<PAGE> 1
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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 December 31, 1994
/ / 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 January 31, 1995 was 19,185,009.
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SILICON VALLEY GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
-------
<S> <C>
Consolidated Condensed Balance Sheets as of
December 31, 1994 and September 30, 1994 3
Consolidated Condensed Income Statements
for the Quarters Ended December 31, 1994 and
1993. 4
Consolidated Condensed Statements of Cash Flows
for the Quarters Ended December 31, 1994 and
1993. 5
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1994 1994
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 76,502 $ 87,829
Accounts receivable (net of allowance for doubtful
accounts of $2,435 and $2,630, respectively) 92,782 66,809
Receivable from sale of stock warrants -- 8,204
Inventories 100,918 86,829
Prepaid expenses 2,816 3,632
Deferred taxes 300 169
-------- --------
Total current assets 273,318 253,472
PROPERTY AND EQUIPMENT - NET 14,709 13,313
DEPOSITS AND OTHER ASSETS 1,662 1,784
INTANGIBLE ASSETS - NET 2,936 3,105
-------- --------
TOTAL $292,625 $271,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of long-term debt $ 846 $ 828
Accounts payable 27,325 20,254
Accrued liabilities 60,671 53,644
Income taxes payable 5,674 5,443
-------- --------
Total current liabilities 94,516 80,169
LONG TERM DEBT AND CAPITAL LEASES 1,299 1,510
DEFERRED LIABILITIES 1,020 998
MINORITY INTEREST 3,799 3,782
STOCKHOLDERS' EQUITY:
Convertible Redeemable Preferred Stock 17,000 17,000
Common Stock - Shares outstanding:
December 31, 1994: 19,173,809
September 30, 1994: 18,967,276 107,722 105,978
Retained earnings 67,269 62,237
-------- --------
Stockholders' equity 191,991 182,215
-------- --------
TOTAL $292,625 $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 December 31,
---------------------------
1994 1993
---- ----
<S> <C> <C>
NET SALES $85,971 $70,917
COSTS AND EXPENSES:
Cost of sales 52,769 43,859
Research, development and
related engineering 8,278 6,546
Marketing, general and
administrative 17,622 15,836
------- -------
Total costs and expenses 78,669 66,241
------- -------
OPERATING INCOME 7,302 4,676
INTEREST AND OTHER INCOME 1,198 102
INTEREST EXPENSE (145) (354)
------- -------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 8,355 4,424
PROVISION FOR INCOME TAXES 3,008 1,770
MINORITY INTEREST 17 (65)
------- -------
NET INCOME $ 5,330 $ 2,719
======= =======
Preferred Stock Dividend $ 298 $ 298
======= =======
Net Income Applicable to Common Stock $ 5,032 $ 2,421
======= =======
NET INCOME PER SHARE $ 0.25 $ 0.15
======= =======
Weighted Average Common and
Common Equivalent Shares 20,322 16,400
======= =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------
December 31,
-----------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,330 $ 2,719
Reconciliation to net cash provided by
(used for) operating activities:
Depreciation and amortization 2,649 1,841
Amortization of intangibles 169 193
Minority interest 17 (65)
Changes in assets and liabilities:
Receivables (25,973) 5,494
Inventories (14,089) (2,414)
Prepaid expenses 816 172
Deposits and other assets 122 (270)
Accounts payable 7,071 (6,315)
Accrued and deferred liabilities 6,998 (103)
Income taxes 100 1,600
-------- --------
Net cash provided by (used for) operating activities (16,790) 2,852
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES -
Disposal (purchase) of property and equipment (4,045) 300
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit agreements -- 8,000
Repayment of debt (193) (22,390)
Sale of Common Stock 1,446 27,441
Collection of receivable from
Sale of Common Stock warrants 8,204 --
-------- --------
Net cash provided by financing activities 9,457 13,051
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 51 43
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (11,327) 16,246
CASH AND EQUIVALENTS:
Beginning of period 87,829 17,617
-------- --------
End of period $ 76,502 $ 33,863
======== ========
NON-CASH FINANCING ACTIVITIES:
Preferred stock dividend paid in Common Stock $ 298 $ 298
======== ========
</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 which are, in the
opinion of management, 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.
2. INVENTORIES
Inventories are comprised of:
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1994 1994
---- ----
(In thousands)
<S> <C> <C>
Raw materials $ 41,479 $38,096
Work-in-process 56,723 44,558
Finished goods 2,716 4,175
-------- -------
$100,918 $86,829
======== =======
</TABLE>
6
<PAGE> 7
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 to which the Company sells its products is highly
cyclic and has, historically, experienced periodic 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 quarter 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.
For the first quarter of fiscal 1995, the Company recorded net sales of
$85,972,000, a 21% increase over net sales of $70,917,000 during the
year-earlier quarter and 5% above fourth quarter fiscal 1994 net sales of
$81,979,000. Increased shipments by Thermco, particularly of its VTR 7000
vertical thermal reactor and by SVGL, primarily its Micralign systems and
after-market business, offset in part by lower shipments in the Track Division,
resulted in the increase over the first quarter of fiscal 1994. The increase in
net sales over the preceding quarter was primarily the result of increased
shipments of both Thermco's VTR 7000 and of Track's 90 Series systems, offset
in part by lower SVGL shipments of Micrascan II systems.
During the first quarter of fiscal 1995, the Company had bookings of
$128,828,000 which represented a book to bill ratio of 1.5 to 1, approximately
equal to the preceding two quarters. At December 31, 1994, the Company had a
backlog of $251,976,000, up from $209,119,000 at September 30, 1994. The ending
backlog continued to be relatively evenly divided among Track, Thermco and
SVGL.
Gross margin was 38.6% for the first quarter of fiscal 1994, an increase from
38.2% in the year-earlier quarter, but lower than the gross margin of 39.3%
during the fourth quarter of fiscal 1994. The improvement over the
year-earlier quarter was primarily due to Thermco's increased shipments of
higher margin VTR 7000 systems and increased manufacturing volumes and product
sales at SVGL, offset in part by lower shipments of Track systems. The gross
7
<PAGE> 8
margin decrease from the fourth quarter of fiscal 1994 was primarily the result
of lower Track and SVGL margins offset in part by improved Thermco margins. The
lower Track gross margins were primarily the result of lower revenues from
after-market business, while the decrease in SVGL margins was primarily due to
lower shipping volumes. The improvement in Thermco's margins resulted from
increased shipments of VTR 7000 systems and certain revenues from product
upgrades to customer-owned Series 8000 Advanced Vertical Processor ("AVP")
systems.
First quarter fiscal 1995 research, development and related engineering ("R&D")
expenditures were $8,278,000 (10% of net sales) compared to $6,546,000 (9% of
net sales) during the first quarter of fiscal 1994 and $7,768,000 (10% of net
sales) in the preceding quarter. The Company's R&D expenditures exclude funding
received from outside parties under joint development agreements, the majority
of which is received by SVGL from SEMATECH. During the first quarter of fiscal
1995 and the first and fourth quarters of fiscal 1994, the Company received
outside funding of $2,082,000, $239,000 and $958,000, respectively. In
comparing first quarter fiscal 1995 to the year-earlier quarter, the increased
expenditures were primarily the result of new product development by all of the
Company's product groups, as well as costs incurred by the Thermco engineering
groups to support its increased level of product shipments and to further
develop the AVP. The increase in first quarter fiscal 1995 R&D expenditures
over the fourth quarter of fiscal 1994 was primarily due to the above-noted
costs incurred by the Thermco engineering groups.
Marketing, general and administrative ("MG&A") expenses were $17,622,000 (21%
of net sales) in the first quarter of fiscal 1995 compared to $15,836,000 (22%
of net sales) for the year-earlier first quarter and $17,214,000 (21% of net
sales) in the preceding quarter. The increase in expenditures over the first
quarter of fiscal 1994 was primarily the result of costs associated with the
increased level of product shipments and amounts incurred in the general
management of the Company. In comparing first quarter fiscal 1995 MG&A expenses
to fourth quarter fiscal 1994, the increase was principally due to higher
general management expenditures, offset in part by a reduction in certain costs
directly related to sales. In contrast to the increased expenditures, the
decrease in first quarter fiscal 1995 MG&A costs as a percentage of net sales
compared to either the first or fourth quarters of fiscal 1994, was the result
of the higher net sales during the quarter.
Operating income was $7,302,000 for the first quarter of fiscal 1995,
significantly above $4,676,000 for the year-earlier quarter and approximately
equal to fourth quarter fiscal 1994 operating income of $7,213,000. The
improvement in operating income from the year-earlier quarter resulted from
increased gross margins on higher net sales, combined with increased operating
expenses which were lower as a percentage of such net sales. Operating income
increased over the preceding quarter due to higher net sales and gross margin
dollars, although at a slightly lower percentage of net sales, offset in part
by higher operating expenses.
Interest and other income was $1,198,000 during the first quarter of fiscal
1995 compared to $102,000 during the year-earlier quarter and $519,000 during
the preceding quarter. The increase over both the year-earlier and the
preceding quarter was primarily the result of significantly higher average cash
balances available for investment, at higher prevailing interest rates and
certain foreign exchange gains.
8
<PAGE> 9
During the first quarter of fiscal 1995 interest expense was $145,000 compared
to $354,000 and $100,000 during the first and fourth quarters of fiscal 1994,
respectively. The higher interest expense during the year-earlier quarter
related to debt which was outstanding for most of that quarter and was retired
subsequent to the completion of a public offering of the Company's Common
Stock.
The Company recorded a 36% provision for income taxes for the first quarter 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 the Company's pretax income.
The reduction for minority interest of $17,000 during the first quarter of
fiscal 1995, the addition for minority interest of $65,000 during the first
quarter of fiscal 1994 and the reduction for minority interest of $132,000 for
the fourth quarter of fiscal 1994 represent that share of SVGL's operating
results attributable to its minority shareholder.
The Company had net income of $5,330,000 ($.25 per share) during the first
quarter of fiscal 1995 compared to net income of $2,719,000 ($.15 per share)
and $4,984,000 ($.24 per share) for the first and fourth quarters of fiscal
1994, respectively. Net income per share amounts are computed after deducting
from income Preferred Stock dividends of $298,000 from each of the first
quarters of fiscal years 1995 and 1994 and $297,000 from the fourth quarter of
fiscal 1994.
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 revenues per
system, production or shipping delays or customer order rescheduling can
significantly affect quarterly revenues and profitability. The Company has, 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 the shipments near the end of a quarter can cause quarterly net sales
to fall significantly 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 product mix, the relative proportions of domestic and international sales
and competitive pricing pressures. In light of these factors and the nature of
semiconductor industry cycles, the Company expects to continue to 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.
9
<PAGE> 10
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 to global semiconductor manufacturers. While the recent volume of
orders for Micrascan II systems have been encouraging, they are not necessarily
indicative of industry-wide acceptance of the Micrascan technology. Further,
SVGL was not profitable for fiscal 1994, nor during the first quarter 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 or the Company has not been successful in
securing an adequate share of these markets. In April, 1993, the Company
entered into a letter of intent with Canon Inc. ("Canon") for the purpose of
establishing a worldwide strategic alliance based on SVGL's Micrascan
photolithography technology. The Company and Canon were unable to reach
agreement, negotiations were terminated and the letter of intent expired on
November 30, 1994. 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 sole source of this advanced technology, which could have an adverse
effect on the Company's business and results of operations.
The Company is aggressively accelerating the development of and increasing its
manufacturing capability to produce its advanced technology Micrascan
photolithography equipment. Although plans are in place and resources are being
dedicated to the task, there can be no assurance that existing resources and
funding from outside parties will be sufficient or that the Company will be
able to successfully expand its Micrascan manufacturing operations.
SVG depends on external funding to assist in the high cost of development in
its photolithography operation. On September 30, 1994, SEMATECH entered into an
agreement with the Company to assist in funding both the development of the
Micrascan technology and to increase SVGL's manufacturing capability and
capacity. The agreement with SEMATECH included the sale of warrants to purchase
the Company's Common Stock and established certain milestones upon which the
funding is based. There are no assurances that the Company will be able to
attain such 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.
10
<PAGE> 11
Under the agreement with SEMATECH, the Company is obligated, at some time over
a three-year period, to fund, from its own resources, 120% of amounts received
from SEMATECH, up to $36,000,000. The Company could be required to fund such
amounts whether or not the Micrascan product is successful, further
exacerbating the potential material adverse effects described above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994 cash and cash equivalents were $76,502,000, a decrease of
$11,327,000 from the September 30, 1994 balance of $87,829,000. The collection
of $8,204,000 from the sale of Common Stock warrants subscribed during the
preceding quarter was offset by $16,790,000 used for operating activities and
$4,045,000 used to purchase property and equipment. The cash used for operating
activities was required to finance increased accounts receivable resulting from
significant shipments late in the quarter and extended terms granted to a large
global customer and higher inventory levels required to satisfy the current
backlog of customer orders.
At February 10, 1995, the Company had no borrowings outstanding under its
$50,000,000 bank revolving line of credit.
The Company believes that it has sufficient working capital and available bank
credit to sustain operations, fund research and development and provide for the
future expansion of its business during the remainder of the fiscal year.
11
<PAGE> 12
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.
None
12
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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: February 10, 1995 By: /s/ Papken S.Der Torossian
-------------------------------
Papken S. Der Torossian
Chief Executive Officer and
Chairman of the Board
Date: February 10, 1995
By: /s/ Russell G. Weinstock
-------------------------------
Russell G. Weinstock
Vice President Finance and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS FOR THE FIRST QUARTER OF FISCAL 1995 AS FILED IN THE
COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1994.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 76,502
<SECURITIES> 0
<RECEIVABLES> 92,782
<ALLOWANCES> 2,435
<INVENTORY> 100,918
<CURRENT-ASSETS> 273,318
<PP&E> 59,567
<DEPRECIATION> (44,858)
<TOTAL-ASSETS> 292,625
<CURRENT-LIABILITIES> 94,516
<BONDS> 0
<COMMON> 107,722
0
17,000
<OTHER-SE> 67,269
<TOTAL-LIABILITY-AND-EQUITY> 292,625
<SALES> 85,971
<TOTAL-REVENUES> 85,971
<CGS> 52,769
<TOTAL-COSTS> 52,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145
<INCOME-PRETAX> 8,355
<INCOME-TAX> 3,008
<INCOME-CONTINUING> 5,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,330
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
<FN>
MINORITY INTEREST OF $17,000 IS DEDUCTED ALONG WITH THE INCOME TAX EXPENSE OF
3,008,000 TO ARRIVE AT NET INCOME OF $5,330.000.
</TABLE>
