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 March 31, 2004
INFICON Holding AG
INFICON Holding Inc.
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(Translation of Registrant's Name Into English)
INFICON Inc.
Two Technology Place
East Syracuse, New York 13057
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(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 ..................................... 6
Condensed notes to consolidated financial statements ...................... 7
Operating and Financial Review and Prospects .............................. 18
Quantitative and Qualitative Disclosure of Market Risk .................... 24
Signature ................................................................. 25
Statements Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 ............................................. 26
Press Release: Inficon Records Additional Net Income in
First Quarter 2004 ..................................................... 28
Press Release: Annual General Meeting of Inficon Holding AG ............... 29
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INFICON Holding AG
Consolidated Balance Sheets
(U.S. Dollars in thousands, except per share amounts)
March 31, December 31,
2004 2003
--------------------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 37,420 $ 37,074
Trade accounts receivable, net 25,311 22,197
Accounts receivable - affiliates 854 94
Inventories, net 21,700 19,395
Deferred tax assets 2,759 3,161
Other current assets 5,537 2,950
--------- ---------
Total current assets 93,581 84,871
Property, plant and equipment, net 21,882 22,398
Intangibles, net 997 1,526
Deferred tax assets 38,245 39,293
Other assets 2,294 2,586
--------- ---------
Total non-current assets 63,418 65,803
Total assets $ 156,999 $ 150,674
========= =========
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 7,636 $ 5,918
Accounts payable-affiliates 27 193
Accrued liabilities 15,403 12,911
Income taxes payable 751 962
Deferred tax liabilities 547 545
--------- ---------
Total current liabilities 24,364 20,529
Deferred tax liabilities 482 479
Other liabilities 4,478 3,907
--------- ---------
Total non-current liabilities 4,960 4,386
Total liabilities 29,324 24,915
Stockholders' equity:
Common stock (2,315,275 shares 2004 &
2,315,000 shares 2003 issued par value
CHF 10 (U.S. $5.63) 13,035 13,033
Additional paid-in capital 94,033 94,024
Notes receivable from officers (383) (383)
Retained earnings 9,460 5,941
Accumulated other comprehensive income 11,530 13,144
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Total stockholders' equity 127,675 125,759
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Total liabilities and stockholders' equity $ 156,999 $ 150,674
========= =========
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
March 31,
2004 2003
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Net sales $ 47,328 $ 38,889
Cost of sales 24,726 21,507
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Gross profit 22,602 17,382
Research and development 5,117 4,390
Selling, general and administrative 12,964 11,114
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Operating income from continuing operations 4,521 1,878
Interest expense (income), net 16 (89)
Other (income), net (988) (134)
---------------------
Income from continuing operations before
income taxes 5,493 2,101
Provision for income taxes 1,258 546
---------------------
Income from continuing operations 4,235 1,555
Discontinued Operations (Note 6):
(Loss) from operations of discontinued Ultra
Clean & Patterning Solutions Operations (less
applicable income tax (benefit) of $(354) in
Q1 2004 and $(573) in Q1 2003) (912) (1,512)
Gain on disposal of Ultra Clean Operations
(net of income tax provision of $24) 196 --
---------------------
(Loss) from discontinued operations (716) (1,512)
Net income $ 3,519 $ 43
=====================
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Earnings (loss) per share:
Diluted:
Continuing operations $ 1.81 $ 0.67
Discontinued operations (0.31) (0.65)
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Total $ 1.50 $ 0.02
=======================
Basic:
Continuing operations $ 1.83 $ 0.67
Discontinued operations (0.31) (0.65)
-----------------------
Total $ 1.52 $ 0.02
=======================
Denominator for basic and diluted earnings per share:
Weighted average shares outstanding
Basic shares 2,315,085 2,315,000
Diluted shares 2,335,412 2,316,152
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)
Three Months Ended
March 31,
2004 2003
--------------------
Cash flows from operating activities:
Net income $ 3,519 $ 43
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,209 1,029
Impairment of long-lived assets 341 --
Unrealized gain on investment 158 --
Deferred taxes 1,277 (699)
Changes in operating assets and liabilities:
Trade accounts receivable (3,957) (2,272)
Inventories (2,569) (876)
Other assets (2,231) (590)
Accounts payable 1,633 1,350
Accrued liabilities 2,719 (2,212)
Income taxes payable (192) 254
Other liabilities 571 478
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Net cash provided by (used in) operating activities 2,478 (3,495)
Cash flows from investing activities:
Purchases of property, plant and equipment (1,091) (1,314)
--------------------
Net cash used in investing activities (1,091) (1,314)
Cash flows from financing activities: -- --
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Effect of exchange rate changes on cash and cash
equivalents (1,041) 698
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Increase (Decrease) in cash and cash equivalents 346 (4,111)
Cash and cash equivalents at beginning of period 37,074 37,846
--------------------
Cash and cash equivalents at end of period $ 37,420 $ 33,735
====================
See notes to condensed consolidated financial statements.
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INFICON Holding AG
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 process control software for the semiconductor and other
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
conditioning/refrigeration, emergency response, and industrial hygiene markets.
The Company's products include process knowledge and control instruments and
software, 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 March 31, 2004, for
the three months ended March 31, 2004 and 2003, 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 months ended March 31, 2004 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2004.
The balance sheet as of December 31, 2003 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, 2003.
Note 3--Reclassification
Reclassification - Certain reclassifications have been made to the prior
years' financial statements to conform to the 2004 presentation.
Note 4--Critical Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. 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 specific accounting
policies:
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Revenue Recognition - Revenue is recognized upon the transfer of title
that is generally upon shipment. When a 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 the carrying amount of these assets may not be
recoverable, and also reviews goodwill annually. Under the provisions of
SFAS 142, goodwill and intangible assets deemed to have indefinite lives
are no longer subject to amortization. All other identifiable 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, or other indications are present, 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. The Company performs its impairment analysis under
SFAS 142 annually during the third quarter. As of March 31, 2004, the
Company has no goodwill asset remaining.
Bad Debts - The allowance for doubtful accounts is for estimated losses
resulting from a customer's inability to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Warranties - 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 return 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 due to
changes in the assumptions.
Deferred Tax Assets - As of March 31, 2004, the Company had net deferred
tax assets of U.S.$40.4 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.$40.4 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
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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, considering tax planning strategies, 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 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.
Although realization is not assured, the Company believes it is more
likely than not the net deferred tax asset balance as of March 31, 2004
will be realized. The Company supports 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's analysis supporting the realization of the deferred
tax assets places careful consideration on the net operating loss carry
forward periods.
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 occurred during the fourth quarter of 2003
and first quarter of 2004, in addition to other improvements that will
take place in future periods, 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
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 of R&D allocations between related parties to identify and
implement tax planning strategies to 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 the carrying amount of an asset may not be
recoverable. SFAS 144 defines a two-step testing process, the timing of
the steps and the general valuation methods to be used in the testing
process. The first step is a recoverability test, which compares the
carrying amount of a long-lived asset (asset group) to the sum of the
undiscounted cash flows expected to result from the use and eventual
disposition of the asset (asset group). If the carrying amount is greater
than the sum of the undiscounted cash flows then the second step is
required. The second step is a fair value test in which the carrying value
of the asset (asset group) is compared to the fair value of the asset
(asset group). In estimating the fair value, the present value technique
is used. An impairment loss shall be measured as the amount by which the
carrying amount of a long-lived asset (asset group) exceeds its fair
value. The pre-tax charge for impairment is included in the discontinued
operations, net, on the consolidated statements of income and totaled $341
and $0 for the quarters ended March 31, 2004 and 2003, respectively. The
entire impairment charge for the quarter ended March 31, 2004 was
allocated to intangibles.
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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 (see Note 6).
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:
(USD. in thousands, except per share amounts)
Three months ended
March 31
2004 2003
------------------
Net income, as reported $ 3,519 $ 43
Income from continuing operations 4,235 1,555
Less: Stock based compensation expense,
net of tax (226) (1,510)
------------------
Proforma income from continuing operations 4,009 45
Loss from discontinued operations (716) (1,512)
------------------
Pro forma net income (loss) $ 3,293 $(1,467)
==================
Earnings (loss) per share
Diluted:
Continuing operations - as reported $ 1.81 $ 0.67
Discontinued operations - as reported (0.31) (0.65)
------------------
Total - as reported $ 1.50 $ 0.02
Continuing operations - pro forma $ 1.72 $ 0.02
Discontinued operations - pro forma (0.31) (0.65)
------------------
Total - proforma $ 1.41 $ (0.63)
Earnings (loss) per share
Basic:
Continuing operations - as reported $ 1.83 $ 0.67
Discontinued operations - as reported (0.31) (0.65)
------------------
Total - as reported $ 1.52 $ 0.02
Continuing operations - pro forma $ 1.73 $ 0.02
Discontinued operations - pro forma (0.31) (0.65)
------------------
Total - proforma $ 1.42 $ (0.63)
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Note 5--Inventories
Inventories consist of the following (USD in thousands):
March 31, December 31,
2004 2003
-----------------------
Raw material $15,368 $14,866
Work in process 1,059 1,054
Finished goods 5,273 3,475
-----------------------
$21,700 $19,395
=======================
Note 6--Discontinued Operations - Ultra Clean Processing & Patterning Solutions
For the three months ended March 31, 2004 and 2003, the company recorded a
loss from discontinued operations of U.S.$0.7 million and U.S.$1.5 million,
respectively, related to the divestment of its ultra clean processing product
line and potential sale of its patterning solutions product line.
The divestment of the Company's ultra clean processing product line was
structured as a management buyout where selected assets were purchased for
approximately U.S.$614, with the payment terms allowing the Company the
potential to recoup a portion of the divestment costs over the next three years.
The Company received a payment of approximately U.S.$123 during 2003. The
remaining balance will be paid 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 process. The divestment was completed as of December
31, 2003. The ultra clean processing products service the semiconductor market
and were reported under the semiconductor vacuum instrumentation segment. During
the three months ended March 31, 2004, the Company realized a net gain on the
disposal of inventory relative to the ultra clean processing product line of
U.S.$0.2 million.
In March 2004, the Company retained the services of an investment bank in
connection with the possible sale of its patterning solutions software business.
The Company's decision to pursue a sale of its patterning solutions software
business is based upon its decision to further focus its resources. There is no
assurance a sale will occur. Additionally, the Company recorded an impairment
loss of U.S.$0.3 million, for the quarter ended March 31, 2004, on the balance
of its intangible asset. The Company's patterning solutions software business
had assets of U.S.$4.7 million and liabilities of U.S.$1.6 as of March 31, 2004.
Provided below is a summary of the discontinued operations for the ultra
clean processing and patterning solutions product line.
Three Months Ended
March 31
(USD in Thousands)
2004 2003
------------------------------------------- --------------------------------------------
Total Ultra Clean Patterning Solution Total Ultra Clean Patterning Solutions
Loss from operations $ (912) $ -- $ (912) $ (1,512) $ (607) $ (905)
Gain on disposal $ 196 $ 196 $ -- $ -- $ -- $ --
------------------------------------------- --------------------------------------------
Income (loss) from discontinued
operations $ (716) $ 196 $ (912) $ (1,512) $ (607) $ (905)
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Note 7--Warranty
Charges to warranty reserve during the first three months of 2004 and 2003 were
as follows (USD in thousands):
Deduct:
Balance at Add: Charges Charges against Balance at
December 31 to Reserve Reserve March 31
----------- ---------- -------- --------
2004 $ 2,514 $ 345 $ 531 $ 2,328
2003 $ 2,246 $ 281 $ 97 $ 2,430
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 (losses) on foreign currency hedges recorded in
accumulated other comprehensive income was U.S.$(28) thousand and U.S.$2
thousand as of March 31, 2004 and December 31, 2003, 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 during which the hedged transaction affects earnings. The Company did
not have any significant gains or losses from ineffective hedges for the three
months ended March 31, 2004 and March 31, 2003.
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 January 2003 the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities" ("FIN No. 46"). In December 2003 , the FASB approved
a partial deferral of the adoption of the interpretation and issued FIN 46-R on
December 24, 2003. 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-R 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
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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-R 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 beginning January 1, 2004. The
adoption of FIN No. 46-R did not have a material impact on the Company's
financial position or results of operations.
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 December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised 2003) (SFAS 132), "Employers' Disclosures about
Pensions and Other Postretirement Benefits," that improves financial statement
disclosures for defined benefit plans. The change replaces existing SFAS 132
disclosure requirements for pensions and other postretirement benefits and
revised employers' disclosures about pension plans and other postretirement
benefit plans. It does not change the measurement or recognition of those plans
required by SFAS 87, "Employers' Accounting for Pensions," SFAS 88 and
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS 132 revised retains the
disclosure requirements contained in the original SFAS 132, but requires
additional disclosures about the plan assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. SFAS 132 revised is effective, for the domestic plans of
publicly traded entities, for annual and interim periods with fiscal years
ending after December 15, 2003. Estimated future benefit payments, and all other
new disclosure requirements for foreign plans and nonpublic entities are
effective for years ending after June 15, 2004. We have adopted the revised
disclosure provisions in note 15.
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 months ended March
31, 2004 and 2003 was:
Three Months Ended
March 31
USD in thousands 2004 2003
--------------------
Net income $ 3,519 $ 43
Other Comprehensive Income (Loss) net of tax:
Net foreign currency translation adjustments (1,742) 995
Unrealized gain on stock available for sale 158
Unrealized (loss) on foreign currency hedges (30) (7)
--------------------
Other Comprehensive Income (loss) (1,614) 988
--------------------
Comprehensive Income $ 1,916 $ 1,031
====================
-13-
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
other 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. 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 and other vacuum coating 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, for net sales, gross profit, and earnings before interest and taxes was
as follows (USD in thousands):
Three Months
Ended March 31,
2004 2003
-------------------
Net Sales:
Semiconductor vacuum instrumentation $10,072 $10,253
General vacuum instrumentation 37,256 28,636
-------------------
Total net sales $47,328 $38,889
===================
Gross profit:
Semiconductor vacuum instrumentation $ 5,832 $ 5,312
General vacuum instrumentation 16,770 12,070
-------------------
Total gross profit $22,602 $17,382
===================
Earnings before interest and taxes:
Semiconductor vacuum instrumentation $ 740 $ 44
General vacuum instrumentation 4,769 1,968
-------------------
Total earnings before interest and taxes $ 5,509 $ 2,012
===================
Depreciation and amortization:
Semiconductor vacuum instrumentation $ 334 $ 556
General vacuum instrumentation 875 473
-------------------
Total depreciation and amortization $ 1,209 $ 1,029
===================
Capital expenditures:
Semiconductor vacuum instrumentation $ 150 $ 625
General vacuum instrumentation 941 689
-------------------
Total capital expenditures $ 1,091 $ 1,314
===================
Sales by geographic location:(1)
United States $16,319 $12,430
Europe 22,487 17,489
Asia 8,522 8,970
-------------------
Total sales $47,328 $38,889
===================
-14-
March 31, December 31,
2004 2003
-----------------------
Total assets:
Semiconductor vacuum instrumentation $ 60,059 $ 55,467
General vacuum instrumentation 96,940 95,207
-----------------------
Total assets $156,999 $150,674
=======================
March 31, December 31,
2004 2003
-----------------------
Long-lived assets (2):
Semiconductor vacuum instrumentation $ 9,194 $ 9,996
General vacuum instrumentation 15,979 16,514
-----------------------
Total long-lived assets $ 25,173 $ 26,510
=======================
(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 ( USD in thousands, except per share and per share amounts):
Three Months Ended
March 31
2004 2003
------------------------
Numerator:
Numerator for basic and diluted earnings per share:
Income from continuing operations $ 4,235 $ 1,555
(Loss) from discontinued operations (716) (1,512)
------------------------
Net income $ 3,519 $ 43
Denominator:
Denominator for basic and diluted earnings per share:
Weighted average shares outstanding
Basic shares 2,315,085 2,315,000
Diluted shares 2,335,412 2,316,152
Earnings (loss) per share:
Diluted
Continuing Operations $ 1.81 $ 0.67
Discontinued Operations (0.31) (0.65)
------------------------
Total $ 1.50 $ 0.02
========================
Basic
Continuing Operations $ 1.83 $ 0.67
Discontinued Operations (0.31) (0.65)
------------------------
Total $ 1.52 $ 0.02
========================
-15-
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 (USD in 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 was intended to 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.
In March 2004, the Company retained the services of an investment bank to
assist the Company with the possible sale of its patterning solutions software
business. The Company's decision to pursue a sale of its patterning solutions
software business is based upon its decision to further focus its resources
coupled with its lower than expected financial performance. There is no
assurance a sale will occur. Based upon the Company's decision to pursue a sale
of its patterning solutions software business, the result of operations for this
business are reported as discontinued operations for the quarters ended March
31, 2004 and 2003, respectively. Additionally, the Company recorded an
impairment loss of U.S.$0.3 million, for the quarter ended March 31, 2004, on
the balance of its intangible asset.
The results of operations for INFICON LT (formerly New Vision Systems)
have been included in the Company's consolidated financial statements, and
reported as under discontinued operations, for the quarters ended March 31, 2004
and 2003, respectively.
Note 14--Acquisition of Sentex Systems Inc. (USD in 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 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 as of the second quarter ending
June 30, 2003.
-16-
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 2003.
Three months ended
March 31
2004 2003
-------------------
Net Sales $47,328 $39,168
Net Income $ 3,519 $ 72
===================
Diluted net income per share $ 1.50 $ 0.03
Basic net income per share $ 1.52 $ 0.03
Note 15--Employee Benefit Plans
The Company's net pension cost included the following components:
Three Months Ended
March 31,
USD in thousands
2004 2003
-------- --------
Service cost $ 319 $ 412
Interest cost 353 357
Expected return on assets (428) (425)
Net amortization of:
Prior service cost 15 11
Net actuarial gain 228 333
-------- --------
Net periodic pension cost $ 487 $ 688
Note 16--Subsequent Event
Subsequent to the release of the first quarter 2004 earnings, the Company
became aware it owned 22,793 shares of Prudential Financial, Inc. (Prudential)
stock resulting from Prudential's conversion from a mutual company to a public
stock company in the fourth quarter of 2001. In considering the materiality of
this event, the Company considered a number of quantitative and qualitative
factors and has determined that recording the non-operating income for the
initial value of the stock in the quarter it became known is appropriate. The
effect on net income of this transaction was U.S.$454 and has been recorded as
an increase in other income in the first quarter of 2004. The unrealized change
in value, which has not been material, of the shares subsequent to the
demutualization has been recorded through equity as the stock is classified as
available-for-sale.
-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", "forecast", 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 other 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 March 31, 2004, the Company had net deferred
tax assets of U.S.$40.4 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.$40.4 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, considering tax planning strategies, and
matches this forecast against the basis differences, deductions available in
-18-
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
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.
Although realization is not assured, the Company believes it is more likely than
not the net deferred tax asset balance as of March 31, 2004 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's analysis supporting the realization of the deferred
tax assets places careful consideration on the net operating loss carry forward
periods.
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 occurred during the fourth quarter of 2003 and first quarter
of 2004, in addition to other improvements that will take place in future
periods, 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 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 of R&D allocations between related parties to identify and
implement tax planning strategies to 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.
-19-
Results of Operations for the Three Months Ended March 31, 2004 and 2003
Net Sales
Net sales increased 21.7% to U.S.$47.3 million for the three months ended
March 31, 2004 from U.S.$38.9 million for the three months ended March 31, 2003.
Excluding the impact of changes in currency exchange rates, sales grew by 14.8%.
The increase, excluding the impact of changes in currency exchange rates, is
primarily due to increased sales of the Company's private label products, leak
detection sales to semi OEM's and increased Environmental Health & Safety
product sales.
Semiconductor Vacuum Instrumentation Segment. Net sales decreased by 1.8%
to U.S.$10.1 million for the three months ended March 31, 2004 from U.S.$10.3
million for the three months ended March 31, 2003. This decrease resulted from
the timing of revenue recognition for certain sales that were recognized as
revenue for the three months ended March 31, 2003; however, similar sales for
the three months ended March 31, 2004 were recorded as deferred revenue. This
decrease was partially offset by favorable changes in foreign exchange rates
relative to the U.S. dollar of U.S.$0.4 million.
General Vacuum Instrumentation Segment. Net sales increased by 30.1% to
U.S.$37.3 million for the three months ended March 30, 2004 from U.S.$28.6
million for the three months ended March 31, 2003. This is mainly the result of
favorable changes in foreign exchange rates relative to the U.S. dollar of
U.S.$2.3 million and improved demand for sales through private-label
distribution customers of major vacuum pump manufacturers who resell our
products coupled with higher sales from the Environmental Health & Safety and
leak detection product lines.
Gross Profit
Gross profit increased by 30.0% to U.S.$22.6 million or 47.8% of net sales
for the three months ended March 31, 2004 from U.S.$17.4 million or 44.7% of net
sales for the three months ended March 31, 2003. The increase in gross profit
percentage is primarily due to favorable product mix toward higher margin
product sales coupled with favorable absorption of fixed manufacturing costs for
the vacuum components and Environmental Health & Safety product lines.
Research and Development
Research and development costs increased by 16.6% to U.S.$5.1 million, or
10.8% of net sales, for the three months ended March 31, 2004 from U.S.$4.4
million, or 11.3% of net sales, for the three months ended March 31, 2003. This
increase was driven primarily by changes in foreign exchange rates relative to
the U.S. dollar of U.S.$0.3 million and the addition of research and development
expenses related to the acquisition of Sentex Systems, Inc. in May 2003.
Selling, General and Administrative
Selling, general and administrative expenses increased by 16.6% to
U.S.$13.0 million, or 27.4% of net sales, for the three months ended March 31,
2004 from U.S.$11.1 million, or 28.6% of net sales, for the three months ended
March 31, 2003. This increase is the result of additional costs following the
acquisition of Sentex Systems, Inc. in May 2003, changes in foreign exchange
rates relative to the U.S. dollar of U.S.$0.7million, coupled with an increase
in salaries and accruals for commissions and bonuses associated with higher
sales and profits related to the vacuum components and Environmental Health &
Safety product lines for the three months ended March 31, 2004.
Operating Income from Continuing Operations
For the reasons stated above, the operating income from continuing
operations was U.S.$4.5 million, or 9.6% of net sales, for the three months
ended March 31, 2004 from U.S.$1.9 million, or 4.8% of net sales, for the three
months ended March 31, 2003.
-20-
Other (Income)
Other income was U.S.($1.0) million, or 2.1% of net sales, for the three
months ended March 31, 2004 as compared to other income of U.S.$(0.1) million,
or 0.3% of net sales, for the three months ended March 31, 2003. The increase in
other income is primarily the result of a gain on shares of stock received from
Prudential Financial, Inc.'s conversion from a mutual company to a public stock
company in the fourth quarter 2001 (see subsequent event footnote #16) coupled
with higher foreign currency gains recognized during the three months ended
March 31, 2004.
Provision for Income Taxes
The income tax provision was U.S.$1.3 million, or 22.9% of income from
continuing operations before income taxes for the three months ended March 31,
2004 versus an income tax provision of U.S.$0.5 million, or 26.0% of income
before taxes, for the three months ended March 31, 2003. The increase in income
tax provision resulted from higher taxable income of U.S.$4.7 million versus
taxable income of U.S.$2.1 million for the three months ended March 31, 2004 and
2003, respectively. The effective tax rate has changed due to a change in the
earnings mix among tax jurisdictions.
Discontinued Operations
For the three months ended March 31, 2004 and 2003, the Company recorded a
net loss from discontinued operations of U.S.($0.7) million and U.S.($1.5)
million, respectively, related to the divestment of its ultra clean processing
product line that was structured as a management buyout and its plan to sell its
patterning solutions product line. The decrease in loss from discontinued
operations resulted from the loss of the ultra clean processing product line, of
U.S.$0.6 million, that was sold and divested by December 31, 2003. During the
three months ended March 31, 2004, the Company realized a net gain on the
disposal of inventory relative to the ultra clean processing product line of
U.S.$0.2 million.
Net Income
For the reasons stated above, net income was U.S.$3.5 million, or 7.4% of
net sales, for the three months ended March 31, 2004 from a net income of
U.S.$43 thousand, or 0.1% of net sales, for the three months ended March 31,
2003.
-21-
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.$2.5 million and
U.S.($3.5) million for the three months ended March 31, 2004 and 2003,
respectively. In 2004, cash provided by operating activities of U.S.$2.5 million
consisted of net income of U.S.$3.5 million, depreciation and amortization and
impairment costs of U.S.$1.5 million, a net decrease in deferred taxes of
U.S.$1.3 million, and a net increase in working capital of U.S.$3.8 million. In
2003, cash used in by operating activities of U.S.($3.5) million consisted of
net income of U.S.$43 thousand, depreciation and amortization of U.S.$1.0
million, a net increase in deferred taxes of U.S.$0.7 million, and a net
increase in working capital of U.S.$3.8 million.
Working capital was U.S.$69.2 million as of March 31, 2004, compared to
U.S.$64.3 million as of December 31, 2003. The increase was due to increases in
cash of U.S.$0.3 million, accounts receivable of U.S.$3.9 million, inventories
of U.S.$2.3 million, and other current assets of U.S.$2.6 million and a decrease
in income taxes payable of U.S.$0.2 million. This was offset by decreases in
current deferred tax assets of U.S.$0.4 million, increases in accounts payable
of U.S.$1.5 million and accrued liabilities of U.S.$2.5 million.
Cash used in investing activities was U.S.$1.1 million and U.S.$1.3
million for the three months ended March 31, 2004 and 2003, respectively,
primarily used for the purchase of property and equipment used in the Company's
operations.
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, 2003. The Company has U.S.$0
outstanding under the financing arrangement as of March 31, 2004.
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.$6.4 million) at December 31, 2003. 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
March 31, 2004.
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 March 31, 2004.
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. The
balances of the loans payable to us are offset against the value of the shares
on our balance sheet. As of March 31, 2004, there is an outstanding balance on
the loans of U.S.$0.4 million
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.
-22-
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, 2003. 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;
> Demand for capital equipment by the semiconductor chip
manufacturing industry will continue to increase;
>> 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;
>> Our inability to convince OEMs to use our products in their
manufacturing systems could weaken our competitive position;
>> There is no guarantee the Company will receive the full sales price
for the management buyout of its ultra clean processing business.
Terms of the agreement allow the Company to recoup a portion of its
divestment costs over the next three years;
>> 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 business does not
show improved financial performance and the Company is unable to
locate a buyer for this business;
>> Risk of impairment of intangible asset.
During the second quarter the Company will continue to review its cost
structure, continue with pursuing a buyer of its patterning solution product
line.
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Quantitative and Qualitative Disclosure of Market Risk
For the three months March 31, 2004, 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, 2003.
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: May 25, 2004 By: /s/ Peter Maier
---------------------------------
Name: Peter G. Maier
Title: Vice President and Chief Financial
Officer
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