<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
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Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended March 31, 1999
Commission File Number 0-21626
ELECTROGLAS, INC.
(exact name of registrant as specified in its charter)
DELAWARE 77-0336101
(state or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
2901 Coronado Drive
Santa Clara, CA 95054
Telephone: (408) 727-6500
(address of principal executive
offices and telephone number)
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
requirement for the past 90 days.
Yes [X] No [ ]
As of May 3, 1999, 19,736,617 shares of the Registrant's common stock, $0.01 par
value, were issued and outstanding.
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INDEX
ELECTROGLAS, INC.
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Statements of Operations -- Three
months ended March 31, 1999 and March 31, 1998 ........................ 3
Consolidated Condensed Balance Sheets -- March 31, 1999
and December 31, 1998 ................................................. 4
Consolidated Condensed Statements of Cash Flows -- Three
months ended March 31, 1999 and March 31, 1998 ........................ 5
Notes to Consolidated Condensed Financial Statements --
March 31, 1999 ........................................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................... 9
Item 3. Quantitative and Qualitative Disclosure About Market Risks ............ 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...................................... 16
SIGNATURES ....................................................................... 17
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
ELECTROGLAS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 17,332 $ 36,865
Cost of sales 11,042 21,178
-------- --------
Gross profit 6,290 15,687
-------- --------
Operating expenses:
Engineering, research and development 6,219 8,515
Selling, general and administrative 7,245 9,072
-------- --------
Total operating expenses 13,464 17,587
-------- --------
Operating loss (7,174) (1,900)
Interest income 1,593 1,361
Other expense, net (127) (154)
-------- --------
Loss before income taxes (5,708) (693)
Provision (benefit) for income taxes 148 (277)
-------- --------
Net loss $ (5,856) $ (416)
======== ========
Basic and diluted net loss per share $ (0.30) $ (0.02)
======== ========
Shares used in basic and diluted calculations 19,470 19,283
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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ELECTROGLAS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1999 1998
---- ----
(Unaudited) (1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 10,668 $ 12,966
Short-term investments 91,971 100,858
Accounts receivable, net 12,914 11,945
Inventories 14,117 14,428
Prepaid expenses and other current assets 2,213 2,050
Income taxes receivable 10,204 10,860
--------- ---------
Total current assets 142,087 153,107
Restricted cash 24,616 17,712
Equipment and leasehold improvements, net 11,216 11,768
Intangible assets, net 781 923
Other assets 751 731
--------- ---------
Total assets $ 179,451 $ 184,241
========= =========
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $ 1,213 $ 566
Accounts payable 4,175 2,738
Accrued liabilities 13,323 13,160
--------- ---------
Total current liabilities 18,711 16,464
Deferred income taxes 101 110
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized 1,000; none outstanding -- --
Common stock, $0.01 par value;
authorized 40,000; issued and outstanding
19,863 at March 31, 1999 and 19,860
at December 31, 1998 199 199
Additional paid-in capital 130,952 130,927
Deferred stock compensation (614) (688)
Retained earnings 32,322 38,178
Accumulated other comprehensive loss (370) (128)
--------- ---------
162,489 168,488
Less cost of common stock in treasury;
134 at March 31, 1999 and 62 at
December 31, 1998 1,850 821
--------- ---------
Total stockholders' equity 160,639 167,667
--------- ---------
Total liabilities and stockholders' equity $ 179,451 $ 184,241
========= =========
</TABLE>
- ---------------
(1) The information in this column was derived from the Company's audited
consolidated financial statements for the year ended December 31, 1998.
See accompanying notes to consolidated condensed financial statements
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ELECTROGLAS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,856) $ (416)
Changes to income not affecting cash 1,949 2,844
Changes in current assets and current liabilities 1,435 9,436
--------- ---------
Cash provided by (used in) operating activities (2,472) 11,864
Cash flow from investing activities:
Capital expenditures (973) (938)
Purchases of investments (111,518) (42,031)
Maturities of investments 119,971 35,689
Investment in restricted cash (6,904) --
Other assets (55) (167)
--------- ---------
Cash provided by (used in) investing activities 521 (7,447)
Cash flow from financing activities:
Proceeds from short-term borrowings 647 224
Sales of common stock, net of issuance costs 25 1,594
Purchases of treasury stock (1,029) (3,271)
--------- ---------
Cash used in financing activities (357) (1,453)
Effect of exchange rate changes 10 35
--------- ---------
Net increase (decrease) in cash and cash equivalents (2,298) 2,999
Cash and cash equivalents at beginning of period 12,966 20,259
--------- ---------
Cash and cash equivalents at end of period $ 10,668 $ 23,258
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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ELECTROGLAS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE: 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete consolidated
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. These consolidated condensed financial statements should be read
in conjunction with the audited consolidated financial statements for the year
ended December 31, 1998, included in the Company's Annual Report on Form 10-K.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
The Company's fiscal year end is December 31. The Company's fiscal quarters end
on the Saturday nearest the end of the calendar quarters. For convenience, the
Company has indicated that its quarters end on March 31, June 30 and September
30.
USE OF ESTIMATES - The preparation of the accompanying unaudited consolidated
condensed financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.
NOTE: 2 - INVENTORIES
Inventories were comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(in thousands) 1999 1998
- -------------- ---- ----
<S> <C> <C>
Raw materials $ 3,906 $ 4,502
Work in process 6,443 5,948
Finished goods 3,768 3,978
------- -------
$14,117 $14,428
======= =======
</TABLE>
NOTE: 3 - NET LOSS PER SHARE
Basic and diluted net loss per share amounts were computed using the weighted
average number of shares of common stock outstanding during the period. The
effect of stock options, restricted stock, and stock placed in escrow related to
acquisitions were not included in the calculation of diluted net loss per share
for the three months ended March 31, 1999 and 1998 as the effect would be
antidilutive. The following table sets forth the computation of basic and
diluted net loss per share:
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<TABLE>
<CAPTION>
Three months ended
------------------
(in thousands, except per share data) March 31,
- ------------------------------------- ---------
1999 1998
-------- --------
<S> <C> <C>
Numerator:
Net loss $ (5,856) $ (416)
======== ========
Denominator:
Denominator for basic and diluted net loss
per share - weighted average shares 19,470 19,283
-------- --------
Basic and diluted net loss per share $ (0.30) $ (0.02)
======== ========
</TABLE>
Options to purchase 2,550,000 and 2,172,000 of common stock, and 100,000 and
100,000 shares of restricted common stock, were outstanding at March 31, 1999
and 1998, respectively, but were not included in the computation of diluted net
loss per share as the effect would be antidilutive.
In connection with the acquisition of Techne Systems, Inc., 120,000 shares of
common stock have been placed in escrow through December 1999 subject to certain
representations and warranties. Related to the Knights acquisition, 44,000 and
135,000 shares of common stock were in escrow as of March 31, 1999 and 1998,
respectively. The escrow shares related to both acquisitions were not included
in the computation of diluted net loss per share as the effect would be
antidilutive.
NOTE: 4 - LEASE AGREEMENT
In March 1997, the Company entered into a $12.0 million five-year operating
lease for approximately 21.5 acres of land in San Jose, California. On July 1,
1998, the lease agreement was amended to provide a construction allowance of
$43.0 million for certain buildings currently under construction on the land.
The monthly payments are based on the London Interbank Offering Rate (LIBOR). At
current interest rates and based on the lease amount of $24.6 million at March
31, 1999, the annual lease payments currently represent approximately $1.5
million, which will increase as the construction funding increases throughout
the construction period of 18 to 24 months. At the end of the lease, the Company
has the option to purchase the land and buildings at approximately $55.0
million. The guaranteed residual payment on the lease is approximately $55.0
million.
The lease contains certain restrictive covenants. At March 31, 1999, the Company
was in compliance with these covenants. In connection with the lease collateral
requirements, the Company was required to collateralize the lease. At March 31,
1999, the Company collateralized $24.6 million, which was included in other
assets as restricted cash. The amount of collateralization will increase as
funding increases over the construction period.
NOTE: 5 - ENVIRONMENTAL REMEDIATION
The Company has been performing environmental remediation activities on its
leased property in Santa Clara, California, in cooperation with the California
Regional Water Quality Board. In 1997, the Company accrued $1.6 million, which
was the Company's best estimate of its obligation. The Company has since
incurred actual costs of $0.8 million and expects that its remaining liability
to be in the range of $0.5 million to $0.8 million. It is possible that the
Company's recorded estimate of its obligations may change in the near term due
to unexpected additional environmental remediation expenses in the event the
current remediation efforts need to be expanded or ongoing investigation reveals
additional contamination.
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<PAGE> 8
NOTE: 6 - STOCKHOLDERS EQUITY
Stock repurchase program. On May 19, 1998, the Board of Directors authorized the
repurchase of 1,000,000 shares of the Company's stock to reduce the dilution
resulting from its employee stock option and stock purchase plans. During the
quarter ended March 31, 1999, the Company repurchased 71,100 shares of its
common stock at a cost of $1.0 million.
NOTE: 7 - COMPREHENSIVE INCOME (LOSS)
For the quarters ended March 31, 1999 and 1998, total comprehensive loss
amounted to $6.1 million and $0.4 million, respectively.
NOTE: 8 - INCOME TAXES
The Company's tax provision for the first quarter of 1999 included the impact of
foreign income and withholding taxes. A full valuation allowance has been
established for the current year net operating losses.
NOTE: 9 - SEGMENT INFORMATION
The following is a summary of the Company's operating segments:
<TABLE>
<CAPTION>
(in thousands) Prober
Three months ended March 31, products All other Consolidated
<S> <C> <C> <C>
1999
Sales to unaffiliated customers $ 14,564 $ 2,768 $ 17,332
Operating loss $ (5,858) $ (1,316) $ (7,174)
1998
Sales to unaffiliated customers $ 34,823 $ 2,042 $ 36,865
Operating income (loss) $ 215 $ (2,115) $ (1,900)
</TABLE>
-8-
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this Form 10-Q which are not purely historical are
forward-looking statements, including statements regarding the Company's
beliefs, expectations, hopes, plans or intentions regarding the future.
Forward-looking statements include, but are not limited to, statements about
future research and development investments, gross profits, cash flow,
liquidity, anticipated cash needs and availability, the impact of Year 2000
issues and the Company's Year 2000 readiness, and the impact of the introduction
of the Euro and costs related thereto. All forward-looking statements included
in this document are made as of the date hereof, based on information available
to the Company as of the date hereof, and Electroglas assumes no obligation to
update any forward-looking statement. It is important to note that the Company's
actual results could differ materially from those in such forward-looking
statements. You should consult the risk factors described from time to time in
the Company's Annual Report on Form 10-K, as well as those disclosed in this
discussion and analysis included under the sections titled "Factors That May
Affect Results and Financial Condition" and "Volatility of Stock Price."
The components of the Company's statements of operations, expressed as a
percentage of net sales, are as follows:
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 63.7 57.4
----- -----
Gross profit 36.3 42.6
----- -----
Operating expenses:
Engineering, research and development 35.9 23.1
Selling, general and administrative 41.8 24.6
----- -----
Total operating expenses 77.7 47.7
----- -----
Operating loss (41.4) (5.1)
Interest income 9.2 3.7
Other expense, net (0.7) (0.5)
----- -----
Loss before income taxes (32.9) (1.9)
Provision (benefit) for income taxes 0.9 (0.8)
----- -----
Net loss (33.8)% (1.1)%
===== ====
</TABLE>
RESULTS OF OPERATIONS
Net Sales
The Company, along with the semiconductor equipment industry in general, has
been experiencing a downturn caused by a number of factors, including economic
conditions in Asia, excess capacity in the fabrication process, semiconductor
pricing pressures, and the growth of the sub-$1000 PC. These factors have all
combined to reduce customer spending on new capital equipment which has affected
the Company's sales during the current quarter.
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<PAGE> 10
Net sales for the quarter ended March 31, 1999 were $17.3 million, a 53.0%
decline from net sales of $36.9 million in the comparable period last year in
which the Company experienced a brief recovery from an industry downturn which
has impacted the Company's sales since the latter half of 1996. The decrease was
due primarily to lower prober system unit sales from the continuing industry
downturn.
For the quarters ended March 31, 1999 and 1998, net sales were comprised of
prober systems ($9.5 million and $29.0 million, respectively), yield management
software and inspection products ($2.7 million and $2.0 million, respectively),
and aftermarket sales, consisting primarily of service, spare parts and upgrades
($5.1 million and $5.9 million respectively) in support of the prober system
business.
For the quarter ended March 31, 1999, international sales accounted for 38.5% of
net sales as compared to 41.9% for the same period last year. During the current
quarter, the Company experienced sales declines, in absolute dollars, across all
its major geographic markets. The decrease in the percentage of international
sales from 1998 was due to a larger percentage decline in both Asian Pacific and
European sales, relative to the drop in North American sales.
The Company's international sales will likely continue to account for a
significant portion of net sales in 1999. However, current Asian economic
conditions may continue to have an adverse impact on international sales for the
year.
The ongoing uncertainty surrounding the Asian financial conditions, along with
volatility in product demand and pricing, have caused semiconductor
manufacturers to exercise caution in making capital equipment decisions. As a
result of the uncertainties in this market environment, any rescheduling or
cancellations of planned capital purchases by semiconductor manufacturers will
cause the Company's sales to fluctuate on a quarterly basis.
Gross Profit
Gross profit, as a percentage of sales, was 36.3% for the first quarter of 1999,
compared to 42.6% for the first quarter of 1998. Gross profit was negatively
impacted primarily by under-absorbed manufacturing overhead costs from lower
sales.
The Company believes that its gross profit will continue to be affected by a
number of factors, including competitive pressures, changes in demand for
semiconductors, changes in product mix, level of software sales, and excess
manufacturing capacity costs.
Engineering, Research and Development
Engineering, research and development expenses were $6.2 million for the first
quarter of 1999, down 27.0% from $8.5 million in the comparable quarter last
year. This decrease was primarily a result of accelerated spending, in the first
quarter of 1998, in both the 300mm and the 4090u (micro) programs and, to a
lesser extent, a workforce reduction from the year ago level. As a percentage of
sales, these expenses increased to 35.9% in the first quarter of 1999 from 23.1%
in the same period last year due chiefly to lower sales. The Company intends to
continue to invest in critical development programs during the downturn.
Engineering, research and development expenses consist primarily of salaries,
project materials, consultant fees, and other costs associated with the
Company's ongoing efforts in hardware and software product development and
enhancement.
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<PAGE> 11
Selling, General and Administrative
Selling, general and administrative expenses were $7.2 million for the first
quarter of 1999, down 20.1% from $9.1 million in the comparable quarter last
year. This decrease was attributable mainly to workforce reductions from prior
year levels and spending reduction programs initiated during the downturn. As a
percentage of sales, selling, general and administrative expenses increased from
the prior year quarter due to lower sales in the current quarter.
Interest Income
Interest income was $1.6 million for the first quarter of 1999 compared to $1.4
million for the same quarter last year. The increase in interest income was
principally the result of a shift to higher yielding taxable instruments.
Income Taxes
The Company recorded a provision for incomes taxes of $0.1 million for the first
quarter ended March 31, 1999, representing foreign income and withholding taxes.
Federal and state taxes for 1999 are expected to be immaterial due to the
Company's loss position. The 1998 first quarter tax benefit of 40.0% reflected
the impact of estimated refundable taxes available in the carryback period due
to the estimated losses incurred. As of March 31, 1999, there were no additional
refundable taxes available to the Company. Management concluded that a full
valuation allowance against its net deferred tax assets is required due to
uncertainties surrounding their realization.
FACTORS THAT MAY AFFECT RESULTS AND FINANCIAL CONDITION
The Company's future operating results may be affected by inherent uncertainties
that exist in the worldwide semiconductor equipment industry. Such uncertainties
include, but are not limited to, unexpected additional environmental remediation
expenses in the event the current remediation efforts need to be expanded or
ongoing investigation reveals additional contamination, timely availability and
acceptance of new hardware and software products, capital expenditures of
semiconductor manufacturers, changes in demand for semiconductor products,
competitive pricing pressures, product volume and mix, development of new
products, enhancement of existing products, global economic conditions,
availability of needed components, availability of skilled employees, timing of
orders received, fluctuations in foreign exchange rates, financial instability
in Asian markets, introduction of competitors' products having technological
and/or pricing advantages, and the continued integration of the businesses of
Knights and Techne into the Company. In addition, the Company has experienced,
and may in the future experience, significant fluctuations in its quarterly
financial results. Accordingly, recent historical operating results should only
be one source of information when evaluating the future financial performance of
the Company.
YEAR 2000 UPDATE
The Company is aware of the issues associated with the programming code in
computer systems as the Year 2000 approaches. The Year 2000 problem is pervasive
and complex, as virtually every computer operation will be affected in some way
by the rollover of the two-digit year value to 00. Systems that do not properly
recognize date-sensitive information when the year changes to 2000 could
generate erroneous data or cause a system to fail. Significant uncertainty
exists in the software industry concerning the potential effects associated with
the Year 2000 problem.
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<PAGE> 12
The Company currently is in the process of auditing its own information
technology infrastructure for Year 2000 readiness, including reviewing what
actions are required to make all software systems Year 2000 ready as well as
actions needed to mitigate the risks of Year 2000. Such actions include a review
of vendors' contracts, attention to Year 2000 issues in future contracts with
vendors, and formal communications with suppliers requesting that they certify
that their products are Year 2000 ready.
State of Readiness
The Company has been actively addressing the Year 2000 issues. The following
sections broadly address Year 2000 matters with respect to the Company's (a)
information technology systems, (b) suppliers, (c) products, and (d) facilities
and infrastructure for Year 2000 readiness assessment.
Information Technology Systems
The Company has upgraded, or is in the process of upgrading or replacing, many
of its core business applications systems. A Year 2000 ready upgrade to the
Company's enterprise resource planning system was completed in the third quarter
of 1998. Year 2000 ready upgrades exist for most of the Company's remaining core
applications systems, and the Company plans on upgrading these systems by June
1999. The Company's wide-area network requirements are provided by major
national and international carriers, and the Company expects these carriers to
be Year 2000 ready. During fiscal 1997 and 1998, the Company invested in a
desktop upgrade program. The standard personal computers, servers and laptop
computers installed during this period are Year 2000 ready to the extent the
vendors have affirmed. Although not every desktop application has been fully
tested as of the filing date, the Company believes that the number of non-ready
systems is small. The Company expects it will complete its assessment and
remediation of these systems by June 1999. Over the past several years, the
Company has replaced or upgraded its local PBX and voice mail systems to Year
2000 ready systems. The Company is in the process of verifying Year 2000
readiness of these systems in the Company's domestic and international sales
offices, and intends to complete its assessment and remediation by June 1999.
Suppliers
During fiscal 1998, the Company sent Year 2000 Readiness Questionnaires to its
suppliers. To date, the Company has received responses from 100% of its major
suppliers, stating that they have completed all known Y2K upgrades to be Year
2000 ready. The Company expects to initiate follow up communications in the
second quarter of 1999 with the small number of second tier suppliers that did
not respond to the Year 2000 Readiness Questionnaire. Supplier responses to the
Questionnaire will be closely monitored. In some cases, alternate suppliers may
need to be identified by the Company. There can be no assurance that the Company
will be able to find suitable alternate suppliers and contract with them on
reasonable terms, or at all, and such inability could have a material and
adverse impact on the Company's business and results of operations.
-12-
<PAGE> 13
Products
The Company's Year 2000 product testing is ongoing. The Company is using two
nationally- and industry-recognized test procedures to verify that the Company's
products are Year 2000 ready. They are the YMARK2000 program (NSTL), for
PC-based products, and the SEMATECH Year 2000 Readiness Test Scenarios for all
products. The Company notified its customers of known risk areas and proposed
remediation plans during the fourth quarter of 1998. The Company made Year 2000
upgrades available to customers during the first quarter of 1999, and plans to
have upgrades installed in the field in 1999. There can be no assurance that the
Company's products will contain all necessary date code changes. Any failure of
the Company's products to perform, including system malfunctions due to the
onset of Year 2000, could result in claims against the Company, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company's customers could choose to convert
to other Year 2000 ready products in order to avoid such malfunctions, either of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Facilities and Infrastructure
The Company is in the process of assessing its Year 2000 risk with respect to
building automation, electronic security, water and utility systems. The Company
sent formal queries to landlords, local fire departments, and water and utility
providers in the first quarter of 1999.
The Company is primarily an assemble-to-order manufacturing operation. There is
no significant automated assembly equipment on its manufacturing shop floor. The
Company completed its assessment and remediation of its manufacturing operations
during the first quarter of 1999.
Costs to Address Year 2000 Issues
The Company is in the process of identifying for its customers the corrective
measures necessary to ensure that its installed products are Year 2000 ready. In
this regard, the Company is incurring, and will continue to incur throughout
1999, various costs to provide customer support regarding Year 2000 issues, and
certain of such costs are expected to be borne not by the Company but, instead,
to be passed on to the customers. The full cost of these activities, including
corrective measures, is not fully known. However, costs incurred to date have
not been material and the Company believes that the potential future financial
impact of assuring such Year 2000 readiness will not be material. The Company is
continuing its assessments and developing alternatives that will necessitate
refinement of this estimate over time. There can be no assurance, however, that
there will not be a delay in, or increased costs associated with, the efforts
described in this section. Since the efforts described in this section are
ongoing, all potential Year 2000 complications have not yet been identified.
Therefore, the potential impact of these complications on the Company's
financial condition and results of operations cannot be determined at this time.
If computer systems used by the Company or its suppliers, the product integrity
of products provided to the Company by suppliers, or the software applications
used in systems manufactured and sold by the Company, fail or experience
significant difficulties related to the Year 2000, the Company's results of
operations and financial condition could be materially affected.
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<PAGE> 14
Contingency Plans
The Company currently is in the process of preparing contingency plans for the
Year 2000 readiness issues areas noted above and the Company anticipates
completing those plans by December 1999. There can be no assurance that such
measures will prevent the occurrence of Year 2000 problems, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
EURO
The Company has established a team to address the issues raised by the
introduction of the Single European Currency ("Euro") on January 1, 1999 and
during the transition period through January 1, 2002. The Company's internal
systems that are affected by the initial introduction of the Euro have been made
Euro capable without material system modification costs. Further internal
systems changes will be made during the three-year transition phase in
preparation for the ultimate withdrawal of the legacy currencies in July 2002,
and the costs of these changes are not expected to be material. The Company does
not presently expect that introduction and use of the Euro will materially
affect the Company's foreign exchange activities, or will result in any material
increase in costs to the Company. While the Company will continue to evaluate
the impact of the Euro introduction over time, based on currently available
information, management does not believe that the introduction of the Euro will
have a material adverse impact on the Company's financial condition or overall
trends in results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, short-term investments, and restricted
cash were $127.3 million at March 31, 1999, a decrease of $4.2 million from
$131.5 million at December 31, 1998.
Cash used in operating activities was $2.5 million during the first quarter of
1999. This was due to a net loss of $5.9 million, offset by noncash charges to
income of $1.9 million and a decrease in net current assets of $1.4 million.
Cash provided by investing activities was $0.5 million due primarily from net
maturities of investments of $8.5 million, offset partially by $6.9 million of
restricted cash required to collateralize the construction of the Company's San
Jose campus, and capital expenditures of $1.0 million.
Cash used in financing activities was $0.4 million. This resulted from the
repurchase of an additional 71,100 shares of the Company's common stock at a
cost of $1.0 million, offset by additional short-term borrowings of $0.6 million
by the Company's Japanese subsidiary.
At March 31, 1999, the Company's Japanese subsidiary had lines of credit with
Japanese banks with a total borrowing capacity of approximately $5.0 million
(denominated in Yen). Amounts outstanding under these facilities at March 31,
1999 were $1.2 million. These facilities enable the Company's Japanese
subsidiary to finance its working capital requirements locally.
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<PAGE> 15
In March 1997, the Company entered into a $12.0 million five-year operating
lease for approximately 21.5 acres of land in San Jose, California. On July 1,
1998, the lease agreement was amended to provide a construction allowance of
$43.0 million for certain buildings currently under construction on the land.
The monthly payments are based on the London Interbank Offering Rate (LIBOR). At
current interest rates and based on the lease amount of $24.6 million at March
31, 1999, the annual lease payments currently represent approximately $1.5
million, which will increase as the construction funding increases throughout
the construction period of 18 to 24 months. At the end of the lease, the Company
has the option to purchase the land and buildings at approximately $55.0
million. The guaranteed residual payment on the lease is approximately $55.0
million.
The lease contains certain restrictive covenants. At March 31, 1999, the Company
was in compliance with these covenants. In connection with the lease collateral
requirements, the Company was required to collateralize the lease. At March 31,
1999, the Company collateralized $24.6 million, which was included in other
assets as restricted cash. The amount of collateralization will increase as
funding increases over the construction period.
Historically, the Company has generated cash in an amount sufficient to fund its
operations. The Company anticipates that its existing capital resources and cash
flow generated from future operations will enable it to maintain its current
level of operations and its planned operations including capital expenditures
for the foreseeable future.
VOLATILITY OF STOCK PRICE
The Company believes that any of the following factors can cause the price of
the Company's Common Stock to fluctuate, perhaps substantially: announcements of
developments related to the Company's business, fluctuations in the Company's
operating results, sales of substantial amounts of securities of the Company in
the marketplace, general conditions in the semiconductor industry or worldwide
economy, particularly softness in demand for semiconductor equipment related to
continued or worsened economic conditions in Asia, a shortfall in revenue or
earnings from or changes in analysts' expectations, announcements of
technological innovations or new products or enhancements by the Company or its
competitors, developments in patents or other intellectual property rights, and
changes in the Company's relationships with certain customers and suppliers. In
addition, in recent years, the stock market in general, and the market for the
shares of small capitalization stocks in particular, including the Company's,
have experienced extreme price fluctuations which have often been unrelated to
the operating performance of affected companies. There can be no assurance that
the market price of the Company's Common Stock will not continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's performance.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
For financial market risks related to changes in interest rates and foreign
currency exchange rates, refer to Part II, Item 7A, "Quantitative and
Qualitative Disclosure About Market Risk," in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
-15-
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
-16-
<PAGE> 17
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.
ELECTROGLAS, INC.
DATE: May 12, 1999 BY: /s/ Armand J. Stegall
----------------------- -------------------------------
Armand J. Stegall
Chief Financial Officer
-17-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS, THE CONSOLIDATED BALANCE SHEETS, AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,668
<SECURITIES> 91,971
<RECEIVABLES> 13,405
<ALLOWANCES> 491
<INVENTORY> 14,117
<CURRENT-ASSETS> 142,087
<PP&E> 37,457
<DEPRECIATION> 26,241
<TOTAL-ASSETS> 179,451
<CURRENT-LIABILITIES> 18,711
<BONDS> 0
0
0
<COMMON> 199
<OTHER-SE> 160,440
<TOTAL-LIABILITY-AND-EQUITY> 179,451
<SALES> 17,332
<TOTAL-REVENUES> 17,332
<CGS> 11,042
<TOTAL-COSTS> 11,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 47
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (5,708)
<INCOME-TAX> 148
<INCOME-CONTINUING> (5,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,856)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
