<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 4, 1999 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)
<TABLE>
<S> <C>
DELAWARE 94-3000561
State or other jurisdiction of incorporation I.R.S. Employer Identification Number
or organization
1250 Reliance Way
Fremont, California 94539
Address of principal executive offices Zip Code
</TABLE>
(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 1, 1999
- - -------------------------------------------------------------------------------
Class A Common stock, $.01 par value 9,073,532
Class B Common stock, $.01 par value 1,120,448
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, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1999 and 1998 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II.Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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,
1999 1999
---------------- ---------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 16,941 $ 20,245
Accounts receivable, net 18,494 12,180
Inventories 14,868 15,369
Other current assets 2,620 9,759
---------------- ---------------
Total current assets 52,923 57,553
Property and equipment, net 4,251 4,513
Deferred financing costs, net 7,944 8,349
Other assets 2,219 1,937
---------------- ---------------
Total assets $ 67,337 $ 72,352
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 5,207 $ 4,034
Other current liabilities 18,319 22,125
---------------- ---------------
Total current liabilities 23,526 26,159
Long term debt 115,000 115,000
Other liabilities 2,893 2,817
---------------- ---------------
Total liabilities 141,419 143,976
Commitments and contingencies
Mandatorily redeemable preferred stock 15,553 15,347
Stockholders' equity (net capital deficiency)
Common stock - Class A 91 91
Common stock - Class B 11 11
Common stock - Class L 10 10
Additional paid-in capital 19,557 19,754
Notes receivable from stockholders (241) (241)
Accumulated deficit (107,755) (105,416)
Other comprehensive loss (1,308) (1,180)
---------------- ---------------
Total stockholders' equity (net capital deficiency) (89,635) (86,971)
---------------- ---------------
Total liabilities and stockholders' equity (net
capital deficiency) $ 67,337 $ 72,352
================ ===============
</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,
----------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Net revenue $21,141 $15,246
Cost of revenue 12,228 8,979
--------------- --------------
Gross margin 8,913 6,267
Operating expenses:
Research and development 3,855 4,598
Selling, general and administrative 4,055 4,633
Expenses relating to operating cost improvements - 582
--------------- --------------
Total operating expenses 7,910 9,813
--------------- --------------
Operating income (loss) 1,003 (3,546)
Other income (expense):
Interest expense (3,525) (3,499)
Interest income 150 206
Other, net 33 (161)
--------------- --------------
(3,342) (3,454)
--------------- --------------
Loss before income taxes (2,339) (7,000)
Benefit for income taxes - (910)
--------------- --------------
Net loss (2,339) (6,090)
Accretion of preferred stock dividend 206 206
--------------- --------------
Net loss attributable to common stockholders $(2,545) $(6,296)
=============== ==============
</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,
-------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Operating activities:
Net loss $ (2,339) $ (6,090)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 1,134 1,088
Amortization of deferred financing costs 405 396
Non-cash expenses relating to operating cost - 100
improvements
Changes in assets and liabilities:
Accounts receivable (6,314) 7,174
Inventories 131 (944)
Other assets 6,893 (204)
Other liabilities (2,529) (5,053)
---------------- ----------------
Net cash used by operating activities (2,619) (3,533)
Investing activities:
Purchases of property and equipment (389) (181)
Other (149) (69)
---------------- ----------------
Net cash used in investing activities (538) (250)
Net cash provided used in financing activities (147) (30)
---------------- ----------------
Net decrease in cash and cash equivalents (3,304) (3,813)
Cash and cash equivalents at beginning of period 20,245 20,422
---------------- ----------------
Cash and cash equivalents at end of period $ 16,941 $ 16,609
================ ================
Supplementary disclosures:
Cash paid for interest $ 6,172 $ 6,119
================ ================
Cash paid for taxes $ 10 $ 51
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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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. 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 our opinion, the financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position at
June 30, 1999, and the operating results and cash flows for the three
months ended June 30, 1999 and 1998. These financial statements and notes
should be read in conjunction with our audited financial statements and
notes thereto for the year ended March 31, 1999.
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 2, 2000.
The first quarters of fiscal years 2000 and 1999 and the fiscal year 1999
ended on July 4, 1999, July 5, 1998 and April 4, 1999, 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 we do not have publicly held
common stock.
2. Inventories
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
-------------------------- -------------------------
<S> <C> <C>
Purchased materials $ 5,310 $ 6,678
Systems in process 7,335 5,302
Finished systems 2,223 3,389
-------------------------- -------------------------
$ 14,868 $ 15,369
========================== =========================
</TABLE>
6
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3. Expenses Relating to Operating Cost Improvements
On June 22, 1998 and September 24, 1998, we announced and implemented an
operating cost improvement program aimed at bringing operating expenses in line
with our current operating environment. All terminated employees were notified
of their severance and related benefits at the time the program was announced.
This program resulted in a reduction of approximately 100 employees primarily
involved in customer service and manufacturing positions. Certain leased
facilities in Texas, Arizona and Japan were closed and fixed assets were
consolidated. Total cash outlays for fiscal 1999 were $832,000. Non-cash charges
of $100,000 were primarily for asset write-offs. The balance of $75,000 at June
30, 1999 primarily represented cash payments and will be utilized during fiscal
2000. Expenses relating to operating cost improvements are summarized as
follows:
<TABLE>
<CAPTION>
Provision
Provision Quarter Ended
Quarter Ended September 30, Utilized Balance Balance
June 30, 1998 1998 in Fy99 March 31, 1999 Utilized June 30, 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Severance $406 $431 $(762) $ 75 $(45) $30
Facilities 76 44 (70) 50 (5) 45
Other 100 - (100) - - -
---- ---- ----- ---- ---- ---
$582 $475 $(932) $125 $(50) $75
</TABLE>
4. 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. The
adoption of this statement had no significant impact on our net loss or
stockholders' equity. SFAS 130 requires unrealized gains or losses on
available-for-sale securities and foreign currency translation adjustments
to be included in comprehensive loss. The difference between net loss and
comprehensive loss is due to foreign currency translation adjustments.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
During the quarter ended June 30, 1999 and 1998, comprehensive loss
amounted to approximately $2,467,000 and $6,091,000, respectively.
5. 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. We adopted SFAS No.131 effective March 31, 1999.
7
<PAGE>
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.
We currently do not hold any derivative instruments that are affected by
the adoption of SFAS No. 133.
6. Commitments and Contingencies
On July 19, 1994, we filed a patent infringement suit against Jenoptik in the
United States District Court for the Northern District of California. We alleged
that the manufacture and sale by Jenoptik of its TWIN and TWIN SC systems
infringed six of our United States patents that are related to our Therma-Probe
ion implant metrology systems. Jenoptik denied infringement and claimed that our
patents were invalid and unenforceable.
On February 1, 1996, we filed a patent infringement suit against Jenoptik in the
Patent Court in Dusseldorf, Germany. We alleged that the manufacture and sale by
Jenoptik of its TWIN and TWIN SC systems infringed our German counterpart to one
of our United States patents being asserted against Jenoptik in the United
States lawsuit. This German counterpart patent was found to be invalid by a
patent court in Munich, Germany.
On November 26, 1997, we received a favorable jury verdict in our United States
patent infringement suit against Jenoptik. The jury found all six of our patents
valid and concluded that Jenoptik infringed all thirty-one claims at issue from
these patents. As a result of the settlement of this litigation, Jenoptik has
agreed not to sell any of such products in the United States and to pay us a
royalty fee for systems sold in Japan. To date, the sale of these products by
Jenoptik has not had a material impact on our market position. This settlement
resolved all outstanding legal claims and pending appeals relating to these
matters.
On June 5, 1998, at our request, the United States Patent Office initiated an
interference proceeding between Therma-Wave and Rudolph Technologies. The
subject matter of the interference relates to ellipsometer technology which
Rudolph employs in its commercial devices. We believe we developed and patented
this technology prior to Rudolph. The interference proceedings will determine
ownership of the technology as between Rudolph Technologies and Therma-Wave. A
successful outcome of the interference proceeding may result in Rudolph being
required to pay us licensing fees. Since we have not commercialized this
technology, an unsuccessful outcome in the interference proceeding would not
have a material adverse effect on our business, financial condition or results
of operations.
On September 3, 1998, we were named in a patent infringement suit filed by KLA-
Tencor. KLA-Tencor alleged that it patented an aspect of the thin film thickness
measuring technology that we use in our Opti-Probe product family. KLA-Tencor is
seeking damages and an injunction to stop the sale of the equipment they allege
uses this aspect. We believe none of our products infringe any of the claims of
KLA-Tencor's patent and that their infringement allegations are unfounded.
Nonetheless, KLA-Tencor has made broad allegations covering technology that
accounts for a significant portion of our revenues. Since we believe these
allegations are unfounded, we intend to vigorously defend our position, and we
expect to prevail. We believe that the outcome from such litigation, even if
adverse to us, would not have a material adverse effect on our business,
financial condition or results or operations.
On January 14, 1999, we commenced an action against KLA-Tencor for patent
infringement with respect to one of our fundamental thin film technology
combination patents. The suit seeks damages for patent infringement and a
permanent injunction against any future activities undertaken by KLA-Tencor or
any third party working in conjunction with them, which infringe on our patent.
The suit was filed as a counterclaim in the 1998infringement action initiated by
KLA-Tencor and described in the prior paragraph and also seeks a declaratory
judgment that KLA-Tencor's patent, which we were alleged of infringing, is
invalid and not infringed by any of our systems.
On July 22, 1999, we were named in a second patent infringement suit filed by
KLA-Tencor. KLA-Tencor has alleged that it patented another aspect of one of the
thin film thickness measuring technologies that we have recently added to some
of our Opti-Probe products. KLA-Tencor is seeking damages and an injunction to
stop the sale of the equipment they allege uses this aspect. Since the patent
which is the subject of this second suit issued on June 8,1999, any potential
liability for past sales is not material. Prior to filing its first infringement
action, KLA-Tencor notified us of an earlier version of the patent that is the
subject of this second suit. We believe none of our products infringed any of
the claims of the earlier version of this KLA-Tencor patent and previously
informed KLA-Tencor of our belief. KLA-Tencor's new patent is a continuation of
the earlier patent. We believe KLA-Tencor's new patent is invalid and we intend
to vigorously defend our position and we expect to prevail. We believe that the
outcome from such litigation, even if adverse to us, would not have a material
adverse effect on our business, financial condition or results or operations.
There can be no assurances, however, that we will prevail in any ongoing patent
litigation described above. We believe, however, the litigation described above
will not have a material adverse effect on our business, financial condition or
results of operations.
We are presently in discussions with Nanometrics regarding patent issues.
Specifically, we believe some of the thin film thickness measuring devices sold
by Nanometrics infringes upon one of our fundamental thin film technology
combination patents. Nanometrics has alleged that an aspect of the thin film
thickness measuring technology that we use in some of our products in our Opti-
Probe family infringes upon a patent which it owns. We believe that none of our
products infringe any of the claims of Nanometrics' patent and that its
infringement allegations are unfounded. We cannot predict the outcome of these
discussions but we believe that the outcome from such discussions, even if
adverse to us, would not have a material adverse effect on our business,
financial condition or results of operations. No lawsuit with respect to any of
these matters has been filed by either party.
We are also involved in various legal proceedings from time to time arising in
the ordinary course of business, none of which are expected to have a material
adverse effect on our business or financial condition.
8
<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. We have
experienced and expect to continue to experience significant fluctuations in our
quarterly results of operations. Our 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 our revenues in a particular
quarter. These factors include the cyclical nature of the semiconductor
industry, the risk that factors which allowed us to experience relatively good
performance in industry downturns may not protect us 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, our ability to design, introduce and
manufacture new products on a cost effective and timely basis, the introduction
of new products by ourselves or our competitors, the timing of research and
development expenditures, and expenses attendant to acquisitions, strategic
alliances and the future development of marketing and service capabilities.
General
We develop, manufacture, market and service process control metrology systems
for use in the manufacture of semiconductors. Our process control metrology
systems are principally used to measure ion implantation and thin film
deposition and removal. We have developed two product families of process
control metrology systems: the Therma-Probe systems and the Opti-Probe systems.
Therma-Probe Product Family
The Therma-Probe systems utilize our proprietary thermal wave technology and are
the predominant nondestructive process control metrology system used to measure
the critical ion implantation process on product wafers in the fabrication of
semiconductors.
Opti-Probe Product Family
The Opti-Probe systems significantly improve upon existing thin film metrology
systems by successfully integrating different measurement technologies and
utilizing our proprietary optical technologies.
9
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Results of Operations
The following table summarizes our 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, 1999 and 1998 were derived from our
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,
---------------------------------
Statement of Operations Data: 1999 1998
-------------- --------------
<S> <C> <C>
Net revenue 100.0% 100.0%
Cost of revenue 57.8 58.9
-------------- --------------
Gross margin 42.2 41.1
Operating expenses:
Research and development expenses 18.3 30.2
Selling, general and administrative 19.2 30.4
Expenses relating to operating cost improvements - 3.8
-------------- --------------
Operating income (loss) 4.7 (23.3)
Other income (expense):
Interest expense (16.7) (23.0)
Interest income 0.7 1.4
Other, net 0.2 (1.1)
-------------- --------------
Loss before income taxes (11.1) (46.0)
Benefit for income taxes - (6.0)
-------------- --------------
Net loss (11.1)% (40.0)%
============== ==============
</TABLE>
Net Revenues. Revenues were $21.1 million, up 14% from the prior fiscal
quarter, and up 39% compared to the same quarter a year ago. Revenues increased
from the prior fiscal quarter and the first quarter of last fiscal year as a
result of the improvement in the semiconductor equipment industry.
New orders for the first quarter were up substantially from the prior
quarter and resulted in a book-to-bill ratio of 1.2 to 1. Incoming orders for
all geographic regions were up, particularly North America, Korea and Taiwan.
Gross Margin. Gross margin for the first quarter of fiscal 2000 was 42%,
down from 46% for the fourth quarter of fiscal 1999 and up from 41% for the
first quarter of our last fiscal year. The decrease from the fourth quarter was
the result of lower average selling prices due to price competition for orders
taken during the semiconductor industry downturn and higher manufacturing costs
associated with the manufacturing scale-up of new products. The increase
10
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versus the first quarter of fiscal 1999 resulted from headcount reductions in
manufacturing and customer service.
Research and Development (R&D) Expenses. R&D expenses for the first
quarter of fiscal 2000 were $3.9 million, an increase of 10% from the prior
quarter and a decrease of 16% from the first quarter of our last fiscal year.
The increase from the prior quarter was the result of additional resources
dedicated to new products expected to be released in the next twelve to eighteen
months. The decrease from the first quarter of the prior fiscal year was due to
reductions in headcount. We believe that technical leadership is essential to
our success and expect to continue to commit significant resources to R&D
projects. In the near term, we expect our R&D expenses to increase in both
absolute dollar terms and as a percentage of our net revenues.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses for
the first quarter of fiscal 2000 were $4.0 million, a decrease of 6% from the
prior fiscal quarter and a decrease of 12% from the first quarter of last fiscal
year. The decrease from the prior fiscal quarter was due to lower external sales
commissions resulting from the change in customer sales mix. The decrease from
the first quarter of the prior fiscal year resulted from reductions in
headcount.
Expenses Relating to Operating Cost Improvements. On June 22, 1998 and
September 24, 1998, we announced and implemented an operating cost improvement
program aimed at bringing operating expenses in line with our current operating
environment. All terminated employees were notified of their severance and
related benefits at the time the program was announced. This program resulted in
a reduction of approximately 100 employees primarily involved in customer
service and manufacturing positions. Certain leased facilities in Texas, Arizona
and Japan were closed and fixed assets were consolidated. Total cash outlays for
fiscal 1999 were $832,000. Non-cash charges of $100,000 were primarily for asset
write-offs.
Interest Expense. Interest expense for the first quarter of fiscal 2000 was
$3.5 million, which was equal to the prior fiscal quarter as well as the first
quarter of the prior fiscal year.
Provision for Income Taxes. For the first quarter of the prior fiscal year,
we recorded a benefit for income taxes of $0.9 million. Our tax benefit for
fiscal 1999 reflected the tax benefit rate of 13% based upon our loss carryback
potential. For fiscal 2000, we have not recorded any tax benefit since we have
fully utilized our loss carryback ability.
Net Loss. We experienced a net loss of $2.3 million for the first quarter
of fiscal 2000. This was equal to our net loss for the prior fiscal quarter and,
as compared to our net loss for the first quarter of fiscal 1999, represented an
improvement of $3.8 million.
Backlog
At June 30, 1999, our backlog was $20.4 million compared to $16.0 million at
March 31, 1999
11
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and $31.5 at June 30, 1998. Our backlog consists of product orders for which a
customer purchase order has been received and accepted and which is scheduled
for shipment within six months. Orders that are scheduled for shipment beyond
the six-month window are not included in backlog until they fall within the six-
month window. Orders are subject to rescheduling or cancellation by the
customer, usually without penalty. Backlog also consists of recurring fees
payable under support contracts with our customers and orders for spare parts
and billable service. Because of possible changes in product delivery schedules
and cancellation of product orders and because our sales will sometimes reflect
orders shipped in the same quarter that they are received, our backlog at any
particular date is not necessarily indicative of actual sales for any succeeding
period.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital. Since the
recapitalization, we have funded our operating activities principally from funds
generated from operations.
Cash flow used in operating activities was $2.6 million and $3.5 million for the
first quarters of fiscal 2000 and 1999, respectively. The decrease in cash flow
used in operating activities from fiscal year 1999 to 1998 is mainly due to the
increase in accounts receivable, partially offset by the tax refund of $8.3
million, the decrease in net loss and the decrease in other liabilities.
Purchases of property and equipment were $0.4 million and $0.2 million for the
first quarters of fiscal 2000 and 1999, respectively.
In May 1997, we issued $115.0 million in aggregate principal amount of senior
notes that, together with a $20.1 million equity contribution, was used to
finance the recapitalization. In the recapitalization, we used $26.9 million to
repay outstanding borrowings, $96.9 million to redeem a portion of our common
stock, $11.0 million to pay related fees and expenses and $0.3 million for
general working capital purposes.
In conjunction with the recapitalization, we entered into a senior credit
facility with various lending institutions, and Bankers Trust Company, as agent.
The bank credit facility bears interest, at our option, at (i) the base rate
plus 1.75% or (ii) the eurodollar rate plus 3.00%. Our borrowings under the bank
credit facility are secured by substantially all of our assets, a pledge of all
of the capital stock of any domestic subsidiaries and a pledge of 65% of the
capital stock of our first-tier foreign subsidiaries. The bank credit facility
matures on May 16, 2002.
During the quarter ended June 30, 1998, we amended the bank credit facility to
have our borrowing availability subject to a borrowing base formula, which
provides a maximum revolving credit facility of $30.0 million, and to adjust the
financial covenants requiring us to maintain minimum levels of EBITDA during
each six-month period ending on the last day of each fiscal quarter and minimum
levels of cumulative EBITDA from April 7, 1996 to the last day of each fiscal
quarter. In August 1999, we entered into a second amendment to our bank credit
facility to further adjust these financial tests. These amendments were effected
in light of the
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impact of the downturn in the semiconductor industry on our operating results.
Without the first amendment to our bank credit facility, on June 30, 1998, we
would have violated the financial test relating to the maintenance of minimum
levels of EBITDA for the six-month period ending on such date. We may borrow
amounts under the amended bank credit facility to finance our working capital
requirements and other general corporate purposes. The amended bank credit
facility requires us to meet certain financial tests and contains covenants
customary for this type of financing. At June 30, 1999, there was $3.5 million
outstanding under a letter of credit and $22.8 million of unused borrowing
capacity under the amended bank credit facility.
Our principal sources of funds are anticipated to be cash on hand ($16.9 million
as of June 30, 1999), cash flows from operating activities and, if necessary,
borrowings under the bank credit facility. In addition, we received a tax refund
of $8.3 million during the first quarter of fiscal 2000. We believe that these
funds will provide us with sufficient liquidity and capital resources for us to
meet our current and future financial obligations, as well as to provide funds
for our working capital, capital expenditures and other needs for at least the
next 12 months and, assuming continued improvement in the semiconductor
industry, through the next 24 months. No assurance can be given, however, that
this will be the case. We may require additional equity or debt financing to
meet our working capital requirements or to fund our 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 us.
We have filed a registration statement for an initial public offering of common
stock with the Securities and Exchange Commission. The registration statement
has not yet become effective.
Impact of Currency Exchange Rates
Foreign exchange rate fluctuations have historically not had a significant
impact on our results of operations since our export sales are denominated in
United States dollars. A substantial portion of our sales are denominated in
U.S. dollars and as a result, we have relatively little exposure to foreign
currency exchange riskwith respect to sales made. We do not use forward exchange
contracts to hedge exposures denominated in foreign currencies or any other
derivative financial instruments for trading or speculative purposes. Due to the
unpredictability of currency exchange rates, there can be no assurance that we
will not experience negative currency translation adjustments in the future, nor
can we predict the effect of exchange rate fluctuations upon future operating
results.
13
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Year 2000
Many computer systems used by us and our suppliers may not properly recognize a
date using ''00'' as the year 2000. This could result in system/program failure
or logic errors that could disrupt normal business activities. We have
established a formal project with a project office and project team to address
this issue and achieve year 2000 readiness.
The project is focused on four key readiness areas:
Internal Infrastructure Readiness, addressing internal hardware, software and
non-information technology systems;
Supplier Readiness, addressing the preparedness of those suppliers providing
material incorporated into our products;
Product Readiness, addressing product functionality; and
Customer Readiness, addressing customer support and transactional activity.
For each readiness area, we are systematically performing a global risk
assessment, conducting testing and remediation (renovation and implementation),
developing contingency plans to mitigate unknown risk, and communication with
employees, suppliers and customers to raise awareness of the Year 2000 problem.
Internal Infrastructure Readiness Program. We are conducting an assessment of
internal applications and computer hardware. Some software applications have
been made Year 2000 compliant, and resources have been assigned to address other
applications based on their criticality and the time required to make them Year
2000 compliant. All software remediation is scheduled to be completed no later
than September 30, 1999. The Year 2000 compliance evaluation of hardware,
including network fabric, telecommunications equipment, workstations and other
items is nearing completion.
In addition to applications and information technology hardware, we are testing
and developing remediation plans for facilities and other operations.
Supplier Readiness Program. This program focuses on minimizing the risks
associated with suppliers in two areas: (1) a supplier's business capability to
continue providing products and services; and (2) a supplier's product
integrity. We have identified and contacted key suppliers based on their
relative risks in these two areas. To date, we have received responses from more
than 95% of our key suppliers, most of which indicate that they are in the
process of developing and implementing remediation plans. Based on our
assessment of each supplier's progress to adequately address the Year 2000
issue, we have developed a supplier action list and contingency plans. We will
revisit key suppliers during the third calendar quarter of 1999 to ensure that
supplier commitments have been met. Alternate sources are being investigated for
those few vendors that we have identified as high risk, and such alternative
sources are expected to be in
14
<PAGE>
place by November 1, 1999. We have identified certain key components of our
products and will increase our inventory level of these items during the fourth
calendar quarter of this year. We anticipate all of these items to be usable in
our products, and therefore we do not expect such additional inventory purchases
to have a material adverse effect on our financial condition.
Product Readiness Program. This program focuses on identifying and resolving
Year 2000 issues existing in our products. The program encompasses a number of
activities including testing, evaluation, engineering and manufacturing
implementation. Sematech is a consortium of integrated circuit manufacturers
that provides guidelines to equipment suppliers to the semiconductor industry.
We have adopted the Sematech guidelines known as Year 2000 readiness testing
scenarios as the baseline for our product testing. Sematech is a consortium of
integrated circuit manufacturers that provides guidelines to equipment suppliers
in the semiconductor industry. We believe that the use of these scenarios should
enable our products to meet standards that we believe are generally accepted
across the computer industry for Year 2000 readiness. The testing, and
subsequent remediation, of our products to meet the Sematech guidelines has not
had a material adverse impact on our operations. As of the fourth calendar
quarter of 1998, we believe that all of our products then in production met the
Sematech guidelines for Year 2000 readiness. Our customers were notified of
known risks and remediation plans in the third calendar quarter of 1998. All
customer equipment that is covered by warranty or contract will be retrofitted
by the third calendar quarter of 1999.
Customer Readiness Program. This program is focused on customer support,
including the coordination of retrofit activity, and developing contingency
plans where appropriate, as well as the ability of our customers to continue to
conduct business with us. We are actively working with our customers in this
effort and anticipate completing this program in the third calendar quarter of
1999.
In addition to the above programs, we have identified ''worst case''
scenarios and developed appropriate contingency plans. The most reasonably
likely worst case scenario is a breakdown of general infrastructure, such as
widespread power failures. We have investigated most of our exposure in this
area and do not consider the foregoing a high risk. However, we have prepared
for short-term public service interruptions as part of our existing disaster
recovery plan. The plan consists of utilizing emergency power supplies,
employing remote storage facilities for copies of our vital records and using
off-site backup computer systems provided by an independent service supplier. To
aid our customers, emergency response teams are being formed within our
organization to respond to any unexpected product issues that may arise as a
result of our or any third party's failure to be Year 2000 compliant. We are
selecting people for these teams who were trained in troubleshooting all aspects
of our products. We expect these teams to be formed by November 1, 1999.
We estimate that total Year 2000 incremental costs will be approximately
$200,000. Through March 31, 1999, we have spent approximately $110,000 to
address the Year 2000 issue. We are continuing our assessments and developing
alternatives that will necessitate refinement of this estimate over time. There
can be no assurance, however, that there will not be a delay in, or increased
costs associated with, the programs described in this section.
15
<PAGE>
Since the programs described in this section are ongoing, all potential
Year 2000 complications may not have yet been identified. Therefore, the
potential impact of these complications on our financial condition and results
of operations cannot be determined at this time. If computer systems used by us
or our suppliers, products provided to us by our suppliers, or the software
applications of hardware used in systems manufactured or sold by us, fail or
experience significant difficulties related to the Year 2000 issue, our results
of operations and financial condition could be materially adversely affected. We
could incur delays in producing and delivering products to our customers, which
could result in order cancellations and lost revenue and profits. We believe the
likelihood of losing revenue and profits from difficulties resulting from Year
2000 issues is low.
16
<PAGE>
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
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)
10.29 Second Amendment to Credit Agreement, dated as
of August 3, 1999, between Therma-Wave and Bankers
Trust Company, as agent.(1)
27.1 Financial Data Schedule.
99.1 Risk Factors. (1)
___________
(1) Incorporated by reference to the same numbered exhibit to the
Company's Registration Statement on Form S-1 (Registration No.
333-76019)
The Company did not file any reports on Form 8-K during the three months
ended June 30, 1999.
17
<PAGE>
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 18, 1999
18
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<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>
<MULTIPLIER> 1,000
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