<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 June 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, as of August 4, 2000 was 6,224,341 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
June 30, 2000 and December 31, 1999 4
Consolidated Statements of Income for the three
months and six months ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the six
months ended June 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 12-18
PART II OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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 June 30, 2000, and the related consolidated statements of
income for the three-month period and the six-month period then ended, and cash
flows for the six-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
July 18, 2000
3
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
----------- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,881 $ 416
Accounts receivable, less allowance for doubtful accounts of
$434 and $656, respectively 10,366 7,700
Inventories 8,193 5,903
Prepaid expenses and other current assets 1,196 1,024
Deferred income tax assets 999 999
-------------------- --------------------
TOTAL CURRENT ASSETS 24,635 16,042
-------------------- --------------------
Property, Plant and Equipment-at cost, net of accumulated depreciation and 37,568 34,837
amortization of $20,551, and $18,309, respectively
-------------------- --------------------
Other Assets-net of accumulated amortization
Goodwill 9,466 8,573
Technology rights and intellectual property 1,843 897
Other 867 1,139
-------------------- --------------------
TOTAL OTHER ASSETS 12,176 10,609
-------------------- --------------------
TOTAL ASSETS $ 74,379 $ 61,488
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,933 $ 4,262
Accrued expenses 2,122 2,544
Income taxes payable 206 589
Current portion of long-term debt and short term obligations 1,896 1,893
Current portion of obligations under capital leases 2,493 2,541
-------------------- --------------------
TOTAL CURRENT LIABILITIES 13,650 11,829
-------------------- --------------------
Deferred income tax liabilities 2,313 2,431
Long-term debt 8,106 9,255
Obligations under capital leases 3,954 4,080
-------------------- --------------------
TOTAL LIABILITIES 28,023 27,595
-------------------- --------------------
Commitments and Contingencies
Minority Interest in Subsidiary 1,521 1,329
-------------------- --------------------
REDEEMABLE PREFERRED STOCK:
Preferred stock-$.10 par value; authorized 1,000,000 shares;
Designated as Series B Preferred Stock: 100,000 shares authorized and issued 9,754 --
Common Shareholders' Equity:
Common stock-$.10 par value; authorized 20,000,000 shares, issued
6,558,941 and 6,396,241 shares, respectively 656 640
Additional paid-in-capital 29,313 28,296
Accumulated other comprehensive loss (580) (611)
Retained earnings 5,904 4,451
-------------------- --------------------
35,293 32,776
Less: Treasury stock: 334,600 shares at cost (212) (212)
-------------------- --------------------
TOTAL COMMON SHAREHOLDER'S EQUITY 35,081 32,564
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 74,379 $ 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Net Sales $ 12,657 $ 11,780 $ 24,673 $ 22,705
Service Revenue 4,974 4,268 9,401 8,236
----------- ----------- ----------- -----------
TOTAL REVENUE 17,631 16,048 34,074 30,941
----------- ----------- ----------- -----------
Cost of Goods Sold 8,612 7,443 16,306 14,794
Cost of Services Performed 3,612 3,143 7,130 6,314
----------- ----------- ----------- -----------
TOTAL 12,224 10,586 23,436 21,108
----------- ----------- ----------- -----------
Gross Profit 5,407 5,462 10,638 9,833
Selling, General and Administrative Expenses 3,776 3,390 7,319 6,689
----------- ----------- ----------- -----------
OPERATING INCOME 1,631 2,072 3,319 3,144
Gain on Sale of Connector Business - - - 8,430
Interest Expense 495 511 876 1,211
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY
INTEREST IN CONSOLIDATED SUBSIDIARY 1,136 1,561 2,443 10,363
Provision for Income Taxes 429 556 871 5,213
----------- ----------- ----------- -----------
Income Before Minority Interest 707 1,005 1,572 5,150
Minority Interest in Income of Consolidated Subsidiary 98 14 120 6
----------- ----------- ----------- -----------
NET INCOME 609 991 1,452 5,144
Preferred Stock Dividends 54 - 54 -
----------- ----------- ----------- -----------
Net Income Available to Common Shareholders $ 555 $ 991 $ 1,398 $ 5,144
=========== =========== =========== ===========
Basic Income per Common Share $ 0.09 $ 0.16 $ 0.23 $ 0.85
Diluted Income per Common Share $ 0.08 $ 0.16 $ 0.21 $ 0.84
Weighted Average Number of Common
Shares Outstanding
Basic 6,208 6,041 6,144 6,041
Diluted 6,676 6,183 6,627 6,112
</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 six Months Ended
June 30,
2000 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,452 $ 5,144
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 2,686 2,506
Other amortization 292 340
Deferred income taxes (122) 5,373
Minority interest 122 6
Changes in operating assets and liabilities
Increase in accounts receivable (2,636) (1,527)
Increase in inventory (2,181) (419)
Increase in prepaid expenses and other current assets (176) (425)
Increase (decrease) in accounts payable 2,729 (1,062)
Increase (decrease) in accrued expenses (388) 184
Increase (decrease) in income taxes payable (395) 292
-------------------- --------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,383 1,982
-------------------- --------------------
Cash flows from investing activities
Purchase of property and equipment (3,888) (696)
Proceeds from sale of connector business 22,191
(Increase) decrease in other assets 704 (68)
Acquisitions, cash portion (1,737)
-------------------- --------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (4,921) 21,427
-------------------- --------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 258 4
Proceeds from long-term debt 3,222 --
Payments under revolving credit (6,173)
Net Proceeds from issuance of Preferred Stock 9,100
Payments under capital leases (1,130) (1,409)
Payments under long term debt (4,342) (15,637)
-------------------- --------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,108 (23,215)
-------------------- --------------------
Effect of exchange rate change on cash (105) (70)
Net decrease in cash 3,465 124
Cash at beginning of period 416 1,141
-------------------- --------------------
Cash at end of period $ 3,881 $ 1,265
==================== ====================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITY:
Machinery and equipment, net of trade-in, acquired under capital leases $ 956 $ 890
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 June 30, 2000 and
the Consolidated Statements of Income and Cash Flows for the three and six
months ended June 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 six month periods ended June 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 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 is integrating APC's operations into
Polese Company's existing facilities and has fully vacated the Vista premises as
of July 31, 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 has relocated
the electroless gold plating operations from Engelhard's Anaheim, CA facility to
Polese Company's existing facilities, and has fully vacated the Anaheim premises
as of July 31, 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
<PAGE>
NOTE 4. INVENTORY
Inventories consisted of the following:
June 30, 2000 December 31,
(Unaudited) 1999
------------------- -------------------
Precious Metals $ 1,341 $ 1,243
Non Precious Metals 6,852 4,660
=================== ===================
$ 8,193 $ 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. 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. 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
The components of the Company's total comprehensive income were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Income $609 $991 $1,452 $5,144
Foreign currency translation adjustments, net of
taxes
106 (222) 31 (306)
-------------- -------------- -------------- --------------
Total Comprehensive Income $715 $769 $1,483 $4,838
============== ============== ============== ==============
</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
Six Months Ended Materials Services Reconciling Consolidated
June 30, 2000 Group Group Items Total
------------------------------------------------- --------------- ------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 24,673 $ 9,401 $ 34,074
Cost of goods sold and services performed 16,306 7,130 23,436
--------------- ------------- -------------------- ---------------
Gross profit 8,367 2,271 ----- 10,638
Operating expenses 5,402 1,917 ----- 7,319
--------------- ------------- -------------------- ---------------
Income from operations $ 2,965 $ 354 $ ----- $ 3,319
=============== ============= ==================== ===============
Segment assets $ 82,873 $ 37,383 $ (45,877) $ 74,379
=============== ============= ==================== ===============
Capital expenditures $ 2,552 $ 1,336 $ ----- $ 3,888
=============== ============= ==================== ===============
Depreciation expense $ 1,550 $ 1,136 $ ----- $ 2,686
=============== ============= ==================== ===============
<CAPTION>
Corporate and
Six Months Ended Materials Services Reconciling Consolidated
June 30, 1999 Group Group Items Total
------------------------------------------------- --------------- ------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 22,705 $ 8,236 $ 30,941
Cost of goods sold and services performed 14,794 6,314 21,108
--------------- ------------- -------------------- ---------------
Gross profit 7,911 1,922 ----- 9,833
Operating Expenses 4,703 1,986 ----- 6,689
--------------- ------------- -------------------- ---------------
Income (loss) from operations $ 3,208 $ (64) $ ----- $ 3,144
=============== ============= ==================== ===============
Segment assets $ 67,458 $ 34,396 $ (41,672) $ 60,182
=============== ============= ==================== ===============
Capital expenditures $ 654 $ 42 $ ----- $ 696
=============== ============= ==================== ===============
Depreciation expense $ 1,243 $ 1,263 $ ----- $ 2,506
=============== ============= ==================== ===============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Corporate and
Three Months Ended Materials Services Reconciling Consolidated
June 30, 2000 Group Group Items Total
------------------------------------------------- --------------- ------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 12,657 $ 4,974 $ 17,631
Cost of goods sold and services performed 8,612 3,612 12,224
--------------- ------------- -------------------- ---------------
Gross profit 4,045 1,362 ----- 5,407
Operating expenses 2,812 964 ----- 3,776
--------------- ------------- -------------------- ---------------
Income from operations $ 1,233 $ 398 $ ----- $ 1,631
=============== ============= ==================== ===============
Segment assets $ 82,873 $ 37,383 $ (45,877) $ 74,379
=============== ============= ==================== ===============
Capital expenditures $ 1,742 $ 449 $ ----- $ 2,191
=============== ============= ==================== ===============
Depreciation expense $ 747 $ 487 $ ----- $ 1,234
=============== ============= ==================== ===============
<CAPTION>
Corporate and
Three Months Ended Materials Services Reconciling Consolidated
June 30, 1999 Group Group Items Total
------------------------------------------------- --------------- ------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 11,780 $ 4,268 $ 16,048
Cost of goods sold and services performed 7,443 3,143 10,586
--------------- ------------- -------------------- ---------------
Gross profit 4,337 1,125 ----- 5,462
Operating Expenses 2,373 1,017 ----- 3,390
--------------- ------------- -------------------- ---------------
Income from operations $ 1,964 $ 108 $ ----- $ 2,072
=============== ============= ==================== ===============
Segment assets $ 67,458 $ 34,396 $ (41,672) $ 60,182
=============== ============= ==================== ===============
Capital expenditures $ 337 $ 14 $ ----- $ 351
=============== ============= ==================== ===============
Depreciation expense $ 607 $ 627 $ ----- $ 1,234
=============== ============= ==================== ===============
</TABLE>
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - Second Quarter and First Six Months 2000 compared to
Second Quarter and First Six Months 1999
REVENUE:
Total revenue for the second quarter, 2000 of $17,631,000 increased $1,583,000
or 9.9% as compared to the second quarter 1999. Total revenue for the first six
months of 2000 of $34,074,000, increased $3,133,000 or 10.1% as compared to the
similar 1999 period. First six 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 six months 2000
increased $ 5,255,000 or 18.2% compared to the similar 1999 period.
The Company's Materials Group's second quarter 2000 sales of $12,657,000
increased $877,000, or 7.4%, from the second quarter 1999, primarily due to
increased sales of gold wire at SPM. SPM's second quarter 2000 sales increased
by $972,000 or 28.9% as compared to the comparable 1999 period. Polese Company's
second quarter 2000 sales decreased by $95,000, or 1.1% as compared to the prior
year period reflecting disruptions caused by shifts in product and the
integration of the APC and Englehard businesses acquired during the second
quarter. The first six months 2000 sales of the Materials Group, excluding
Retconn increased by $4,090,000 or 19.9% over the similar prior year period.
Polese's six months sales have increased 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 six months 2000 sales was primarily due to
increased sales of gold wire as well as increased sales from the overseas
locations.
The Company's Services Group second quarter 2000 revenues increased $706,000 or
16.5% as compared to the second quarter 1999 reflecting strong performance at
the Group's Singapore operation, ISP. First six months 2000 sales increased by
$1,165,000 or 14.1% over the comparable period of 1999. The Services Group
revenue increase for both the quarter and six 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.
12
<PAGE>
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 half of 2000
was 29.9%, as compared to 27.9% for the second half of 1999. This compares to
foreign sales percentages of 33.6% for the second quarter 2000 and 33.8% for the
second 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 second quarter 2000, the Company derived revenue from ASP B.V. of
$794,000, from S.A.R.L. of $248,000, from SPM(M) of $346,000, and from ISP of
$1,274,000. During the first half of 2000, the Company derived revenue from ASP
B.V. of $1,689,000, from S.A.R.L. of $433,000 from SPM(M) of $460,000, and from
ISP of $2,150,000. 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 15.1% in
second quarter and 13.9% in the first half of 2000.
The Company's consolidated backlog as of June 30, 2000 was approximately
$32,280,000 compared to backlog of approximately $22,110,000 at June 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 $20,427,000 at June 30, 2000. Backlog at ASP
has improved significantly from approximately $5,628,000 since at the beginning
of year to approximately $8,855,000 at June 30. The backlog for SPM has
decreased approximately $443,000 from beginning of year levels, to $2,997,000 at
June 30, 2000. Approximately 26% of the consolidated backlog at June 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 $5,407,000 for the second quarter 2000 decreased $54,000, or
1.0%, from the second quarter 1999. Excluding Retconn, first six months 2000
gross profit increased by $1,513,000, or 16.6% from the comparable 1999 period.
The Materials Group's second quarter 2000 gross profit of $4,045,000 decreased
$291,000 or 6.7% compared to the second 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
13
<PAGE>
thermal management products. As a result of the above, the Materials Group's
gross margin for the quarter decreased from 36.8% in last years second quarter
to 32.0% in the second quarter 2000. The Service Group's second quarter 2000
gross profit of $1,362,000 increased $237,000 or 21.1% as compared to the
comparable periods in 1999 primarily due to an increase in sales. The Services
Group's second quarter 2000 gross margin of 27.4% increased slightly from the
second quarter 1999 gross margin of 26.4%.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative ("SG&A") expenses in the second quarter 2000
increased $386,000, or 11.4% from the comparable 1999 period. The increase in
SG&A during the second quarter 2000 was due to increased sales and increased
travel and customer programs. SG&A expenses as a percentage of revenue increased
slightly from 21.1% in the second quarter 1999 to 21.4% for the second quarter
2000. Excluding Retconn, SG&A expense for the first half of 2000 increased
$1,030,000 or 16.4% over the first half of 1999, reflecting an 18.2% increase in
sales for the first half 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
half 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 second quarter 2000 decreased $16,000 from the
second quarter 1999. Net interest expense for the first half of 2000 decreased
$335,000 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 $429,000 for income taxes has been recorded for the second
quarter of 2000 as compared a provision of $556,000 for the second quarter of
1999. A provision of $871,000 for income taxes has been recorded for the first
six months of 2000 as compared a provision of $5,213,000 for the first six
months of 1999. The provision for the first six months of 1999 includes taxes of
$4,527,000 associated with the gain on the sale of the Connector business.
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MINORITY INTEREST:
In the second quarter of 2000 and 1999, the Company has excluded from net
income, income of $98,000 and $14,000 respectively, associated with ISP, net of
tax. In the first six months of 2000 and 1999, the Company has excluded from net
income, income of $120,000 and $6,000 respectively, associated with ISP, net of
tax. The Company has a 50.1% interest in the joint venture and has accordingly,
excluded 49.9% of ISP's net operations from its consolidated net income.
NET INCOME:
As a result of the above, net income of $609,000 for the second quarter 2000
decreased by $382,000 from the second quarter 1999. Excluding an after tax gain
on the sale of the Connector business of $3,903,000 in the first six months of
1999, net income from continuing operations increased by $211,000 for the first
six 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 $54,000 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 June 30, 2000, the Company had cash and cash equivalents of $3,881,000 and
had an available balance on its revolving credit facility of $4,130,690 as
compared to $1,265,000 and $1,000,000 respectively at June 30, 1999.
Net cash provided by operating activities in the first six months of 2000
amounted to $1,383,000 as compared to $1,982,000 in the first six months of
1999. Cash provided by operations decreased compared to the first six months of
1999 principally as a result of first half 2000 operating income and working
capital changes.
Cash used by investing activities amounted to $4,921,000 in the first six 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 six months ended June 30, 2000 and 1999, the Company invested
$3,888,000 and $696,000, respectively, in property and equipment. This
investment excludes $956,000 in the 2000 period and $890,000 in the 1999 period
for equipment acquired under capital leases.
Net Cash provided by financing activities amounted to $7,108,000 in the first
six months of 2000 as compared to cash used of $ 23,215,000 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 six
months of 2000 the Company repaid $4,342,000 under a Bank term loan facility and
borrowed $3,222,000 under its Bank revolving line of credit. In addition, the
Company made payments of $1,130,000 under capital lease obligations.
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
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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. 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$5,000,000
Singapore dollars (approximately $3,000,000 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.
The Company has guaranteed S$5,000,000 Singapore dollars (approximately
$3,000,000 US) of the debt of its 50.1% owned Singapore operation ISP. The
guarantee was secured by a standby letter of credit of up to S$5,000,000
Singapore dollars issued by PNC Bank in favor of ISP's lenders. In the event of
default, as defined by ISP's lending agreements, ISP's bank could draw down the
S$5,000,000 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.
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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 six months of 2000, the Company
charged against operations a total of $157,000 under this agreement.
The Company utilizes a single supplier for one of its raw materials. The
supplier and the Company are in discussions on a number of business issues,
which the Company believes can be resolved in an amicable fashion. In the event
that the supplier is unwilling to continue to supply the raw material, the
Company could be required to utilize an alternative source to purchase the raw
material or procure from an alternative source a certain portion of its
requirement for this raw material. A disruption in the supply of this raw
material could temporarily effect a portion of the Company's revenues until an
alternative source of supply is secured.
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 4. Submission of Matters to a Vote of Security Holders
On May 16, 2000, the registrant conducted its annual meeting. At such
meeting, stockholders of record as of the close of business on March
27, 2000 were entitled to notice of and to vote at the meeting. Out of
a total of 6,116,741 shares entitled to vote at the meeting, 5,886,743
shares, or 96%, were present in person or by proxy at said meeting.
The matters voted on at the meeting were limited to: the election of
six directors to serve for one year and until their successors are
elected
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and qualify and the ratification of the appointment of Goldstein Golub
Kessler LLP as the Company's auditors for the year ending December 31,
2000.
The following Directors were elected at such meeting:
Mark A. Pinto Steven B. Sands
John U. Moorhead, II Frank J. Polese
Gilbert D. Raker Andrew Lozyniak
The following votes were cast in the election of Goldstein Golub Kessler LLP as
the Company's auditors.
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
5,861,924 Shares 13,005 Shares 11,814 Shares
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amendment to Agreement between Registrant and PNC Bank, dated
April 10, 2000.
10.2 Second Amendment to Agreement between Registrant and PNC Bank dated
June 1, 2000.
10.3 Employment Agreement between Registrant and Mark Koch.
10.4 Amended and Restated Consignment Agreement between Registrant and
Fleet Precious Metals Inc. dated as of June 30, 2000
(b) Current Reports on Form 8-K
Form 8-K , Item 5, filed on June 16 ,2000, related to sale of Series B
Preferred Stock.
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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: August 11, 2000 By: /s/ Gilbert D. Raker
Name: Gilbert D. Raker
-------------------------------
Title: Chairman of the Board
and Chief Executive Officer
Date: August 11, 2000 By: /s/ Mark A. Koch
Name: Mark A. Koch
-------------------------------
Title: Controller and Secretary
(Principal Financial and
Accounting Officer)
