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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 March 31, 1998.
[ ] 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.)
101 METRO DRIVE, SUITE #400, SAN JOSE, CALIFORNIA 95110
(Address of principal executive offices) (Zip Code)
(408) 441-6700
(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
May 1, 1998 was 32,590,204.
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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 March 31,
1998 and September 30, 1997 3
Consolidated Condensed Statements of Income for the
Quarters and Six Months Ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows for
the Six Months Ended March 31, 1998 and 1997 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 19
SIGNATURES 21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 115,476 $ 129,689
Temporary investments 61,583 76,972
Accounts receivable (net of allowance for doubtful
accounts of $7,859 and $6,794, respectively) 162,478 145,794
Inventories 233,450 228,453
Prepaid expenses and other assets 6,967 7,507
Deferred taxes 9,816 5,863
--------- ---------
Total current assets 589,770 594,278
PROPERTY AND EQUIPMENT - NET 180,129 150,985
DEPOSITS AND OTHER ASSETS 6,865 6,170
INTANGIBLE ASSETS - NET 4,095 4,584
--------- ---------
TOTAL $ 780,859 $ 756,017
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 43,495 $ 43,707
Accrued liabilities 129,362 127,449
Current portion of long-term debt and capital leases 1,074 1,848
Income taxes payable 969 515
--------- ---------
Total current liabilities 174,900 173,519
LONG-TERM DEBT AND CAPITAL LEASES 6,174 6,515
DEFERRED AND OTHER LIABILITIES 4,560 2,873
STOCKHOLDERS' EQUITY:
Common Stock - shares outstanding:
March 31, 1998: 32,540,790
September 30, 1997: 32,272,342 402,689 399,663
Retained earnings 195,666 173,961
Minimum pension liability (274) (274)
Cumulative translation adjustment (2,856) (240)
--------- ---------
Stockholders' equity 595,225 573,110
--------- ---------
TOTAL $ 780,859 $ 756,017
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
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SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 195,872 $ 145,881 $ 384,579 $ 273,903
COST OF SALES 118,358 91,327 232,677 170,595
--------- --------- --------- ---------
GROSS PROFIT 77,514 54,554 151,902 103,308
OPERATING EXPENSES:
Research, development and
related engineering 25,560 17,275 46,629 34,949
Marketing, general and
administrative 39,469 31,415 76,156 59,418
Settlement of royalty
obligation -- 32,582 -- 32,582
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 12,485 (26,718) 29,117 (23,641)
INTEREST AND OTHER INCOME - NET 1,829 2,589 3,311 5,402
INTEREST EXPENSE (255) (165) (509) (394)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST 14,059 (24,294) 31,919 (18,633)
PROVISION FOR INCOME TAXES 4,499 (8,210) 10,214 (6,327)
MINORITY INTEREST -- (102) -- 92
--------- --------- --------- ---------
NET INCOME (LOSS) $ 9,560 $ (15,982) $ 21,705 $ (12,398)
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE - BASIC $ 0.30 $ (0.51) $ 0.67 $ (0.40)
========= ========= ========= =========
SHARES USED IN BASIC PER SHARE
COMPUTATIONS 32,345 31,295 32,311 31,275
========= ========= ========= =========
NET INCOME(LOSS) PER SHARE - DILUTED $ 0.29 $ (0.51) $ 0.66 $ (0.40)
========= ========= ========= =========
SHARES USED IN DILUTED PER SHARE
COMPUTATIONS 32,989 31,295 33,090 31,275
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
4
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SILICON VALLEY GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 21,705 $ (12,398)
Reconciliation to net cash provided by
operating activities:
Depreciation and amortization 18,006 10,453
Amortization of intangibles 489 162
Deferred income taxes (3,953) (3,950)
Minority interest -- 92
Settlement of royalty obligation -- 27,582
Changes in assets and liabilities:
Accounts receivable (16,684) 20,706
Inventories (4,997) (8,964)
Prepaid expenses and other assets 540 (215)
Deposits and other assets (695) 245
Accounts payable (212) 2,868
Accrued and deferred liabilities 4,192 5,417
Income taxes 454 (4,829)
--------- ---------
Net cash provided by operating activities 18,845 37,169
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of temporary investments (5,186) (60,102)
Maturities of temporary investments 20,575 32,184
Purchases of property and equipment (47,150) (36,438)
Purchase of minority interest in subsidiary -- (3,000)
--------- ---------
Net cash used for investing activities (31,761) (67,356)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (1,365) (835)
Proceeds from borrowings 250 6,462
Sale of Common Stock 3,026 130
--------- ---------
Net cash provided by financing activities 1,911 5,757
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,208) (695)
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (14,213) (25,125)
CASH AND EQUIVALENTS:
Beginning of period 129,689 219,317
--------- ---------
End of period $ 115,476 $ 194,192
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Note Payable issued for additional facilities $ -- $ 750
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
5
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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 present fairly 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, 1997. Results for fiscal 1998 interim periods are not necessarily
indicative of results to be expected for the fiscal year ending September 30,
1998.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's Consolidated
Condensed Financial Statements to conform to the current fiscal period
presentation.
3. INVENTORIES
Inventories are comprised of:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Raw materials $ 99,335 $ 92,660
Work-in-process 121,372 128,662
Finished goods 12,743 7,131
-------- --------
$233,450 $228,453
======== ========
</TABLE>
4. NET INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," effective October 1, 1997, which replaces prior Earnings
Per Share (EPS) reporting and requires dual presentation of basic and diluted
EPS. The Company has restated all prior periods to conform with this Statement.
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding.
Diluted net income per share includes an additional 644,000 shares at the
quarter ended March 31, 1998 to reflect the potential dilution that could occur
if dilutive stock options were converted into common stock. The quarter ended
March 31, 1997 was a loss period, therefore common stock equivalents would be
anti-dilutive and were not included in the calculation of diluted net income
(loss) per share.
6
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5. TINSLEY LABORATORIES, INC. ACQUISITION
On November 26, 1997, the Company acquired Tinsley Laboratories, Inc. (TLI), in
a stock for stock transaction whereby approximately 1,091,000 shares of the
Company's Common Stock were exchanged for all outstanding shares of TLI Common
Stock. TLI designs, manufactures and sells precision optical components,
assemblies and systems to customers in a variety of industries and research
endeavors. The transaction was accounted for as a pooling of interests for
financial reporting purposes. All prior periods have been restated to include
TLI financial results.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
which establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements;
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", which establishes annual and interim reporting standards for a
Company's business segments and related disclosures about its products,
services, geographic areas and major customers. Both SFAS No. 130 and SFAS No.
131 are effective for the Company beginning October 1, 1998. The Company
believes that the adoption of the new standards will not have a material effect
on the financial statements.
7
<PAGE> 8
SILICON VALLEY GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
certain risks and uncertainties, including those discussed below, as well as
risk factors included in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Forward-looking statements are indicated by an asterisk (*) following
the sentence in which such statement is made. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
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 wholly owned subsidiary, SVG Lithography Systems, Inc.
(SVGL), its photoresist processing products through its Track Systems Division
(Track), its oxidation/diffusion and LPCVD products through its Thermco Systems
Division (Thermco), and certain of its precision optical components through its
wholly owned subsidiary Tinsley Laboratories, Inc.
On November 26, 1997, the Company acquired Tinsley Laboratories, Inc. ("TLI").
(See "Liquidity and Capital Resources.") The transaction has been accounted for
as a pooling of interests for financial reporting purposes. All amounts
discussed below have been retroactively restated to reflect the inclusion of
TLI, which does not have a material effect on the overall results of the
Company.
The semiconductor industry into which the Company sells its products is highly
cyclical and has, historically, experienced periodic downturns that have had a
severe effect on the semiconductor industry's demand for semiconductor
processing equipment. Prior downturns in the worldwide semiconductor industry
have resulted in significant reductions in the Company's net sales, gross margin
and net income. Moreover, the Company expects that its operations as a whole
will continue to be dependent on the current and anticipated demand for
integrated circuits and products utilizing integrated circuits.* Any prolonged
weakness in demand in the semiconductor industry is likely to have an adverse
effect on the Company's business and results of operations.*
The Company believes that as a result of the Asian economic crisis, an
oversupply of certain products (customers reporting inventory excesses) and the
implications of low cost personal computers, semiconductor manufacturers have
reduced planned expenditures and cancelled or delayed the construction of new
fabrication facilities. This slowdown in demand has begun to impact the Company.
During the second quarter of fiscal 1998, the Company recorded customer order
bookings
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<PAGE> 9
of $135,793,000, significantly lower than first quarter bookings of
$175,253,000. Additionally, during the first half of fiscal 1998, customer
orders totaling $71,455,000 were removed from the Company's backlog due to
customer deferrals of scheduled deliveries to dates in excess of twelve months
from the fiscal quarter-end. An additional $1,896,000 in orders were cancelled
during this period. As a result of such lower bookings, the Company believes
sales during the second half of fiscal 1998 could be as much as 30% to 35% below
sales during the first half of fiscal 1998.* Further, the Company believes that
a decrease in sales of this magnitude will result in significant reductions in
the Company's gross margin and net income.* To lessen the impact of these lower
volumes, in April 1998 the Company reduced its workforce by approximately 6%.
Additionally the Company has scheduled 15 shutdown days, five in the third
quarter of fiscal 1998 and ten in the fourth quarter of fiscal 1998, and is
restricting personnel additions. There can be no assurance that the Company will
not experience further customer delivery deferrals, additional order
cancellations or a prolonged period of customer orders at reduced levels, any or
a combination of which would further reduce earnings.*
Historically, the Company has relied on a limited number of customers for a
substantial percentage of its net sales. In fiscal 1997, the Company's two
largest customers accounted for 60% of net sales, the largest representing 38%
of the total. During the first half of fiscal 1998, the Company's three largest
customers comprised 72% of net sales, the largest representing 42% of the total.
Further, the Company believes that, for the foreseeable future it will continue
to rely on a limited number of major customers for a substantial percentage of
its net sales.* The loss of any significant customer, further delays in
shipments due to rescheduling or additional reductions in orders by a
significant customer, including reductions in orders due to market, economic or
competitive conditions in the semiconductor industry, will further exacerbate
the adverse effect the customer order rescheduling and cancellations discussed
above will have on the Company's business and results of operations.*
Net sales for the second fiscal quarter ended March 31, 1998 were $195,872,000,
slightly above net sales for the preceding quarter of $188,707,000, and 34%
above second quarter fiscal 1997 net sales of $145,881,000. The increase in net
sales over the first quarter of fiscal 1998 was principally the result of higher
Thermco shipments offset in part by lower Track shipments. The growth in second
quarter fiscal 1998 net sales compared to the year-earlier quarter was primarily
due to SVGL and Track shipments.
For the first half of fiscal 1998, the Company's net sales totaled $384,579,000,
approximately 40% above first half fiscal 1997 net sales of $273,903,000. The
increased net sales were primarily due to significantly higher SVGL and Track
shipments offset in part by lower Thermco volumes.
During the second quarter of fiscal 1998, the Company recorded customer order
bookings of $135,793,000, significantly below first quarter fiscal 1998 bookings
of $175,253,000 and above bookings for the year-earlier quarter of $127,726,000.
The Company includes in backlog only those orders to which a purchase order
number has been assigned by the customer, with all terms and conditions agreed
upon and for which delivery has been specified within twelve months. During the
second quarter of fiscal 1998, customer orders totaling $33,455,000 were removed
from the Company's backlog due to customer deferrals of scheduled deliveries to
dates outside the Company's one-year parameter. An additional $1,896,000 in
orders were cancelled during the quarter. Such orders were in addition to orders
totalling $38,000,000 which, as a result of rescheduled shipment dates, were
removed from backlog in the first quarter of fiscal 1998. After giving effect to
such rescheduled and cancelled orders, the Company's backlog at March 31, 1998
totaled $288,608,000, significantly below the September 30, 1997 backlog of
$435,482,000. At March 31, 1998, the
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<PAGE> 10
backlog included orders for 31 Micrascan photolithography systems. Additionally,
SVGL had orders for 29 additional systems with scheduled delivery dates outside
the twelve-month backlog window.
Gross margin was 39.6% in the second quarter of fiscal 1998, compared to 39.4%
during the preceding quarter and 37.4% in the second quarter of fiscal 1997. The
slight improvement in gross margin over the first quarter of fiscal 1998
reflects the effect of increased Thermco shipments, substantially offset by
reduced margins on lower Track shipments. In comparison to the year-earlier
quarter the improvement in gross margin was primarily due to increased Track
shipments.
For the first six months of fiscal 1998, gross margin was 39.5% compared to
37.7% for the first half of fiscal 1997. The improvement over the year-earlier
period was primarily the result of higher gross margins on increased Track
shipments offset in part by the effect of lower margins on reduced Thermco
shipments and lower margins resulting from a shift in the mix of systems shipped
by SVGL.
Research, development and related engineering expenses are net of funding
received from outside parties under development agreements. Such funding is
typically payable upon the attainment of one or more development milestones that
are specified in the agreement. Neither the spending, nor the recognition of the
funding related to the development milestones is ratable over the term of the
agreements. For all the periods being compared, such funding was primarily
related to agreements between SVGL and certain customers for the development of
a 193 nanometer Micrascan system. (See "SVG Lithography Systems, Inc. (SVGL)".)
Research, development and related engineering expenses (R&D) were $25,560,000
(13% of net sales) for the second quarter of fiscal 1998, $21,069,000 (11% of
net sales) for the preceding quarter and $17,275,000 (12% of net sales) for the
second quarter of fiscal 1997. For the second and first quarters of fiscal 1998
and the second quarter of fiscal 1997, development funding of $3,136,000,
$2,368,000 and $1,550,000, respectively, was recognized and offset against R&D.
The increase in R&D over both the preceding and year-earlier quarters was
primarily due to new product and process development, particularly multiple
lithography development programs, the design and development of equipment
capable of processing the next generation 300mm wafer and costs associated with
Track's 200APS program.
For the first six months of fiscal 1998 R&D was $46,629,000, compared to
$34,949,000 for the same period of fiscal 1997. For the six month periods ended
March 31, 1998 and 1997, funding received under joint development agreements of
$5,504,000 and $2,186,000, respectively, was offset against R&D expenditures.
The reasons for the period to period increase correspond to those discussed
above.
Marketing, general and administrative expenses (MG&A) were $39,469,000 (20% of
net sales) for the second quarter of fiscal 1998 compared to $36,687,000 (19% of
net sales) for the preceding quarter and $31,415,000 (22% of net sales) for the
second quarter of fiscal 1997. The increase in MG&A from the preceding quarter
was principally due to costs associated with the increase in Thermco shipments
and higher general management costs. In comparison to the year-earlier quarter,
the increase in MG&A was primarily the result of costs related to increased SVGL
and Track shipments and additional administrative costs incurred in supporting
the Company's operations.
For the first six months of fiscal 1998, marketing, general and administrative
expenses were $76,156,000 (20% of net sales) compared to $59,418,000 (22% of net
sales) for the first half of fiscal 1997. The year to year increase in MG&A was
primarily the result of costs related to the increased
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level of shipments and, to a lesser degree, additional administrative costs
incurred in supporting the Company's operations.
Under the terms of a research and development agreement, SVGL owed IBM certain
royalties based on future operating results. In fulfillment of its obligation
under the agreement, during the second quarter of fiscal 1997 the Company
recognized an expense of $32,582,000 which represented royalties related to
products which were still under development at the settlement date.
For the second quarter of fiscal 1998, the Company had operating income of
$12,485,000, compared to operating income of $16,632,000 for the first quarter
of fiscal 1998 and an operating loss of $26,718,000 for the second quarter of
fiscal 1997. Compared to the preceding quarter, the lower operating income was
due to increases in operating expenses which were in excess of the increase in
gross profit. Without regard to the one-time royalty settlement, the increase in
operating income over the year-earlier quarter was the result of improved gross
margins on higher net sales, offset in part by increased operating expenses.
The Company had operating income of $29,117,000 during the first half of fiscal
1998 compared an operating loss of $23,641,000 for the first six months of
fiscal 1997. Without regard to the one-time royalty settlement, the increase in
operating income over the year-earlier period was the result of increased gross
margin on higher net sales offset in part by higher operating expenses.
Interest and other income was $1,829,000 during the second quarter of fiscal
1998 compared to $1,308,000 for the preceding quarter and $2,589,000 for the
year-earlier quarter. The increase over the preceding quarter was primarily the
result of the non-recurrence of certain foreign currency and translation and
exchange losses which the company experienced as a result of the strengthening
of the U.S. dollar during the first quarter of fiscal 1998. The decrease in
interest and other income from the year-earlier quarter was due to lower average
cash balances available for investment and the absence of certain royalty income
under an agreement which expired during the fourth quarter of fiscal 1997.
For the first six months of fiscal 1998, interest and other income totaled
$3,311,000 compared to $5,402,000 for the first half of fiscal 1997. The
decrease from the year-earlier period was primarily the result of lower interest
income due to lower average cash balances available for investment, foreign
currency translation and exchange losses resulting from the strength of the U.S.
dollar and the absence of certain royalty income under an agreement which
expired during the fourth quarter of fiscal 1997.
Interest expense was $255,000 during the second quarter of fiscal 1998, compared
to $80,000 during the preceding quarter and $165,000 during the year-earlier
quarter. During the first six months of fiscal 1998, interest expense was
$509,000, compared to $394,000 during the first half of fiscal 1997.
The Company recorded a 32% provision for income taxes for the first half of
fiscal 1998, compared to a 34% provision for all of fiscal 1997. Variations in
the Company's effective tax rate relate primarily to changes in the geographic
distribution of the Company's pretax income.
The minority interest represented that share of SVGL's operating results
attributable to its minority stockholder, IBM. In March 1997, the Company
purchased IBM's interest in SVGL for $3,000,000. The Company now accounts for
SVGL as a wholly owned subsidiary. The minority interest resulted in an addition
to second quarter fiscal 1997 net income of $102,000 and a reduction from first
half fiscal 1997 net income of $92,000.
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The Company had net income of $9,560,000 ($0.29 diluted earnings per share) for
the second quarter of fiscal 1998 compared to net income of $12,145,000 ($0.37
diluted earnings per share) for the first quarter of fiscal 1998 and a net loss
of $15,982,000 ($0.51 diluted loss per share) for the second quarter of fiscal
1997. For the first half of fiscal 1998, the Company had net income of
$21,705,000 ($0.66 diluted earnings per share), compared to a net loss of
$12,398,000 ($0.40 diluted loss per share) for the first six months of fiscal
1997.
RISKS INHERENT IN THE COMPANY'S BUSINESS
Fluctuations in Quarterly Results. 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, customer order rescheduling or
cancellations, or production or shipping delays can significantly effect
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, shipments
scheduled near the end of a quarter which are delayed for any reason 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 an 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 proportion of domestic
and international sales, activities of competitors, acquisitions, international
events, currency exchange fluctuations, and difficulties obtaining materials or
components on a timely basis.* In light of these factors, the Company may again
experience variability in its quarterly operating results.*
Rapid Technological Change; Dependence on New Product Development. Semiconductor
manufacturing equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend 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.* The Company is developing Track and Lithography products, and has
begun shipping Thermco products, capable of processing 300mm wafers in
anticipation of the industry's transition to this larger wafer standard.*
Failure to successfully introduce these or any other new products in a timely
manner could result in the loss of competitive position and could reduce sales
of existing products.* In addition, 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, particularly if new products are delayed.*
From time-to-time, the Company has experienced delays in the introduction of its
products and product enhancements due to technical, manufacturing and other
difficulties and may experience similar delays in the future.* For example,
during fiscal 1996, the Company announced a new Track product, the 200-APS.
Initial shipments of the 200-APS were scheduled to commence during the second
quarter of fiscal 1997, but were delayed by approximately twelve months.* There
can be no assurance that the Company will not experience manufacturing problems
as a result of instability of the design of either the hardware or software
elements of this or other new technology, or be able to efficiently manufacture
the 200-APS or other new products.* These issues could result in product
delivery delays and a subsequent loss of future sales.* Semiconductor
manufacturers tend to select either a single supplier or a primary supplier
12
<PAGE> 13
for a certain type of equipment. The Company believes that prolonged delays in
delivering initial quantities of newly developed products to multiple customers,
whether due to the protracted release of product from engineering into
manufacturing or due to manufacturing difficulties, could result in
semiconductor manufacturers electing to install competitive equipment in their
fabrication facilities and could preclude industry acceptance of the Company's
products.* Therefore, the Company's inability to effect the timely production of
new products or any failure of these products to achieve market acceptance could
have a material adverse effect on the Company's business and results of
operations.*
Historically, the unit cost of the Company's products has been the highest when
they are newly introduced into production and cost reductions have come over
time through engineering improvements, economies of scale and improvements in
the manufacturing process.* As a result, new products have, at times, had an
unfavorable impact on the Company's gross margins and results of operations.
There can be no assurance that the initial shipments of new products will not
have an adverse effect on the Company's profitability or that the Company will
be able to attain design improvements, manufacturing efficiencies or
manufacturing process improvements over time.* Further, the potential
unfavorable effect of newly introduced products on profitability can be
exacerbated when there is intense price competition in the marketplace.*
Competition. The semiconductor equipment industry is intensely competitive. The
Company faces substantial competition both in the United States and other
countries in all of its products. Significant competitive factors include
technology and cost of ownership, a formula which includes such data as initial
price, system throughput and reliability and time to maintain or repair. Other
competitive factors include familiarity with particular manufacturers' products,
established relationships between suppliers and customers, product availability
and technological differentiation. Occasionally, the Company has encountered
intense price competition with respect to particular orders and has had
difficulty establishing new relationships with certain customers who have
long-standing relationships with other suppliers.
Many of the Company's competitors are Japanese corporations. As a result of the
recent strength of the U.S. dollar in relation to the Japanese yen, the Company
is at a disadvantage when competing on the basis of price. In light of the
recent economic downturn in certain Asian countries which represent significant
markets for such competitors, the Company believes that it may encounter more
severe price competition in its non-Asian markets.
Importance of the Japanese and Pacific Rim Markets. The Company's customers are
heavily concentrated in the United States and Europe. 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 semiconductor
manufacturing equipment. To date, neither the Company's shipments into Japan nor
into the Pacific Rim have been significant. The Company believes that the
Japanese companies with which it competes have a competitive advantage because
their dominance of the Japanese and Pacific Rim semiconductor equipment market
provides them with the sales and technology base to compete more effectively
throughout the rest of the world. The Company is not engaged in any significant
collaborative effort with any Japanese or Pacific Rim semiconductor
manufacturers. As a result, the Company may be at a competitive disadvantage to
the Japanese equipment suppliers which are engaged in such collaborative efforts
with Japanese and Pacific Rim semiconductor manufacturers. The Company believes
that it must substantially increase its share of these markets if it is to
compete as a global supplier.* Further, in many instances, Japanese and Pacific
Rim semiconductor manufacturers fabricate devices such as
13
<PAGE> 14
dynamic random access memory devices ("DRAMs"), with potentially different
economic cycles than those affecting the sales of devices manufactured by the
majority of the Company's U.S. and European customers. Failure to secure
customers in these markets may limit the global market share available to the
Company and may increase the Company's vulnerability to industry or geographic
downturns.* Recent economic difficulties in certain Asian countries,
particularly Korea, may adversely effect the Company's ability to penetrate such
markets.*
In the past, several of the Company's larger customers have entered into joint
ventures ("JV") with European, Japanese or Pacific Rim semiconductor
manufacturers. In such cases, the Company has encountered intense price
competition from foreign competitors who are suppliers to the non-U.S. member of
the JV. Further, in certain instances the Company has not secured the equipment
order when the non-U.S. member has had the responsibility for selecting the
equipment to be used by the JV in its U.S. operations. There can be no assurance
that as the Company's customers form additional alliances, whether in the U.S.
or in other parts of the world, that the Company will be successful in obtaining
equipment orders or that it will be able to obtain orders with sufficient gross
margin to generate profitable transactions, either of which could have an
adverse effect on the Company's results of operations.*
Throughout the Pacific Rim, the Company is attempting to compete with major
equipment suppliers having significant market share and established service and
support infrastructures in place. Although the Company has invested in the
staffing and facilities that it believes are necessary to sell, service and
support customers, it anticipates that it will encounter significant price
competition as well as competition based on technological ability.* There can be
no assurance that the Company's Pacific Rim operations will be profitable, even
if it is successful in obtaining significant sales into this region.* Further,
due to recent economic issues in certain Asian countries, particularly Korea,
the Company's ability to penetrate such markets may be diminished. Failure to
secure customers in these markets would have an adverse effect on the Company's
business and results of operations.*
Year 2000. As the year 2000 approaches, a universal issue has emerged regarding
how existing application software programs and operating systems can accommodate
date values. The Company has completed a thorough analysis of the impact of
modifying its computer software for the year 2000. The Company believes that the
year 2000 modifications to the software necessary to effectively operate and
manage its business will be completed by the end of fiscal 1998.* Further, the
Company believes that the related costs of such solutions will not have a
material effect on its operating results.*
The Company is in the process of initiating formal communications with
significant suppliers and large customers to determine the extent to which the
Company is vulnerable if such parties fail to remediate their own Year 2000
issues. There can be no guarantee that such a failure would not have a material
adverse effect on the Company.
Business Interruption. The Company manufactures its Track products in San Jose,
California and substantially all of its Thermco products in Orange, California.
SVGL's photolithography exposure products are manufactured in Wilton and
Ridgefield, Connecticut. If the Company were to lose the use of one of its
facilities as a result of an earthquake, flood or other natural disaster, the
resultant interruptions in operations would have a material adverse effect on
the Company's results of operations and financial condition.* The Company's
California facilities are located in seismically active regions.
14
<PAGE> 15
SVG Lithography Systems, Inc. (SVGL)
SVGL - Uncertain Market for Micrascan Products. The Company believes that the
photolithography exposure equipment market is one of the largest segments of the
semiconductor processing equipment industry.* To address this market, the
Company has invested and expects to continue to invest substantial resources in
SVGL's Micrascan technology and its family of Micrascan deep ultraviolet ("Deep
UV") step and scan photolithography systems, capable of producing line widths of
.25 micron and below. The development of a market for the Company's Micrascan
step and scan photolithography products will be highly dependent on the
continued trend towards finer line widths in integrated circuits. Lithography
manufacturers have been successful in extending the capability of I-Line
steppers which have been utilized in the fabrication of complex semiconductor
devices with line widths of less than 0.5 micron, such as 64 megabit DRAMs. The
Company believes Deep UV lithography will be required to fabricate devices with
line widths below 0.3 micron.* Semiconductor manufacturers can purchase Deep UV
steppers to produce product at .25 micron line widths. However, the Company
believes that as devices increase in complexity and size and require finer line
widths, the technical advantages of Deep UV step and scan systems in the
exposure of critical layers, as compared to Deep UV steppers, will enable
semiconductor manufacturers to achieve finer line widths, higher yields and
critical dimension control.* The Company also believes that the transition to
Deep UV step and scan systems for the exposure of critical layers will
accelerate in calendar 1999 and that advanced semiconductor manufacturers are
beginning to require volume quantities of production equipment as advanced as
the current and pending versions of Micrascan.* Currently, competitive Deep UV
step and scan equipment capable of producing .25 micron line widths is available
in limited quantities from two competitors, and the Company believes that at
least one other manufacturer of advanced photolithography systems will begin
limited shipments of step and scan machines in the near future.* There can be no
assurance that the Company will be successful in competing with such systems.*
Further, if manufacturers of I-Line or Deep UV steppers are able to further
enhance existing technology to achieve finer line widths sufficiently to erode
the competitive and technological advantages of Deep UV step and scan systems,
demand for the Micrascan technology may not develop as the Company expects.*
The Company believes that advanced logic devices and DRAMs will require
increasingly finer line widths.* Consequently, SVGL must continue to develop
advanced technology equipment capable of meeting its customers' current and
future requirements while offering those customers a progressively lower cost of
ownership.* In particular, the Company believes that it must continue its
development of future systems capable of printing line widths finer than .25
micron and processing 300mm wafers.*
SVGL - Need to Increase Manufacturing Capacity and System Output. The Company
believes that its ability to supply systems in volume will be a major factor in
customer decisions to commit to the Micrascan technology.* Based upon its
forecast of continued high growth in demand for photolithography equipment and
potential future demand for advanced lithography products, the Company has been
in the process of increasing SVGL's production capacity under an extremely
aggressive expansion schedule. In August 1996, as part of this expansion, the
Company purchased from The Perkin-Elmer Corporation a 243,000 square foot
facility occupied by SVGL in Wilton, Connecticut and an additional 201,000
square foot building, which SVGL now occupies, in Ridgefield, Connecticut.
Through the first half of fiscal 1998, the Company has invested in significant
capital improvements related to the buildings purchased and the equipment
required to expand the production capabilities of SVGL. While the Company
intends to continue certain of the expansion activities through the remainder of
fiscal 1998, it may not invest in all of the metrology and other equipment
required to maximize manufacturing capacity until industry demand recovers.*
When demand recovers, the timely
15
<PAGE> 16
construction and equipping of facilities to successfully complete this increase
in capacity will require the continued recruitment, training and retention of a
high quality workforce, as well as the achievement of satisfactory manufacturing
results on a scale greater than SVGL has attempted in the past. There can be no
assurance that the Company can manage these efforts successfully. Any failure to
manage such efforts could result in product delivery delays and a subsequent
loss of future revenues. In particular, the Company believes that protracted
delays in delivering quantities of current and future Micrascan products could
result in semiconductor manufacturers electing to install competitive equipment
in their advanced fabrication facilities, which could impede acceptance of the
Micrascan products on an industry-wide basis. In addition, 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, for any reason, do not increase commensurately.
The time required to build a Micrascan system is significant. If SVGL is to be
successful in supplying increased quantities of Micrascan systems, it will not
only need to be able to build more systems, it will need to build them faster.*
SVGL will require additional trained personnel and additional raw materials and
components, as well as improved manufacturing and testing techniques to both
facilitate volume and shorten manufacturing cycle time.* To that end, SVGL is
continuing to develop its vendor supply infrastructure, and implement
manufacturing improvements.* Additionally, the Company believes that once
industry demand recovers, it must resume increasing its factory, field service
and technical support organization staffing and infrastructure to support the
anticipated customer requirements. There can be no assurance that the Company
will not experience manufacturing difficulties or encounter problems in its
attempt to increase production and upgrade or expand existing operations.*
One of the most critical components of the Micrascan systems are the projection
optics, which are primarily manufactured by SVGL. As part of its overall
investment in capacity, the Company has increased SVGL's optical manufacturing
floorspace. The Company believes that in order for SVGL to be a viable supplier
of advanced lithography systems in the future, it must successfully reduce the
cycle times required to build projection optics.*
On November 26, 1997, the Company acquired Tinsley Laboratories, Inc. ("TLI").
(See "Liquidity and Capital Resources".) A primary reason for the acquisition
was TLI's technology and expertise relating to aspherical lenses, a key
component of SVGL's photolithography products, the adaptation of certain of
TLI's manufacturing processes by SVGL and TLI's commencement of the fabrication
of non-aspherical lenses which are currently produced by SVGL.* There can be no
assurance that TLI's manufacturing technology is scaleable, or that such
expertise can be transferred without substantial time or expense, if at all.*
The inability of SVGL to transfer this production technology for use in
processes of a substantially larger scale or the inability of TLI to manufacture
non-aspherical lenses for SVGL in sufficient quantities to realize efficiencies
of scale could adversely effect the Company's ability to realize any significant
benefits from the acquisition of TLI.*
The Company believes that protracted delays in delivering quantities of both
current and future generations of Micrascan products to multiple customers could
result in semiconductor manufacturers electing to install competitive equipment
in their advanced fabrication facilities, and could preclude industry acceptance
of the Micrascan technology and products.* In addition, 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 and field service
and technical support activities if net sales do not increase commensurately.*
16
<PAGE> 17
SVGL - Sole Source Materials and Components. The raw material for a proprietary
component of the optical system for the Micrascan is available from only one
supplier. The supplier has expanded its capacity to meet SVGL's projected
requirements and has created and stored agreed upon quantities of safety stock.
Additionally, a version of the Company's Micrascan III photolithography system
utilizes an Excimer laser that is manufactured in volume by only one supplier,
which until the first quarter of fiscal 1998 was the only vendor the Company had
determined could meet its specifications. There can be no assurance that either
supplier will be able to supply the quantities of material required by SVGL.* If
either supplier was unable to meet its commitments, SVGL would be unable to
manufacture the quantity of systems required to meet the anticipated future
demand, which would have a material adverse effect on the Company's business and
results of operations.* SVGL has qualified an additional source of lasers for
its current and future versions of Micrascan systems, allowing the potential for
the integration of such lasers into its system configurations.*
SVGL - Research and Development Funding. Historically, the Company has depended
on external funding to assist in the high cost of development in its
photolithography operation. Beginning in fiscal 1996, the Company entered into
agreements with certain customers (the "Participants") whereby each agreed to
assist in funding the Company's development of an advanced technology 193
nanometer Micrascan system. In exchange for such funding, each Participant
received the right to purchase one such system and, in addition, received a
right of first refusal (ratable among such Participants) to all such machines
manufactured during the first two years following the initial system shipments.
For each initial system ordered, each Participant agreed to fund $5,000,000 in
such development costs. The agreements call for each Participant to pay
$1,000,000 of initial development funding and four subsequent payments of
$1,000,000 upon the completion of certain development milestones. The
Participants may withdraw from the development program without penalty, but
payments made against completed development milestones are not refundable and
all preferential rights to future equipment are forfeited. At March 31, 1998,
the Company had received $19,000,000 in funding from Participants, of which
$13,584,000 had been recognized and offset against research and development
expenditures. There can be no assurances that the Participants will remain in
the program.* In the event that the Company does not receive the funding
anticipated under the agreements, it would be required to replace the shortfall
from its own funds or other sources. If the Company were required to use its own
funds, its research and development expenses would increase and its operating
income would be reduced correspondingly. The agreements with the Participants
stipulate that if the Company receives funding for the development program in
excess of $25,000,000, it will issue, ratably to the Participants, credits
totaling such excess in the form of a cash discount which can be applied to the
purchase of additional systems by each Participant. There is no assurance that
the Company will receive all funding which it currently anticipates or that it
will be able to obtain future outside funding beyond that which it is currently
receiving.
SVGL - Market Penetration. The Company believes that for SVGL to succeed in the
long term, it must sell its Micrascan products on a global basis.* The Japanese
market (including fabrication plants operated outside Japan by Japanese
semiconductor manufacturers) and the Korean market represent a substantial
portion of the overall market for photolithography exposure equipment. To date,
the Company has not been successful penetrating either of these markets. Recent
economic difficulties in certain Asian economies, particularly Korea, may
adversely effect the Company's ability to penetrate such markets.*
SVGL - Future Profitability. If SVGL is to attain its objective of being a
volume supplier of advanced photolithography systems, the Company believes that
it must expand its customer base to include
17
<PAGE> 18
additional customers from whom it secures and successfully fulfills orders for
production-quantities of Micrascan systems.* Although SVGL has been profitable,
the Company believes that in light of the downturn in industry demand, costs
associated with the continued development of the Micrascan technology, the
expansion of SVGL's manufacturing capacity, the related increase in manpower and
customer support, and the potential difficulties inherent in manufacturing
sub-.25 micron Micrascan systems, in particular the projection optics required
for these systems, there can be no assurance that SVGL will be able to operate
profitably in the future.*
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, cash and cash equivalents and temporary investments totaled
$177,059,000, a decrease of $29,602,000 from the September 30, 1997 total of
$206,661,000. The primary causes for this decrease were purchases of property
and equipment to facilitate the expansion of SVGL's manufacturing capacity and
increased accounts receivable corresponding to the increased level of sales,
partially offset by cash generated by other operating activities.
On November 26, 1997, the Company acquired Tinsley Laboratories, Inc. ("TLI") in
exchange for approximately 1,091,000 shares of the Company's Common Stock. TLI
designs, manufactures and sells precision optical components, assemblies and
systems to customers in a variety of industries and research endeavors. The
transaction was accounted for as a pooling of interests for financial reporting
purposes.
The Company has a $75,000,000 unsecured revolving bank credit facility which
expires in December 2000. Advances under the facility bear interest at either
the U.S. prime rate or the LIBOR rate plus 1%. At May 15, 1998, there were no
borrowings outstanding under the facility.
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 next twelve months.*
18
<PAGE> 19
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.
(a) The Annual Meeting of Stockholders of the Company was held on
February 19, 1998 (the "Annual Meeting"). The vote of holders
of record of 32,278,583 shares of the Company's Common Stock
outstanding at the close of business on December 23, 1997 was
solicited by proxy pursuant to Regulation 14A under the
Securities Act of 1934.
(b) The following persons were elected Directors of the Company
at the Annual Meeting:
<TABLE>
<CAPTION>
Votes Withholding
Votes For Authority
--------- ----------------
<S> <C> <C>
Papken S. Der Torossian 24,817,621 189,412
William A. Hightower 24,793,323 213,710
William L. Martin 24,797,889 209,144
Nam P. Suh 24,798,411 208,622
Lawrence Tomlinson 24,800,913 206,120
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.0 Financial Data Schedule for the fiscal quarter ended
March 31, 1998.
27.1 Financial Data Schedule for the fiscal years ended
September 30, 1996 and September 30, 1997.
27.2 Financial Data Schedule for the fiscal quarters ended
December 31, 1995, March 31, 1996 and June 30, 1996.
27.3 Financial Data Schedule for the fiscal quarters ended
December 31, 1996, March 31, 1997 and June 30, 1997.
(b) Reports on Form 8-K.
None.
20
<PAGE> 21
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: May 15, 1998 By:/s/ PAPKEN S. DER TOROSSIAN
-------------------------------------
Papken S. Der Torossian
Chief Executive Officer and
Chairman of the Board
Date: May 15, 1998 By:/s/ RUSSELL G. WEINSTOCK
-------------------------------------
Russell G. Weinstock
Vice President Finance and
Chief Financial Officer
21
<PAGE> 22
INDEX TO EXHIBITS
Exhibit Description
Index
- ------- ------------
27.0 Financial Data Schedule for the fiscal quarter ended
March 31, 1998.
27.1 Financial Data Schedule for the fiscal years ended
September 30, 1996 and September 30, 1997.
27.2 Financial Data Schedule for the fiscal quarters ended
December 31, 1995, March 31, 1996 and June 30, 1996.
27.3 Financial Data Schedule for the fiscal quarters ended
December 31, 1996, March 31, 1997 and June 30, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SECOND QUARTER OF FISCAL 1998 AS FILED IN
THE COMPANY'S FORM 10Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 115,476
<SECURITIES> 61,583
<RECEIVABLES> 170,337
<ALLOWANCES> 7,859
<INVENTORY> 233,450
<CURRENT-ASSETS> 589,770
<PP&E> 291,902
<DEPRECIATION> 111,773
<TOTAL-ASSETS> 780,859
<CURRENT-LIABILITIES> 174,900
<BONDS> 0
0
0
<COMMON> 402,689
<OTHER-SE> 192,536
<TOTAL-LIABILITY-AND-EQUITY> 780,859
<SALES> 195,872
<TOTAL-REVENUES> 195,872
<CGS> 118,358
<TOTAL-COSTS> 118,358
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 14,059
<INCOME-TAX> 4,499
<INCOME-CONTINUING> 9,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,560
<EPS-PRIMARY> 0.30<F1>
<EPS-DILUTED> 0.29
<FN>
<F1>EPS PRIMARY IS USED FOR EPS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996
ADN 1997. ON NOVEMBER 26, 1997 THE COMPANY ACQUIRED TINSLEY LABORATORIES, INC.
(TLI) AND HAS ACCOUNTED FOR THE TRANSACTION AS A POOLING OF INTERESTS. ALL
AMOUNTS BELOW HAVE BEEN RESTATED TO INCLUDE TLI.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1997
<PERIOD-START> OCT-01-1995 OCT-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1997
<CASH> 219,787 129,689
<SECURITIES> 43,220 76,972
<RECEIVABLES> 160,015 152,588
<ALLOWANCES> 6,078 6,794
<INVENTORY> 215,015 228,453
<CURRENT-ASSETS> 649,148 594,278
<PP&E> 161,458 248,095
<DEPRECIATION> 73,593 97,110
<TOTAL-ASSETS> 744,257 756,017
<CURRENT-LIABILITIES> 182,511 173,519
<BONDS> 0 0
0 0
0 0
<COMMON> 379,553 399,663
<OTHER-SE> 171,493 173,447
<TOTAL-LIABILITY-AND-EQUITY> 744,257 756,017
<SALES> 657,337 614,226
<TOTAL-REVENUES> 657,337 614,226
<CGS> 383,715 378,114
<TOTAL-COSTS> 383,715 378,114
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 756 1,018
<INCOME-PRETAX> 99,901 4,198
<INCOME-TAX> 35,022 1,514
<INCOME-CONTINUING> 64,153 2,592
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 64,153 2,592
<EPS-PRIMARY> 2.12<F1> 0.08<F1>
<EPS-DILUTED> 2.10 0.08
<FN>
<F1>EPS PRIMARY IS USED FOR EPS BASIC. WHERE APPLICABLE, MINORITY INTEREST HAS BEEN
ADDED TO OR DEDUCTED FROM AFTER-TAX INCOME TO ARRIVE AT NET INCOME.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST, SECOND AND THIRD QUARTERS OF
FISCAL 1996. ON NOVEMBER 26, 1997, THE COMPANY ACQUIRED TINSLEY LABORATORIES,
INC. (TLI) AND HAS ACCOUNTED FOR THE TRANSACTION AS A POOLING OF INTERESTS. ALL
AMOUNTS BELOW HAVE BEEN RESTATED TO INCLUDE TLI.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996 SEP-30-1996
<PERIOD-START> OCT-01-1995 JAN-01-1996 APR-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996
<CASH> 267,460 241,262 253,498
<SECURITIES> 34,736 53,640 44,852
<RECEIVABLES> 140,806 146,347 161,559
<ALLOWANCES> 4,690 4,859 4,897
<INVENTORY> 172,730 189,751 207,220
<CURRENT-ASSETS> 622,298 637,723 671,091
<PP&E> 101,244 117,718 128,606
<DEPRECIATION> 63,443 66,857 70,115
<TOTAL-ASSETS> 667,714 696,527 737,581
<CURRENT-LIABILITIES> 158,123 168,900 190,282
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 377,362 377,400 379,008
<OTHER-SE> 124,064 141,942 159,804
<TOTAL-LIABILITY-AND-EQUITY> 667,714 696,527 737,581
<SALES> 162,181 174,919 172,777
<TOTAL-REVENUES> 162,181 174,919 172,777
<CGS> 95,551 103,124 99,990
<TOTAL-COSTS> 95,551 103,124 99,990
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 168 173 151
<INCOME-PRETAX> 25,856 27,703 28,055
<INCOME-TAX> 9,079 9,727 9,857
<INCOME-CONTINUING> 16,670 17,848 17,891
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 16,670 17,848 17,891
<EPS-PRIMARY> 0.56<F1> 0.59<F1> 0.59<F1>
<EPS-DILUTED> 0.55 0.58 0.59
<FN>
<F1>EPS PRIMARY IS USED FOR EPS BASIC. WHERE APPLICABLE, MINORITY INTEREST HAS BEEN
ADDED TO OR DEDUCTED FROM AFTER-TAX INCOME TO ARRIVE AT NET INCOME.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST, SECOND AND THIRD QUARTERS OF
FISCAL 1997. ON NOVEMBER 26, 1997, THE COMPANY ACQUIRED TINSLEY LABORATORIES,
INC. (TLI) AND HAS ACCOUNTED FOR THE TRANSACTION AS A POOLING OF INTERESTS. ALL
AMOUNTS BELOW HAVE BEEN RESTATED TO INCLUDE TLI.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997 SEP-30-1997
<PERIOD-START> OCT-01-1996 JAN-01-1997 APR-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997
<CASH> 215,588 194,192 151,930
<SECURITIES> 55,250 71,138 80,458
<RECEIVABLES> 141,876 130,646 140,574
<ALLOWANCES> 5,354 5,958 6,450
<INVENTORY> 223,607 224,113 221,770
<CURRENT-ASSETS> 647,797 638,299 608,616
<PP&E> 174,815 195,407 216,189
<DEPRECIATION> 78,191 83,338 90,174
<TOTAL-ASSETS> 751,442 759,560 743,791
<CURRENT-LIABILITIES> 186,446 199,646 175,072
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 379,558 389,654 392,862
<OTHER-SE> 174,697 158,592 165,065
<TOTAL-LIABILITY-AND-EQUITY> 751,442 759,560 743,791
<SALES> 128,022 145,881 166,079
<TOTAL-REVENUES> 128,022 145,881 166,079
<CGS> 79,268 91,327 103,333
<TOTAL-COSTS> 79,268 91,327 103,333
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 125 165 191
<INCOME-PRETAX> 5,661 (24,294) 10,012
<INCOME-TAX> 1,883 (8,210) 3,450
<INCOME-CONTINUING> 3,584 (15,982) 6,562
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,584 (15,982) 6,562
<EPS-PRIMARY> 0.11<F1> (0.51)<F1> 0.21<F1>
<EPS-DILUTED> 0.11 (0.51) 0.20
<FN>
<F1>EPS PRIMARY IS USED FOR EPS BASIC. WHERE APPLICABLE, MINORITY INTEREST HAS BEEN ADDED TO OR DEDUCTED FROM
AFTER-TAX INCOME TO ARRIVE AT NET INCOME.
</FN>
</TABLE>
