<PAGE>
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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10938
SEMX CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 13-3584740
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1 LABRIOLA COURT, ARMONK, NY 10504
(Address of principal executive offices, including zip code)
(914) 273-5500
(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 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.
(1) Yes [X] No [ ]
(2) Yes [X] No [ ]
The number of shares outstanding of the Registrant's sole class of
common stock, $.10 par value, as of October 31, 2000 was 6,308,653
shares.
1
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TABLE OF CONTENTS
Page No
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountant's Report 3
Consolidated Balance Sheets at
September 30, 2000 and December 31, 1999 4
Consolidated Statements of Income for the three months
and nine months ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
FORWARD LOOKING INFORMATION
Portions of the narrative set forth in this document that are not historical in
nature are forward looking statements. These forward-looking statements speak
only as of the date of this document, and the Company expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to any
forward-looking statements contained herein. The Company's actual performance
may differ materially from that contemplated by the forward looking statements
as a result of a variety of factors that include, but are not limited to, the
general economic or business climate, business conditions of the microelectronic
and semiconductor markets and the communications, internet and automotive
industries which the Company serves and the economic volatility in geographic
markets, such as Asia.
2
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
SEMX Corporation
We have reviewed the accompanying consolidated balance sheet of SEMX Corporation
and Subsidiaries as of September 30, 2000, and the related consolidated
statements of income for the three-month period and the nine-month period then
ended, and cash flows for the nine-month period then ended. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 19, 2000
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
----------- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 455 $ 416
Accounts receivable, less allowance for doubtful accounts of
$405 and $656, respectively 12,294 7,700
Inventories 7,667 5,903
Prepaid expenses and other current assets 1,568 1,024
Deferred income tax assets 999 999
-------- --------
TOTAL CURRENT ASSETS 22,983 16,042
-------- --------
Property, Plant and Equipment-at cost, net of accumulated depreciation and 39,308 34,837
amortization of $21,997, and $18,309, respectively
Other Assets-net of accumulated amortization
Goodwill 8,681 8,573
Technology rights and intellectual property 1,799 897
Other 2,182 1,139
-------- --------
TOTAL OTHER ASSETS 12,662 10,609
-------- --------
TOTAL ASSETS $ 74,953 $ 61,488
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,083 $ 4,262
Accrued expenses 2,518 2,544
Income taxes payable 355 589
Current portion of long-term debt and short term obligations 1,864 1,893
Current portion of obligations under capital leases 2,481 2,541
-------- --------
TOTAL CURRENT LIABILITIES 13,301 11,829
-------- --------
Deferred income tax liabilities 2,424 2,431
Long-term debt 9,496 9,255
Obligations under capital leases 3,374 4,080
-------- --------
TOTAL LIABILITIES 28,595 27,595
-------- --------
Commitments and Contingencies
Minority Interest in Subsidiary 1,670 1,329
-------- --------
REDEEMABLE PREFERRED STOCK:
Preferred stock-$.10 par value; authorized 1,000,000 shares;
Designated as Series B Preferred Stock: 100,000 shares authorized, issued
and outstanding 9,007 --
Common Shareholders' Equity:
Common stock-$.10 par value; authorized 20,000,000 shares, issued
6,606,003 and 6,396,241 shares, respectively 661 640
Additional paid-in-capital 30,160 28,296
Accumulated other comprehensive loss (945) (611)
Retained earnings 6,017 4,451
-------- --------
35,893 32,776
Less: Treasury stock: 334,600 shares at cost (212) (212)
-------- --------
TOTAL COMMON SHAREHOLDER'S EQUITY 35,681 32,564
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 74,953 $ 61,488
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
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SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Net Sales $ 13,916 $ 12,188 $ 38,589 $ 34,893
Service Revenue 5,186 4,170 14,587 12,406
-------- -------- -------- --------
TOTAL REVENUE 19,102 16,358 53,176 47,299
-------- -------- -------- --------
Cost of Goods Sold 10,299 7,247 26,605 22,041
Cost of Services Performed 3,893 3,269 11,023 9,583
-------- -------- -------- --------
TOTAL 14,192 10,516 37,628 31,624
-------- -------- -------- --------
Gross Profit 4,910 5,842 15,548 15,675
Selling, General and Administrative Expenses 3,963 3,569 11,282 10,258
-------- -------- -------- --------
OPERATING INCOME 947 2,273 4,266 5,417
Gain on Sale of Connector Business -- -- -- 8,430
Interest Expense 372 442 1,248 1,653
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY
INTEREST IN CONSOLIDATED SUBSIDIARY 575 1,831 3,018 12,194
Provision for Income Taxes 186 695 1,057 5,908
-------- -------- -------- --------
Income Before Minority Interest 389 1,136 1,961 6,286
Minority Interest in Income (Loss) of Consolidated Subsidiary 75 (30) 195 (24)
-------- -------- -------- --------
NET INCOME 314 1,166 1,766 6,310
Preferred Stock Dividends and Accretion 202 -- 256 --
-------- -------- -------- --------
Net Income Available to Common Shareholders $ 112 $ 1,166 $ 1,510 $ 6,310
======== ======== ======== ========
Basic Income per Common Share $ 0.02 $ 0.19 $ 0.24 $ 1.04
Diluted Income per Common Share $ 0.02 $ 0.19 $ 0.23 $ 1.01
Weighted Average Number of Common
Shares Outstanding
Basic 6,256 6,048 6,185 6,043
Diluted 6,580 6,281 6,607 6,262
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,766 $ 6,310
Adjustments to reconcile net income to net
Cash provided by operating activities:
Gain on sales of connector business --- (8,430)
Depreciation and amortization of property and equipment 4,155 3,771
Other amortization 474 481
Deferred income taxes (7) (357)
Minority interest 195 (24)
Changes in operating assets and liabilities:
Increase in accounts receivable (4,527) (1,879)
Increase in inventories (1,663) (881)
(Increase) decrease in prepaid expenses and other current assets (541) 5,640
Increase (decrease) in accounts payable 1,937 (1,235)
Increase in accrued expenses 19 238
Increase (decrease) in income taxes payable (262) 877
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,546 4,511
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (7,009) (1,732)
Proceeds from sale of connector business --- 22,191
Increase in other assets (581) (687)
Acquisitions, cash portion (1,737) --
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (9,327) 19,772
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 373 38
Proceeds from long-term debt 1,523 --
Borrowings (repayments) under revolving credit facilities 967 (6,173)
Net Proceeds from issuance of Preferred Stock 9,100 --
Payments under capital leases (1,907) (2,017)
Payments of Series B Preferred Stock Dividends (201) --
Payments under long term debt (2,003) (15,558)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,852 (23,710)
-------- --------
Effect of exchange rate change on cash (32) 60
Net increase in cash 39 633
Cash at beginning of period 416 1,141
-------- --------
Cash at end of period $ 455 $ 1,774
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITY:
Machinery and equipment, net of trade-in, acquired under capital leases $ 1,151 $ 900
Intellectual property rights acquired with restricted common stock $ 1,000 $ --
Acquisition finders fee paid with non qualified stock options $ 426 $ --
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of SEMX Corporation
("SEMX") and its wholly and majority owned subsidiaries. As used herein, the
term "Company" refers to SEMX, its predecessors and its subsidiaries unless the
context indicates otherwise. The Consolidated Balance Sheet at September 30,
2000 and the Consolidated Statements of Income for the three and nine months
ended September 30, 2000 and 1999 and Cash Flows for the nine months ended
September 30, 2000 and 1999, have been prepared by the Company and are
unaudited. In the opinion of management, the financial statements reflect all
adjustments necessary to present fairly the results for the interim periods.
Such results are not necessarily indicative of results to be expected for the
year. The Consolidated Balance Sheet at December 31, 1999 has been derived from
the audited financial statements at that date. These financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1999. The financial statements included herein for the
three and nine month periods ended September 30, 2000 have been reviewed in
accordance with statement on Auditing Standards No. 71 by the Company's
independent accountants. The comparative financial statements for December 31,
1999 have been reclassified to conform to the current period's presentation.
NOTE 2. EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during the period.
Potential dilutive common shares include shares issuable upon exercise of the
Company's stock options and warrants. Net income available to common
shareholders reflects preferred stock dividends payable and accretion on the
Company's Redeemable Preferred Stock.
7
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NOTE 3. ACQUISITIONS AND DISPOSITIONS
Acquisitions:
On April 10, 2000, the Company's Polese Company subsidiary acquired the assets
of Advanced Packaging Concepts ("APC"), a Vista, CA based manufacturer of
ceramic packages for the wireless markets, in a business combination accounted
for as a purchase. Polese Company acquired the assets and assumed selected
liabilities of APC for $1,300 in cash, which was financed in part by a $1,000
interim term loan that was repaid during the second quarter of 2000. In
addition, Polese Company paid approximately $120 in costs associated with the
acquisition of APC. The fair value of assets acquired, including approximately
$695 allocated to goodwill, amounted to approximately $1,300 and liabilities
assumed amounted to $1,000. In a companion transaction, associated intellectual
property rights were acquired for approximately 95 shares of restricted SEMX
common stock, valued at $1,000. The transaction provides the sellers of APC a
royalty of 2 1/2 % against future sales to certain existing customers for a
period of 3 years. At closing, the Company advanced a total of $150 to the
sellers against this royalty. The Company vacated the Vista premises as of July
31, 2000 and has completed the integration of APC's operations into Polese
Company's existing facilities as of October, 2000.
On May 1, 2000, the Company's Polese subsidiary purchased the technology and
assets of Engelhard Corporation's ("Engelhard") electroless gold plating
business in Anaheim, CA for total cash consideration of $317. In addition, a
finders fee consisting of Non Qualified Stock options to purchase 40 shares of
SEMX Common, valued at $426 was recorded. The fair value of assets acquired,
including $426 allocated to goodwill, amounted to $743. Electroless gold plated
deposits satisfy manufacturing requirements for wire bonding, die-attachment and
corrosion resistance, but eliminate many of the design restrictions brought
about by conventional electrolytic gold plating. Polese Company vacated the
Anaheim premises as of July 31, 2000 and has completed the integration of the
electroless gold plating operations into Polese Company's existing facilities as
of October 2000.
Dispositions:
In February 1999, the Company sold its connector businesses, Retconn
Incorporated ("Retconn") and ST Electronics, Inc. ("ST") to Litton Corporation
("Litton"). Litton acquired the specified assets and assumed certain liabilities
of Retconn and ST, as defined in the purchase agreement, in consideration for a
cash payment to the Company of $23,871. The liabilities assumed by Litton
amounted to approximately $3,500. The purchase price was subject to adjustment
for changes in Retconn's closing date balance sheet and in December, 1999 the
Company paid Litton $320 in settlement of the final purchase price adjustment.
In addition, the Company is prevented from directly competing in the connector
business for a period of three years. The Company recorded a pretax gain of
$8,430 on the transaction.
8
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NOTE 4. INVENTORY
Inventories consisted of the following:
September 30, 2000 December 31,
(Unaudited) 1999
----------- ----
Precious Metals $1,329 $1,243
Non Precious Metals 6,338 4,660
====== ======
$7,667 $5,903
====== ======
Inventories, which consist principally of work-in-process inventory, include raw
materials, labor and manufacturing expenses and are stated at the lower of cost,
determined by the first-in, first-out method, or market.
NOTE 5. REDEEMABLE PREFERRED STOCK
On June 1, 2000, the Company received $10,000 in gross proceeds from Series B
Redeemable Preferred Stock from a group led by ACI Capital Co ("ACI"). Attached
to the instrument were warrants to purchase 1 million shares of SEMX Common
Stock with an exercise price initially valued at $10.00 per share, subject to a
reset provision dependent on the underlying market price of SEMX Common Stock,
with a floor of $7.00 per share. On the accompanying Balance Sheet, a value of
$250 was assigned to the warrants and an initial value of $9,750 was assigned to
the redeemable preferred stock. The $250 value assigned to the warrants was
credited to additional paid in capital and will be accreted to the value of the
Series B Preferred Stock over the five year term. The Company paid approximately
$900 in investment banking, financing, legal and accounting fees in conjunction
with the offering. A total of $800 of the fees associated with the offering were
accounted for as a reduction in the carrying value of the preferred stock on the
accompanying balance sheet and will be accreted to the value of the Series B
Preferred Stock over the five year term. The remaining $100 costs were allocated
to expenses of issuing the warrants and were charged to paid in capital. Of this
total approximately $300 was paid to a firm affiliated with John Moorhead, who
is a member of the SEMX Board of Directors for services rendered in assistance
with the financing. Additionally, warrants to purchase an aggregate 60 shares of
SEMX common stock at an exercise price of $7.00 per share were issued to an
investment banking firm; a firm associated with John Moorhead; and certain other
individuals. The Series B Preferred Stock is subject to mandatory redemption in
5 years for $10,000 and cash dividends are payable semiannually at a rate of 6%,
and in preference to any dividends on the Company's Common Stock, and are
subject to successive rate increases in the event of uncured late dividend
payments or other events of default. The Liquidation Preference of the Series B
Preferred Stock is equal to the stated value plus accrued and unpaid dividends
to the date of liquidation. The Series B Preferred Stock granted ACI the right
to add two directors to the SEMX Board of Directors.
9
<PAGE>
NOTE 6. COMPREHENSIVE INCOME (LOSS)
The components of the Company's total comprehensive income (loss) were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 314 $ 1,166 $ 1,766 $ 6,310
Foreign currency translation adjustments, net of taxes (365) 159 (334) (147)
------- ------- ------- -------
Total Comprehensive Income (Loss) $ (51) $ 1,325 $ 1,432 $ 6,163
======= ======= ======= =======
</TABLE>
NOTE 7. SEGMENT INFORMATION
The Company operates primarily in two industry segments, the Materials Group and
the Services Group. The tables below present information about reported
segments:
<TABLE>
<CAPTION>
Corporate and
Nine Months Ended Materials Services Reconciling Consolidated
September 30, 2000 Group Group Items Total
------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue $ 38,589 $ 14,587 $ 53,176
Cost of goods sold and services performed 26,605 11,023 37,628
-------- -------- --------
Gross profit 11,984 3,564 15,548
Operating expenses 8,374 2,908 11,282
-------- -------- --------
Income from operations $ 3,610 $ 656 $ 4,266
======== ======== ========
Segment assets $ 85,375 $ 38,958 $(49,380) $ 74,953
======== ======== ======== ========
Capital expenditures $ 4,071 $ 2,938 $ 7,009
======== ======== ========
Depreciation and amortization expense $ 2,283 $ 2.346 $ 4,629
======== ======== ========
<CAPTION>
Corporate and
Nine Months Ended Materials Services Reconciling Consolidated
September 30, 1999 Group Group Items Total
------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue $ 34,893 $ 12,406 $ 47,299
Cost of goods sold and services performed 22,041 9,583 31,624
-------- -------- --------
Gross profit 12,852 2,823 15,675
Operating Expenses 7,223 3,035 10,258
-------- -------- --------
Income (loss) from operations $ 5,629 $ (212) $ 5,417
======== ======== ========
Segment assets $ 68,569 $ 33,469 $(40,829) $ 61,209
======== ======== ======== ========
Capital expenditures $ 1,663 $ 69 $ 1,732
======== ======== ========
Depreciation and amortization expense $ 1,972 $ 2,280 $ 4,252
======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Corporate and
Three Months Ended Materials Services Reconciling Consolidated
September 30, 2000 Group Group Items Total
------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue $ 13,916 $ 5,186 $ 19,102
Cost of goods sold and services performed 10,299 3,893 14,192
-------- -------- --------
Gross profit 3,617 1,293 4,910
Operating expenses 2,973 990 3,963
-------- -------- --------
Income from operations $ 644 $ 303 $ 947
======== ======== ========
Segment assets $ 85,375 $ 38,958 $(49,380) $ 74,953
======== ======== ======== ========
Capital expenditures $ 1,519 $ 1,602 $ 3,121
======== ======== ========
Depreciation and amortization expense $ 830 $ 821 $ 1,651
======== ======== ========
<CAPTION>
Corporate and
Three Months Ended Materials Services Reconciling Consolidated
September 30, 1999 Group Group Items Total
------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue $ 12,188 $ 4,170 $ 16,358
Cost of goods sold and services performed 7,247 3,269 10,516
-------- -------- --------
Gross profit 4,941 901 5,842
Operating Expenses 2,594 975 3,569
-------- -------- --------
Income (loss) from operations $ 2,347 $ (74) $ 2,273
======== ======== ========
Segment assets $ 68,569 $ 33,469 $(40,829) $ 61,209
======== ======== ======== ========
Capital expenditures $ 1,000 $ 36 $ 1,036
======== ======== ========
Depreciation and amortization expense $ 406 $ 1,000 $ 1,406
======== ======== ========
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - Third quarter and first nine months 2000 compared to
third quarter and first nine months 1999
REVENUE:
Total revenue for the third quarter, 2000 of $19,102,000 increased $2,744,000 or
17% as compared to the third quarter 1999. Total revenue for the first nine
months of 2000 of $53,176,000, increased $5,877,000 or 12% as compared to the
similar 1999 period. First nine months 1999 included sales of $2,122,000 from
the Company's connector business, ("Retconn") through the February 1999
disposition date. Excluding Retconn sales, total revenue for the first nine
months 2000 increased $ 7,999,000 or 18% compared to the similar 1999 period.
The Company's Materials Group's third quarter 2000 sales of $13,916,000
increased $1,728,000, or 14%, from the third quarter 1999, primarily due to
increased sales of gold wire at SPM. SPM's third quarter 2000 sales increased by
$1,124,000 or 34% as compared to the comparable 1999 period. Polese Company's
third quarter 2000 sales increased by $604,000 or 7% as compared to the prior
year period reflecting improved sales of microprocessor lids, cellular base
station heat dissipation products and the introduction of new products in the
first quarter 2000. The first nine months 2000 sales of the Materials Group,
excluding Retconn increased by $5,818,000 or 18% over the similar prior year
period. Polese's nine months sales of $25,589,000 have increased $2,585,000 or
11% from 1999 levels, due to improved sales of microprocessor lids, cellular
base station heat dissipation products and the introduction of new products in
the first quarter 2000, offset by the disruptions in the second quarter. The
increase in SPM's first nine months 2000 sales to $13,000,000 from $9,767,000 in
the prior year period, was primarily due to increased shipments of gold wire as
well as increased sales from the overseas locations.
The Company's Services Group third quarter 2000 revenues increased $1,016,000 or
24% as compared to the third quarter 1999 reflecting strong performance at the
Group's Singapore operation, ISP. First nine months 2000 sales increased by
$2,181,000 or 18% over the comparable period of 1999. The Services Group revenue
increase for both the quarter and nine month period, was the result of an
increase in the demand for reclaimed wafers, primarily at ISP, with improvements
also taking place at the Group's ASP U.S. and European operations.
The Company does a significant amount of international business, both from its
domestic locations, as well as through overseas manufacturing locations. Direct
sales of the Company's products into foreign markets, as a percentage of
consolidated revenue ("foreign sales percentage") during the first nine months
of 2000 was 27%, as compared to 25% for the prior year period. This compares to
foreign sales percentages of 22% for the third quarter 2000 and 19% for the
third quarter 1999. The Company has foreign manufacturing operations in the
Netherlands ("ASP B.V."), in Morocco, Semiconductor Materials S.A.R.L.
("S.A.R.L."), in Malaysia, SPM(M) SDN.BHD ("SPM(M)") and in Singapore, ISP.
During the third quarter 2000, the Company derived revenue from ASP B.V. of
$705,000, from S.A.R.L. of $224,000, from SPM(M) of $204,000, and from ISP of
$1,459,000. During the first nine months of 2000, the Company derived revenue
from ASP B.V. of $2,394,000, from S.A.R.L. of $637,000, from SPM(M) of $684,000,
and from ISP of $3,609,000. Foreign sales made through the Company's domestic
operations are made through foreign manufacturer's representatives and are
priced and paid for in U.S. dollars. Sales for ASP B.V., S.A.R.L., SPM(M) and
ISP are conducted in the local currencies of Dutch Guilders, Dirhams, Ringits
and Singapore Dollars, respectively, and constitute a foreign sales percentage
of 14% in third quarter and 14% in the first nine months of 2000.
The Company's consolidated backlog as of September 30, 2000 was approximately
$26,839,000 compared to backlog of approximately $19,459,000 at September 30,
1999 and $17,184,000 at December 31, 1999. The increase in consolidated backlog
during 2000 was led by Polese's increase from approximately $8,117,000 at
December 31, 1999 to approximately $17,270,000 at September 30, 2000. Backlog at
ASP has improved significantly from approximately $5,628,000 since at the
beginning of year to approximately $7,458,000 at September 30, 2000. The backlog
for SPM has decreased approximately $1,330,000 from beginning of year levels, to
$2,111,000 at September 30, 2000. Approximately 28% of the consolidated backlog
at September 30, 2000 includes orders that are not expected to be shipped within
one year. The Company expects the consolidated backlog to remain strong for the
remainder of 2000.
GROSS PROFIT:
Gross profit of $4,910,000 for the third quarter 2000 decreased $932,000, or
16%, from the third quarter 1999. Excluding Retconn, first nine months 2000
gross profit increased by $581,000 or 4% from the comparable 1999 period. The
Materials Group's third quarter 2000 gross profit of $3,617,000 decreased
$1,324,000 or 27% compared to the third quarter 1999. The Materials Group's
gross profit decrease reflects disruptions at Polese Company due to the
integration of the APC and Englehard businesses, as well as less than expected
yields due to transitions involved with shifting production towards assembled
thermal management products. As a result of the above, the Materials Group's
gross margin decreased from 41% in last years third quarter to 26% in the third
quarter 2000. The Service Group's third quarter 2000 gross profit of $1,293,000
increased $392,000 or 44% as compared to the comparable periods in
12
<PAGE>
1999 primarily due to increased sales. The Services Group's third quarter 2000
gross margin of 25% increased from the third quarter 1999 gross margin of 22%
primarily due to improved performance at ISP.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative ("SG&A") expenses in the third quarter 2000
increased $394,000, or 11% from the comparable 1999 period. The increase in SG&A
during the third quarter 2000 was primarily due to increased sales. SG&A
expenses as a percentage of revenue decreased slightly from 22% in the third
quarter 1999 to 21% for the third quarter 2000. Excluding Retconn, SG&A expense
for the first nine months of 2000 increased $1,424,000 or 14% over the first
nine months of 1999, reflecting an 18% increase in sales for the first nine
months of 2000 over comparable prior year period.
GAIN ON SALE OF CONNECTOR BUSINESS
Income before Provision for Income Taxes and Minority Interest for the first
nine months of 1999 include a gross gain on the sale of the Company's Connector
Business on February 19, 1999 of $8,430,000.
INTEREST EXPENSE (NET):
Net interest expense for the third quarter 2000 decreased $70,000 from the third
quarter 1999. Net interest expense for the first nine months of 2000 decreased
$405,000 from the similar period last year. The decrease in net interest expense
is due to reduced debt levels from February 19, 1999 forward due to the
principal repayments from proceeds from the sale of the Connector business and
lower borrowing rates.
PROVISION FOR INCOME TAXES:
A provision of $186,000 for income taxes has been recorded at an effective rate
of 32% for the third quarter of 2000 as compared to a provision of $695,000 at
an effective rate of 38% for the third quarter of 1999. A provision of
$1,057,000 at an effective rate of 35% for income taxes has been recorded for
the first nine months of 2000 as compared a provision of $5,908,000 at an
effective rate of 48% for the first nine months of 1999. The lower effective
rates utilized in the 2000 periods reflect state investment credits and Federal
R&D tax credits. The provision for the first nine months of 1999 includes taxes
of $4,527,000 associated with the gain on the sale of the Connector business.
MINORITY INTEREST:
The Company has a 50.1% interest in the Services Group's Singapore based ISP
operation. In accordance with generally accepted accounting principles the
Company fully consolidates the operating results of ISP and then, excludes 49.9%
of ISP's net income or loss from its consolidated net income, reflecting the
minority owner's share in ISP's results. In the first nine months and the third
quarter of 2000, the Company has excluded from net income, $195,000 and $75,000
respectively, reflecting the minority owners share of ISP's income, net of tax.
In the first nine months and third quarter of 1999, the Company's net income
excludes losses of $24,000 and $30,000 respectively, associated with ISP, net of
tax.
NET INCOME:
As a result of the above, net income of $314,000 for the third quarter 2000
decreased by $852,000 from the third quarter 1999. Excluding an after tax gain
on the sale of the Connector business of $3,903,000 in the first nine months of
1999, net income from continuing operations increased by $641,000 for the first
nine months of 2000 as compared to the similar 1999 period.
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
Net income available to common shareholders is the numerator in the Company's
calculation of Basic and Diluted Income per common share and reflects dividends
payable to Preferred Stockholders and accretion of the carrying value of the
Series B Preferred Stock issued on June 1, 2000. The Company accrues
approximately $67,000 per month representing dividends payable and accretion
related to the Series B Preferred Stock.
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LIQUIDITY AND CAPITAL RESOURCES
General
To support the Company's growth the Company has historically made significant
capital expenditures to support its facilities and manufacturing processes as
well as working capital needs. The Company has financed its capital needs
through cash flow from operations, issuance of Preferred Stock, line of credit
facilities, term loans from banks, other bank financing including gold
consignment supply agreements, and capital leases.
Summary of 2000 Activity
At September 30, 2000, the Company had cash and cash equivalents of $455,000 and
had an available balance on its revolving credit facility of $6,363,000 as
compared to $1,774,000 and $500,000 respectively at September 30, 1999.
Net cash provided by operating activities in the first nine months of 2000
amounted to $1,546,000 as compared to $4,511,000 in the first nine months of
1999. Cash provided by operations decreased compared to the first nine months of
1999 principally as a result of first nine months operating income and working
capital changes.
Cash used by investing activities amounted to $9,327,000 in the first nine
months of 2000. The Company completed the acquisition of the assets of APC on
April 1, 2000 and Englehard on May 1, 2000. On February 19, 1999 the Company
completed the sale of its Connector business and realized cash proceeds of
$22,191,000. During the nine months ended September 30, 2000 and 1999, the
Company invested $7,009,000 and $1,732,000, respectively, in property and
equipment. This investment excludes $1,151,000 in the 2000 period and $900,000
in the 1999 period for equipment acquired under capital leases.
Net Cash provided by financing activities amounted to $7,852,000 in the first
nine months of 2000 as compared to cash used of $23,710,000 during the 1999
period. On June 1, 2000 the Company realized net proceeds of approximately
$9,100,000 from the issuance of Series B Preferred Stock. During the first nine
months of 2000 the Company repaid $2,003,000 under a term loan and bridge loan
facilities and borrowed $967,000 under its Bank revolving line of credit. In
addition, the Company made payments of $1,907,000 under capital lease
obligations. On September 30, the Company paid a semi-annual cash dividend to
the holders of Series B Preferred in the amount of $201,000.
Factors Affecting Future Liquidity
On June 1, 2000, the Company received $10,000,000 in gross proceeds from the
issuance of Series B Redeemable Preferred Stock to a group led by ACI . Attached
to the instrument were warrants to purchase 1 million shares of SEMX Common
Stock with an exercise price initially valued at $10.00 per share, subject to a
reset provision dependent on the underlying market price of SEMX Common Stock,
with a floor of $7.00 per share. The Company paid approximately $900,000 in
investment banking, financing, legal and accounting fees in conjunction with the
offering. Of this total approximately $300,000 was paid to a firm affiliated
with John Moorhead, who is a member of the SEMX Board of Directors for services
rendered in assistance with the financing. Additionally, warrants to purchase an
aggregate 60,000 shares of SEMX common stock at an exercise price of $7.00 per
share were issued to an investment banking firm; a firm associated with John
Moorhead; and certain other individuals. The Series B Preferred Stock is subject
to mandatory redemption in 5 years and cash dividends are payable semiannually
at a rate of 6%, subject to successive rate increases in the event of uncured
late payments or events of default. The Series B Preferred Stock granted ACI the
right to add two directors to the SEMX Board of Directors.
On November 1, 1999 the Company entered into a Revolving Credit, Term Loan and
Security Agreement with PNC Bank. The Credit Facility replaced the existing
revolving credit and interim term loan facilities which the Company had with
First Union and Fleet. The Credit Facility, which has a three year term,
consists of a formula based $8,500,000 revolving credit facility and a
$6,234,000 term loan which are secured by substantially all of the Company's
domestic assets. Revolving credit facility availability of up to S$4,000,000
Singapore dollars (approximately $2,300,000 US) is reserved for issuance of a
standby letter of credit in support of the Company's continuing guarantee of
ISP's debt. The interest rate on revolving credit borrowings are, at the
Company's option, based on either the prime rate or a floating Eurodollar rate
plus a margin of 2.75%. At the Company's option, the term loan interest rate is
based on either prime plus 0.5% or a floating Eurodollar rate plus a margin of
3.0%. Principal payments under the $6,234,000 term loan are due in equal monthly
installments of $74,214 over the three-year term. Full payment of any
outstanding debt on the term loan is due on October 31, 2002.
In August 2000 the Company's 50.1% owned ISP subsidiary refinanced its existing
debt and entered into a credit facility with Keppel Tatlee Bank. The facility
provides for a total of S$11,950,000 (approximately $6,900,000 US) in term and
overdraft borrowings secured by ISP's property and equipment and partially
guaranteed by the Company. In conjunction with the refinancing the Company was
able to reduce its guarantee of ISP's debt from S$5,000,000 Singapore dollars
(approximately $2,900,000 US) to S$4,000,000 (approximately $2,300,000 US). The
reduced guarantee is secured by a standby letter of credit of up to S$4,000,000
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Singapore dollars issued by PNC Bank in favor of ISP's lenders. In the event of
default, as defined by ISP's lending agreements, Keppel Tatlee Bank could draw
down the S$4,000,000 standby letter of credit provided by the Company's Bank.
In December 1996, the Company entered into a consignment agreement (the "Gold
Consignment Agreement") with Fleet Precious Metals ("FPM") which, as amended
expires June 30, 2002. Under the Gold Consignment Agreement, the Company
purchases gold used in its manufacturing of materials. The Gold Consignment
Agreement provides for gold on consignment not to exceed the lesser of 6,500
troy ounces of gold or gold having a market value of $2,400,000. The Gold
Consignment Agreement requires the Company to pay a consignment fee of 4.5% per
annum based upon the value of all gold consigned to the Company.
In conjunction with the Company's acquisition of Polese Company on May 27, 1993,
the Company acquired from Frank J. Polese, the former sole shareholder of Polese
Company, all of the rights, including a subsequently issued patent, for certain
powdered metal technology and its application to the electronics industry. For a
period of ten years from May 1993, Mr. Polese has the right to receive 10% of
(i) the pre-tax profit from the copper tungsten product line, after allocating
operating costs and (ii) the proceeds of the sale, if any, by the Company of the
powdered metal technology. During the first nine months of 2000, the Company
charged against operations a total of $169,000 under this agreement.
The Company continually seeks to broaden its product lines by various means,
including through acquisitions. The Company intends to pursue only those
acquisitions for which it will be able to arrange the necessary financing by
means of the issuance of additional equity, the use of its cash or, through bank
or other debt financing.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
An investigation by the Securities and Exchange Commission ("SEC) into certain
sales of the Company's common stock during 1996 is continuing. As a general
matter, the SEC takes the position that its investigation should not be
construed as an indication that any violations of law have occurred or as an
adverse reflection upon any person or security. The Company and any corporate
personnel involved have cooperated fully with the SEC in its investigations.
Item 6. Exhibits and Reports on Form 8-K
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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.
SEMX CORPORATION
Date: November 13, 2000 By: /s/ Gilbert D. Raker
--------------------
Name: Gilbert D. Raker
Title: Chairman of the Board
and Chief Executive Officer
Date: November 13, 2000 By: /s/ Mark A. Koch
----------------
Name: Mark A. Koch
Title: Controller and Secretary
(Principal Financial and
Accounting Officer)
