets (Note 13) 7,370 -- 7,370 --
Selling, general and administrative 11,568 9,512 35,322 29,188
----------------------- ------------------------
Operating income (loss) from continuing operations (6,834) 1,028 (8,227) 1,677
Interest income, net (12) (161) (147) (372)
Other expense (income), net (47) 145 (601) 109
----------------------- ------------------------
Income (loss) before income taxes (6,775) 1,044 (7,479) 1,940
Provision (benefit) for income taxes (611) 217 (1,193) 10
----------------------- ------------------------
Income (loss) from continuing operations (6,164) 827 (6,286) 1,930
Discontinued Operations (Note 6):
Income (loss) from operations of discontinued Ultra
Clean Operations (less applicable income tax provision
(benefit) of $23 in Q3 2003 and $(186) YTD
2003 and $(122) in Q3 2002 and $(274) YTD 2002) 151 (815) (1,244) (1,833)
(Loss) on disposal of Ultra Clean Operations (net of
income tax benefit of $392) (2,623) -- (2,623) --
----------------------- ------------------------
(Loss) from discontinued operations (2,472) (815) (3,867) (1,833)
Net income (loss) $ (8,636) $ 12 $ (10,153) $ 97
======================= ========================
Earnings (loss) per share:
Diluted:
Continuing operations $ (2.66) $ 0.36 $ (2.72) $ 0.83
Discontinued operations (1.07) (0.35) (1.67) (0.79)
----------------------- ------------------------
Total $ (3.73) $ 0.01 $ (4.39) $ 0.04
======================= ========================
Basic:
Continuing operations $ (2.66) $ 0.36 $ (2.72) $ 0.83
Discontinued operations (1.07) (0.35) (1.67) (0.79)
----------------------- ------------------------
Total $ (3.73) $ 0.01 $ (4.39) $ 0.04
======================= ========================
See notes to condensed consolidated financial statements.
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INFICON Holding AG
Consolidated Statements of Cash Flows
(Unaudited)
(U.S. Dollars in thousands)
Nine Months Ended
September 30,
2003 2002
---------------------------
Cash flows from operating activities:
Net income (loss) $ (10,153) $ 97
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,503 2,245
Impairment of long-lived assets 7,370
Deferred taxes (1,076) (1,617)
Changes in operating assets and liabilities:
Trade accounts receivable (2,293) 689
Inventories 34 2,659
Other assets 588 (151)
Accounts payable (46) 461
Accrued liabilities 42 890
Income taxes payable (1,943) 1,567
Other liabilities 1,275 1,706
---------------------------
Net cash provided by (used in) operating activities (2,699) 8,546
Cash flows from investing activities:
Purchases of property, plant and equipment (1,747) (5,591)
Loan to New Vision Systems -- (2,500)
Purchase of Sentex Systems, Inc. (1,500) --
---------------------------
Net cash used in investing activities (3,247) (8,091)
Cash flows from financing activities:
Payments on notes receivable from officers 208 --
---------------------------
Effect of exchange rate changes on cash and cash equivalents 1,603 4,546
---------------------------
Increase (Decrease) in cash and cash equivalents (4,135) 5,001
Cash and cash equivalents at beginning of period 37,846 33,788
---------------------------
Cash and cash equivalents at end of period $ 33,711 $ 38,789
===========================
See notes to condensed consolidated financial statements.
Supplemental disclosure of non-cash investing activities:
In January 2003 the Company acquired New Vision Systems, and assumed net
liabilities of $7,924 including the $5,890 note payable to INFICON Holding, see
note 13.
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INFICON Holding AG
Notes to Condensed Consolidated Financial Statements
Note 1--Description of Business
INFICON Holding AG (INFICON or the "Company") is a leading developer,
manufacturer and supplier of innovative vacuum instrumentation, critical sensor
technologies, and advanced process control software for the semiconductor and
related industries. These analysis, measurement and control products are vital
to original equipment manufacturers (OEMs) and end-users in the complex
manufacturing of semiconductors, flat panel displays, magnetic and optical
storage media and precision optics. The Company also provides essential
instrumentation for gas leak detection and toxic chemical analysis to the air
condition/refrigeration, emergency response and industrial hygiene markets. The
Company's products include process knowledge and control instruments and
software (formerly in situ analysis), leak detectors, vacuum measurement and
component products and field-portable gas chromatograph/mass spectrometer
instruments (instrumentation for environmental health and safety). Headquartered
in Syracuse, New York, INFICON has manufacturing facilities in the United States
and Europe and operations in the United States, Liechtenstein, Switzerland,
Germany, Finland, Japan, United Kingdom, France, Korea, Singapore, Taiwan,
China, and Hong Kong. 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.
Note 2--Basis of Presentation
The accompanying interim financial statements as of September 30, 2003,
for the three and nine months ended September 30, 2003 and 2002, have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. While the quarterly financial information is unaudited,
the financial statements included in this report reflect all adjustments
(consisting of normal recurring accruals) the Company considers necessary for a
fair presentation of the results of operations for the interim periods covered
and the financial condition of the Company at the date of the interim balance
sheet. Operating results for the three and nine months ended September 30, 2003
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2003.
The balance sheet as of December 31, 2002 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. The financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
20-F for the year ended December 31, 2002.
Note 3--Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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. On an on-going basis, management
evaluates its estimates and judgments, including, but not limited to, those
related to revenue recognition, pension actuarial assumptions and methods,
reserves for obsolescence and excess inventory, bad debt, warranty, goodwill and
intangibles, and valuation allowances for deferred tax assets. Management bases
its estimates and judgments on historical experience and on various other
factors believed to be reasonable under the circumstances that form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The following
summarizes certain specific accounting policies:
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Revenue Recognition - Revenue is recognized 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.
Goodwill and Intangible Assets - The Company reviews goodwill and intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of these assets may not be recoverable, and also reviews
goodwill annually in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets." Under the provisions of this standard, goodwill and
intangible assets deemed to have indefinite lives are no longer subject to
amortization. All other intangibles are amortized over their estimated useful
life. Intangible assets, such as purchased technology, are generally recorded in
connection with the acquisition of a business. The value assigned to intangible
assets is determined by or with assistance of an independent valuation firm
based on estimates and judgment regarding expectations for the success and life
cycle of products and technology acquired. If actual results differ
significantly from the estimates, the Company may be required to record an
impairment charge to write down the asset to its realizable value. In addition,
SFAS No. 142 requires that goodwill be tested annually using a two-step process.
The first step is to identify any potential impairment by comparing the carrying
value of the reporting unit to its fair value. If a potential impairment is
identified, the second step is to compare the implied fair value of goodwill
with its carrying amount to measure the impairment loss. A severe decline in
fair value could result in an impairment charge to goodwill, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Bad Debt - The allowance for doubtful accounts is for estimated losses resulting
from the inability of our customers to make the 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 - The accrual for the estimated cost of product warranties is
provided for at the time revenue is recognized. While we engage in extensive
product quality programs and processes, 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 - The reserve for estimated obsolescence or unmarketable inventory is
equal to the difference between the cost of inventory and the estimated fair
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 - The pension benefit costs and credits are developed from
actuarial valuations. Inherent in these valuations are key assumptions including
discount rates and expected returns on plan assets. The Company considers
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 and changes in the assumptions.
Deferred Tax Assets - As of September 30, 2003, the Company had net deferred tax
assets of U.S.$42.0 million reflecting tax credit and loss carry forwards, basis
differences primarily from intangible assets, and other deductions available to
reduce taxable income in future years. A majority of the net deferred tax assets
balance of U.S.$42.0 million resides in the United States. In assessing the
realization of the Company's deferred tax assets, we consider whether it is more
likely than not the deferred tax assets will be realized. The ultimate
realization of our deferred income tax assets depends upon our ability to
generate future taxable income, including the implementation of tax planning
strategies, during the periods in which our basis differences and other
deductions become deductible and prior to the expiration of our net operating
loss carry forwards. On a quarterly basis, the Company evaluates the
recoverability of its deferred tax assets based upon historical results and
forecasted results over future years and matches this forecast against the basis
differences, deductions available in future years and the limitations allowed
for net operating loss carry forwards to ensure there is adequate support for
the realization of the deferred tax assets. While we have considered future
operating results, in conjunction with 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
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adjustment to the deferred tax assets would be charged as a reduction to income
in the period such determination was made. Likewise, should we determine that we
would be able to realize future deferred tax assets in excess of its net
recorded amount, an adjustment to the deferred tax assets would increase income
in the period such determination was made. For the three months ended September
30, 2003, the Company's evaluation of the recoverability of our deferred tax
assets, in accordance with SFAS 109, showed that an increase to our valuation
allowance for its deferred income tax assets was required. An additional
valuation allowance of U.S.$1.1 million was recorded for the three months ended
September 30, 2003. For the nine months ended September 30, 2003, and the year
ended December 31, 2002, the Company has a valuation allowance for deferred
taxes of approximately U.S.$4.1 million and U.S.$2.7 million, respectively. If
the Company generates future taxable income against which these tax attributes
may be applied, some portion or all of the valuation allowance would be reversed
and reported as income tax benefit in future periods.
Although realization is not assured, the Company believes it is more likely than
not the net deferred tax asset balance as of September 30, 2003 will be
realized. The Company was able to support this conclusion based upon projections
of future operating results and tax planning strategies that support the
realization of the deferred tax assets, and other positive and negative
evidence. Differences between forecasted and actual future operating results
could adversely impact our ability to realize our deferred income tax assets;
however, differences between forecasted and actual future operating results are
continually monitored to ensure the Company has adequate support for the
realization of the deferred tax assets. The Company analysis supporting the
realization of the deferred tax assets places careful consideration on the net
operating loss carry forwards relative to the United States.
In recent years, the Company's U.S. operations have experienced losses before
income taxes for financial and tax reporting purposes; however, we believe
improvements in the order backlog, industry projections as well as changes in
our operations that will take place are sufficient to generate the minimum
amounts of taxable income to utilize our net operating loss carry forwards prior
to their expiration. The changes in the Company's operations will include:
o Various cost saving and restructuring initiatives to reduce
manufacturing and overhead costs;
o Capitalization of the intercompany debt arrangement between INFICON
Inc. (US location) and INFICON GmbH (Switzerland);
o Review R&D expenses between related parties to identify potential
tax planning strategies that will maximize the Company's tax
benefit;
o Other changes in an effort to increase the efficiency and
effectiveness of our business operations.
The Company believes it is more likely than not it will be able to generate
sufficient taxable income in the United States to absorb its net operating loss
carry forwards, which begin to expire in 2021, although there can be no
assurances. If the Company's expectations for future operating results are not
met due to general economic conditions or other factors, the Company may need to
establish additional valuation allowances for all or a portion of its deferred
tax assets primarily relating to its U.S. operations. This could have a
significant affect on our future results of operations and financial position.
Impairment of Long-Lived Assets - SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," was early adopted by the Company on January
1, 2002, and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," while retaining
many of the requirements of SFAS No. 121. In accordance with SFAS No. 144,
long-lived assets to be held and used by an entity are to be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected
future undiscounted cash flows is less than the carrying about of the asset, an
impairment loss is recognized by reducing the recorded value to fair value. The
pre-tax charge for impairment is included in operating income (loss) from
continuing operations, net, on the consolidated statements of operations and
totaled $7,370, $0, for the three and nine months ended September 30, 2003 and
September 30, 2002, respectively.
Disposal of Long-Lived Assets/Discontinued Operations - SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," was early
adopted by the Company on January 1, 2002 and supersedes a portion of Accounting
Principle Board (APB) No. 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business," relating to reporting the
effects of disposal of a segment of a business, while retaining many of the
requirements of this statement. Under SFAS No. 144, the definition of what
constitutes a discontinued operation is broader, discontinued operations are no
longer measured on a net realizable value basis, and future operating losses are
no longer recognized before they occur.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
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(U.S.$ in thousands, except per share amounts)
Three months ended Nine months ended
September 30 September 30
2003 2002 2003 2002
---------------------------------------------------------------------
Net income (loss), as reported $ (8,636) $ 12 $ (10,153) $ 97
Less: Stock based compensation
expense, net of tax (1,373) (861) (4,095) (2,417)
---------------------------------------------------------------------
Pro forma net loss $ (10,009) $ (849) $ (14,248) $ (2,320)
=====================================================================
Earnings per share:
Diluted - as reported $ (3.73) $ 0.01 $ (4.39) $ 0.04
Diluted - pro forma $ (4.32) $ (0.37) $ (6.15) $ (1.00)
Basic - as reported $ (3.73) $ 0.01 $ (4.39) $ 0.04
Basic - pro forma $ (4.32) $ (0.37) $ (6.15) $ (1.00)
Note 4--Inventories
Inventories consist of the following (in thousands):
September 30, December 31,
2003 2002
-----------------------------
Raw material $ 15,842 $ 14,950
Work in process 1,063 1,075
Finished goods 3,855 3,855
--------------------------
$ 20,760 $ 19,880
==========================
Note 5--Accrued Restructuring Costs
During the fourth quarter of 2002, the Company recorded restructuring
charges of U.S.$1,274 associated with a worldwide cost-reduction program in
response to the continued reduced demand and slowdown in the semiconductor
capital equipment industry. These charges related primarily to severance and
fringe benefits for approximately 33 employees who either elected the voluntary
severance program or were terminated. The affected employees were located in the
United States and Liechtenstein and include manufacturing and non-manufacturing
employees. Notification of termination and benefits were communicated to
employees in the fourth quarter of 2002. The majority of the terminations
occurred in 2002 and the balance of these terminations were completed by the end
of the first quarter of 2003. As of December 31, 2002, a balance of U.S.$1,052
remained in the restructuring reserve included in accrued liabilities. As of
September 30, 2003, the balance of U.S.$1,052 has been paid.
Note 6 - Discontinued Operations - Ultra Clean Processing
For the three months ended September 30, 2003, the company recorded a loss
from discontinued operations of U.S.$2.5 million related to the divestment of
its ultra clean processing product line. The divestment is structured as a
management buyout with the terms allowing the Company the potential to recoup a
portion of the divestment costs over the next three years.
The Company's decision to divest the ultra clean processing business unit
was based upon its long-term strategy of focusing on the Company's core
competencies in the front-end of the semiconductor manufacturing
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process. The divestment is expected to be completed by December 31, 2003. The
ultra clean processing products service the semiconductor market and were
reported under the semiconductor vacuum instrumentation segment.
The balance sheet applicable to the ultra clean processing business,
included in the consolidated balance sheet for the three months ended September
30, 2003, is as follows (thousands):
Assets:
Current assets $1,334
Equipment 150
Other assets 70
------
Total Assets $1,554
======
Liabilities & Equity:
Current liabilities $ 809
Other liabilities 19
Equity 726
------
Total Liabilities & Equity $1,554
======
Note 7--Warranty
Charges to warranty reserve during the first nine months of 2003 were as
follows:
Deduct:
Balance at Add: Charges Charges against Balance at
December 31, 2002 to Reserve Reserve September 30, 2003
----------------- ---------- ------- ------------------
$ 2,246 $ 1,317 $ 1,076 $ 2,487
Note 8--Derivative Financial Instruments
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards Board No. 133 ("SFAS 133"), Accounting for Certain Derivative
Instruments and Certain Hedging Activities. SFAS No. 133 requires that all
derivatives, including foreign currency exchange contracts, be recognized on the
balance sheet at fair value. Derivatives that are not determined to be hedges
must be recorded at fair value through earnings. The cumulative after tax effect
for the unrealized gains on foreign currency hedges recorded in accumulated
other comprehensive income was U.S.$59 thousand and U.S.$15 thousand as of
September 30, 2003 and December 31, 2002, respectively.
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
and fair value 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 Euro, Swiss franc and Japanese yen. This
exposure arises in certain locations from intercompany purchases 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
and fair value 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
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during which the hedged transaction affects earnings. The Company did not have
any significant gains or losses from ineffective hedges for the three and nine
months ended September 30, 2003 and September 30, 2002.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (SFAS 149), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." This statement amends SFAS 133 to provide clarification on
the financial accounting and reporting of derivative instruments and hedging
activities and requires contracts with similar characteristics to be accounted
for on a comparable basis. The adoption of SFAS 149, which was effective for
contracts entered into or modified after June 30, 2003, did not have a material
effect on the Company's financial condition or results of operations.
Note 9--Recent Accounting Pronouncements
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensation -
Transition and Disclosure - an Amendment of FASB Statement No. 123 (SFAS 123),"
which is effective for financial statements for fiscal years ending after
December 15, 2002, with early adoption permitted. SFAS 148 will enable companies
that choose to adopt the preferable fair value based method to report the full
effect of employee stock options in their financial statements immediately upon
adoption, and to make available to investors better and more frequent disclosure
about the cost of employee stock options. As permitted by SFAS 123, the Company
follows the accounting provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) which uses the intrinsic
value method in accounting for compensation expense under the stock option and
purchase plans. Under the intrinsic value method, compensation expense is not
recognized unless the exercise price of an option is less than the market value
of the underlying stock on the grant date. 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.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (SFAS 149), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." The summarization of this statement is addressed in Note 8.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 (SFAS No. 150), "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity". SFAS No. 150 establishes
standards on the classification and measurement of financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and for all
financial instruments at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on the
Company's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. This Interpretation also incorporates,
without change, the guidance in FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being superseded. The
adoption of FIN No. 45 did not have a material impact on the Company's financial
position or results of operations.
In January 2003 the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). This interpretation clarifies
existing accounting principles related to the preparation of consolidated
financial statements when the equity investors in an entity do not have the
characteristics of a controlling financial interest or when the equity at risk
is not sufficient for the entity to finance its activities without additional
subordinated financial support from others parties. FIN No. 46 requires a
company to evaluate all existing arrangements to identify situations where a
company has a "variable interest" (commonly evidenced by a guarantee arrangement
or other commitment to provide financial support) in a "variable interest
entity" (commonly a thinly capitalized entity) and further determine when such
variable interests require a company to consolidate the variable interest
entities' financial statements with its own. FIN No. 46 is effective immediately
for all variable interest entities created after January 31, 2003, and is
effective for all variable interest entities created prior to that date
- 11 -
beginning January 1, 2004. The adoption of FIN No. 46 did not have a material
impact on the Company's financial position or results of operations.
This Interpretation does not apply to certain guarantee contracts:
guarantees issued by insurance and reinsurance companies and accounted for under
accounting principles for those companies, residual value guarantees provided by
lessees in capital leases, contingent rents, vendor rebates, and guarantees
whose existence prevents the guarantor from recognizing a sale or the earnings
from a sale. Furthermore, the provisions related to recognizing a liability at
inception for the fair value of the guarantor's obligation do not apply to the
following:
a. Product warranties
b. Guarantees that are accounted for as derivatives
c. Guarantees that represent contingent consideration in a business
combination
d. Guarantees for which the guarantor's obligations would be reported
as an equity item (rather than a liability)
e. An original lessee's guarantee of lease payments when that lessee
remains secondarily liable in conjunction with being relieved from
being the primary obligor (that is, the principal debtor) under a
lease restructuring
f. Guarantees issued between either parents and their subsidiaries or
corporations under common control
g. A parent's guarantee of a subsidiary's debt to a third party, and a
subsidiary's guarantee of the debt owed to a third party by either
its parent or another subsidiary of that parent.
However, the guarantees described in (a)-(g) above are subject to the disclosure
requirements of this Interpretation.
The initial recognition and measurement provisions of the Interpretation
apply on a prospective basis to guarantees issued or modified after December 31,
2002.
Note 10--Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the total change in
stockholders' equity during the period other than from transactions with
stockholders. For the Company, comprehensive income (loss) consists of net
income plus the net change in accumulated other comprehensive income (loss), an
element of stockholders' equity. Accumulated other comprehensive income (loss)
consists of the net change in the accumulated foreign currency translation
adjustment account and the net change in unrealized gains and losses in hedging
activity.
The Company's comprehensive income (loss) for the three and nine months
ended September 30, 2003 was:
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
Thousands of dollars 2003 2002 2003 2002
---------------------------------------------------------------------
Net income (loss) $ (8,636) $ 12 $ (10,153) $ 97
Other Comprehensive Income (Loss) net of
tax:
Net foreign currency translation adjustments 1,477 (574) 3,390 6,771
Unrealized gain on foreign currency hedges 100 51 44 176
---------------------------------------------------------------------
Other Comprehensive Income 1,577 (523) 3,434 3,434
---------------------------------------------------------------------
Balance at September 30, 2003 $ (7,059) $ (511) $ (6,719) $ 7,044
=====================================================================
Note 11-Segment Information
INFICON Holding AG (INFICON or the "Company") is a leading developer,
manufacturer and supplier of innovative vacuum instrumentation, critical sensor
technologies, and advanced process control software for the semiconductor and
related industries with headquarters in the United States, and administrative
offices and manufacturing in the United States, Germany, and Liechtenstein, in
addition to sales and service locations worldwide.
- 12 -
INFICON operates in two primary business segments: Semiconductor Vacuum
Instrumentation and General Vacuum Instrumentation.
The semiconductor vacuum instrumentation segment includes one product
line: process knowledge and control instruments and software (formerly in situ
analysis). The products in this segment are developed for use in various
semiconductor manufacturing applications. The general vacuum instrumentation
segment includes three major product lines: leak detection, vacuum measurement
and components, and instrumentation for environmental health and safety. These
products are used in numerous markets including air conditioning, refrigeration,
automotive, emergency response, industrial hygiene and semiconductor
manufacturing.
Information on the Company's business segments on a continuing operations
basis was as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
----------------------------- -----------------------------
Net Sales:
Semiconductor vacuum instrumentation $ 8,534 $ 9,099 $ 27,677 $ 22,691
General vacuum instrumentation 29,986 24,518 86,757 74,260
----------------------------- -----------------------------
Total net sales $ 38,520 $ 33,617 $ 114,434 $ 96,951
============================= =============================
Gross profit:
Semiconductor vacuum instrumentation $ 4,102 $ 5,020 $ 12,616 $ 11,265
General vacuum instrumentation 13,024 9,801 37,258 31,429
----------------------------- -----------------------------
Total gross profit $ 17,126 $ 14,821 $ 49,874 $ 42,694
============================= =============================
(Loss) before interest and taxes:
Semiconductor vacuum instrumentation $ (9,496) $ (58) $ (14,194) $ (3,864)
General vacuum instrumentation 2,709 941 6,568 5,432
----------------------------- -----------------------------
Total earnings (loss) before interest and taxes $ (6,787) $ 883 $ (7,626) $ 1,568
============================= =============================
Depreciation and amortization:
Semiconductor vacuum instrumentation $ 8,024 $ 298 $ 9,130 $ 846
General vacuum instrumentation 587 328 1,552 1,364
----------------------------- -----------------------------
Total depreciation and amortization $ 8,611 $ 626 $ 10,682 $ 2,210
============================= =============================
Capital expenditures:
Semiconductor vacuum instrumentation $ 64 $ 38 $ 1,148 $ 1,353
General vacuum instrumentation 393 1,080 2,095 4,135
----------------------------- -----------------------------
Total capital expenditures $ 457 $ 1,118 $ 3,243 $ 5,488
============================= =============================
Sales by geographic location:(1)
United States $ 15,752 $ 11,782 $ 42,351 $ 35,675
Europe 16,871 16,242 50,732 45,056
Asia 5,897 5,593 21,351 16,220
----------------------------- -----------------------------
Total sales $ 38,520 $ 33,617 $ 114,434 $ 96,951
============================= =============================
- 13 -
September 30, December 31,
2003 2002
-----------------------------
Total assets:
Semiconductor vacuum instrumentation $ 59,671 $ 52,796
General vacuum instrumentation 86,494 95,132
--------------------------
Total assets $ 146,165 $ 147,928
==========================
September 30, December 31,
2003 2002
-----------------------------
Long-lived assets (2):
Semiconductor vacuum instrumentation $ 9,202 $ 14,313
General vacuum instrumentation 15,250 15,523
--------------------------
Total long-lived assets $ 24,452 $ 29,836
==========================
(1) The geographic location of a sale is determined by the subsidiary that
recorded the sale, rather than customer location
(2) Long-lived assets excludes deferred taxes
Note 12--Net Earnings (Loss) Per Share
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings
per Share". SFAS 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 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 following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share and per share amounts):
Three Months Ended Nine months Ended
September 30, September 30,
2003 2002 2003 2002
--------------------------------- ---------------------------------
Numerator:
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations $ (6,164) $ 827 $ (6,286) $ 1,930
(Loss) from discontinued operations (2,472) (815) (3,867) (1,833)
------------------------------------------------------------------------
Net income (loss) $ (8,636) $ 12 $ (10,153) $ 97
Denominator:
Denominator for basic and diluted earnings per share:
Weighted average shares outstanding
Basic shares 2,315,000 2,315,000 2,315,000 2,315,000
Diluted shares 2,315,000 2,315,000 2,315,000 2,315,000
Earnings (loss) per share:
Diluted
Continuing Operations $ (2.66) $ 0.36 $ (2.72) $ 0.83
Discontinued Operations (1.07) (0.35) (1.67) (0.79)
------------------------------------------------------------------------
Total $ (3.73) $ 0.01 $ (4.39) $ 0.04
========================================================================
Basic
Continuing Operations $ (2.66) $ 0.36 $ (2.72) $ 0.83
Discontinued Operations (1.07) (0.35) (1.67) (0.79)
------------------------------------------------------------------------
Total $ (3.73) $ 0.01 $ (4.39) $ 0.04
========================================================================
- 14 -
As of September 30, 2003, the number of antidilutive potential common
shares that could dilute earnings per share in the future were 189,509.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensation -
Transition and Disclosure - an Amendment of FASB Statement No. 123 (SFAS 123),"
which is effective for financial statements for fiscal years ending after
December 15, 2002, with early adoption permitted. SFAS 148 will enable companies
that choose to adopt the preferable fair value based method to report the full
effect of employee stock options in their financial statements immediately upon
adoption, and to make available to investors better and more frequent disclosure
about the cost of employee stock options. We will continue to apply the
disclosure only provisions of both SFAS 123 and SFAS 148.
Note 13--Acquisition of New Vision Systems (thousands)
In January 2003, the Company acquired 100% of the stock of a
privately-held company, New Vision Systems, a leader in advanced process control
(APC) for patterning processes in semiconductor manufacturing pursuant to an
Agreement and Plan of Merger which closed on January 3. The acquisition of New
Vision Systems helps expand the Company's reach in the semiconductor fab
industry by extending its range of process capability in the advanced process
control (APC) market to include photolithography. Photolithography, fundamental
to creating the pattern of integrated circuits (IC) on a semiconductor wafer, is
the most challenging and strategically important process in manufacturing
semiconductor devices. New Vision Systems develops and deploys a full suite of
process control software compatible with tools from all major photolithography
and metrology equipment suppliers. These products improve equipment productivity
and chip yield in semiconductor fabrication. As of December 31, 2002, New Vision
Systems had an outstanding note payable to INFICON of U.S.$5.9 million. The note
receivable is recorded in other assets for the Company's December 31, 2002
financial report since the results of operations for New Vision Systems were not
part of the Company's consolidated financial statements until January 2003.
The transaction was accounted for under the purchase method of accounting
for business combinations, and the results of operations for New Vision Systems
have been included in the Company's consolidated financial statements for the
nine and three months ended September 30, 2003 since the date of acquisition.
An independent valuation of the assets acquired and liabilities assumed
from the purchase of New Vision Systems was completed during the first quarter
of 2003. The following table summarizes the estimated fair values of those
assets and liabilities.
Liabilities assumed:
Current liabilities $4,047
Long-term debt (intercompany) 5,890
------
Total liabilities assumed $9,937
------
Less Tangible assets acquired:
Current assets $ 693
Leases, licenses, furniture and equipment 365
Other assets 955
------
Total assets acquired $2,013
------
llocation of excess liabilities over assets:
Goodwill $4,342
Intangibles 3,582
------
Total $7,924
======
- 15 -
The acquired intangible assets, at the time of acquisition, were
determined to have a weighted-average useful life of approximately 9 years. The
intangible assets that made up the intangible asset balance, on the opening
balance sheet for New Vision Systems, included completed technology of
U.S.$2,660 (10 year useful life), trade names of U.S.$382 (10 year useful life),
certain agreements of U.S.$220 (5 year useful life) and order backlog of
U.S.$320 (1 year useful life).
As consideration for the stock of New Vision Systems, the Company assumed
liabilities in excess of assets, and entered into a contingent "Earn Out"
agreement through 2004 with the stockholders of New Vision Systems, not to
exceed $27 million, payable in a combination of the Company's ADSs, valued at
the current market price when payable, and cash, based on specific sales targets
of New Vision Systems in calendar years 2003 and 2004. To date, no amounts have
been recorded for the contingent purchase price.
In the third quarter of 2003, due to lower than expected financial
performance for New Vision Systems, and in conjunction with its annual test of
goodwill an impairment test of intangible assets was performed and the Company
recorded a one-time impairment charge of U.S.$7,370 to write down the long-lived
assets associated with New Vision systems. The impairment charge was allocated
as follows:
Goodwill $4,342
Intangibles 2,635
PP&E 393
------
Total $7,370
======
As of September 30, 2003, the goodwill and intangible asset balances,
after amortization of U.S.$504 and impairment of U.S.$7,370, were U.S.$0 and
U.S.$443, respectively.
Pro forma results of operations:
The following unaudited pro forma information summarizes the Company's
consolidated results of operations as if New Vision Systems acquisition had
taken place at the beginning of 2002:
Three months ended Nine months ended
September 30 September 30
2003 2002 2003 2002
-----------------------------------------------------------------
Net Sales $ 38,520 $ 34,312 $ 114,434 $ 99,036
Net (Loss) $ (8,636) $ (1,926) $ (10,153) $ (5,717)
=================================================================
Diluted net (loss) per share $ (3.73) $ (0.83) $ (4.39) $ (2.47)
Basic net (loss) per share $ (3.73) $ (0.83) $ (4.39) $ (2.47)
The pro forma net (loss) and earnings per share for 2002 were pro-rated
based on 2002 annual results. The pro forma results for 2002 are not necessarily
indicative of the results that would have occurred had the acquisition been in
effect during 2002.
Note 14--Acquisition of Sentex Systems Inc. (thousands)
In May 2003, the Company acquired 100% of the assets and assumed certain
liabilities of a privately-held company, Sentex Systems Inc. Sentex Systems,
founded in 1980, supplies sophisticated monitoring and analysis instruments
using gas chromatography (GC) technology to detect volatile organic compounds
(VOCs) for industrial and environmental monitoring, testing, and security.
Sentex product lines include continuous, on-line water monitors for applications
such as factory discharge water or water security, air monitors for spot
analysis or continuous on-site monitoring and explosives detectors for building
and site security and protection. Sentex products complement the
- 16 -
HAPSITE fully portable chemical identification systems (gas chromatograph/mass
spectrometer or GC/MS technology) used for fast on-scene detection and analysis
of chemical agents and toxic materials in air, soil and water. The financial
results for Sentex products are reported under the general vacuum
instrumentation segment.
The transaction was accounted for under the purchase method of accounting
for business combinations, and the results of operations have been included in
the Company's consolidated financial statements for the three and nine months
ended September 30, 2003 since the date of acquisition.
A valuation of the assets and certain liabilities acquired from the
purchase of Sentex Systems Inc. was prepared by the Company. The following table
summarizes the estimated fair values of those assets and liabilities.
Purchase price $ 1,500
=======
Tangible assets acquired:
Current assets $ 354
Equipment 30
Other assets 5
-------
Total assets acquired $ 389
-------
Less: Liabilities assumed
Current liabilities $ (89)
Allocation of excess purchase price over net assets:
Intangibles $ 1,200
The acquired intangible asset has a useful life of 10 years. The
intangible asset balance is comprised of completed technology of U.S.$1,200 (10
year useful life).
Pro forma results of operations:
The following unaudited pro forma information summarizes the Company's
consolidated results of operations as if Sentex Systems acquisition had taken
place at the beginning of 2002
Three months ended Nine months ended
September 30 September 30
2003 2002 2003 2002
----------------------------------------------------------------
Net Sales $ 38,520 $ 33,870 $ 114,900 $ 97,711
Net (Loss) $ (8,636) $ 60 $ (10,105) $ 241
================================================================
Diluted net (loss) per share $ (3.73) $ 0.03 $ (4.37) $ 0.10
Basic net (loss) per share $ (3.73) $ 0.03 $ (4.37) $ 0.10
Note 15--Reclassification
Certain reclassifications have been made to prior years' financial
statements to conform to the 2003 presentation.
- 17 -
Operating and Financial Review and Prospects
Cautionary Note Regarding Forward - Looking Statements
Certain statements in this quarterly report on Form 6-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. 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",
"assume", "estimate", "anticipate", "plan", "continue", "resumes",
"opportunity", "potential" or "guidance". 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 "Recent Developments"
below and under "Key Information---Risk Factors" in our most recent annual
report on Form 20-F filed by us with the Securities and Exchange Commission.
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.
Overview
INFICON Holding AG is a corporation (Aktiengesellschaft) organized under
the laws of Switzerland. In this quarterly report, "INFICON", the "INFICON
Group", "the Company", "we", "us" and "our" 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.
INFICON Holding AG is a leading developer, manufacturer and supplier of
vacuum instrumentation, critical sensor technologies, and process control
software for the semiconductor and related industries. The Company's products
include process knowledge and control instruments and software (formerly in situ
analysis), leak detectors, vacuum measurement and component products and
field-portable gas chromatograph/mass spectrometer instruments (instrumentation
for environmental health and safety). 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.
Semiconductor Industry
The semiconductor industry has historically experienced sudden changes in
supply and demand for semiconductors and is also subject to rapid technological
changes in semiconductor manufacturing processes. These factors are generally
the cause of strong volatility of demand for semiconductor capital equipment. We
believe that a global economic slowdown and a severe downturn in the
semiconductor and related industries could continue to have a negative effect on
our financial performance for the remainder of this year.
Deferred Tax Assets
Deferred Tax Assets - As of September 30, 2003, the Company had net
deferred tax assets of U.S.$42.0 million reflecting tax credit and loss carry
forwards, basis differences primarily from intangible assets, and other
deductions available to reduce taxable income in future years. A majority of the
net deferred tax assets balance of U.S.$42.0 million resides in the United
States. In assessing the realization of the Company's deferred tax assets, we
consider whether it is more likely than not the deferred tax assets will be
realized. The ultimate realization of our deferred income tax assets depends
upon our ability to generate future taxable income, including the implementation
of tax planning strategies, during the periods in which our basis differences
and other deductions become deductible and prior to the expiration of our net
operating loss carry forwards. On a quarterly basis, the Company evaluates the
recoverability of its deferred tax assets based upon historical results and
forecasted results over future years and matches this forecast against the basis
differences, deductions available in future years and the limitations allowed
- 18 -
for net operating loss carry forwards to ensure there is adequate support for
the realization of the deferred tax assets. While we have considered future
operating results, in conjunction with 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 as a reduction to income in the period such determination was
made. Likewise, should we determine that we would be able to realize future
deferred tax assets in excess of its net recorded amount, an adjustment to the
deferred tax assets would increase income in the period such determination was
made. For the three months ended September 30, 2003, the Company's evaluation of
the recoverability of our deferred tax assets, in accordance with SFAS 109,
showed that an increase to our valuation allowance for its deferred income tax
assets was required. An additional valuation allowance of U.S.$1.1 million was
recorded for the three months ended September 30, 2003. For the nine months
ended September 30, 2003, and the year ended December 31, 2002, the Company has
a valuation allowance for deferred taxes of approximately U.S.$4.1 million and
U.S.$2.7 million, respectively. If the Company generates future taxable income
against which these tax attributes may be applied, some portion or all of the
valuation allowance would be reversed and reported as income tax benefit in
future periods.
Although realization is not assured, the Company believes it is more
likely than not the net deferred tax asset balance as of September 30, 2003 will
be realized. The Company was able to support this conclusion based upon
projections of future operating results and tax planning strategies that support
the realization of the deferred tax assets, and other positive and negative
evidence. Differences between forecasted and actual future operating results
could adversely impact our ability to realize our deferred income tax assets;
however, differences between forecasted and actual future operating results are
continually monitored to ensure the Company has adequate support for the
realization of the deferred tax assets. The Company analysis supporting the
realization of the deferred tax assets places careful consideration on the net
operating loss carry forwards relative to the United States.
In recent years, the Company's U.S. operations have experienced losses
before income taxes for financial and tax reporting purposes; however, we
believe improvements in the order backlog, industry projections as well as
changes in our operations that will take place are sufficient to generate the
minimum amounts of taxable income to utilize our net operating loss carry
forwards prior to their expiration. The changes in the Company's operations will
include:
o Various cost saving and restructuring initiatives to reduce
manufacturing and overhead costs;
o Capitalization of the intercompany debt arrangement between INFICON
Inc. (US location) and INFICON GmbH (Switzerland);
o Review R&D expenses between related parties to identify potential
tax planning strategies that will maximize the Company's tax
benefit;
o Other changes in an effort to increase the efficiency and
effectiveness of our business operations.
The Company believes it is more likely than not it will be able to
generate sufficient taxable income in the United States to absorb its net
operating loss carry forwards, which begin to expire in 2021, although there can
be no assurances. If the Company's expectations for future operating results are
not met due to general economic conditions or other factors, the Company may
need to establish additional valuation allowances for all or a portion of its
deferred tax assets primarily relating to its U.S. operations
- 19 -
Results of Operations for the Three Months Ended September 30, 2003 and 2002
Net Sales
Net sales increased 14.6% to U.S.$38.5 million for the three months ended
September 30, 2003 from U.S.$33.6 million for the three months ended September
30, 2002. This increase is primarily due to favorable changes in exchange rates
relative to the US dollar and higher sales within our general vacuum
instrumentation segment.
Semiconductor Vacuum Instrumentation Segment. Net sales decreased by 6.2%
to U.S.$8.5 million for the three months ended September 30, 2003 from U.S.$9.1
million for the three months ended September 30, 2002. This decrease resulted
from lower demand for process knowledge and control instruments and software
(formerly in situ analysis) from semiconductor manufacturers in the United
States and Asia. This decrease was partially offset by revenue associated with
the acquisition of New Vision Systems in January 2003, in addition to favorable
changes in foreign exchange rates relative to the U.S. dollar.
General Vacuum Instrumentation Segment. Net sales increased by 22.3% to
U.S.$30.0 million for the three months ended September 30, 2003 from U.S.$24.5
million for the three months ended September 30, 2002. This is mainly the result
of favorable changes in foreign exchange rates relative to the U.S. dollar and
improved demand for the Environmental Health & Safety product line. This
increase was partially offset by a lower demand for our leak detection products
by RAC manufacturing customers.
Gross Profit
Gross profit increased by 15.6% to U.S.$17.1 million or 44.5% of net sales
for the three months ended September 30, 2003 from U.S.$14.8 million or 44.1% of
net sales for the three months ended September 30, 2002. The increase in gross
profit percentage is primarily due to favorable absorption of fixed
manufacturing costs for the Environmental Health & Safety product line. This
increase was partially offset by an under absorption of fixed costs for the
semiconductor lithography software product line.
Research and Development
Research and development costs increased by 17.3% to U.S.$5.0 million, or
13.0% of net sales, for the three months ended September 30, 2003 from U.S.$4.3
million, or 12.7% of net sales, for the three months ended September 30, 2002.
This increase was driven primarily by the addition of research and development
expenses related to the acquisition of New Vision Systems in January 2003 and
changes in foreign exchange rates relative to the U.S. dollar. This increase was
partially offset by a decrease in R&D expenses related to vacuum control
products.
Impairment of Long-Lived Assets
An impairment charge of U.S.$7.4 million related to the write-down of
long-lived assets in our patterning solutions product line was recorded for the
three months ended September 30, 2003.
Selling, General and Administrative
Selling, general and administrative expenses increased by 21.6% to
U.S.$11.6 million, or 30.0% of net sales, for the three months ended September
30, 2003 from U.S.$9.5 million, or 28.3% of net sales, for the three months
ended September 30, 2002. This increase is the result of additional costs
following the acquisition of New Vision Systems in January 2003, changes in
foreign exchange rates relative to the U.S. dollar, coupled with increased costs
related to the Environmental Health & Safety product line.
Income (Loss) from Continuing Operations
For the reasons stated above, the income (loss) from operations was
U.S.($6.8) million, or (17.6%) of net sales, for the three months ended
September 30, 2003 from U.S.$1.0 million, or 3.1% of net sales, for the three
months ended September 30, 2002.
- 20 -
Other Expense (Income)
Other income was U.S.($47) thousand, or 0.1% of net sales, for the three
months ended September 30, 2003 as compared to other expense of U.S.$145
thousand, or 0.4% of net sales, for the three months ended September 30, 2002.
The increase in other income is primarily the result of foreign currency gains
recognized during the three months ended September 30, 2003.
Provision (Benefit) for Income Taxes
The income tax benefit was U.S.($0.6) million, or 9.0% of loss from
continuing operations before taxes for the three months ended September 30, 2003
versus an income tax provision of U.S.$0.2 million, or 20.8% of income before
taxes, for the three months ended September 30, 2002. The increase in income tax
benefit resulted from a taxable loss of U.S.$6.8 million versus taxable income
of U.S.$1.0 million for the three months ended September 30, 2003 and 2002,
respectively. This tax benefit was partially offset by a U.S.$1.1 million
valuation allowance for a deferred tax asset. The effective tax rate has changed
due to a change in the earnings mix among tax jurisdictions.
Discontinued Operations
For the three months ended September 30, 2003, the Company recorded a loss
from discontinued operations of U.S.$2.5 million related to the divestment of
its ultra clean processing product line. The divestment is structured as a
management buyout.
Net Income (Loss)
For the reasons stated above, net loss was U.S.($8.6) million, or (22.4%)
of net sales, for the three months ended September 30, 2003 from a net income of
U.S.$12 thousand, or 0.04% of net sales, for the three months ended September
30, 2002.
- 21 -
Results of Operations for the Nine months Ended September 30, 2003 and 2002
Net Sales
Net sales increased 18.0% to U.S.$114.4 million for the nine months ended
September 30, 2003 from U.S.$97.0 million for the nine months ended September
30, 2002. This increase is primarily due to favorable changes in exchange rates
relative to the US dollar and higher sales within our semiconductor vacuum and
general vacuum instrumentation segments.
Semiconductor Vacuum Instrumentation Segment. Net sales increased by 22.0%
to U.S.$27.7 million for the nine months ended September 30, 2003 from U.S.$22.7
million for the nine months ended September 30, 2002. This increase resulted
from improved demand for process knowledge and control instruments and software
(formerly in situ analysis) from semiconductor manufacturers in the United
States and Asia, primarily the result of a large sale to Samsung Electronics Co.
Ltd as well as additional revenue following the acquisition of New Vision
Systems in January 2003, in addition to favorable changes in foreign exchange
rates relative to the U.S. dollar.
General Vacuum Instrumentation Segment. Net sales increased by 16.8% to
U.S.$86.8 million for the nine months ended September 30, 2003 from U.S.$74.3
million for the nine months ended September 30, 2002. This is mainly the result
of higher Environmental Health & Safety product sales from the U.S. military and
homeland defense agencies coupled with favorable changes in foreign exchange
rates relative to the U.S. dollar.
Gross Profit
Gross profit increased by 16.8% to U.S.$49.9 million or 43.6% of net sales
for the nine months ended September 30, 2003 from U.S.$42.7 million or 44.0% of
net sales for the nine months ended September 30, 2002. The decrease in gross
profit percentage is primarily due to changes in foreign exchange rates relative
to the U.S. dollar coupled with an under absorption of fixed manufacturing costs
for the semiconductor lithography software product. This decrease was partially
offset by the favorable absorption of fixed costs for the Environmental Health &
Safety product line.
Research and Development
Research and development costs increased by 30.3% to U.S.$15.4 million, or
13.5% of net sales, for the nine months ended September 30, 2003 from U.S.$11.8
million, or 12.2% of net sales, for the nine months ended September 30, 2002.
This increase was driven primarily by the addition of research and development
expenses following the acquisition of New Vision Systems in January 2003 and
changes in foreign exchange rates relative to the U.S. dollar. This increase was
partially offset by a decrease in R&D expenses related to the vacuum control
product line.
Impairment of Long-Lived Assets
A one-time impairment charge of U.S.$7.4 million related to the write-down
of long-lived assets in our patterning solutions product line was recorded for
the nine months ended September 30,2003.
Selling, General and Administrative
Selling, general and administrative expenses increased by 21.0% to
U.S.$35.3 million, or 30.9% of net sales, for the nine months ended September
30, 2003 from U.S.$29.2 million, or 30.1% of net sales, for the nine months
ended September 30, 2002. This increase is the result of additional costs
following the acquisition of New Vision Systems in January 2003, changes in
foreign exchange rates relative to the U.S. dollar, coupled with increased
pension expenses, increased costs related to the Environmental Health & Safety
product line.
Income (Loss) from Continuing Operations
For the reasons stated above, the (loss) from operations increased to
U.S.($7.5) million, or (6.5%) of net sales, for the nine months ended September
30, 2003 from income of U.S.$1.9 million, or 2.0% of net sales, for the nine
months ended September 30, 2002.
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Other Expense (Income)
Other income was U.S.($0.6) million, or 0.5% of net sales, for the nine
months ended September 30, 2003 as compared to other expense of U.S.$0.1
million, or 0.1% of net sales, for the nine months ended September 30, 2002. The
increase in other income is primarily the result of foreign currency gains
recognized during the nine months ended September 30, 2003.
Provision (Benefit) for Income Taxes
The income tax benefit was U.S($1.2) million, or 16.0% of loss before
taxes for the nine months ended September 30, 2003 versus an income tax
provision of U.S.$10 thousand, or 0.5% of income before taxes, for the nine
months ended September 30, 2002. The increase in income tax benefit resulted
primarily from a taxable loss of U.S.($7.5) million versus taxable income of
U.S.$1.9 million for the nine months ended September 30, 2003 and 2002,
respectively. This tax benefit was partially offset by a U.S.$1.1 million
valuation allowance for a deferred tax asset. The effective tax rate has changed
due to a change in the earnings mix among tax jurisdictions.
Discontinued Operations
For the nine months ended September 30, 2003, the Company recorded a loss
from discontinued operations of U.S.$3.9 million compared to a loss of U.S.$1.8
million last year. This increase is primarily the result of a loss on the
divestment of the ultra clean processing product line. The divestment is
structured as a management buyout.
Net Income(loss)
For the reasons stated above, a net loss of U.S.($10.2) million, or 8.9%
of net sales, was recognized for the nine months ended September 30, 2003 versus
a net income of U.S.$0.1 million, or 0.1% of net sales, for the nine months
ended September 30, 2002.
Accrued Liabilities
The accrued liabilities increased to U.S.$14.1 million for the three
months ended September 30, 2003 versus U.S.$9.7 million for the year ended
December 31, 2002. The increase relates primarily to the accrued liabilities
assumed from the acquisition of New Vision Systems in January 2003, higher
foreign currency rates versus the U.S. dollar, in addition to higher accruals
associated with pension costs, bonus and commission expenses, the timing of
sales taxes payments and accruals for the discontinued operations of the ultra
clean processing product line.
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Liquidity and Capital Resources
Historically, we have been able to finance our operations and capital
requirements through cash provided by operations and accumulated cash balances.
Cash provided by (used in) operating activities was U.S.($2.7) million and
U.S.$8.5 million for the nine months ended September 30, 2003 and 2002,
respectively. In 2003, cash used in operating activities of U.S.$(2.7) million
consisted of a net loss of U.S.($10.2) million, depreciation and amortization
and impairment of U.S.$10.9 million, a net increase in deferred taxes of
U.S.$1.1 million, and a net increase in working capital of U.S.$2.3 million. In
2002, cash provided by operating activities of U.S.$8.5 million consisted of net
income of U.S.$0.1 million, depreciation and amortization of U.S.$2.2 million, a
net increase in deferred taxes of U.S.$1.6 million, and a net decrease in
working capital of U.S.$7.8 million.
Working capital was U.S.$61.6 million as of September 30, 2003, compared
to U.S.$63.8 million as of December 31, 2002. The decrease was due to decreases
in cash of U.S.$4.1 million and deferred taxes of U.S.$0.2 million, increases in
accounts payable of U.S.$0.7 million and accrued liabilities of U.S.$4.4
million. This was offset by increases in accounts receivable of U.S.$3.4
million, inventories of U.S.$0.9 million, other current assets of U.S.$1.2
million and a decrease in income taxes payable of U.S.$1.7.
Cash used in investing activities was U.S.$3.2 million and U.S.$8.1
million for the nine months ended September 30, 2003 and 2002, respectively,
primarily for the purchase of property and equipment in each period in addition
to the purchase of Sentex Systems, Inc. for U.S.$1.5 million, in May 2003 and a
U.S.$2.5 million loan to New Vision Systems coupled with the move of our
Liechtenstein operations to a new facility in Balzers, Liechtenstein in 2002.
Credit facilities
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 working capital financing was
automatically extended for one year on November 23, 2002. The Company has U.S.$0
outstanding under the financing arrangement as of September 30, 2003.
On September 30, 2001, the Company entered into a working capital
financing arrangement with Dresdner Bank in the amount of EUR 5.1 million
(approximately U.S.$5.3 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 EURIBOR plus 0.95%. The working capital
financing arrangement was extended for one year on July 31, 2003. The Company
has U.S.$0 outstanding under the financing arrangement as of September 30, 2003.
Additionally, the Company entered into two revolving credit facilities
with HypoVereinsbank on February 28, 2001. The credit facilities include a HKD
5.5 million (approximately U.S.$0.7 million) working capital financing
arrangement and a HKD 9.25 million (approximately U.S.$1.2 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 nine months, short
term trust receipt financing, issuance of letters of credit, or issuance of bank
guarantees. The working capital financing arrangement expires on March 31, 2005
and has an option for extension. The Company has U.S.$0 million outstanding
under the financing arrangement as of September 30, 2003.
We currently believe the cash generated from operations, cash and cash
equivalents, and borrowings available under our financing arrangements and
credit facilities will continue to be sufficient to satisfy our working capital
and capital expenditure requirements.
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
collateralized 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 mid-term applicable federal rate (as defined
in the Internal Revenue Code) determined on the date the loans are made.
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The balances of the loans payable to us are offset against the value of the
shares on our balance sheet. As of September 30, 2003, there is an outstanding
balance on the loans of U.S.$0.3 million.
Risks Relating to Our Business and Financial Results
Provided below is a summarization of the risks and uncertainties that are
important for you to consider in evaluating historical and future results of the
Company. A detailed explanation of risk factors is also provided in our annual
report on form 20-F for the year ended December 31, 2002. Additional risks and
uncertainties not presently known to us, which we currently deem immaterial or
which are similar to those faced by other companies in our industry or business
may also impair our business operations. If any of these risks or uncertainties
actually occur, our business, financial condition and operating results will
likely be affected.
> Downturns in the semiconductor chip manufacturing industry have
historically, and may have in the future, a material adverse effect
on our sales and profitability. We cannot assure you that:
> the semiconductor chip manufacturing industry will improve;
> the downturn in the semiconductor industry will not continue
to be severe or prolonged; or
> any recovery will result in increased demand for capital
equipment by the semiconductor chip manufacturing industry;
> The loss of sales to our major customers would likely have a
material adverse effect on the Company;
> 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;
> Our future growth and competitiveness depends 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;
> Changes or developments in the semiconductor industry could cause
shifts in our infrastructure and increase the competition for our
products;
> 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;
> 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;
> There may be additional costs associated with the divestiture of the
ultra clean processing business;
> Our inability to convince OEMs to use our products in their
manufacturing systems could weaken our competitive position;
> 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 ability to expand our manufacturing capacity may be limited by
our suppliers' ability to meet our requirements;
> 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;
> Unfavorable exchange rate fluctuations may harm our results of
operations;
> We must make expenditures to comply with environmental laws and
regulations relating to the production of our vacuum instrumentation
products;
> The effect of terrorist attacks or threats on the general economy
could decrease our revenues;
> Future acquisitions could adversely affect our business;
> Benefits from the net deferred tax asset may not be realized (see
Note 3, Critical Accounting Policies and Operating and Financial
Review and Prospects sections on Deferred Tax Assets for additional
discussion);
> Financial performance for patterning solutions product line does not
show improved financial performance;
> Risk of impairment of intangible assets.
During the fourth quarter the Company will continue to review its cost
structure, continue with its divestment of the ultra clean processing business
in addition to monitoring its options to improve the financial performance and
sales strategy for patterning solution products. The divestment of the ultra
clean product line may result in additional costs associated with the
discontinued operations.
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Quantitative and Qualitative Disclosure of Market Risk
For the nine months September 30, 2003, we did not experience any material
change in the market risk exposures affecting the quantitative and qualitative
disclosures as presented in our annual report on Form 20-F for the fiscal year
ended December 31, 2002.
Interest Rate Exposure
Changes in interest rates could impact the Company's anticipated interest
income earned on its cash balances. Although interest income could be impacted,
the Company does not feel changes in interest rates, from their current levels,
would have a material effect on the Company's financial results.
Foreign Currency Exchange Rate Risk
We transact business in various foreign currencies. Our primary foreign
cash flows are generated in the countries of Asia and Europe. The principal
currencies creating foreign exchange rate risk for the Company are the Euro,
Swiss franc, and Japanese yen. 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.
This exposure arises in certain locations from the intercompany purchase of
inventory in foreign currency for resale in local currency.
Enclosures
Statements furnished under Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, attached as Exhibit 32.1
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFICON Holding AG
Date: November 14, 2003 By: /s/ Peter Maier
-------------------------------------
Name: Peter G. Maier
Title: Vice President and Chief Financial
Officer
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