<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
--------------------
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended June 30, 2000
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)
6024 Silver Creek Valley Road
San Jose, CA 95138
Telephone: (408) 528-3000
-------------------------------
(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 July 31, 2000, 20,789,007 shares of the Registrant's common stock, $0.01
par value, were issued and outstanding.
<PAGE> 2
INDEX
ELECTROGLAS, INC.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Statements of Operations -- Three months
and six months ended June 30, 2000 and June 30, 1999 ................ 3
Consolidated Condensed Balance Sheets -- June 30, 2000
and December 31, 1999 ............................................... 4
Consolidated Condensed Statements of Cash Flows -- Six months
ended June 30, 2000 and June 30, 1999 ............................... 5
Notes to Consolidated Condensed Financial Statements --
June 30, 2000 ....................................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................... 10
Item 3. Quantitative and Qualitative Disclosure About Market Risks .......... 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders ................. 15
Item 5. Other Information ................................................... 15
Item 6. Exhibits and Reports on Form 8-K .................................... 15
SIGNATURES ..................................................................... 16
</TABLE>
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<PAGE> 3
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 Six months ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 59,088 $ 29,757 $ 112,455 $ 47,089
Cost of sales 30,487 16,802 57,318 27,844
--------- --------- --------- ---------
Gross profit 28,601 12,955 55,137 19,245
--------- --------- --------- ---------
Operating expenses:
Engineering, research and development 6,684 6,890 13,822 13,109
Selling, general and administrative 10,877 6,163 20,760 13,408
--------- --------- --------- ---------
Total operating expenses 17,561 13,053 34,582 26,517
--------- --------- --------- ---------
Operating income (loss) 11,040 (98) 20,555 (7,272)
Interest income 2,350 1,414 4,442 3,007
Other income (expense), net (39) (71) (189) (198)
--------- --------- --------- ---------
Income (loss) before income taxes 13,351 1,245 24,808 (4,463)
Provision for income taxes 1,392 152 3,225 300
--------- --------- --------- ---------
Net income (loss) $ 11,959 $ 1,093 $ 21,583 $ (4,763)
========= ========= ========= =========
Basic net income (loss) per share $ 0.58 $ 0.06 $ 1.06 $ (0.24)
========= ========= ========= =========
Diluted net income (loss) per share $ 0.56 $ 0.05 $ 1.02 $ (0.24)
========= ========= ========= =========
Shares used in basic calculations 20,593 19,517 20,436 19,516
========= ========= ========= =========
Shares used in diluted calculations 21,332 20,090 21,245 19,516
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE> 4
ELECTROGLAS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited) (1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 68,823 $ 60,732
Short-term investments 92,562 80,127
Accounts receivable, net 45,242 28,992
Inventories 18,544 14,867
Prepaid expenses and other current assets 1,408 3,946
--------- ---------
Total current assets 226,579 188,664
Equipment and leasehold improvements, net 12,366 8,193
Other assets 5,294 5,334
--------- ---------
Total assets $ 244,239 $ 202,191
========= =========
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $ 1,289 $ 1,624
Accounts payable 15,039 9,074
Accrued liabilities 16,369 12,235
--------- ---------
Total current liabilities 32,697 22,933
Non-current liabilities 1,663 1,920
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 20,894 at
June 30, 2000 and 20,241 at December 31, 1999 209 202
Additional paid-in capital 147,385 136,672
Deferred stock compensation -- (393)
Retained earnings 65,337 43,754
Accumulated other comprehensive loss (756) (601)
--------- ---------
212,175 179,634
Less cost of common stock in treasury;
155 at June 30, 2000 and December 31, 1999 2,296 2,296
--------- ---------
Total stockholders' equity 209,879 177,338
--------- ---------
Total liabilities and stockholders' equity $ 244,239 $ 202,191
========= =========
</TABLE>
(1) The information in this column was derived from the Company's audited
consolidated financial statements for the year ended December 31, 1999.
See accompanying notes to consolidated condensed financial statements
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<PAGE> 5
ELECTROGLAS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 21,583 $ (4,763)
Changes to income not affecting cash 4,113 3,523
Changes in operating assets and liabilities (7,540) (6,688)
--------- ---------
Cash provided by (used in) operating activities 18,156 (7,928)
Cash flow from investing activities:
Capital expenditures (7,496) (2,230)
Purchases of investments (97,302) (156,559)
Maturities of investments 84,719 186,812
Increase in restricted cash -- (10,266)
Other assets (367) 45
--------- ---------
Cash provided by (used in) investing activities (20,446) 17,802
Cash flow from financing activities:
Net proceeds (payments) from short-term borrowings (335) 640
Sales of common stock 10,720 948
Purchases of treasury stock -- (1,029)
--------- ---------
Cash provided by financing activities 10,385 559
Effect of exchange rate changes (4) 11
--------- ---------
Net increase in cash and cash equivalents 8,091 10,444
Cash and cash equivalents at beginning of period 60,732 12,966
--------- ---------
Cash and cash equivalents at end of period $ 68,823 $ 23,410
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE> 6
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, 1999, included in the Company's Annual Report on Form 10-K.
Operating results for the three and six month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
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
The following is a summary of inventories by major category:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 2000 1999
-------------- -------- ------------
<S> <C> <C>
Raw materials $ 8,794 $ 4,686
Work in process 5,895 6,986
Finished goods 3,855 3,195
-------- --------
$ 18,544 $ 14,867
======== ========
</TABLE>
NOTE: 3 - NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share and diluted net income (loss) per share
amounts were computed using the weighted average number of shares of common
stock outstanding during the period. The computation of diluted net income per
share included the effect of dilutive securities attributable to stock options
and contingently issued shares outstanding during the period. The following
table sets forth the computation of basic and diluted net income (loss) per
share:
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<PAGE> 7
<TABLE>
<CAPTION>
Three months ended Six months ended
(in thousands, except per share data) June 30, June 30,
------------------------------------- ---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 11,959 $ 1,093 $ 21,583 $ (4,763)
======== ======== ======== ========
Denominator:
Denominator for basic net income (loss) per
share - weighted average shares 20,593 19,517 20,436 19,516
-------- -------- -------- --------
Effect of dilutive securities:
Employee stock options 619 353 689 --
Contingently issued shares 120 220 120 --
-------- -------- -------- --------
Dilutive potential common shares 739 573 809 --
-------- -------- -------- --------
Denominator for diluted net income (loss) per
share - adjusted weighted average shares 21,332 20,090 21,245 19,516
======== ======== ======== ========
Basic net income (loss) per share $ 0.58 $ 0.06 $ 1.06 $ (0.24)
======== ======== ======== ========
Diluted net income (loss) per share $ 0.56 $ 0.05 $ 1.02 $ (0.24)
======== ======== ======== ========
</TABLE>
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 for
certain buildings 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 $48.3 million at June 30, 2000, the annual lease payments
currently represent approximately $3.3 million. These rates are sensitive to
inflation and other economic factors. A significant increase in interest rates
may have a negative impact on the earnings of the Company. At the end of the
lease, the Company has the option to purchase the land and buildings for
approximately $48.3 million. The guaranteed residual payment on the lease is
approximately $48.3 million.
The lease contains certain restrictive covenants. At June 30, 2000, the Company
was in compliance with these covenants. The Company was also in compliance with
its lease collateral requirements and was not required to collateralize the
lease. The Company voluntarily collateralized $48.3 million as of June 30, 2000,
which was included in cash and cash equivalents since it can be withdrawn with
10 days notice.
NOTE: 5 - STOCKHOLDERS' EQUITY
Stock option plan. On May 16, 2000, the Company's stockholders approved an
amendment to the Company's 1997 Stock Incentive Plan to increase the number of
shares reserved for issuance from 1,350,000 to 2,350,000.
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<PAGE> 8
NOTE: 6 - COMPREHENSIVE INCOME (LOSS)
For the quarters ended June 30, 2000 and 1999, comprehensive income was $11.9
million and $1.0 million, respectively. For the six months ended June 30, 2000,
comprehensive income was $21.4 million compared to a comprehensive loss of $5.1
million for the same period last year.
NOTE: 7 - SEGMENT INFORMATION
The following is a summary of the Company's operating segments:
<TABLE>
<CAPTION>
(in thousands) Prober
Three months ended June 30, products All other Total
--------------------------- --------- --------- ---------
<S> <C> <C> <C>
2000
Sales to unaffiliated customers $ 55,254 $ 3,834 $ 59,088
Operating income (loss) $ 13,438 $ (2,398) $ 11,040
1999
Sales to unaffiliated customers $ 27,010 $ 2,747 $ 29,757
Operating income (loss) $ 908 $ (1,006) $ (98)
</TABLE>
<TABLE>
<CAPTION>
(in thousands) Prober
Six months ended June 30, products All other Total
------------------------- --------- --------- ---------
<S> <C> <C> <C>
2000
Sales to unaffiliated customers $ 106,298 $ 6,157 $ 112,455
Operating income (loss) $ 27,102 $ (6,547) $ 20,555
1999
Sales to unaffiliated customers $ 41,574 $ 5,515 $ 47,089
Operating loss $ (4,950) $ (2,322) $ (7,272)
</TABLE>
NOTE: 8 - INCOME TAXES
The 13% estimated annual effective tax rate for the year 2000 reflects
utilization of the current year research and development and foreign tax credits
in addition to a partial release of the valuation allowance set up in prior
years. The Company has concluded that a valuation allowance is necessary in 2000
against certain deferred tax assets due to uncertainties surrounding their
realization.
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<PAGE> 9
NOTE: 9 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. In March 2000, SAB 101 was amended by SAB 101A which delayed the
implementation date of SAB 101 for calendar year end reporting companies,
including Electroglas, to the quarter ending June 30, 2000. In June 2000, SAB
101 was amended a second time by SAB 101B further delaying the implementation
date to no later than the quarter ending December 31, 2000. The Company is
currently evaluating SAB 101 and is uncertain as to what impact, if any, SAB 101
will have on its revenues and results of operations. The impact of SAB 101, if
any, will be reported as a change in accounting principle in accordance with
FASB Statement No. 3. This may result in a significant cumulative effect change
in accounting adjustment that would be reflected in the Company's results of
operations for the twelve months ended December 31, 2000.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
-9-
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
Financial Statements of Electroglas and the related notes thereto. 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 regarding
estimated taxes, cash flow, liquidity and anticipated cash needs and
availability. 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 due to risks and
uncertainties such as: 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, 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. You should also consult the risk factors described from time to time in
the Company's Annual Report on Form 10-K and those disclosed in this discussion
and analysis.
The components of the Company's statements of operations, expressed as a
percentage of net sales, are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 51.6 56.5 51.0 59.1
------ ------ ------ ------
Gross profit 48.4 43.5 49.0 40.9
------ ------ ------ ------
Operating expenses:
Engineering, research and development 11.3 23.1 12.3 27.8
Selling, general and administrative 18.4 20.7 18.4 28.5
------ ------ ------ ------
Total operating expenses 29.7 43.8 30.7 56.3
------ ------ ------ ------
Operating income (loss) 18.7 (0.3) 18.3 (15.4)
Interest income 4.0 4.7 4.0 6.4
Other expense, net (0.1) (0.2) (0.2) (0.5)
------ ------ ------ ------
Income (loss) before income taxes 22.6 4.2 22.1 (9.5)
Provision for income taxes 2.4 0.5 2.9 0.6
------ ------ ------ ------
Net income (loss) 20.2% 3.7% 19.2% (10.1)%
====== ====== ====== ======
</TABLE>
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<PAGE> 11
RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended June 30, 2000 were $59.1 million, a 98.6%
increase from net sales of $29.8 million in the comparable quarter last year.
Net sales for the first six months of 2000 were $112.5 million, a 138.8%
increase from net sales of $47.1 million for the same period a year ago. The
increases for both periods were due primarily to higher prober system unit sales
as customers continued to spend for capacity expansion in response to the growth
in demand for semiconductors.
For the quarters ended June 30, 2000 and 1999, net sales were comprised of
prober systems ($48.5 million and $22.3 million, respectively), yield management
software and inspection products ($3.8 million and $2.8 million, respectively),
and aftermarket sales, consisting primarily of service, spare parts and upgrades
($6.8 million and $4.7 million, respectively) in support of the prober system
business.
For the six months ended June 30, 2000 and 1999, net sales were comprised of
prober systems ($93.1 million and $32.4 million, respectively), yield management
software and inspection products ($6.2 million and $5.5 million, respectively),
and aftermarket sales, consisting primarily of service, spare parts and upgrades
($13.2 million and $9.2 million, respectively) in support of the prober system
business.
For the quarter ended June 30, 2000, international sales accounted for 52.0% of
net sales as compared to 40.1% for the same quarter last year. For the first six
months of 2000, international sales accounted for 49.6% of net sales as compared
to 39.5% for the same period last year. During the current three and six month
periods, the Company experienced sales growth, in absolute dollars, across all
its major geographic markets. For both periods, the increase in the percentage
of international sales from 1999 was due to a larger percentage increase in
Asian Pacific sales, relative to the increases in North American and European
sales.
Historically, the semiconductor and semiconductor manufacturing equipment
industries have been cyclical; therefore, the Company's results of operations
for the three and six months ended June 30, 2000 may not necessarily be
indicative of future operating results. Demand for the Company's products can
change from period to period due to volatility in product demand and pricing. As
a result of the uncertainties in this market environment, any rescheduling or
cancellation of planned capital purchases by semiconductor manufacturers will
cause the Company's sales to fluctuate on a quarterly basis.
Gross Profit
For the second quarter of 2000, gross profit, as a percentage of sales, was
48.4% compared to 43.5% for the same quarter last year. For the first six months
of 2000, gross profit, as a percentage of sales, was 49.0% compared to 40.9% for
the same period last year. The increases for both periods were due primarily to
manufacturing efficiencies as a result of the larger production volume in 2000,
offset partially by lower selling prices from changes in product mix.
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, changes in the proportion of
international sales, level of software sales, and excess manufacturing capacity
costs.
-11-
<PAGE> 12
Engineering, Research and Development
Engineering, research and development expenses were $6.7 million in the second
quarter of 2000, down 3.0% from $6.9 million in the comparable quarter last
year. As a percentage of sales, these expenses decreased to 11.3% in the second
quarter of 2000 from 23.1% in the same quarter last year due to higher sales in
2000.
For the first six months of 2000, these expenses were $13.8 million, up 5.4%
from $13.1 million in the comparable period of a year ago. The increase was
primarily due to an increase in workforce to support both the hardware and
software businesses. As a percentage of sales, these expenses decreased to 12.3%
in the first six months of 2000 from 27.8% in the same period last year due to
higher sales in 2000.
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.
Selling, General and Administrative
Selling, general and administrative expenses were $10.9 million in the second
quarter of 2000, up 76.5% from $6.2 million in the comparable quarter last year.
For the first six months of 2000, these expenses were $20.8 million, up 54.8%
from $13.4 million in the comparable period of a year ago. The increases for
both periods were primarily due to accrued employee incentive compensation as
the Company returned to profitability, additional occupancy costs related to the
Company's move to its new facilities, and higher sales commissions. In addition,
both the second quarter and first six months of 1999 were benefited by a
reduction of accrued environmental remediation expenses of $0.7 million, and a
settlement of $0.4 million for a purchase price contingency related to a past
acquisition.
Interest Income
For the second quarter of 2000, interest income was $2.4 million compared to
$1.4 million for the same quarter last year. For the first six months of 2000,
interest income was $4.4 million compared to $3.0 million for the same period
last year. For both periods, the increase in interest income was principally due
to higher yielding taxable instruments and higher average cash balances.
Income Taxes
For the six months ended June 30, 2000, the Company's estimated effective tax
rate was 13% compared to an income tax provision of $0.3 million for the six
months ended June 30, 1999. The Company's estimated tax rate for 2000 includes
the partial release of the valuation allowance related to net operating losses
and tax credit carryforwards and the utilization of the current year estimated
research and development and foreign tax credits. The tax provision for the six
months ended June 30, 1999 represented foreign income and withholding taxes only
as the Company's federal and state taxes were estimated to be immaterial due to
its loss position at the time. Management has concluded that a valuation
allowance is necessary against certain deferred tax assets due to uncertainties
surrounding their realization.
-12-
<PAGE> 13
Other Issues
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. In March 2000, SAB 101 was amended by SAB 101A which delayed the
implementation date of SAB 101 for calendar year end reporting companies,
including Electroglas, to the quarter ending June 30, 2000. In June 2000, SAB
101 was amended a second time by SAB 101B further delaying the implementation
date to no later than the quarter ending December 31, 2000. The Company is
currently evaluating SAB 101 and is uncertain as to what impact, if any, SAB 101
will have on its revenues and results of operations. The impact of SAB 101, if
any, will be reported as a change in accounting principle in accordance with
FASB Statement No. 3. This may result in a significant cumulative effect change
in accounting adjustment that would be reflected in the Company's results of
operations for the twelve months ended December 31, 2000.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and short-term investments were $161.4
million at June 30, 2000, an increase of $20.5 million from $140.9 million at
December 31, 1999.
Cash provided by operating activities was $18.2 million during the first six
months of 2000. This was due to a net income of $21.6 million and noncash
charges to income of $4.1 million, offset by an increase in operating assets of
$7.5 million. The negative effect from the changes in operating assets was due
to an increase of $16.3 million in accounts receivable resulting from a higher
level of shipments towards the end of the current quarter, and an increase of
$3.7 million in inventories. This was offset partially by an increase of $6.0
million in accounts payable, an increase of $3.9 million in other liabilities,
and a decrease of $2.5 million in other assets.
Cash used in investing activities was $20.4 million due primarily from net
maturities of investments of $12.6 million, and capital expenditures of $7.5
million to equip the Company's new facilities.
Cash provided by financing activities was $10.4 million. This resulted from the
sale of common stock of $10.7 million under employee stock plans, offset by net
payments of $0.3 million on short-term borrowings by the Company's Japanese
subsidiary.
The Company's Japanese subsidiary has credit facilities with a total borrowing
capacity of approximately $5.7 million (denominated in Yen) with two Japanese
banks. As of June 30, 2000, the amount outstanding was $1.3 million. These
facilities enable the Company's Japanese subsidiary to finance its working
capital requirements locally.
-13-
<PAGE> 14
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 for
certain buildings 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 $48.3 million at June 30, 2000, the annual lease payments
currently represent approximately $3.3 million. These rates are sensitive to
inflation and other economic factors. A significant increase in interest rates
may have a negative impact on the earnings of the Company. At the end of the
lease, the Company has the option to purchase the land and buildings for
approximately $48.3 million. The guaranteed residual payment on the lease is
approximately $48.3 million.
The lease contains certain restrictive covenants. At June 30, 2000, the Company
was in compliance with these covenants. The Company was also in compliance with
its lease collateral requirements and was not required to collateralize the
lease. The Company voluntarily collateralized $48.3 million as of June 30, 2000,
which was included in cash and cash equivalents since it can be withdrawn with
10 days notice.
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, 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 Risks," in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
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<PAGE> 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 16, 2000, the
stockholders:
(1) elected Joseph F. Dox and Mel Friedman as Class I directors. Joseph F. Dox
received 17,277,757 affirmative votes and 985,481 withheld votes. Mel
Friedman received 17,316,136 affirmative votes and 947,102 withheld votes.
The following directors continued in office after the meeting: Curtis S.
Wozniak, Neil R. Bonke, Roger D. Emerick, and Robert J. Frankenberg.
(2) ratified and approved an amendment to the Company's 1997 Stock Incentive
Plan to increase the number of shares reserved for issuance thereunder
from 1,350,000 to 2,350,000, with 14,675,729 affirmative votes, 3,274,622
negative votes, and 312,887 abstentions.
(3) ratified the appointment of Ernst & Young LLP as the Company's independent
auditors for the year ending December 31, 2000, with 18,228,888
affirmative votes, 21,566 negative votes, and 12,784 abstentions.
Item 5. Other Information
Any stockholder proposal submitted outside of the processes of Rule 14a-8 under
the Securities Exchange Act of 1934 for presentation to the Registrant's 2001
Annual Meeting of Stockholders will be considered untimely for the purposes of
Rules 14a-4 and 14a-5 if notice thereof is received by the Registrant after
February 19, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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<PAGE> 16
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: August 9, 2000 BY: /s/ Armand J. Stegall
--------------------- ------------------------------
Armand J. Stegall
Chief Financial Officer and
Duly Authorized Officer
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<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
27 Financial Data Schedule
</TABLE>
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