<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
(AMENDMENT NO. 1)
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 6,1999
Silicon Valley Group, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 0-11348 94-2264681
- ---------------------------- ------------------------ -------------------
<S> <C> <C>
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
101 Metro Drive, Suite 400, San Jose, California 95110
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(408) 441-6700
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(Registrant's telephone number, including area code)
<PAGE> 2
The undersigned registrant hereby amends Item 7 of its Current Report on Form
8-K filed with the Commission on July 16, 1999 as set forth in the pages
attached hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
(a) Financial statements of business acquired.
The following audited consolidated financial statements are included
herein:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations, Invested Equity and Comprehensive
Income (Loss) for the years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Consolidated Financial Statements for the years ended December 31,
1998, 1997, and 1996
The following unaudited consolidated financial statements are included
herein:
Unaudited Consolidated Balance Sheet as of June 30, 1999
Unaudited Consolidated Statements of Operations, Invested Equity and
Comprehensive Income for the six months ended June 30, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998
Notes to Unaudited Consolidated Financial Statements for the six months
ended June 30, 1999 and 1998
(b) Pro forma financial information.
The following pro forma combined consolidated financial statements are
included herein:
Introduction to Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Combined Consolidated Balance Sheet as of June 30, 1999
Unaudited Pro Forma Combined Consolidated Statement of Operations for the
year ended September 30, 1998 and for the nine months ended June 30, 1999
Notes to Unaudited Pro Forma Combined Consolidated Financial Information
(c) Exhibits.
Pursuant to Item 601 of Regulation S-K, the following exhibits are filed
herewith:
2.1 Securities Purchase Agreement dated April 30, 1999 by and between
Registrant and Watkins-Johnson Company.*
2.2 Amendment No. 1 to the Securities Purchase Agreement dated July 2,
1999, by and between Registrant and Watkins-Johnson Company.*
2.3 Escrow Agreement, dated July 6, 1999, by and among the Registrant,
Watkins-Johnson Company and U.S. Bank Trust, National Association.*
- ------------
* Exhibit previously filed.
<PAGE> 3
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)
Dated: September 17, 1999 By: /s/ Papken S. Der Torossian
------------------------------------
Papken S. Der Torossian
Chief Executive Officer and
Chairman of the Board
Dated: September 17, 1999 By: /s/ Russell G. Weinstock
------------------------------------
Russell G. Weinstock
Vice President Finance and
Chief Financial Officer
<PAGE> 4
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Watkins-Johnson Company:
We have audited the accompanying consolidated balance sheets of the
Semiconductor Equipment Group and subsidiaries (the "Group") of Watkins-Johnson
Company, as of December 31, 1998 and 1997 and the related consolidated
statements of operations, invested equity and comprehensive income (loss) and
cash flows for the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the management of
Watkins-Johnson Company. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Group as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
The Group is a business segment of Watkins-Johnson Company; consequently, as
indicated in Note 1, these financial statements have been derived from the
consolidated financial statements and accounting records of Watkins-Johnson
Company, and reflect significant assumptions and allocations. Moreover, as
indicated in Note 1, the Group relies on Watkins-Johnson Company for
administrative, management and other services. The reported financial position,
results of operations and cash flows of the Group could differ from those that
would have resulted had the Group operated autonomously or as an entity
independent of Watkins-Johnson Company.
Deloitte & Touche LLP
San Jose, California
August 5, 1999
<PAGE> 5
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
- --------------------------------------------------------------------------------
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Receivables, net $ 12,354 $ 22,894
Inventories 13,664 34,184
Deferred taxes 19,925 15,861
Other 2,423 3,312
--------- ---------
Total current assets 48,366 76,251
PROPERTY PLANT AND EQUIPMENT:
Land 7,978 9,022
Building 25,210 48,761
Machinery and equipment 38,616 54,246
--------- ---------
71,804 112,029
Accumulated depreciation and amortization (32,756) (40,080)
--------- ---------
Property, plant and equipment, net 39,048 71,949
--------- ---------
OTHER ASSETS 27 51
--------- ---------
TOTAL ASSETS $ 87,441 $ 148,251
========= =========
LIABILITIES AND INVESTED EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,019 $ 10,647
Accrued salaries and profit sharing 1,960 2,891
Accrued vacation 1,439 2,495
Provision for warranty 6,292 13,423
Accrued payroll, property and other taxes 6,583 5,633
Accrued expenses - other 3,391 4,442
Income tax payable 4,501 4,050
--------- ---------
Total current liabilities 30,185 43,581
LONG-TERM OBLIGATIONS 24,090 22,701
COMMITMENTS AND CONTINGENCIES (Note 5)
INVESTED EQUITY 33,166 81,969
--------- ---------
TOTAL LIABILITIES AND INVESTED EQUITY $ 87,441 $ 148,251
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS, INVESTED EQUITY AND
COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
SALES $ 96,981 $ 186,454 $ 272,436
COST AND EXPENSES:
Cost of goods sold 80,328 131,117 176,614
Cost of goods sold-write down of discontinued products 13,720 -- --
Selling and administrative 24,754 32,180 40,976
Restructuring charges 24,590 -- --
Research and development 28,010 27,321 39,190
Corporate allocations 6,575 9,164 8,444
--------- --------- ---------
Total operating expenses 177,977 199,782 265,224
INCOME (LOSS) FROM OPERATIONS (80,996) (13,328) 7,212
OTHER INCOME (EXPENSE) -- Net 1,029 (773) 497
INTEREST EXPENSE (567) (630) --
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (80,534) (14,731) 7,709
INCOME TAX BENEFIT (EXPENSE) 26,056 5,733 (2,695)
--------- --------- ---------
NET INCOME (LOSS) (54,478) (8,998) 5,014
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (1,385) (301) (294)
--------- --------- ---------
COMPREHENSIVE INCOME (LOSS) (55,863) (9,299) 4,720
INVESTED EQUITY, Beginning of period 81,969 124,277 125,121
TRANSFER OF BUILDING TO CORPORATE (6,767) -- --
ADDITION (DEDUCTION) IN INVESTED EQUITY 13,827 (33,009) (5,564)
--------- --------- ---------
INVESTED EQUITY, End of period $ 33,166 $ 81,969 $ 124,277
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In thousands)
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(54,478) $ (8,998) $ 5,014
Reconciliation to net cash provided (used) by operating
activities:
Depreciation and amortization of property, plant
and equipment 11,512 9,758 6,674
Loss on disposal of assets 4,030 5,081 52
Noncash restructuring charges 36,285 -- --
Deferred taxes (4,065) (3,771) (3,987)
Net changes in operating assets and liabilities:
Receivables, net 11,058 24,002 11,764
Inventories 7,161 6,698 13,689
Advances on contracts 411 -- (1,669)
Provision for warranties (7,131) (1,793) 6,623
Other current assets 1,188 (19) (930)
Accrued expenses and payables (8,682) 8,996 (1,539)
-------- -------- --------
Net cash provided by (used in) operating activities (2,711) 39,954 35,691
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (9,245) (12,025) (46,261)
Proceeds on asset retirements and other 383 -- --
Restricted plant construction funds -- 3,738 (3,738)
-------- -------- --------
Net cash used in investing activities (8,862) (8,287) (49,999)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on long-term debt -- 2,192 30,241
Payments on long-term borrowings (544) (1,530) (10,074)
Increase (decrease) in invested equity 13,827 (33,009) (5,564)
-------- -------- --------
Net cash provided (used) by financing activities 13,283 (32,347) 14,603
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,710) 680 (295)
-------- -------- --------
NET CHANGE IN CASH:
CASH, Beginning of year -- -- --
-------- -------- --------
CASH, End of year $ -- $ -- $ --
======== ======== ========
NONCASH ACTIVITIES -
Transfer of building to Corporate $ 6,767 $ -- $ --
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS -- The Semiconductor Equipment
Group (the Group) is a business segment of Watkins-Johnson Company ("WJ" or
the "Company"). The Group designs, develops, manufactures and services
semiconductor equipment used to deposit thin dielectric films by using the
process of atmospheric-pressure chemical-vapor-deposition (APCVD).
BASIS OF PRESENTATION -- The accompanying consolidated financial statements
have been derived from the accounting records of WJ. The accompanying
consolidated financial statements reflect the assets, liabilities, revenue
and expenses directly attributable to the Group as well as allocations
deemed reasonable by management to present the financial position, results
of operations and cash flows of the Group on a stand-alone basis. Although
management is unable to estimate the actual costs that would have been
incurred if the services performed by WJ had been purchased from
independent third parties, the allocation methodologies have been described
within the respective footnotes, where applicable, and management considers
the allocations to be reasonable. However, the financial position, results
of operations and cash flows of the Group may differ from those that would
have been achieved had the Group operated autonomously or as an entity
independent of WJ.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include those of the Group and its subsidiaries after elimination of
intercompany balances and transactions.
REVENUE RECOGNITION AND RECEIVABLES -- Revenues are recorded upon shipment.
Estimated product warranty costs are accrued at the time of shipment.
CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
trade receivables.
FOREIGN CURRENCY TRANSLATION -The functional currency for all foreign
operations is the U.S. dollar, with the exception of the Group's subsidiary
located in Japan, which uses the local functional currency. Gains or losses
which result from the process of remeasuring foreign currency financial
statements and transactions into U.S. dollars are included in other income
(expense). For the Japanese subsidiary, the cumulative translation
adjustments are recorded directly in invested equity. The Group incurred
net translation gains of approximately $0.1 million in 1998 and net
translation losses of $1.4 million in 1997, resulting primarily from its
Asia-Pacific subsidiaries.
FORWARD EXCHANGE CONTRACTS -- The Group enters into forward exchange
contracts to hedge sales transactions and firm commitments denominated in
foreign currencies. Gains and losses on the forward contracts are
recognized based on changes in exchange rates, as are offsetting foreign
exchange gains and losses on the underlying transactions. At December 31,
1998 and 1997, the Group had forward exchange contracts to sell Japanese
Yen with a market value of approximately $14.1 million and $12.4 million,
respectively for a contract amount of $13.8 million and $12.8 million,
respectively. At
<PAGE> 9
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
December 31, 1998 and 1997, the Group had forward exchange contracts to
purchase Japanese Yen with a market value of approximately $6.0 million and
$1.7 million, respectively, for a contract amount of $5.9 million and $1.8
million, respectively. All such contracts mature within one year.
INVENTORIES -- Inventories are stated at the lower of cost, using first-in,
first-out and average-cost basis, or market. Cost of inventory items is
based on purchase and production cost.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost. Provision for depreciation and amortization is primarily based on
straight-line methods.
ACCRUED EXPENSES -- Certain accrued expenses have been allocated to the
Group based on the ratio of total sales, property or employees the Group
bears to the respective totals of the Company. In the opinion of
management, the liabilities allocated to the Group as of December 31, 1998
and 1997 are reasonable.
DEFERRED COMPENSATION -- WJ has deferred compensation plans covering
selected members of the Group's management and key technical employees.
Substantially all these plans were terminated as of December 31, 1998, and
the balances relating to the Group classified as currently payable.
STOCK-BASED COMPENSATION -- The Group accounts for stock-based compensation
using WJ's stock under the intrinsic value method as defined in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," (APB 25).
RESEARCH AND DEVELOPMENT (R&D) COSTS incurred by the Group are accumulated
on an identified project basis. Company-sponsored R&D projects related to
the Group are included in expense in the period incurred.
ALLOCATED EXPENSES -- Certain overhead, selling, administrative and
corporate expenses represent an allocation of the Group's operating
expenses and include payroll and charges for office space, which the Group
shares with WJ. These costs have been allocated to the Group based on
various allocation factors which, in the opinion of management, are
reasonable.
Corporate support costs such as treasury, cash management, accounting,
financial management, legal, public relations, information systems, human
resources, telecommunications, and support services are allocated to the
Group based primarily on the estimated level of services provided, which
management believes to be reasonable. However, such amounts may not be the
same as would have been incurred had the Group operated autonomously or as
a combined entity independent of WJ.
INCOME TAXES -- The Group's results are included in the consolidated
federal and state tax returns of WJ and its affiliates. WJ allocates income
tax benefits to the Group based on its contribution to the taxable income
or loss of WJ. The combined consolidated financial statements include
provisions for deferred income taxes using the liability method for
transactions that are reported in one period for financial accounting
purposes and in another for income tax purposes. Deferred tax assets have
been recognized based on the realizability determination of WJ.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. In addition
to the allocation of corporate and Group expenses described above, the most
significant assumptions and estimates relate to allowance for bad debts,
inventory obsolescence and warranty provisions. Actual results could differ
from those estimates.
<PAGE> 10
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
2. RECEIVABLES
Receivables at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Trade $ 14,275 $ 25,044
Less allowance for doubtful accounts (1,921) (2,150)
-------- --------
Receivables, net $ 12,354 $ 22,894
======== ========
</TABLE>
3. INVENTORIES
Inventories at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Finished goods $ 2,085 $ 8,103
Work-in-progress 8,787 12,541
Raw materials 2,792 13,540
------- -------
Inventories $13,664 $34,184
======= =======
</TABLE>
During 1998, the Group incurred a charge of approximately $13.7 million,
included in cost of sales, for the write-down of discontinued products (see
Note 10).
4. LONG-TERM OBLIGATIONS
Long-term borrowings consist of three unsecured loans used for the Group's
land, building and equipment located in Kawasaki, Japan. The loans are
denominated in Yen. Approximately $6.8 million is payable in monthly
installments through the year 2011, which bears interest at 2.5%.
Approximately $11.7 million and $1.7 million require a balloon payment due
in the year 2006 and 2007, respectively, which bear interest at 3.1% and
2.2%, respectively, payable semiannually.
ENVIRONMENTAL REMEDIATION -- As discussed in Note 5, WJ is obligated to
remediate groundwater contamination at its Scotts Valley facility. Included
in long-term obligations is approximately $4 million related to estimated
remediation actions and clean-up costs.
LEASES -- The Group has noncancellable operating leases for plant
facilities and equipment expiring through the year 2004. These leases may
be renewed for various periods after the initial term.
Payment obligations under existing operating leases as of December 31, 1998
are as follows (in thousands):
<TABLE>
<S> <C>
1999 $1,093
2000 823
2001 478
2002 310
2003 24
Remaining years 13
------
Total $2,741
======
</TABLE>
<PAGE> 11
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Rent expense included in continuing operations for property and equipment
relating to operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Real property $ 608 $2,321 $2,221
Equipment 615 448 365
------ ------ ------
$1,223 $2,769 $2,586
====== ====== ======
</TABLE>
5. ENVIRONMENTAL REMEDIATION AND OTHER CONTINGENCIES
The Group's Scotts Valley, California facility is subject to an
environmental remediation plan being monitored by various regulatory
agencies. WJ recorded a provision for estimated remediation actions and
cleanup costs related to the facility in 1991, and no additional provisions
have been made by the Company, nor are any charges relating to such
remediation included in the Group's combined statements of operations for
the year ended December 31, 1998. Management of WJ believes the accrual of
$4.0 million as of December 31, 1998 remains adequate based on facts known
at that time. However, changes in environmental regulations, improvements
in cleanup technology and discovery of additional information concerning
this site could affect estimated costs in the future. This liability is
included in long-term obligations in the Group's consolidated balance
sheet. Expenditures charged against the provision totaled $140,000,
$173,000 and $202,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Group is involved in various other legal actions which management
believes should not have a material impact on the Group's results of
operations, cash flows, and financial position.
6. OPTION PLANS
STOCK OPTION PLANS -- Employees of the Group participate in the stock
option plans of WJ. The employee stock option plan provides for grants of
nonqualifying and incentive stock options to certain key employees and
officers. The options are granted at the market price on date of grant and
expire on the tenth anniversary date. One-third of the options granted are
exercisable in each of the third, fourth and fifth succeeding years. The
plan allows those employees who are subject to the insider trading
restrictions certain limited rights to receive cash in the event of a
change in control.
As discussed in Note 1, the Group applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans. Had
compensation cost for the WJ stock option plans been determined based upon
the fair value at the grant date for awards under these plans, and
amortized over the vesting period of the awards consistent with the
methodology prescribed under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Group's pro forma
consolidated net (loss) income for the years ended December 31, 1998, 1997
and 1996 would have been $(55.2) million, $(9.9) million and $3.8 million,
respectively.
<PAGE> 12
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
The weighted average fair value of options calculated on the date of grant
using the Black-Scholes option-pricing model along with the weighted
average assumptions used are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Fair value per share under option plan $ 7.70 $ 8.02 $ 7.96
Dividend yield 2.1% 1.2% 1.5%
Volatility 41.7% 38.1% 37.5%
Risk free interest rate at time of grant 5.4% 6.1% 6.2%
Expected term to exercise (in months from the vest date) 4.9 4.5 3.5
</TABLE>
The Company's calculations are based on a multiple option valuation
approach, and forfeitures are recognized as they occur.
7. INCOME TAXES
The components of income (loss) from operations before federal, state and
foreign income taxes as of December 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. $(74,374) $(18,099) $ 4,980
Foreign (6,160) 3,368 2,729
-------- -------- --------
Total $(80,534) $(14,731) $ 7,709
======== ======== ========
</TABLE>
The provision (benefit) for federal, state and foreign taxes as of December
31 on loss from operations consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $(22,557) $ (3,846) $ 4,845
State 59 13 405
Foreign 507 1,871 1,432
-------- -------- --------
Total current (21,991) (1,962) 6,682
Deferred:
Federal (3,421) (3,309) (3,587)
State (644) (462) (400)
-------- -------- --------
Total deferred (4,065) (3,771) (3,987)
-------- -------- --------
Total $(26,056) $ (5,733) $ 2,695
======== ======== ========
</TABLE>
<PAGE> 13
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) consist of the following at December 31
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NOL and credit carryovers $ 8,397 $ -- $ --
Inventory reserves 5,171 4,488 3,676
Bad debt reserves 749 484 262
Other reserves 5,915 7,493 5,876
Compensation 653 1,176 713
Other 433 5,577 4,465
-------- -------- --------
Gross deferred tax assets 21,318 19,218 14,992
Deferred tax liabilities - depreciation (1,393) (3,357) (2,902)
-------- -------- --------
Net deferred tax assets $ 19,925 $ 15,861 $ 12,090
======== ======== ========
</TABLE>
Federal and state operating loss carryforwards attributable to the Group
included in the returns of WJ total approximately $10.0 million and $4.4
million, respectively, which expire through the year 2019. In addition,
federal and state tax credit carryforwards attributable to the Group total
approximately $3.4 million and $0.6 million, respectively, and relate
primarily to research credits. These tax credit carryforward benefits
expire through the year 2019. In the event of a change in control,
utilization of net operating loss carryforwards and credit carryforwards
are subject to reattribution to WJ and other limitations provided by the
Internal Revenue Code.
The differences between the effective income tax (benefit) rate and the
statutory federal income tax (benefit) rate at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory federal tax rate (35.0)% (35.0)% 34.0%
State taxes, net of federal benefit (1.2) (3.0) 0.1
Foreign taxes 3.3 4.7 6.5
Other 0.5 (5.6) (5.6)
------ ------ ------
Effective tax (benefit) rate (32.4)% (38.9)% 35.0%
====== ====== ======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The WJ Employees' Investment Plan conforms to the requirements of the
Employee Retirement Income Security Act of 1974 (ERISA) and the Internal
Revenue Code as a qualified defined contribution plan. The Plan covers
substantially all employees of the Group and for 1998, 1997 and 1996
provided that the Company match employees' 401(k) salary deferrals up to 3%
of eligible employee compensation. The amount charged to the Group's
results of operations was $943,000, $1,019,000 and $1,047,000 in 1998, 1997
and 1996, respectively.
The WJ Employee Stock Ownership Plan (ESOP) was established to encourage
employee participation and long-term ownership of WJ stock and covers
substantially all employees of the Group. The Board determines each year's
contribution depending on the performance and financial condition for WJ.
The Board approved a contribution equal to 1% of eligible employee
compensation for 1998, 1997 and 1996, which resulted in charges of
$170,000, $327,000 and $315,000, respectively, to the Group's results of
operations. The ESOP is a qualified defined contribution plan under ERISA
and the Internal Revenue Code.
<PAGE> 14
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
9. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
One customer represented 11% and 14% of Group sales in 1998 and 1996,
respectively. Two customers represented 13% and 10% of Group sales in 1997.
Another customer represented 11% and 17% of Group sales in 1996.
Sales to unaffiliated customers by geographic area are as follows for the
year ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
United States $ 42,274 $ 78,779 $ 78,944
Export sales from the United States:
Europe 761 6,017 28,781
Japan 10,629 22,584 65,857
Korea 4,291 27,771 51,739
Other Asia-Pacific countries 6,967 11,473 34,070
Other 17 141 25
Europe 21,429 30,872 4,947
Japan 4,510 2,742 3,312
Other Asia-Pacific countries 6,103 6,075 4,761
-------- -------- --------
Total $ 96,981 $186,454 $272,436
======== ======== ========
</TABLE>
Operating profit (loss) and year-end long-lived assets by geographic area
are as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating profit (loss):
United States $(75,605) $(18,061) $ 3,815
Europe 300 3,270 1,358
Japan (6,376) 185 840
Other Asia-Pacific countries 685 1,278 1,199
-------- -------- --------
Total $(80,996) $(13,328) $ 7,212
======== ======== ========
Year-end long-lived assets:
United States $ 22,648 $ 49,055 $ 53,039
Europe 85 178 297
Japan 16,001 22,186 23,335
Other Asia-Pacific countries 314 530 541
-------- -------- --------
Total $ 39,048 $ 71,949 $ 77,212
======== ======== ========
</TABLE>
<PAGE> 15
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
10. DISCONTINUED PRODUCT LINES AND RELATED RESTRUCTURING CHARGES
During the third quarter of 1998, the Group restructured its operations to
focus on its core atmospheric-pressure chemical-vapor-deposition (APCVD)
operations by discontinuing efforts on its high-density-Plasma initiative.
Inventory, demo equipment, and specialized fixed assets associated with
this discontinued product were written down in the restructuring. As a
result, the Group reduced its global work force and downsized its
operations. The Group recorded charges of $38.3 million related to
facilities and fixed assets, inventory, severance and other exit costs as
follows:
<TABLE>
<CAPTION>
ACCRUED SEVERANCE, WRITE DOWN
BENEFITS, AND OF FACILITIES AND WRITE DOWN OF
(IN THOUSANDS) OTHER COSTS FIXED ASSETS INVENTORY
<S> <C> <C> <C>
Restructuring provision $ 3,473 $21,117 $13,720
======= =======
Amounts paid (1,997)
-------
Balance at December 31, 1998 $ 1,476
=======
</TABLE>
Included in the third-quarter 1998 asset write-downs is an approximately
$6.0 million charge related to the Group's facility in Japan, which was
written down to fair market value in accordance with SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of." A portion of this facility is being leased to a tenant.
The Group anticipates that substantially all accrued severance and benefits
will be paid within a year.
11. SUBSEQUENT EVENTS
On March 4, 1999, WJ signed a non-binding letter of intent to sell the
Group (exclusive of its high-density-plasma and certain other discontinued
products) to Silicon Valley Group, Inc. (SVG). On July 6, 1999, WJ
completed the sale of the Group to SVG.
On March 31, 1999, WJ sold the Group's high-density-plasma technology to
Applied Materials, Inc. for cash of $12 million.
* * * *
<PAGE> 16
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 (IN THOUSANDS) (UNAUDITED)
- -------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Receivables, net $ 45,376
Inventories 7,608
Deferred tax asset 19,925
Other 1,599
---------
Total current assets 74,508
PROPERTY PLANT AND EQUIPMENT:
Land 7,615
Building 24,901
Machinery and equipment 36,295
---------
68,811
Accumulated depreciation and amortization (33,963)
---------
Property, plant and equipment, net 34,848
OTHER ASSETS --
---------
TOTAL ASSETS $ 109,356
=========
LIABILITIES AND INVESTED EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,942
Accrued salaries and profit sharing 5,305
Accrued vacation 1,943
Provision for warranty 7,076
Accrued payroll, property and other taxes 5,632
Accrued expenses-other 2,350
Income tax payable 6,241
---------
Total current liabilities 34,489
LONG-TERM BORROWINGS 22,772
INVESTED EQUITY 52,095
---------
TOTAL LIABILITIES AND INVESTED EQUITY $ 109,356
=========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> 17
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS, INVESTED EQUITY AND
COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
1999 1998
<S> <C> <C>
SALES $ 72,773 $ 65,620
COST AND EXPENSES:
Cost of goods sold 46,843 44,735
Selling and administrative 9,365 14,577
Research and development 9,349 15,240
Corporate allocations 2,200 3,903
-------- --------
Total operating expenses 67,757 78,455
INCOME (LOSS) FROM OPERATIONS 5,016 (12,835)
OTHER INCOME (EXPENSE) - Net (83) 173
INTEREST EXPENSE (286) (286)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 4,647 (12,948)
INCOME TAX BENEFIT (EXPENSE) (836) 4,333
-------- --------
NET INCOME (LOSS) 3,811 (8,615)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS 172 (259)
-------- --------
COMPREHENSIVE INCOME 3,983 (8,874)
INVESTED EQUITY, Beginning of period 33,166 81,969
TRANSFER OF BUILDING TO CORPORATE -- (6,767)
ADDITION IN INVESTED EQUITY 14,946 19,563
-------- --------
INVESTED EQUITY, End of period $ 52,095 $ 85,891
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> 18
SEMICONDUCTOR EQUIPMENT GROUP OF
WATKINS-JOHNSON COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,811 $ (8,615)
Reconciliation to net cash used in operating activities:
Depreciation and amortization of property, plant
and equipment 3,598 5,457
Loss on disposal of assets 147 85
Noncash restructuring charges 1,143 0
Deferred taxes 0 (4,064)
Net changes in operating assets and liabilities:
Receivables, net (33,156) 590
Inventories 5,896 3,895
Advances on contracts (411) 0
Provision for warranties 784 (2,820)
Other current assets 762 999
Accrued expenses and payables 2,876 (6,056)
-------- --------
Net cash used in operating activities (14,550) (10,529)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (493) (8,684)
Proceeds on asset retirements and other 184 0
-------- --------
Net cash used in investing activities (309) (8,684)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (296) (289)
Increase in invested equity 14,946 19,563
-------- --------
Net cash provided by financing activities 14,650 19,274
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 209 (61)
-------- --------
NET CHANGE IN CASH:
CASH, Beginning of year 0 0
-------- --------
CASH, End of year $ 0 $ 0
======== ========
NONCASH ACTIVITIES -
Transfer of building to Corporate $ -- $ 6,767
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE> 19
Notes to Unaudited Consolidated Financial Statements for the six months ended
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The unaudited consolidated interim financial statements included herein have
been prepared by Management, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted as permitted by such rules and regulations. Management believes the
disclosures included herein are adequate; however, these consolidated interim
financial statements should be read in conjunction with the audited financial
statements and the notes thereto for the year ended December 31, 1998, included
elsewhere in this Form 8-K/A.
In the opinion of Management, these unaudited consolidated financial statements
of the Semiconductor Equipment Group of Watkins-Johnson Company ("SEG") contain
all of the adjustments necessary to present fairly the financial position of SEG
at June 30, 1999, the results of operations, and the changes in shareholders'
equity and cash flows for the periods presented. The results of operations for
the periods presented may not be indicative of those which may be expected for
the full year.
Note 2. Environmental Remediation and Other Contingencies
The Scotts Valley, California facility of SEG is subject to an environmental
remediation plan being monitored by various regulatory agencies. SEG recorded a
provision for estimated remediation actions and cleanup costs related to the
facility in 1991, and no additional provisions have been made, nor are any
charges relating to such remediation included in SEG's consolidated statements
of operations for the six months ended June 30, 1999 and June 30, 1998.
Management believes the accrual of $4.0 million as of June 30, 1999 remains
adequate based on facts known at that time. However, changes in environmental
regulations, improvements in cleanup technology and discovery of additional
information concerning this site could affect estimated costs in the future.
This liability is included in long-term obligations in SEG's consolidated
balance sheet. Expenditures charged against the provision totaled $51,000 and
$62,000 for the six months ended June 30, 1999 and 1998, respectively.
Note 3. Discontinued Product Lines and Related Restructuring Charges
During the third quarter of 1998, SEG recorded restructuring and related
charges of $38.3 million related to facilities and fixed assets, inventory,
severance and other exit costs. The charges resulted from SEG restructuring
its operations to focus on its core atmospheric-pressure
chemical-vapor-deposition (APCVD) operations by discontinuing efforts on its
high-density-Plasma initiative.
Charges to the restructuring accrual during the six months ended June 30, 1999
(in thousands):
<TABLE>
<CAPTION>
Accrued Severance
Benefits, and Other
Costs
-------------------
<S> <C>
Balance at December 31, 1998 $ 1,476
Incurred to date (1,143)
-------
Balance at June 30, 1999 $ 333
=======
</TABLE>
Management anticipates that substantially all accrued severance and benefits
will be paid within a year.
Note 4. Subsequent Events
On July 6, 1999, the business of SEG was sold to Silicon Valley Group, Inc. for
an initial cash payment of approximately $9.0M to be adjusted based upon the
final closing balance sheet as of July 2, 1999.
<PAGE> 20
ITEM 7 (b) PRO FORMA COMBINED FINANCIAL STATEMENTS
On July 6, 1999, Silicon Valley Group, Inc., a Delaware corporation, (the
"Company") acquired the business of the Semiconductor Equipment Group of
Watkins-Johnson Company ("SEG"), a California corporation, pursuant to the
Securities Purchase Agreement dated April 30,1999 by and between the Company and
Watkins-Johnson, as amended by Amendment No. 1 to the Securities Purchase
Agreement dated July 2, 1999 by and between the Company and Watkins-Johnson (as
so amended, the "Purchase Agreement").
Under the terms of the Purchase Agreement, the Company acquired from
Watkins-Johnson all of its limited liability company interests in Semiconductor
Equipment Group, LLC and the outstanding capital stock of certain foreign
subsidiaries. As consideration for the acquisition, the Company paid
Watkins-Johnson an initial cash payment of approximately $9.0 million to be
adjusted based upon the final closing balance sheet as of July 2, 1999. Based
upon the final closing balance sheet, the Company expects to receive a cash
payment back from Watkins-Johnson of approximately $6.3 million.
The unaudited pro forma combined consolidated financial information gives effect
of the acquisition of SEG by the Company under the purchase method of
accounting. The unaudited pro forma combined consolidated balance sheet combines
the Company's unaudited consolidated balance sheet and the SEG unaudited
consolidated balance sheet at June 30, 1999, as if the transaction occurred on
June 30, 1999.
The Company's fiscal year end is September 30, while SEG's fiscal year end is
December 31. Accordingly, the unaudited pro forma combined consolidated
statement of operations combine the historical results of operations of the
Company for the year ended September 30, 1998 with the historical results of
operations for SEG for the year ended December 31, 1998. The unaudited pro forma
combined consolidated statements of operations for the nine months ended June
30, 1999 represent the historical operations of the Company and SEG.
Accordingly, the historical operations of SEG for the quarter ended December 31,
1998 is included in each of the pro forma combined consolidated statements of
operations. SEG's net sales and net loss for the quarter ended December 31, 1998
were $24,173,000 and $222,000 respectively.
This method of combining the companies is for the presentation of unaudited pro
forma combined consolidated financial statements only. Actual statements of
operations for the companies will be combined effective as of the date of the
acquisition, with no retroactive restatement. The pro forma financial
information is presented for illustrative purposes only and does not purport to
be indicative of the operating results or financial position that would have
occurred had the acquisition been effected as of the periods indicated nor is it
indicative of the future operating results or financial position of the Company.
The pro forma adjustments are based upon information and assumptions available
at the time of the filing of this Form 8-K/A. The unaudited pro forma combined
consolidated financial statements should be read in conjunction with the
historical audited and unaudited financial statements of Silicon Valley Group,
Inc. and Watkins-Johnson, Inc., including the notes thereto.
<PAGE> 21
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------------------------------
SILICON VALLEY PRO FORMA PRO FORMA
GROUP, INC. SEG ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 113,549 $ -- $ 1,739 (a),(c) $ 115,288
Temporary investments 38,016 -- -- 38,016
Accounts receivable, net 97,806 45,376 (45,376) (b) 97,806
Refundable income taxes 6,466 -- -- 6,466
Inventories 203,248 7,608 6,504 (a) 217,360
Deferred taxes 36,848 19,925 (19,925) (b) 36,848
Other current assets 8,145 1,599 (1,678) (a) 8,066
--------- --------- --------- ---------
Total current assets 504,078 74,508 (58,736) 519,850
PROPERTY AND EQUIPMENT -- NET 180,999 34,848 (12,435) (a),(b) 203,412
DEPOSITS AND OTHER ASSETS 7,341 -- -- 7,341
INTANGIBLE ASSETS-NET 3,328 -- -- 3,328
--------- --------- --------- ---------
TOTAL $ 695,746 $ 109,356 $ (71,171) $ 733,931
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,045 $ 5,942 $ (593) (b) $ 26,394
Accrued liabilities 108,890 22,306 (9,012) (b) 122,184
Current portion of
long-term debt 715 -- 585 (a) 1,300
Income taxes payable 479 6,241 (6,241) (b) 479
--------- --------- --------- ---------
Total current liabilities 131,129 34,489 (15,261) 150,357
LONG-TERM DEBT 5,278 22,772 (3,815) (b) 24,235
DEFERRED AND OTHER LIABILITIES 6,374 -- -- 6,374
STOCKHOLDERS' EQUITY:
Preferred Stock-15,000 shares 14,976 -- -- 14,976
Common Stock
33,063,000 shares 407,450 -- -- 407,450
Retained Earnings or Invested
Equity 133,293 52,095 (52,095) (c) 133,293
Other Comprehensive Income
Loss (2,754) -- -- (2,754)
--------- --------- --------- ---------
Total Stockholders' Equity 552,965 52,095 (52,095) 552,965
--------- --------- --------- ---------
TOTAL $ 695,746 $ 109,356 $ (71,171) $ 733,931
========= ========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements
<PAGE> 22
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------
SILICON VALLEY PRO FORMA PRO FORMA
GROUP, INC. SEG ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C>
NET SALES $ 608,625 $ 96,981 $ -- $ 705,606
COST OF SALES
Cost of net sales 389,279 80,328 1,446 (d),(e) 471,053
(g)
Restructuring and related charges 19,117 13,720 -- 32,837
--------- --------- --------- ---------
GROSS PROFIT 200,229 2,933 (1,446) 201,716
OPERATING EXPENSES:
Research, development and related
engineering 87,272 28,010 (480) (d) 114,802
Marketing, general and administrative 130,615 31,329 (419) (d),(g) 161,525
Restructuring and related charges 14,563 24,590 (6,000) (f) 33,153
--------- --------- --------- ---------
OPERATING LOSS (32,221) (80,996) 5,453 (107,764)
INTEREST AND OTHER INCOME-NET 6,082 1,029 -- 7,111
INTEREST EXPENSE (1,018) (567) -- (1,585)
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (27,157) (80,534) 5,453 (102,238)
PROVISION (BENEFIT) FOR INCOME TAXES (13,580) (26,056) 2,126 (h) (37,510)
--------- --------- --------- ---------
NET LOSS $ (13,577) $ (54,478) $ 3,327 $ (64,728)
========= ========= ========= =========
NET LOSS PER SHARE -- BASIC $ (0.42) $ (2.00)
========= =========
SHARES USED IN PER SHARE
COMPUTATIONS -- BASIC 32,438 32,438
========= =========
NET LOSS PER SHARE -- DILUTED $ (0.42) $ (2.00)
========= =========
SHARES USED IN PER SHARE
COMPUTATIONS -- DILUTED 32,438 32,438
========= =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements
<PAGE> 23
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------
SILICON VALLEY PRO FORMA PRO FORMA
GROUP, INC. SEG ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C>
NET SALES $ 283,877 $ 96,946 $ -- $ 380,823
COST OF SALES 197,817 60,389 1,823 (d),(e) 260,029
--------- --------- --------- (g) ---------
GROSS PROFIT 86,060 36,557 (1,823) 120,794
OPERATING EXPENSES:
Research, development and related
engineering 61,668 14,919 (360) (d) 76,227
Marketing, general and administrative 68,286 17,678 (254) (d),(g) 85,710
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (43,894) 3,960 (1,209) (41,143)
INTEREST AND OTHER INCOME-NET 4,916 794 -- 5,710
INTEREST EXPENSE (862) (436) -- (1,298)
--------- --------- --------- (g) ---------
INCOME (LOSS) BEFORE INCOME TAXES (39,840) 4,318 (1,209) (36,731)
PROVISION (BENEFIT) FOR INCOME TAXES (12,749) 1,382 (471) (f) (11,838)
--------- --------- --------- (g) ---------
NET INCOME (LOSS) $ (27,091) $ 2,936 $ (738) $ (24,893)
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE -- BASIC $ (0.82) $ (0.76)
========= =========
SHARES USED IN PER SHARE
COMPUTATIONS -- BASIC 32,874 32,874
========= =========
NET INCOME (LOSS) PER SHARE -- DILUTED $ (0.82) $ (0.76)
========= =========
SHARES USED IN PER SHARE
COMPUTATIONS -- DILUTED 32,874 32,874
========= =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements
<PAGE> 24
Notes to Unaudited Pro Forma Combined Consolidated Financial Statements
Note 1 -- Pro Forma Adjustments
The following adjustments were applied to the historical consolidated financial
statements to arrive at the pro forma combined consolidated financial
statements.
(a) On July 6, 1999 Silicon Valley Group, Inc. completed the acquisition of SEG
with total consideration based upon the closing balance sheet as of July 2,
1999. The acquisition was accounted for using the purchase method.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on the estimated fair value as of the acquisition
date. The allocation of the purchase price, assuming the acquisition
occurred as of June 30, 1999, for pro forma purposes, is as follows:
<TABLE>
<S> <C> <C>
Cash paid, net $ 2,700,000
Estimated acquisition costs 1,050,000
-----------
$ 3,750,000
===========
Cash assumed $ 3,889,000
Inventory 14,112,000
Other current assets 1,521,000
Fixed assets 22,413,000
Current liabilities assumed (18,643,000)
Current portion long term debt assumed (585,000)
Long term debt assumed (18,957,000)
-----------
$ 3,750,000
===========
</TABLE>
Of the $3,750,000 net cash paid, $1,600,000 had been paid prior to June 30,
and has been removed from the Company's other current assets in the pro
forma adjustments. The remaining $2,150,000 cash outlay occurred after June
30, and therefore has been removed from cash for pro forma presentation.
The estimated fair value of the net assets acquired exceeded the purchase
price of $3,750,000 by $5,809,000. Accordingly, the estimated fair value of
the fixed assets acquired of $28,222,000 was adjusted to $22,413,000.
Silicon Valley Group, Inc. expects to record additional liabilities not
reflected herein for anticipated costs related to closing duplicate service
and sales facilities domestically and internationally.
(b) Reflects purchase accounting adjustments for assets not purchased and
liabilities not assumed by the Company. Watkins-Johnson Company retained
the accounts receivable balances.
In connection with the acquisition, the Company entered into a third party
lease with Key Bank, National Association ("Key Bank") covering certain
real property located in Scotts Valley, California with a net book value of
$9,556,000 that was sold by Watkins-Johnson to Key Bank.
(c) Reflects the elimination of SEG's invested equity.
<PAGE> 25
(d) Reflects a net reduction in depreciation resulting from the reduction of
the fair value of the fixed assets by $5,809,000, as discussed above,
partially offset by the write up of fixed assets to fair value.
(e) Reflects the increase to cost of sales resulting from revaluing finished
goods and work in process to estimated selling price less the sum of the
(a) costs to complete, (b) costs of disposal, and (c) reasonable profit
allowance for the selling effort of the Company.
(f) Reflects the removal of the 1998 write-down to fair value of approximately
$6,000,000 related to SEG's facility in Japan. Assuming for pro forma
presentation purposes that the acquisition had occurred at the beginning of
the period, this facility would have already been adjusted to fair value.
(g) Reflects the net change in operating expenses resulting from removal of the
depreciation on the real property located in Scotts Valley and replacement
with the operating lease payments. The net effect of the changes reduces
expenses $493,000 for the year ended September 30, 1998, and $71,000 for
the nine months ended June 30, 1999.
(h) Reflects the adjustment to income taxes based on the pro forma results for
the periods presented.
