<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- -- EXCHANGE ACT OF 1934
For the period ended July 5, 1998 OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 333-29871
THERMA-WAVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3000561
[State or other jurisdiction of [I.R.S. Employer
incorporation or organization] Identification Number]
1250 Reliance Way
Fremont, California 94539
[Address of principal executive offices] [Zip Code]
(510) 490-3663
Registrant's telephone number, including area code
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares of the issuer's class of common stock, as of the
latest practical date:
Class Outstanding as of August 2, 1998
- ------------------------------------------------------------------------------
Class A Common stock, $.01 par value 9,073,532
Class B Common stock, $.01 par value 1,156,741
Class L Common stock, $.01 par value 1,008,170
<PAGE>
THERMA-WAVE, INC.
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1998 and 1997 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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Part I. Financial Information
Item 1. Unaudited Consolidated Condensed Financial Statements
THERMA-WAVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,609 $ 20,422
Accounts receivable, net 14,924 22,098
Inventories 21,813 21,292
Other current assets 8,091 7,938
----------- -----------
Total current assets 61,437 71,750
Property and equipment, net 5,795 6,241
Deferred financing costs, net 9,560 9,956
Other assets 1,846 1,815
----------- -----------
Total assets $ 78,638 $ 89,762
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 2,499 $ 4,019
Other current liabilities 20,948 24,383
----------- -----------
Total current liabilities 23,447 28,402
Long term debt 115,000 115,000
Other liabilities 2,757 2,835
----------- -----------
Total liabilities 141,204 146,237
Commitments and contingencies
Mandatorily redeemable preferred stock 14,721 14,515
Stockholders' equity (net capital deficiency)
Common stock Class A 91 91
Common stock Class B 13 13
Common stock Class L 10 10
Additional paid-in capital 21,363 21,363
Notes receivable from stockholders (288) (288)
Accumulated deficit (96,720) (90,424)
Currency translation adjustment (1,756) (1,755)
----------- -----------
Total stockholders' equity (net capital deficiency) (77,287) (70,990)
----------- -----------
Total liabilities and stockholders' equity (net
capital deficiency) $ 78,638 $ 89,762
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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THERMA-WAVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
----------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Net revenue $15,246 $28,205
Cost of revenue 8,979 13,263
--------------- --------------
Gross margin 6,267 14,942
Operating expenses:
Research and development 4,598 4,488
Selling, general and administrative 4,633 5,026
Recapitalization and other non-recurring
expenses 2,888
Expenses relating to operating cost
improvements 582 -
--------------- --------------
Total operating expenses 9,813 12,402
--------------- --------------
Operating income (3,546) 2,540
Other income (expense):
Interest expense (3,499) (2,193)
Interest income 206 169
Other, net (161) (5)
--------------- --------------
(3,454) (2,029)
--------------- --------------
Income (loss) before income taxes (7,000) 511
Provision (benefit) for income taxes (910) 200
--------------- --------------
Net income (loss) (6,090) 311
Accretion of preferred stock dividend 206 116
--------------- --------------
Net income (loss) attributable to common
stockholders $(6,296) $ 195
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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THERMA-WAVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
--------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Operating activities:
Net income (loss) $(6,090) $ 311
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 1,088 1,036
Amortization of deferred financing costs 396 -
Non-cash recapitalization and related expenses - 2,888
Non-cash expenses relating to operating cost improvements 100 -
Changes in assets and liabilities:
Accounts receivable 7,174 (3,889)
Inventories (944) (1,841)
Other assets (204) (356)
Other liabilities (5,053) 882
------------------- -------------------
Net cash used by operating activities (3,533) (969)
Investing activities:
Purchases of property and equipment (181) (780)
Other (69) (1,159)
------------------- -------------------
Net cash used in investing activities (250) (1,939)
Financing activities:
Issuance of Senior Notes - 115,000
Repayment of notes payable - (26,934)
Redemption of common stock - (96,900)
Proceeds from issuance of common stock - 18,728
Deferred financing costs - (11,077)
Other (30) 1,367
------------------- -------------------
Net cash provided by (used in) financing activities (30) 184
Net decrease in cash and cash equivalents (3,813) (2,724)
Cash and cash equivalents at beginning of period 20,422 16,741
------------------- -------------------
Cash and cash equivalents at end of period $16,609 $ 14,017
=================== ===================
Supplementary disclosures:
Cash paid for interest $ 6,119 $ 238
=================== ===================
Cash paid for taxes $ 51 $ 165
=================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
THERMA-WAVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and include the accounts of Therma-Wave, Inc. and its
wholly owned subsidiaries (collectively "Therma-Wave" or the "Company").
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position at June 30, 1998, and the
operating results and cash flows for the three months ended June 30, 1998
and 1997. These financial statements and notes should be read in conjunction
with the Company's audited financial statements and notes thereto for the
year ended March 31, 1998.
The results of operations for the interim periods are not necessarily
indicative of the results of operations that may be expected for any other
period or for the fiscal year, which ends on April 4, 1999.
The first fiscal quarters of 1999 and 1998 and the fiscal year 1998 ended on
July 5, 1998, July 6, 1997 and April 5, 1998, respectively. For presentation
purposes, the accompanying financial statements have been shown as ending on
the last day of the month.
In accordance with generally accepted accounting principles, earnings per
share information is not presented since the Company does not have publicly
held common stock.
2. Inventories
Inventories are summarized as follows (in thousands):
June 30, 1998 March 31, 1998
----------------- ------------------
Purchased materials $ 9,682 $ 9,958
Systems in process 6,419 7,146
Finished systems 5,712 4,188
----------------- ------------------
$21,813 $21,292
================= ==================
6
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3. Recapitalization
In December 1996, the Board of Directors approved the Recapitalization
Agreement (the "Recapitalization Agreement"). Pursuant to the
Recapitalization Agreement, which closed on May 16, 1997, the Company: (i)
redeemed from Toray Industries, Inc., ("Toray") and Shimadzu Corporation
("Shimadzu") approximately 86.6% of its outstanding capital stock for $96.9
million; (ii) converted its remaining outstanding capital stock of 6.1
million shares to newly issued shares of preferred stock and common stock;
(iii) repaid substantially all of its outstanding borrowings of
approximately $26.9 million; (iv) canceled its receivable from Toray and
Shimadzu of $1.4 million which was recorded as a reduction of additional
paid-in capital; and (v) paid the estimated fees and expenses of
approximately $11.2 million related to the Recapitalization. In order to
finance the transactions effected by the Recapitalization Agreement, the
Company: (i) issued $115.0 million in aggregate principal amount of senior
notes in a private debt offering; (ii) received an equity contribution of
approximately $20.0 million in cash from an investor group, including
investment funds associated with Bain Capital, Inc. ("Bain"), and members of
the Company's senior management team; and (iii) converted equity securities
of Toray and Shimadzu having a value of $15.0 million into newly issued
shares of preferred stock and common stock.
Immediately after the Recapitalization, the outstanding equity securities of
the Company consisted of 9,073,532 shares of Class A Common; 1,334,875
shares of Class B Common; 1,008,170 shares of Class L Common; and 748,738
shares of Preferred Stock. The shares of Class A Common and Class L Common
each entitle the holder thereof to one vote per share on all matters to be
voted upon by the stockholders of the Company and are otherwise identical,
except that the shares of Class L Common are entitled to a preference over
the Class A Common with respect to any distribution by the Company to
holders of its capital stock equal to the original cost of such share
($19.085) plus an amount which accrues on a daily basis at a rate of 12% per
annum, compounded annually. The Class B Common is identical to the Class A
common except that the Class B Common is nonvoting and is convertible into
Class A Common at any time following an initial public offering by the
Company at the option of the holder thereof. The Preferred Stock has a
liquidation preference of $18.40 per share and is convertible into one share
of Class A Common at the option of the holder thereof. Dividends on the
Preferred Stock accrue at a rate of 6.0% per annum. The Preferred Stock has
a scheduled redemption on May 17, 2007, and is otherwise redeemable by the
Company at any time from time to time after the earlier of (i) June 30,
1998; or (ii) an initial public offering by the Company. The Preferred Stock
entitles the holder thereof to one vote for each share of Class A Common
issuable upon conversion of such Preferred Stock.
4. Financing Arrangements
The $115.0 million of senior notes ("Notes") issued to finance the
Recapitalization are senior unsecured obligations of the Company and will
mature on May 15, 2004. Interest on the Notes will accrue at the rate of
10.625% per annum and is payable semiannually in cash on each May 15 and
November 15, commencing on November 15, 1997, to registered holders at
7
<PAGE>
the close of business on May 1 and November 1, respectively, immediately
preceding the applicable interest payment date. The Notes are not entitled
to the benefit of any mandatory sinking fund and are redeemable at the
Company's option in whole at any time or in part from time to time, on and
after May 15, 2001, upon not less than 30 nor more than 60 days notice, at
specified redemption prices. At any time, or from time to time, on or prior
to May 15, 2000, the Company may, at its option, use the net cash proceeds
of one or more equity offerings to redeem up to 40% of the aggregate
principal amount of Notes originally issued at a redemption price equal to
110.625% of the principal amount thereof plus accrued and unpaid interest.
In connection with the Recapitalization Agreement, the initial purchasers of
the $115.0 million of Notes were granted certain exchange and registration
rights. Based upon the terms of such agreement, the Company issued new notes
with substantially identical terms as the old notes except that the new
notes are registered under the Securities Act and therefore do not bear
legends restricting their transfer.
In conjunction with the Recapitalization, the Company entered into the
Credit Agreement among Therma-Wave, Inc., various lending institutions, and
Bankers Trust Company, as Agent (the "Bank Credit Facility"), which provided
for a revolving credit facility of $30.0 million. During the quarter ended
June 30, 1998, the Company entered into the First Amendment to the Credit
Agreement among Therma-Wave, Inc., various lending institutions, and Bankers
Trust Company, as Agent (the "Amended Bank Credit Facility"), to have its
borrowing availability subject to a borrowing base formula, which provides a
maximum revolving credit facility of $30.0 million, and to make certain
necessary adjustments to the financial tests and covenants contained therein
in light of current market conditions. The Company may borrow amounts under
the Amended Bank Credit Facility to finance its working capital requirements
and other general corporate purposes. The Amended Bank Credit Facility
requires the Company to meet certain financial tests and contains covenants
customary for this type of financing. At June 30, 1998, there was $3.5
million of an outstanding letter of credit and unused borrowing capacity
under the Amended Bank Credit Facility of $22.5 million.
5. Expenses Relating to Operating Cost Improvements
On June 22, 1998, the Company announced and implemented an operating cost
improvement program aimed at bringing operating expenses in line with the
Company's current operating environment. These efforts are in response to
the continued cutbacks in capital equipment investment by semiconductor
manufacturers. As a result of the implementation of this program, the
Company recorded a charge of $582,000, of which $406,000 relates to
severance and related charges, $76,000 of vacated leased facilities and
$100,000 of certain excess operating assets.
.
8
<PAGE>
6. Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." The statement established standards for the reporting
and display of comprehensive income and its components. However, the
adoption of this statement had no impact on the Company's net income (loss)
or stockholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which have been consistently included in stockholders' equity
and excluded from net income (loss), to be included in comprehensive income
(loss). The primary difference between net income (loss) and comprehensive
income (loss) for the Company is due to foreign currency translation
adjustments. Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.
During the first quarter of 1998 and 1997, comprehensive income (loss)
amounted to approximately $(6,091,000) and $26,000, respectively.
7. Recently Issued Accounting Statements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes new requirements for the annual reporting of information
regarding operating segments, products, services, geographic areas and major
customers. The Company will adopt SFAS No.131 effective March 31, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes and
amends a number of existing accounting standards. SFAS No. 133 requires that
all derivatives be recognized in the balance sheet at their fair market
value, and the corresponding derivative gains or losses be either reported
in the statement of operations or as a deferred item depending on the type
of hedge relationship that exists with respect to such derivative. The
Company currently does not hold any derivative instruments that will be
affected by the adoption of SFAS No. 133.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
When used in this discussion, the words "expects", "anticipates" and similar
expressions are intended to identify forward-looking statements. Such forward-
looking statements are subject to a number of risks and uncertainties that could
cause actual results to differ materially from the statements made. The Company
has experienced and expects to continue to experience significant fluctuations
in its quarterly results. The Company's expense levels are based, in part, on
expectations of future revenues. If revenue levels in a particular quarter do
not meet expectations, operating results are adversely affected. A variety of
factors could have an influence on the level of the Company's revenues in a
particular quarter. These factors include the cyclical nature of the
semiconductor industry, the risk that factors which allowed the Company to
experience relatively good performance in industry downturns may not protect the
Company in future downturns, the timing of the receipt of orders from major
customers, customer cancellations or delay of shipments, specific feature
requests by customers, production delays or manufacturing inefficiencies,
exchange rate fluctuations, management decisions to commence or discontinue
product lines, the Company's ability to design, introduce and manufacture new
products on a cost effective and timely basis, the introduction of new products
by the Company or its competition, the timing of research and development
expenditures, and expenses attendant to acquisitions, strategic alliances and
the future development of marketing and service capabilities.
General
The Company develops, manufactures, markets and services process control
metrology systems for use in the manufacture of semiconductors. The Company's
process control metrology systems are principally used to measure ion
implantation and thin film deposition and removal. The Company has developed
two major lines of process control metrology systems: (i) the Therma-Probe
system and (ii) the Opti-Probe system. The Therma-Probe system, introduced in
1985, utilizes the Company's proprietary thermal wave technology and is the
predominant nondestructive process control metrology system used to measure the
critical ion implantation process on product wafers in the fabrication of
semiconductors. The Opti-Probe system, introduced in 1992, significantly
improves upon existing thin film metrology systems by successfully integrating
different measurement technologies into one system and utilizing the Company's
proprietary optical technologies. According to Dataquest, a leading industry
analysis group, the Opti-Probe system captured the number one market share
position in 1997.
The Company's first quarters of fiscal years 1999 and 1998 ended on July 5, 1998
and July 6, 1997, respectively. For presentation purposes, any reference herein
to such periods refer to the periods ended June 30 of such fiscal year.
10
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Results of Operations
The following table summarizes Therma-Wave's unaudited historical results of
operations as a percentage of net revenues for the periods indicated. The
historical financial data for the three months ended June 30, 1998 and 1997 were
derived from the Company's unaudited consolidated financial statements which, in
the opinion of management, reflect all adjustments (consisting of normal
recurring adjustments) necessary for the fair presentation of the financial
condition and results of operations for such periods.
<TABLE>
<CAPTION>
Three months ended
June 30,
---------------------------------
Income Statement Data: 1998 1997
-------------- --------------
<S> <C> <C>
Net revenue 100.0% 100.0%
Cost of revenue 58.9 47.0
-------------- --------------
Gross margin 41.1 53.0
Operating expenses:
Research and development expenses 30.2 15.9
Selling, general and administrative 30.4 17.8
Recapitalization and other non-recurring expenses - 10.3
Operating cost improvements 3.8 -
-------------- --------------
Operating income (23.3) 9.0
Interest expense (22.9) (7.8)
Interest income 1.3 0.6
Other, net (1.0) -
-------------- --------------
Income (loss) before income taxes (45.9) 1.8
Provision (benefit) for income taxes (5.9) 0.7
-------------- --------------
Net income (loss) (40.0) % 1.1%
============== ==============
</TABLE>
Net revenues for the three months ended June 30, 1998 and 1997 were $15.2 and
$28.2 million, respectively. Compared to the corresponding periods of fiscal
1998 and 1997, net revenues decreased $13.0 million or 45.9% for the three month
period ended June 30, 1998. This is attributed to the current downturn in the
global semiconductor industry due primarily to excess DRAM capacity and a
slowdown in product demand as a result of lower than expected sales of high-end
personal computers and the economic conditions in the Asia Pacific region. This
slowdown has caused the semiconductor industry to reduce both purchases of
semiconductor manufacturing equipment and construction of new fabrication
facilities.
Gross margin percentages for the three months ended June 30, 1998 and 1997 were
41.1% and 53.0%, respectively. Compared to the corresponding periods of fiscal
1998 and 1997, the gross margin percentage decreased by 11.9 percentage points
due to decreased revenues as a result of the downturn in the global
semiconductor industry and continued expenditures primarily related to customer
service. The Company believes that these expenditures are important to maintain
and strengthen the Company's competitive position.
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Research and development expenses were $4.6 million and $4.5 million for the
three months ended June 30, 1998 and 1997. Research and development expenses as
a percentage of net revenues for the three months ended June 30, 1998 and 1997
were 30.2% and 15.9%, respectively. Compared to the corresponding periods of
fiscal 1998, research and development expenses increased $0.1 million, or 2.5%.
Although the Company is in a current downturn, the Company continues to make
significant investments in research and development, particularly relating to
the new OP5000 and 300 millimeter products, in order to continue to maintain and
strengthen its competitive position.
Selling, general and administrative expenses were $4.6 million and $5.0 million
for the three months ended June 30, 1998 and 1997. Selling, general and
administrative expenses as a percentage of net revenues for the three months
ended June 30, 1998 and 1997 were 30.4% and 17.8%, respectively. Compared to
the corresponding periods of fiscal 1998, selling, general and administrative
expenses decreased $0.4 million, or 7.8%. The increase as a percentage of
revenues for the period ended June 30, 1998 is a result of decreased revenues.
The decrease in selling, general and administrative expenses is due primarily to
the decrease in sales commissions and reduced advertising and promotion
spending.
On June 22, 1998, the Company announced and implemented an operating cost
improvement program aimed at bringing operating expenses in line with the
Company's current operating environment. These efforts are in response to the
continued cutbacks in capital equipment investment by semiconductor
manufacturers. As a result of the implementation of this program, the Company
recorded a charge of $582,000, of which $406,000 relates to severance and
related charges, $76,000 of vacated leased facilities and $100,000 of certain
excess operating assets.
Recapitalization and other non-recurring expenses for the three months ended
June 30, 1997 was $2.9 million of non-cash charges related to the arrangements
for the Company's executive officers in connection with the Recapitalization.
Interest expense for the three months ended June 30, 1998 and 1997 were $3.5
million and $2.2 million, respectively. This increased interest expense is
attributed to the additional debt incurred as part of the Recapitalization.
For the three months ended June 30, 1998 and 1997, the Company recorded a
benefit (provision) for income taxes of $910,000 and $(200,000), respectively.
The Company's tax benefit of $910,000 for the three months ended June 30, 1998
reflects the expected tax benefit rate of 13% for the fiscal year.
Net loss for the three months ended June 30, 1998 was $6.1 million as compared
with net income of $0.3 million for the three months ended June 30, 1997 due to
the abovementioned factors.
12
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Liquidity and Capital Resources
The Company's principal liquidity requirements are for working capital,
consisting primarily of accounts receivable, inventories, capital expenditures
and debt service. Historically, the Company has funded its operating activities
principally from working capital and working capital lines of credit.
Cash flow used in operating activities was $3.5 million and $1.0 million for the
three months ended June 30, 1998 and 1997, respectively. The increase in cash
flow used in operating activities from fiscal year 1998 to 1999 is mainly due to
the decrease in net income primarily due decreased revenues and higher interest
expense associated with borrowings used to finance the Recapitalization. This
decrease was partially offset by a lower investment in working capital and by
the increase in non-cash recapitalization and other non-recurring expenses.
Purchases of property and equipment were $0.2 million and $0.8 million for the
three months ended June 30, 1998 and 1997, respectively.
In May 1997, the Company issued $115.0 million in aggregate principal amount of
senior notes to finance the Recapitalization, including the repayment of notes
payable and redemption of common stock.
In conjunction with the Recapitalization, the Company entered into the Credit
Agreement among Therma-Wave, Inc., various lending institutions, and Bankers
Trust Company, as Agent (the "Bank Credit Facility"). The Bank Credit Facility
provides for borrowings of up to $30.0 million for working capital and other
general corporate purposes, and bears interest, at the Company's option, at (i)
the Base Rate (as defined in the Bank Credit Facility) plus 1.75% or (ii) the
Eurodollar Rate (as defined in the Bank Credit Facility) plus 3.00%. The
Company's borrowings under the Bank Credit Facility are secured by substantially
all of the Company's assets and a pledge of substantially all of the capital
stock of the Company's domestic subsidiaries and 65% of the capital stock of the
Company's first-tier foreign subsidiaries. The Bank Credit Facility matures on
May 16, 2002. During the quarter ended June 30, 1998, the Company entered into
the First Amendment to the Credit Agreement among Therma-Wave, Inc., various
lending institutions, and Bankers Trust Company, as Agent (the "Amended Bank
Credit Facility"), to have its borrowing availability subject to a borrowing
base formula, which provides a maximum revolving credit facility of $30.0
million, and to make certain necessary adjustments to the financial tests and
covenants contained therein in light of current market conditions. The Company
may borrow amounts under the Amended Bank Credit Facility to finance its working
capital requirements and other general corporate purposes. The Amended Bank
Credit Facility requires the Company to meet certain financial tests and
contains covenants customary for this type of financing. At June 30, 1998, there
was $3.5 million of an outstanding letter of credit and unused borrowing
capacity under the Amended Bank Credit Facility of $22.5 million.
The Company's principal sources of funds are cash on hand ($16.6 million as of
June 30, 1998) and borrowings under the Amended Bank Credit Facility. The
Company believes that these funds will provide the Company with sufficient
liquidity and capital resources for the Company
13
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to meet its current and future financial obligations, as well as to provide
funds for the Company's working capital needs, capital expenditures and other
needs. No assurance can be given, however, that this will be the case. Depending
upon its profitability, the Company may require additional equity or debt
financing to meet its working capital requirements or to fund its research and
development activities. There can be no assurance that additional financing will
be available when required or, if available, will be on terms satisfactory to
the Company. The Company's future operating performance and ability to service
or refinance the senior notes and to repay, extend or refinance the Amended Bank
Credit Facility will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
Impact of Currency Exchange Rates
Foreign exchange rate fluctuations have historically not had a significant
impact on the Company's results of operations since the Company's export sales
are denominated in United States dollars. Due to the unpredictability of
currency exchange rates, there can be no assurance that the Company will not
experience negative currency translation adjustments in the future, nor can the
Company predict the effect of exchange rate fluctuations upon future operating
results.
Factors that May Affect Results
Current Slowdown and Volatility in the Semiconductor Equipment Industry
The Company's business depends and will depend in the future upon the capital
equipment expenditures of semiconductor manufacturers, which, in turn depend on
the current and anticipated market demand for integrated circuits and products
utilizing integrated circuits. In addition, the Company's business depends upon
the new construction of semiconductor fabrication facilities and, as to existing
fabrication facilities, enhancements to improve yields. The semiconductor
industry has been cyclical in nature and historically has experienced periodic
downturns. The semiconductor industry is presently experiencing a downturn due
primarily to excess DRAM capacity and a slowdown in product demand as a result
of lower than expected sales of high-end personal computers and the economic
conditions in the Asia Pacific region. This slowdown has caused the
semiconductor industry to reduce both purchases of semiconductor manufacturing
equipment and construction of new fabrication facilities. These conditions have
adversely affected the Company's results of operations for the first quarter of
Fiscal 1999, and bookings, revenues and operating results will continue to be
adversely affected as long as the current downturn in the semiconductor industry
continues. Even during periods of reduced revenues, in order to remain
competitive, the Company will be required to invest in research and development
and to maintain extensive ongoing worldwide customer service and support
capability, which could adversely affect its financial results.
Global Market Risks
Because a significant portion of the Company's revenue is from sales outside the
United States, the Company's results can be significantly affected by weak
economic conditions in the foreign
14
<PAGE>
markets in which the Company distributes its products. Companies in the Asia
Pacific region, including Japan, Korea and Taiwan which accounts for a
significant portion of the Company's business in that region, have recently
experienced weaknesses in their currency, banking and equity markets. These
weaknesses are currently affecting demand for the Company's products. The
Company expects these conditions will continue to impact its results of
operations for at least the next two quarters.
Year 2000
Many computer systems used by the Company may not properly recognize a date
using "00" as the year 2000 (Year 2000). This could result in system/program
failures or logic errors that would disrupt normal business activities. The
Company is in the process of identifying and modifying or replacing computer
systems that potentially subject the Company to risk.
In addition, certain software programs used to operate systems manufactured
and sold by the Company may not be Year 2000 compliant. The Company is
currently notifying its customers of its plans on evaluating such software
programs to determine if they are Year 2000 ready.
The Company has initiated communications with suppliers to raise their
awareness of the Year 2000 issue and to determine the extent to which the
Company is vulnerable to their failure to remediate their own Year 2000 issues.
The Company cannot reasonably predict the degree to which its suppliers will be
successful in mitigating the potential negative effects of the Year 2000 date-
recognition problem.
If computer systems used by the Company or its suppliers, or the software
applications used in systems manufactured and sold by the Company, fail or
experience significant difficulties, the Company's results of operations could
be materially affected. At this time, the Company cannot reasonably estimate
the cost of its Year 2000 compliance program.
15
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
In July 1998, Anthony W. Lin resigned from the position of Chief Financial
Officer of the Company and as a member of the Board of Directors.
Additionally, in July 1998, Charlotte Holland resigned from the position of
Vice President of Finance of the Company. In August 1998, Martin Schwartz
became the President and Chief Operating Officer of the Company and a member
of the Board of Directors and Ray Christie became the Chief Financial
Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of Therma-Wave, Inc. (1)
3.2 Amended and Restated By-Laws of Therma-Wave, Inc. (1)
10.1 First Amendment to the Credit Agreement among Therma-Wave, Inc.,
various lending institutions, and Bankers Trust Company, as
Agent.
27.1 Financial Data Schedule
_______
(1) Incorporated by reference to the same numbered exhibit to the
Company's Registration Statement on Form S-4 (Registration No.
333-29871)
16
<PAGE>
(a) Reports on Form 8-K
The Company filed a report on Form 8-K on July 22, 1998 and an amendment on
Form 8-K/A on July 27, 1998 to record the change in certifying accountants.
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.
THERMA-WAVE, INC.
(Registrant)
/s/ L. RAY CHRISTIE
-----------------------------
L. RAY CHRISTIE
Chief Financial Officer
(as Registrant and as Principal Accounting Officer)
August 13, 1998
17
<PAGE>
Exhibit 10.1
FIRST AMENDMENT
---------------
FIRST AMENDMENT (this "Amendment"), dated as of June 30, 1998, among
THERMA-WAVE, INC., a Delaware corporation (the "Borrower"), the lenders party to
the Credit Agreement referred to below (each a "Bank" and, collectively, the
"Banks") and BANKERS TRUST COMPANY, as Agent (the "Agent"). All capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of May 16, 1997 (the "Credit Agreement"); and
WHEREAS, the Borrower has requested, and the Banks are willing to
grant (subject to the terms and conditions hereof), certain amendments to the
Credit Agreement as set forth herein;
NOW, THEREFORE, it is agreed:
1. Section 1.01(c) of the Credit Agreement is hereby amended by
inserting the following text at the end of clause (v) of the second sentence
thereof:
"or the amount of the Borrowing Base at such time".
2. Section 1.01 of the Credit Agreement is hereby amended by
inserting the following new clause (d) at the end thereof:
"(d) Notwithstanding anything to the contrary contained in this
Agreement (including in this Section 1.01 or in Section 2.01), at no time
on and after July 1, 1998 and prior to the date of delivery of the
financial statements and related officer's certificate pursuant to Sections
7.01(c) and 7.01(e) in respect of the Borrower's fiscal year ending closest
to March 31, 2000, shall the sum of (I) the aggregate principal amount of
all outstanding Revolving Loans plus (II) the aggregate principal amount of
all outstanding Swingline Loans plus (III) the aggregate amount of all
Letter of Credit Outstandings exceed the Borrowing Base at such time
(based on the Borrowing Base Certificate last delivered)."
3. Section 4.02(a) of the Credit Agreement is hereby amended by
inserting the following new paragraph at the end thereof:
"If, on any date on and after July 1, 1998 and prior to the date of
delivery of the financial statements and related officer's certificate
pursuant to Sections 7.01(c) and 7.01(e) in respect of the Borrower's
fiscal year ending closest to March 31, 2000, the sum of (i) the aggregate
outstanding principal amount of Revolving Loans and Swingline
<PAGE>
Loans (after giving effect to all other repayments thereof on such date)
plus (ii) the Letter of Credit Outstandings on such date exceeds the
Borrowing Base at such time (based on the Borrowing Base Certificate last
certificate), the Borrower shall repay on such date the principal of
Swingline Loans, and if no Swingline Loans are or remain outstanding,
Revolving Loans, in an aggregate amount equal to such excess. If, on any
date during the period set forth above in the immediately preceding
sentence and after giving effect to the prepayment of all outstanding
Swingline Loans and Revolving Loans, the aggregate amount of Letter of
Credit Outstandings exceeds the Borrowing Base at such time (based on the
Borrowing Base Certificate last delivered), the Borrower agrees to pay to
the Agent on such date an amount in cash and/or Cash Equivalents equal to
such excess (up to the aggregate amount of Letter of Credit Outstandings at
such time) and the Agent shall hold such payment as security for the
obligations of the Borrower hereunder pursuant to a cash collateral
agreement to be entered into in form and substance reasonably satisfactory
to the Agent (which shall permit certain investments in Cash Equivalents
reasonably satisfactory to the Agent until the proceeds are applied to the
secured obligations)."
4. Section 7.01 of the Credit Agreement is hereby amended by
inserting the following new clause (j) at the end thereof:
"(j) Borrowing Base Certificate. Until the Borrower delivers its
--------------------------
financial statements and related officer's certificate pursuant to Sections
7.01(c) and 7.01(e) in respect of its fiscal year ending closest to March
31, 2000, (x) on July 13, 1998 and (y) not later than 3:00 P.M. (New York
time) on the fifteenth day of each fiscal month of the Borrower (commencing
on July 20, 1998), a borrowing base certificate in the form of Exhibit M
(each, a "Borrowing Base Certificate"), which shall be prepared (A) as of
May 31, 1998 in the case of the initial Borrowing Base Certificate and (B)
as of the last Business Day of the preceding fiscal month in the case of
each subsequent monthly Borrowing Base Certificate, in each case certified
by the chief financial officer or other Authorized Officer of the
Borrower."
5. Section 7.02 of the Credit Agreement is hereby amended by
inserting the following new sentence at the end thereof:
"In addition, the Borrower will, and will cause each of its Subsidiaries
to, permit upon reasonable prior notice to the Borrower, the Agent to
conduct, at the Borrower's expense, an audit of the inventories and
accounts receivable of the Borrower and its Subsidiaries at such times (but
no more frequently than once a year unless an Event of Default shall have
occurred and be continuing) as the Agent shall reasonably require."
6. Section 8.09 of the Credit Agreement is hereby deleted in its
entirety and the following new Section 8.09 is inserted in lieu thereof:
"8.09 Minimum Consolidated EBITDA. (a) The Borrower will not permit
---------------------------
Consolidated EBITDA (i) for the Borrower's fiscal quarter ending closest to
June 30, 1997 to be less than $2,500,000 and (ii) for any Test Period
ending on the last day of a
<PAGE>
fiscal quarter of the Borrower set forth below to be less than the amount
set forth opposite such fiscal quarter below:
Fiscal Quarter
Ending Closest To Amount
----------------- ------
September 30, 1997 $5,000,000
December 31, 1997 $5,000,000
March 31, 1998 $5,000,000
June 30, 1998 ($1,000,000)
September 30, 1998 ($9,000,000)
December 31, 1998 ($5,500,000)
March 31, 1999 ($3,500,000)
June 30, 1999 ($2,500,000)
September 30, 1999 ($500,000)
December 31, 1999 $1,500,000
March 31, 2000 $3,500,000
June 30, 2000 $10,000,000
September 30, 2000 $15,000,000
December 31, 2000 $15,000,000
March 31, 2001 $15,000,000
June 30, 2001 $15,750,000
September 30, 2001 $16,500,000
December 31, 2001 $16,500,000
March 31, 2002 $16,500,000
June 30, 2002 $16,500,000
<PAGE>
(b) The Borrower will not permit Consolidated EBITDA for the period
from April 6, 1997 to the last day of a fiscal quarter of the Borrower set
forth below (in each case taken as one accounting period) to be less than
the amount set forth opposite such fiscal quarter below:
Fiscal Quarter
Ending Closest To Amount
----------------- ------
June 30, 1997 $2,500,000
September 30, 1997 $5,000,000
December 31, 1997 $7,500,000
March 31, 1998 $10,000,000
June 30, 1998 $13,000,000
September 30, 1998 $11,000,000
December 31, 1998 $9,500,000
March 31, 1999 $8,500,000
June 30, 1999 $8,000,000
September 30, 1999 $9,000,000
December 31, 1999 $11,000,000
March 31, 2000 $13,500,000"
7. The definition of "Consolidated EBITDA" appearing in Section 10 of
the Credit Agreement is hereby deleted in its entirety and the following new
definition of "Consolidated EBITDA" is inserted in lieu thereof:
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT
for such period, adjusted by (x) adding thereto (i) the amount of all
depreciation expense and amortization expense that were deducted in
determining Consolidated EBIT for such period and (ii) to the extent
incurred during the Borrower's fiscal quarter ended closest to June 30,
1998, up to $750,000 of non-cash restructuring charges that were deducted
in determining Consolidated EBIT for such period and (y) subtracting
therefrom the amount of all cash expenses, cash charges and cash payments
made or incurred during such period which relate to any non-cash
restructuring charges referred to above in this definition.
<PAGE>
8. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new definitions in the appropriate alphabetical order:
"Borrowing Base" shall mean, as at any date on which the amount
thereof is being determined, an amount equal to the sum of 90% of Eligible
Receivables plus 60% of Eligible Inventory, each as determined from the
Borrowing Base Certificate most recently delivered pursuant to Section
8.01(j).
"Borrowing Base Certificate" shall have the meaning provided in
Section 8.01(j).
"Eligible Inventory" shall mean the gross dollar value (valued at the
lower of cost or market value) of the inventory of the Borrower and the
Subsidiary Guarantors which, except as provided below in this definition,
conforms to the representations and warranties contained in the Security
Agreement (including by the Collateral Agent having a first priority
perfected security interest therein subject only to Permitted Liens) and
which at all times continue to be acceptable to the Collateral Agent in its
reasonable judgment, less (i) any supplies (other than raw materials),
goods returned or rejected (except to the extent that such returned or
rejected goods continue to conform to the representations and warranties
contained in the Security Agreement and continue to be acceptable to the
Collateral Agent in its reasonable judgment) by customers and goods to be
returned to suppliers, (ii) any advance payments made by customers with
respect to inventory of the Borrower and the Subsidiary Guarantors, (iii)
reserves required by the Collateral Agent in its reasonable judgment and
(iv) any inventory held on consignment, provided that Eligible Inventory
also may include up to $3,000,000 in the aggregate of inventory of the
Borrower and its Subsidiaries which is located outside the United States
and in which the Collateral Agent does not have a perfected security
interest so long as such inventory otherwise meets the eligibility
requirements set forth above in this definition.
"Eligible Receivables" shall mean the total face amount of the
receivables of the Borrower and the Subsidiary Guarantors which conform to
the representations and warranties contained in the Security Agreement
(including by the Collateral Agent having a first priority perfected
security interest therein subject only to Permitted Liens) and at all times
continue to be acceptable to the Collateral Agent in its reasonable
judgment, less any returns, discounts, claims, credit and allowances of any
nature (whether issued, owing, granted or outstanding) and less reserves
booked or made by the Borrower or any Subsidiary Guarantor for any other
matter affecting the creditworthiness of account debtors owing the
receivables and excluding (i) bill and hold (deferred shipment)
transactions, (ii) contracts or sales to any Affiliate of the Borrower or
any of its Subsidiaries, (iii) all receivables to the extent that same have
not been paid in full within 90 days of the due date thereof or which have
been disputed by the account debtor, and (iv) governmental sales, provided
that governmental sales shall be included to the extent that the Borrower
or the respective Subsidiary Guarantor has taken all action required to be
taken by the Federal Assignment of Claims Act to grant to the Collateral
Agent a valid, enforceable and perfected security interest in the
respective receivable.
<PAGE>
9. The Credit Agreement is hereby further amended by inserting a new
Exhibit M thereto in the form of Exhibit M hereto.
10. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (i) the representations, warranties
and agreements contained in Section 6 of the Credit Agreement are true and
correct in all material respects on and as of the First Amendment Effective Date
(as defined below), after giving effect to this Amendment and (ii) there exists
no Default or Event of Default on the First Amendment Effective Date, after
giving effect to this Amendment.
11. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other provision of any other Credit Document.
12. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
13. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of the
State of New York.
14. This Amendment shall become effective as of the date first above
written on the date (the "First Amendment Effective Date") when the Borrower and
the Required Banks shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (included by way of facsimile
transmission) the same to the Agent at the Notice Office.
* * *
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
THERMA-WAVE, INC.
By: /s/ CHARLOTTE HOLLAND
----------------------------------
Title: Vice President of Finance
BANKERS TRUST COMPANY,
Individually and as Agent
By: /s/ RYAN ZANIN
----------------------------------
Title: Managing Director
FLEET BANK, N.A.
By:
----------------------------------
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMA-WAVE,
INC.'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-04-1999
<PERIOD-START> APR-06-1998
<PERIOD-END> JUL-05-1998
<CASH> $16,609
<SECURITIES> 0
<RECEIVABLES> 14,924
<ALLOWANCES> 2,913
<INVENTORY> 21,813
<CURRENT-ASSETS> 61,437
<PP&E> 5,795
<DEPRECIATION> 1,088
<TOTAL-ASSETS> 78,638
<CURRENT-LIABILITIES> 23,447
<BONDS> 115,000
14,721
0
<COMMON> 114
<OTHER-SE> (77,287)
<TOTAL-LIABILITY-AND-EQUITY> 78,638
<SALES> 15,246
<TOTAL-REVENUES> 15,246
<CGS> 8,979
<TOTAL-COSTS> 8,979
<OTHER-EXPENSES> 9,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,499
<INCOME-PRETAX> 0
<INCOME-TAX> (910)
<INCOME-CONTINUING> (6,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,090)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
