<PAGE> 1
================================================================================
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 June 30, 1995.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the period from to .
-------- --------
Commission File Number 0-11348
SILICON VALLEY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2264681
(State of incorporation) (IRS Employer Identification No.)
2240 RINGWOOD AVENUE, SAN JOSE, CALIFORNIA 95131
(Address of principal executive offices) (Zip Code)
(408) 434-0500
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
July 25, 1995 was 25,102,090.
================================================================================
<PAGE> 2
SILICON VALLEY GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
-------
<S> <C>
Consolidated Condensed Balance Sheets as of
June 30, 1995 and September 30, 1994 3
Consolidated Condensed Income Statements
for the Quarters and the Nine Month Periods
Ended June 30, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended June 30, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, September 30,
-------- -------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $194,472 $ 87,829
Temporary investments 4,821 -
Accounts receivable (net of allowance for doubtful
accounts of $3,652 and $2,630, respectively) 102,970 66,809
Receivable from sale of stock warrants - 8,204
Inventories 140,512 86,829
Prepaid expenses 3,440 3,632
Deferred taxes 1,000 169
-------- --------
Total current assets 447,215 253,472
PROPERTY AND EQUIPMENT - NET 19,638 13,313
DEPOSITS AND OTHER ASSETS 1,990 1,784
INTANGIBLE ASSETS - NET 2,859 3,105
-------- --------
TOTAL $471,702 $271,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of long-term debt $ 877 $ 828
Accounts payable 37,955 20,254
Accrued liabilities 88,708 53,644
Income taxes payable 7,607 5,443
-------- --------
Total current liabilities 135,147 80,169
LONG-TERM DEBT AND CAPITAL LEASES 874 1,510
DEFERRED LIABILITIES 1,181 998
MINORITY INTEREST 3,805 3,782
STOCKHOLDERS' EQUITY:
Convertible Redeemable Preferred Stock - 17,000
Common Stock - shares outstanding:
June 30, 1995: 25,071,565
September 30, 1994: 18,967,276 244,134 105,978
Retained earnings 86,561 62,237
-------- --------
Stockholders' equity 330,695 185,215
-------- --------
TOTAL $471,702 $271,674
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
<PAGE> 4
SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------- -----------------
June 30, June 30,
------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $127,722 $81,725 $323,073 $237,942
COST OF SALES 75,559 48,991 196,177 145,726
-------- ------- -------- --------
GROSS PROFIT 52,163 32,734 126,896 92,216
OPERATING EXPENSES:
Research, development and
related engineering 10,095 8,454 28,189 22,675
Marketing, general and
administrative 25,813 17,516 64,523 50,303
-------- ------- -------- --------
OPERATING INCOME 16,255 6,764 34,184 19,238
INTEREST AND OTHER INCOME 2,797 307 5,141 572
INTEREST EXPENSE (148) (141) (443) (622)
-------- ------- -------- --------
INCOME BEFORE INCOME
TAXES AND MINORITY INTEREST 18,904 6,930 38,882 19,188
PROVISION FOR INCOME TAXES 6,806 2,773 13,998 7,675
MINORITY INTEREST 54 (162) 23 (267)
-------- ------- -------- --------
NET INCOME $ 12,044 $ 4,319 $ 24,861 $ 11,780
======== ======= ======== ========
PREFERRED STOCK DIVIDEND $ - $ 298 $ 537 $ 893
======== ======= ======== ========
NET INCOME PER COMMON SHARE $ 0.45 $ 0.21 $ 1.04 $ 0.60
======== ======= ======== ========
SHARES USED IN PER SHARE
COMPUTATIONS 26,968 19,205 23,973 18,212
======== ======= ======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
4
<PAGE> 5
SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
June 30,
-------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES: (UNAUDITED)
<S> <C> <C>
Net income $ 24,861 $ 11,780
Reconciliation to net cash provided by
(used for) operating activities:
Depreciation and amortization 6,697 6,024
Amortization of intangibles 246 580
Minority interest 23 (267)
Changes in assets and liabilities:
Accounts receivable (36,161) 8,557
Inventories (53,683) 2,009
Prepaid expenses 192 828
Deposits and other assets (206) (279)
Accounts payable 17,701 (6,817)
Accrued and deferred liabilities 35,544 2,874
Income taxes 1,333 5,713
-------- --------
Net cash provided by (used for) operating activities (3,453) 31,002
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of temporary investments (4,821) --
Purchase of property and equipment (13,022) (1,563)
-------- --------
Net cash used for investing activities (17,843) (1,563)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit agreements -- 8,000
Repayment of debt (587) (22,770)
Sale of Common Stock 90,764 32,168
Sale of Preferred Stock 29,800 --
Collection of receivable from sale of
Common Stock warrants 8,204 --
-------- --------
Net cash provided by financing activities 128,181 17,398
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (242) 60
-------- --------
INCREASE IN CASH AND EQUIVALENTS 106,643 46,897
CASH AND EQUIVALENTS:
Beginning of period 87,829 17,617
-------- --------
End of period $194,472 $ 64,514
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Preferred Stock dividend $ 537 $ 893
======== ========
Preferred Stock Series A converted to Common Stock $ 17,000 $ --
======== ========
Preferred Stock Series B converted to Common Stock $ 29,800 $ --
======== ========
Repurchase of Common Stock in Exchange
for Note Receivable $ -- $ 526
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
5
<PAGE> 6
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements have been prepared
by the Company without audit and reflect all adjustments, consisting only of
normal recurring adjustments, which in the opinion of management are necessary
to a fair statement of the financial position and the results of operations for
the interim periods. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission, but omit certain
information and footnote disclosures necessary to present the statements in
accordance with generally accepted accounting principles. For further
information, refer to the Consolidated Financial Statements and Notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1994. Results for fiscal 1995 interim periods are not
necessarily indicative of results to be expected for the fiscal year ending
September 30, 1995.
2. INVENTORIES
Inventories are comprised of:
<TABLE>
<CAPTION>
June 30, September 30,
------- ------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Raw materials $ 57,588 $38,096
Work-in-process 79,074 44,558
Finished goods 3,850 4,175
-------- -------
$140,512 $86,829
======== =======
</TABLE>
3. STOCK OFFERING
During the second quarter of fiscal 1995, the Company sold 3,192,606 shares of
its Common Stock through an underwritten public offering. The net proceeds of
the offering were approximately $87,700,000. As a part of the same public
offering, The Perkin Elmer Corporation ("Perkin Elmer") sold 1,807,394 shares
of Common Stock, including 1,000,000 shares from the conversion of the
Company's Series A Convertible Preferred Stock, all of which was held by Perkin
Elmer.
6
<PAGE> 7
SILICON VALLEY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4. SALE AND SUBSEQUENT CONVERSION OF PREFERRED STOCK
In February 1995 the Company entered into a business agreement with Intel
Corporation, Motorola Inc. and Texas Instruments Incorporated (the "Investors")
related to the Company's Micrascan photolithography products. As part of this
agreement, the Investors purchased in equal amounts an aggregate of
approximately $30,000,000 of the Company's newly issued Series B Convertible
Preferred Stock (the "Series B Preferred") and received certain rights to
purchase future generations of the Company's Micrascan products. In accordance
with the terms of its issuance, the Series B Preferred automatically converted
into 1,494,300 shares of Common Stock as the result of a registration statement
which was effective concurrent with the Company's public stock offering
discussed in Note 3.
The agreement with the Investors obligates the Company to use the $30,000,000
received from the Investors, to fund increased Micrascan production capacity,
increased research and development of the Micrascan technology, the purchase of
additional capital equipment and to augment working capital for growth of the
Company's Micrascan photolithography operations. Under such agreement, the
Company is obligated, subject to the requirements of certain agreements with
SEMATECH, to fund from its own accounts an amount not less than $25,000,000 at
any time over a five year period. The agreements with SEMATECH are discussed
in Note 13 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10K for the year ended September 30, 1994. During the
term of the SEMATECH agreements, the Company is obligated to fund from its own
resources 120% of the total amount received from SEMATECH, up to a maximum of
$36,000,000, to further the development of Micrascan technology and to increase
the manufacturing capability and capacity for the Micrascan products.
7
<PAGE> 8
SILICON VALLEY GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company designs, manufactures, markets and services semiconductor
processing equipment used in the fabrication of integrated circuits. The
Company's products are used in photolithography for exposure and photoresist
processing, and in deposition for oxidation/diffusion and low pressure chemical
vapor deposition ("LPCVD"). The Company manufactures and markets its
photolithography exposure products through its majority owned subsidiary, SVG
Lithography Systems, Inc. ("SVGL"), its photoresist processing products through
its Track Systems Division ("Track") and its oxidation/diffusion and LPCVD
products through its Thermco Systems Division ("Thermco").
The semiconductor industry into which the Company sells its products is highly
cyclic and has, historically, experienced downturns. These downturns have had a
severe effect on the semiconductor industry's demand for semiconductor
processing equipment. Future weakness in demand in the semiconductor industry
can be expected to have an adverse effect on the Company's business and results
of operations. Further, the Company relies on a limited number of major
customers for a substantial percentage of its net sales (three such customers
accounted for 50% of the Company's sales in fiscal 1994 and this trend
continued into the first nine months of fiscal 1995). The loss of or any
substantial reduction in orders by any such customer could adversely affect the
Company's business and results of operations.
Net sales for the third fiscal quarter ended June 30, 1995 were $127,722,000, a
17% increase from net sales of $109,380,000 for the preceding quarter and 56%
above net sales of $81,725,000 during the third quarter of fiscal 1994. Higher
Track and SVGL shipments accounted for the increase over the preceding quarter,
while the increase over the year-earlier quarter was due to increased shipments
of products by all of the Company's operating groups.
For the first nine months of fiscal 1995, net sales were $323,073,000, up 36%
from net sales of $237,942,000 during the first nine months of fiscal 1994. The
increase over the year-earlier period was primarily the result of higher
Thermco and SVGL shipments.
Gross margins were 41% in the third quarter of fiscal 1995, compared to 38%
during the preceding quarter, and 40% during the third quarter of fiscal 1994.
The improvement from the prior quarter resulted primarily from increased
shipments by SVGL and increased manufacturing volumes and efficiencies,
combined with a shift in the mix of shipments towards higher margin vertical
products at Thermco. These factors, combined with higher Thermco shipments,
resulted in the improvement in gross margins over the third quarter of fiscal
1994.
During the first nine months of fiscal 1995 gross margins were 39.3% compared
to 38.8% for the first nine months of fiscal 1994. The improvement from the
prior year resulted from the increased SVGL and Thermco margins discussed
above.
Research, development and related engineering (R&D) was $10,095,000 (8% of net
sales) during the third quarter of fiscal 1995 compared to $9,816,000 (9% of
net sales) during the preceding quarter
8
<PAGE> 9
and $8,454,000 (10% of net sales) during the third quarter of fiscal 1994. The
Company's R&D expenditures were net of funding received from outside parties
under joint development agreements, the majority of which is received by SVGL
from SEMATECH. During the third and second quarters of fiscal 1995 and the
third quarter of fiscal 1994, such funding totaled $3,897,000, $2,592,000 and
$193,000, respectively. The increase in R&D expenditures over both the
preceding and year-earlier quarters was primarily the result of new product
development and costs incurred to support increased product shipments; while
the downward trend in R&D as a percent of net sales was the result of the
significant growth in sales.
During the first nine months of fiscal 1995, R&D was $28,189,000 compared to
$22,675,000 during the same period of fiscal 1994 and was net of funding
received under joint development agreements of $8,571,000 and $504,000,
respectively. The increase over the first nine months of the preceding year was
primarily due to new product development, costs incurred to support increased
product shipments and costs incurred during the first half of fiscal 1995
related to design improvements on Thermco's Series 8000 Advanced Vertical
Processor (AVP).
Marketing, general and administrative expenses (MG&A) were $25,813,000 (20% of
net sales) during the third quarter of fiscal 1995 compared to $21,088,000 (19%
of net sales) during the preceding quarter and $17,516,000 (21% of net sales)
during the third quarter of fiscal 1994. In comparison to the preceding
quarter, the increased MG&A both in absolute dollars and as a percent of sales
was primarily the result of costs related to the level of shipments. The
increase in MG&A expenditures from the year-earlier quarter was primarily
related to the increased level of shipments as well as higher administrative
costs incurred in supporting the Company's operations. The year to year
decrease as a percentage of net sales was the result of the significant growth
in sales.
During the first nine months of fiscal 1995 MG&A was $64,523,000 (20% of net
sales) compared to $50,303,000 (21% of net sales) during same period of fiscal
1994. The factors resulting in the increased dollar expenditures and decreased
percentage of net sales correspond with the quarter to quarter discussion
above.
Operating income was $16,255,000 for the third quarter of fiscal 1995 compared
to $10,627,000 for the preceding quarter and $6,764,000 for the third quarter
of fiscal 1994. Fiscal 1995 nine-month operating income was $34,184,000
compared to $19,238,000 for the first nine months of fiscal 1994. For both the
quarter to quarter and nine-month comparisons, gross profits from higher net
sales exceeded the growth of R&D and MG&A, resulting in increased operating
income.
Interest and other income was $2,797,000 during the third quarter of fiscal
1995 compared to $1,146,000 for the preceding quarter and $307,000 for the
year-earlier quarter. For the first nine months of fiscal 1995, interest and
other income was $5,141,000 compared to $572,000 for the nine months of fiscal
1994. In each comparison, the increase resulted from interest earned on
significantly higher cash balances.
Interest expense was $148,000 during the third quarter of fiscal 1995 compared
to $150,000 during the preceding quarter and $141,000 during the year-earlier
quarter. During the first nine months of fiscal 1995, interest expense was
$443,000, down from $622,000 during the first nine months of fiscal 1994. The
year-earlier period included interest expense related to borrowings outstanding
under the Company's bank line of credit during the first several months of
fiscal 1994.
9
<PAGE> 10
The Company recorded a 36% provision for income taxes for the first nine months
of fiscal 1995, compared to a 38% provision for all of fiscal 1994. Variations
in the Company's effective tax rate relate primarily to changes in the
geographic distribution of its pretax income.
The minority interest represents that share of SVGL's operating results
attributable to its minority shareholder. For the third quarter of fiscal 1995,
minority interest represented a reduction of $54,000, compared to additions for
minority interest of $48,000 and $162,000 during the second quarter of fiscal
1995 and the third quarter of fiscal 1994, respectively. For the first nine
months of fiscal 1995, the reduction for minority interest was $23,000 compared
to an addition for minority interest of $267,000 for the first nine months of
fiscal 1994.
The Company had net income of $12,044,000 ($0.45 per share), $7,487,000 ($0.33
per share) and $4,319,000 ($0.21 per share ) for the third and second quarters
of fiscal 1995 and the third quarter of fiscal 1994, respectively. For the
first nine months of fiscal 1995 and 1994, the Company had net income of
$24,861,000 ($1.04 per share) and $11,780,000 ($0.60 per share), respectively.
FLUCTUATIONS IN QUARTERLY RESULTS AND DEPENDENCE ON THE
DEVELOPMENT AND SALES OF NEW PRODUCTS
The Company has, at times during its existence, experienced quarterly
fluctuations in its operating results. Due to the relatively small number of
systems sold during each fiscal quarter and the relatively high revenue per
system, production or shipping delays or customer order rescheduling can
significantly affect quarterly revenues and profitability. The Company has
experienced, and may again experience, quarters during which a substantial
portion of the Company's net sales are realized near the end of the quarter.
Accordingly, delays in shipments near the end of a quarter can cause quarterly
net sales to fall short of anticipated levels. Since most of the Company's
expenses are fixed in the short term, such shortfalls in net sales could have a
material adverse effect on the Company's business and results of operations.
The Company's operating results may also vary from quarter to quarter based
upon numerous factors including the timing of new product introductions,
product mix, level of sales, the relative proportions of domestic and
international sales, activities of competitors and problems obtaining materials
or components on a timely basis. In light of these factors and the nature of
semiconductor industry cycles, the Company could again experience variability
in quarterly operating results.
Semiconductor manufacturing equipment and processes are subject to rapid
technological change. The Company believes that its future success will depend
in part upon its ability to continue to enhance its existing products and their
process capabilities and to develop and manufacture new products with improved
process capabilities that enable semiconductor manufacturers to fabricate
semiconductors more efficiently. New product introductions could contribute to
quarterly fluctuations in operating results as orders for new products commence
and increase the potential for a decline in orders of existing products.
Failure to introduce new products successfully in a timely manner could result
in loss of competitive position and reduced sales of existing products.
Furthermore, the inability to produce such products or any failure to achieve
market acceptance could have a material adverse effect on the Company's
business and results of operations.
The Company believes that the photolithography exposure equipment market is one
of the largest segments of the semiconductor processing equipment industry and
that its Micrascan II is currently the most technically advanced machine
shipping in multiple quantities to global semiconductor manufacturers. While
the recent volume of orders for Micrascan II systems has been encouraging,
10
<PAGE> 11
they are not necessarily indicative of industry-wide acceptance of the
Micrascan technology. In addition, the Company believes semiconductor
manufacturers will not require volume quantities of production equipment as
advanced as Micrascan until at least 1996, and that substantial sales of
Micrascan systems will not begin until late 1996 or 1997. While SVGL was
marginally profitable for the third quarter of fiscal 1995, it was not
profitable during fiscal 1994 nor on a year to date basis for the first nine
months of fiscal 1995 and there can be no assurance that it will be able to
operate profitably in the future.
The Company believes that for SVGL to succeed in the long term, it must sell
its Micrascan products on a global basis. The Japanese and Pacific Rim markets
(including fabrication plants located in other parts of the world which are
operated by Japanese and Pacific Rim semiconductor manufacturers) represent a
substantial portion of the overall market for photolithography exposure
equipment and to date neither SVGL, Track or Thermco has been successful in
securing a substantial share of these markets. The Company is relatively new to
the photolithography exposure business and does not share the same level of
financial resources as its competitors. As a result, major customers may be
unwilling to rely on SVGL to be the primary source of this advanced technology,
which could have an adverse effect on the Company's business and results of
operations.
The Company is currently expanding its manufacturing capacity to meet current
and expected demand levels. From time to time, the Company has experienced
difficulty in ramping up production or effecting transitions to new products
and, consequently, has suffered delays in product deliveries. There can be no
assurance that the Company will not experience manufacturing problems as a
result of capacity constraints or ramping up production by upgrading or
expanding existing operations. These issues could result in product delivery
delays, causing a loss of future revenues and the associated profits. In
particular, the Company believes that protracted delays in delivering Micrascan
products could result in semiconductor manufacturers electing to install
competitive equipment in their advanced fabrication facilities, which could
preclude acceptance of the Micrascan products on an industry-wide basis. The
Company's operating results could also be adversely affected by the increase in
fixed costs and operating expenses related to increases in production capacity
if net sales do not increase commensurately.
The Company depends on external funding to assist in the high cost of
development in its photolithography operation. On September 30, 1994, SEMATECH
entered into the first of a series of agreements with the Company to assist in
funding both the development of the Micrascan technology and to increase SVGL's
manufacturing capability and capacity. The agreements with SEMATECH included
the sale of warrants to purchase the Company's Common Stock and established
certain milestones upon which the funding is based. If the Company achieves all
milestones, the SEMATECH agreements provide for an additional $21,000,000 of
such funding during fiscal 1995, 1996 and 1997, all of which the Company
expects would be an offset to its research and development expenditures. As of
June 30, 1995 the Company had received $10,500,000 of the SEMATECH funding.
However, in the event that the Company does not receive the contracted SEMATECH
funding for any reason, it would be required to either curtail development of
photolithography products or make up the shortfall from its own funds or other
sources. If the Company were required to make up these funds, its research and
development expenses would increase significantly and its operating income
would be reduced correspondingly. Under the agreements with SEMATECH the
Company is obligated, over a three-year period, to fund, from its own
resources, 120% of amounts received from SEMATECH up to $36,000,000.
11
<PAGE> 12
In February 1995 the Company entered an agreement with Intel Corporation,
Motorola Inc. and Texas Instruments Incorporated (the "Investors") related to
the Company's Micrascan photolithography products. As part of this agreement,
the Investors purchased an aggregate of $30,000,000 of the Company's newly
issued Series B Preferred Stock (which was subsequently converted to Common
Stock) and received certain rights to purchase future generations of the
Company's Micrascan products. In turn, the Company agreed to utilize the
proceeds from the sale of the Preferred Stock for research and development,
manufacturing capacity expansion and working capital related to it's Micrascan
technology and products. If, in fulfilling the SEMATECH agreements, the Company
is required to fund less than $25,000,000, the Company is obligated under its
agreement with the Investors, at any time over a five year period, to fund an
amount such that the total it funds under the agreements with both SEMATECH and
the Investors is not less than $25,000,000.
There are no assurances that the Company will be able to attain the remaining
SEMATECH milestones or that SEMATECH will be capable of providing the agreed
upon funding, either of which could have an unfavorable impact on future
photolithography development. Additionally, no assurance can be given that the
Company will be able to provide the necessary funding to meet its commitments
under either the SEMATECH agreement or its agreement with the Investors.
Conversely, the Company could be required to provide its portion of the funding
regardless of the success of the project, even if it believes that such
resources would be better utilized in other areas. Were the Company not to
fulfill certain obligations under such agreements, it could be required to
repay all funds received from SEMATECH and to repurchase the Common Stock held
by the Investors, either or both of which could have a material adverse effect
on the Company.
LIQUIDITY AND CAPITAL RESOURCES
In March 1995, the Company sold 3,192,606 shares of its Common Stock through an
underwritten public offering. The net proceeds of the offering were
approximately $87,700,000. As part of the same public offering, The Perkin
Elmer Corporation sold 1,807,394 shares of Common Stock (including 1,000,000
shares it was issued upon the conversion of the Company's Series A Preferred
Stock and 807,394 shares which it previously owned).
In February 1995 the Investors purchased an aggregate of $30,000,000 of the
Company's newly issued Series B Preferred Stock. In accordance with the terms
of its issuance, the Series B Preferred automatically converted into 1,494,300
shares of Common Stock upon the effectiveness of a registration statement filed
concurrently with the Company's public offering discussed above.
At June 30, 1995 cash and cash equivalents and temporary investments were
$199,293,000 compared to the September 30, 1994 balance of $87,829,000, an
increase of $106,643,000. During the first nine months of fiscal 1995, the
Company received a total of $128,768,000 from the sale of both Common Stock
(including stock options exercised by employees) and the Series B Preferred, as
well as the collection of the proceeds from the sale of Common Stock warrants
subscribed during the fourth quarter of fiscal 1994. These cash inflows were
offset in part by $3,453,000 of cash used for operating activities and
$13,022,000 used for the purchase of property and equipment. Significant
operating cash inflows from the Company's earnings and customer deposits
received with orders for certain of the Company's products were utilized to
finance increased accounts receivable resulting from the Company's increased
shipments and higher inventory levels required to satisfy the current backlog
of customer orders.
12
<PAGE> 13
At August 11, 1995 the Company had $50,000,000 of credit available under its
bank revolving line of credit.
The Company believes that it has sufficient working capital and available bank
credit to sustain operations and provide for the expansion of its business for
the foreseeable future.
13
<PAGE> 14
PART II. OTHER INFORMATION
SILICON VALLEY GROUP, INC.
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
99.1 The Registrant's 1987 Stock Option Plan, as amended.
14
<PAGE> 15
SILICON VALLEY GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILICON VALLEY GROUP, INC.
--------------------------
(Registrant)
Date: August 11, 1995 By: /s/ Papken S. Der Torossian
-------------------------------
Papken S. Der Torossian
Chief Executive Officer and
Chairman of the Board
Date: August 11, 1995 By: /s/ Russell G. Weinstock
-------------------------------
Russell G. Weinstock
Vice President Finance and
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE THIRD QUARTER OF FISCAL 1995 AS FILED IN THE
COMPANY'S FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 194,472
<SECURITIES> 4,821
<RECEIVABLES> 102,970
<ALLOWANCES> 3,652
<INVENTORY> 140,512
<CURRENT-ASSETS> 447,215
<PP&E> 68,489
<DEPRECIATION> 48,851
<TOTAL-ASSETS> 471,702
<CURRENT-LIABILITIES> 135,147
<BONDS> 0
<COMMON> 244,134
0
0
<OTHER-SE> 86,561
<TOTAL-LIABILITY-AND-EQUITY> 471,702
<SALES> 127,722
<TOTAL-REVENUES> 127,722
<CGS> 75,559
<TOTAL-COSTS> 75,559
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 18,904
<INCOME-TAX> 6,806
<INCOME-CONTINUING> 12,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,044
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0
<FN>
MINORITY INTEREST OF $54,000 IS DEDUCTED FROM AFTER-TAX INCOME IN ARRIVING AT
NET INCOME OF $12,044,000.
</FN>
</TABLE>
<PAGE> 1
SILICON VALLEY GROUP, INC.
1987 STOCK OPTION PLAN
(AS AMENDED TO OCTOBER 20, 1993, OCTOBER 31, 1994 AND DECEMBER 13, 1994)
1. PURPOSE.
The purpose of the Silicon Valley Group, Inc. 1987 Stock Option Plan is to
enable the Company to grant to key employees and directors an opportunity to
acquire Stock, thereby providing them with an inducement to remain in the
service of the Company and contribute to its success, and to aid in attracting
other capable personnel. Some or all of the options granted to employees under
the Plan may be intended to qualify as "incentive stock options" under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. DEFINITIONS.
As used in this Plan:
A. "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.
B. "Board" means the Board of Directors of the Company.
C. "Committee" means the Committee, if any, appointed by the Board from
among its members in accordance with Section 3 of the Plan. If no Committee has
been appointed, "Committee" shall refer to the Board, unless the context
indicates otherwise.
D. "Company" means Silicon Valley Group, Inc. and any parent or
majority-owned subsidiary corporation.
E. "Plan" means the Silicon Valley Group, Inc. 1987 Stock Option Plan,
as amended from time to time.
F. "Rule 16b-3" means Rule 16b-3 of the Securities Exchange Act of 1934
or any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
G. "Stock" means the common stock of the Company.
3. ADMINISTRATION.
A. PROCEDURE.
(i) ADMINISTRATION WITH RESPECT TO DISCRETIONARY OPTION GRANTS.
With respect to discretionary option grants made to employees, the Plan shall be
administered by (A) the Board, if the Board may administer the Plan in
compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a Committee designated by the Board
to administer the Plan, which Committee shall be constituted to comply with the
rules governing a plan
<PAGE> 2
intended to qualify as a discretionary plan under Rule 16b-3. Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members, remove members (with or
without cause) and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly administer the Plan,
all to the extent permitted by the rules governing a plan intended to qualify as
a discretionary plan under Rule 16b-3.
(ii) ADMINISTRATION WITH RESPECT TO AUTOMATIC GRANTS TO
NON-EMPLOYEE DIRECTORS. Automatic grants to directors who are not employees of
the Company shall be pursuant to a non-discretionary formula as set forth in
Section 8 hereof and shall not be subject to any discretionary administration.
B. AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have the sole authority to determine:
(i) the persons to whom options to purchase shares of Stock
shall be granted;
(ii) the number of shares to be optioned to each option;
(iii) the price to be paid for the shares upon the exercise of
each option;
(iv) the period within which each option may be exercised,
including any vesting requirements; and
(v) the terms and conditions of each stock option agreement to
be entered into between the Company and the optionee.
C. RULES AND REGULATIONS. The Committee shall have full and complete
authority to promulgate such rules and regulations as it deems necessary or
desirable for administering and interpreting the Plan. Any determination,
decision, computation or interpretation of the Plan by the committee shall be
conclusive as to any interested person.
D. INCENTIVE STOCK OPTION STATUS. The determination of whether options
granted to employees under the Plan are intended to qualify as incentive stock
options shall be indicated in the stock option agreement for each option.
4. ELIGIBILITY.
A. DISCRETIONARY STOCK OPTIONS. Discretionary grants of incentive
stock options and nonstatutory stock options may be granted only to employees.
If otherwise eligible, an employee who has been granted an option may be
granted additional options.
-2-
<PAGE> 3
B. NON-EMPLOYEE DIRECTOR STOCK OPTIONS. Non-employee directors shall
be eligible to receive only nonstatutory stock options pursuant to Section 8
hereof.
5. STOCK SUBJECT TO PLAN.
There shall be a total of 3,200,000 shares of Stock subject to purchase
upon the exercise of options granted under the Plan, as adjusted in accordance
with Section 9. For options outstanding under the Plan, shares of Stock will be
reserved for issuance from the Company's authorized but unissued Stock. If any
option granted under the Plan shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares shall again be available
for the purposes of the Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
Each option granted under the Plan shall be evidenced by a stock option
agreement between the optionee and the Company and, except as otherwise provided
with respect to automatic grants to non-employee directors pursuant to Section 8
hereof, shall be subject to the following terms and conditions and to such other
terms and conditions not inconsistent herewith as the Committee may deem
appropriate in each case:
A. OPTION PRICE. The price to be paid for shares of Stock upon the
exercise of an option shall be determined by the Committee at the time the
option is granted but shall in no event be less than one hundred percent (100%)
of the fair market value of the shares of Stock on the date the option is
granted as determined by the Committee. If a trading market exists for the
Stock, the fair market value of the shares of Stock shall not be less than the
closing price for the Stock as reported by the principal trading market for the
Stock for the date the option is granted (or if there was no trade on such date,
then the closing price on the most recent date on which trading in the Stock
occurred).
B. PERIOD OF OPTION. The period or periods within which an option may
be exercised shall be determined by the Committee at the time the option is
granted but shall in no event exceed ten years from the date the option is
granted.
C. PAYMENT FOR STOCK. Payment for each share of Stock purchased under
an option shall be made at the time of purchase (i) in cash; (ii) in shares of
Stock, in good form for transfer, owned by the optionee (but not any Stock
acquired by the optionee within six months preceding the payment date pursuant
to any Company stock option, stock purchase or other stock incentive plan); or
(iii) by a combination of such Stock and cash, unless the Committee in its sole
discretion requires that payment be made in cash. No share of Stock shall be
issued until full payment therefor has been made.
-3-
<PAGE> 4
D. STOCK APPRECIATION RIGHTS.
(i) With respect to discretionary option grants only, the
Committee in its discretion may provide that any option by its terms may permit
the participant, upon exercise of an option, to elect, in lieu of payment for
Stock, to receive payment from the Company of any of the following:
(a) cash equal to the excess of the value of one share
over the option price times the number of shares as to which the option is
exercised;
(b) the number of full shares having an aggregate value
equal to the cash amount calculated under alternative (i); or
(c) any combination of cash and Stock having an aggregate
value equal to the cash amount calculated under alternative (i).
(ii) Any election to receive payment from the Company in any of
the forms above shall satisfy the conditions of Rule 16b-3 to the extent
necessary for the transaction to be exempt from liability under Section 16(b) of
the Securities Exchange Act of 1934.
E. NONTRANSFERABILITY. An option shall be nontransferable, except by
will or the laws of descent and distribution, and shall be exercisable during
the optionee's lifetime only by the optionee.
F. NOT AN EMPLOYMENT AGREEMENT. Nothing in this Plan or in any option
granted hereunder shall affect the right of the Company to terminate at any time
and for any reason the employment of any employee or the tenure of any director
to whom an option has been granted hereunder.
G. VALUE LIMITATION. Effective for all options granted after December
31, 1986, the aggregate fair market value (determined as of the time the option
is granted) of all shares of Stock with respect to which incentive stock options
are exercisable for the first time by an option holder during any calendar year,
when combined with all other incentive stock options of the Company granted
since January 1, 1987, shall not exceed $100,000.
H. EFFECTIVE DATE OF GRANT. The date of grant of options hereunder
shall be deemed to be the date of the action by the Committee, notwithstanding
that issuance of the option may be conditioned on the execution of a stock
option agreement.
I. LIMITATION OF NUMBER OF SHARES. The following limitations shall
apply to grants of options to employees hereunder:
(i) No employee shall be granted, in any fiscal year of the
Company, options to purchase more than 250,000 shares of Stock.
-4-
<PAGE> 5
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 9 hereof.
(iii) If an option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 9, the canceled option will be counted against the limit
set forth in Section 6(I)(i). For this purpose, if the exercise price of an
option is reduced, the transaction will be treated as a cancellation of the
option and the grant of a new option.
7. STOCK ISSUANCE AND RIGHTS AS STOCKHOLDERS.
Notwithstanding any other provision of the Plan, no optionee shall have
any right as a stockholder of the Company until the date he or she is issued a
stock certificate.
8. AUTOMATIC STOCK OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
A. PROCEDURE FOR GRANTS. The provisions set forth in this Section 8(A)
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder. All grants of options hereunder shall be
automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which
non-employee directors shall be granted options or to determine the number of
shares to be covered by options granted to non-employee directors.
(ii) Each non-employee director shall be automatically granted an
option to purchase 10,000 shares (the "First Option") upon the date on which
such person first becomes a non-employee director, whether through election by
the stockholders of the Company or appointment by the Board of Directors to fill
a vacancy. The preceding sentence notwithstanding, no non-employee director who
was a director immediately prior to becoming a non-employee director shall be
granted a First Option.
(iii) After the First Option has been granted to a non-employee
director, such non-employee director shall thereafter be automatically granted
each year an option to purchase 5,000 shares (a "Subsequent Option") on the
anniversary date of the non-employee director becoming a non-employee director
of the Company.
(iv) The number of shares subject to a First Option or a
Subsequent Option shall be proportionately adjusted upon any adjustment of
shares as described in Section 9.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that an automatic grant hereunder would cause the number of
shares subject to outstanding options plus the number of shares previously
purchased upon exercise of options to exceed the number of
-5-
<PAGE> 6
shares available for issuance under the Plan, then each such automatic grant
shall be for that number of shares determined by dividing the total number of
shares remaining available for grant by the number of non-employee directors on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional shares become available for grant under the Plan.
(vi) The terms of an option granted hereunder shall be as
follows:
a. the term of the option shall be ten (10) years.
b. the option shall be exercisable only while the
non-employee director remains a Director of the Company, or within one year
thereafter (but not beyond the expiration of the option term and only to the
extent vested at the date of termination).
c. the exercise price per share shall be 100% of the fair
market value per share on the date of grant of the option.
d. the option shall become exercisable as follows:
(a) If it is a First Option, it shall become
exercisable cumulatively in installments of 2,500 shares per year, beginning on
the date of such non-employee director's election to the Board of Directors.
(b) If it is a Subsequent Option, it shall become
exercisable cumulatively in installments of 1,250 shares per year.
B. CONSIDERATION FOR EXERCISING NON-EMPLOYEE DIRECTOR STOCK OPTIONS.
The consideration to be paid for the shares to be issued upon exercise of an
automatic non-employee director option shall consist entirely of cash, check,
other shares of common stock which (i) either have been owned by the Optionee
for more than six (6) months or were not acquired, directly or indirectly from
the Company and (ii) have a fair market value on the date of surrender equal to
the aggregate exercise price of the shares as to which said option shall be
exercised, or any combination of such methods of payment.
9. ADJUSTMENT OF SHARES.
In the event of changes in the outstanding Stock of the Company by reason
of stock dividends, mergers, split-ups, consolidations, recapitalizations,
reorganizations or like events (as determined by the Committee), an appropriate
adjustment shall be made by the Committee in the number of shares of Stock
reserved under the Plan and in the number of shares of Stock and the option
price per share specified in any stock option agreement with respect to any
unpurchased shares. The determination of the Committee as to what adjustments
shall be made shall be conclusive.
-6-
<PAGE> 7
10. SECURITIES LAW REQUIREMENTS.
A. INVESTMENT REPRESENTATION. The Committee may require any person, as
a condition of either the grant or the exercise of an option pursuant to this
Plan, to represent and establish to the satisfaction of the Committee that all
shares of Stock acquired upon the exercise of such option will be acquired for
investment and not for distribution.
B. REGISTRATION REQUIREMENTS. No shares of Stock shall be issued upon
the exercise of any option if counsel for the Company determines that there has
not been met any applicable registration requirements under the Securities Act
of 1933 or the Securities Exchange Act of 1934, any applicable listing
requirement of any stock exchange on which the Stock is listed or any other
applicable provision of state or federal law.
11. AMENDMENT.
A. AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan. However, no provisions as they relate to
nondiscretionary grants to non-employee directors may be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
B. STOCKHOLDER APPROVAL. The Company shall obtain stockholder approval
of any Plan amendment to the extent necessary and desirable to comply with Rule
16b-3 or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
stockholder approval, if required, shall be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
C. EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Committee, which
agreement must be in writing and signed by the Optionee and the Company.
D. EXPIRATION. This Plan shall expire on December 31, 2000, unless
terminated sooner pursuant to Section 11(A) hereof, and no options shall be
granted hereunder after that date.
-7-
