<PAGE> 1
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 quarterly period ended MAY 30, 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: 0-17276
FSI INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1223238
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
322 LAKE HAZELTINE DRIVE, CHASKA, MINNESOTA 55318
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
612-448-5440
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [_] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date:
COMMON STOCK, NO PAR VALUE - 22,909,671 SHARES OUTSTANDING AS OF JUNE 22, 1998
1
<PAGE> 2
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
<S> <C> <C>
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets as of
May 30, 1998 (Unaudited) and August 30, 1997 3
Consolidated Condensed Statements of Operations
(Unaudited) for the quarters ended May 30, 1998
and May 31, 1997 5
Consolidated Condensed Statements of Operations (Unaudited)
for the nine months ended May 30, 1998 and May 31, 1997 6
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the nine months ended May 30, 1998 and May 31, 1997 7
Notes to Consolidated Condensed Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Change in Securities 19
Item 6. Exhibits and Reports on Form 8-K. 20
</TABLE>
2
<PAGE> 3
PART I. Item 1. FINANCIAL INFORMATION
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MAY 30, 1998 AND AUGUST 30, 1997
ASSETS
<TABLE>
<CAPTION>
May 30, August 30,
1998 1997
(Unaudited) (Audited)
------------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 66,043,901 $ 79,186,746
Marketable securities 23,057,950 10,022,596
Trade accounts receivable, net of allowance for
doubtful accounts of $2,274,000 and $2,127,000,
respectively 37,754,035 54,161,499
Trade accounts receivable from affiliates 20,808,527 10,092,769
Inventories 65,207,141 61,990,473
Deferred income tax benefit 11,835,427 11,835,439
Prepaid expenses and other current assets 13,545,373 6,182,794
-------------- ---------------
Total current assets 238,252,354 233,472,316
-------------- ---------------
Property, plant and equipment, at cost 109,824,736 105,549,731
Less accumulated depreciation and amortization (40,349,126) (28,884,658)
-------------- ---------------
69,475,610 76,665,073
-------------- ---------------
Investment in affiliates 15,546,348 15,975,834
Deposits and other assets 3,022,424 3,937,844
Deferred income tax benefit 1,101,334 1,101,334
-------------- ---------------
$ 327,398,070 $ 331,152,401
============= ===============
</TABLE>
See accompanying notes to consolidated condensed financial statements
3
<PAGE> 4
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MAY 30, 1998 AND AUGUST 30, 1997
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 30, August 30,
1998 1997
(Unaudited) (Audited)
--------------------- -----------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 73,670 $ 118,200
Trade accounts payable 17,352,795 24,349,713
Accrued expenses 26,090,950 26,398,976
Customer deposits 6,111,365 2,816,617
Deferred revenue 13,113,703 8,910,824
------------- -------------
Total current liabilities 62,742,483 62,594,330
------------- -------------
Long-term debt, less current maturities 42,079,213 42,137,894
Deferred income taxes 3,566 3,340
Minority interest 1,797,806 2,077,208
Stockholders' equity:
Preferred stock, no par value; 9,700,000 shares
authorized; none issued and outstanding - -
Series A Junior Participating Preferred Stock, no par
value; 300,000 shares authorized; none issued
and outstanding - -
Common stock, no par value; 50,000,000 shares
authorized; issued and outstanding, 22,909,171
and 22,583,174 shares at May 30, 1998
and August 30, 1997, respectively 162,254,590 159,706,639
Retained earnings 60,287,072 64,985,283
Cumulative translation adjustment (1,766,660) (352,293)
------------- -------------
Total stockholders' equity 220,775,002 224,339,629
------------- -------------
$ 327,398,070 $ 331,152,401
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE> 5
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MAY 30, 1998 AND MAY 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
May 30, May 31,
1998 1997
--------------- --------------
<S> <C> <C>
Sales (including sales to affiliates of
$16,602,000 and $15,067,000, respectively) $ 55,835,934 $ 51,393,863
Cost of goods sold 34,425,899 31,726,229
------------ ------------
Gross profit 21,410,035 19,667,634
Selling, general and administrative expenses 14,947,649 14,391,419
Research and development expenses 10,496,610 10,794,056
------------ ------------
Operating loss (4,034,224) (5,517,841)
Interest expense (790,667) (705,605)
Interest income 1,206,449 1,227,237
Other income (expense), net 88,865 (138,688)
------------ ------------
Loss before income taxes (3,529,577) (5,134,897)
Income tax benefit (1,196,203) (1,195,822)
------------ ------------
Loss before minority interest
and equity in earnings of affiliates (2,333,374) (3,939,075)
Minority interest 202,781 116,364
Equity in earnings of affiliates 144,047 1,078,663
------------ ------------
Net loss $ (1,986,546) $(2,744,048)
============ ===========
Net loss per common share - Basic $ (0.09) $ (0.12)
Net loss per common share - Diluted $ (0.09) $ (0.12)
Weighted average common shares 22,848,680 22,507,019
Weighted average common shares
and common share equivalents 22,848,680 22,507,019
</TABLE>
See accompanying notes to consolidated condensed financial statements
5
<PAGE> 6
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTHS ENDED MAY 30, 1998 AND MAY 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
May 30, May 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Sales (including sales to affiliates of
$61,592,000 and $57,885,000, respectively) $ 180,182,220 $ 178,542,233
Cost of goods sold 111,916,330 110,817,572
-------------- --------------
Gross profit 68,265,890 67,724,661
Selling, general and administrative expenses 46,711,167 39,857,305
Research and development expenses 32,375,748 29,389,378
-------------- --------------
Operating loss (10,821,025) (1,522,022)
Interest expense (2,390,365) (936,538)
Interest income 3,644,678 3,185,868
Other income (expense), net 26,054 (343,573)
-------------- --------------
Income (loss) before income taxes (9,540,658) 383,735
Income tax benefit (3,720,857) (92,096)
-------------- --------------
Income (loss) before minority interest
and equity in earnings of affiliates (5,819,801) 475,831
Minority interest 554,907 (147,743)
Equity in earnings of affiliates 566,683 2,906,464
-------------- --------------
Net income (loss) $ (4,698,211) $ 3,234,552
============== ==============
Net income (loss) per common share - Basic $ (0.21) $ 0.14
Net income (loss) per common share - Diluted $ (0.21) $ 0.14
Weighted average common shares 22,737,537 22,444,057
Weighted average common shares
and common share equivalents 22,737,537 23,272,289
</TABLE>
See accompanying notes to consolidated condensed financial statements
6
<PAGE> 7
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 30, 1998 AND MAY 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
May 30, May 31,
1998 1997
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (4,698,211) $ 3,234,552
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest (554,907) 147,743
Provision for deferred income taxes 226 2,052
Depreciation and amortization 11,968,542 8,475,486
Equity in earnings of affiliates (566,683) (2,906,464)
Loss on disposal of equipment - 11,901
Changes in operating assets and liabilities:
Trade accounts receivable 5,691,706 32,020,386
Inventories (3,216,668) (1,352,722)
Other current assets (7,362,578) (2,974,046)
Trade accounts payable (6,996,918) (8,973,671)
Accrued expenses (94,541) (8,633,791)
Customer deposits 3,294,749 377,735
Deferred revenue 4,202,879 2,380,349
Other (643,017) 179,503
---------------- ---------------
Net cash provided by operating activities 1,024,579 21,989,013
---------------- ---------------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (4,275,005) (34,151,335)
Purchase of marketable securities (23,435,560) (18,685,251)
Sales of marketable securities - 9,317,052
Maturities of marketable securities 10,400,206 5,057,730
Decrease in deposits and other assets 411,346 575,079
---------------- ---------------
Net cash used in investing activities (16,899,013) (37,886,725)
---------------- ---------------
FINANCING ACTIVITIES:
Minority interest's investment in FME 500,335 -
Additions to long-term debt - 42,000,000
Debt financing costs - (338,872)
Principal payments on long-term debt (103,211) (178,412)
Net proceeds from issuance of common stock 2,334,465 1,357,715
---------------- ---------------
Net cash provided by financing activities 2,731,589 42,840,431
---------------- ---------------
Increase (decrease) in cash and cash equivalents (13,142,845) 26,942,719
Cash and cash equivalents at beginning of period 79,186,746 48,804,158
---------------- ---------------
Cash and cash equivalents at end of period $ 66,043,901 $ 75,746,877
================ ===============
</TABLE>
See accompanying notes to consolidated condensed financial statements
7
<PAGE> 8
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements have been
prepared by the Company without audit and reflect all adjustments
(consisting only of normal and recurring adjustments) which are, in the
opinion of management, necessary to present a fair statement of the
results for the interim periods presented. The statements have been
prepared in accordance with the regulations of the Securities and
Exchange Commission but omit certain information and footnote
disclosures necessary to present the statements in accordance with
generally accepted accounting principles. The results of operations for
the interim periods presented are not necessarily indicative of the
results to be expected for the full fiscal year. These consolidated
condensed financial statements should be read in conjunction with the
Consolidated Financial Statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended August
30, 1997 previously filed with the Securities and Exchange Commission.
(2) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
May 30, August 30,
1998 1997
(Unaudited) (Audited)
------------------ -------------------
<S> <C> <C>
Finished products $ 6,223,899 $ 7,539,031
Work-in-process 13,761,159 18,341,911
Subassemblies 9,472,076 9,545,857
Raw materials and purchased parts 35,750,007 26,563,674
------------------ -------------------
$ 65,207,141 $ 61,990,473
------------------ -------------------
(3) SUPPLEMENTARY CASH FLOW INFORMATION
Nine Months Ended
------------------------------------------
May 30, May 31,
1998 1997
(Unaudited) (Unaudited)
------------------ --------------------
Schedule of interest and income taxes paid:
Interest $1,605,413 $ 159,184
Income taxes $2,605,742 $ 4,959,938
</TABLE>
The Company realized a tax benefit from the exercise of stock options
of $213,486 and $70,280 in the first nine months of fiscal 1998 and
1997, respectively.
(4) RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EPS CALCULATION
The Company adopted SFAS No. 128, "Earnings per Share" during the
quarter ended February 28, 1998. Basic earnings per common share were
computed by dividing net income by the weighted average number of
shares of common stock outstanding during the year. Diluted earnings
per common share for the quarter and nine months ended May 30, 1998 and
May 31, 1997 were calculated using the treasury stock method to compute
the weighted average common stock outstanding assuming the conversion
of dilutive common stock equivalents. As a result the Company's
reported earnings per share for prior periods were restated. There was
no material impact on reported earnings per share (EPS) data when
compared to basic and diluted earnings per share calculated under the
provisions of SFAS No. 128 for the quarter and nine months ended May
31, 1997.
8
<PAGE> 9
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
May 30, 1998 May 31, 1997
(Unaudited) (Unaudited)
-------------------------------------------- ---------------------------------------------
Per Per
Share Share
FOR THE QUARTERS ENDED Loss Shares Amount Loss Shares Amount
---------------- -------------- ----------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(1,986,546) $(2,744,048)
BASIC EARNINGS PER
SHARE:
Loss available to
common stockholders $(1,986,546) 22,848,680 $(0.09) $(2,744,048) 22,507,019 $(0.12)
Effective of Dilutive
Securities:
Stock options - -* - - -* -
DILUTIVE EARNINGS PER
SHARE:
Loss available to
common stockholders $(1,986,546) 22,848,680 $(0.09) $(2,744,048) 22,507,019 $(0.12)
<CAPTION>
May 30, 1998 May 31, 1997
(Unaudited) (Unaudited)
-------------------------------------------- ---------------------------------------------
Per Per
FOR THE NINE MONTHS Share Share
ENDED Loss Shares Amount Income Shares Amount
---------------- -------------- ----------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $(4,698,211) $3,234,552
BASIC EARNINGS PER
SHARE:
Income (loss) available to
common stockholders $(4,698,211) 22,737,537 $(0.21) $3,234,552 22,444,057 $0.14
Effective of Dilutive
Securities:
Stock Options - -* - - 828,231 -
DILUTIVE EARNINGS PER
SHARE:
Income (loss) available to
common stockholders $(4,698,211) 22,737,537 $(0.21) $3,234,552 23,272,288 $0.14
</TABLE>
* The effect of stock options were not included in the calculation of dilutive
earnings per share for the quarter and nine months ended May 30, 1998 and for
the quarter ended May 31, 1997 because their inclusion would have been
anti-dilutive.
9
<PAGE> 10
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL 1998 COMPARED WITH THE THIRD
QUARTER AND FIRST NINE MONTHS OF FISCAL 1997
The information in this discussion, except for the historical information
contained herein, contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the safe harbor created by that statute. Such statements are subject to
various risks and uncertainties. Actual results may be materially different from
these forward-looking statements. Factors that could cause actual results to
differ include general economic conditions including the current economic and
financial conditions in Asia, particularly Korea and Japan; the demand and price
for semiconductors; the level of new orders and order delays or cancellations;
competitive pricing pressures; the timing and success of current and future
product and process development programs; the success of the company's
affiliated distributors; and the timing and extent of any industry up- or down-
turn. In addition, readers are also directed to the Risk Factors discussion
found below under "Risk Factors" and in the Company's Report on Form 10-K for
the year ended August 30, 1997 and the Company's Report on Form 10-Q for the
quarters ended November 29, 1997 and February 28, 1998. Readers also are
cautioned not to place undue reliance on these forward-looking statements as
actual results could differ materially. The Company assumes no obligation to
publicly release any revisions or updates to these forward-looking statements to
reflect future events or unanticipated occurrences. Such forward-looking
statements are marked with an asterisk (*).
Industry conditions continue to be dominated by uncertainty. Semiconductor
device manufacturers continue to reduce or delay their capital spending
particularly in Korea and Japan. Weak DRAM prices, driven by excess capacity,
combined with financing difficulties and economic conditions in Asia have caused
many microelectronic manufacturers to reduce capital spending. The Asian
financial crisis has now impacted consumer spending in the region and customers
there continue to have difficulty in finding funding for any significant capital
spending.
As a result of current industry conditions, the Company is realigning its
business to reflect expected lower revenues. The Company will be implementing
cost reduction measures including an involuntary reduction in force and the
delay or cancellation of certain programs.* It is the Company's goal to reduce
fiscal 1999 expenses by 10 to 15 percent as compared to fiscal 1998.* The
realignment will result in a one-time charge in the fourth quarter of a
currently undetermined amount.*
<TABLE>
<CAPTION>
SALES:
Third Quarter Ended Nine Months Ended
--------------------------------------------------- ------------------------------------------
May 30, May 31, May 30, May 31,
1998 Change 1997 1998 Change 1997
----------------- ------------ ------------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Sales $55,835,934 8.6% $51,393,863 $180,182,220 0.9% $178,542,233
</TABLE>
Sales increased to $55.8 million for the third quarter ended May 30, 1998 as
compared to $51.4 million for the third quarter of fiscal 1997. Sales for the
nine months ended May 30, 1998 increased $1.6 million to $180.2 million as
compared to $178.5 million for the first nine months of fiscal 1997. Sales
increases for the third quarter and first nine months of fiscal 1998 as compared
to the 1997 periods were due to increases in the Microlithography and Surface
Conditioning product lines offset by decreases in the Chemical Management
product line.
10
<PAGE> 11
International sales were $23.8 million and $19.0 million for the third quarter
of fiscal 1998 and 1997, respectively, and represented approximately 42.6% and
37.0% of sales during these periods. International sales were $72.2 million and
$67.2 million for the first nine months of fiscal 1998 and 1997, respectively,
and represented 40.1% and 37.6% of sales during these periods. International
sales were approximately 36% of total sales for fiscal 1997. The increase in
international sales in the third quarter and the first nine months of fiscal
1998 as a percentage of sales as compared to the third quarter and the first
nine months of fiscal 1997 occurred in Europe.
The continued weakness in DRAM prices, driven by excess capacity, combined with
the financing difficulties and economic turbulence in Asia are causing the
Company's customers to be cautious about capital spending. As a result, the
Company has seen an increase in the delay or cancellation of customer orders. In
addition, some customers are contracting out device manufacturing instead of
adding capacity to their own operations. Given the uncertainty in the industry,
the Company could continue to see delays or cancellations of orders in the
future.* The Company believes, with the current softness in the industry and the
overall uncertainty in the market place, that 1998 fourth quarter sales will be
significantly lower than the third quarter level and that the annual sales
level for fiscal 1999 could be down 10 to 15 percent from the anticipated 1998
level.*
<TABLE>
<CAPTION>
GROSS PROFIT:
Third Quarter Ended Nine Months Ended
--------------------------------------------------- ------------------------------------------
May 30, May 31, May 30, May 31,
1998 Change 1997 1998 Change 1997
----------------- ------------ ------------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Gross Profit $21,410,035 8.9% $19,667,634 $68,265,890 0.8% $67,724,661
As a % of sales 38.3% 38.3% 37.9% 37.9%
</TABLE>
Gross profit as a percentage of sales for the third quarters of fiscal 1998 and
1997 was 38.3%. Gross profit as a percentage of sales for the first nine months
of fiscal 1998 and 1997 was 37.9%. The flat gross profit margins for the third
quarter and the first nine months of fiscal 1998 continued to be impacted by low
manufacturing capacity utilization, reflecting lower than expected revenues and
increased inventory obsolescence reserves.
The Company's gross profit margin fluctuates as a result of a number of factors,
including the mix of products sold, the proportion of international sales, OEM
systems content, competitive pricing pressures and the utilization of
manufacturing capacity. There will be additional pressure on gross profit
margins as a result of foreign currency exchange rates in Asia and general
industry conditions.*
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------------------------------------- --------------------------------------------
May 30, May 31, May 30, May 31,
1998 Change 1997 1998 Change 1997
----------------- ------------ ------------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
SG&A Expenses $14,947,649 3.9% $14,391,419 $46,711,167 17.2% $39,857,305
As a % of sales 26.8% 28.0% 25.9% 22.3%
</TABLE>
Selling, general and administrative expenses were $14.9 million and $14.4
million or 26.8% and 28.0% of sales during the third quarter of fiscal 1998 and
1997, respectively. For the first nine months of fiscal 1998 and 1997, SG&A
expenses were $46.7 million and $39.9 million or 25.9% and 22.3% of sales,
respectively. SG&A expenses were higher in the first nine months of fiscal 1998
as compared to the first nine months of fiscal 1997 primarily due to one-time
charges of approximately $2 million related to organizational changes announced
in December 1997 and the settlement of a patent infringement lawsuit.
11
<PAGE> 12
In addition, the increase in the amount of SG&A expenses in the third quarter
and the first nine months of fiscal 1998 was also due to increased costs
associated with the new business system, year 2000 programs and overall
infrastructure costs as compared to the 1997 periods.
RESEARCH AND DEVELOPMENT EXPENSES:
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
--------------------------------------------------- --------------------------------------------
May 30, May 31, May 30, May 31,
1998 Change 1997 1998 Change 1997
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
R&D Expenses $10,496,610 (2.8%) $10,794,056 $32,375,748 10.2% $29,389,378
As a % of sales 18.8% 21.0% 18.0% 16.5%
</TABLE>
Research and development expenses for the third quarter of fiscal 1998 were
$10.5 million, or 18.8% of sales, as compared to $10.8 million, or 21.0% of
sales, for the third quarter of fiscal 1997. For the first nine months of fiscal
1998, research and development expenses were $32.4 million or 18.0% of sales as
compared to $29.4 million or 16.5% for the first nine months of fiscal 1997. The
increase in the amount of R&D expenses for the first nine months resulted from
continued product and process development efforts on new and existing products,
including 300-mm development programs for the EXCALIBUR(R), ARIES(TM)
CryoKinetic(TM) cleaning systems, the ZETA(TM) automated surface conditioning
system, the new POLARIS(R) cluster models and certain new chemical management
products. The Company is also investing in the new ANTARES(TM) platform for
single wafer cleaning products along with 0.25 and 0.18 micron process
development programs. The successful introduction of new products is important
to the long-term growth of the Company.* Overall, the Company's goal is to
invest approximately 13% to 15% of sales in research and development, and
process development programs.*
OPERATING LOSS
Operating loss for the third quarter of fiscal 1998 was $4.0 million as compared
to $5.5 million for the third quarter of fiscal 1997. The lower third quarter
loss in 1998 was due to higher revenues in fiscal 1998 third quarter as compared
to fiscal 1997 third quarter.
Operating loss for the first nine months of fiscal 1998 was $10.8 million as
compared to $1.5 million for the first nine months of fiscal 1997. The larger
loss in 1998 was primarily due to increased SG&A and R&D expenses. As fourth
quarter sales are expected to be significantly below third quarter sales, an
operating loss is expected.* Due to the expected lower revenues in fiscal 1999,
it is anticipated that the Company's fiscal 1999 operating losses will be $8
to $10 million after the implementation of the cost reduction actions.*
OTHER INCOME (EXPENSE), NET:
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
--------------------------------------------------- ----------------------------------------
May 30, May 31, May 30, May 31,
1998 Change 1997 1998 Change 1997
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Other income,
(expense), net $504,647 31.8% $382,944 $1,280,367 (32.8%) $1,905,757
As a % of sales 0.9% 0.7% 0.7% 1.1%
</TABLE>
Other income (expense), net was approximately $505,000 and $1.3 million,
respectively, of income for the third quarter and the first nine months of
fiscal 1998 as compared to $383,000 and $1.9 million, respectively, of income
for the third quarter and the first nine months of fiscal 1997. The increase in
the third quarter of fiscal 1998 as compared to the third quarter of fiscal 1997
is due to a lease write-off in 1997 for a Dallas facility. The decrease for the
first nine months of fiscal 1998 as compared to the first nine months of fiscal
1997 is due to increased interest expense related to the $42.0 million private
placement debt completed in December 1996.
12
<PAGE> 13
INCOME TAX BENEFIT:
Income tax benefit for the third quarter and the first nine months of fiscal
1998 was approximately $1.2 million and $3.7 million, respectively, compared to
approximately $1.2 million and $92,000, respectively, for the third quarter and
the first nine months of fiscal 1997.
EQUITY IN EARNINGS OF AFFILIATES:
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
---------------------------------------------- ---------------------------------------
May 30, May 31, May 30, May 31,
1998 Change 1997 1998 Change 1997
----------------- ------------ -------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Equity in Earnings of
Affiliates $144,047 (86.6%) $1,078,663 $566,683 (80.5%) $2,906,464
As a % of sales 0.3% 2.1% 0.3% 1.6%
</TABLE>
The equity in earnings of affiliates was $144,000 for the third quarter of
fiscal 1998, compared to earnings of $1.1 million for the third quarter of
fiscal 1997. For the first nine months of fiscal 1998, equity in earnings of
affiliates was $567,000 compared to $2.9 million for the first nine months of
fiscal 1997. The decrease is due to lower earnings at both of the Company's
affiliates (Metron Technology B.V. and m-FSI Ltd.) due to current industry
conditions. Equity in earnings of affiliates will continue to be under
pressure by the overall softness in the industry.*
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities approximated
$89.1 million as of May 30, 1998, a decrease of $107,000 from the end of fiscal
year 1997. The decrease in cash and cash equivalents and marketable securities
is a result of cash flow provided by operations of approximately $1.0 million
and $2.3 million in proceeds from common stock issuances being offset primarily
by acquisitions of property, plant and equipment of $4.3 million.
The Company's accounts receivable decreased 8.9%, or approximately $5.7 million
to $58.6 million at May 30, 1998 as compared to $64.3 million at the end of
fiscal 1997. The decrease in accounts receivable is due to concentrated
collection efforts by the divisions and sales management. The Company does not
believe it has any significant collection exposure from Asia.*
The Company's inventory increased approximately $3.2 million to $65.2 million at
May 30, 1998 compared to $62.0 million at the end of fiscal 1997. This was
mainly due to increased levels of raw materials and purchased parts. The Company
had anticipated higher order levels in the first nine months of fiscal 1998 than
what was achieved which resulted in higher inventory levels. As of May 30, 1998,
the Company's current ratio of current assets to current liabilities was 3.8 to
1.0 and working capital was $175.5 million.
The Company had acquisitions of property, plant and equipment of approximately
$4.3 million and $34.2 million for the first nine months of fiscal 1998 and
fiscal 1997, respectively. It is anticipated the Company will invest less than
$10.0 million in fiscal 1998 in property, plant and equipment.*
The Company believes that with existing cash and cash equivalents, marketable
securities and internally generated funds, there will be sufficient funds to
meet the Company's current projected working capital and other cash requirements
through at least fiscal 1999.* It is the Company's goal for fiscal 1999 to
generate positive cash flow from operations.*
13
<PAGE> 14
The Company believes that success in its industry requires substantial capital
to maintain the flexibility to take advantage of opportunities as they may
arise. The Company may, from time to time, as market and business conditions
warrant, invest in or acquire complementary businesses, products or
technologies.* The Company may fund such activities with additional equity or
debt financings.* The sale of additional equity or debt securities could result
in additional dilution to the Company's shareholders.*
The Company is continuing to address the "Year 2000" computer problem. See "Risk
Factors - Year 2000" below.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share, which simplifies the standards for computing
earnings per share previously found in Accounting Principles Board Opinion (APB)
No. 15. SFAS No. 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share, which excludes dilution. SFAS
No. 128 also requires dual presentation of basic and diluted earnings per share
on the face of the income statement for all entities with complex capital
structures, and requires a reconciliation. Diluted earnings per share is
computed similarly to fully diluted earnings per share pursuant to APB No. 15.
SFAS No. 128 must be adopted for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. SFAS No. 128 requires restatement of all prior-period
earnings-per-share data presented. The company implemented SFAS No. 128 during
the second quarter of fiscal 1998. This implementation of SFAS No. 128 did not
have a material impact on the Company's financial statement disclosures.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information about
Capital Structures, which was implemented by the Company in the first quarter of
fiscal 1998. SFAS No. 129 requires companies to disclose certain information
about their capital structure. The disclosure requirements of SFAS No. 129 did
not have an impact on the Company's financial statement disclosures.
In June 1997, the FASB issued SFAS No., 130, Reporting Comprehensive Income,
which establishes standards for the reporting and display of comprehensive
income and its components (revenue, expenses, gains, and losses) in a full set
of general-purpose financial statements. The Company will adopt SFAS No. 130 in
fiscal year 1999.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds assets and reports revenue. Management has not yet
evaluated the effects of this change on its reporting of segment information.
The Company will adopt SFAS No. 131 in fiscal 1999.
In March, 1998, the FASB issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" which establishes the
appropriate accounting for all costs related to software developed or obtained
for internal use. The Company adopted SOP 98-1 in fiscal 1998.
RISK FACTORS
Due to the nature of the business and industry in which the Company operates,
the following risk factors should be considered in addition to others described
or referenced to above.
CYCLICALITY AND VOLATILITY IN THE MICROELECTRONICS INDUSTRY:
The Company's business depends upon the capital equipment expenditures of
microelectronics manufacturers, which in turn depend on the current and
anticipated market demand for semiconductor devices and products utilizing
semiconductor devices. The microelectronics industry has been cyclical in nature
and historically experienced periodic downturns. The industry is currently
experiencing a downturn and it is unclear at this point in time as to how
14
<PAGE> 15
long this downturn may last. Certain semiconductor device manufacturers have
experienced slowdowns in terms of product demand and volatility in terms of
product pricing. Industry slowdowns and volatility have caused semiconductor
device manufacturers to reduce their demand for semiconductor processing
equipment and in some instances, to delay or cancel capital equipment decisions.
In some cases this has resulted in order delays and order cancellations or
delays of delivery dates for the Company's products. No assurance can be given
that the Company's sales and operating results will not continue to be adversely
affected during the current slowdown or will not be adversely affected by future
slowdowns in the semiconductor industry.
In addition, the need for continued investments in research and development,
substantial capital equipment requirements and extensive ongoing worldwide
customer service and support capability will limit the Company's ability to
reduce expenses. Accordingly, there is no assurance that the Company will be
able to achieve or maintain profitability in the future.
RISK OF DELAYS IN INTRODUCING NEW PRODUCTS AND THE MARKET'S ACCEPTANCE OF SUCH
PRODUCTS:
Microelectronics manufacturing equipment and processes are subject to rapid
technological change and new product introductions, as well as evolving industry
standards. The Company believes microelectronics manufacturers are increasingly
relying on equipment manufacturers to design and develop more efficient
equipment, to design and implement improved processes for the benefit of
microelectronics manufacturers and to integrate their equipment with that of
other equipment manufacturers. The Company must continue to develop, manufacture
and market new products which conform to evolving industry standards and that
require a significant commitment of resources and capital. The success of the
Company in developing, introducing and selling new and enhanced equipment
depends upon a variety of factors including product selection, timely and
efficient completion of product design and development, timely and efficient
implementation of manufacturing and assembly processes, product performance in
the field, and effective sales, marketing and post sales support. The Company
must also manage product transitions successfully, as introductions of new
products could adversely affect the sales of existing products. The Company's
failure to develop and successfully introduce new products or enhancements to
its existing products and processes or achieve market acceptance of the new
products or enhancements could adversely affect the Company's business and
results of operations.
NEW FACILITIES AND RELATED INFRASTRUCTURE COSTS:
The Company added manufacturing capacity with new facilities during fiscal 1997.
This additional manufacturing capacity is having a negative impact on gross
profit margins due to the lower revenue levels. These additional facilities and
related infrastructure costs also increase the overall operating expenses of the
Company. The potential impact of idle manufacturing capacity on gross margins
and related infrastructure costs could also have an adverse impact on the
Company's future financial results.
VOLATILITY OF STOCK PRICE:
The Company's common stock has experienced in the past, and could experience in
the future, substantial price volatility as a result of a number of factors,
including quarter-to-quarter variations in the actual or anticipated financial
results of the Company, announcements by the Company, its competitors or
customers, government regulations and developments in the industry. In addition,
the stock market has experienced extreme price and volume fluctuations which
have affected the market price of many technology companies in particular and
which have at times been unrelated to the operating performance of the specific
companies whose stock is traded. Broad market fluctuations, as well as economic
conditions generally and, in the microelectronics industry specifically, may
adversely affect the market price of the Company's common stock.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS:
The Company's operating results have in the past been, and may continue to be,
subject to quarterly fluctuations due to a number of factors. FSI may experience
significant fluctuations in its quarterly sales, gross profits, operating
15
<PAGE> 16
results, and net income. Factors which may influence FSI's operating results in
a given quarter include specific economic conditions in the microelectronics
industry, the financial results of FSI's affiliates, the timing of the receipt
of orders from major customers, the mix of products sold by FSI, competitive
pricing pressures, the proportion of international sales, product modifications
requested by customers, utilization of manufacturing capacity, and production
ability. During a specific quarter, a significant portion of the Company's
revenue may be derived from the sale of a relatively small number of systems.
Accordingly, a small change in the numbers of such systems sold in a quarter may
cause significant changes in operating results. Moreover, customers may cancel
or reschedule shipments, and parts availability could delay shipments. These
factors also could significantly affect annual results of operations.
SUCCESS OF COMPANY'S AFFILIATED DISTRIBUTORS:
The majority of the Company's international sales are made through its
affiliated distributors, Metron Technology B.V., and m*FSI Ltd. These affiliated
distributors also provide service and support to many of the Company's
international customers. The affiliated distributors also sell other principals'
products. A reduction in the sales efforts or financial viability of such
distributors or a loss of a significant principal by a distributor could affect
the Company's results of operations.
LITIGATION:
The Company recently settled a patent infringement lawsuit. The Company could
become involved in additional litigation in the future. There can be no
assurance about the outcome of any future litigation or patent infringement
inquiries and whether they will adversely impact the Company's business or
results of operations. (See Item 3).
HIGHLY COMPETITIVE INDUSTRY:
The microelectronics processing equipment industry is highly competitive. The
Company faces substantial competition throughout the world. The Company believes
that to remain competitive, it will require significant financial resources to
offer a broad range of products, to maintain customer service and support
centers worldwide, and to invest in product and process research and
development. There can be no assurance that financial resources with favorable
terms would be available when required. The Company believes that the
microelectronics industry is becoming increasingly dominated by large
manufacturers who have the resources to support customers on a worldwide basis.
Certain of the Company's competitors have substantially greater financial,
marketing, and customer service and support capabilities than the Company. There
is the possibility of large equipment companies entering the market areas in
which the Company competes. In addition, there are smaller emerging
microelectronics equipment companies that provide innovative technology. The
Company expects its competitors to continue to improve the design and
performance of their current products and processes and to introduce new
products and processes with improved price and performance characteristics. No
assurance can be given that the Company will continue to compete successfully in
the United States or elsewhere.
DEPENDENCE ON KEY PERSONNEL:
The Company's success depends to a significant extent upon management and
technical personnel. The loss of the services of several or more of these key
persons could have an adverse effect on the Company's operations. Competition
for such personnel in the Company's industry in all geographic locations is
high. There can be no assurance that the Company will continue to be successful
in attracting and retaining the personnel it requires to continue to grow and
operate profitably.
INDUSTRY CONSOLIDATION:
There has been a trend toward industry consolidation for several years. During
fiscal 1997, the Company saw this trend continue with the completion of two
large industry mergers. The Company expects this trend toward industry
consolidation to continue as companies attempt to strengthen or hold their
market positions in a rapidly changing industry. The Company believes that the
industry consolidation may result in competitors that are better able to
16
<PAGE> 17
compete. This could have a material adverse affect on the Company's business
operating results and financial condition.
VOLATILITY OF GLOBAL MARKETS:
The Company and its affiliates operate in a global market. Global operations are
subject to risks, including political and economic instability, general economic
conditions, imposition of government controls, fluctuations of exchange rates,
the need to comply with a wide variety of foreign and United States export laws,
trade restrictions and the greater difficulty of administering business
overseas. Although substantially all the Company's direct international sales
are denominated in United States dollars, both direct sales by the Company and
sales through it affiliated international distributors may be affected by these
factors and thus may adversely affect the operations and financial results of
the Company.
Recently the South East Asian currency crisis and the impact the crisis has had
upon the capital markets has resulted in lowered expectations for the
semiconductor capital industry. Due to the uncertainty in the South East Asia
region, the Company has seen a recent slowdown in the industry. Anticipated
sales levels are at risk if industry conditions continue to deteriorate and
confidence in the Asian markets is not restored.
YEAR 2000:
The Company is addressing the issue associated with the programming code in
existing computer systems as the millennium (year 2000) approaches The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way. The Company is aware of the computing difficulties
that the millennium issue presents for the year 2000.
The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test its systems for year 2000 compliance. It is
anticipated that all reprogramming efforts will be complete by December 31,
1998, allowing adequate time for testing.* To date, confirmations have been
received from some of the Company's vendors that plans are being developed to
address processing of transactions in the year 2000. It is anticipated the
Company will incur at least $850,000 to address the year 2000 problem during
fiscal 1998 and $800,000 in fiscal 1999.* However, unexpected delays, the
availability of resources as well as coding issues may impact the Company's
ability to complete the reprogramming by December 31, 1998 and the amounts that
will be incurred. The year 2000 problem creates risk for the Company from
unforeseen problems in its own computer systems and from the Company's vendors.
The failures of the Company's or its vendor's computer systems could have a
material impact on the Company's operations.
17
<PAGE> 18
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the second quarter of fiscal 1996, Eric C. and Angie L. Hsu (the
"plaintiffs") filed a lawsuit in the Superior Court of California,
County of Alameda, Southern Division, against Semiconductors Systems,
Inc. ("Semiconductor Systems"), a wholly-owned subsidiary of the Company
that was acquired in April 1996, and the former shareholders of
Semiconductor Systems. In the fall of 1995, pursuant to the Employee
Stock Purchase and Shareholder Agreement dated November 30, 1990 between
Mr. Hsu and Semiconductor Systems (the "Shareholder Agreement") and in
connection with Mr. Hsu's termination of his employment with
Semiconductor Systems in August 1995, the former shareholders of
Semiconductor Systems purchased the shares of Semiconductor Systems
common stock then held by Mr. Hsu. The plaintiffs are claiming, among
other things, that such purchase breached the Shareholder Agreement and
violated the California Corporations Code, breached the fiduciary duty
owed plaintiffs by the individual defendants and constituted fraud. The
plaintiffs are seeking, among other things, damages in an amount to be
proven at trial, punitive damages, attorneys' fees and a constructive
trust over the shares held in the escrow mentioned below.
Discovery has been completed. Trial was originally scheduled to begin in
May of this year. Prior to that time each party had brought a summary
judgment motion. After hearing the motion arguments, the law and motion
judge in April 1998 denied both parties' motions on the contract claims
but stated Semiconductor Systems had breached the terms of the
Shareholder Agreement in that only Semiconductor Systems and not its
shareholders could repurchase Mr. Hsu's shares but that the issue of
damages was an issue of fact for a jury. Defendants promptly sought
appellate review of the law and motion judge's position and the trial
has been rescheduled for November 1998. That review is still pending.
The Company, on behalf of Semiconductor Systems, has made a claim with
respect to the lawsuit under the escrow created at the time of the
Company's acquisition of Semiconductor Systems. The escrow was
established to secure certain indemnification obligations of the former
shareholders of Semiconductor Systems. In addition to the escrow, the
former shareholders have agreed to hold the Company and Semiconductor
Systems harmless from any claim arising out of any securities
transactions between the shareholders or former shareholders of
Semiconductor Systems and Semiconductor Systems. The escrow consists of
an aggregate of 250,000 shares of Company Common Stock paid to the
former shareholders of Semiconductor Systems as consideration in the
acquisition.
On March 31, 1998, Industrial Risk Insurers (IRI) commenced a lawsuit
against FSI International, Inc. ("FSI") in California Superior Court in
Santa Clara County. The lawsuit relates to an incident in November 1994
involving FSI's equipment at a customer site in which hydrochloric acid
was released into the customer's facility and caused damage to the
customer's personal property and interrupted its business operations.
Following the incident the customer commenced suit against its insurance
company to recover costs associated with the business interruption and
property damage. That lawsuit was ultimately settled for $2.75M. IRI on
behalf of the customer's insurance companies has commenced a subrogation
action against FSI seeking reimbursement of the $2.75M settlement plus
interest.
FSI has previously tendered defense of this matter to its commercial
general liability and excess umbrella liability insurance company. The
insurance company has assumed defense and indemnification of FSI under
the commercial general liability policy but has denied coverage
18
<PAGE> 19
under the excess/umbrella policy. FSI is contesting with the insurance
company its determination that there is no coverage or obligation to
defend FSI under the excess umbrella policy.
The lawsuit is in the very preliminary stages and no discovery has been
conducted to date. FSI is investigating the matter, believes it may have
or has meritorious defenses and intends to contest the litigation.
ITEM 2. CHANGE IN SECURITIES
The Company filed a Form 8-A/A-1 with the Securities and Exchange
Commission on April 16, 1998 to report a change in the terms of the
Company's Series A Junior Participating Preferred Stock. The description
of such change contained in the Form 8-A/A-1 is hereby incorporated by
reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
19
<PAGE> 20
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a)(3) Exhibits
* An asterisk next to a listed Exhibit indicates it is an
executive compensation plan or arrangement
2.1 Agreement and Plan of Reorganization dated December 23, 1994
by and among the Company, ACS Acquisition Corp., Applied
Chemical Solutions, and certain significant shareholders of
Applied Chemical Solutions.(1)
2.2 Share Purchase Agreement dated December 14, 1994 by and among
the Company, Metron Semiconductors Europa B.V., Christopher
Springall, Anthony Springall, Roger Springall, David
Springall and Michael Springall. (2)
2.3 Agreement and Plan of Reorganization by and Among FSI
International, Inc., Spectre Acquisition
Corp., and Semiconductor Systems, Inc. (12)
3.1 Restated Articles of Incorporation of the Company. (3)
3.2 Restated By-Laws. (4)
3.3 Amendment to Restated By-Laws. (5)
4.1 Note Purchase Agreement between FSI International, Inc. and
Metropolitan Life Insurance Company and other certain
purchasers. (Schedule A omitted) (14)
4.2 Form of Rights Agreement dated as of May 22, 1997 between FSI
International, Inc. and Harris Trust and Savings Bank,
National Association, as Rights Agent (15)
4.3 Amendment dated March 26, 1998 to Rights Agreement dated May
22, 1997 by and between FSI International, Inc. and Harris
Trust and Saving Bank,, National Association as Rights Agent
(16)
*10.1 FSI International, Inc. 1997 Omnibus Stock Plan (14)
*10.2 Split Dollar Insurance Agreement and Collateral Assignment
Agreement dated December 28, 1989, between the Company and
Joel A. Elftmann. (Similar agreements between the Company and
each of Robert E. Cavins, Benjamin J. Sloan, Dale A.
Courtney, Peter A. Pope, Benno G. Sand and J. Wayne Stewart
have been omitted, but will be filed upon the request of the
Commission).(6)
10.3 Lease dated June 27, 1985, between the Company and Lake
Hazeltine Properties. (4)
10.4 Lease dated September 1, 1985, between the Company and
Elftmann, Wyers, Blackwood Partnership. (4)
10.5 Lease dated September 1, 1985, between the Company and
Elftmann, Wyers Partnership. (4)
*10.6 1989 Stock Option Plan. (5)
*10.7 Amended and Restated Employees Stock Purchase Plan. (3)
10.8 Shareholders Agreement among FSI International, Inc. and
Mitsui & Co., Ltd. and
Chlorine Engineers Corp. Ltd. dated as of August 14, 1991.
(6)
10.9 FSI Exclusive Distributorship Agreement dated as of August
14, 1991 between FSI International, Inc.
and m*FSI, Ltd. (6)
10.10 FSI Licensing Agreement dated as of August 14, 1991, between
FSI International, Inc.
and m*FSI, Ltd. (6)
10.11 License Agreement, dated October 15, 1991, between the
Company and Texas Instruments
Incorporated. (7)
10.12 Amendment No. 1, dated April 10, 1992, to the License
Agreement, dated October 15, 1991,
between the Company and Texas Instruments Incorporated. (7)
10.13 Amendment effective October 1, 1993 to the License Agreement,
dated October 15, 1991 between the Company and Texas
Instruments Incorporated (8)
*10.14 Amended and Restated Directors' Nonstatutory Stock Option
Plan. (9)
*10.15 Management Agreement between FSI International, Inc. and
Robert E. Cavins, effective as of
March 28, 1994. (9)
*10.16 Management Agreement between FSI International, Inc. and Dale
A. Courtney, effective as of March 28, 1994. (9)
*10.17 Management Agreement between FSI International, Inc. and Joel
A. Elftmann, effective as of March 28, 1994 (9)
*10.19 Management Agreement between FSI International, Inc. and
Peter A. Pope, effective as of March 28, 1994. (9)
*10.20 Management Agreement between FSI International, Inc. and
Benno G. Sand, effective as of March 31, 1994. (9)
20
<PAGE> 21
*10.21 Management Agreement between FSI International, Inc. and
Benjamin J. Sloan, effective as of March 28, 1994. (9)
*10.22 Management Agreement between FSI International, Inc. and J.
Wayne Stewart, effective as of March 28, 1994. (9)
*10.23 Management Agreement between FSI International, Inc. and
Charles Wofford effective as of February 5, 1996. (13)
*10.24 FSI International, Inc. 1994 Omnibus Stock Plan. (10)
*10.25 FSI International, Inc. 1997 Incentive Plan.
10.26 First Amendment to Lease made and entered into October 31,
1995 by and between Lake Hazeltine Properties and FSI
International, Inc. (11)
10.27 Distribution Agreement made and entered into as of July 6,
1995 by and between FSI International, Inc. and Metron
Semiconductors Europa B.V. (Exhibits to Agreement omitted)
(11)
10.28 Lease dated August 9, 1995 between Skyline Builders, Inc. and
FSI International, Inc. (11)
10.29 Lease Rider dated August 9, 1995 between Skyline Builders,
Inc. and FSI International, Inc. (11)
10.30 Lease Amendment dated November, 1995 between Roland A.
Stinski and FSI International, Inc.
(Exhibits to Amendment omitted) (11)
27.0 Financial Data Schedules
(1) Filed as an Exhibit to the Company's Report on Form 8-K dated January 5,
1995, as amended, File No. 0-17276, and incorporated by reference.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-3
dated January 5, 1995, SEC File No. 33-88250 and incorporated by
reference.
(3) Filed as an Exhibit to the Company's Report on Form 10-Q for the quarter
ended February 24, 1990, SEC File No. 0-17276, and incorporated by
reference.
(4) Filed as an Exhibit to the Company's Registration Statement on Form S-1,
SEC File No. 33-25035, and incorporated by reference.
(5) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 26, 1989, SEC File No. 0-17276, and incorporated by
reference.
(6) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 31, 1991, as amended by Form 8 dated January 7, 1992,
SEC File No. 0-17276, and incorporated by reference.
(7) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 29, 1992, File No. 0-17276, and incorporated by
reference.
(8) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 28, 1993, SEC File No. 0-17276, and incorporated by
reference.
(9) Filed as an Exhibit to the Company's Report on Form 10-Q for the fiscal
quarter ended May 28, 1994, SEC File No. 0-17276, and incorporated by
reference.
(10)Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 27, 1994, SEC File No. 0-17276, and incorporated by
reference.
(11)Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 26, 1995, SEC File No. 0-17276 and incorporated by
reference.
(12)Filed as an Exhibit to the Company's Registration Statement on Form S-4
(as amended) dated March 21, 1996, SEC File No. 333-1509 and
incorporated by reference.
(13)Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 31, 1996, SEC File No. 0-17276 and incorporated by
reference.
(14)Filed as an Exhibit to the Company's Report on Form 10-Q for the fiscal
quarter ended March 1, 1997, SEC File No. 0-17276, and incorporated by
reference.
(15)Filed as an Exhibit to the Company's Report on Form 8-K, filed by the
Company on June 5, 1997, SEC File No. 0-17276, and incorporated by
reference.
(16)Filed as an Exhibit to the Company's Report on Form 8-A/A-1, filed by
the Company on April 16, 1998, Sec File No. 0-17276 and incorporated by
reference.
- ---------------------------
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended May
30, 1998.
21
<PAGE> 22
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
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.
FSI INTERNATIONAL, INC.
. . . . . . . . . . . .
[Registrant]
DATE: July 14, 1998
By: /s/Patricia M. Hollister
----------------------------
Patricia M. Hollister
Chief Financial Officer and
Corporate Controller
on behalf of the
Registrant and as
Principal Financial Officer
22
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> MAR-02-1997
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1
<CASH> 75,746,877
<SECURITIES> 27,426,953
<RECEIVABLES> 50,719,988
<ALLOWANCES> 1,979,000
<INVENTORY> 65,428,016
<CURRENT-ASSETS> 235,252,692
<PP&E> 100,924,752
<DEPRECIATION> 29,342,746
<TOTAL-ASSETS> 325,540,987
<CURRENT-LIABILITIES> 59,672,031
<BONDS> 42,000,000
0
0
<COMMON> 159,159,823
<OTHER-SE> 63,083,674
<TOTAL-LIABILITY-AND-EQUITY> 325,540,987
<SALES> 51,393,863
<TOTAL-REVENUES> 51,393,863
<CGS> 31,726,229
<TOTAL-COSTS> 31,726,229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 46,000
<INTEREST-EXPENSE> 705,605
<INCOME-PRETAX> (5,134,897)
<INCOME-TAX> (1,195,822)
<INCOME-CONTINUING> (2,744,048)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,744,048)
<EPS-PRIMARY> (0.12)<F1>
<EPS-DILUTED> (0.12)<F1>
<FN>
<F1>Earnings per share have been restated to reflect the implementation of the FASB
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-START> AUG-31-1998
<PERIOD-END> MAY-30-1998
<CASH> 66,043,901
<SECURITIES> 23,057,950
<RECEIVABLES> 60,836,562
<ALLOWANCES> 2,274,000
<INVENTORY> 65,207,141
<CURRENT-ASSETS> 238,252,354
<PP&E> 109,824,736
<DEPRECIATION> 40,349,126
<TOTAL-ASSETS> 327,398,070
<CURRENT-LIABILITIES> 62,742,483
<BONDS> 42,000,000
0
0
<COMMON> 162,254,590
<OTHER-SE> 58,520,412
<TOTAL-LIABILITY-AND-EQUITY> 327,398,070
<SALES> 180,182,220
<TOTAL-REVENUES> 180,182,220
<CGS> 111,916,330
<TOTAL-COSTS> 111,916,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 147,000
<INTEREST-EXPENSE> 2,390,365
<INCOME-PRETAX> (9,540,658)
<INCOME-TAX> (3,720,857)
<INCOME-CONTINUING> (4,698,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,698,211)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 75,746,877
<SECURITIES> 27,426,953
<RECEIVABLES> 50,719,988
<ALLOWANCES> 1,979,000
<INVENTORY> 65,428,016
<CURRENT-ASSETS> 235,252,692
<PP&E> 100,924,752
<DEPRECIATION> 29,342,746
<TOTAL-ASSETS> 325,540,987
<CURRENT-LIABILITIES> 59,672,031
<BONDS> 42,000,000
0
0
<COMMON> 159,159,823
<OTHER-SE> 63,083,674
<TOTAL-LIABILITY-AND-EQUITY> 325,540,987
<SALES> 178,542,233
<TOTAL-REVENUES> 178,542,233
<CGS> 110,817,572
<TOTAL-COSTS> 110,817,572
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 136,000
<INTEREST-EXPENSE> 936,538
<INCOME-PRETAX> 383,735
<INCOME-TAX> (92,096)
<INCOME-CONTINUING> 3,234,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,234,552
<EPS-PRIMARY> 0.14<F1>
<EPS-DILUTED> 0.14<F1>
<FN>
<F1>EARNINGS PER SHARE HAVE BEEN RESTATED TO REFLECT THE IMPLEMENTATION OF THE
FASB STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, EARNINGS PER
SHARE.
</FN>
</TABLE>
