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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1996
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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: 0-19507
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SUBMICRON SYSTEMS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3607944
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
6620 Grant Way, Allentown, Pennsylvania 18106
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 391-9200
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6330 Hedgewood Drive, #150, Allentown, PA 18106
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(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
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 16,800,870 shares of Common stock outstanding, $.0001 par value, as
of July 31, 1996.
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SUBMICRON SYSTEMS CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information
Item 1: Financial Statements Page
<S> <C>
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the three months ended June 30, 1996
and June 30, 1995 4
Consolidated Statements of Operations
for the six months ended June 30, 1996
and June 30, 1995 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and
June 30, 1995. 6
Notes to Consolidated Financial Statements 7-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
Part II - Other Information N/A
</TABLE>
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS (Note 2)
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,296 $ 16,010
Accounts receivable, net 47,383 46,619
Inventories, net 54,322 34,132
Prepaids and other 3,390 2,736
Deferred income taxes 1,886 1,886
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Total current assets 115,277 101,383
Property and equipment, net 16,181 12,631
Goodwill, net 1,798 1,912
Intangibles and other, net 4,459 4,022
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$ 137,715 $ 119,948
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 24,600 $ 16,250
Current portion of long-term debt 1,430 1,183
Accounts payable 26,679 25,299
Accrued expenses and other 9,887 8,935
Deferred revenues 4,494 2,615
Income taxes payable 491 -
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Total current liabilities 67,581 54,282
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Deferred income taxes 628 628
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Deferred revenues 100 106
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Long-term debt 20,434 18,909
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000
shares, authorized, none issued and
outstanding - -
Common stock, $.0001 par value, 100,000,000
shares authorized, 16,798,870 and
15,769,559 shares issued and outstanding 2 2
Additional paid-in capital 40,715 39,223
Retained earnings 8,356 7,103
Deferred compensation (56) (224)
Notes receivable (45) (81)
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Total stockholders' equity 48,972 46,023
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$ 137,715 $ 119,948
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</TABLE>
See accompanying notes to consolidated financial statements
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Note 2)
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995
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<S> <C> <C>
System sales, net $ 37,822 $ 16,094
Service and other sales 9,244 9,772
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Total net sales 47,066 25,866
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Cost of system sales 27,660 12,880
Cost of service and other sales 7,357 7,063
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Total cost of sales 35,017 19,943
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Gross profit 12,049 5,923
Selling, general and administrative 8,965 7,563
Research and development 2,178 1,575
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Operating income (loss) 906 (3,215)
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Other income (expense):
Interest income 86 92
Interest expense (1,238) (414)
Other, net (19) 20
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Total other expense (1,171) (302)
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Loss before income taxes (265) (3,517)
Income tax benefit (68) (1,469)
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Net loss $ (197) $ (2,048)
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Net loss per Common share $ (0.01) $ (0.13)
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Weighted average number of
shares of Common stock outstanding 16,799 15,770
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</TABLE>
See accompanying notes to consolidated financial statements
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Note 2)
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data)
Six Months Ended June 30,
1996 1995
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<S> <C> <C>
System sales, net $ 77,244 $ 35,587
Service and other sales 14,676 11,337
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Total net sales 91,920 46,924
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Cost of system sales 54,096 26,385
Cost of service and other sales 11,470 7,556
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Total cost of sales 65,566 33,941
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Gross profit 26,354 12,983
Selling, general and administrative 18,420 13,186
Research and development 4,023 2,395
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Operating income (loss) 3,911 (2,598)
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Other income (expense):
Interest income 254 216
Interest expense (2,261) (575)
Other, net 62 12
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Total other expense (1,945) (347)
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Income (loss) before income taxes 1,966 (2,945)
Income tax provision (benefit) 713 (1,236)
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Net income (loss) $ 1,253 $ (1,709)
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Net income (loss) per Common share $ 0.07 $ (0.11)
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Weighted average number of
shares of Common stock outstanding 17,134 15,767
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</TABLE>
See accompanying notes to consolidated financial statements
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 2)
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data)
Six Months Ended June 30,
1996 1995
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<S> <C> <C>
Cash flows used in operating activities:
Net income (loss) $ 1,253 $ (1,709)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 3,448 903
Provision for valuation allowances and
loss contingencies 547 -
Deferred tax provision - 207
Amortization of deferred compensation 168 168
Amortization of note discount 552 -
Changes in assets and liabilities:
Increase in accounts receivable (1,100) (5,022)
Increase in inventories (20,401) (6,163)
Increase in prepaid expenses and other (654) (3,603)
(Increase) Decrease in other assets (153) 54
Increase in accounts payable 1,380 4,706
Increase in accrued expenses and other 952 664
Increase in deferred revenues 1,873 2,117
Increase (Decrease) in income taxes payable 491 (906)
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Net cash used in operating activities (11,644) (8,584)
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Cash flows used in investing activities:
Capital expenditures (5,032) (1,517)
Purchase of intangible assets (103) (79)
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Net cash used in investing activities (5,135) (1,596)
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Cash flows provided by financing activities:
Net borrowings under line of
credit agreement 8,350 5,777
Proceeds from exercise of stock options
& warrants 1,272 671
Collection on notes receivable 36 -
Principal payments under capital lease
obligations and long-term debt (593) (536)
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Net cash provided by financing activities 9,065 5,912
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Net decrease in cash and cash equivalents (7,714) (4,268)
Cash and cash equivalents at beginning of period 16,010 (13,580)
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Cash and cash equivalents at end of period $ 8,296 $ 9,312
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</TABLE>
See accompanying notes to consolidated financial statements
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SUBMICRON SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. The
interim financial information, while unaudited, reflects all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the interim financial statements. The results for the three
and six month periods ended June 30, 1996 are not necessarily indicative of
results expected for the full year. These financial statements should be
read in conjunction with the audited financial statements and the notes
thereto included in the SubMicron Systems Corporation Annual Report on Form
10-K for the year ended December 31, 1995.
2. ACQUISITIONS:
In March 1996, the Company acquired Imtec Acculine, Inc. (Imtec), a
Sunnyvale, California company. Imtec's principal business is designing,
developing testing, manufacturing and marketing temperature regulated baths
for the semiconductor market and related industries. The Company acquired all
the outstanding stock of Imtec in exchange for 575,000 shares of Common stock.
The transaction was accounted for as a pooling of interests and therefore, the
consolidated results of operations for three and six months ended June 30,
1996 include Imtec's results of operations for the periods then ended.
Additionally, the consolidated balance sheets of SubMicron Systems
Corporation (SSC) as of December 31, 1995 and the results of operations for
the three and six months ended June 30, 1995 have been restated to include
Imtec historical financial information.
3. INVENTORIES:
Inventories are stated at the lower of cost (specific identification) or
market and consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
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<S> <C> <C>
Raw materials $ 34,013 $ 20,231
Work-in-process 21,238 14,619
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$ 55,251 $ 34,850
Excess and obsolescence reserve (929) (718)
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$ 54,322 $ 34,132
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</TABLE>
4. CUSTOMER INFORMATION:
Sales of the Company's products to three customers accounted for and 30% of
total sales for both the three and six months ended June 30, 1996, and sales
to three different customers accounted for______________________% and
__________% of total sales for the three and six months ended June 30, 1995.
Accounts receivable for the three largest customers represents 21% of
consolidated receivables as of June 30, 1996.
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5. LINE OF CREDIT:
In February 1996, the Company replaced the $11,500,000 note with a
$30,000,000 credit facility. The Company used the credit facility to
refinance its existing line of credit and to provide working capital.
Borrowings under the credit facility bear interest at LIBOR plus 1.75% or
prime and are secured by substantially all of the assets of the Company.
This credit facility replaced all other credit facilities of the Company
and its subsidiaries. Borrowings on the credit facility were approximately
24,600,000 at June 30, 1996. The credit facility is subject to renewal in
August 1997 and includes certain financial and other covenants including a
limitation on capital expenditures, restriction on payment of dividends and
the maintenance of certain financial ratios. There are certain non-monetary
covenant defaults under the credit facility as of June 31, 1996 for which
the Company has received a waiver from its lending institution.
6. INCOME TAXES:
The Company accounts for income taxes under Financial Accounting Standards
No. 109. As of June 30, 1996, the components of the Company's net deferred
income tax asset are approximately as follows:
<TABLE>
<S> <C>
Financial statement reserves $ 1,494
Uniform capitalization 154
Gain on litigation settlement (1,100)
Deferred compensation 314
Other 396
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$ 1,258
=========
</TABLE>
No valuation allowance has been provided for deferred tax assets.
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Sales
Net sales increased 82% and 96% for the three and six month periods ended
June 30, 1996, respectively, as compared to the same periods in the
prior year. Sales increased as a result of continued demand for SubMicron's
advanced wafer cleaning and chemical management systems.
Gross Profit
Gross margins were 26% and 29% of sales for the three and six months
ended June 30, 1996, respectively, as compared to gross margins of 23% and
28% for the comparable periods in the prior year. The increase in gross
margins for the three and six months ended June 30, 1996, of 3% and 1%,
respectively, as compared to the prior year periods were primarily due to the
product mix. Although gross margins have improved versus the comparable
prior year period, the second quarter margins were considerably lower than
expected due to a high level of customized orders and lower than usual pricing
provided to a customer in the second quarter of 1996. Gross margins may
vary significantly from quarter to quarter based upon product mix.
Selling, General and Administrative
Selling, general and administrative expenses were 19% and 20% of net sales for
the three and six month periods ended June 30, 1996, respectively, as compared
to 29% and 28% for the comparable periods in the prior year. The decrease in
selling, general and administrative expenses, as a percentage of sales,
reflect benefits created through significantly higher sales volume and an
increase in the use of the Company's direct sales force.
Research and Development
Research and development expenses were 5% and 4% of net sales for the three
and six month periods ended June 30, 1996, respectively, as compared to 6%
and 5% of net sales for the prior year's comparable periods. The decrease of
approximately 1%, as a percentage of sales, for the three and six month
periods ended June 30, 1996 as compared to the three and six month
periods ended June 30, 1995 is primarily attributable to the large increase
in sales volume. Research development spending increased approximately
$603,000 and $1,628,000 in the three and six month periods ended June 30, 1996
as compared to the respective periods in the prior year as the Company is
continuing its development of its Primaxx gas-phase products.
Other Income (Expense), Net
Other expense was approximately $1,171,000 and $1,945,000 for the three and
six month periods ended June 30, 1996, respectively, as compared to other
expense of approximately $302,000 and $347,000 for the prior year comparable
periods. Other expense for the three and six months ended June 30, 1996, is
due primarily to interest charges associated with the Company's convertible
debt and increased borrowings under the Company's line of credit. Other
expense in the three and six month periods ended June 30, 1995, was primarily
the result of interest charges associated with borrowings on the Company's line
of credit.
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Net Income
The Company reported a net loss of approximately $197,000 for the three month
period ended June 30, 1996, as compared to a restated net loss of
approximately $2,049,000 million for the prior year comparable period. Net
income for the six months ended June 30, 1996 was approximately $1,253,000
as compared to a net loss of approximately $1,709,000 for the six months
ended June 30, 1995.
Future Operating Results
The Company's future results will depend on its ability to maintain sales
growth of its existing products and to successfully introduce new products to
its customers in the semiconductor industry. Due to the inherent risk
in the timing of the development and testing of new products, the
Company's operating results may fluctuate, especially when measured on a
quarterly basis. The Company's results will also be affected by the
condition of the semiconductor industry, as well as the general economy.
Liquidity and Capital Resources
In February 1996, the Company replaced the $11,500,000 note with a
$30,000,000 credit facility. The Company used the credit facility to
refinance its existing line of credit and to provide working capital.
Borrowings under the credit bear interest at LIBOR plus 1.75% or prime and
are secured by substantially all of the assets of the Company. This credit
facility replaced all other credit facilities of the Company and its
subsidiaries. Borrowings on the credit facility were approximately
$24,600,000 at June 30, 1996. The credit facility is subject to renewal
in August 1997 and includes certain financial and other covenants including a
limitation on capital expenditures, restriction on payment of dividends and
the maintenance of certain financial ratios.
SubMicron cash provided by (or used in) operating activities varies
significantly between periods. Differences between periods are primarily
due to timing of shipments, cash receipts and inventory purchasing. For
the six months ended June 30, 1996, SubMicron used approximately
$11,600,000 in cash flows for operating activities.
Cash and cash equivalents decreased by approximately $7,700,000 during the six
month period ended June 30, 1996, to approximately $8,300,000. Cash used in
operations totaled approximately $11,600,000 for the six months ended June 30,
1996, which was largely due to an increase in inventory. Accounts receivable
increased $1,100,000 from approximately $47,100,000 at December 31, 1995 to
approximately $48,200,000 at June 30, 1996. Inventory balances of
approximately $54,300,000 at June 30, 1996 are up approximately $20,200,000
from the December 31, 1995 balance of approximately $34,100,000 due
primarily to increased material purchased to prepare for third and fourth
quarter 1996 shipments.
SubMicron believes that with the funds available under its credit facility, it
will have sufficient funds to finance the Company's growth activities to the
extent cash generated from operations is not adequate.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date included.
SUBMICRON SYSTEMS CORPORATION
Dated: August 14, 1996 By: /s/ David F. Levy
---------------------------------
David F. Levy
President & CEO
Dated: August 14, 1996 /s/R. G. Holmes
---------------------------------
R. G. Holmes
Vice President Finance
Chief Financial Officer
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