<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______to________.
Commission File Number: 000-27863
METRON TECHNOLOGY N.V.
-----------------
(Exact name of registrant as specified in its charter)
The Netherlands 98-0180010
--------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1350 Old Bayshore Highway
Suite 360
Burlingame, California 94010
-----------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 373-1133
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Title of Each Class Outstanding at September 30, 2000
------------------- ---------------------------------
<S> <C> <C>
Common shares, par value NLG 0.96 per share 13,324,961
</TABLE>
<PAGE>
METRON TECHNOLOGY N.V.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
for the Three Months Ended August 31, 1999 and August 31, 2000 3
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the Three Months Ended August 31, 1999 and August 31, 2000 4
Condensed Consolidated Balance Sheets
as of May 31, 2000 and August 31, 2000 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended August 31, 1999 and August 31, 2000 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
Net revenue............................................................................. $69,473 $121,004
Cost of revenue......................................................................... 57,332 98,983
--------- ---------
Gross profit............................................................................ 12,141 22,021
Selling, general, administrative, and other expenses.................................... 10,489 15,894
--------- ---------
Operating income ....................................................................... 1,652 6,127
Equity in net loss of joint ventures.................................................... (85) (69)
Other income (expense), net............................................................. (198) 17
--------- ---------
Income before income taxes.............................................................. 1,369 6,075
Provision for income taxes.............................................................. 466 2,423
--------- ---------
Net income.............................................................................. $903 $3,652
========= =========
Earnings per common share
Basic................................................................................ $0.09 $0.28
Diluted.............................................................................. $0.08 $0.26
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
Net income............................................................................. $903 $3,652
Other comprehensive loss............................................................... (27) (605)
--------- ---------
Comprehensive income................................................................... $876 $3,047
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
MAY 31 AUGUST 31
2000 2000
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................................... $22,911 $20,971
Short-term investments............................................................. 3,249 -
Accounts receivable, net........................................................... 82,433 87,906
Inventories, net................................................................... 40,445 43,976
Prepaid expenses and other current assets.......................................... 10,723 11,150
------------ ------------
Total current assets............................................................ 159,761 164,003
Property, plant, and equipment, net................................................ 10,253 13,298
Intangible assets, net............................................................. 9,758 9,457
Investments in joint ventures...................................................... 827 1,758
Other assets....................................................................... 770 790
------------ ------------
Total Assets.................................................................... $181,369 $189,306
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................................................... $30,489 $34,892
Amounts due affiliates............................................................. 38,372 30,401
Accrued wages and employee-related expenses........................................ 7,634 6,842
Deferred revenue for installation and warranty..................................... 5,247 7,105
Short term borrowings and current portion of long-term debt........................ 13,140 16,861
Amounts payable to shareholders.................................................... 204 204
Other current liabilities.......................................................... 10,288 13,277
------------ ------------
Total current liabilities....................................................... 105,374 109,582
Long-term debt, excluding current portion............................................. 1,227 1,205
Deferred credits and other long-term liabilities...................................... 2,253 2,259
------------ ------------
Total liabilities............................................................... 108,854 113,046
------------ ------------
Commitments........................................................................... - -
------------ ------------
Shareholders' Equity:
Preferred shares, par value NLG 0.96............................................... - -
Common shares and additional paid-in capital, par value NLG 0.96................... 39,517 40,217
Retained earnings.................................................................. 37,938 41,589
Cumulative other comprehensive loss................................................ (4,809) (5,415)
Treasury shares.................................................................... (131) (131)
------------ ------------
Total shareholders' equity...................................................... 72,515 76,260
------------ ------------
Total Liabilities and Shareholders' Equity...................................... $181,369 $189,306
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
Cash flows from (used for) operating activities:
Net income......................................................................... $903 $3,652
Adjustments to reconcile net income for items currently not affecting operating cash
flows:
Depreciation and amortization................................................... 682 1,061
Provision for inventory valuation and bad debts................................. 242 1,040
Deferred income taxes........................................................... 291 (134)
Equity in net loss of joint venture............................................. 85 69
Loss (gain) on disposition of assets............................................ 15 (5)
Changes in assets and liabilities:
Accounts receivable........................................................... (6,989) (5,816)
Inventories................................................................... (464) (4,289)
Prepaid expenses and other current assets..................................... 45 (383)
Accounts payable.............................................................. 2,834 4,403
Amounts due affiliates........................................................ 5,699 (7,971)
Accrued wages and employee-related expenses................................... (767) (792)
Deferred revenue for installation and warranty................................ 763 1,858
Other current liabilities..................................................... (522) 2,989
--------- ---------
Net cash flows from (used for) operating activities........................ 2,817 (4,318)
--------- ---------
Cash flows (used for) investing activities:
Additions to property, plant, and equipment..................................... (377) (3,979)
Proceeds from the sale of property, plant, and equipment........................ 190 18
Equity investment in joint venture.............................................. - (1,000)
Other assets.................................................................... 33 (6)
Other long-term liabilities..................................................... (5) 75
--------- ---------
Net cash flows (used for) investing activities............................. (159) (4,892)
--------- ---------
Cash flows from financing activities:
Sales of short-term investments................................................. - 3,249
Proceeds in short-term borrowings............................................... 4,060 3,647
Proceeds from issuance of long-term debt........................................ - 216
Principal payments on long-term debt............................................ (77) (140)
Purchase of treasury stock...................................................... (62) -
Proceeds from issuance of common shares......................................... - 700
Net cash flows from financing activities.................................. 3,921 7,672
--------- ---------
Effect of exchange rate changes on cash and cash equivalents.......................... (52) (402)
--------- ---------
Net change in cash and cash equivalents............................................... 6,527 (1,940)
Beginning cash and cash equivalents................................................... 10,601 22,911
--------- ---------
Ending cash and cash equivalents...................................................... $17,128 $20,971
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM INFORMATION
The interim consolidated financial statements (including notes to condensed
consolidated financial statements) of Metron Technology N.V. ("Metron" or the
"Company") for the three months ended August 31, 1999 and August 31, 2000,
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC"). In
the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company at August 31, 2000, and the results of its operations and its cash flows
for the three month periods ended August 31, 1999 and August 31, 2000.
Historical results are not necessarily indicative of the results the Company
expects in the future. This report should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
May 31, 2000 included in the Company's Report on Form 10-K/A as filed with the
SEC.
EARNINGS PER SHARE
Basic earnings per common share are based on the weighted-average
number of common shares outstanding in each period. Diluted earnings per common
share reflect the potential dilution that could occur if dilutive securities
were converted into common shares. For all periods presented the reported net
income was used in the computation of basic and diluted earnings per common
share.
A reconciliation of the shares used in the computation follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
(SHARES IN THOUSANDS)
Shares used for basic earnings per common share....................................... 10,104 13,278
Shares used for stock options having a dilutive effect................................ 1,075 716
--------- ---------
Shares used for diluted earnings per share............................................ 11,179 13,994
========= =========
</TABLE>
Options to purchase 861,100 common shares of the Company were excluded
from the calculation of diluted earnings per share for the three month period
ended August 31, 2000, because their effect was anti-dilutive. These
anti-dilutive securities have a weighted-average exercise price of $14.94.
Excluded securities could potentially dilute basic earnings per share in the
future.
2. SEGMENT AND GEOGRAPHIC DATA
The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," as of June 1, 1998. This Statement
establishes standards for the reporting of information about operating segments
in annual and in interim financial reports issued to shareholders.
Metron operates predominantly in the semiconductor industry. Metron
provides marketing, sales, service and support solutions to semiconductor
materials and equipment suppliers and semiconductor manufacturers. Reportable
segments are based on the way the Company is organized, reporting
responsibilities to the chief executive officer, and on the nature of the
products offered to customers. Reportable segments are the equipment division,
which includes certain specialized process chemicals, spare part sales, and
equipment service; the materials division, which includes components used in
construction and maintenance; and other, which includes finance, administration
and corporate functions.
The accounting policies of the segments are the same as those described
in Note 1 Summary of Significant Accounting Policies. Segment operating results
are measured based on profit (loss) before tax, adjusted if necessary, for
7
<PAGE>
certain segment specific items. There are no inter-segment sales. Identifiable
assets are the Company's assets that are identified with classes of similar
products or operations in each geographic region. Corporate assets include
primarily cash, equity investments and administrative headquarters assets of the
Company.
SEGMENT INFORMATION
<TABLE>
<CAPTION>
EQUIPMENT MATERIALS OTHER TOTAL
DIVISION DIVISION ----- -----
-------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Three months ended August 31, 1999
Net revenues........................................... $36,807 $32,666 $- $69,473
Income (loss) before tax............................... $1,877 $3,196 $(3,704) $1,369
Assets................................................. $42,844 $30,371 $39,216 $112,431
Three months ended August 31, 2000
Net revenues........................................... $58,648 $62,356 $- $121,004
Income (loss) before tax............................... $4,234 $7,395 $(5,554) $6,075
Assets................................................. $85,978 $91,291 $12,037 $189,306
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Net revenues:
United States..................................................................... $18,423 $29,931
United Kingdom.................................................................... 7,702 17,936
Hong Kong......................................................................... 9,535 15,685
Singapore......................................................................... 8,610 15,290
Germany........................................................................... 9,701 11,386
France............................................................................ 4,867 8,523
The Netherlands................................................................... 2,558 5,842
Other nations..................................................................... 8,077 16,411
------------ ------------
Geographic totals.................................................................... $69,473 $121,004
============ ============
MAY 31 AUGUST 31
------ ---------
2000 2000
---- ----
(DOLLARS IN THOUSANDS)
Assets:
United States.................................................................... $38,672 $48,538
United Kingdom................................................................... 35,460 37,311
Singapore........................................................................ 26,344 21,130
Hong Kong........................................................................ 19,574 18,985
Germany.......................................................................... 13,043 15,313
France........................................................................... 18,569 13,780
The Netherlands.................................................................. 11,153 10,281
Other nations.................................................................... 18,554 23,968
------------ ------------
Geographic totals................................................................... $181,369 $189,306
============ ============
</TABLE>
8
<PAGE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board ("FASB") issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". The
new standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Accounting for changes in the values of those derivatives depends on the
intended use of the derivatives and whether they qualify for hedge accounting.
SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for fiscal years
beginning after June 15, 2000. Historically, the Company has engage in limited
hedging activities to reduce the exposure to exchange risks arising from
fluctuations in foreign currency, but has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard to affect its consolidated
financial statements.
In March 2000 the FASB issued FASB Interpretation No. 44 ("FIN 44")
"Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB 25. FIN 44 provides guidance on the application of APB
25 for stock compensation involving employees. FIN 44 is effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000. The Company's adoption of FIN 44 did
not have a material effect on its consolidated financial statements.
In December 1999 the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"). REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, which as amended, becomes effective for the Company on March 1,
2001. SAB 101 summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
As presently written, SAB 101 may require companies to recognize revenue
pertaining to certain equipment sales only when installation has been completed
and the equipment has been accepted by the customer. In addition, SAB 101
requires companies that have not applied this method of accounting previously to
report a change in accounting principle in accordance with Accounting Principles
Bulletin No. 20, ACCOUNTING CHANGES. The SEC has recently indicated that it
intends to issue further guidance on the adoption of specific issues addressed
by SAB 101. Until such time as this additional guidance is issued, the Company
is unable to assess the impact, if any, that SAB 101 may have on its
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, except for the historical
information, contains forward-looking statements. These statements are subject
to risks and uncertainties. You should not place undue reliance on these
forward-looking statements as actual results could differ materially. We do not
assume any obligation to publicly release the results of any revision or updates
to these forward-looking statements to reflect future events or unanticipated
occurrences. This discussion and analysis should be read in conjunction with our
Consolidated Financial Statements and the related Notes, included in Metron's
Annual Report on Form 10-K/A for the fiscal year ended May 31, 2000, filed with
the SEC.
OVERVIEW
Metron Technology N.V. is a holding company organized under the laws of
The Netherlands. Through our various operating subsidiaries, we are a leading
global provider of marketing, sales, service and support solutions to
semiconductor materials and equipment suppliers and semiconductor manufacturers.
We operate in Europe, Asia and the United States. We were founded in Europe in
1975 by our two corporate shareholders, who each own about 20% of our shares,
and certain of our current and former management. In 1995, we reorganized Metron
to combine three Asian companies as a reorganization under common control, and
purchased Transpacific Technology Corporation ("TTC") and its subsidiaries. TTC
was founded in California in 1982 as a semiconductor equipment manufacturers'
representative company and expanded into the distribution business in 1990. In
July 1998, we acquired T.A. Kyser Co., which we refer to as Kyser, in a
transaction accounted for as a pooling of interests. Founded in 1977, Kyser
markets and sells materials in nine states within the United States, principally
to the semiconductor industry. In March 2000 we acquired Shieldcare Ltd., a
company incorporated in Scotland, in a transaction accounted for as a purchase.
Shieldcare is an authorized supplier of critical parts cleaning services to
major OEM and device manufacturing companies worldwide. The company also
operates as an authorized re-
9
<PAGE>
manufacturer of physical vapor deposition ("PVD") equipment for a well-known
supplier of automated systems for chemical vapor deposition ("CVD").
We derive our revenue from sales of materials, equipment, service and
spare parts to the semiconductor industry, as well as from commissions on sales
of equipment and materials. We recognize revenue for most of an equipment sale
and all other product sales upon the shipment of goods to customers. We defer
the portion of our equipment revenue associated with our estimate of our
installation and warranty obligations. We amortize the deferred revenue over the
applicable installation and warranty periods. We recognize service revenue in
the periods the services are rendered to customers.
In each of our three month periods ended August 31, 1999 and August 31,
2000, a majority of our revenue came from the sale of products from five or
fewer of the semiconductor materials and equipment companies we represent, whom
we refer to as our principals. Revenue from the sale of products manufactured by
FSI was 25.5% and 22.7% of total revenue for the three months ended August 31,
1999 and August 31, 2000, respectively. Revenue from the sale of products
manufactured by Entegris were 22.8% and 27.9% of total revenue for the three
months ended August 31, 1999 and August 31, 2000, respectively. In addition to
representing our two largest sources of revenue, FSI and Entegris are also our
two largest shareholders, and each hold 20.2% of our outstanding shares.
Although the principals that comprise our largest sources of revenue may change
from period to period, we expect that revenue from the sale of products of a
relatively small number of principals will continue to account for a substantial
portion of our revenue for at least the next five years.
We operate in all areas of the world in which there is a significant
semiconductor industry, except Japan. The following tables show our sales in
Europe, Asia and the United States in dollars and as a percentage of net revenue
for each of the three periods ended August 31, 1999 and August 31, 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net revenue
Europe......................................................... $31,705 $57,247
Asia........................................................... 19,345 33,827
United States.................................................. 18,423 29,930
--------- ---------
Total net revenue........................................... $69,473 $121,004
========= =========
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
(PERCENTAGE OF NET REVENUE)
<S> <C> <C>
Net revenue
Europe......................................................... 45.7% 47.3%
Asia........................................................... 27.8 28.0
United States.................................................. 26.5 24.7
--------- ---------
Total net revenue........................................... 100.0% 100.0%
========= =========
</TABLE>
We are organized into two worldwide operating divisions, equipment and
materials. Our equipment division derives the majority of its revenue from the
sale of capital equipment. The remainder of the division's revenue comes from
service, which includes the installation, maintenance and repair of
semiconductor equipment, spare part sales and commissions. Our equipment sales
represent products that support various production activities for the
manufacture of semiconductors. The sales of the equipment division principally
represent a small number of high-dollar value transactions for which the
products are generally shipped directly to the customer by the manufacturer. As
a result, our equipment sales are significantly affected by the pattern of
capital spending by customers, the timing of customer orders and the timing of
product shipments by the equipment manufacturer.
10
<PAGE>
Our materials division derives the majority of its revenue from sales
of materials and components. The remainder of the division's revenue comes from
commissions. The materials and components we sell are used both in the
production of semiconductors and in the building and maintenance of
semiconductor equipment and manufacturing facilities. Materials include products
such as wafer handling cassettes and accessories, wafer surface preparation
materials, fluid-handling components such as fittings, valves and tubing, and
disposable cleanroom clothing. Sales of these products tend to be less cyclical
than sales of semiconductor equipment and generally offer higher gross margins.
RESULTS OF OPERATIONS
Beginning in the second half of 1996, as the result of excess capacity
and significant price erosion, especially for memory chips, semiconductor
industry growth slowed significantly. This slowdown caused semiconductor
manufacturers to exercise caution in making capital equipment purchasing
decisions. Some semiconductor manufacturers reduced or delayed the expansion or
construction of facilities. This directly affected the sales of semiconductor
capital equipment and, to a lesser extent, the sales of materials. As a result
of the slowdown, we experienced order cancellations, delays in booking new
orders and delays in shipping orders to customers, all of which contributed to
the reductions in our revenue in fiscal 1998 and 1999. We believe that, despite
short term slowdowns, the semiconductor industry has long term growth
opportunities. As a result, we believe we must maintain our infrastructure, even
during periodic slowdowns, in order to continue to serve our customers and to be
in a position to take advantage of long term growth opportunities. Accordingly,
we did not reduce our operating expenses sufficiently to prevent us from
recording an operating loss in fiscal 1999. During the fourth quarter of our
fiscal 1999 the semiconductor industry began to recover from the slowdown and,
as a result, the Company returned to profitable operations. The recovery has
continued through our first quarter of fiscal 2001.
Our quarterly operating results have fluctuated significantly and are
likely to continue to fluctuate significantly due to a number of factors
including:
- the timing of significant customer orders and customer
spending patterns;
- the timing of product shipments by our principals;
- the loss of any significant customer or principal;
- the timing of new product and service announcements by our
principals and their competitors;
- the mix of products sold and the market acceptance of our new
product lines;
- the efficiencies we are able to achieve in managing
inventories of materials and spare parts;
- the timing of expenditures intended to increase future sales
of materials and equipment;
- general global economic conditions or economic conditions in a
particular region;
- changes in pricing by us, our principals or our competitors;
- changes in currency valuations relative to the U.S. dollar;
- costs we may incur if we become involved in future litigation;
and
- other factors, many of which are beyond our control.
The following tables present certain consolidated statements of
operations data in dollars and as a percentage of net revenue for the three
month periods ended August 31, 1999 and August 31, 2000.
11
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
Net revenue............................................................................ 100.0% 100.0%
Cost of revenue........................................................................ 82.5 81.8
--------- ---------
Gross margin........................................................................... 17.5 18.2
Selling, general, administrative, and other expenses................................... 15.1 13.1
--------- ---------
Operating margin....................................................................... 2.4% 5.1%
========= =========
</TABLE>
The following table shows our materials division and equipment division
revenue as an amount and as a percent of net revenue, together with the related
gross margins:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
Net revenue (Dollars in millions)
Materials division................................................................. $32.7 $62.4
Equipment division................................................................. 36.8 58.6
Net revenue
Materials division................................................................. 47.0% 51.5%
Equipment division................................................................. 53.0 48.5
Gross margins
Materials division................................................................. 21.3% 20.9%
Equipment division................................................................. 14.1 15.3
</TABLE>
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1999
NET REVENUE
EQUIPMENT DIVISION. The equipment division's net revenue for the three
months ended August 31, 2000 was $58.6 million, an increase of $21.8 million or
59.3% from the three months ended August 31, 1999. Revenues were higher in all
geographic regions due to the continued growth of the semiconductor equipment
industry. The division's revenue decreased as a percentage of total revenue for
Metron owing to the even higher growth of materials division revenue.
MATERIALS DIVISION. The materials division's net revenue for the three
months ended August 31, 2000 was $62.4 million, an increase of $29.7 million or
90.9% from the three months ended August 31, 1999. The division recorded higher
revenue in all regions, with particularly strong growth coming from Asia.
GROSS MARGINS
EQUIPMENT DIVISION. The equipment division's gross margin of 15.3%
increased 120 basis points (a basis point is 1/100 of 1%) for the three months
ended August 31, 2000 compared to the three months ended August 31, 1999. The
increase in gross margin for the three months ended August 31, 2000 compared to
the three months ended August 31, 1999
12
<PAGE>
was due principally to the higher proportion of division revenue represented by
an almost 400% increase in commission revenues.
MATERIALS DIVISION. The gross margin of the materials division decreased
40 basis points for the three months ended August 31, 2000 compared to the three
months ended August 31, 1999. The slight decline was due to the higher
proportion of sales coming from fab construction activity where order sizes are
typically larger and gross margins typically tighter.
EXPENSES
SELLING, GENERAL, ADMINISTRATIVE AND OTHER (SG&A) EXPENSES. SG&A expenses for
the three months ended August 31, 2000 were $15.9 million, up $5.4 million or
51.5% from the $10.5 million incurred in the three months ended August 31, 1999.
The increase is due principally to an increase in the number of employees and to
higher travel expenses. Shieldcare, acquired during our fourth quarter of fiscal
2000, accounted for $0.4 million of the increase in our first quarter of fiscal
2001. SG&A expenses consist principally of salaries and other employment-related
costs, travel and entertainment, occupancy, communications and computer-related
expense, trade show and professional services, depreciation and amortization of
acquisition goodwill. Our SG&A expenses are a function principally of our total
headcount. Over 60% of SG&A expenses consist of salaries and other
employment-related costs.
OTHER INCOME (EXPENSE). The following table summarizes the components of other
income (expense) for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
AUGUST 31 AUGUST 31
--------- ---------
1999 2000
---- ----
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Foreign exchange loss.................................................................. $(114) $(23)
Interest income........................................................................ 69 238
Interest expense....................................................................... (263) (313)
Miscellaneous income................................................................... 110 114
--------- ---------
Other income (expense)................................................................. $(198) $17
========= =========
</TABLE>
We engage in limited hedging activities to reduce our exposure to
exchange risks arising from fluctuations in foreign currency, but because
hedging activities can be costly, we do not attempt to cover all potential
foreign currency exposures. During the three-month periods ended August 31, 1999
and August 31, 2000, we entered into contracts to hedge firm purchase
commitments, to hedge the maturities of foreign currency denominated liabilities
with foreign currency denominated assets and to hedge differences existing
between foreign currency assets and liabilities. The currencies in which we
purchase forward exchange contracts have numerous market makers to provide ample
depth and liquidity for our hedging activities.
Interest income represents primarily earnings on our available cash
balances and amounts invested in short-term investments, which primarily
resulted from the proceeds of our initial public offering. Our interest expense
for the same periods increased primarily as the result of increased borrowings
to support the increased working capital requirements associated with higher
revenues.
PROVISION FOR INCOME TAXES. In July 2000, the German parliament unexpectedly
approved legislation which will decrease the income rate for corporations from
51.9% to 38.2%. If enacted, the rate reduction will require the Company to
reduce its deferred tax asset associated with temporary differences and the
carryforward of net operating losses for our German subsidiary. We initially
expected to record the additional deferred tax expense as a result of this tax
rate reduction in our first quarter of fiscal 2001. However, until the German
tax reform is enacted, our deferred tax provision will retain the higher German
tax rate. We now expect the tax reform to be enacted during our second quarter
of fiscal 2001, and estimate we will incur an additional deferred income tax
expense of approximately $280,000 for the reduction of the deferred tax asset.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We define liquidity as our ability to generate resources to pay our
current obligations and to finance our growth during periods of business
expansion. Until we completed our initial public offering in late November 1999,
our principal sources of liquidity were cash flow from operations and bank
borrowings. Our principal requirement for capital is for working capital to
finance receivables and inventories. Our working capital, current assets less
current liabilities, at August 31, 2000 was $54.4 million and remained unchanged
from our working capital at May 31, 2000. Our current ratio, current assets
divided by current liabilities, was 1.5 at both May 31, 2000 and August 31,
2000.
OPERATING ACTIVITIES. In the three months ended August 31, 2000 we used cash
totaling $4.3 million in our operating activities. Our net income and the $2.0
million net total of non-cash income statement items totaled $5.7 million which
was more than offset by the net increase of $10.0 million in assets and
liabilities. In the three months ended August 31, 1999 we generated cash
totaling $2.8 million in our operating activities. Our net income and the $1.3
million net total of non-cash income statement items totaled $2.2 million, and
changes in our net assets and liabilities generated a further $0.6 million. The
net total of income statement items which did not affect operating cash flows
increased in the three months ended August 31, 2000 by $0.7 million primarily as
a result of increases in the amounts we provide for reserves for inventory
valuation and bad debts and an increase in quarterly amortization and
depreciation. The significant increase in our revenues this year also required
significant increases in accounts receivable, inventories and prepaid expenses,
which were only partially offset by increases in accounts payable and in other
liabilities.
INVESTING ACTIVITIES. Our capital expenditures for property, plant and
equipment totaled $0.4 million for the first three months of fiscal 2000, and
$4.0 million for the same period in fiscal 2001. Approximately $2.9 million of
our capital expenditures in fiscal 2001 was for our new parts cleaning facility
in Singapore, and we invested $0.3 million in our new operations management
information system. We expect that our capital expenditures in fiscal 2001 will
total about $8.9 million, of which $3.5 million relates to the establishment of
a parts cleaning facility in Singapore, and $1.9 million pertains to the initial
phase of our new operations management information system. We estimate the costs
of the new management information system could total $4.0 to $5.0 million over a
24 to 36 month period. In August 2000, we invested $1.0 million for a 20% equity
share of Advanced Stainless Technologies, Inc., a company in Austin, Texas that
electro-polishes stainless steel tubing used in semiconductor fabrication
manufacturing facilities.
FINANCING ACTIVITIES. During the three-month period ending August 31, 1999, we
satisfied our funding requirements principally from internally generated funds
and our various borrowing facilities. During the three-month period ending
August 31, 2000, we satisfied our funding requirements from the sale of our
short-term investments and from internally generated funds and our various
borrowing facilities. In addition, we received $0.7 million from stock purchases
through our employee stock purchase plan and from the exercise of stock options
by our employees.
We do not anticipate that we will need to raise additional capital to
permit us to conduct our operations in the ordinary course of business. However,
we may need to raise additional capital for significant acquisitions or other
extraordinary transactions. We do not currently have any specific plans,
agreements or commitments related to any such significant transaction and are
not currently engaged in any negotiations related to any such transaction. We
have no plans to pay any dividends on our common shares and intend to retain all
of our future profits to fund future growth. However, our future growth,
including potential acquisitions, may require additional external financing, and
from time to time we may need to raise additional funds through public or
private sales of equity and/or additional borrowings. If we are unable to obtain
this additional funding, we might have to curtail our expansion plans. The
issuance of additional equity or debt securities convertible into equity could
result in dilution to our existing shareholders.
14
<PAGE>
The following table summarizes our material borrowing facilities as of
August 31, 2000:
<TABLE>
<CAPTION>
U.S. $
EQUIVALENT AMOUNT RECENT
FACILITY CURRENTLY AMOUNT INTEREST
AMOUNT OUTSTANDING AVAILABLE RATE
------ ----------- --------- ----
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Compass Bank............................................... $11,000 $10,068 $932 7.50%
Deutsche Bank.............................................. 3,654 2,369 1,285 7.5%
Royal Bank of Scotland..................................... 2,886 2,256 630 7.25%
All Others................................................. 4,480 3,373 1,107 5.0 to 8.5%
---------- ---------- ---------
Total...................................................... $22,020 $18,066 $3,954
========== ========== =========
</TABLE>
EFFECT OF CURRENCY EXCHANGE RATE AND EXCHANGE RATE RISK MANAGEMENT
A significant portion of our business is conducted outside of the
United States through our foreign subsidiaries. While many of our international
sales are denominated in dollars, some are denominated in various foreign
currencies. To the extent that our sales and operating expenses are denominated
in foreign currencies, our operating results may be adversely affected by
changes in exchange rates. Owing to the number of currencies involved, the
substantial volatility of currency exchange rates, and our constantly changing
currency exposures, we cannot predict the effect of exchange rate fluctuations
on our future operating results. Although we engage in foreign currency hedging
transactions from time to time, these hedging transactions can be costly, and
therefore, we do not attempt to cover all potential foreign currency exposures.
These hedging techniques do not eliminate all of the effects of foreign currency
fluctuations on anticipated revenue.
In addition, the transition period from legacy currencies to the Euro
currently is set to expire January 1, 2002. One of the goals of our project to
install a new management information system is to accommodate the eventual
elimination of the legacy currencies.
MARKET RISK
At August 31, 2000 we had aggregate forward exchange contracts in
various currencies as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE FAIR
---------------- ----
CONTRACT AMOUNT US$000 BUY SELL CONTRACT RATE VALUE EXPIRATION DATE
---------------------- --- ---- ------------- ----- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$3,757 Japanese Yen - 107.29 $35 March 2001
$2,500 Singapore Dollar - 1.73 (17) November 2000
$2,300 Israeli Shekel - 4.06 (128) March 2001
$2,500 Italian Lira - 2,140.00 69 September 2000
$1,500 Deutschmark - 2.18 19 October 2000
$1,200 French Franc - 7.25 107 October 2000
--------
$85
========
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Effect of Currency Exchange Rate and Exchange Rate Risk
Management" and "Market Risk" under Part I, Item 2 of this report.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
RISK FACTORS
OUR BUSINESS FACES SIGNIFICANT RISKS. THESE RISKS INCLUDE THOSE
DESCRIBED BELOW AND MAY INCLUDE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL. IF ANY OF THE EVENTS OR
CIRCUMSTANCES DESCRIBED IN THE FOLLOWING RISKS OCCURS, OUR BUSINESS, OPERATING
RESULTS OR FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED. THESE
RISKS SHOULD BE READ IN CONJUNCTION WITH THE OTHER INFORMATION SET FORTH IN THIS
REPORT.
RISKS RELATED TO METRON.
WE ARE DEPENDENT ON A FEW KEY PRINCIPALS FOR A MAJORITY OF OUR REVENUE;
THEREFORE, THE LOSS OF ONE OR MORE OF OUR KEY PRINCIPALS COULD SERIOUSLY HARM
OUR BUSINESS.
If, for any reason, any of our key principals were to materially reduce
its business or terminate its relationship with us, the loss of the key
principal would have a material adverse effect on our business. In particular,
if our commercial relationship with FSI or Entegris were to materially change or
were terminated, our business would be significantly adversely affected due to
the large percentage of our revenue generated by sales of these companies'
products. For the three month period ended August 31, 2000, 23% of our total
revenue was generated from the sale of products manufactured by FSI and 28% from
the sale of products manufactured by Entegris. For more information about our
relationships with FSI and Entegris, see also the risk titled "We are
significantly controlled by FSI and Entegris, which may limit your ability to
influence the outcome of director elections and other shareholder matters" and
"Certain Transactions." In each of our last three fiscal years, a majority of
our revenue came from the sale of products from five or fewer of the
semiconductor materials and equipment companies we represent, who we refer to as
our principals. Although the principals that comprise our largest sources of
revenue may change from period to period, we expect that revenue from the sale
of products of a relatively small number of principals will continue to account
for a substantial portion of our revenue for at least the next five years.
All of the semiconductor materials, equipment and products we market,
sell, service and support are sold pursuant to agreements with our principals.
These agreements are generally cancelable at will, subject to notification
16
<PAGE>
periods which range from 30 days to two years. We generally do not sell
competing products in the same market, and therefore the number of principals we
can represent at any one time is limited. It is likely that in the future some
of our principals will terminate their relationships with us upon relatively
short notice. If we lose a key principal, we may not be able to find a
replacement quickly, or at all. The loss of a key principal may cause us to lose
customers and incur expenses associated with ending our agreement with that
principal. We may lose principals for various reasons, including:
- mergers and acquisitions involving our principals and other
semiconductor materials and equipment manufacturers that we do not represent;
- a principal's decision to attempt to build a direct sales organization;
- the expansion of a principal's product offerings to compete with the
products of another principal, because we generally do not offer competing
product lines;
- a principal's dissatisfaction with our level or quality of service; and
- the failure of a principal's business.
We have lost principals in the past. For example, after Ontrak was
acquired by Lam Research in August 1997, we ceased marketing and selling Ontrak
products in Europe in September 1998 and in South Korea in June 1998. In March
1999, A.G. Associates was acquired by Steag. As a result of this acquisition, we
ceased marketing and selling A.G. Associates' products in September 1999. In
July 1999, FSI sold its chemical management division to BOC Edwards. As a result
of this divestiture, we are phasing out our marketing and sale of products of
this division. In October 1999, Applied Materials acquired Obsidian. As a result
of the acquisition, Obsidian terminated its agreement with us.
THE SEMICONDUCTOR INDUSTRY IS HIGHLY CYCLICAL, AND THEREFORE, A DOWNTURN MAY
RESULT IN POOR OPERATING RESULTS.
The downturn in the semiconductor industry from mid-1996 until the
end of 1998 had a material adverse effect on our operating results. Our
business depends in large part on the procurement expenditures of
semiconductor manufacturers, which, in turn, depend on the current and
anticipated demand for semiconductors and products utilizing semiconductors.
The semiconductor industry is highly cyclical and historically has
experienced periodic downturns, which often have resulted in decreased
expenditures by semiconductor manufacturers. These downturns generally have
adversely affected the sales, gross profits and operating results of
semiconductor materials and equipment suppliers. From 1996 through 1998, the
semiconductor industry experienced a downturn, which led semiconductor
manufacturers to delay or cancel capital expenditures. During this downturn,
some of our customers delayed or canceled purchases of semiconductor
materials and equipment, which had a negative impact on our sales, gross
profits and operating results. We cannot predict when future downturns will
occur or how they will affect us.
IF WE ARE UNABLE TO SUCCESSFULLY IDENTIFY NEW PRODUCTS AND ENTER INTO AND
IMPLEMENT ARRANGEMENTS WITH THE SUPPLIERS OF THESE PRODUCTS, OUR BUSINESS WILL
BE SERIOUSLY HARMED.
Any failure by us to enter into relationships with principals that
anticipate or respond adequately to technological developments or customer
requirements, or any significant delays in product development or introductions
by these principals, could result in a loss of competitiveness and could
materially adversely effect our business. The semiconductor materials and
equipment market is subject to rapid technological change, changing customer
requirements and frequent new product introductions. Because of this, the life
cycle of products that we market and sell is difficult to determine. Our future
success will depend to a significant extent on our principals' ability to keep
pace with changes in the market and on our ability to identify and carry
successful new product lines, particularly because we generally do not carry
competing product lines.
WE FACE INTENSE COMPETITION FROM COMPANIES WITH SIGNIFICANTLY GREATER FINANCIAL,
TECHNICAL AND MARKETING RESOURCES, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
MAINTAIN OR INCREASE SALES.
We face intense competition on two distinct fronts: competition for
product lines and competition for customers.
17
<PAGE>
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY FOR PRODUCT LINES AGAINST INDEPENDENT
SALES AND DISTRIBUTION COMPANIES THAT HAVE GREATER FINANCIAL RESOURCES, ARE MORE
ESTABLISHED OR HAVE LONG-STANDING RELATIONSHIPS WITH SEMICONDUCTOR MATERIALS AND
EQUIPMENT MANUFACTURERS, WE WILL BE UNABLE TO OFFER COMPETITIVE PRODUCTS, WHICH
WILL NEGATIVELY IMPACT OUR SALES.
We compete with independent sales and distribution companies for the
right to sell specific product lines in specific territories. We believe that
our most formidable competition comes from regionally established semiconductor
materials and equipment distribution companies. Some of these independent sales
and distribution companies have substantially greater financial resources to
devote to a particular region than we do, are better established in particular
regions than we are, have greater name recognition in their chosen markets than
we have and have long-standing collaborative business relationships with
semiconductor materials and equipment manufacturers which are difficult to
overcome. If we are unable to effectively compete with sales and distribution
companies to attract and retain principals, our business will be adversely
affected.
IF WE ARE UNABLE TO COMPETE FOR CUSTOMERS DUE TO OUR INABILITY TO PROVIDE SALES,
MARKETING AND SUPPORT SERVICES OR PARTICULAR PRODUCT OFFERINGS, IT WILL
ADVERSELY AFFECT OUR ABILITY TO MAINTAIN OR INCREASE SALES.
We compete for orders from semiconductor manufacturers with established
semiconductor materials and equipment manufacturers who sell directly to
customers and with independent sales and distribution companies and sales
representatives. We believe that to compete effectively for customers we must
maintain a high level of investment in marketing, customer service and support
in all of the markets in which we operate, and we may not have sufficient
financial resources, technical expertise or marketing, services and support
capabilities to continue to compete successfully in the future. Some of our
competitors have greater name recognition in the territories they serve and have
long-standing relationships with semiconductor manufacturers that may give them
an advantage in attracting and retaining customers. Furthermore, we believe that
once a semiconductor manufacturer has selected a particular product for a
specific use from a vendor that is not one of our principals, it may be
difficult to achieve significant sales of a competing product to that customer
unless there are compelling reasons for the customer to switch products, such as
significant performance or cost advantages.
We anticipate that as we continue to diversify our product portfolio
and expand into new markets for our principals' products, we will encounter
additional competition for customers. If we cannot continue to compete
successfully for customers in the future, it will have a significant negative
impact on our business.
THE MANAGEMENT INFORMATION SYSTEMS THAT WE CURRENTLY USE IN OUR DAY-TO-DAY
OPERATIONS ARE NOT INTEGRATED ACROSS COUNTRY BORDERS AND NEED TO BE UPGRADED.
UPGRADING THEM WILL BE COSTLY, AND IF THE NEW SYSTEM IS NOT SUCCESSFULLY
IMPLEMENTED, OUR BUSINESS MAY SUFFER MATERIAL ADVERSE CONSEQUENCES.
While our financial reporting management information system is
integrated and operational, our current management information systems that we
use to control our day-to-day operations are not integrated across country
borders. To accommodate growth in the past, we have had to hire additional
people to compensate for the lack of a fully-functional, integrated operations
management information system. We anticipate that we will need to invest in a
new operations management information system in order to maintain our current
level of business and accommodate any future growth. We anticipate that the
total costs associated with the implementation of the new system will be
approximately $4.0 to $5.0 million and that the system will be implemented over
the next 24 to 36 months. Any failure to successfully choose and implement a new
operations management information system may result in delayed growth, increased
inefficiency due to a lack of centralized data, higher inventories, increased
expenses associated with employing additional employees, a loss of our
investment in the new operations management information system and may have
additional material adverse effects on our business.
WE NEED TO SUCCESSFULLY MANAGE THE ANTICIPATED EXPANSION IN OUR OPERATIONS OR
OUR BUSINESS MAY SUFFER MATERIAL ADVERSE CONSEQUENCES.
Any failure by us to effectively manage future expansion and the system
and procedural transitions required by expansion could seriously harm our
business and our operating results. We have expanded our operations in the past
and anticipate future expansion of our operations through acquisitions and
otherwise. Our growth has placed and will continue to place significant demands
on our management, operational, financial and technical resources, as well as
our
18
<PAGE>
accounting and control systems, as we work to integrate geographically dispersed
offices and administrative personnel, diverse service and maintenance operations
and different accounting and financial systems. Our future operating results
will depend on the ability of our management and other employees to:
- continue to implement and improve our operational, customer support and
financial control systems;
- recruit, train, manage and motivate our employees;
- identify companies that are strategic acquisition candidates and
successfully acquire and integrate them with our existing business;
- communicate information efficiently throughout our organization; and
- work effectively with principals and customers.
We cannot predict whether these efforts will be successful or will
occur in a timely or efficient manner. We may not be able to install adequate
control systems in an efficient and timely manner, and our current or planned
operational systems, procedures and controls may not be adequate to support our
future operations. The difficulties associated with installing and implementing
new systems, procedures and controls may place a significant burden on our
management and our internal resources. Delays in the implementation of new
systems or operational disruptions when we transition to new systems would
impair our ability to accurately forecast sales demand, manage our product
inventory and record and report financial and management information on a timely
and accurate basis.
WE MAY NOT BE SUCCESSFUL IN ANY EFFORT TO PENETRATE JAPAN, WHICH COULD LIMIT OUR
FUTURE GROWTH.
We do not market and sell products to semiconductor manufacturers in
Japan. However, approximately 22% of the world's production of semiconductors
takes place in Japan. Accordingly, to reach all of the world's major
semiconductor markets, we will need to establish or acquire sales and marketing
capabilities in Japan. Historically, it has been difficult for non-Japanese
companies to succeed in establishing themselves in Japan, and we believe that
expanding our operations to Japan would be both expensive and time-consuming and
would place additional demands on our management. In addition, FSI and Entegris
have existing arrangements for the sale, service and support of their products
in Japan and have not indicated that they would modify such arrangements in the
event that Metron establishes or acquires sales and marketing capabilities in
Japan. We cannot predict whether any of our efforts to penetrate the Japanese
market will be successful. If we are not successful in our efforts to penetrate
the Japanese market, our future growth may be limited.
WE EXPECT CONTINUED DOWNWARD PRESSURE ON THE GROSS MARGINS OF THE PRODUCTS WE
SELL, AND AS A RESULT, IF WE ARE UNABLE TO CONTINUE TO DECREASE OUR OPERATING
EXPENSES AS A PERCENTAGE OF SALES, WE WILL BE UNABLE TO INCREASE OR MAINTAIN OUR
OPERATING MARGINS.
Particularly during industry down cycles, pressure on the gross margins
of the products we sell is intense and can adversely impact our financial
performance. We have experienced significant downward pressure on our gross
margins mainly as a result of sales discounts offered by our competitors and
pressure from our customers to reduce prices and from our principals to reduce
the discounts they provide to us. This, in turn, has put significant downward
pressure on our operating margins. To maintain or increase our gross margins, we
must develop and maintain relationships with principals who introduce new
products and product enhancements on a timely basis. As a result of continued
pressure on gross margins, we must find ways to decrease our selling, general,
administrative and other expenses as a percentage of sales to increase or
maintain our operating margins. If our principals cannot continue to innovate,
if we cannot maintain our relationships with innovating principals, or if we
cannot successfully manage our selling, general, administrative and other
expenses, our operating margins may decrease. If our operating margins decline
as a result of these factors, our business would be harmed.
OUR EMPLOYMENT COSTS IN THE SHORT TERM ARE TO A LARGE EXTENT FIXED, AND
THEREFORE ANY UNEXPECTED REVENUE SHORTFALL COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
Our operating expense levels are based in significant part on our head
count, which is generally driven by longer-term revenue goals. For a variety of
reasons, particularly the high cost and disruption of lay-offs and the costs of
recruiting and training, our head count in the short-term is, to a large extent,
fixed. In particular, approximately half of
19
<PAGE>
our employees are in Europe, and the costs associated with any reductions of our
labor force in Europe are high. Accordingly, we may be unable to reduce
employment costs in a timely manner to compensate for any unexpected revenue or
gross margin shortfall, which could have a material adverse effect on our
operating results.
WE MAY BEAR INVENTORY RISK DUE TO AN INABILITY TO RETURN PRODUCTS, AND IF WE ARE
UNABLE TO MANAGE OUR INVENTORY EFFECTIVELY, OUR OPERATING RESULTS COULD BE
ADVERSELY AFFECTED.
We bear inventory risk because we generally take title to the products
we sell when we receive them from our principals, and we cannot always return
products to the principal in the event the products are not sold. Our customers
do not always purchase at the time or in the quantities we originally
anticipated. For example, as a result of the industry downturn in 1997 and 1998,
we had excess inventory for which we booked reserves in both the United States
and Asia. Typically, products cannot be returned to principals after they have
been in our inventory for a certain period of time; this time period varies
depending on the product and the principal. In addition, although it is typical
when a relationship with a principal terminates for that principal to repurchase
most of the inventory we have of that principal's products, it is possible under
certain circumstances that a principal may be unable or unwilling to repurchase
our inventory. If we fail to manage our inventory and accumulate substantial
product that cannot be returned, our operating results could be adversely
affected. Furthermore, if a principal cannot provide refunds in cash for the
inventory we desire to return, we may be forced to dispose of inventory below
cost, and this may have a material adverse effect on our financial condition.
OUR REVENUE AND OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, WHICH COULD
ADVERSELY AFFECT OUR SHARE PRICE.
In the past, we have experienced fluctuations in our quarterly and
annual operating results and anticipate that these fluctuations will continue in
the future due to a variety of factors, many of which are out of our control.
Fluctuations in our results could cause our share price to decline
substantially. We believe that period-to-period comparisons of our results of
operations may not be meaningful, and you should not rely upon them as
indicators of our future performance. Our sales in, and the operating results
for, a particular quarter can vary significantly due to a variety of factors,
including those described elsewhere in this report and the following:
- The Timing Of Significant Customer Orders And Customer Spending
Patterns. During industry downturns, our customers may ask us to delay or even
cancel the shipment of previously firm orders. Delays and cancellations may
adversely affect our operating results in any particular quarter if we are
unable to recognize revenue for particular sales in the quarter in which those
sales were expected.
- The Timing Of Product Shipments By Our Principals. For the most part,
we recognize sales upon the shipment of goods to our customers. Most of the
equipment and some of the materials we sell is shipped by the principal directly
to our customers, and we do not necessarily have any control over the timing of
a particular shipment. If we are unable to recognize revenue for a particular
sale in the quarter in which that sale was expected, our operating results in
that particular quarter will be negatively affected.
- The Timing Of New Product And Service Announcements By Our Principals
And Their Competitors. New product announcements by our principals and their
competitors could cause our customers to delay a purchase or to decide to
purchase products of one of our principal's competitors which would adversely
affect our revenue and, therefore, our results of operations. New product
announcements by others may make it necessary for us to reduce prices on our
products or offer more service options, which could adversely impact operating
margins and net income.
- The Mix Of Products Sold And The Market Acceptance Of Our New Product
Lines. The mix of products we sell varies from period to period, and because
margins vary amongst or within different product lines, this can adversely
affect our results of operations. If we fail to sell our products which generate
higher margins, our average gross margins may be lower than expected. If we fail
to sell our new product lines, our revenue may be lower than expected.
- General Global Economic Conditions Or Economic Conditions In A
Particular Region. When economic conditions in a region or worldwide worsen,
customers may delay or cancel their orders. There may also be an increase in the
time it takes to collect from our customers or even outright defaults in
payments. This can negatively affect our cash flow and our results.
- Costs We May Incur If We Become Involved In Future Litigation.
Litigation is often costly, and even if we are successful in defending or making
any claim, the expenses incurred may significantly impact our results.
20
<PAGE>
As a result of the factors listed above, our future operating results
are difficult to predict. Further, we base our current and future expense plans
in significant part on our expectations of our longer-term future revenue. As a
result, we expect our expense levels to be relatively fixed in the short-run. An
unanticipated decline in revenue for a particular quarter may disproportionately
affect our net income in that quarter. If our revenue is below our projections,
then our operating results will also be below expectations and, as we have in
the past, we may even have losses in the short-run. Any one of the factors
listed above, or a combination thereof, could adversely affect our quarterly
results of operations, and consequently may cause a decline in our share price.
WE DEPEND ON SALES TO A RELATIVELY SMALL NUMBER OF CUSTOMERS FOR A SIGNIFICANT
PORTION OF OUR REVENUE, AND IF ANY OF OUR LARGE CUSTOMERS WERE TO STOP OR REDUCE
THEIR PURCHASING FROM US, IT WOULD MATERIALLY AND ADVERSELY AFFECT OUR REVENUE.
A loss or a significant reduction or delay in sales to any of our major
customers could materially and adversely affect our revenue. We depend on a
small number of customers for a substantial portion of our revenue. During
fiscal 2000, our top ten customers accounted for an aggregate of 40% of our
sales. Although a ranking by revenue of our largest customers will vary from
period to period, we expect that revenue from a relatively small number of
customers will account for a substantial portion of our revenue in any
accounting period for the foreseeable future. Consolidation in the semiconductor
industry may result in increased customer concentration and the potential loss
of customers as a result of acquisitions. Unless we diversify and expand our
customer base, our future success will significantly depend upon certain factors
which are not within our control, including:
- the timing and size of future purchase orders, if any, from our larger
customers;
- the product requirements of our customers; and
- the financial and operational success of our customers.
If any of our largest customers were to stop or reduce their purchasing
from us, our financial results could be adversely affected. A significant
decrease in sales to a major customer or the deferral or cancellation of any
significant order would have a material adverse effect on our operating results.
OUR SALES CYCLE, PARTICULARLY FOR EQUIPMENT, IS LONG AND UNPREDICTABLE, WHICH
COULD REQUIRE US TO INCUR HIGH SALES AND MARKETING EXPENSES WITH NO ASSURANCE
THAT A SALE WILL RESULT.
Sales cycles for some of our products, particularly equipment, can run
as long as 12 to 18 months. As a result, we may not recognize revenue from
efforts to sell particular products for extended periods of time. We believe
that the length of the sales cycle may increase as some current and potential
customers of our key principals centralize purchasing decisions into one
decision-making entity. We expect this may intensify the evaluation process and
require us to make additional sales and marketing expenditures with no assurance
that a sale will result.
WE HAVE NOT YET DEVELOPED A STRATEGY TO SELL TO OUR CUSTOMERS OVER THE INTERNET,
AND IF A COMPETITOR DEVELOPS AND IMPLEMENTS AN EFFECTIVE E-COMMERCE STRATEGY, WE
MAY LOSE SOME OF OUR CUSTOMERS, WHICH WOULD HAVE A NEGATIVE IMPACT ON OUR
RESULTS OF OPERATIONS.
Although we have begun efforts to develop an e-commerce strategy, we
have not implemented a process to sell to our customers over the Internet.
Because our principals grant us the right to sell their products only for
specific territories and sales conducted over the Internet may occur anywhere
around the globe, it is difficult to adopt e-commerce practices in this
industry. If our principals decide to directly distribute their products over
the Internet, if our competitors develop a successful strategy for engaging in
e-commerce or if our customers require e-commerce capabilities which we are
unable to provide, we may lose customers, which would have a negative impact on
our revenue and on our operating results.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS.
ECONOMIC DIFFICULTIES IN COUNTRIES IN WHICH WE SELL OUR PRODUCTS CAN LEAD TO A
DECREASE IN DEMAND FOR OUR PRODUCTS AND IMPAIR OUR FINANCIAL RESULTS.
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The volatility of general economic conditions and fluctuations in
currency exchange and interest rates can lead to decreased demand in countries
in which we sell product. For example, in 1997 and 1998 many Asian countries
experienced economic and financial difficulties. During this period, we
experienced cancellation or delay of orders for our products from customers in
Asia, thus adversely affecting our results of operations. Moreover, any
economic, banking or currency difficulties experienced by countries in which we
have sales may lead to economic recession in those countries. This in turn may
result in the cancellation or delay of orders for our products from customers in
these countries, thus adversely affecting our results of operations.
MOST OF OUR PRODUCT SALES ARE OUTSIDE THE UNITED STATES, AND CURRENCY
FLUCTUATIONS MAY IMPAIR OUR FINANCIAL RESULTS.
While most of our international sales are denominated in dollars, some
are denominated in various foreign currencies. To the extent that our sales and
operating expenses are denominated in foreign currencies, our operating results
may be adversely affected by changes in exchange rates. For example, in fiscal
1997, we recorded exchange losses of approximately $600,000. Given the number of
currencies involved, the substantial volatility of currency exchange rates, and
our constantly changing currency exposures, we cannot predict the effect of
exchange rate fluctuations on our future operating results. Although we engage
in foreign currency hedging transactions from time to time, these hedging
transactions can be costly, and therefore, we do not attempt to cover all
potential foreign currency exposures. These hedging techniques do not eliminate
all of the effects of foreign currency fluctuations on anticipated revenue.
In addition, the transition period from legacy currencies to the euro
currently is set to expire January 1, 2002. We are assessing our information
technology systems to determine whether they will accommodate the eventual
elimination of the legacy currencies. If our information technology systems are
unable to do so, they would have to be upgraded or replaced.
IF WE OR OUR NON-UNITED STATES SUBSIDIARIES ARE DEEMED SUBJECT TO UNITED STATES
TAXES, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS MAY SUFFER.
Metron and its non-United States subsidiaries conduct most of their
activities in a manner which we believe does not constitute the conduct of a
trade or business in the United States. Accordingly, although we report taxable
income and pay taxes in the countries where we operate, including the United
States, we believe that income earned by Metron and its non-United States
subsidiaries from operations outside the United States is not reportable in the
United States for tax purposes and is not subject to United States income tax.
If income earned by us or our non-United States subsidiaries from operations
outside the United States is determined to be income effectively connected to an
United States trade or business and as a result becomes taxable in the United
States, we could be subject to United States taxes on this income. If we were to
be deemed to be subject to these taxes, our business, financial condition and
results of operations might be materially and adversely affected.
RISKS RELATED TO INVESTING IN OUR COMMON SHARES.
WE ARE SIGNIFICANTLY CONTROLLED BY FSI AND ENTEGRIS, WHICH MAY LIMIT YOUR
ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER SHAREHOLDER
MATTERS.
As of July 31, 2000, FSI and Entegris each owned 20.2% of our
outstanding shares. By virtue of their share ownership and the fact that each
holds one of the four seats on our supervisory board, FSI and Entegris can
exercise significant voting and management control over Metron. As a result,
each of these shareholders has significant influence over all matters requiring
shareholder or supervisory board approval, including the election of directors
and approval of significant corporate transactions, which may have the effect of
delaying or preventing a third party from acquiring control over us.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, AND ANY INABILITY TO RAISE REQUIRED
FUNDS COULD HARM OUR BUSINESS.
We expect the net proceeds from our initial public offering, cash from
operations and borrowings under our credit facilities will be sufficient to meet
our working capital and capital expenditure needs for the foreseeable future.
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However, we may need to raise additional capital to acquire or invest in
complementary businesses. Further, if we issue additional equity securities, the
ownership stakes of our existing shareholders would be reduced, and the new
equity securities may have rights, preferences or privileges senior to those of
our existing common shares. If we cannot raise funds, if needed, on acceptable
terms, we may not be able to develop our business, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
all of which could seriously harm our business and results of operations.
OUR SHARE PRICE IS VOLATILE.
The trading price of our common shares is subject to wide fluctuations
in response to various factors, some of which are beyond our control, including
factors discussed elsewhere in this report and the following:
- failure to meet the published expectations of securities analysts for a
given quarterly period;
- changes in financial estimates by securities analysts;
- changes in market values of comparable companies;
- stock market price and volume fluctuations, which are particularly
common among securities of high technology companies;
- stock market price and volume fluctuations attributable to inconsistent
trading volume levels;
- additions or departures of key personnel; and
- commencement of our involvement in litigation.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation may result in substantial costs and divert management's attention and
resources, which may seriously harm our business.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our capital
shares. We currently intend to retain any future earnings for funding growth
and, therefore, do not expect to pay any dividends in the foreseeable future.
RISKS RELATED TO BEING A DUTCH COMPANY.
OUR SUPERVISORY BOARD HAS THE AUTHORITY TO ISSUE SHARES WITHOUT SHAREHOLDER
APPROVAL, WHICH MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
As a Netherlands "NAAMLOZE VENNOOTSCHAP," or N.V., we are subject to
requirements not generally applicable to corporations organized in United States
jurisdictions. Among other things, under Netherlands law the issuance of shares
of a N.V. company must be approved by the shareholders unless the shareholders
have delegated the authority to issue shares to another corporate body. Our
articles of association provide that the shareholders have the authority to
resolve to issue shares, common or preferred, and may designate the Metron board
of supervisory directors as the corporate body with the authority to adopt any
resolution to issue shares, but this designation may not exceed a period of five
years. Our articles also provide that as long as the supervisory board has the
authority to adopt a resolution to issue shares, the shareholders will not have
this authority. Pursuant to the Metron articles, the supervisory board has the
authority to adopt resolutions to issue shares until five years from the date of
the deed of conversion from a B.V. to an N.V. and the related amendment of the
articles. This authorization of the supervisory board may be renewed by the
shareholders from time to time. As a result, our supervisory board currently has
the authority to issue common and preferred shares without shareholder approval.
The issuance of preferred shares could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding shares of our share capital.
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IT MAY NOT BE POSSIBLE TO ENFORCE UNITED STATES JUDGMENTS AGAINST NETHERLANDS
CORPORATIONS, DIRECTORS AND OTHERS.
Our articles provide that Metron has two separate boards of directors,
a managing board and a supervisory board. One of our managing directors resides
outside of the United States. A significant percentage of our assets are located
outside the United States. As a result, it may not be possible to effect service
of process within the United States upon the managing director who lives outside
the United States. Furthermore, judgments of United States courts, including
judgments against us, our directors or our officers predicated on the civil
liability provisions of the federal securities laws of the United States, are
not directly enforceable in The Netherlands.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DUTCH LAW COULD DISCOURAGE POTENTIAL
ACQUISITION PROPOSALS AND COULD DELAY, DETER OR PREVENT A CHANGE IN CONTROL.
Our articles of association and the applicable law of The Netherlands
contain provisions that may be deemed to have anti-takeover effects. These
provisions may delay, defer or prevent a takeover attempt that a shareholder
might consider in the best interest of our shareholders. For example, our
articles may be amended only pursuant to a proposal of the supervisory board
followed by a resolution of the general meeting of shareholders. To amend our
articles requires that at a general meeting of shareholders, (1) more than half
of the issued share capital is represented and (2) the resolution to amend the
articles is supported by a two-thirds majority of the valid votes cast. This
supermajority voting requirement may have the effect of discouraging a third
party from acquiring a majority of the outstanding Metron shares. In addition,
these provisions could have a negative impact on our stock price. Furthermore,
some United States tax laws may discourage third parties from accumulating
significant blocks of our common shares.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this report are "forward-looking statements." These
statements involve known and unknown risks, uncertainties, and other factors
that may cause our, or our industry's, actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by the
forward-looking statements. These factors are listed under "Risk Factors" and
elsewhere in this report.
In some cases, you can identify forward-looking statements by
terminology such as "expects," "anticipates," "intends," "may," "should,"
"plans," "believes," "seeks," "estimates," "could," "would" or the negative of
such terms or other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking statements
after the date of this report to conform these statements to actual results.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Item Description
---- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
August 31, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METRON TECHNOLOGY N.V.
Date: October 12, 2000 /S/ PETER V. LEIGH
------------------
Peter V. Leigh
Vice President, Finance
Signing on behalf of the registrant
and as principal accounting officer
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