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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 1, 2000
Commission file number 0-22646
_________________________
Applied Science and Technology, Inc.
(Name of Issuer in its Charter)
_________________________
Delaware 04-2962110
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
90 Industrial Way, Wilmington, Massachusetts 01887-4610
(Address of Principal Executive Offices) (Zip Code)
_________________________
(978) 284-4000
(Registrant's Telephone Number, Including Area Code)
_________________________
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.01 par Value
_________________________
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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.
Yes X No_____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the shares of Common stock, held by non
affiliates, based upon the average of the closing bid and asked prices for such
stock on September 19, 2000 was approximately $229,628,538. As of September 19,
2000, 13,335,765 shares of Common Stock, $.01 par value per share, were issued
and outstanding.
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Item 1. Business
Introduction
We are a worldwide leader in the design, development, manufacture and support
of high performance reactive gas modules and power supplies used in
semiconductor device manufacturing and medical markets, as well as etch and
deposition systems for advanced semiconductor packaging, telecommunications and
magnetic sensors. Our proprietary modules, delivered to semiconductor equipment
OEMs, create reactive gases used to deposit and etch thin films applied during
various steps in the manufacture of semiconductor devices. Our modules help
manufacturers improve yields, reduce overall production costs and improve time
to market. Our complete systems, delivered to end users who manufacture
semiconductor devices, provide proprietary etch and deposition solutions to
high-growth end markets, including semiconductor packaging, telecommunications
and magnetic sensors.
Our objective is to be the worldwide leader in the supply of reactive gas
modules to semiconductor OEMs and related markets. We also seek to leverage our
technology and worldwide infrastructure to expand our systems business into
additional high-growth markets. To extend our technology leadership position, we
intend to continue to invest in research and development and to acquire
complementary technology for existing and new markets. In addition, we intend to
position our modules as the technology of choice for leading semiconductor
equipment manufacturers as they introduce new product lines or continue to
outsource their systems modules.
Since 1987, we have supplied process modules and systems to the semiconductor
industry and have earned a reputation for advanced process technology and
manufacturing excellence. Our customers include semiconductor OEMs and end
users.
Industry Background
Growth of the Semiconductor Market
The semiconductor industry grew significantly over the past decade. That
growth continues today. Dataquest estimates that despite year to year
fluctuation, worldwide semiconductor sales will increase from $160.1 billion in
1999 to approximately $253.3 billion in 2001. The increase in demand is driven
by growth in traditional markets for semiconductors such as data processing and
personal computers, and growth in telecommunications, wireless communications,
consumer electronics, and internet infrastructure and equipment.
According to Dataquest, the semiconductor wafer fabrication equipment industry
will grow from $17.5 billion in 1999 to $34.0 billion in 2001. This growth will
be driven by equipment purchases to expand manufacturing capacity and purchases
of advanced process technology to facilitate the continued shrinking of
semiconductor devices and device packages. Semiconductor technology advances,
particularly shrinking line widths, are driving the need for more sophisticated
manufacturing processes and advanced packaging techniques which increasingly
involve the use of reactive gases.
Capital equipment companies are constantly improving the efficiency of their
process technology and manufacturing processes. These companies increasingly
outsource the development and manufacture of process technology, while adopting
lean manufacturing techniques and consolidating the supply chain. As a result,
capital equipment companies now work more closely with critical suppliers who
can provide integrated process modules, accelerate technology development and
improve time to market.
The Semiconductor Device Manufacturing Process
Semiconductor devices, which include integrated circuits (ICs), sensors and
laser diodes, consist of components, typically transistors, along with
interconnect circuitry that connects the components. Semiconductor fabrication
involves several complex and repetitive processing steps, including diffusion,
photolithography, deposition, etching, chemical mechanical planarization (CMP)
and ion implantation, during which numerous copies of an integrated circuit are
formed on a single wafer. The fabrication process typically creates eight to 30
very thin patterned layers on each wafer. The wafers are then processed into
packaged chips which are subsequently integrated into electronic products.
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Reactive gases are used in a majority of process steps in chip fabrication.
Reactive gases are used to etch, strip and deposit films on wafers, to clean
wafers during processing and to clean process chambers to reduce particle
contamination.
Deposition. Deposition is the process step in semiconductor manufacturing in
which the conductive and non-conductive layers are deposited on the wafer
surface. During this process step, gases are energized and react with other
materials in the process chamber to create a thin, uniform layer on the wafer.
Etch and Strip. Following deposition, the etch and strip processes
selectively remove unwanted areas of the deposited layer, leaving only the
required circuit pattern. Etching and stripping are performed by reacting gas
with the deposited material to vaporize and remove it.
Cleaning. There are two general segments in cleaning: cleaning of the
deposition chamber and cleaning of the wafer. During the deposition step, the
materials deposited on the wafer also coat the walls of the process chamber,
resulting in wafer contamination and loss of production yield. Reactive gases
are used to provide in-situ cleaning of the process chamber, significantly
reducing downtime and maintaining process repeatability and cleanliness.
The cleaning of the wafer occurs after most process sequences and prepares the
wafer for the next processing step. Wafer cleaning is accomplished either with a
dry process using reactive gases or a wet process using ozone (a reactive gas)
in de-ionized water. Wafer cleaning steps have increased dramatically due to the
shrinkage of semiconductor line widths, the associated increased sensitivity to
contamination and the increasing number of layers in the circuit.
Advances in fabrication technology will continue to be characterized by ever
shrinking feature size in semiconductor chips, thus enabling more functions per
chip. Shrinking feature sizes and the increasing number of manufacturing process
steps create a greater need for the use of reactive gases in etch, strip,
deposition and clean.
Advantages of Reactive Gas Processing
A reactive gas is created by adding energy to a stable gas to break apart its
molecules. The resulting dissociated gas produces rapid chemical reactions when
it comes into contact with other matter. Reactive gas processes have important
advantages relative to other types of chemical processes. These advantages
include the following:
Precision. The trend toward smaller feature size and denser packaging
requires the precision in etch, strip and deposition process steps, which can
only be obtained through the use of reactive gases.
Low Temperature. Reactive gas processes take place at relatively low
temperatures, thus avoiding heat damage to materials involved in the process.
Efficiency. Reactive gas works rapidly, shortening reaction times and
improving yields in the manufacturing process.
Lower Cost. The use of remotely generated reactive gases causes less wear
and tear on the process chamber and reduces the costs of using and disposing of
hazardous acids. Reactive gases can be used to neutralize "greenhouse" gases,
enabling compliance with environmental regulations.
Technological Challenges
Designing equipment to produce high-purity reactive gases presents formidable
engineering challenges requiring comprehensive mastery of a range of complex
technologies. In making a reactive gas, a large amount of power, typically
thousands of watts, must be delivered to the gas without damaging the chamber
walls. Reactive gases are so highly corrosive that it is extremely difficult to
contain these gases at high purity without contamination from corrosion of
chamber walls. Thermal management of the chamber materials and temperature
variations within the gas chamber is vital. Pressure management is also critical
and must be integrated with power source characteristics and gas composition.
Successful design of reliable reactive gas source equipment involves a complex
set of variables with many critical interactions.
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Our Solutions
We deliver reactive gas process modules and systems that address the need for
continued technology advancement in semiconductor manufacturing and packaging.
Our expertise in the design and manufacture of these products allows us to
address the increasing trend of OEMs to outsource technology modules to supply
partners. We have continually provided innovative and cost-effective solutions
that address the need for purity, precision, uniformity, reliability and
efficiency in reactive gas processes. Our engineers are experienced in
addressing the difficult challenges associated with designing reactive gas
equipment and have developed a breadth of solutions that meet our customers'
exacting requirements.
ASTeX Modules Solutions. We provide our customers with enabling technology
to expand their product capabilities and address new markets. We provide
complete technology solutions, including development, design, integration,
manufacturing and field support, that deliver the following benefits to our
customers:
. Access to Expert Development Resources. We provide our customers with
access to specialized reactive gas technologists and design experts who
work collaboratively with our customers to advance their product
development efforts. Our customers can draw upon our core capabilities in
reactive gases to complement their system and wafer processing expertise,
thus reducing their product development costs.
. Experience as a Supplier to the Semiconductor Market. Our experience allows
us to understand and meet the unique needs of our customers in the
semiconductor industry, including continuous improvement, reduced costs,
technology shifts and business cycles.
. Shorter Time to Market. We use our core technologies, design skills and
manufacturing expertise to shorten our customers' development and
manufacturing cycles. Our ability to design and manufacture key reactive
gas modules allows our customers to focus their efforts on providing
systems solutions.
. Product Solutions with Broad Application. We leverage our understanding of
semiconductor process steps to apply common reactive gas technology across
multiple process steps, thereby simplifying design, streamlining support
and accelerating customer acceptance.
. Integrated Products Which Support Lean Manufacturing. We provide integrated
modules which require less assembly, test and manufacturing integration,
increasing our customers' manufacturing efficiency.
ASTeX Systems Solutions. In our systems business, we integrate a broad
spectrum of technologies to provide system level solutions to industry process
needs. By using our core process technologies in reactive gas systems, together
with a range of platform capabilities, our engineers are able to design high-
level system solutions for a number of high-growth markets.
. Semiconductor Advanced Packaging. We have designed a specific deposition
tool, the Nimbus 300, to meet the unique needs of the advanced packaging
industry. Our tool provides higher wafer throughput and is easily
configurable on the foundry floor to handle 2 inch to 12 inch wafers. Our
system thus provides manufacturing flexibility and low overall cost of
ownership, making it ideally suited for the independent packaging industry.
. Telecommunications. We offer low temperature precision etch and deposition
process tools used in the fabrication of both passive and active
components. We draw particularly on our reactive gas capabilities to
deposit and etch films at low temperature on high-frequency
telecommunications chips and laser diodes. The sensitive materials used in
the manufacture of fiber optic components require low temperature
processing.
. Magnetic Sensors. Our Shamrock tool deposits complex multi-layer sensors
composed of both magnetic and non-magnetic films. We use our high vacuum
technology to provide the purity and cleanliness needed in very thin film
deposition. In addition, we use our reactive source technology and control
systems methodology to both monitor and control film thickness and
uniformity at the atomic level. Our tool deposits a highly uniform thin
film which is critical to the manufacture of magnetic sensors, has an
extremely small footprint and low cost of ownership.
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Markets
Existing Markets
Semiconductor. We provide modules and systems that incorporate our
reactive gas processing technology to the semiconductor manufacturing and
packaging markets. The equipment used to manufacture semiconductors has
traditionally been divided into "front end" processing and "back end"
processing. The "front end" processes build up the semiconductor circuit onto
a wafer and "back end" processes cut the wafer into individual die and package
the die for use in electronic products. We provide reactive gas modules used
throughout the front end manufacturing process and systems that address back end
advanced packaging needs.
Medical and Industrial. Precision reactive gases are used in a wide variety of
industrial processes that require high purity or very precise specifications for
the end-product. Reactive gas sources are used in deposition for many
applications such as ultra-thin, precise optical films and diamond-like coatings
for precision wear surfaces. Ozone, or reactive oxygen, is used to modify
surfaces of polymers and to destroy carcinogens found in groundwater.
We market our reactive gas processing technology and power control products to
related markets, including the markets for medical equipment, such as MRI, and
industrial applications, such as surface modification of plastics.
Market Opportunities
Telecommunications. We have recently introduced complete etch and deposition
systems to meet the manufacturing requirements of expanding markets for fiber
optic network components and gallium arsenide semiconductors for mobile
telecommunications. Historically, we have provided reactive gas modules to the
telecommunications industry for the manufacture of laser diodes and gallium
arsenide semiconductors.
Magnetic Sensors and Magnetic Memory. Over the past 18 months, we have
acquired etch and deposition systems for the manufacture of magnetic sensors,
which have applications in three key markets: automotive sensors, Magnetic RAM
(MRAM) and disk drive heads. MRAM, a non-volatile memory technology, is
currently being used in high-end military and satellite applications. As the
technology is refined and produced on a lower cost basis, it has the potential
for widespread application in semiconductor memory.
Strategy
Our objective is to expand our leadership position in the provision of
advanced reactive gas processing solutions to the semiconductor market. We also
intend to establish a leadership position in providing such solutions to the
advanced packaging, telecommunications and other high-growth markets. We plan to
pursue the following strategies:
. Extend the Use of Our Core Technologies in the Semiconductor Processing
Market. We seek to increase our penetration of the semiconductor market
by expanding our customer base and by using our core technologies to
introduce new integrated reactive gas modules and innovative power sources.
Over the past two years, we have introduced five new product families and
multiple enhancements to existing products that provide significant
benefits to our customers.
. Leverage Our Technology Leadership into Systems Sales in New Markets. A key
element of our growth strategy is to use our core technology to address
reactive gas applications in new high-growth market segments. We have
recently introduced and sold systems that address the sophisticated process
needs of customers in semiconductor advanced packaging, telecommunications
and magnetic sensors for automotive, data storage and memory applications.
. Capitalize on Our Global Sales and Service to Accelerate Worldwide Growth.
We are continuing to strengthen our global sales and service through
increased staffing and expanded infrastructure. The strength of our global
infrastructure provides local support to our international customers and a
platform for expanding international sales.
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. Continue to Build Collaborative Development Relationships with Key
Customers. We believe that pursuing joint development arrangements with
leading manufacturers will provide us with critical insight into industry
trends, and lead to the development of additional new modules or systems
with broad market appeal. We work closely with our customers to anticipate
and provide solutions that meet specific performance, reliability, cost and
integration requirements.
. Grow Through Strategic Acquisitions. We intend to continue to pursue
strategic acquisitions of companies and/or product lines, particularly
those with closely-related technologies in high-growth markets. Over the
past four years, we have acquired four companies and one product line,
extending our technology and broadening our markets.
Products
We supply a broad range of modules and complete process systems for precision
reactive gas processing applications. The broadest applications for our products
are currently in the semiconductor industry. In addition, our products are used
in certain medical equipment, such as MRI and laser hair removal devices, and a
variety of industrial applications. Our systems are used in advanced
semiconductor packaging, fiber optics manufacturing for telecommunications and
magnetic sensors manufacturing.
In semiconductor applications, the selling prices of our products have wide
ranges depending on the level of integration, the quantity ordered, the extent
of customized features and the application served. Typical selling prices for
reactive gas processing products range from $10,000 to $175,000. Our complete
etch, strip and deposition systems typically range in price from $250,000 to up
to $3.0 million.
Reactive Gas Modules and Power Modules for Semiconductor Processing
Reactive Gas Modules. We supply a series of reactive gas modules that are
designed to be incorporated as components in the semiconductor manufacturing
equipment of our OEM customers. These individual modules provide flexibility of
configuration and integration for semiconductor equipment customers.
Power Modules. We are a leading supplier of RF and microwave power sources
used for semiconductor deposition, etch and strip applications. We first
introduced our product family into the semiconductor equipment market in 1993.
In 1998, we launched our new line of microwave power sources with higher power
levels and improved regulation, ripple, and accuracy. These new microwave power
sources provide lower cost of ownership and improved process repeatability and
control. Full production shipments of our new power sources were achieved in
1999.
In 1997, we introduced our family of three-channel and four-channel subsystems
that combine RF and microwave power sources, integrated with control systems,
for etch, strip and deposition applications. This product family reduces costs
by integrating all power requirements for advanced process chambers in a single,
rack-mounted subsystem. We began selling these products in volume in 1997, and
they have been accepted under a volume supply agreement. We also introduced into
the medical market high-volume, low-cost, solid-state RF power supplies for
reactive gas generation in the sterilization of surgical instruments.
Integrated Reactive Gas and Power Modules. We supply a range of reactive gas
subsystems for 200mm and 300mm semiconductor processing applications requiring
atomic oxygen, atomic fluorine, ozone and other types of reactive gas. In these
subsystems, the reactive gas source module is integrated with a power supply,
gas handling equipment and controls. Depending on the product, energy supplied
to produce the reactive gas may be microwave, RF or DC. These subsystems enable
our customers to outsource their reactive gas technological development,
speeding time to market and reducing their costs for total system production.
Microwave. In 1997, we introduced an integrated general reactive gas source
for photoresist strip and other applications that reduces time to market for our
OEM customers by providing a fully integrated solution. This product is sold
under a volume supply agreement for integration into a new generation of etch
and strip equipment.
Ozone. Our ozone product series consists of both modules and integrated
ozone subsystems used in semiconductor deposition and wet wafer cleaning
applications. Our subsystems incorporate our reactive gas sources and power
sources
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integrated with controls and gas handling. Relative to traditional cleaning
methods, ozone cleaning substantially reduces chemical consumption and disposal
costs. In addition, the by-products of ozone cleaning are more environmentally
friendly. Our patented ozone reactive gas generation technology is recognized in
the industry for high-efficiency ozone production as well as high purity,
cleanliness and reliability.
We introduced our ozone gas generators in 1995 for use in TEOS ozone
deposition of the insulating layers in semiconductors. In 1997, we introduced a
higher concentration, higher purity ozone generator series targeted for 300mm
wafer processing. In 2000, we introduced an even higher concentration ozone
generator with no increase in module size.
In 1997, we acquired Sorbios, a German manufacturer of ozone generation
products specializing in dissolved ozone applications for semiconductor and
other markets. In 1998, we introduced Liquozon, an integrated subsystem that
dissolves ozone into water, creating an efficient water cleaning method and
significantly reducing the use of acids and associated handling costs. We expect
Liquozon to become widely adopted in the wet wafer cleaning market because it
provides an integrated ozone solution which can be rapidly and easily
implemented by our customers. Many leading wet wafer processing equipment
companies are either already shipping our ozone solutions to customers or are in
various stages of introducing wet ozone into their manufacturing process.
ASTRON. In 1998, we introduced an integrated module for the production of
atomic fluorine and atomic oxygen for use in cleaning and abatement in several
semiconductor processing application chambers. Marketed under the trade name
ASTRON, this subsystem integrates a reactive gas generating module, a power
source and controls into an extremely compact unit. It produces a high flow of
atomic gas, which supports rapid processing, while its compact design permits
easy integration with semiconductor production tools.
During the process of depositing the layers which make up a semiconductor
circuit, the deposited material builds up on the inside of the chamber walls.
Because these deposits can influence the uniformity and purity of the process,
they must be periodically removed. Depending on the speed at which they are
deposited, this removal step can cause significant equipment downtime for
cleaning. One of the primary applications for ASTRON module is to clean these
unwanted deposits from the inside walls of the semiconductor processing
chambers. By generating atomic fluorine that reacts with the waste deposits in
the chamber, new gases are formed that are easily scrubbed to form benign salts
for disposal. By incorporating a short cleaning step into the process sequence,
tool availability is greatly enhanced.
In oxide etch and strip tools, our ASTRON module is used to abate hazardous
exhaust, transforming the gases into substances which are easily scrubbed. In
doing this, our reactive gas generator addresses the need to reduce greenhouse
gases while, simultaneously, significantly lowering the cost of cleaning
semiconductor process modules. Volume production shipments began in 1999.
Complete Process Systems
Our reactive gas solutions are incorporated into complete process systems on
fully integrated platforms that include substrate handling, control systems and
a production process. We have targeted a number of high-growth market segments
for supplying complete systems where we can take advantage of our core
technologies to provide unique process solutions. Primary market targets are
semiconductor advanced packaging, telecommunications and magnetic sensors. Our
three product lines detailed below are presently addressing these markets. These
products are offered at prices ranging from $250,000 to $3.0 million.
The Nimbus 300 product is a 300mm compatible complete physical vapor
deposition (PVD) production tool for advanced wafer scale packaging processes.
Primary application is for under-bump metallurgy for flip chip packaging, where
it offers an extremely cost effective solution. Our tool provides higher wafer
throughput and is easily configurable on the foundry floor to handle two inch to
12 inch wafers. Our system thus provides manufacturing flexibility and low
overall cost of ownership, making it ideally suited for the independent
packaging industry.
Our PQ Series I systems offer batch processing for plasma cleaning of
electronic packages. The PQ Series II and Series III systems are single chamber
plasma process tools combining etch and strip and chemical vapor deposition. We
supply systems for high-rate etch processes using scaleable, microwave driven
reactive gas sources for telecommunications device manufacture and for magnetic
data storage head applications. They provide rapid etch and low temperature
deposition processes.
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Our Shamrock product is a multi-source, application specific PVD system for
depositing the high-quality thin films used in MR and GMR recording heads,
tunneling spin valves, motion and shock sensors in automobile electronics and
advanced magnetic memory products. The Shamrock 150 is a 6 inch capable system
with up to six sources. The Shamrock 200, under development, is an 8 inch-
compatible tool featuring an ultra-high vacuum process chamber containing up to
10 sources, expandable to additional process chambers.
Industrial, Medical and Other Applications
We have expanded the use of our power source and reactive gas source
technologies into new markets, including chemical vapor deposition in industrial
markets and power sources for the medical market. In these applications, the
selling prices of our products have wide ranges depending on the amount of
reactive gas or power delivered, the level of integration (sources or integrated
subsystems), the quantity ordered and the application served. Our products for
the medical and industrial markets typically range in price from $1,500 to
$175,000.
Industrial Power Sources and Reactive Gas Sources. We supply power sources
for industrial lasers and electro-optic applications. For the emerging water
remediation market, we supply ozone source components and subsystems integrated
with gas handling and controls. These subsystems can be configured to provide
sufficient high-pressured ozone to process up to 2,000 gallons of water per
minute.
Medical Equipment Power Sources. We supply RF power sources used in MRI
systems and in medical equipment sterilization systems. In addition, in 1997, we
introduced DC switching power sources that offer excellent price/performance for
medical applications. These products were widely offered internationally to
customers beginning in 1999.
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Products for Semiconductor Applications
<TABLE>
<CAPTION>
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Trade Year
Product Category Products Name Introduced Applications
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<S> <C> <C> <C> <C>
Power Modules Microwave 1988 Semiconductor etch and strip
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Microwave OEM Product 1993 Semiconductor deposition, etch and strip
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Microwave with Self- SmartPower 1998 Semiconductor, deposition, etch and strip
Diagnostics
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Radio Frequency 1996/1/ Primarily used internally in ASTeX's
subsystems
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Multi-Channel DC, RF and Gladiator 1997 Semiconductor deposition and etch and strip
Microwave Power Source
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DC/Low Frequency 1997/2/ Semiconductor, medical and laser products
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Reactive Gas Component General Reactive SmartSet 1988 Semiconductor etch, strip deposition and
Modules Gas Source chamber clean
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Integrated General Reactive CPS 1997 Semiconductor strip
Gas Source
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Fluorine Compatible Reactive SmartMatch 1998 Semiconductor etch, strip, deposition and
Gas Source with Matching chamber clean
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Component Ozone Source Semozon 1995 Semiconductor deposition and wet wafer
cleaning
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Integrated Ozone Sources Semozon 1996 Semiconductor deposition and wet wafer
cleaning
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Low Dopant Ozone Source 1998 Semiconductor deposition and wet wafer
cleaning
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Ozonated Water Delivery Liquozon 1998/3/ Semiconductor wet wafer cleaning
Subsystem
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300mm Ozone Source 2000 Semiconductor deposition and wet wafer
cleansing
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Atomic Fluorine Subsystem ASTRON 1998 Semiconductor chamber clean and exhaust
gas abatement
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Complete Batch Reactor Etch PQ Series I 1998/4/ Plasma cleaning of electronic packages
Process Systems
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Single Chamber Etch & CVD PQ Series II 1998/4/ Data storage/thin film heads etch & CVD;
& III telecommunications
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Cassette to Cassette Physical Nimbus 300 1999/5/ Under bump metallurgy; Backside
Vapor Deposition (PVD) metallization for advanced semiconductor
packaging
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Orbital Planetary PVD Shamrock 150 1999/6/ GMR magnetic sensors
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</TABLE>
/1/ Derived from the acquisition of ETO in January 1996.
/2/ Derived from the acquisition of Converter Power in May 1997.
/3/ Derived from the acquisition of Sorbios in October 1997.
/4/ Derived from the acquisition of PlasmaQuest in November 1998.
/5/ Derived from the acquisition of Klee in April 1999.
/6/ Derived from the acquisition of Shamrock in August 1999.
As shown in the table, we began selling reactive gas sources and microwave
power sources in volume to the semiconductor equipment market in 1993. Over the
past three years, all of our products introduced for the semiconductor equipment
market have been more fully-integrated modules. As semiconductor equipment
manufacturers implement lean manufacturing practices and move towards the
outsourcing of more fully-integrated modules, we have an opportunity to further
extend our modules product lines sold to these customers.
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Medical and Industrial Applications
We use our power source and reactive gas source capabilities to provide a
broad range of specialized products, primarily for MRI, surgical instrument
sterilization equipment and medical and industrial lasers. The following table
describes these products.
Products for Medical and Industrial Applications
<TABLE>
<CAPTION>
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Year
Product Category Products Introduced Applications
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Power Modules Microwave 1993 Polymer processing
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Radio Frequency 1996/1/ Magnetic resonance imaging equipment and
medical sterilization
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DC/Low Frequency 1997/2/ Medical and industrial lasers
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Reactive Gas Modules General Reactive Gas Sources 1995 Industrial deposition and optical
thin-film coating
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Component Ozone Source 1996 Water remediation
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1998 Polymer and surface treatment
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Integrated Ozone Sources 1998 Water remediation
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</TABLE>
/1/ Derived from the acquisition of ETO in January 1996.
/2/ Derived from the acquisition of Converter Power in May 1997.
Research and Development
Our research and development activities emphasize process and application
development in collaboration with key customers, supported by engineering teams
with electrical, mechanical and software expertise. We have two applications
development groups in the United States and one in Germany. Our senior
engineering staff spend a substantial portion of their time visiting customers
and exploring new applications requiring solutions. Our research and development
staff grew significantly in the past year and now totals approximately 120
people, 30 of whom have advanced degrees, including 16 Ph.D.s.
Total research and development expenses were approximately $14.3 million in
fiscal 2000, $10.2 million in fiscal 1999 and $12.0 million in fiscal 1998 or
10.2% of revenue in fiscal 2000, 13.0% of revenues in fiscal 1999 and 14% of
revenues in fiscal 1998.
We expect to continue to spend heavily in future years on research and
development activities because of the highly technical nature of our business,
our rapidly expanding markets, and the new technologies that we are developing.
Significant Customers and Contracts
During fiscal 2000, 1999 and 1998, Applied Materials accounted for
approximately 50%, 45% and 40% of our consolidated total revenue. If we lose
Applied Materials or if it significantly reduces orders, our revenues, operating
results and financial condition will be hurt. No other customer accounted for
more than 5% of total revenue in fiscal 2000. While sales to Applied Materials
represent a large portion of our total revenue, Applied Materials is the world's
largest semiconductor equipment manufacturer and is reported to represent
approximately 21% of the total wafer fabrication equipment market and as much as
60% of the market segments it serves.
In the semiconductor equipment market, our customers include Applied
Materials, Lam Research, FSI International, GaSonics International, PSK Tech
Inc., Semitool, Silicon Valley Group, Ulvac and Varian Semiconductor Equipment.
We have signed multi-year supply contracts with some of these customers, which
typically provide for cancellation or modification with little or no penalty.
Generally, customers may push out deliveries, put firm orders on hold, or cancel
existing firm orders with little or no penalty.
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Marketing, Sales and Services
In order to sell and service our products more aggressively in the global
market, we formed a Global Customer Operations organization in the last quarter
of fiscal 1998. This organization presents one face to the customer worldwide
and comprises our entire marketing, sales, service, and product management
group. The organization is structured around regional offices worldwide,
supporting direct marketing, sales, and service activities, and provides more
control over independent sales and distribution representatives. In the past 24
months, the Global Customer Operations organization established regional offices
for the western U.S. (Santa Clara, CA), central U.S. (Austin, TX), eastern U.S.
(Woburn, MA), Germany, France, Taiwan and Japan, and we formed a joint venture
in Korea. During that period, our sales, marketing and service personnel have
increased from 34 people to 74 people.
Manufacturing and Suppliers
Our products are manufactured at facilities in Wilmington and Newton,
Massachusetts; Colorado Springs, Colorado; and Berlin, Germany. During the past
two years, we have consolidated other facilities in California, Texas and
Massachusetts into these facilities. Our Woburn, Massachusetts facility was
closed in July, 2000, as we consolidated manufacturing in our new Wilmington
facility.
We perform final assembly, integration, testing, and quality assurance at our
facilities. We obtain and ship many of our products and components under "just-
in-time" arrangements.
Most of the components for our products are manufactured by a number of
suppliers. However, we have several significant sole source suppliers. We
believe that these components could be obtained elsewhere if needed or that our
products could be redesigned to use alternative suppliers' products. However,
other supply sources might not be available without significant delay or
increased cost.
We share common information systems and applications programs throughout our
operations. Our enterprise resource program is used for manufacturing in all of
our U.S. facilities and is being implemented in our Berlin facility. Our
Wilmington and Colorado Springs facilities are both ISO 9001 certified.
Competition
We compete on the basis of our technical expertise, core competencies,
manufacturing capabilities, high quality and reliability, performance,
established reputation and customer relationships. Many of our technical
personnel have recognized experience in the fields of power and reactive gas
source technology, systems integration and advanced process technology. We
compete in a number of markets by providing a broad array of products,
engineering and service support. We believe that this range of products and
capabilities provides us with a significant competitive advantage.
We believe that we are the largest provider of microwave power sources and
microwave-powered reactive gas sources in the world, facing competition
primarily from Muegge Electronic GmbH in Germany and Daihen in Japan. In the
ozone source market, we compete primarily with Ebara and Sumitomo Precision
Products. We believe our major competitors for RF power sources and amplifiers
are Advanced Energy Industries, Analogic, ENI, a subsidiary of Astec (BSR) Plc,
and Comdel. We believe our major competitors for DC power sources are ALE
Systems and Kaiser Systems. In the systems business, our major competitors are
Balzers Process Systems (now Unaxis), CVC (acquired by Veeco), Shimatsu, STS,
Trikon and Veeco Instruments.
We typically have been able to meet the purity, controllability and
reliability requirements of our customers in a cost effective and timely manner.
However, many of our customers have large, in-house equipment development
programs. These in-house programs often attempt to develop equipment which may
compete with or replace the products purchased from us. We must continue to
develop and enhance our technology and products to keep pace with technological
changes in production equipment and advanced materials processes.
10
<PAGE>
Patents and Proprietary Information
As of July 1, 2000, we own 28 U.S. patents and two foreign patents, and have
23 pending U.S. patent applications and 13 pending foreign applications in
various stages of prosecution. The earliest of the issued patents expires in
2007. We have retained license rights to certain third party patents and patent
applications. We have retained commercial ownership rights to proprietary
technology developed under various U.S. and government contracts and grants,
including SBIR contracts. We also have joint development agreements with
industrial and commercial partners which may result in sole or joint ownership
rights to proprietary technology developed under those agreements.
There is no single patent or patent application which we believe is critical
to our business. Our success depends principally on the technical expertise and
product development capabilities of our engineering and manufacturing teams and
the sales and marketing skills of our Global Customer Operations group.
In addition to our patent rights, we rely upon trade secrets and
confidentiality agreements, which all employees are required to execute,
assigning all patent rights and technical or other information developed by
employees during their employment to us. Our employees, consultants, customers,
and potential customers have agreed not to disclose any trade secret or
confidential information without prior written consent. Notwithstanding these
confidentiality agreements, other companies could acquire information which we
consider proprietary. Moreover, while we have successfully enforced one of our
patents and intend to continue to vigorously enforce our patents against
infringement by third parties, we might not be able to enforce our patents or
obtain meaningful protection from competitors or third parties, or receive
patents from our pending patent applications. Even if a competitor's products
were to infringe our patents, enforcing our rights would be very expensive and
would divert funds and resources which otherwise could be used in our
operations. We might not be successful in enforcing our rights and a court could
find that our products infringe a third party's rights. If we are not successful
in a suit involving patents or other intellectual property rights of a third
party, a license might not be available on commercially reasonable terms, or be
available at all.
Employees
As of July 1, 2000, we employed 589 persons on a full-time basis, including
114 temporary employees. We employ 59 full time and 10 temporary persons in
administration, 71 full time and 3 temporary in sales, service and marketing,
104 full time and 16 temporary in research and development, and 241 full time
and 85 temporary in manufacturing. We believe that our relations with our
employees are satisfactory.
Item 2. Facilities
We occupied 60,000 square feet of leased space in Woburn, Massachusetts for
our principal executive offices, research and development center and
manufacturing activities under a lease which terminated on July 30, 2000. At
the end of June, 2000, we moved our principal executive offices, research and
development center and manufacturing facilities from Woburn to Wilmington,
Massachusetts, where we fully occupied 118,000 square feet of space. We
purchased the Wilmington facility for approximately $10.7 million. We own 25,000
square feet of office, lab and manufacturing space occupied by our ETO
subsidiary located in Colorado Springs, Colorado. We sublease 16,600 square feet
of office and lab space in Colorado Springs, Colorado. The current rent for this
facility is $17,292 per month. This lease will terminate on February 28, 2002.
We maintain office and manufacturing facilities in Newton, Massachusetts in
3,500 square feet of leased space. This lease expires on April 30, 2001. The
rent for this facility is $4,442 per month. We lease 32,000 square feet of
storage space in Beverly Massachusetts. This lease expires on September 30,
2000. The rent for this facility is $19,000 per month.
We maintain a sales and service office in approximately 12,439 square feet of
leased space in Santa Clara, California under a lease which expires on August 8,
2002. The rent for this space is $22,390 per month in year one, $23,012 per
month in year two and $24,256 per month in year three. We maintain a sales and
service office in approximately 3,046 square feet of leased space in Austin,
Texas. The rent for this space is $2,860 per month and the lease expires on July
15, 2001. We also lease approximately 9,700 square feet of manufacturing and
office space in Berlin, Germany. The current rent for this facility is $7,013
per month. The office space portion of the lease terminates on March 31, 2001
and will automatically renew for twelve months unless cancelled six months in
advance. The manufacturing space portion of the lease terminates on June 30,
2001 and will automatically renew for twelve months unless cancelled six months
in advance.
11
<PAGE>
Item 3. Litigation
We are not involved in any litigation of a material nature.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 2000 through the solicitation of proxies or otherwise.
12
<PAGE>
PART II
Item 5. Markets for Common Equity and Related Stockholder Matters
Our common stock is traded on the National Association of Securities Dealers
Automated Quotation System - National Market System ("NASDAQ/NMS") under the
symbol "ASTX." On November 26, 1997, we announced a 3-for-2 split of our common
stock, which was distributed to shareholders in the form of a stock dividend on
December 12, 1997. All prior period share amounts have been adjusted to reflect
the stock split. On September 19, 2000, the closing bid and ask prices for our
common stock as reported by NASDAQ/NMS were $17.063 and $17.375, respectively.
As of September 19, 2000, we had 181 holders of record of our common stock. We
believe that there are approximately 2,100 beneficial owners of our common
stock.
For the periods indicated, the following table sets forth the high and low
closing sale prices for our common stock as reported by NASDAQ/NMS for June 28,
1998 through September 19, 2000. Such quotations represent interdealer
quotations without adjustment for retail markups, markdowns, or commissions and
may not represent actual transactions.
<TABLE>
<CAPTION>
Sale
----
High Low
---- ---
Fiscal Year ended June 26, 1999
-------------------------------
<S> <C> <C>
First Quarter $ 8.125 $ 3.875
Second Quarter 11.000 3.125
Third Quarter 14.500 9.875
Fourth Quarter 21.375 12.500
Fiscal Year ended July 1, 2000
------------------------------
First Quarter $23.125 $16.688
Second Quarter 31.250 19.875
Third Quarter 41.938 29.750
Fourth Quarter 35.500 17.375
Fiscal Year ending June 30, 2001
--------------------------------
First Quarter (through September 19, 2000) $24.875 $12.625
</TABLE>
13
<PAGE>
Item 6. Selected Consolidated Financial Data (in thousands except per share
data)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Fiscal Year /(1)/ 2000 1999 1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Total revenue $139,897 $78,209 $83,436 $47,967 $39,135
Gross profit 55,021 22,654 28,449 17,410 15,771
Earnings (loss) from
operations 19,356 (2,574) 5,909 1,659 (6,079)
Net earnings (loss) 14,026 (1,251) 4,021 938 (7,298)
Diluted earnings (loss)
per share 1.09 (0.13) 0.47 0.14 (1.16)
Weighted average common
shares outstanding 12,875 9,398 8,529 6,777 6,307
Balance Sheet:
Working capital 126,109 52,279 28,570 16,956 19,217
Total assets 188,576 80,535 51,293 39,327 34,361
Total long-term debt 8,210 - - 6,369 6,170
Total liabilities 29,433 12,814 7,493 15,838 13,066
Stockholders' equity 159,143 67,721 43,801 23,489 21,296
1/st/ 2/nd/ 3/rd/ 4/th/
--------------------------------------------------------
Quarterly 2000:
Total revenue 30,602 31,066 34,134 44,095
Gross profit 11,182 12,979 13,834 17,027
Earnings from operations 3,889 4,405 4,998 6,066
Net earnings 2,630 3,163 3,520 4,716
Diluted earnings per share 0.22 0.26 0.28 0.32
Quarterly 1999:
Total revenue 12,100 16,854 20,942 28,313
Gross profit 1,175 4,499 7,075 9,905
Restructuring charge 1,497 - - 763
Earnings from operations (5,713) (726) 1,438 2,427
Net earnings (loss) (3,481) (436) 784 1,882
Diluted earnings per share (0.41) (0.05) 0.08 0.16
</TABLE>
/(1)/ The fiscal year ends for the periods presented are: July 1, 2000; June
26, 1999; June 27, 1998; June 28, 1997; June 29, 1996
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following discussion contains, in addition to historical information,
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. For example, statements relating to our beliefs, expectations and
plans are forward-looking statements, as are statements that certain actions,
conditions or circumstances will continue. Forward-looking statements involve
risks and uncertainties. As a result, our actual results may differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences or prove any forward-looking statements,
by hindsight, to be overly optimistic or unachievable, include, but are not
limited to the following:
. the significant fluctuations in our quarterly operating results;
. the volatility of the semiconductor and semiconductor capital equipment
industries;
. timing and success of integration of recent and potential future
acquisitions; and
. supply constraints and technological changes.
For a discussion of these and other factors that may impact our realization of
our forward-looking statements, see Factors That May Affect Future Results.
We provide precision reactive gas solutions to the OEM semiconductor, medical,
and industrial markets, and complete process systems for advanced packaging,
telecommunications and magnetic sensor applications. Our broad product line is
based on a decade of leadership in core technologies, including precision
reactive gas processing, specialized power sources, and system integration.
Depending on our customers' needs, we provide varying levels of integration,
from components to modules to complete process solutions. We help our customers
maximize their competitive advantage by improving time to market while reducing
costs and complexity. During the past five years, we have grown rapidly, both
through internal growth as well as by acquisitions. In January 1996, we acquired
Erhorn Technological Operations, Inc. (ETO), a manufacturer of RF power sources.
In May 1997, we acquired Converter Power, Inc. (ASTeX CPI), a manufacturer of
direct current power sources. In October 1997, we acquired Sorbios GmbH (ASTeX
Sorbios), a manufacturer of ozone sources. In November 1998 we acquired
PlasmaQuest, Inc. (ASTeX PlasmaQuest), a manufacturer of reactive gas sources
and systems used for magnetic disk head processing and advanced electronic
packaging applications. In May 1999, we acquired Klee Corporation (ASTeX Klee),
a developer of systems used for advanced electronic packaging applications. In
August 1999, we acquired substantially all of the assets of the Shamrock product
line from Sputtered Films, Inc. The results of operations for each period
presented include the results of operations of each of the acquired companies
since the date of its acquisition.
15
<PAGE>
Results of Operations
The following table sets forth selected financial data for the periods
indicated expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Total revenue........................................ 100.0% 100.0% 100.0%
Total cost of sales and revenue...................... 60.7 71.0 65.9
----- ----- -----
Gross profit......................................... 39.3 29.0 34.1
Operating expenses:
Selling expenses................................... 6.6 6.6 5.3
General and administrative expenses................ 8.7 10.3 8.0
Research and development expenses, net............. 10.2 12.5 13.5
Other operating expenses........................... - 2.9 0.2
----- ----- -----
Total operating expenses............................. 25.5 32.3 27.0
----- ----- -----
Earnings (loss) from operations...................... 13.8 (3.3) 7.1
Total other income (expense)......................... 2.0 0.9 0.7
----- ----- -----
Earnings (loss) before income taxes.................. 15.8 (2.4) 7.8
Income taxes expense (benefit)....................... 5.8 (0.8) 3.0
----- ----- -----
Net earnings (loss).................................. 10.0% (1.6)% 4.8%
===== ===== =====
</TABLE>
Fiscal Year 2000 Compared to Fiscal Year 1999
Revenue. Total revenue increased by 79% to $139.9 million for fiscal 2000, a
53 week year, compared to revenue of $78.2 million for fiscal 1999. The
increase is primarily due to an increase in our semiconductor capital equipment
business which grew by 111% to $108.5 million for fiscal 2000 compared to fiscal
1999. This growth was driven primarily by the recovery of the semiconductor
capital equipment business and was reflected across the entire line of our new
and existing products. Systems group revenue increased to $12.2 million for
fiscal 2000 compared to $4.3 million in fiscal 1999. The medical and industrial
segments declined by 15% to $19.2 million in fiscal 2000 compared to fiscal 1999
primarily due to declines in volume to several customers.
Gross Profit. Gross profit increased to 39% of total revenue for fiscal 2000
compared to 29% for fiscal 1999 due to increased volume, favorable product mix,
improved manufacturing efficiencies, and a lower fixed cost structure due to
plant consolidations undertaken in fiscal 1999. Gross margins in fiscal 1999
were adversely impacted by a $1.1 million inventory write-down.
Selling, General and Administrative Expenses. Selling expenses, as a percent
of total revenue were relatively constant at 6.6% for fiscal 2000 and 6.6% for
fiscal 1999, but increased by 78% to $9.2 million for fiscal 2000 compared to
$5.2 million for fiscal 1999. The increase was due to costs associated with the
creation of the Global Customer Operations organization and increased staffing
of marketing, sales, service and product management functions in fiscal 2000 to
better meet customer sales and service needs on a global basis. General and
administrative expenses as a percent of total revenue declined to 8.7% in fiscal
2000 compared to 10.3% in fiscal 1999, but increased by 51% to $12.1 million in
fiscal 2000 compared to $8.1 million in fiscal 1999. The increase was primarily
due to supporting the growth of the overall business, expansion of the
management team, and increased goodwill amortization.
As a result of the consolidation of two facilities, we incurred a
restructuring charge of $2.3 million during fiscal 1999 for costs of severance,
abandonment of leasehold improvements, and fixed assets, and for facilities
costs, primarily consisting of future lease payments. There was no comparable
cost in fiscal 2000. However, we have incurred approximately $0.1 million for
the relocation of inventory, equipment and key employees from the former Dallas
facility to Massachusetts.
16
<PAGE>
Research and Development Expenses: Net research and development expenses
increased by 46.9% to $14.3 million (or 10.2% of total revenue) in fiscal 2000
compared to $9.7 million (or 12.5% of total revenue) in fiscal 1999. As a
percent of total revenue R&D expenses were lower in fiscal 2000 because of
higher revenue compared to fiscal 1999. On an absolute dollar basis, research
and development expenses rose primarily as a result of expenditures in
connection with support for modular products in the plasma components and
Liquozon groups and development of products, primarily the Nimbus, for the
systems group.
Operating Income (Loss): We had operating income of $19.4 million (or 13.8%
of total revenue) compared to a loss of $2.6 million (or 3.3% of total revenue)
in fiscal 1999. The increase in operating income is due to the increased
revenue, improved gross margin and lower operating expenses as a percentage of
total revenue in fiscal 2000 compared to fiscal 1999.
Other Income and Income Taxes: Other income increased to $2.8 million in
fiscal 2000 primarily due to interest income earned on short term, and long term
cash investments from proceeds of our March 1999 and March 2000 public offerings
of common stock. We had income tax expense of $8.1 million in fiscal 2000
compared to a tax benefit of $0.7 million in fiscal 1999.
Fiscal Year Ended June 26, 1999 as Compared to Fiscal Year Ended June 27, 1998
Revenue. Total revenue declined 6% to $78.2 million in fiscal 1999 compared
to $83.4 million in fiscal 1998. This decline is due to the severe downturn in
the semiconductor capital equipment industry as a result of over-capacity,
coupled with a financial crisis in Asia that occurred in the first half of
fiscal 1999. These factors led to a 40% sequential decline in revenues in the
first quarter of fiscal 1999, in comparison to the fourth quarter of fiscal
1998. With a strong recovery in our semiconductor equipment business in the
second half of fiscal 1999, this segment of our business declined by only 3% to
$51.3 million in fiscal 1999 compared to $52.8 million in fiscal 1998. This
strong recovery was due to the strength of our customers' business and the
success of our new products for this segment. The medical and industrial segment
declined by 18% to $22.6 million in fiscal 1999 compared to $27.7 million in
fiscal 1998 due to the impact of the financial crisis in Asia. The systems
segment of the business increased 46% primarily due to the acquisition of ASTeX
PlasmaQuest. Research contract revenue was flat at approximately 1% of total
sales in fiscal 1999 and fiscal 1998.
Gross Profit. Gross profit declined by 20% to $22.7 million or 29% of sales
in fiscal 1999 compared to $28.4 million or 34% of sales in fiscal 1998. The
decline is a result of reduced manufacturing volumes and underutilization of
manufacturing capacity in the first half of fiscal 1999, and an inventory write-
down of $1.1 million, primarily due to the unexpected severity of the downturn
in the semiconductor equipment business.
In the first six months of fiscal 1999, we consolidated our Modesto,
California facility into our Woburn, Massachusetts and Colorado Springs,
Colorado sites and our Beverly, Massachusetts facility into Woburn in order to
reduce our fixed costs and improve gross margins.
Gross profit as a percent of sales improved in our fourth quarter of fiscal
1999 to 35% compared to 28% in the fourth quarter of fiscal 1998, primarily as a
result of the cost reduction activities, improved utilization of manufacturing
capacity, and the success of new product introductions.
Selling, General and Administrative Expenses. Selling expenses increased 17%
to $5.2 million in fiscal 1999 compared to $4.4 million in fiscal 1998. The
increase is a result of the establishment of the Global Customer Operations
organization and increased staffing to strengthen our global marketing, sales,
service and product management infrastructure. General and administrative
expenses increased by 21% to $8.1 million compared to $6.6 million in fiscal
1998 due to higher information systems costs from implementation of a new
company-wide Enterprise Resource Planning (ERP) system, increased goodwill
amortization, administrative expenses associated with new acquisitions, and
management changes including expanding the senior management team.
Other Operating Expenses. As a result of consolidation of two facilities in
the first six months of fiscal 1999 and the consolidation of the PlasmaQuest
facility in Dallas, Texas to our Woburn, Massachusetts facility, announced in
the fourth quarter, we recorded a $2.3 million restructuring charge in fiscal
1999. The restructuring charge for the consolidation of Modesto, California and
Beverly, Massachusetts consisted of severance related to the termination of 70
full-time employees, abandonment of leasehold improvements and fixed assets, and
facility costs, primarily future
17
<PAGE>
lease payments relating to abandoned facilities. At June 26, 1999 all
restructuring costs for these two facilities have been paid out with the
exception of approximately $174,000 for abandoned facility costs which were
substantially paid out in fiscal year 2000. The restructuring costs of $763,000
for the Dallas facility are for the severance of 16 full-time employees,
abandonment of leasehold and fixed assets, and future lease payments relating to
abandoned facilities. These costs were substantially paid out in fiscal 2000. In
addition to the $2.3 million restructuring costs, we incurred $393,000 of other
transition costs in fiscal 1999 for moving inventory and equipment and training
personnel. The total fiscal 1999 expense relating to restructuring, inventory
write-down, and transition costs was $3.7 million.
There were no acquisition-related charges in fiscal 1999. As part of the
acquisition of ASTeX Sorbios in October 1997, we incurred an acquisition-related
expense of $212,000 for the fair value of acquired in-process research and
development projects.
Research and Development Expenses. Net research and development expenses
decreased by 13% to $9.7 million in fiscal 1999 compared to $11.3 million in
fiscal 1998 as we decreased our overall level of investment in response to the
decline in revenues in the first half of fiscal 1999. Gross spending (including
funded joint development and the direct costs of research contracts) decreased
15% to $10.2 million in fiscal 1999 compared to $12.0 million in fiscal 1998.
Operating Income. We had an operating loss of $2.6 million in fiscal 1999
compared to an operating profit of $5.9 million in fiscal 1998. The operating
loss is a result of the revenue declines, restructuring, inventory write-downs,
and transition costs and increased operating expenses as a percent of income.
Other Income and Income Taxes. Total other income increased by 16% to
$673,000 in fiscal 1999 compared to $578,000 in fiscal 1998. A decline in
interest expense and other income in fiscal 1999 compared to fiscal 1998 is a
result of repayment of bank debt and the sale of an investment in another
company which resulted in a one-time gain of $250,000 in fiscal 1998. Interest
income increased in fiscal 1999 due to the interest earned on the cash from our
secondary stock offering in March 1999.
We had a tax benefit of $650,000 in fiscal 1999 compared to a tax expense of
$2,466,000 in fiscal 1998.
Liquidity and Capital Resources
At July 1, 2000 we had cash and investments of $95.2 million consisting of
$78.4 million of cash and cash equivalents, short term investments of $12.8
million and long term investments of $4.0 million. Working capital was $123.9
million at July 1, 2000. At June 26, 1999 we had cash and cash equivalents of
$31.8 million and working capital of $52.3 million.
During fiscal year 2000 our cash and cash equivalent position increased by
$46.6 million. Cash provided from operations was $6.0 million, comprised of
$14.0 million of net income, $4.4 million of non cash depreciation and
amortization, offset by $12.4 million used in changes of working capital
(including changes in deferred income taxes). Cash used for investing
activities of $45.2 million consisted primarily of $6.4 million for the August
1999 acquisition of the Shamrock product line from Sputtered Films, Inc., $21.2
million expended for fixed assets including $16.7 million for the purchase of
our new Wilmington, MA, corporate headquarters and manufacturing facility, and
$16.8 million for the purchase of short term and long term investments. Cash
provided from financing activities was $86.1 million consisting primarily of
$76.3 million from the issuance of common stock in connection with a public
offering in March 2000 that raised approximately $73.2 million and $9.6 million
of net borrowings from a bank, used to finance the purchase of the new facility
in Wilmington.
During the fiscal year ended June 26, 1999 our cash position increased by
$24.1 million. Cash provided from operating activities amounted to $3.3
million, cash used for investing activities was $2.9 million, and cash provided
from financing activities was $23.8 million. Cash of $2.9 million from
operations consisted of a net loss of $1.3 million offset by $3.3 million of
noncash depreciation, amortization and loss on disposal of assets of $0.8
million. Cash used for investing activities was primarily of additions to
property, plant and equipment, and patents. Cash provided by financing
activities was primarily from the issuance of common stock offset by repayment
of notes payable for $0.7 million. We raised $24.5 million from issuance of
common stock, primarily from a public offering competed in March 1999 that
raised approximately $23.8 million.
18
<PAGE>
During fiscal 1998, we generated $2.5 million in net cash flows from
operating activities and used $4.9 million for investing activities. Cash used
for investing activities consisted of $3.7 million for the acquisition of ASTeX
Sorbios, $3.0 million for additions to property, plant, equipment, and patents,
offset by sales of $1.3 million in investments (primarily commercial paper and
government treasury bills) and $500,000 from the sale of our investment in a
company. Cash flows from financing activities consisted primarily of repayment
of $9.2 million bank debt offset by $16.1 million in proceeds from the issuance
of common stock, which was primarily from the exercise of warrants and stock
options by employees.
We have a credit facility with a bank that consists of an $8 million
unsecured demand line of credit with interest at the bank's prime rate which was
9.5% at July 1, 2000. At July 1, 2000 we had no borrowings in connection with
this line of credit. Our ability to borrow under this line of credit is
currently at $8 million. We purchased our facility in Wilmington, Massachusetts
for $10.7 million. The purchase was financed primarily by a $10 million term
loan from a bank payable in equal monthly installments over seven years and
secured by a first mortgage on the property. The interest rate is determined by
the bank's base rate plus 1.375% (9.5% at July 1, 2000).
We will continue to use our cash resources for development of new products,
expanding sales and marketing, performing collaborative product development
projects, capital expenditures, and for general working capital. We seek new
ventures and/or acquisitions that will enhance our position in our markets and
that have potential to increase our revenue and profitability.
We believe that existing cash resources and funds from this offering,
anticipated cash flows from operations and our credit facility will be
sufficient to meet planned operating expenses and working capital requirements
for a period of at least the next 12 months.
Effects of Inflation
We believe that over the past three years inflation has not had a
significant impact on our revenues or operating results.
Cautionary Statements - Risk Factors
This Form 10-K contains, in addition to historical information, forward-
looking statements, within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. For example, statements relating to our beliefs, expectations and plans
are forward-looking statements, as are statements that certain actions,
conditions or circumstances will continue. Forward-looking statements involve
risks and uncertainties. As a result, our actual results may differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences or prove any forward-looking statements,
by hindsight, to be overly optimistic or unachievable, include, but are not
limited to the risks described in this section. We do not have any obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Semiconductor Industry Business Cycles Have a Large Effect on Our Operating
Results
Our business depends heavily upon capital expenditures by manufacturers of
semiconductors. The semiconductor industry is highly cyclical, with periods of
capacity shortage and periods of excess capacity. In periods of excess capacity,
the industry sharply cuts purchases of capital equipment, including our
products. Thus, a semiconductor industry downturn or slowdown substantially
reduces our revenues and operating results and could hurt our financial
condition.
During portions of 1998 and 1999, excess capacity in the semiconductor
industry caused semiconductor manufacturers to sharply cut their capital
spending. The excess supply was caused primarily by a period of over-investment
in the industry, as well as by cyclical demand factors. The shift in demand to
low-priced personal computers and currency devaluations in Asia further reduced
profits of semiconductor manufacturers. The downturn
19
<PAGE>
in capital spending reduced our sales during these periods, resulting in
significant losses. We expect that we will continue to depend significantly on
the semiconductor capital equipment industry for the foreseeable future.
Our Operating Results Often Have Large Changes from Quarter to Quarter
Sharp swings in demand cause large changes in our quarter-to-quarter
results. A number of factors contribute to these sharp changes in demand. For
instance, our OEM customers keep inventories of our products and may stop buying
from us during periods of weak demand for their products until they have reduced
their inventories.
Other factors which cause changes in our quarter-to-quarter results
include:
. changes in or cancellation of our customers' product plans and
programs;
. delays in, or cancellation of, significant system purchases by
customers;
. changes in the mix of our products and their gross margins;
. delays in the development, introduction and production of our
products;
. new product introductions by competitors and competitive pricing
pressures;
. the time required for us to adjust our operating expenses to respond
to changes in sales;
. the timing of our acquisitions and their effect on our financial
results;
. component shortages resulting in manufacturing delays; and
. pressure by customers to reduce prices, shorten delivery times and
extend payment terms.
Our Stock Price Is Volatile and It May Drop Unexpectedly
Our market segment seems particularly vulnerable to abrupt changes in
investor sentiment. Stock prices of companies in the semiconductor equipment
industry, including ours, can swing dramatically with little relationship to
operating performance. During the past 24 months, our stock has traded at per
share prices as high as $45 and as low as $3. Objective factors which could
cause our stock price to change sharply include:
. changes in our quarterly operating results for the reasons set out in
the previous risk factor;
. changes in research analysts' expectations for us or our industry or
our failure to meet research analysts' estimates;
. changes in the general economic conditions or developments in the
personal computer, data storage or semiconductor industry which affect
investor confidence; and
. announcements by us or our competitors of technological innovations or
new or enhanced products.
We could be subject to class action litigation due to stock price
volatility which, if it occurs, will distract our management and could result in
substantial costs or large judgments against us. In the past, securities class
action litigation has often been brought against companies following periods of
volatility in the market prices of their securities. We may be the target of
similar litigation in the future. Securities litigation could result in
substantial costs and divert our management's attention and resources, which
could cause serious harm to our business, financial condition and results of
operations.
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We Depend on a Few Customers for the Majority of Our Revenues
A few customers account for a large part of our revenues. Sales to our ten
largest customers accounted for 76% of revenues in fiscal year 2000, 76% of
revenues in fiscal year 1999, and 72% of revenues in fiscal year 1998. Sales to
our largest customer, Applied Materials, accounted for approximately 50% of
revenues in fiscal year 2000, 45% of revenues in fiscal year 1999, and 40% of
revenues in fiscal year 1998. We expect that sales to Applied Materials will
continue to be a large part of our revenues in the future.
Our customers may cancel orders with few penalties, including orders
entered into under long-term supply agreements with us. If Applied Materials or
another major customer reduces orders for any reason, our revenues, operating
results, and financial condition will be hurt.
We Are Subject to Lengthy Sales and Product Acceptance Cycles
We sell the majority of our products to OEMs that incorporate our products
into the equipment they sell. OEMs consider using our products when their
products are being developed. We must make a significant capital investment to
develop products for our OEM customers well before their products are introduced
and before we can be sure that we will recover our capital investment through
sales to the OEMs in significant volume. We are also at risk during the
development phase that our product may fail to meet our customers' technical or
cost requirements and may be replaced by a competitive product or alternate
technology solution. If that happens, we may be unable to recover our
development costs. If our customers fail to introduce their products in a timely
manner or the market does not accept their products, our business and our
financial results would be hurt.
During any quarter, we are subject to a significant change in our operating
results due to the timing of systems sales. During any quarter, a significant
portion of our revenue may be derived from the sale of a relatively small number
of systems. Our systems range in price from $250,000 to $3.0 million. Also,
sales cycles for larger systems orders can be much longer than sales cycles for
components. Any new systems introduced by us may not achieve a significant
degree of market acceptance or, once accepted, may fail to sell well for any
significant period.
Future Acquisitions or Investments Could Disrupt Our Ongoing Business, Distract
Our Management and Employees, Increase Our Expenses and Adversely Affect Our
Business
We anticipate that a portion of any future growth may be accomplished by
acquiring existing businesses. The success of any acquisitions will depend upon
a number of factors, including our ability to integrate acquired personnel,
operations, products and technologies into our organization, to retain and
motivate key personnel of acquired businesses and to retain customers of
acquired firms. We cannot assure you that we will be able to identify suitable
acquisition opportunities, obtain any necessary financing on acceptable terms or
integrate acquired personnel and operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and materially and adversely affect our results of operations. Any
future acquisitions would involve certain other risks, including the assumption
of additional liabilities, potentially dilutive issuances of equity securities
and diversion of management's attention from other business concerns.
Furthermore, we may issue equity securities or incur debt to pay for any future
acquisitions. If we issue equity securities, your percentage ownership of our
company would be reduced.
We Are Growing and May Be Unable to Manage Our Growth Effectively
We have been experiencing a period of growth and expansion. This growth and
expansion is placing significant demands on our management and our operating
systems. We need to continue to improve and expand our management, operational
and financial systems, procedures and controls, including accounting and other
internal management systems, quality control, delivery and service capabilities.
In addition, we will need to continue to attract and retain additional
management, research and development and manufacturing personnel to handle
possible future growth.
In order to manage our growth, we may also need to spend significant amounts
of cash to:
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. fund increases in expenses;
. take advantage of unanticipated opportunities, such as major strategic
alliances or other special marketing opportunities, acquisitions of
complementary businesses or assets, or the development of new
products; or
. otherwise respond to unanticipated developments or competitive
pressures.
If we do not have enough cash on hand, cash generated from our operations
or cash available under our credit facility to meet these cash requirements, we
will need to seek alternative sources of financing to carry out our growth and
operating strategies. We may not be able to raise needed cash on terms
acceptable to us, or at all. Financing may be on terms that are dilutive or
potentially dilutive. If alternative sources of financing are required but are
insufficient or unavailable, we will be required to modify our growth and
operating plans to the extent of available funding.
We May Have Difficulty Managing Cycles of Growth and Downturns
We have recently had a cycle of rapid growth followed by a downturn. These
expansions and contractions strain our management, manufacturing, financial and
other resources. In an expansion, our systems, procedures, controls and existing
space may not be adequate and we may face difficulties in hiring and training
needed personnel. In a contraction, it may be costly to maintain current levels
of personnel and overhead. If we fail to manage growth or downturns effectively,
our future financial condition, revenues and operating results could be hurt.
Our severe business cycles exacerbate the difficulties of attracting and
retaining highly qualified personnel who are vital to our success.
We Are Highly Reliant on Key Management
Our success depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, customer
support, finance and manufacturing personnel. The loss of any of these key
personnel, who would be extremely difficult to replace, could harm our business
and operating results. During downturns in our industry, we have often
experienced significant employee attrition, and we may experience further
attrition in the event of a future downturn. Although we have employment and
noncompetition agreements with key members of our senior management team,
including Messrs. Post, Ross, Burg, Hurley, and Schuss, these individuals or
other key employees may nevertheless leave our company. We do not have key
person life insurance on any of our executives. Competition for management in
our industry is intense, and we may not be successful in attracting and
retaining key management personnel.
Our Markets Are Very Competitive and Competing Technologies May Render Some or
All of Our Products or Future Products Noncompetitive
The markets for our products are very competitive. Many of our current and
potential competitors have much greater resources than we have. A number of
established semiconductor equipment manufacturers, including some of our
significant customers, have expended significant resources in developing
improved reactive gas systems and components. We may not be successful in
selling our products to our customers, regardless of the performance or the
price of our products. Our competitors may develop superior or lower priced
products. Moreover, our customers' own markets are highly competitive. Our
customers buy our products only when they are successful in selling their own
products. Consequently, if our customers fail to compete effectively, our sales
could be hurt.
Rapid Technology Change May Make Our Products Obsolete
Technology changes rapidly in the markets we serve. Our success will depend
upon our ability to anticipate these changes, enhance our existing products and
develop new products to meet customer requirements and achieve market
acceptance. We may not be able to do those things correctly or soon enough. If
we fail in these efforts, our products will become obsolete, which will hurt our
operating results and financial position.
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We Must Achieve Design Wins to Retain Our Existing OEM Customers and to Obtain
New OEM Customers
The constantly changing nature of semiconductor fabrication technology
requires OEMs to continually design new systems. We often must work with these
manufacturers early in their design cycles to modify our equipment to meet the
requirements of the new systems. Manufacturers typically choose one or two
vendors to provide the products for use with the early system shipments.
Selection as one of these vendors is called a design win. We must achieve these
design wins in order to retain existing customers and to obtain new customers.
Once a manufacturer chooses a supplier of modules or systems, it is likely
to retain that supplier for an extended period of time. Our sales and growth
could experience material and prolonged adverse effects if we fail to achieve
design wins. In addition, design wins do not always result in substantial sales
or profits.
We believe that OEMs often select their suppliers based on factors such as
long-term relationships. Accordingly, we may have difficulty achieving design
wins from OEMs who are not currently customers. In addition, we must compete for
design wins for new systems and products of our existing customers, including
those with whom we have had long-term relationships.
Development of New Products is Risky and We May Not Be Successful in
Anticipating Market Trends
We expect to spend a significant amount of time and resources developing
new products and refining existing products and systems. In light of the long
product development cycles inherent in our industry, these expenditures will be
made well in advance of the prospect of deriving revenue from the sale of new
systems. Our ability to commercially introduce and successfully market new
products is subject to a wide variety of challenges during this development
cycle, including start-up bugs, design defects and other matters that could
delay introduction of these systems. In addition, since our customers are not
obligated by long-term contracts to purchase our products, our anticipated
product orders may not materialize, or orders that do materialize may be
cancelled. As a result, if we do not achieve market acceptance of new products,
we may not be able to realize sufficient sales in order to recoup research and
development expenditures. We may also divert sales and marketing resources from
our current products in order to successfully launch and promote our new
products. This diversion of resources could have a further negative effect on
sales of our current products.
The success of our product development efforts depends on our ability to
anticipate market trends and the price, performance and functionality
requirements of semiconductor device and equipment manufacturers. In order to
anticipate these trends and ensure that critical development projects proceed in
a coordinated manner, we must continue to collaborate closely with our largest
customers. Our relationships with these and other customers provide us with
access to valuable information regarding trends in the semiconductor device
industry, which enables us to better plan our product development activities. If
our current relationships with our large customers are impaired, or if we are
unable to develop similar collaborative relationships with important customers
in the future, our long-term ability to produce commercially successful products
will be impaired.
Our industry is characterized by the need for continual investment in
research and development as well as customer service and support. As a result of
our need to maintain our spending levels in these areas, our operating results
could be materially harmed if our revenues fall below expectations. In addition,
because of our emphasis on research and development and technological
innovation, our operating costs may increase further in the future. We expect
our level of research and development expenses to increase in absolute dollar
terms for at least the next several years.
We Conduct Manufacturing At Only A Few Sites
We conducted the majority of our manufacturing at our facilities in Woburn
and Wilmington, Massachusetts, Colorado Springs, Colorado, and Berlin, Germany.
At the end of June, 2000, we moved our principal executive offices, research and
development center and manufacturing facilities from Woburn to Wilmington,
Massachusetts. Future natural or other uncontrollable occurrences at any of our
manufacturing facilities that negatively impact our manufacturing processes may
not be fully covered by insurance and could have a material adverse effect on
our operations and results of operations.
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Economic Problems in Asia May Hurt Our Sales
Asia is an important region for the markets we serve and has accounted for
a large part of our revenues. In recent years, Asia has experienced serious
economic problems including currency devaluations, debt defaults, lack of
liquidity and recessions. Our revenues depend upon the capital expenditures of
semiconductor manufacturers, many of whom have operations and customers in Asia.
Serious economic problems in Asia would likely result in a significant decrease
in the sale of equipment to the semiconductor industry. Economic difficulties in
this region could also damage the economies of the U.S. and Europe and
ultimately the domestic demand for our products. Therefore, weak economic
conditions in Asia would likely negatively impact our future financial
condition, revenues and operating results.
Our Dependence on Sole and Limited Source Suppliers Could Affect Our Ability to
Manufacture Products and Systems
We rely on sole and limited source suppliers for a few of our components
and subassemblies that are critical to the manufacturing of our products. This
reliance involves several risks, including the following:
. the potential inability to obtain an adequate supply of required
components;
. reduced control over pricing and timing of delivery of components; and
. the potential inability of our suppliers to develop technologically
advanced products to support our growth and development of new
systems.
We believe that in time we could obtain and qualify alternative sources for
most sole and limited source parts. Seeking alternative sources of the parts
could require us to redesign our systems, resulting in increased costs and
likely shipping delays. We may be unable to redesign our systems, which could
result in further costs and shipping delays. These increased costs would
decrease our profit margins if we could not pass the costs to our customers.
Further, shipping delays could damage our relationships with current and
potential customers and have a material adverse effect on our business and
results of operations.
Our Dependence upon International Sales and Non-U.S. Suppliers Involves
Significant Risk
We do business worldwide, both directly and through sales to United States-
based OEMs, who sell their products internationally. International sales
accounted for 20% of revenues in fiscal year 2000, 20% of revenues in fiscal
year 1999 and 23% of our revenues in fiscal year 1998. International sales will
continue to account for a significant percentage of our revenues. In addition,
we rely upon non-U.S. suppliers for certain components. As a result, a major
part of our revenues and operating results is subject to the risks associated
with international sales. International sales and our relationships with
suppliers may be hurt by many factors, including:
. changes in policy or applicable U.S. or foreign laws which result in
burdensome government controls, tariffs, restrictions, embargoes or
export license requirements;
. political and economic instability in our target international
markets;
. difficulties of staffing and managing our international operations or
representatives;
. shipping delays;
. less favorable foreign intellectual property laws, which make it
harder to protect our technology from appropriation by competitors;
. longer payment cycles common in foreign markets;
. difficulties collecting our accounts receivable because of the
distance and different legal rules; and
24
<PAGE>
. potential additional U.S. and foreign taxes which increase the amount
of taxes we have to pay.
We May Incur Foreign Currency Exchange Rate Losses
Our foreign sales are typically made in U.S. dollars. A strengthening in
the dollar relative to the currencies of those countries where we do business
would increase the prices of our products as stated in those currencies and hurt
our sales in those countries. If we lower our prices to reflect a change in
exchange rates, our profitability in those markets will go down. In the past,
there have been significant fluctuations in the exchange rates between the
dollar and the currencies in those countries in which we do business. We have
not historically tried to significantly reduce our exposure to exchange rate
fluctuations by using hedging transactions. However, we may choose to do so in
the future. We may not be able to do so successfully. Accordingly, we may
experience economic loss and a negative impact on earnings and equity as a
result of foreign currency exchange rate fluctuations.
Patents and Proprietary Information May Not Be Adequate to Protect Our Business
We rely on our patent and trade secret rights to protect our proprietary
technology. As of July 1, 2000, we own 28 U.S. patents and two foreign patents,
and have 23 pending U.S. patent applications and 13 pending foreign applications
in various stages of prosecution. The earliest of our key patents expires in
2007. We own the commercial rights to proprietary technology developed under
various U.S. government contracts and grants, including federally funded
research contracts. The U.S. government also has certain rights to such
proprietary technology developed under these contracts and grants. We also have
joint development agreements with industrial and commercial partners which may
result in sole or joint ownership rights to proprietary technology developed
under those agreements. However, we cannot be sure that additional patent
applications will be filed, that patents will issue from these applications or
that any of our patents will withstand challenges by others. Our patents may not
provide us with meaningful protection from competitors, including those who may
pursue patents which may block our use of our proprietary technology. In
addition, we rely upon unpatented trade secrets and seek to protect them, in
part, through confidentiality agreements with employees, consultants and our
customers and potential customers. If these agreements are breached, or if our
trade secrets become known to or are independently developed by competitors we
may not have adequate remedies for such breach.
If a competitor's products infringed our patents, we may sue to enforce our
rights in an infringement action. These suits are costly and would divert funds
and management and technical resources from our operations. Furthermore, we
cannot be certain that our products or processes will not infringe any patents
or other intellectual property rights of others. If they do infringe the rights
of others, we may not be able to obtain a license from the intellectual property
owner on commercially reasonable terms or at all.
Our efforts to protect our intellectual property may be less effective in
some foreign countries where intellectual property rights are not as well
protected as in the United States. Currently, a significant portion of our
revenue is derived from sales in foreign countries, including certain countries
in Asia, such as Taiwan, Korea and Japan. The laws of some foreign countries do
not protect our proprietary rights to as great an extent as do the laws of the
United States, and many U.S. companies have encountered substantial problems in
protecting their proprietary rights against infringement in such countries, some
of which are countries in which we have sold and continue to sell products.
There is a risk that our means of protecting our proprietary rights may not be
adequate in these countries. For example, our competitors in these countries may
independently develop similar technology or duplicate our systems. If we fail to
adequately protect our intellectual property in these countries, it would be
easier for our competitors to sell competing products in those countries.
We Are Subject To Governmental Regulations
We are subject to federal, state, local, and foreign regulations, including
environmental regulations and regulations relating to the design and operation
of our power supply products. We must ensure that these systems meet certain
safety standards, many of which vary across the countries in which our systems
are used. For example, the European Union has published directives specifically
relating to power supplies. We must comply with these directives in order to
ship our systems into countries that are members of the European Union. We
believe we are in
25
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compliance with current applicable regulations, directives and standards and
have obtained all necessary permits, approvals, and authorizations to conduct
our business. However, compliance with future regulations, directives and
standards could require us to modify or redesign certain systems, make capital
expenditures or incur substantial costs. If we do not comply with current or
future regulations, directives and standards:
. we could be subject to fines;
. our production could be suspended; or
. we could be prohibited from offering particular systems in specified
markets.
Our Management Has Significant Influence Over Stockholder Decisions
Our officers and directors will control the vote of approximately 7.7% of
the outstanding shares of common stock prior to the exercise of any outstanding
options. As a result, they may be able to significantly influence all matters
requiring approval by our stockholders, including the election of directors.
Our Anti-Takeover Measures May Affect the Value of our Stock
As a Delaware corporation, we are subject to the General Corporation Law of
the State of Delaware, including Section 203, an anti-takeover law enacted in
1988. In general, Section 203 restricts the ability of a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder. As a result of the
application of Section 203 and certain provisions in our certificate of
incorporation and bylaws, potential acquirors may be discouraged from attempting
to acquire us, thereby possibly depriving our stockholders of acquisition
opportunities to sell or otherwise dispose our stock at above-market prices
typical of such acquisitions.
We have also adopted a shareholder rights plan which gives holders of
common stock the right to purchase shares of our Series A Junior Participating
Preferred Stock if a potential acquiror purchases or plans to make a tender
offer to purchase 15% or more of our outstanding common stock. The existence of
this plan may make it more difficult for a third party to acquire control of the
Company.
Our Board of Directors is divided into three classes of directors with
staggered terms. Directors are elected to three-year terms and the term of one
class of directors expires each year. The existence of a classified board is
designed to provide continuity and stability to our management and to render
certain hostile takeovers more difficult. The existence of a classified board
may therefore have the effect of making it more difficult for a third party to
acquire control of the Company in certain instances, thereby delaying, deferring
or preventing a change of control that could result in a premium for our stock.
Further, if stockholders are dissatisfied with the policies and/or decisions of
the Board of Directors, the existence of a classified board will make it more
difficult for the stockholders to change the composition and, therefore, the
policies of the Board of Directors in a relatively short period of time.
We are authorized to issue up to 1,000,000 shares of preferred stock, $.01
par value per share and to determine the price, privileges and other terms of
such shares. The issuance of any preferred stock with superior rights to the
common stock could reduce the value of the common stock. In particular, specific
rights granted to future holders of preferred stock could be used to restrict
our ability to merge with or sell our assets to a third party, thereby
preserving control of the Company by present owners and management and
preventing our holders of common stock from realizing a premium on their shares.
Future Sales of Our Stock Could Depress its Market Price
As of July 1, 2000 we had 14,397,726 shares of common stock outstanding, of
which 10,656,759 shares are freely tradeable and 1,109,833 shares of which are
owned by certain of our officers and directors and are currently eligible for
sale under Rule 144 of the Securities Act of 1933. The 1,109,833 shares of
common stock owned by certain of our officers and directors are subject to the
volume trading limitations under Rule 144.
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In addition, we have reserved an aggregate of 4,632,558 shares of common
stock for issuance to employees, officers, directors and consultants pursuant to
our 1987 Stock Option Plan, 1993 Stock Option Plan and 1994 Formula Stock Option
Plan. As of July 1, 2000, options to purchase 3,535,635 shares have been granted
under these option plans, of which 1,158,827 have been exercised, 979,992 have
been canceled and 1,396,816 are currently outstanding. All shares of common
stock underlying our option plans are registered and, upon exercise, are freely
tradable subject to volume trading limitations under Rule 144. These options
entitle the holders to purchase shares of common stock at prices per share that
are less than the current market price per share of our common stock. The
holders of these options will usually exercise them at a time when the market
price of our common stock is greater than the exercise price of the options. The
exercise of options and subsequent sale of common stock could reduce the market
price for our common stock and result in dilution to our then stockholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio and long-term debt obligations. We generally place
our investments with high credit quality issuers and by policy are averse to
principal loss and seek to protect and preserve our invested funds by limiting
default risk, market risk and reinvestment risk. As of July 1, 2000, our
investments consisted of commercial paper, municipal bonds and notes and mutual
funds.
Our interest expense is sensitive to changes in the general level of U.S.
interest rates with respect to our bank facility and our loan to acquire the
Wilmington, Massachusetts facility, of which $8 million was outstanding as of
July 1, 2000. No funds were outstanding under our credit facility at July 1,
2000. We believe the potential effects of near-term changes in interest rates on
our debt is not material.
Other Risk
After July 1, 2000, we invested $1,500,000 in a start-up company and may in
the future make additional investments in start-up companies that develop
products which we believe may provide future benefits. The current start-up
investment and any future start-up investments will be subject to all of the
risks inherent in investing in companies that are not established.
Item 8. Financial Statements
The following financial statements are filed as part of this report:
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of July 1, 2000 and June 26, 1999 F-2
Consolidated Statements of Operations for the Years Ended
July 1, 2000, June 26, 1999, and June 27, 1998 F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
July 1, 2000, June 26, 1999, and June 27, 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended
July 1, 2000, June 26, 1999, and June 27, 1998 F-5
Notes to Consolidated Financial Statements F-7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Items 10 to 13 are incorporated by reference to our definitive Proxy
Statement filed with the Securities and Exchange Commission in October 1998.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The list of financial statements required by this item is set forth in
Item 8 "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference.
(2) Financial Statement Schedule:
The following financial statement schedule of Applied Science and
Technology, Inc. and Subsidiaries for the years ended July 1, 2000,
June 26, 1999 and June 27, 1998 is filed as part of this Form 10-K and
should read in conjunction with our Consolidated Financial Statements
included in Item 8 of this Report on Form 10-K.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------- ----------------- --------------- -------------- --------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Year Expenses Accounts* Deductions End of Year
------------
-------------- ----------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended June 27, 1998:
Allowance for doubtful accounts (326,342) (86,287) (80,841) 116,031 (377,439)
Year ended June 26, 1999:
Allowance for doubtful accounts (377,439) (402,979) (98,625) 143,972 (735,071)
Year ended July 1, 2000:
Allowance for doubtful accounts (735,071) (747,893) 0 726,178 (756,786)
</TABLE>
*Amounts charged to other accounts were acquired in acquisitions.
Schedules not listed above are omitted because they are inapplicable,
not required, or the information is included elsewhere in the
Consolidated Financial Statements or Notes thereto.
(3) Exhibits
(i) The following exhibits are filed herewith or incorporated by
reference as indicated below:
Exhibit
No. Title
----- -----
3a Certificate of Incorporation, as amended, dated July 1, 1992. (11)
3b Certificate of Amendment of Certificate of Incorporation, dated September
1, 1993. (11)
3c Bylaws, as amended. (11)
4a Specimen Common Stock Certificate. (11)
4b Form of Certificate of Designation for the Series A Junior Participating
Preferred Stock. (6)
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10a Lease for premises at 90 Industrial Way, Wilmington, Massachusetts, dated
May 21, 1999. (2)
10b+ Master Purchase Order and Sales Agreement between the Company and Applied
Materials, Inc., dated May 27, 1999. (3)
10c* 1993 Stock Option Plan, as amended. (7)
10d** Form of Amended Key Employee Agreement for Dr. Richard S. Post, dated as
of July 1, 1996. (7)
10e** Form of Amended Key Employee Agreement for John M. Tarrh, dated as of
July 1, 1996. (7)
10f** Form of Key Employee Agreement for Jill Maunder, dated February 2, 1998.
(5)
10g** Form of Key Employee Agreement for Stanley Burg, dated December 11, 1998.
(4)
10h** Form of Key Employee Agreement for Jack J. Schuss, dated February 1,
2000.
10i** Form of Key Employee Agreement for John Edward Ross, dated August 8,
2000.
10j $8,000,000 Unsecured Committed Revolver Loan Agreement between the Company
and State Street Bank and Trust Company. (8)
10k $8,000,000 Unsecured Committed Revolver Promissory Note from the Company
to State Street Bank and Trust Company. (8)
101 First Amendment to Unsecured Committed Revolver Loan Agreement between the
Company and Citizens Bank of Massachusetts (as successor in interest to
State Street Bank and Trust Company), dated March 6, 2000. (1)
10m Loan Agreement between ASTeX Realty Corp. and Citizens Bank of
Massachusetts, dated March 6, 2000 (the "Loan Agreement"). (1)
10n Exhibit A to the Loan Agreement. (1)
11 Statement Re: Computation of Per Share Earnings.
21 Revised List of Subsidiaries.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
________________________________
(1) Previously filed as part of our Quarterly Report on Form 10-Q for the
quarter ended March 25, 2000, filed with the Commission on May 9, 2000, and
incorporated by reference herein.
(2) Previously filed as part of our Form S-3 Registration Statement (Number
333-30506) filed with the Commission on February 16, 2000 and incorporated
by reference herein.
(3) Previously filed as part of our Annual Report on Form 10-K for the year
ended June 26, 1999, filed with the Commission on September 24, 1999, an
incorporated by reference herein.
(4) Previously filed as part of our Form S-3 Registration Statement (Number
333-71467) filed with the Commission on January 29, 1999 and incorporated
by reference herein.
(5) Previously filed as part of our Annual Report on Form 10-K for the year
ended June 27, 1998, filed with the Commission on September 26, 1998, and
incorporated by reference herein.
(6) Previously filed as an exhibit to our Current Report on Form 8-K filed with
the Commission on March 5, 1998 in connection with our adoption of a
Shareholder Rights Plan, and incorporated by reference herein.
(7) Previously filed as part of our Annual Report on Form 10-K for the year
ended June 29, 1997, filed with the Commission on September 26, 1997, and
incorporated by reference herein.
(8) Previously filed as an exhibit to out Current Report on Form 8-K filed with
the Commission on May 23, 1997 in connection with our acquisition of
substantially all the assets of Converter Power, Inc., and incorporated by
reference herein.
(9) Previously filed as an exhibit to our Current Report on Form 8-K filed with
the Commission on December 29, 1995, in connection with the acquisition of
Ehrhorn Technological Operations, Inc., and incorporated by reference
herein.
(10) Previously filed as part of our Annual Report on Form 10-K for the year
ended July 1, 1995, filed with the Commission on September 28, 1995, and
incorporated by reference herein.
(11) Previously filed as part of our Form SB-2 Registration Statement (Number
33-69098-B) declared effective by the Commission on November 9, 1993, and
incorporated by reference herein.
+ Certain information withheld and filed separately with the Commission
pursuant to a request for confidential treatment.
** These exhibits relate to executive compensation plans and arrangements
required to be filed as an exhibit to this form pursuant to Item 14(c) of
Form 10-K.
29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
APPLIED SCIENCE AND TECHNOLOGY, INC.
Date: September 27, 2000 By: /s/ Richard S. Post
-----------------------------------
Richard S. Post
Chairman & CEO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name Capacity Date
---- -------- ----
/s/ Richard S. Post Chairman of the Board, Chief September 27, 2000
-------------------
Richard S. Post Executive Officer
(principal executive officer)
/s/ William S. Hurley Chief Financial Officer, Senior September 27, 2000
---------------------
William S. Hurley Vice President of Finance
(principal financial and accounting
officer)
/s/ John M. Tarrh Vice President, Secretary, September 27, 2000
-----------------
John M. Tarrh Treasurer and Director
/s/ Robert R. Anderson Director September 27, 2000
----------------------
Robert R. Anderson
/s/ Michel de Beaumont Director September 27, 2000
----------------------
Michel de Beaumont
/s/ John R. Bertucci Director September 27, 2000
--------------------
John R. Bertucci
/s/ Hans-Jochen Kahl Director September 27, 2000
--------------------
Hans-Jochen Kahl
30
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Applied Science and Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Applied Science
and Technology, Inc. and subsidiaries as of July 1, 2000 and June 26, 1999, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended July 1, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Applied Science and
Technology, Inc. and subsidiaries as of July 1, 2000 and June 26, 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended July 1, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Boston, Massachusetts
July 31, 2000
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
July 1, June 26,
Assets 2000 1999
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 78,407 31,775
Investments, short term 12,803 --
Trade and notes receivables, net (notes 2, 3 and 10) 32,963 18,093
Other receivables (note 12) 240 906
Inventories (note 4) 19,947 12,419
Prepaid expenses and other assets 563 386
Deferred income taxes (note 8) 2,409 1,514
--------- ---------
Total current assets 147,332 65,093
--------- ---------
Property and equipment:
Land 2,259 473
Building 10,889 1,652
Equipment 13,615 11,173
Construction in progress 5,956 8
Furniture and fixtures 1,235 1,043
Leasehold improvements 1,633 2,193
--------- ---------
35,587 16,542
Less accumulated depreciation and amortization 8,744 8,394
--------- ---------
Net property and equipment 26,843 8,148
--------- ---------
Other assets:
Long term investments 4,000 --
Goodwill, net of accumulated amortization of $1,872 and $942 in
2000 and 1999, respectively (note 12) 7,852 3,967
Deferred income taxes (note 8) 732 1,936
Notes receivable, less current maturities (note 3) 177 394
Patents and other assets, net 1,640 997
--------- ---------
Total other assets 14,401 7,294
--------- ---------
$ 188,576 80,535
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,802 5,496
Accrued expenses 5,985 3,471
Accrued compensation expense and related costs 4,101 2,624
Accrued income taxes 1,911 607
Commissions payable and customer advances 995 616
Current portion of mortgage note payable (note 5) 1,429 --
--------- ---------
Total current liabilities 21,223 12,814
--------- ---------
Mortgage note payable, net of current portion (note 5) 8,210 --
--------- ---------
Total liabilities 29,433 12,814
--------- ---------
Commitments and contingencies (notes 6 and 11)
Stockholders' equity (notes 7 and 13):
Common stock 144 114
Additional paid-in capital 147,554 70,045
Retained earnings (accumulated deficit) 11,902 (2,124)
Accumulated other comprehensive loss (457) (166)
Less: Notes receivable for common stock purchases -- (148)
--------- ---------
Total stockholders' equity 159,143 67,721
--------- ---------
$ 188,576 80,535
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Years ended
-----------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Product sales, net $ 129,434 72,097 77,958
Research contract revenue 155 856 786
Other revenue 10,308 5,256 4,692
------------ ----------- -----------
Total revenue (note 10) 139,897 78,209 83,436
------------ ----------- -----------
Cost of sales and revenue:
Product sales and other revenues 84,731 55,246 54,564
Research contracts 145 309 423
------------ ----------- -----------
Total cost of sales and revenue 84,876 55,555 54,987
------------ ----------- -----------
Gross profit 55,021 22,654 28,449
------------ ----------- -----------
Operating expenses:
Selling expenses 9,220 5,168 4,427
General and administrative expenses 12,133 8,055 6,648
Research and development expenses, net 14,312 9,745 11,253
Acquisition-related expenses (note 12) -- -- 212
Restructuring charges (note 16) -- 2,260 --
------------ ----------- -----------
Total operating expenses 35,665 25,228 22,540
------------ ----------- -----------
Earnings (loss) from operations 19,356 (2,574) 5,909
---------- --------- ---------
Other income (expense):
Interest expense -- (32) (196)
Interest income 2,839 649 514
Other income (expense) (34) 56 260
------------ ----------- -----------
Total other income 2,805 673 578
------------ ----------- -----------
Earnings (loss) before income taxes 22,161 (1,901) 6,487
Income tax expense (benefit) (note 8) 8,135 (650) 2,466
------------ ----------- -----------
Net earnings (loss) $ 14,026 (1,251) 4,021
============ =========== ===========
Basic earnings (loss) per share $ 1.14 (0.13) 0.50
============ =========== ===========
Diluted earnings (loss) per share $ 1.09 (0.13) 0.47
============ =========== ===========
Weighted average common shares outstanding used to
calculate basic earnings (loss) per share 12,284,244 9,398,289 8,052,926
============ =========== ===========
Weighted average common shares outstanding used to
calculate fully diluted earnings (loss) per share 12,874,585 9,398,289 8,528,947
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
Retained
Additional earnings
Preferred stock Common stock paid-in (accumulated
--------------- -------------------
Shares Amount Shares Amount capital deficit)
------ ------ ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 28, 1997 -- $ -- 6,778,509 $ 68 $ 27,837 (4,268)
Exercise of stock options and warrants (note 7) -- -- 1,827,954 18 16,080 --
Tax benefit of stock options exercised (note 13) -- -- -- -- 276 --
Comprehensive income (loss):
Cumulative translation adjustment -- -- -- -- -- --
Net earnings -- -- -- -- -- 4,021
Total comprehensive income -- -- -- -- -- --
------ ------ ---------- ------ ---------- ------------
Balance at June 27, 1998 -- -- 8,606,463 86 44,193 (247)
Common stock issued, net of issuance costs (note 7) -- -- 2,300,000 23 23,783 --
Exercise of stock options (note 7) -- -- 222,035 2 987 --
Retirement of common stock (note 13) -- -- (21,940) -- (195) --
Tax benefit of stock options exercised (note 13) -- -- -- -- 443 --
Stock issued in pooling of interest acquisition -- -- 310,604 3 834 (626)
(note 12)
Comprehensive income (loss):
Cumulative translation adjustment -- -- -- -- -- --
Net loss -- -- -- -- -- (1,251)
Total comprehensive loss -- -- -- -- -- --
------ ------ ---------- ------ ---------- ------------
Balance at June 26, 1999 -- -- 11,417,162 114 70,045 (2,124)
Common stock issued, net of issuance costs (note 7) -- -- 2,500,000 25 73,182 --
Exercise of stock options (note 7) -- -- 480,564 5 3,132 --
Tax benefit of stock options exercised (note 13) -- -- -- -- 1,195 --
Payments received for notes receivable for common -- -- -- -- -- --
stock
Comprehensive income (loss):
Cumulative translation adjustment -- -- -- -- -- --
Net earnings -- -- -- -- -- 14,026
Total comprehensive income -- -- -- -- -- --
------ ------ ---------- ------ ---------- ------------
Balance at July 1, 2000 -- $ -- 14,397,726 144 $ 147,554 11,902
====== ====== ========== ====== ========== ============
<CAPTION>
Notes
Accumulated receivable
other for common Total
comprehensive stock stockholders'
loss purchases equity
------------- ----------- ------------
<S> <C> <C> <C>
Balance at June 28, 1997 $ -- $ (148) 23,489
Exercise of stock options and warrants (note 7) -- -- 16,098
Tax benefit of stock options exercised (note 13) -- -- 276
Comprehensive income (loss):
Cumulative translation adjustment (83) -- (83)
Net earnings -- -- 4,021
------------
Total comprehensive income -- -- 3,938
------------- ----------- ------------
Balance at June 27, 1998 (83) (148) 43,801
Common stock issued, net of issuance costs (note 7] -- -- 23,806
Exercise of stock options (note 7) -- -- 989
Retirement of common stock (note 13) -- -- (195)
Tax benefit of stock options exercised (note 13) -- -- 443
Stock issued in pooling of interest acquisition -- -- 211
(note 12)
Comprehensive income (loss):
Cumulative translation adjustment (83) -- (83)
Net loss -- -- (1,251)
------------
Total comprehensive loss -- -- (1,334)
------------- ----------- ------------
Balance at June 26, 1999 (166) (148) 67,721
Common stock issued, net of issuance costs (note 7] -- -- 73,207
Exercise of stock options (note 7) -- -- 3,137
Tax benefit of stock options exercised (note 13) -- -- 1,195
Payments received for notes receivable
for common stock -- 148 148
Comprehensive income (loss):
Cumulative translation adjustment (291) -- (291)
Net earnings -- -- 14,026
------------
Total comprehensive income -- -- 13,735
------------- ----------- ------------
Balance at July 1, 2000 $ (457) $ -- 159,143
============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended
--------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 14,026 (1,251) 4,021
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation 3,239 2,658 2,194
Amortization 1,112 623 548
Acquisition-related expenses -- -- 212
Deferred income taxes 309 (994) 37
Loss (gain) on disposal of assets 241 832 (192)
Changes in operating assets and liabilities:
Trade receivables (14,870) (4,328) 44
Other receivables 336 (806) --
Inventories (6,530) 11,636 (2,754)
Prepaid expenses and other assets (177) 237 (272)
Notes receivable 217 (23) 232
Accounts payable 1,306 1,948 (1,897)
Accrued expenses 4,266 1,570 410
Accrued income taxes 2,499 1,201 (77)
--------------- --------------- --------------
Net cash provided by operating activities 5,974 3,303 2,506
--------------- --------------- --------------
Cash flows from investing activities:
Acquisitions of subsidiaries, less cash acquired (6,382) (23) (3,683)
Advances to subsidiaries prior to acquisitions -- (1,050) --
Net purchases of investments (16,803) -- --
Proceeds from sales of investments -- -- 1,800
Additions to property, plant and equipment (21,172) (1,839) (2,999)
Other assets and patent costs (825) (4) (25)
--------------- --------------- --------------
Net cash used for investing activities (45,182) (2,916) (4,907)
--------------- --------------- --------------
Cash flows from financing activities:
Net proceeds from notes payable 9,639 -- --
Repayments of notes payable -- (686) (9,173)
Repayment of notes receivable for common stock
purchases 148 -- --
Net proceeds from issuance of common stock 76,344 24,469 16,098
--------------- --------------- --------------
Net cash provided by financing activities 86,131 23,783 6,925
--------------- --------------- --------------
</TABLE>
5 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Years ended
--------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Effect of exchange rates on cash $ (291) (82) (83)
--------------- --------------- ---------------
Net increase in cash and cash equivalents 46,632 24,088 4,441
Cash and cash equivalents at beginning of year 31,775 7,687 3,246
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 78,407 31,775 7,687
=============== =============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ -- 32 249
=============== =============== ===============
Income taxes $ 4,663 277 2,521
=============== =============== ===============
Acquisitions:
Assets acquired $ 2,023 2,578 4,701
Acquisition related expenses, net of tax benefit -- -- 212
Goodwill and other intangible assets 4,463 393 2,177
Liabilities assumed (104) (2,824) (3,407)
--------------- --------------- ---------------
Cash paid 6,382 147 3,683
Less cash acquired -- (124) --
--------------- --------------- ---------------
Net cash paid for acquisitions $ 6,382 23 3,683
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(1) Nature of Business and Summary of Significant Accounting Policies
(a) Nature of Business
Applied Science and Technology, Inc. ("ASTeX" or the "Company")
develops and manufactures modules and systems using reactive gas and
power source technologies for semiconductor, medical and industrial
production applications.
(b) Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: Applied Science and
Technology GmbH, ASTeX/Gerling Laboratories, Inc., ETO, Inc. ("ETO"),
ASTeX CPI, Inc. ("CPI"), Newton Engineering Service, Inc. ("NES"),
ASTeX GmbH, ASTeX Securities Corp., ASTeX Realty Corp., ASTeX
PlasmaQuest, Inc. and Shamrock Technology Corp. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The years ended July 1, 2000 and June 26, 1999 consist of fifty-three
and fifty-two weeks, respectively.
(c) Revenue Recognition
The Company recognizes revenue on product sales and other sales when
the related products are shipped or the related services are rendered.
The Company periodically enters into research contracts which
generally provide for nonrefundable payments. Research contract
revenue is recognized based on the proportion of costs incurred to
total estimated costs using the percentage of completion method. At
the time a loss on a contract becomes known, the entire amount of the
estimated loss is recognized.
(d) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
(e) Investments
Short-term and long-term investments consist of U.S. Treasury notes
and government-backed debt at July 1, 2000 and June 26, 1999. The
Company uses an investment firm to manage its investment portfolio.
The Company classifies its securities as held-to-maturity. Held-to-
maturity securities are those investments in which the Company has the
ability and intent to hold the security until maturity. Held-to-
maturity securities are recorded at amortized cost, which approximates
market value.
Dividend and interest income is recognized in the period earned.
Realized gains and losses for held-to-maturity securities are included
in earnings and are derived using the specific identification method
for determining the cost of securities sold.
7 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(f) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(g) Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets.
Estimated useful lives are as follows:
Building 25 to 31-1/2 years
Equipment, furniture and fixtures 3-1/2 to 7 years
Leasehold improvements Remaining lease term
(h) Patents
Patent costs are amortized over their estimated useful life of five
years.
(i) Goodwill
Goodwill is amortized over 10 years. The Company continually evaluates
whether events or circumstances have occurred that indicate that the
remaining useful life of goodwill may warrant revision or that the
remaining balance may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company
estimates the undiscounted cash flow of the business segment, net of
tax, over the remaining life of the asset in determining whether the
asset is recoverable. Charges for impairment of goodwill would be
recorded to the extent unamortized book value exceeds the related
future discounted cash flow, net of tax. The discount factor would be
the long-term debt rate currently obtainable by the Company.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to undiscounted
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
8 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(k) Research and Development Costs
All research and development costs are expensed as incurred. Research
and development expenses attributable to research contracts are
included in costs of sales and revenue.
The Company also receives funding for certain research and development
costs which is used to offset its research and development expenses.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(m) Use of Estimates
Management of the Company has made certain estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(n) Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction
between willing parties.
The carrying amounts of cash and cash equivalents, trade receivables,
other receivables, prepaid expenses and other assets, accounts
payable, and accrued expenses approximate fair value because of the
short maturity of those instruments.
The carrying amounts of notes receivable approximate fair value as the
rates of interest on these instruments approximate current market
rates of interest for similar instruments with comparable maturities.
The carrying value of the Company's debt approximates its fair value
because of the short maturities and/or interest rates which are
comparable to those available to the Company on similar terms.
9 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(o) Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation, which established a
fair-value based method of accounting for stock-based compensation
plans. As permitted by SFAS No. 123, the Company has elected to
continue to account for employee stock-based compensation under APB
Opinion No. 25, Accounting for Stock Issued to Employees, which
requires the use of an intrinsic-value method of accounting for stock-
based compensation. SFAS No. 123 allows the continued use of the
intrinsic-value method of accounting prescribed by APB Opinion No. 25
as long as pro forma disclosures of net earnings and net earnings per
share are presented, as if the fair-value method of accounting for
stock-based compensation is applied.
(p) Foreign Currency Translation
All assets and liabilities of the Company's foreign operations are
translated into U.S. dollars using year-end exchange rates. All
revenue and expense items are translated using weighted-average
exchange rates for the year. Translation gains and losses are included
in other comprehensive income in the consolidated statement of
stockholders' equity.
(q) Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in
equity during a period, except those resulting from investments by
owners and distributions to owners. The accumulated total of other
comprehensive income is shown as a separate component of stockholders'
equity. Accumulated other comprehensive income consists solely of
foreign currency translation gains and losses.
(2) Trade and Notes Receivable
Trade and notes receivable consist of the following:
<TABLE>
<CAPTION>
July 1, June 26,
2000 1999
------------ ------------
<S> <C> <C>
Trade receivables $ 33,280 18,466
Notes receivable, current portion (see note 3) 440 362
Allowance for doubtful accounts (757) (735)
------------ ------------
$ 32,963 18,093
============ ============
</TABLE>
10 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(3) Notes Receivable
Notes receivable consist of the following:
<TABLE>
<CAPTION>
July 1, June 26,
2000 1999
------------- --------------
<S> <C> <C>
Note receivable from stockholder with interest at 8%
per annum, payable in principal installments through
June 1999, with the remaining balance due in August
1999. The note is secured by certificates of deposit. $ -- 224
Note receivable with interest at 8% per annum, payable in
monthly installments of $2, including interest, with
any remaining balance due on December 2, 2002. The
note is secured by real estate. -- 190
Note receivable with interest at 8.5% per annum, payable
in quarterly principal installments of $10, plus
accrued interest, with final principal payment of
$100 on June 30, 2003. This note is secured by
equipment. 217 250
Unsecured note receivable with interest at 10% per annum, due
on or after July 8, 2000. 400 --
Unsecured note receivable due on October 1, 1999. -- 90
Unsecured note receivable with interest at 10.5% per
annum, payable in monthly installments of $44,
including interest, with any remaining balance due on
August 2003. -- 2
------------- --------------
617 756
Less current maturities 440 362
------------- --------------
Notes receivable, less current maturities $ 177 394
============= ==============
</TABLE>
Current maturities of notes receivable have been included in trade
receivables.
11 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(4) Inventories
July 1, June 26,
2000 1999
--------- --------
Inventories consist of the following: 11,705 7,906
Work in process 2,089 1,055
Finished goods --------- --------
$ 19,947 12,419
========= ========
(5) Mortgage Note Payable
On March 6, 2000, the Company entered into a mortgage note payable with a
bank to borrow $10,000 to finance the purchase of land and a building.
Principal and interest is being paid in monthly installments of $119, with
the final payments due in March 2007. The interest rate is determined by
the bank's base rate plus 1.375% (9.5% at July 1, 2000).
Aggregate annual principal payments on all long-term debt for the next five
fiscal years and thereafter at July 1, 2000 are as follows:
2001 $ 1,429
2002 1,429
2003 1,429
2004 1,429
2005 1,429
Thereafter 2,494
---------
$ 9,639
=========
12 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(6) Leases
The Company leases equipment and office, research and manufacturing
facilities under operating leases which expire through January 2009. Future
minimum lease payments under operating leases are as follows:
Fiscal year ending June
-----------------------
2001 $ 869
2002 535
2003 101
2004 76
2005 76
Thereafter 274
----------
$ 1,931
==========
Rent expense totaled $1,586, $1,339 and $916 for the years ended July 1,
2000, June 26, 1999 and June 27, 1998, respectively.
(7) Stockholders' Equity
Capital stock consists of the following at July 1, 2000 and June 26, 1999:
<TABLE>
<CAPTION>
Number of shares
issued and outstanding
---------------------------
July 1, June 26,
Authorized 2000 1999
------------- ------------ -----------
<S> <C> <C> <C>
Preferred stock, $.01 par value 1,000,000 -- --
------------- ------------ -----------
Total preferred stock 1,000,000 -- --
------------- ------------ -----------
Common stock, $.01 par value 30,000,000 14,397,726 11,417,162
------------- ------------ -----------
Total common stock 30,000,000 14,397,726 11,417,162
------------- ------------ -----------
Total capital stock 31,000,000 14,397,726 11,417,162
============= ============ ===========
</TABLE>
13 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
The holders of common stock are entitled to one vote for each share of record
held on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of
any series of preferred stock which may from time to time be outstanding,
holders of common stock are entitled to receive ratably such dividends as may
be declared by the board of directors out of funds legally available
therefrom, and, upon the liquidation, dissolution or winding up of the
Company, are entitled to share ratably in all assets remaining after payment
of liabilities and payment of accrued dividends and liquidation preference on
the preferred stock, if any. Holders of common stock have no preemptive
rights and have no rights to convert their common stock into any other
securities. The outstanding common stock is validly issued and
nonassessable.
On March 30, 2000, the Company completed the registration and sale of
2,500,000 shares of common stock at $31 per share. The net proceeds from the
offering were approximately $73.2 million. On March 5, 1999, the Company
completed the registration and sale of 2,000,000 shares of common stock at
$11 per share. On April 6, 1999, the underwriters exercised their over-
allotment option to purchase an additional 300,000 shares of common stock,
bringing total shares issued in this offering to 2.3 million. The net
proceeds from the offering were approximately $23.8 million.
On February 19, 1998, the Company declared a dividend of one preferred share
purchase right (a "right") for each outstanding share of common stock
outstanding on March 2, 1998 (the "record date") to stockholders of record on
that date. Each right entitles the registered holder to purchase one one-
thousandth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share ("junior preferred shares"), of the Company at $70 per
one one-thousandth of a junior preferred share, subject to adjustment in the
event of a stock split of the common shares or a stock dividend on the common
shares payable in common shares or subdivisions, consolidations or
combinations of the common shares occurring prior to the distribution date,
defined below.
Until the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons has acquired a beneficial
ownership of 15% or more of the outstanding common shares or (ii) 10 business
days following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer, the consummation of which would result in
the beneficial ownership by a person or group of 15% or more of such
outstanding common shares (the earlier of such dates being the "distribution
date"), the rights will be evidenced, with respect to any of the common share
certificates outstanding as of the record date.
Until the distribution date, the rights will be transferred with and only
with the common shares. Until the distribution date (or earlier redemption
or expiration of the rights), new common share certificates issued after the
record date will contain a notation incorporating the rights agreement by
reference.
Preferred shares purchased upon exercise of the rights are not redeemable and
are entitled to quarterly dividend payments of 1,000 times dividends declared
on common shares, 1,000 votes, voting together with common shares, and 1,000
times the aggregate payment made to common shareholders in the event of
liquidation.
14 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
The rights are not exercisable until the distribution date and expire on
December 31, 2007, unless extended or redeemed by the Company.
The preferred stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the board of directors, without
further action by stockholders, and may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion, redemption rights and sinking fund provisions.
The future issuance of preferred stock could reduce the rights, including
voting rights, of the holders of common stock, and, therefore, reduce the
value of the common stock. In particular, specific rights granted to future
holders of preferred stock could be used to restrict the Company's ability to
merge with or sell its assets to a third party, thereby preserving control of
the Company by existing management.
The Company adopted the 1993 Stock Option Plan in fiscal 1994 and in fiscal
1995, adopted the 1994 Formula Stock Option Plan to award stock options to
non-employee directors of the Company. The Plans are administered by the
Company's board of directors which has the authority to determine the
recipients, number of shares, and the related terms and provisions of the
options which may be granted.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock-based compensation plans. In accordance with APB
Opinion No. 25, no compensation cost has been recognized in connection with
these plans. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with SFAS No. 123, the
Company's net earnings (loss) and net earnings (loss) per share would have
been reduced to the following pro forma amounts.
<TABLE>
<CAPTION>
July 1, June 26, June 27,
2000 1999 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net earnings (loss) as reported $ 14,026 (1,251) 4,021
================= ================= =================
Pro forma net earnings (loss) $ 10,374 (3,178) 2,118
================= ================= =================
Basic earning (loss) per share as reported $ 1.14 (0.13) 0.50
================= ================= =================
Pro forma basic earnings (loss) per share $ 0.84 (0.34) 0.26
================= ================= =================
Diluted earnings (loss) per share as
reported $ 1.09 (0.13) 0.47
================= ================= =================
Pro forma diluted earnings (loss) per share $ 0.81 (0.34) 0.25
================= ================= =================
</TABLE>
15 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
The effect of applying SFAS No. 123 as shown in the above pro forma
disclosures is not representative of the pro forma effect on net earnings in
future years because it does not take into consideration stock options
granted prior to fiscal 1996.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants issued in fiscal 2000, 1999 and 1998: no
dividend yield for all years; expected volatility of 71.5%, 82% and 76% for
2000, 1999 and 1998, respectively; risk-free interest rates of 5.92% for 2000
grants, 4.72% for 1999 grants and 5.8% for 1998 grants; and expected lives of
four years for 2000, 1999 and 1998 grants.
The following is a summary of stock option activity.
<TABLE>
<CAPTION>
Employee stock options
-------------------------------------------------------------
Weighted
Option average
shares Options exercise
available outstanding price
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at June 28, 1997 387,904 963,425 $ 7.17
Options added 1,132,500 -- --
Options granted (465,579) 465,579 11.61
Options exercised -- (136,538) 6.08
Options expired 101,800 (101,800) 9.61
----------------- -----------------
Balance at June 27, 1998 1,156,625 1,190,666 8.84
Options granted (886,695) 886,695 6.59
Options exercised -- (222,035) 6.76
Options expired 460,993 (484,993) 10.20
----------------- -----------------
Balance at June 26, 1999 730,923 1,370,333 7.30
Options added 1,500,000 -- --
Options granted (648,445) 648,445 24.46
Options exercised -- (480,564) 7.77
Options expired 141,398 (141,398) 11.18
----------------- ----------------- -----------------
Balance at July 1, 2000 1,723,876 1,396,816 $ 14.68
================= ================= =================
</TABLE>
The weighted-average fair value of options granted during fiscal 2000, 1999
and 1998 was $14.21, $3.13 and $6.98, respectively.
16 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
Effective August 26, 1998, the Company repriced all of its stock options
which had been granted since June 29, 1997 to the closing market price as of
that date, which was $6.00 per share. Options which had been granted to
directors of the Company during the same period were not repriced.
The following is a summary of information relating to stock options
outstanding at July 1, 2000:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------------- -------------------------------------
Weighted
Number average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise at July 1, contractual exercise at July 1, exercise
prices 2000 life price 2000 price
----------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 3.83 - 5.08 197,464 3.4 years $ 3.98 65,853 $ 4.12
6.00 - 9.00 397,879 2.5 years 6.58 209,704 6.50
9.75 - 14.44 187,115 5.5 years 11.02 158,405 10.69
15.00 - 22.50 387,178 4.7 years 21.35 70,723 21.19
23.19 - 34.63 225,680 5.8 years 29.52 53,671 29.13
37.06 1,500 4.7 years 37.06 300 37.06
---------------- ---------------- ---------------- ----------------
1,396,816 4.2 years $ 14.68 558,656 $ 11.46
================ ================ ================ ================
</TABLE>
(8) Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended
-----------------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
----------------- ----------------- ------------------
<S> <C> <C> <C>
Current:
Federal $ 6,548 245 2,141
State 1,278 99 288
----------------- ----------------- -----------------
Total current 7,826 344 2,429
----------------- ----------------- -----------------
Deferred:
Federal 337 (779) (267)
State (28) (215) 304
----------------- ----------------- -----------------
Total deferred 309 (994) 37
----------------- ----------------- -----------------
$ 8,135 (650) 2,466
================= ================= =================
</TABLE>
17 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
The actual tax expense differs from the "expected" tax expense (benefit)
(computed by applying the U.S. federal corporate income tax rate of 34% to
earnings (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
Years ended
------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ 7,535 (646) 2,205
Increase (reduction) in income taxes resulting
from:
State taxes, net of federal expense (benefit) 825 (76) 391
Research and experimentation tax credit (328) 90 (87)
Valuation allowance movement -- (99) (171)
Other 103 81 128
----------- ---------- ----------
$ 8,135 (650) 2,466
=========== ========== ==========
</TABLE>
Total income tax expense (benefit) was recorded as follows:
<TABLE>
<CAPTION>
Years ended
------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Income (loss) from operations $ 8,135 (650) 2,466
Stockholders' equity, for compensation
expense for tax purposes in excess of
amounts recognized for financial
statement purposes (1,195) (443) (276)
----------- ---------- ----------
$ 6,940 (1,093) 2,190
=========== ========== ==========
</TABLE>
18 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
July 1, June 26,
2000 1999
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 45 1,415
Accrued liabilities 315 939
Inventory 1,900 1,165
Accounts receivable, principally due to allowance for
doubtful accounts 335 251
Property and equipment, principally due to difference in
depreciation methods 546 --
----------------- -----------------
Total deferred tax assets 3,141 3,770
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation methods -- 320
----------------- -----------------
Net deferred tax assets $ 3,141 3,450
================= =================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon the level of historical taxable income
and projections for future taxable income over the periods during which deferred
tax assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences.
19 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(9) Earnings (Loss) Per Share
Basic earnings (loss) per share is based upon the weighted average common
shares outstanding during each year. Diluted earnings (loss) per share is
based upon the weighted average of common shares and dilutive common stock
equivalent shares outstanding during each year. The weighted average number
of shares used to compute diluted earnings (loss) per share consisted of
the following:
<TABLE>
<CAPTION>
Years ended
------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Weighted average common shares outstanding
during the year 12,284,244 9,398,289 8,052,926
Weighted average common equivalent shares
due to stock options and warrants 590,341 -- 476,021
-------------- -------------- --------------
12,874,585 9,398,289 8,528,947
============== ============== ==============
</TABLE>
For the year ended June 26, 1999, common equivalent shares of 435,345
resulting from stock options and warrants were not included in the
computation of diluted earnings per share because to do so would have been
antidilutive.
(10) Sales and Revenue
Total revenue consists of product sales, research contract revenue and
other revenue. Other revenue includes revenues from service and repair
activities and consulting.
One commercial customer accounted for 50%, 45% and 40% of total revenue for
the years ended July 1, 2000, June 26, 1999 and June 27, 1998,
respectively. At July 1, 2000 and June 26, 1999, accounts receivable from
this customer totaled $14.6 and $7.7 million, respectively. In 2000, 1999
and 1998, a second customer accounted for approximately 4%, 8% and 6% of
total revenue, respectively.
At July 1, 2000 and June 26, 1999, accounts receivable from foreign
customers totaled $9.2 million and $3.4 million, respectively.
20 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(11) Commitments
The Company may borrow up to $8 million from a bank under an unsecured
demand line of credit with interest at the bank's prime rate (9.5% at July
1, 2000). Borrowings under the line are limited to 100% of the Company's
cash balance plus 80% of domestic accounts receivable outstanding that are
less than 90 days old. The Company may fix a portion or all of the
outstanding balances under the line for periods up to the remaining term of
the line. The line may be used for standby letters of credit.
There are fees of 1.5% for any standby letters of credit and 0.25% on the
unused portion of the line. There were no outstanding borrowings at July 1,
2000 and June 26, 1999. The line of credit expires in April 2003. No
security pledges of assets can be granted nor dividends paid without the
approval of the bank that issued the unsecured line of credit.
(12) Acquisitions
On August 4, 1999, the Company acquired substantially all of the assets of
the Shamrock product line from Sputtered Films, Inc., a designer,
manufacturer and seller of high performance sputtering equipment for the
semiconductor and magnetic storage industries. Cash consideration of
approximately $6,382 was paid for the assets. The costs of the acquisition
were allocated on the basis of the estimated fair market value of the
assets acquired and resulted in an allocation of $4,463 to goodwill.
On April 5, 1999, the Company completed the acquisition of Klee Corporation
("Klee"), a manufacturer of physical vapor deposition process systems
targeted to a segment of electronics packaging known as under-bump
metallurgy or flip-chip packaging. Klee had limited operations through the
date of the acquisition. The Company acquired all of the stock of Klee in
exchange for 310,604 shares of the Company's common stock. The acquisition
was accounted for on a pooling of interests basis. The Company's
consolidated financial statements have not been restated for periods prior
to acquisition as the acquisition was considered to be an immaterial
pooling.
On November 4, 1998, the Company completed the acquisition of PlasmaQuest,
Inc., a manufacturer of systems for research and development, magnetic disk
head processing, and electronic packaging applications. The acquired
company was renamed ASTeX PlasmaQuest, Inc. ("PlasmaQuest"). The Company
acquired all of the stock of PlasmaQuest for a preliminary purchase price
of $23 net of cash acquired of $124. The costs of the acquisition were
allocated on the basis of the estimated fair market value of the assets
acquired. The terms of the related acquisition agreement provided for
amounts advanced to PlasmaQuest prior to the acquisition be repaid. During
fiscal year 2000, the amounts were not repaid in full and the purchase
price was adjusted, resulting in an additional allocation of $330 to
goodwill.
21 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
On October 1, 1997, the Company completed the acquisition of Sorbios GmbH,
renamed ASTeX GmbH, a manufacturer of ozone generators and air ionizers for
semiconductor production. The Company acquired all of the stock of Sorbios GmbH
for a total purchase price of $3.7 million. The purchase price was paid in
cash, from the Company's cash balances. Costs associated with the acquired in-
process research and development expenses were charged to expense.
Except for Klee, these acquisitions have been accounted for by the purchase
method of accounting and, accordingly, the purchase prices have been allocated
to the assets acquired and the liabilities assumed based on their fair values
at the acquisition dates. The consideration paid and the fair value of the
assets acquired and the liabilities assumed for the purchase method
acquisitions, at the acquisition dates are summarized as follows:
<TABLE>
<CAPTION>
Years ended
------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Consideration paid:
Cash $ 6,382 147 3,683
----------- ---------- ----------
Total consideration paid $ 6,382 147 3,683
=========== ========== ==========
Allocation of purchase price:
Cash $ -- 124 --
Accounts receivable -- 1,016 1,180
Inventories 646 298 970
Property and equipment and other assets 1,377 1,141 2,551
Liabilities assumed (104) (2,825) (3,407)
Acquisition related expenses, net of tax
benefits where applicable -- -- 212
Goodwill and other intangible assets 4,463 393 2,177
----------- ---------- ----------
Total purchase price $ 6,382 147 3,683
=========== ========== ==========
</TABLE>
The following unaudited pro forma results of operations give effect to the
acquisitions as if the ASTeX GmbH had occurred at the beginning of fiscal 1998,
(the effect of the PlasmaQuest and Shamrock acquisitions are considered
insignificant). Such pro forma information reflects certain adjustments
including amortization of goodwill, interest expense, interest income, income
tax effect and an increase in the number of weighted average shares
outstanding.
22 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
This pro forma information does not necessarily reflect the results of
operations that would have occurred had the acquisitions taken place as
described and is not necessarily indicative of results that may be obtained
in the future.
<TABLE>
<CAPTION>
June 27,
1998
--------------
(Unaudited)
<S> <C>
Pro forma total revenue $ 84,414
===============
Pro forma net earnings $ 4,877
===============
Pro forma basic earnings per share $ 0.61
===============
Pro forma diluted earnings per share $ 0.57
===============
Pro forma weighted average common shares outstanding
used to calculate pro forma basic earnings per share 8,052,926
===============
Pro forma weighted average common shares outstanding
used to calculate pro forma diluted earnings per share 8,528,947
===============
</TABLE>
(13) Noncash Financing and Investing Activities
During the year ended June 26, 1999, 21,940 shares of common stock were
returned to the Company in lieu of a cash reimbursement for warranty costs
incurred related to products shipped by CPI prior to their acquisition by
the Company.
In connection with the exercise of stock options, tax benefits of $1,195,
$443 and $276 were recorded as additional paid-in capital for the years
ended July 1, 2000, June 26, 1999 and June 27, 1998, respectively.
23 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(14) Retirement Plans
The Company sponsors a defined contribution 401(k) retirement plan covering
substantially all domestic employees of the Company. The Company
contributes 50% of employee voluntary contributions up to 6% of eligible
wages on a discretionary basis. Total expense under the plans amounted to
$392, $86 and $324 for the years ended July 1, 2000, June 26, 1999 and June
27, 1998, respectively.
(15) New Accounting Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which was deferred through the issuance of SFAS No. 137 and subsequently
amended by SFAS No. 138 will become effective during fiscal year 2001. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) hedge of the exposure to
changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction.
The accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation.
Under this Statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge.
These methods must be consistent with the entity's approach to managing
risk. The impact of SFAS No. 133 will be insignificant.
In December 1999, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants, issued Staff Accounting
Bulletin (SAB) 101, Revenue Recognition in Financial Statements. SAB 101,
which provides guidance on the ability to recognize revenue when it is
realized or realizable and earned. Subsequently, the Staff issued SAB 101B,
which delayed the required implementation until the fourth fiscal quarter
for years beginning after December 15, 1999. SAB 101 requires companies
currently not in compliance to retroactively apply the SAB to all periods
presented. The Company is evaluating the impact of the adoption of SAB 101
and does not anticipate that it will have a material impact on the
Company's financial condition or results of operations.
24 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(16) Restructuring Charges and Other Related Expenses
During 1999, the Company consolidated its Modesto, California, operations
into its Woburn, Massachusetts, and Colorado Springs, Colorado, sites. The
Company also consolidated its Beverly, Massachusetts, operation into
Woburn. These consolidations resulted in a restructuring charge of $1,497.
The restructuring charge consisted of severance relating to the termination
of 70 employees, abandonment of leasehold improvements and fixed assets,
and facility costs (primarily future lease payments relating to abandoned
facilities).
In connection with the aforementioned consolidations, the Company wrote
down inventory by $1,090 during 1999. The write-down was due to excess
inventory resulting from the unexpected severity of the downturn in the
semiconductor equipment industry, excess and obsolete customer-specific
inventory, and the abandonment of certain marginal product lines. The
Company also incurred $393 of other transition costs related to the
consolidations for moving assets and training personnel. The write-down of
inventory and other transition costs are reflected in the consolidated
statement of operations as cost of sales and revenues, and general and
administrative expenses, respectively.
Also during 1999, the Company announced the consolidation of its recently
acquired PlasmaQuest operations based in Dallas, Texas, into its newly
renovated facility in Wilmington, Massachusetts. This consolidation
resulted in a restructuring charge of approximately $763, primarily
consisting of severance relating to the termination of 16 employees,
abandonment of leasehold improvements and fixed assets, and facility costs
(primarily future lease payments relating to the abandoned facility).
Total 1999 costs related to restructurings, inventory writedowns and
transition costs were $3,743.
25 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
The following table summarizes the recorded accruals and uses of the above
restructuring and impairment actions:
<TABLE>
<CAPTION>
Asset Severance Exit
impairments benefits costs Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1999 First Quarter Restructuring
Total charge $ 606 $ 579 $ 312 $ 1,497
Cash payments (8) (546) (140) (694)
Non-cash items (598) -- -- (598)
Adjustments of accrual -- (33) 2 (31)
------------- ------------- ------------- -------------
Accrual balance as of
June 26, 1999 -- -- 174 174
Cash payments -- -- (172) (172)
Adjustment of accrual -- -- (2) (2)
------------- ------------- ------------- -------------
Accrual balance as of
July 1, 2000 $ -- -- -- --
============= ============= ============= =============
1999 Fourth Quarter Restructuring
Total charges 183 196 384 763
Non-cash items (183) -- -- (183)
------------- ------------- ------------- -------------
Accrual balance as of
June 26, 1999 -- 196 384 580
------------- ------------- ------------- -------------
Cash payments -- (196) (340) (536)
Adjustment of accrual -- -- (44) (44)
------------- ------------- ------------- -------------
Accrual balance as of
July 1, 2000 $ -- -- -- --
============= ============= ============= =============
</TABLE>
26 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(17) Segment and Related Information
The Company has four reportable segments, Semiconductor, Medical and
Industrial, Systems, and Corporate, that have separate financial results
that are reviewed by the Company's chief operating decision maker.
Corporate is a non-revenue producing cost center Identifiable assets and
capital expenditures data are presented geographically as they are managed
on that basis.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
<TABLE>
<CAPTION>
Medical
Semi- and
conductor Industrial Systems Corporate Total
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended July 1, 2000:
Total revenue $ 108,495 19,186 12,216 -- 139,897
Inter-segment net sales 3,052 101 3 -- 3,156
Profit (loss) from operations 30,836 855 (3,098) (9,237) 19,356
Depreciation 1,580 322 737 600 3,239
Year ended June 26, 1999:
Total revenue 51,341 22,611 4,257 -- 78,209
Inter-segment net sales 3,225 8 -- -- 3,233
Profit (loss) from operations 3,736 332 (1,306) (5,336) (2,574)
Depreciation 1,195 304 336 823 2,658
Year ended June 27, 1998:
Total revenue 52,804 27,715 2,917 -- 83,436
Inter-segment net sales 3,749 -- -- -- 3,749
Profit (loss) from operations 5,634 3,508 128 (3,361) 5,909
Depreciation 1,374 478 175 167 2,194
</TABLE>
27 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
Financial information relating to the Company's geographic area was as follows:
Total revenue
------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
---------- ------------ ------------
United States $ 112,424 62,244 64,513
Europe 9,581 11,175 12,291
Asia 14,453 4,110 5,403
Other 3,439 680 1,229
---------- ------------ ------------
$ 139,897 78,209 83,436
========== ============ ============
Long-lived assets
------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
---------- ------------ ------------
United States $ 26,324 7,849 8,245
Europe 497 299 279
Other 22 -- --
---------- ------------ ------------
$ 26,843 8,148 8,524
========== ============ ============
Identifiable assets
------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
---------- ------------ ------------
United States $ 180,800 76,534 48,533
Europe 7,486 4,001 2,760
Other 290 -- --
---------- ------------ ------------
$ 188,576 80,535 51,293
========== ============ ============
Capital expenditures
------------------------------------------------
July 1, June 26, June 27,
2000 1999 1998
---------- ------------ ------------
United States $ 20,779 1,733 2,878
Europe 370 106 121
Other 23 -- --
---------- ------------ ------------
$ 21,172 1,839 2,999
========== ============ ============
28 (Continued)
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
(18) Subsequent Event
On July 26, 2000, the Company invested $1.5 million in Opnetics
Corporation, for a 12.6% investment in the common stock of that company.
The chief executive officer of ASTeX is also an investor with a 1.68%
holding of the outstanding common stock.
29
